exv10w1



 






Exhibit 10.1



PREFERRED STOCK PURCHASE AGREEMENT


BETWEEN


HOMESTORE, INC.


AND


ELEVATION PARTNERS, L.P.


Dated as of November 6, 2005





 









 








Table of Contents




	 	 	 	 	 
	 	 	Page
	ARTICLE I

	AGREEMENT TO SELL AND PURCHASE

	 
	 	 	 	 
	SECTION 1.1. Authorization of Shares
	 	 	1	 
	SECTION 1.2. Sale and Purchase
	 	 	1	 
	 
	 	 	 	 
	ARTICLE II
	CLOSING, DELIVERY AND PAYMENT

	 
	 	 	 	 
	SECTION 2.1. Closing
	 	 	2	 
	SECTION 2.2. Certificate of Designation
	 	 	2	 
	SECTION 2.3. Delivery
	 	 	2	 
	 
	 	 	 	 
	ARTICLE III

	REPRESENTATIONS AND WARRANTIES OF THE COMPANY

	 
	 	 	 	 
	SECTION 3.1. Organization, Good Standing and Qualification
	 	 	2	 
	SECTION 3.2. Subsidiaries
	 	 	3	 
	SECTION 3.3. Capitalization; Voting Rights
	 	 	3	 
	SECTION 3.4. Authorization; Binding Obligations; No Conflicts
	 	 	5	 
	SECTION 3.5. SEC Reports; Financial Statements
	 	 	6	 
	SECTION 3.6. Undisclosed Liabilities
	 	 	7	 
	SECTION 3.7. Contracts.
	 	 	7	 
	SECTION 3.8. Affiliate Transactions
	 	 	8	 
	SECTION 3.9. No Adverse Changes
	 	 	9	 
	SECTION 3.10. Title and Sufficiency of Properties and Assets; Liens, Condition, Etc.
	 	 	9	 
	SECTION 3.11. Intellectual Property
	 	 	9	 
	SECTION 3.12. Compliance with Law; Permits
	 	 	10	 
	SECTION 3.13. Litigation
	 	 	11	 
	SECTION 3.14. Tax Matters
	 	 	11	 
	SECTION 3.15. Employee Benefit Plans; Employees
	 	 	12	 
	SECTION 3.16. Environmental and Safety Laws
	 	 	12	 
	SECTION 3.17. Offering Valid
	 	 	13	 
	SECTION 3.18. Broker; Fees
	 	 	13	 
	SECTION 3.19. Shareholder Vote
	 	 	13	 
	SECTION 3.20. Anti-Takeover Provisions Not Applicable
	 	 	13	 
	 
	 	 	 	 
	ARTICLE IV

	REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

	 
	 	 	 	 
	SECTION 4.1. Organization, Requisite Power and Authority
	 	 	14	 
	SECTION 4.2. Investment Representations
	 	 	14	 
	SECTION 4.3. Litigation
	 	 	15	 
	SECTION 4.4. Funding
	 	 	15	 
	SECTION 4.5. Broker
	 	 	15	 






 









 






	 	 	 	 	 
	 	 	Page
	ARTICLE V

	COVENANTS

	 
	 	 	 	 
	SECTION 5.1. Pre-Closing Period
	 	 	15	 
	SECTION 5.2. Access
	 	 	17	 
	SECTION 5.3. Efforts
	 	 	17	 
	SECTION 5.4. Notification of Certain Matters
	 	 	17	 
	SECTION 5.5. Confidentiality
	 	 	18	 
	SECTION 5.6. No Shop
	 	 	18	 
	SECTION 5.7. Transaction Fee
	 	 	18	 
	 
	 	 	 	 
	ARTICLE VI

	CONDITIONS TO CLOSING

	 
	 	 	 	 
	SECTION 6.1. Conditions to Purchaser’s Obligation to Purchase the Purchased Shares
	 	 	18	 
	SECTION 6.2. Conditions to Obligations of the Company
	 	 	19	 
	 
	 	 	 	 
	ARTICLE VII

	SURVIVAL; INDEMNIFICATION

	 
	 	 	 	 
	SECTION 7.1. Survival of Representations, Warranties and Pre-Closing Covenants
	 	 	20	 
	SECTION 7.2. Indemnification
	 	 	21	 
	SECTION 7.3. Indemnification Amounts
	 	 	22	 
	SECTION 7.4. Exclusive Remedy; No Special Damages
	 	 	22	 
	SECTION 7.5. Indemnification Procedures
	 	 	23	 
	SECTION 7.6. Certain Limitations
	 	 	24	 
	 
	 	 	 	 
	ARTICLE VIII

	MISCELLANEOUS

	 
	 	 	 	 
	SECTION 8.1. Other Definitions
	 	 	24	 
	SECTION 8.2. Termination
	 	 	26	 
	SECTION 8.3. Expenses
	 	 	26	 
	SECTION 8.4. Successors and Assigns; Assignment
	 	 	26	 
	SECTION 8.5. No Third Party Beneficiaries
	 	 	26	 
	SECTION 8.6. Entire Agreement
	 	 	27	 
	SECTION 8.7. Severability
	 	 	27	 
	SECTION 8.8. Amendment and Waiver
	 	 	27	 
	SECTION 8.9. Delays or Omissions
	 	 	27	 
	SECTION 8.10. Notices
	 	 	27	 
	SECTION 8.11. Interpretation
	 	 	28	 
	SECTION 8.12. Governing Law; Jurisdiction; Waiver of Jury Trial
	 	 	29	 
	SECTION 8.13. No Special Damages
	 	 	29	 
	SECTION 8.14. Counterparts
	 	 	29	 






ii









 






Index of Exhibits




	 
	Exhibit A
                    Form of Certificate of Designation

	Exhibit B                     Form of Stockholders Agreement

	Exhibit C                     Company Legal Opinions







iii









 






Table of Defined Terms




	 	 	 
	Term	 	Reference in Agreement
	10-Q

	 	Section 3.6
	Acquisition

	 	Section 5.1(b)(v)
	Action

	 	Section 3.11
	Affiliate

	 	Section 8.1(a)
	Aggregate Purchase Price

	 	Section 1.2
	Agreement

	 	Preamble
	Allocation Notice

	 	Section 2.1(b)
	Approved Transaction

	 	Section 8.1(b)
	Balance Sheet

	 	Section 3.6
	Basket

	 	Section 7.3(a)
	Board

	 	Section 3.5(d)
	Bylaws

	 	Section 3.12(a)
	Certificate of Designation

	 	Recitals
	Closing

	 	Section 2.1(a)
	Closing Date

	 	Section 2.1(a)
	Common Stock

	 	Section 3.3(a)(i)
	Company

	 	Preamble
	Company Indemnitees

	 	Section 7.2(b)
	Company Indemnitor

	 	Section 7.2(b)
	Company IP

	 	Section 3.11
	Company Plan

	 	Section 3.15(b)
	Confidentiality Agreement

	 	Section 5.5
	Contracts

	 	Section 3.7(a)
	control

	 	Section 8.1(c)
	Conversion Shares

	 	Section 1.1
	Damages

	 	Section 7.2(a)
	Dispute

	 	Section 8.12(a)
	Divestiture

	 	Section 5.1(b)(v)
	EBITDA

	 	Section 8.1(d)
	Elevation

	 	Preamble
	Encumbrance

	 	Section 3.2(a)
	Environmental Laws

	 	Section 3.16(c)
	ERISA

	 	Section 3.15(a)
	Exchange Act

	 	Section 3.5(a)
	GAAP

	 	Section 8.1(d)
	Indebtedness

	 	Section 8.1(e)
	Indefinitely Surviving Representations

	 	Section 7.1(a)
	Indemnification Claim Notice

	 	Section 7.5(a)
	Indemnitees

	 	Section 7.2(b)
	Indemnitors

	 	Section 7.2(b)
	Infringe

	 	Section 3.11
	Intellectual Property

	 	Section 3.11






 









 






	 	 	 
	knowledge of the Company

	 	Section 8.1(f)
	Law

	 	Section 3.12(a)
	Material Adverse Effect

	 	Section 3.9
	Material Contracts

	 	Section 3.7(a)
	Materials of Environmental Concern

	 	Section 3.16(c)
	Merrill Lynch

	 	Section 4.2
	Order

	 	Section 3.12(a)
	Permits

	 	Section 3.4(c)
	Person

	 	Section 8.1(g)
	Pre-Closing Period

	 	Section 5.1(a)
	Preferred Dividend Shares

	 	Section 1.1
	Preferred Stock

	 	Section 3.3(a)(ii)
	Pro Forma Debt and Preferred Stock Ratio

	 	Section 8.1(h)
	Purchased Shares

	 	Section 1.1
	Purchaser Indemnitees

	 	Section 7.2(a)
	Purchaser Indemnitor

	 	Section 7.2(a)
	Purchasers

	 	Preamble
	Recently Filed SEC Reports

	 	Section 3.7(a)
	Restated Certificate

	 	Section 3.12(a)
	Schedule

	 	Article III
	SEC

	 	Section 3.5(a)
	SEC Reports

	 	Section 3.5(a)
	Securities Act

	 	Section 3.5(a)
	Series A Preferred Stock

	 	Section 3.3(a)(ii)
	Series B Preferred Stock

	 	Recitals
	Significant Subsidiary

	 	Section 3.2(a)
	Software

	 	Section 3.11
	Stock Option Plans

	 	Section 3.3(c)
	Stockholders Agreement

	 	Section 3.1
	Subject Shares

	 	Section 1.1
	Subsidiary

	 	Section 3.2(a)
	Tax Return

	 	Section 3.14(e)
	Taxes

	 	Section 3.14(e)
	Third Party Claim

	 	Section 7.5(a)
	Transaction Fee

	 	Section 5.7







ii









 






PREFERRED STOCK PURCHASE AGREEMENT




          THIS PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”), dated as of November 6,
2005, by and among Homestore, Inc., a Delaware corporation (the “Company”), Elevation
Partners, L.P., a Delaware partnership (“Elevation”), and such Affiliates (as defined
below) as Elevation shall designate in accordance with Section 8.4 hereof (together with Elevation,
the “Purchasers”).




RECITALS




          WHEREAS, the Company has authorized the sale and issuance of shares of a series of its
preferred stock to be designated as Series B Convertible Participating Preferred Stock (the
“Series B Preferred Stock”), the terms of which are set forth in the form of Certificate of
Designation attached hereto as Exhibit A (the “Certificate of Designation”), at a purchase
price of $1,000 per share;




          WHEREAS, the Purchasers desire to purchase the Purchased Shares (as defined below) on the
terms and conditions set forth herein; and




          WHEREAS, the Company desires to issue and sell the Purchased Shares to the Purchasers on the
terms and conditions set forth herein.




          NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter
set forth, the parties hereto agree as follows:




ARTICLE I




AGREEMENT TO SELL AND PURCHASE




          SECTION
1.1.   Authorization of Shares. The Company has authorized (i) the initial
sale and issuance to the Purchasers of 100,000 shares (the “Purchased Shares”) of Series B
Preferred Stock, (ii) the issuance of up to 19,034 shares of Series B Preferred Stock (the
“Preferred Dividend Shares,” and together with the Purchased Shares, the “Subject
Shares”) for the payment of in-kind dividends as provided for in the Certificate of Designation
and (iii) the issuance of up to 28,341,424 shares of its Common Stock (as defined below) (the
“Conversion Shares”) that may be issued upon the conversion of the Subject Shares as
provided for in the Certificate of Designation.



          SECTION
1.2.   Sale and Purchase. Subject to the terms and conditions hereof, the
Company hereby agrees to issue and sell to the Purchasers, and the Purchasers, on a joint and
several basis, agree to purchase from the



 









 




Company, the Purchased Shares at a price of $1,000 per share for an aggregate purchase price
of $100,000,000 (the “Aggregate Purchase Price”).




ARTICLE II




CLOSING, DELIVERY AND PAYMENT




          SECTION
2.1.   Closing. (a) The closing of the sale and purchase of the Purchased
Shares under this Agreement (the “Closing”) shall take place on the business day
immediately following satisfaction or waiver of the conditions set forth in Article VI at the
offices of Latham & Watkins LLP, 633 W. Fifth Street, Los Angeles, California 90071, or at such
other time or place as the Company and the Purchasers may mutually agree (such date, the
“Closing Date”).



          (b)   Not less than two business days prior to the Closing, the Purchasers shall advise the
Company in writing (the “Allocation Notice”) of the names in which to register the
Purchased Shares to be purchased at the Closing and the amount of Purchased Shares to be purchased
by each Purchaser (which principal amount for each Purchaser, when added together with all other
Purchasers, shall equal the Aggregate Purchase Price).




          SECTION
2.2.   Certificate of Designation. Prior to the Closing, the Company shall
file with the Secretary of State of the State of Delaware the Certificate of Designation to be
effective in accordance with applicable law at or prior to the Closing.



          SECTION
2.3.   Delivery. At the Closing, subject to the terms and conditions hereof,
the Company will deliver to the Purchasers stock certificates representing the Purchased Shares to
be purchased at such Closing in the names and amounts set forth in the Allocation Notice, free and
clear of any Encumbrances (as defined below), excluding Encumbrances imposed by the Stockholders
Agreement, and the Purchasers will make payment to the Company of the Aggregate Purchase Price by
wire transfer of immediately available funds to an account that the Company shall designate at
least two business days prior to the Closing Date.



ARTICLE III




REPRESENTATIONS AND WARRANTIES OF THE COMPANY




          Except as set forth in the section of the disclosure schedules provided to the Purchasers
(each, a “Schedule”) that corresponds to the section number set forth below and except as
expressly contemplated by this Agreement, including the




2









 







exhibits hereto, the Company hereby represents and warrants to the Purchasers as of the date
hereof and as of the Closing Date, except for such representations and warranties which address
matters only as of a particular date, as follows:




          SECTION
3.1.   Organization, Good Standing and Qualification. Each of the Company and
its Subsidiaries (as defined below) is a corporation or other entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of incorporation or formation, as
the case may be, and has all requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as currently conducted. The Company has all
requisite corporate power and authority to execute and deliver this Agreement and the Stockholders
Agreement in the form of Exhibit B attached hereto (the “Stockholders Agreement”), to
execute and file the Certificate of Designation, to issue the Subject Shares and the Conversion
Shares, to consummate the other transactions contemplated hereby and thereby and by the Certificate
of Designation and to perform its obligations hereunder and thereunder and under the Certificate of
Designation. Each of the Company and its Subsidiaries is duly qualified and is authorized to do
business and is in good standing as a foreign corporation or other entity in all jurisdictions in
which the character or location of its activities and of the properties owned or operated by it
makes such qualification necessary, except for such failures as would not reasonably be expected to
result, individually or in the aggregate, in a Material Adverse Effect. The Company has provided
to the Purchasers a complete and correct copy of the Restated Certificate (as defined below) and
the Bylaws (as defined below) as currently in effect.



          SECTION
3.2.   Subsidiaries. (a) As used herein, “Subsidiary” means, with
respect to a party, any corporation, partnership, trust, limited liability company or other entity
in which such party (or another Subsidiary of such party) holds stock or other ownership interests
representing (A) more that 50% of the voting power of all outstanding stock or ownership interests
of such entity, (B) the right to receive more than 50% of the net assets of such entity available
for distribution to the holders of outstanding stock or ownership interests upon a liquidation or
dissolution of such entity or (C) a general or managing partnership interest or similar position in
such entity. Exhibit 21.01 to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2004 accurately sets forth each significant subsidiary (as defined in Rule 1-02 of
Regulation S-X under the Exchange Act) (a “Significant Subsidiary”) of the Company,
including its name, place of incorporation or formation, and if not wholly-owned directly or
indirectly by the Company, the record ownership as of the date of this Agreement of all capital
stock or other equity interests issued thereby. All shares of capital stock or other equity
interests of any Subsidiary directly or indirectly owned by the Company have been duly authorized
and validly issued, are fully paid and nonassessable and are directly or indirectly owned by the
Company free and clear of any Encumbrance and have not been issued in violation of, nor subject to,
any preemptive, subscription or other similar rights. All of the Subsidiaries of the Company are
consolidated for accounting purposes. “Encumbrance” means any security interest, pledge,
mortgage, lien (statutory or other), charge, option to purchase, lease or otherwise acquire any
interest or any claim, restriction, covenant, title defect, hypothecation,



3









 




assignment, deposit arrangement or other encumbrance of any kind or any preference, priority
or other security agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention agreement), excluding
Encumbrances imposed by securities laws.




          (b)   Except for the Subsidiaries, the Company does not own any capital stock, membership
interests, security or other interest in any other Person (as defined in Section 8.1), which
represents more than 5% of the issued and outstanding equity or ownership interests of such Person,
and neither the Company nor any of its Subsidiaries has any written or oral understanding or
agreement to make any investment (in the form of a loan, capital contribution or otherwise) in, any
other Person.




          SECTION
3.3.   Capitalization; Voting Rights. (a) As of November 3, 2005, the
capitalization of the Company consisted of the following:




     (i)   500,000,000 shares of Common Stock, par value $0.001 per share (the “Common
Stock”), of which (A) only 148,259,999 shares were issued and outstanding and (B) only
42,997,554 shares were reserved for future issuance, 40,317,966 of which are issuable to
employees pursuant to outstanding stock options under the Stock Option Plans (as defined
below), one (1) of which is issuable pursuant to the conversion of the Series A Preferred
Stock (as defined herein), and 280,000 of which are issuable upon exercise of warrants to
purchase Common Stock.




     (ii)   10,000,000 shares of preferred stock, par value $0.001 per share (the
“Preferred Stock”), of which (A) only one (1) share was designated as Series A
Preferred Stock (the “Series A Preferred Stock”), (B) only one (1) share of Series A
Preferred Stock was issued and outstanding and (C) no shares were reserved for future
issuance;



          Since November 3, 2005, (i) (A) no shares of Common Stock have been issued except for
issuances under any Stock Option Plan or upon exercise of the warrants to purchase in the aggregate
280,000 shares of Common Stock and (B) no options to purchase Common Stock have been granted other
than pursuant to Stock Option Plans and (ii) (A) no shares of Preferred Stock have been issued
(other than the Purchased Shares contemplated hereby) and (B) no options to purchase Preferred
Stock have been granted.




          (b)   All issued and outstanding shares of the Company’s capital stock (i) have been duly
authorized and validly issued, (ii) are fully paid and nonassessable, and (iii) were not issued in
violation of, or subject to, any preemptive, subscription or other similar rights of any other
Person.




          (c)   The Company has delivered to the Purchasers a copy of (i) the Company’s stock option
plans as set forth on Schedule 3.3(c)(i) and (ii) each option agreement pursuant to




4









 







which stock options have been granted outside of the plans described in the clause (i)
(together with the stock option plans described in clause (i) the “Stock Option Plans”)
that, in each case, were not filed with the SEC Reports. Other than the 40,317,966 shares of
Common Stock which are reserved for future issuance to employees pursuant to outstanding stock
options under the Stock Options Plans, the stock options previously issued pursuant to the Stock
Option Plans, one (1) share of Series A Preferred Stock and except as may be granted pursuant to
this Agreement, and warrants to purchase 280,000 shares of Common Stock, there are no outstanding
subscriptions, options, calls, warrants, rights (including conversion or preemptive rights and
rights of first refusal), proxy or stockholder agreements, or agreements of any kind for the
purchase or acquisition from the Company or any of its Subsidiaries of any of their securities, nor
has the Company taken or agreed to take any action to issue or grant the same. Except as set forth
in this Section 3.3 or set forth in the Restated Certificate: (i) there are no outstanding
obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any securities of the Company or any voting or equity securities or interests of any of its
Subsidiaries, and (ii) there is no outstanding voting trust, proxy, stockholder or other agreements
or understandings to which the Company or any of its Subsidiaries or, to the knowledge of the
Company, any of its or their stockholders is a party or is bound with respect to the voting,
transfer or registration rights of the capital stock or other voting securities of the Company or
any of its Subsidiaries. The consummation of the transactions contemplated by this Agreement, the
terms of the Subject Shares and the Stockholders Agreement will not trigger the anti-dilution
provisions or other price adjustment mechanisms of any outstanding subscriptions, options, calls,
warrants, commitments, contracts, preemptive rights, rights of first refusal, demands, conversion
rights or other agreements or arrangements under which the Company or any of its Subsidiaries is or
may be obligated to issue or acquire shares of any of its capital stock that have not been properly
waived.




          (d)   (i) Upon the filing of the Certificate of Designation, the Purchased Shares will be duly
authorized and (ii) Preferred Dividend Shares and the Conversion Shares into which the Subject
Shares may be convertible have been duly authorized and validly reserved for issuance. When the
Subject Shares and Conversion Shares are issued and paid for in accordance with the provisions of
this Agreement and the Certificate of Designation, all such shares (A) will be duly authorized,
validly issued, fully paid and nonassessable, and (B) will be delivered to the Purchasers (or their
permitted transferees) free and clear of all Encumbrances, excluding Encumbrances imposed by the
Stockholders Agreement.




          SECTION 3.4.   Authorization; Binding Obligations; No Conflicts.




          (a)   All corporate action on the part of the Company, its officers, directors and
stockholders necessary for the execution and delivery of this Agreement and the Stockholders
Agreement, the execution and filing of the Certificate of Designation, the issuance of the
Purchased Shares, the reservation for issuance of the Preferred Dividend Shares and the Conversion
Shares, the consummation of the other transactions contemplated hereby and thereby and by the
Certificate of Designation and the performance of all obligations of the Company hereunder and
thereunder and under the Certificate of Designation as of the Closing has been taken or will be
taken prior to the Closing. This Agreement has been, and the Stockholders





5









 







Agreement will be at Closing, duly executed and delivered by the Company, and the Certificate
of Designation will be at Closing, duly executed and filed by the Company.




          (b)   This Agreement and the Stockholders Agreement (assuming due execution and delivery by
the Purchasers) will be legal, valid and binding obligations of the Company enforceable against it
in accordance with their terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’
rights generally and general equitable principles (whether considered in a proceeding in equity or
at law) and an implied covenant of good faith and fair dealing.




          (c)   The execution, delivery and performance of this Agreement and the Stockholders
Agreement, the issuance of the Subject Shares and the Conversion Shares and the consummation of the
other transactions contemplated hereby and thereby and by the Certificate of Designation will not
result in (A) (i) any violation, or be in conflict with or constitute a default (with or without
notice or lapse of time or both) under the Restated Certificate or Bylaws (as defined below) or the
organizational documents of any of the Company’s Subsidiaries, (ii) any violation, or be in
conflict with or constitute a default (with or without notice or lapse of time or both) under, any
term or provision of, or any right of termination, cancellation or acceleration arising under any
Contract (as defined below) or cause any liabilities or additional fees to be due thereunder or
(iii) any violation under any Order or Law applicable to the Company or any of its Subsidiaries,
their business or operations or any of their assets or properties or (B) the imposition of any
Encumbrance on the business or material properties or assets of the Company or any of its
Subsidiaries, except in the case of clause (A)(ii), (A)(iii) and (B) for such violations,
conflicts, defaults, terminations, cancellations, acceleration or encumbrances that would not
reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect.
None of the execution and delivery of this Agreement and the Stockholders Agreement, the issuance
of the Subject Shares and the Conversion Shares and the consummation of the other transactions
contemplated hereby and thereby and by the Certificate of Designation or the performance of the
obligations of the Company hereunder and thereunder or under the Certificate of Designation will
result in the suspension, revocation, impairment, forfeiture or nonrenewal of any Permit (as
defined below) applicable to the Company or any of its Subsidiaries, their businesses or operations
or any of their assets or properties, except for such suspensions, revocations, impairments,
forfeitures or renewals that would not reasonably be expected to result, individually or in the
aggregate, in a Material Adverse Effect. “Permits” means all licenses, permits, orders,
consents, approvals, registrations, authorizations, qualifications and filings with and under all
federal, state, local or foreign laws and governmental authorities and all industry or other
non-governmental self-regulatory organizations.




          SECTION 3.5.   SEC Reports; Financial Statements.




          (a)   The Company has filed with the U.S. Securities and Exchange Commission (the
“SEC”) all forms, reports, schedules, proxy statements (collectively, and in each case
including all exhibits and schedules thereto and documents incorporated by reference therein and
including all registration statements and prospectuses filed with the SEC, the “SEC
Reports”) required to be filed by the Company with the SEC since March 26, 2003. As of its
date of filing, each SEC Report complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”),




6









 







or the Securities Act of
1933, as amended (the “Securities Act”), and the rules and regulations promulgated
thereunder and none of such SEC Reports (including any and all financial statements included
therein) contained when filed (except to the extent revised or superseded by a subsequent filing
with the SEC that is publicly available prior to the date hereof) any untrue statement of a
material fact or omitted or omits to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances under which they were
made, not misleading.




          (b)   Each of the consolidated financial statements (including the notes thereto) included in
the SEC Reports complied (i) as to form required by published rules and regulations of the SEC
related thereto as of its date of filing with the SEC, (ii) in all material respects with
applicable accounting requirements and the published rules and regulations of the SEC with respect
thereto, (iii) has been prepared in accordance with U.S. generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be indicated in the notes
thereto or otherwise permitted by the SEC on Form 10-Q or any successor form under the Exchange
Act) and (iv) presents fairly in all material respects the consolidated financial position of
Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of
their operations and cash flows for the periods then ended, subject (in the case of unaudited
financial statements) to normal year-end adjustments and any other adjustments described therein or
in the notes or schedules thereto or the absence of footnotes.




          (c)   The unaudited balance sheet and the related unaudited statement of income for the period
ended on June 30, 2005, copies of which have been furnished to the Purchasers, (i) present fairly
in all material respects the financial condition of the Company as of such date and the results of
operations for the 6-month period then ended and (ii) were prepared on a basis consistent with the
Company’s past practice, subject to normal year-end adjustments and the absence of footnotes.




          (d)   The Company and its Subsidiaries have designed and maintain a system of internal
controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)
sufficient to provide reasonable assurances regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. The Company (A) has designed and maintains disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) to ensure that
material information required to be disclosed by the Company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s
management as appropriate to allow timely decisions regarding required disclosure, and (B) has
disclosed, based on its most recent evaluation of such disclosure controls and procedures prior to
the date hereof, to the Company’s auditors and the audit committee of the Company’s Board of
Directors (the “Board”) (x) any significant deficiencies and material weaknesses in the
design or operation of internal controls over financial reporting that are reasonably likely to
adversely affect in any material respect the Company’s ability to record, process, summarize and
report financial information and (y) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company’s internal controls over financial
reporting. The Company has




7









 







made available to the Purchasers a summary of any such disclosure made by management to the
Company’s auditors and audit committee since January 1, 2004.




          SECTION
3.6.   Undisclosed Liabilities. Except for liabilities included or reserved
for in the unaudited consolidated balance sheet of the Company as of June 30, 2005 or disclosed in
the notes thereto included in its Quarterly Report on Form 10-Q (the “10-Q”) for the
quarter ended June 30, 2005 (the “Balance Sheet”), as filed with the SEC, neither the
Company nor any of its Subsidiaries had, and since such date none of them has incurred,
liabilities, including contingent liabilities, or any other obligations whatsoever that are or
could be material (individually or in the aggregate) to the Company and its Subsidiaries of a
nature required to be disclosed on a consolidated balance sheet or in the related notes thereto,
taken as a whole, except current liabilities incurred in the ordinary course of business subsequent
to June 30, 2005 and except for such liabilities that would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.



          SECTION 3.7.   Contracts.




          (a)   Except as set forth in the SEC Reports filed on and after March 11, 2005 and prior to
the date hereof (the “Recently Filed SEC Reports”), set forth on Schedule 3.7(a) is a list
of:





     (i)   all material agreements of the Company or any of its subsidiaries governing any
partnership, joint venture and/or joint strategic initiative arrangements;




     (ii)   all documents relating to all mergers, consolidations, recapitalizations,
reorganizations or similar transactions involving, or any acquisitions or dispositions
material to the Company and its Subsidiaries, taken as a whole by, the Company or any of its
Subsidiaries that (A) are currently contemplated by the Company or any of its Significant
Subsidiaries or (B) provide any ongoing material liabilities of the Company or any of its
Subsidiaries for payment of money, retention of liabilities, assets sold, indemnification or
otherwise;




     (iii)   contracts with Affiliates (including 5% or greater holders of stock, directors,
officers, or familial relatives of such directors or officers, and other entities controlled
by any of them) not otherwise disclosed above.




     (iv)   all “material contracts” within the meaning of Item 601 of Regulation S-K of the
SEC; and




     (v)   all contracts restricting the payment of dividends upon, or the redemption or
conversion of, the Subject Shares or the Conversion Shares.


(clauses (i) through (v) collectively, the “Material Contracts,” and together with any
lease, binding commitment, option, insurance policy, benefit plan or other contract, agreement,
instrument or obligation (whether oral or written) to




8









 







which the Company or any of its Subsidiaries may be bound, the “Contracts”).




          (b)   Neither the Company nor any of its Subsidiaries is, or to the knowledge of the Company
is alleged to be (nor, to the Company’s knowledge, is any other party to any Material Contract) in
material default under, or in material breach or material violation of, any Material Contract, and
no event has occurred which, with the giving of notice or passage of time or both, would constitute
a material default by the Company or any other party under any Material Contract. Other than
Material Contracts which have terminated or expired in accordance with their terms, each of the
Material Contracts is in full force and effect and is a legal, valid and binding obligation of the
Company and, to the knowledge of the Company, the other parties thereto enforceable against the
Company and, to the knowledge of the Company, such other parties in accordance with its terms
(subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors’ rights generally and general
equitable principles (whether considered in a proceeding in equity or at law).




          SECTION
3.8.   Affiliate Transactions. Other than the Contracts set forth in Section
3.7(a)(iii) or in the Recently Filed SEC Reports, there are no transactions between the Company or
any of its Subsidiaries, on the one hand, and any (i) officer or director of the Company or any of
its Subsidiaries, (ii) to the knowledge of the Company, record or beneficial owner of five percent
or more of the voting securities of the Company or (iii) affiliate or family member of any such
officer or director or, to the knowledge of the Company, record or beneficial owner, on the other
hand, except employee benefit plans, executive compensation or director compensation,
indemnification agreements and similar transactions. Neither the Company nor any of its
Subsidiaries is a guarantor or indemnitor of any indebtedness of any of the persons set forth in
the foregoing clause (i) or, to the knowledge of the Company, clauses (ii) through (iii).



          SECTION
3.9.   No Adverse Changes. Except as set forth in the Recently Filed SEC
Reports, since June 30, 2005, no event, change, condition or circumstance occurring has had, or
would reasonably be expected to result in, individually or in the aggregate, a material adverse
effect on the business, operations, properties, assets, liabilities, financial condition or results
of operations of the Company and its Subsidiaries, taken as a whole, or on the ability of the
Company to perform its obligations under this Agreement or the Stockholders Agreement and to
consummate the transactions contemplated hereby and thereby, except for any such effect, change,
condition or circumstance caused by or resulting from (i) an event, change, condition or
circumstance affecting the e-commerce and residential real estate industries in which the Company
or its Subsidiaries operate generally (except to the extent that such event, change, condition or
circumstance has a materially disproportionate effect on the Company and its Subsidiaries, taken as
a whole, relative to similarly situated participants in such industry), (ii) changes in the price
or trading volume of the Common Stock on The NASDAQ National Market, or the failure of the Company
to achieve revenue or earnings predictions published by securities analysts or to provide guidance
consistent with such predictions, in each case, in and of themselves (it being understood that the
event,



9









 




change, condition or circumstance giving rise to such change or failure, including the failure
to achieve revenue or earnings predictions or other guidance that the Company has provided to the
Purchasers (but not in and of itself), may be deemed to constitute and shall be taken into account
in determining whether there has been a Material Adverse Effect), (iii) a change in economic
(including financial, banking and/or securities markets), regulatory or political conditions
generally, including without limitation changes in interest rates and changes in demand for
residential real estate (except to the extent that such change has a materially disproportionate
effect on the Company and its Subsidiaries, taken as a whole, relative to similarly situated
participants in the industry in which they operate), and (iv) the announcement or performance of
the transactions contemplated by this Agreement or the use of proceeds thereof (any such effect,
change, condition or circumstance, a “Material Adverse Effect”).




          SECTION
3.10.   Title and Sufficiency of Properties and Assets; Liens, Condition, Etc. The Company and each of its Subsidiaries have good and marketable title to their respective owned
properties and assets, and good title to their respective leasehold estates in leased properties
and assets, in each case subject to no Encumbrance, other than Encumbrances that would not
reasonably be expected to result in, individually or in the aggregate, a Material Adverse Effect.
The properties and assets owned and leased by the Company and its Subsidiaries are sufficient to
carry on their businesses as they are now being conducted, except as would not reasonably be
expected to result, individually or in the aggregate, in a Material Adverse Effect



          SECTION
3.11.   Intellectual Property. Except as would not reasonably be expected to
result in, individually or in the aggregate, a Material Adverse Effect: (i) the Company and its
Subsidiaries own or have the right to use all the Intellectual Property necessary to conduct their
businesses as currently conducted, free of all Encumbrances other than, with respect to non-owned
Company IP, as set forth in the license or other agreement for such non-owned Company IP; (ii) all
of the owned Company IP is valid, enforceable and unexpired, has not been abandoned, and to the
Company’s knowledge, does not infringe, impair, misappropriate, dilute, violate or make
unauthorized use of (“Infringe”) the rights of any third party, and is not being Infringed
by any third party; (iii) no Order or claim, action, suit, case, arbitration, litigation, or any
proceeding by or before any governmental authority (an “Action”) is outstanding or pending,
or to the Company’s knowledge, threatened, that would cancel, limit or challenge the ownership,
use, value, validity or enforceability of any (x) owned Company IP or (y) to the Company’s
knowledge, the Company’s use of any licensed Company IP, and the Company knows of no valid basis
for the same; (iv) the Company and its Subsidiaries take reasonable steps to protect and maintain
the Company IP, including without limitation any confidential Company IP; (v) to the Company’s
knowledge, the Company and its Subsidiaries take all reasonable actions to protect the
confidentiality, integrity and security of its software, databases, systems, networks and Internet
sites and all information stored or contained therein or transmitted thereby (“Software”)
from any unauthorized use, access, interruption or modification by third parties; and (vi) all of
the licenses, consents, royalty and other agreements concerning Intellectual Property to which the



10









 




Company or any of its Subsidiaries is a party are, to the Company’s knowledge, valid and
enforceable. For purposes of this Agreement, the term “Intellectual Property” means all
U.S. and foreign intellectual property, including without limitation all (i) patents, inventions,
discoveries, processes, designs, developments, technology, and related improvements, and know-how,
whether or not patented or patentable; (ii) copyrights and works of authorship in any media,
including computer hardware, Software (excluding commercially available, off the shelf software),
applications, systems, networks, databases and compilations, documentation, advertising, marketing
and promotional materials, textual works, graphics, photographs, drawings and Internet site
content; (iii) trademarks, service marks, trade names, brand names, corporate names, domain names,
logos, trade dress and other source indicators; (iv) trade secrets, drawings, blueprints and
similar all non-public, confidential or proprietary information; and (v) all registrations,
applications and recordings related thereto. For purposes of this Agreement, the term “Company
IP” means all Intellectual Property owned, held or used by the Company or any of its
Subsidiaries.




          SECTION 3.12.   Compliance with Law; Permits.




          (a)   Neither the Company nor any of its Subsidiaries (i) is in material violation or default
of the Company’s Restated Certificate of Incorporation (the “Restated Certificate”) or its
Bylaws (the “Bylaws”), or the organizational documents of any of its Subsidiaries, (ii) is
in violation or default of any judicial or administrative judgment, decision, decree, order,
settlement, injunction, writ, stipulation, determination, award or Permit (each, an
“Order”) or any U.S. or foreign statute, law (including, without limitation, common law),
code, ordinance, rule or regulation (including the Sarbanes-Oxley Act of 2002) (each, a
“Law”), except for such violations and defaults that would not reasonably be expected to
result in, individually or in the aggregate, a Material Adverse Effect or (iii) has received, since
January 1, 2004, any notice of, and to the knowledge of the Company, no investigation or review is
in process or threatened by any governmental authority with respect to, any material violation or
alleged violation of any Order or Law.




          (b)   Except as would not, individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect, (i) the Company and its Subsidiaries hold all Permits necessary for
the lawful conduct of their respective businesses as they are presently being conducted, (ii) all
Permits are in full force and effect, (iii) the Company and its Subsidiaries are in compliance with
the terms of the Permits, (iv) there are no pending or, to the knowledge of the Company,
threatened, modifications, amendments, cancellations, suspensions, limitations, nonrenewals or
revocations of any Permit, and (v) there has occurred no event which (whether with notice or lapse
of time or both) could reasonably be expected to result in or constitute the basis for such a
modification, amendment, cancellation, suspension, limitation, nonrenewal or revocation thereof.




          SECTION
3.13.   Litigation. Except as set forth in the Recently Filed SEC Reports, there is no Action pending, or to
the Company’s knowledge, currently threatened against the Company or any of its Subsidiaries
(including with respect to any Company Plan, as defined below) which would reasonably be expected
to result in, individually or in the aggregate, a Material Adverse Effect. To the Company’s
knowledge, no court or government or regulatory authority is threatening to impose a material
adverse Order on the Company and its Subsidiaries. As of the date hereof, except as set forth in
the Recently Filed SEC Reports, there is no material Action by the Company or any of its
Subsidiaries currently pending.





11









 









          SECTION 3.14.   Tax Matters.




          (a)   The Company and each of its Subsidiaries have filed all Tax Returns (as defined below)
required to have been filed as of the date hereof (or extensions have been duly obtained) and have
paid all Taxes (as defined below) required to have been paid by it through the date hereof, except
where failure to file such Tax Returns or pay such Taxes would not reasonably be expected to
result, individually or in the aggregate, in a Material Adverse Effect, and except to the extent
such Taxes are both (A) being challenged in good faith and (B) adequately provided for on the
financial statements.




          (b)   Neither the Company nor any Subsidiary has any current liability, and the Company has no
knowledge of any events or circumstances which could result in any liability, for Taxes of any
Person (other than the Company and its Subsidiaries) (i) under Treasury Regulation Section 1.1502-6
(or any similar provision of state, local or foreign law), (ii) as a transferee or successor, (iii)
by Contract or (iv) otherwise, except for those liabilities that would not reasonably be expected
to result in, individually or in the aggregate, a Material Adverse Effect.




          (c)   None of Company or any of its Subsidiaries is a party to, is bound by or has any
obligation under any material Tax sharing or material Tax indemnity agreement or similar Contract
or arrangement, except for agreements among the Company and its Subsidiaries, that would not
reasonably be expected to result in, individually or in the aggregate, a Material Adverse Affect.




          (d)   All Taxes required to be withheld, collected or deposited by or with respect to Company
and each of its Subsidiaries have been timely withheld, collected or deposited as the case may be,
and to the extent required, have been paid to the relevant taxing authority, except for such
failures to withhold, collect or deposit that would not reasonably be expected to result in,
individually or in the aggregate, a Material Adverse Effect.




          (e)   For purposes of this Agreement, the term (i) “Taxes” means all taxes, charges,
fees, levies, penalties or other assessments imposed by any United States federal, state, local or
foreign taxing authority, including, but not limited to, income, excise, property, sales and use,
transfer, franchise, payroll, withholding, social security or other taxes, including any interest,
penalties or additions attributable thereto, and (ii) “Tax Return” means any return,
report, information return or other document (including any related or supporting information)
filed or required to be filed with any taxing authority with respect to Taxes.




12









 








          SECTION 3.15.   Employee Benefit Plans; Employees.




          (a)   With respect to each Company Plan (as defined below), no liability has been incurred and
there exists no condition or circumstances in connection with which the Company or any of its
Subsidiaries would reasonably be expected to be subject to any liability that is reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect, in each case under the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Internal Revenue
Code of 1986, as amended, or any other applicable law, rule or regulation. The Company and its
Subsidiaries are in compliance with all federal, state, local and foreign requirements regarding
employment, except for any failures to comply that are not reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect. As of the date hereof, there is no material labor
dispute, strike or work stoppage against the Company or any of its Subsidiaries pending or, to the
knowledge of the Company, threatened which may interfere with the business activities of the
Company or any of its Subsidiaries, except where such dispute, strike or work stoppage is not
reasonably likely, individually or in the aggregate, to have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries has any material collective bargaining agreements relating to
its employees. There is no material labor union organizing activity pending or, to the knowledge of
the Company, threatened with respect to the Company or any of its Subsidiaries.




          (b)   For purposes of this Agreement, the term “Company Plan” means any “employee
benefit plan” (within the meaning of Section 3(3) of ERISA), stock purchase, stock option,
severance, employment, change-in-control, fringe benefit, bonus, incentive, deferred compensation
and all other employee benefit plans, programs or policies, whether or not subject to ERISA, under
which any current or former director, officer, independent contractor or employee of the Company or
its Subsidiaries has any present or future right to benefits and under which the Company or its
Subsidiaries is obligated to contribute for such current or former directors, officers, independent
contracts or employees.




          (c)   There are no pending or, to the knowledge of the Company, threatened, labor strikes,
walkouts, work stoppages, slow-downs or lockouts involving the Company or any of its Subsidiaries
that would reasonably be expected to have, individually or in the aggregate, a Material Adverse
Effect.




          SECTION 3.16.   Environmental and Safety Laws.




          (a)   Except as would not, individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect, each of the Company and its Subsidiaries: (i) complies with all, and
has not, to the extent the applicable statute of limitations has not run, violated any
Environmental Laws applicable to it; (ii) has not since January 1, 2003 received any written notice
or claim alleging that it has violated in any respect any Environmental Laws or that it has
liabilities or obligations to any Person as a result of the presence or release of any Materials of
Environmental Concern or indicating that there is any investigation of or inquiry into the
possibility of such a claim, and there is no basis for any such claim; and (iii) is not a party to
or,




13









 







to the knowledge of the Company, subject to, any Actions, or Contracts concerning,
Environmental Laws or the presence or release of any Materials of Environmental Concern.




          (b)   The Company has provided to the Purchasers a copy of all material studies, audits,
assessments or investigations concerning compliance with, or liability or obligations under,
Environmental Laws affecting the Company or any of its Subsidiaries that are in the possession of
the Company.




          (c)   For purposes of this Agreement, the term (i) “Environmental Laws” means -all
Laws or Orders or other legally enforceable requirement of the United States, any other nation, and
any state, local, municipal, or transnational authority, regulating, relating to or imposing
liability or standards of conduct concerning pollution or protection of surface water, groundwater,
ambient air, surface or subsurface soil, wildlife habitat, or related aspects of the environment,
or human health and safety; and (ii)“Materials of Environmental Concern” shall mean any
gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products,
polychlorinated biphenyls, urea-formaldehyde insulation, hazardous wastes, toxic substances,
asbestos, molds, pollutants, or contaminants defined as such in, or regulated or that could
reasonably be expected to result in liability under, any applicable Environmental Law.




          SECTION
3.17.   Offering Valid. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 4.2 hereof, the offer, sale and issuance of the
Subject Shares and the conversion of the Subject Shares into the Conversion Shares will be exempt
from the registration requirements of the Securities Act and will have been registered or qualified
(or are exempt from registration and qualification) under the registration, permit or qualification
requirements of all applicable state “blue sky” securities laws.



          SECTION
3.18.   Broker; Fees. Except for Merrill Lynch & Co., Inc., neither the
Company nor any of its Subsidiaries has employed any broker or finder, or incurred any liability
for any brokerage or finders’ fees or any similar fees or commissions in connection with the
transactions contemplated by this Agreement provided that Merrill Lynch & Co., Inc. is not
acting as placement agent in any of the transactions contemplated hereby. A true and correct copy
of the engagement letter with Merrill Lynch & Co., Inc. in connection with this transaction has
been delivered to the Purchasers.



          SECTION
3.19.   Shareholder Vote. No shareholder vote under the rules of The NASDAQ
Stock Market is necessary for the issuance of the Subject Shares or the conversion of the Subject
Shares into the Conversion Shares.



          SECTION
3.20.   Anti-Takeover Provisions Not Applicable. The Board has duly authorized and approved this Agreement, the
Stockholders Agreement and the Certificate of Designation and the transactions
contemplated hereby and thereby such that no other action or approval of the
Board or any Person is needed to exempt this Agreement, the Stockholders
Agreement and the Certificate of Designation and the transactions contemplated
hereby and thereby from the restrictions of Section 203 of the General
Corporation Law of the State of Delaware.






14










 







ARTICLE IV




REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS




          The Purchasers hereby represent and warrant to the Company as follows as of the date hereof
and as of the Closing Date, except for such representations and warranties which address matters
only as of a particular date, as follows:




          SECTION
4.1.   Organization, Requisite Power and Authority. Each Purchaser is an
entity duly organized, validly existing and in good standing under the laws of the jurisdiction of
its formation. Each Purchaser has all requisite power and authority to execute and deliver this
Agreement and the Stockholders Agreement, to consummate the transactions contemplated hereby and
thereby and to perform its obligations hereunder and thereunder. All action on the part of
Purchaser, its officers and partners that is necessary for the execution and delivery of this
Agreement and the Stockholders Agreement, the consummation of the transactions contemplated hereby
and thereby and the performance of all obligations of such Purchaser hereunder and thereunder as of
the Closing has been or will be taken prior to the Closing. This Agreement has been, and the
Stockholders Agreement will be at Closing, duly executed and delivered by such Purchaser. This
Agreement and the Stockholders Agreement (assuming due execution and delivery by the Company) will
be legal, valid and binding obligations of such Purchaser, enforceable against it in accordance
with their terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting creditors’ rights
generally and general equitable principles (whether considered in a proceeding in equity or at
law).



          SECTION
4.2.   Investment Representations. Each Purchaser acknowledges that the
Subject Shares and the Conversion Shares have not been registered under the Securities Act or under
any state securities laws. Each Purchaser (i) is acquiring the Subject Shares and the Conversion
Shares for investment for its own account, not as a nominee or agent, and not with the view to, or
for resale in connection with, any distribution thereof, (ii) is an “accredited investor” within
the meaning of Regulation D, Rule 501(a), promulgated by the SEC, (iii) acknowledges that the
Subject Shares and the Conversion Shares must be held indefinitely unless subsequently registered
under the Securities Act or unless, an exemption from the registration requirements of the
Securities Act is available and is able to bear the economic risk of the investment indefinitely
(iv) represents that by reason of its knowledge and experience in financial and business matters,
such Purchaser is capable of evaluating the merits and risks of the investment has the capacity to
protect its own interests in connection with the transactions contemplated by this Agreement and
the Stockholders



15









 




Agreement, and (v) acknowledges that it has had the opportunity to ask questions and receive
answers concerning the terms and conditions of the offering the Subject Shares and Conversion
Shares and to obtain additional information as it requested, and has discussed the Company’s
business, management and financial affairs and the investment with management of the Company. Each
Purchaser is a resident of California for purposes of the blue-sky securities laws. Each Purchaser
has, independently and without reliance upon Merrill Lynch, Pierce, Fenner & Smith Incorporated
(“Merrill Lynch”) and based on such information concerning the Company that each Purchaser
has obtained from publicly available information, the Company or other sources other than Merrill
Lynch, made its own investment analysis and decision to purchase the Subject Shares, and each
Purchaser understands that the sale of the Subject Shares is not a recommendation by Merrill Lynch
to it to purchase the Subject Shares.




          SECTION
4.3.   Litigation. There is no Action pending, or to such Purchaser’s
knowledge, currently threatened against such Purchaser which would, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the ability of such
Purchaser to perform its obligations under this Agreement and the Stockholders Agreement and to
consummate the transactions contemplated hereby and thereby.



          SECTION
4.4.   Funding. The Purchasers have capital commitments sufficient to, and
will have at the Closing funds to, pay the Aggregate Purchase Price.




          SECTION
4.5.   Broker. Except for Morgan Stanley & Co. Incorporated, such Purchaser
has employed any broker or finder, or incurred any liability for any brokerage or finders’ fees or
any similar fees or commissions in connection with the transactions contemplated by this Agreement.



ARTICLE V




COVENANTS




          SECTION 5.1.   Pre-Closing Period.




          (a)   Except as otherwise expressly contemplated by the terms of this Agreement, during the
period from the date of this Agreement to the Closing Date (the “Pre-Closing Period”), the
Company shall, and shall cause its Subsidiaries to, use commercially reasonable efforts to preserve
intact its and its Subsidiaries’ current business organizations, keep available the services of
their current officers and employees and preserve their relationships with clients, customers,
suppliers, licensors, licensees, advertisers and others having business dealings with them to the
end that their goodwill and ongoing businesses shall be unimpaired.




16









 








          (b)   Except as set forth on Schedule 5.1 hereof or otherwise expressly contemplated by the
terms of this Agreement, during the Pre-Closing Period, each of the Company and its Subsidiaries
shall not, without the prior consent of the Purchasers:





     (i)   amend or modify the Restated Certificate, the Certificate of Designation or the
Bylaws in a manner that would require the consent of the holders of the Series B Preferred
Stock if effected following the Closing Date;




     (ii)   (A) declare, set aside or pay any dividends on, or make any other distributions
(whether in cash, securities or other property) in respect of, or convertible into or
exchangeable or exerciseable for, any of its capital stock (other than dividends and
distributions by a direct or indirect wholly-owned Subsidiary of the Company to its parent);
(B) adjust, split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution for shares of
its capital stock or any of its other securities; (C) purchase, redeem or otherwise acquire
any shares of its capital stock or any other of its securities or any rights, warrants or
options to acquire any such shares or other securities, other than repurchases of Common
Stock pursuant to existing compensation, benefits, option, restricted share, or employment
agreement or plan existing on the date hereof; or (D) take any action that would result in a
Conversion Price adjustment under the Subject Shares had the Subject Shares been outstanding
at the time of such action;




     (iii)   increase the number of directors to greater than 11 members or change the
current and anticipated future non-classified structure of the Board, except as contemplated
by the Stockholders Agreement;




     (iv)   amend, alter or change to the rights, preferences, privileges or powers of the
Common Stock, the Series A Preferred Stock or the Series B Preferred Stock;




     (v)   acquire (whether by merger, consolidation, tender offer, exchange offer, asset
purchase or otherwise) any security, asset or business of another Person (an
“Acquisition”), sell, lease, license, assign, encumber, transfer or dispose of any
securities, assets (including Intellectual Property) or business (including but not limited
to any spin-off or in-kind distribution) of the Company or any of its Subsidiaries (a
“Divestiture”), recapitalize, reclassify the securities of, or reorganize, the
Company or any of its Subsidiaries, whether in a single transaction or series of related
transactions, if, after giving effect to such transaction or series of related transactions,
such transaction or series of related transactions would result in the greater of (A) a Pro
Forma Debt and Preferred Stock Ratio (as defined below) in excess of 5:1 and (B) a Pro Forma
Debt and Preferred Stock Ratio that is in excess of 5:1 and is greater than the Pro Forma
Debt and Preferred Stock Ratio immediately prior to such transaction or series of related
transactions;




     (vi)   incur additional Indebtedness (as defined in Section 8.1) in excess of an amount
equal to two times EBITDA (as defined in Section 8.1) as of such incurrence
(provided, however, that (x) in connection with any Acquisition that is an
Approved



17









 






Transaction, the Company or any of its Subsidiaries may incur Indebtedness of up to
three times EBITDA as of the consummation of such Acquisition that is an Approved
Transaction and (y) notwithstanding the foregoing, Indebtedness incurred to refinance,
replace or restructure existing Indebtedness shall be permitted in an amount not in excess
of the principal, plus premium, if any, and accrued interest on such existing Indebtedness);




     (vii)   (A) file, or consent by answer or otherwise to the filing against the Company
or any of its Subsidiaries of, a petition for relief or reorganization or arrangement or any
other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy,
insolvency, reorganization, moratorium or other similar Law of any jurisdiction, (B) make an
assignment for the benefit of the creditors of the Company or any of its Subsidiaries, (C)
consent to the appointment of a custodian, receiver, trustee or other officer with similar
powers with respect to the Company or any of its Subsidiaries or with respect to any
substantial part of its or their property, or (D) take any corporate action for the purpose
of any of the foregoing;




	 	 	 	(viii)   dissolve, liquidate or wind up the Company;
	 
	 	 	 	(ix)   adopt, propose or implement any shareholder rights plan; or
	 
	 	 	 	(x)   authorize any of, or commit to agree to take, any of the foregoing actions.





          SECTION
5.2.   Access. During the Pre-Closing Period, the Company shall, and shall
cause its Subsidiaries and its and their officers, directors, employees, auditors and other agents
to, (i) upon reasonable notice, afford the officers, employees, auditors and other agents of the
Purchasers, during normal business hours reasonable access at all reasonable times to its and their
officers, employees, properties, offices, plants and other facilities and to all financial books
and records, (ii) furnish the Purchasers with all financial, operating and other data and
information as the Purchasers, through their officers, employees or agents, may from time to time
reasonably request and (iii) afford the Purchasers the opportunity to discuss the Company’s
affairs, finances and accounts with the Company’s officers.



          SECTION
5.3.   Efforts. Each of the Company and the Purchasers shall, and, in the
case of the Company, shall cause each of its Subsidiaries to, use its reasonable best efforts to:
(i) as promptly as practicable, obtain from any governmental approval (including Hart-Scott-Rodino
approval) required to be obtained or made by the Company or any of their Subsidiaries in connection
with the authorization, execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby; and (ii) as promptly as practicable, make all necessary filings,
notifications, and thereafter make any other required submissions, with respect to this Agreement
required under the Exchange Act, any other applicable federal or state securities laws or any other
applicable law. Each of the Company and the Purchasers agree to use commercially reasonable
efforts to take any and all actions required in order to consummate the transactions



18









 




contemplated in this Agreement and the Stockholders Agreement, including, without limitation:
(i) to obtain from any third party any consents, licenses, Permits, waivers, approvals,
authorizations or orders required to be obtained or made by the Company or any of their
Subsidiaries in connection with the authorization, execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby (provided, however, that in connection
therewith, without the prior written consent of the Purchasers, none of the Company or its
Subsidiaries will make or agree to make any payment or accept any material conditions or
obligations, including amendments to existing conditions and obligations); and (ii) execute or
deliver any additional instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. Each party shall have the right to review in
advance, and to the extent practicable each will consult with the other, in each case subject to
applicable laws relating to the exchange of information, with respect to any filing made with, or
written materials submitted to, any third party or any governmental or regulatory entity in
connection with the transactions contemplated by this Agreement (including all reports required to
be filed by the Company with the SEC between the date hereof and the Closing).




          SECTION
5.4.   Notification of Certain Matters. During the Pre-Closing Period, the
Company shall give prompt written notice to the Purchasers of the occurrence or non-occurrence of
any event known to the Company the occurrence or non-occurrence of which would reasonably be
expected to cause any representation or warranty contained in Article III to be untrue, or the
failure of the Company to comply with or satisfy any covenant or agreement under this Agreement.
During the Pre Closing Period, the Purchasers shall give prompt written notice to the Company of
the occurrence or non-occurrence of any event known to the Purchasers the occurrence or
non-occurrence of which would reasonably be expected to cause any representation or warranty
contained in Article IV to be untrue, or the failure of the Purchasers to comply with or satisfy
any covenant or agreement under this Agreement.



          SECTION
5.5.   Confidentiality. The Purchasers acknowledge that they are bound by the
Confidentiality Agreement, dated April 19, 2005 (the “Confidentiality Agreement”), between
the Company and Elevation Associates, L.P., which Confidentiality Agreement will continue in full
force and effect in accordance with its terms.



          SECTION
5.6.   No Shop. The Company agrees that during the Pre-Closing Period, each
of the Company, its Subsidiaries and their officers, directors, employees, advisers or
representatives will not offer (including but not limited to furnishing confidential information),
negotiate or enter into a transaction involving the issuance by the Company or any of its
Subsidiaries to any third party of any equity or debt security the proceeds of which would be used
for any purpose similar to those contemplated by this Agreement.



          SECTION
5.7.   Transaction Fee. At the Closing, the Company shall pay a one-time cash transaction fee to the Purchasers or
their designee by wire transfer of immediately




19









 







available funds to an account designated by the
Purchasers in an amount equal to $1 million (the “Transaction Fee”).




ARTICLE VI




CONDITIONS TO CLOSING




          SECTION
6.1.   Conditions to Purchaser’s Obligation to Purchase the Purchased Shares. The Purchasers’ obligation to purchase the Purchased Shares at the Closing is subject to the
satisfaction (or waiver by the Purchasers) of the following conditions:



          (a)   Representations and Warranties True; Performance of Obligations. Each of the
representations and warranties of the Company contained in this Agreement that is qualified as to
materiality or Material Adverse Effect shall be true and correct, and each of the representations
and warranties of the Company contained in this Agreement that is not so qualified as to
materiality or Material Adverse Effect shall be true and correct in all material respects, in each
case as of the date hereof and as of the Closing Date as if made as of the Closing Date (except for
those representations and warranties which address matters only as of a particular date, which
representations and warranties shall be true and correct (with respect to those representations and
warranties qualified as to materiality or Material Adverse Effect) or in all material respects
(with respect to all other representations and warranties) as of such date). The Company shall
have performed in all material respects all agreements, obligations and covenants herein required
to be performed or observed by it on or prior to the Closing Date.




          (b)   Legal Investment. There shall not be in effect any Law or Order directing that
the purchase and sale of the Purchased Shares, the issuance of the other Subject Shares and the
Conversion Shares and the other transactions contemplated by this Agreement, the Certificate of
Designation or the Stockholders Agreement not be consummated or which has the effect of rendering
it unlawful to consummate such transactions.




          (c)   Proceedings and Litigation. No Action shall have been commenced by any
governmental or regulatory authority against any party hereto seeking to restrain or prohibit the
purchase and sale of the Purchased Shares, the issuance of the other Subject Shares or the
Conversion Shares or the other transactions contemplated by this Agreement, the Certificate of
Designation or the Stockholders Agreement, the effect of which restraint or prohibition would cause
the condition set forth in Section 6.1(b) not to be satisfied.




          (d)   HSR Act. All waiting periods (and any extensions thereof) applicable to the
consummation of the Agreement under the Hart-Scott-Rodino Act and applicable foreign anti-trust
laws shall have expired or otherwise been terminated




          (e)   Officer’s Certificate. The Company shall have delivered to the Purchasers a
certificate, executed by the Chief Executive Officer or the President of the Company, dated as of
the Closing Date, to the effect that the conditions specified in Section 6.1(a) have been
satisfied.




20









 








          (f)   No Material Adverse Effect. Between the date of this Agreement and the Closing
Date, there shall not have occurred any effect, change, condition or circumstance that has had or
would be reasonably likely to have, individually or in the aggregate, a Material Adverse Effect.




          (g)   Stockholders Agreement. The Stockholders Agreement shall have been executed and
delivered by the Company




          (h)   Certificate of Designation. The Certificate of Designation shall have been duly
filed with the Secretary of State of the State of Delaware and become effective.




          (i)   Directors. Subject only to the occurrence of the Closing, the Board shall
include two designees of the Purchasers who shall have been duly elected to the Board.




          (j)   Transaction Fee. Subject only to the occurrence of the Closing, the Company
shall have paid the Transaction Fee.




          (k)   Legal Opinions. The Purchasers shall have received from legal counsel(s) to the
Company the opinions in the form attached hereto as Exhibit C, which opinions shall be addressed to
the Purchasers and dated as of the Closing.




          SECTION
6.2.   Conditions to Obligations of the Company. The Company’s obligation to
issue and sell the Purchased Shares at the Closing is subject to the satisfaction (or waiver by the
Company), on or prior to the Closing, of the following conditions:



          (a)   Representations and Warranties True; Performance of Obligations. Each of the
representations and warranties of the Purchasers contained in this Agreement that is qualified as
to materiality or Material Adverse Effect shall be true and correct, and each of the
representations and warranties of the Purchasers contained in this Agreement that is not so
qualified as to materiality or Material Adverse Effect shall be true and correct in all material
respects, in each case as of the date hereof and as of the Closing Date as if made on the Closing
Date (except for those representations and warranties which address matters only as of a particular
date, which representations and warranties shall be true and correct (with respect to those
representations and warranties qualified as to materiality or Material Adverse Effect) or in all
material respects (with respect to all other representations and warranties) as of such date). The
Purchasers shall have performed in all material respects all agreements, obligations and covenants
required to be performed or observed by it on or prior to the Closing Date.




          (b)   Legal Investment. There shall not be in effect any Law or Order directing that
the purchase and sale of the Purchased Shares, the issuance of the other Subject Shares or the
Conversion Shares or the other transactions contemplated by this Agreement, the Stockholders
Agreement or the Certificate of Designation not be consummated or which has the effect of rendering
it unlawful to consummate such transactions.




          (c)   Proceedings and Litigation. No Action shall have been commenced by any
governmental or regulatory authority against any party hereto seeking to restrain or prohibit the




21









 







purchase and sale of the Purchased Shares, the issuance of the other Subject Shares or the
Conversion Shares or the other transactions contemplated by this Agreement, the Stockholders
Agreement or the Certificate of Designation, the effect of which restraint or prohibition would
cause the condition set forth in Section 6.2(b) not to be satisfied.




          (d)   HSR Act. All waiting periods (and any extensions thereof) applicable to the
consummation of the Agreement under the Hart-Scott-Rodino Act and applicable foreign anti-trust
laws shall have expired or otherwise been terminated




          (e)   Officer’s Certificate. The Purchasers shall have delivered to the Company a
certificate, executed by the Chief Executive Officer, President or similar executive officer of the
Purchasers, dated as of the Closing Date, to the effect that the conditions specified in Section
6.2(a) have been satisfied.




          (f)   Stockholders Agreement. The Stockholders Agreement shall have been executed and
delivered by the Purchasers.




ARTICLE VII




SURVIVAL; INDEMNIFICATION




          SECTION 7.1.   Survival of Representations, Warranties and Pre-Closing Covenants.




          (a)   The representations and warranties contained in Sections 3.3(d), 3.4(a), 3.4(b), 3.19
and 4.1 (other than the first two sentences thereof) of this Agreement (collectively, the
“Indefinitely Surviving Representations”) shall survive indefinitely.




          (b)   All other representations and warranties contained in Article III of this Agreement and
the covenants of this Agreement to be performed prior to Closing shall survive until the 18-month
anniversary of the Closing Date, with the exception of the representations and warranties contained
in Section 3.14, which shall survive until three months after the expiration of the applicable
statute of limitations with respect to the subject matter thereof.




          (c)   All other representations and warranties contained in Article IV of this Agreement shall
survive until the 18-month anniversary of the Closing Date, with the exception of the
representations and warranties contained in Section 4.2, which shall survive until the third
anniversary of the Closing Date.




          (d)   In the event that (i) the Company provides written notice or notices of any breach of
any representation or warranty of the Company contained in this Agreement, or any breach of any
agreements, obligations or covenants contained herein required to be performed or observed by the
Company after the date hereof, and at least five business days before the Closing Date, (ii) the
Company acknowledges that the matters set forth in such notice or notices, in the aggregate,
results in a failure of the condition contained in Section 6.1(a) to be satisfied and (iii)




22









 







the Purchasers nonetheless permit the Closing to occur, then the Purchaser Indemnitees shall
not be entitled to indemnification hereunder with respect to such breach to the extent such breach
was described with particularity in such notice or notices.




          (e)   In the event that (i) any Purchaser provides written notice or notices of any breach of
any representation or warranty of such Purchaser contained in this Agreement, or any breach of any
agreements, obligations or covenants contained herein required to be performed or observed by such
Purchaser after the date hereof, and at least five business days before the Closing Date, (ii) such
Purchaser acknowledges that the matters set forth in such notice or notices, in the aggregate,
results in a failure of the condition contained in Section 6.2(a) to be satisfied and (iii) the
Company nonetheless permits the Closing to occur, then the Company Indemnitees shall not be
entitled to indemnification hereunder with respect to such breach to the extent such breach was
described with particularity in such notice or notices.




          SECTION 7.2.   Indemnification.




          (a)   From and after the Closing Date and subject to the other provisions of this Article VII,
the Company (the “Purchaser Indemnitor”) shall defend, indemnify and hold harmless the
Purchasers and their Affiliates and each director, officer, member, partner, employee and agent of
such Persons (the “Purchaser Indemnitees”) against any loss, damage, claim, liability,
judgment or settlement of any nature or kind, including all costs and expenses relating thereto,
including without limitation, interest, penalties and reasonable attorneys’ fees (collectively
“Damages”), arising out of, resulting from or relating to:





     (i)   the breach of any representation or warranty contained in Article III; and




     (ii)   the breach by the Company of any covenant or agreement (whether to be performed
prior to or after the Closing) contained in this Agreement.



          (b)   From and after the Closing Date and subject to the other provisions of this Article VII,
the Purchasers (the “Company Indemnitor” and collectively with the Purchaser Indemnitor,
the “Indemnitors”) shall, jointly and severally, defend, indemnify and hold harmless the
Company and its Affiliates and each director, officer, member, partner, employee and agent of such
Persons (the “Company Indemnitees” and collectively with the Purchaser Indemnitees, the
“Indemnitees”) against any Damages arising out of, resulting from or relating to:





     (i)   the breach of any representation or warranty contained in Article IV; and




     (ii)   the breach by the Purchasers of any covenant or agreement (whether to be
performed prior to or after the Closing) contained in this Agreement.



23









 





          (c)   The term “Damages” as used in this Article VII is not limited to matters asserted by
third parties against any Person entitled to be indemnified under this Article VII, but includes
Damages incurred or sustained by any such Person in the absence of third party claims, and shall
take into account such Person’s investment in the Company such that any amounts paid to the
Purchasers in indemnification under this Article VII shall be increased by the percentage that the
Purchased Shares represent on as-converted basis at Closing of the Company’s then issued and
outstanding Common Stock.




          SECTION 7.3.   Indemnification Amounts.




          (a)   An Indemnitor shall not have liability under Section 7.2 until the aggregate amount of
Damages theretofore incurred by the Purchaser Indemnitees or the Company Indemnitees, as
applicable, exceeds an amount equal to 1.5% of the Aggregate Purchase Price (the “Basket”),
in which case the Purchaser Indemnitees or the Company Indemnitees, as applicable, shall be
entitled to the aggregate amount of Damages in excess of the Basket; provided,
however, that in no event shall the aggregate amount of Damages exceed the Aggregate
Purchase Price.




          (b)   Notwithstanding the provisions of paragraph (a) above, the limitations on the
indemnification obligations of the parties set forth therein shall not apply to breaches of the
Indefinitely Surviving Representations or Sections 3.18 or 4.5.




          SECTION 7.4.   Exclusive Remedy; No Special Damages.




          (a)   The indemnification provisions set forth in this Article VII shall be the sole and
exclusive remedy for all claims for breach of any representation, warranty, covenant or agreement
under this Agreement or with respect to this Agreement and the transactions contemplated hereby,
whether at law or otherwise, other than claims for fraud or willful and intentional breach or a
suit for specific performance.




          (b)   No Indemnitee shall have any right to seek indemnification hereunder, for any Damages
for special, exemplary, punitive or multiple Damages, connected with or resulting from any breach
of this Agreement, or actions undertaken in connection with or related hereto, including any such
Damages which are based upon breach of contract, tort, breach of warranty, strict liability,
statute, operation of law or any other theory of recovery, except to the extent such Damages are
actually paid by an Indemnitee to a third party. For purposes of clarity, the foregoing does not
exclude consequential, indirect or incidental damages. Notwithstanding anything to the contrary in
the foregoing, no Damages (including lost profits) based on potential appreciation of the value of
the Common Stock, of hypothetical investment returns or of potential alternative investments shall
be taken into account in determining the amount of Damages.




          SECTION
7.5.   Indemnification Procedures.




24









 








          (a)   Notice of Third Party Claims. If any third party notifies an Indemnitee of any
matter that may give rise to a claim by such party for indemnification pursuant to Section 7.2 (a
“Third Party Claim”), such Indemnitee must give the Indemnitor written notice of such
Indemnitee’s claim for indemnification (an “Indemnification Claim Notice”) specifying in
detail to the extent practical to do so the source of the Damage and accompanied by available
reasonable supporting documentation, including any documents or pleadings delivered by such third
party to the Indemnitee, promptly (and in any event within fifteen (15) days after written notice
of such claim) after the Indemnitee receives written notice of such Third Party Claim;
provided, however, that the failure of any Indemnitee to promptly give notice
within such fifteen (15) day period will not affect any rights to indemnification hereunder except
to the extent that the Indemnitor suffers damage caused by such failure or is otherwise prejudiced.




          (b)   Control of Defense; Conditions. The indemnification obligations of an
Indemnitor with respect to Damages arising from any Third Party Claim that are subject to the
indemnification provided in Section 7.2 above shall be governed by and contingent upon the
following additional terms and conditions:





     (i)   An Indemnitor, at its option, shall be entitled to assume control of the defense
of any Third Party Claim at any time within thirty (30) days of receiving notice of the
Third Party Claim from the Indemnitee, and may appoint as lead counsel of such defense any
legal counsel selected by the Indemnitor.




     (ii)   The Indemnitee shall be entitled to participate in the defense of such claim and
to employ counsel of its choice for such purpose; provided that such employment
shall be at the Indemnitee’s own expense unless (A) the employment thereof has been
specifically authorized by the Indemnitor in writing and (B) the named parties to any such
Third Party Claim (including any impleaded parties) include both the Indemnitor and the
Indemnitee and there are one or more legal defenses, in the opinion of counsel, that are
reasonably available to such Indemnitee that are different from or additional to those
available to the Indemnitor (other than differing interests associated with an Indemnitor’s
obligation to indemnify), in which case the Indemnitee shall have the right to assume
defense of such claim and the reasonable fees and expenses of the Indemnitee’s counsel shall
be paid periodically by the Indemnitor. If the Indemnitor elects not to compromise or
defend against such Third Party Claim, and if such Third Party Claim is ultimately
determined by a court of competent jurisdiction to be entitled to indemnification as set
forth in Section 7.2, the reasonable costs and expenses of counsel of the Indemnitee
incurred in connection therewith shall be included in the indemnifiable Damages.




     (iii)   So long as the Indemnitor has the right to assume the defense of the Third
Party Claim or has assumed the defense of the Third Party Claim, (A) the Indemnitor may
consent to the entry of judgment or enter into any settlement with respect to any Third
Party Claim without the consent of the Indemnitee if a full release of the Indemnitee is
obtained and the judgment or settlement does not impose an injunction



25









 







upon the Indemnitee, and otherwise the Indemnitor may so consent to the entry of
judgment or enter into any settlement with the consent of the Indemnitee (which consent
shall not be unreasonably withheld or delayed) and (B) the Indemnitee shall not consent to
the entry of judgment or enter into any settlement with respect to any Third Party Claim, or
file any papers or provide any correspondence with respect to such matter, without prior
written consent of the Indemnitor.




     (iv)   The Indemnitees shall cooperate with the Indemnitors (including by providing
personnel for deposition, interview, consultation or otherwise as necessary or appropriate)
and shall comply with all reasonable requests of each other in connection with any
indemnifiable matter resulting from a claim by a third party.



          (c)   Notice of Other Claims. Any Indemnitee may make a claim for indemnification
pursuant to Section 7.2 by providing an Indemnification Claim Notice to the Indemnitor promptly
after the Indemnitee becomes aware of such claim. Such notice must contain a reasonably detailed
description of the claim and the nature and amount, if then reasonably ascertainable, of such
Damage; provided, however, that the failure of any Indemnitee to promptly give
notice will not affect any rights to indemnification hereunder except to the extent that the
Indemnitor suffers damage caused by such failure or is otherwise prejudiced.




          SECTION
7.6.   Certain Limitations. The indemnification obligations of the parties hereto for any breach of a representation, warranty or covenant of this Agreement shall survive for
only the period applicable to such representations, warranties or covenants as set forth in Section
7.1 of this Agreement, and thereafter all such representations, warranties or covenants of the
applicable Indemnitor under this Agreement shall be extinguished; provided,
however, that such indemnification obligation shall not be extinguished in the event of
Damages incurred as a result of an Action that was instituted or begun prior to the expiration of
the survival period set forth in Section 7.1. Subject to the proviso at the end of the immediately
preceding sentence, no claim for the recovery of such Damages may be asserted by an Indemnitee
after such period.




ARTICLE VIII




MISCELLANEOUS




          SECTION
8.1.   Other Definitions. The following terms as used in this Agreement shall
have the following meanings:



          (a)   “Affiliate” means, with respect to any Person, any other Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by or is under common
control with, such specified Person, for so long as such Person remains so associated to the
specified Person. For the avoidance of doubt, the National Association of Realtors, the Realtors
Information Network and their respective Affiliates are not Affiliates of the Company or any of its
Subsidiaries.




26









 








          (b)   “Approved Transaction” means an acquisition of the stock, assets or business of
another Person by the Company or any of its Subsidiaries or a strategic alliance or commercial
transaction entered into by the Company or such Subsidiary with another Person, which has been
approved by a majority of the disinterested directors of the Board.




          (c)   “control” (including the terms “controlled by” and “under common
control with”), with respect to the relationship between or among two or more Persons, means
the possession, directly or indirectly, of the power to direct or cause the direction of the
affairs or management of a Person, whether through the ownership of voting securities, as trustee
or executor, by contract or otherwise.




          (d)   “EBITDA” means, with respect to the Company, on a consolidated basis,
consolidated net income (as calculated in accordance with generally accepted accounting principles,
as in effect in the United States of America from time to time (“GAAP”), and using
accounting policies, procedures and principles consistent with past practice) plus, to the extent
deducted in determining consolidated net income, (i) income tax expense, (ii) interest expense,
(iii) depreciation and amortization expense and (iv) amortization of intangibles and organization
costs, minus to the extent included in determining such consolidated net income, (w) interest
income, (x) extraordinary income, (y) other non-cash income, for the trailing twelve months as of
the date hereof and (z) unusual or non-recurring revenues or expenses that are calculated in a
manner consistent with past practice and are reasonably demonstrable to be non-recurring in nature.




          (e)   “Indebtedness” means, with respect to any Person, any indebtedness of that
Person in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof) or banker’s acceptances or
representing capital lease obligations or the balance deferred and unpaid of the purchase price of
any property or representing any hedging obligations, except any such balance that constitutes an
accrued expense or trade payables, and, to the extent not otherwise included, the guarantee by that
Person of any Indebtedness of any other Person.




          (f)   “knowledge of the Company” or “Company’s knowledge” means the actual
knowledge of W. Michael Long, Jack D. Dennison, Allan D. Dalton, Lewis R. Belote, III, Michael R.
Douglas, Allan P. Merrill, Sunil Mehrotra, Maria L. Pietroforte, and Stephen Feltner, and what an
officer or employee having the position of any of the foregoing individuals should have known
assuming that such officer or employee had been and is performing his or her duties in good faith
with due care.




          (g)   “Person” means any individual, corporation, limited liability company, limited
or general partnership, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivisions thereof or any Group (as defined
in Section 13(d)(3) of the Exchange Act) comprised of two or more of the foregoing.




27









 








          (h)   “Pro Forma Debt and Preferred Stock Ratio” means, after giving effect to a
transaction or a series of related transactions, the ratio of (i) the pro forma aggregate principal
and accrued interest of indebtedness of the Company and its Subsidiaries, plus the pro forma
aggregate liquidation preference and accrued dividends of Preferred Stock of the Company and its
Subsidiaries (including the Series A Preferred Stock and Series B Preferred Stock), to (ii) the pro
forma EBITDA as of the consummation of such transaction or such series of related transactions,
with only those adjustments permitted or required by Regulation S-X promulgated by the SEC.




          SECTION
8.2.   Termination. This Agreement may be terminated by (i) mutual agreement
of the parties hereto or (ii) by either the Purchasers or the Company in the event the Closing has
not occurred by January 6, 2006; provided, that this termination right may not be exercised
by a party whose breach of a representation, warranty, covenant or agreement has delayed the
Closing. Upon termination of this Agreement pursuant to this Section 8.2, this Agreement shall be
void and of no further force and effect (other than this Article VIII, which shall not terminate
and shall survive indefinitely), and no party shall have any liability to any other party under
this Agreement, except that nothing herein shall relieve any party from any liability incurred by a
party as a result of fraud or willful and intentional breach of any of the representations,
warranties, covenants and agreements set forth in this Agreement.



          SECTION
8.3.   Expenses. Upon demand by the Purchasers and the submission of
supporting documentation reasonably acceptable to the Company, the Company agrees to reimburse the
Purchasers for all of their reasonable out-of-pocket fees and expenses or to pay directly such fees
and expenses of the Purchasers, including the fees and expenses of attorneys, accountants and
consultants employed by them, in connection with the transactions contemplated hereby;
provided, however, that such reimbursement shall not exceed $1.375 million; and
provided, further, that the Company shall not be required to reimburse such fees
and expenses if the Closing does not occur unless the failure of the Closing to occur is as a
result of the failure of any condition set forth in Sections 6.1(a), (e), (f), (g), (h) or (i) to
be satisfied.



          SECTION
8.4.   Successors and Assigns; Assignment. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, permitted assigns, heirs, executors and administrators of the parties hereto. This
Agreement may not be assigned without the prior written consent of the other parties, except that
the Purchasers may assign their rights and obligations hereunder to the management company to
Elevation or the general partner of the general partner of Elevation or any of their controlled
Affiliates (including Elevation Employee Side Fund, LLC) without the prior written consent of the
Company. Each assignee (i) agrees to be bound jointly and severally with the assignor hereunder,
(ii) agrees that the representations, warranties, covenants and other agreements made by the
Purchasers herein shall be deemed to have been made by such assignee, and (iii) shall execute a
counterpart to this Agreement, the execution of which shall constitute such assignee’s agreement to
the terms of this Section 8.4.



28









 





          SECTION
8.5.   No Third Party Beneficiaries. Except as provided in Article VII (with
respect to which the Indemnitees shall be third party beneficiaries), this Agreement is not
intended, and shall not be deemed, to confer any rights or remedies upon any person other than the
parties hereto and their respective successors and permitted assigns or otherwise create any
third-party beneficiary hereto. Notwithstanding the foregoing, Merrill Lynch shall be a third
party beneficiary of the representations and warranties contained in Section 4.2 hereof and the
proviso contained in the first sentence of Section 3.18 hereof.



          SECTION
8.6.   Entire Agreement. This Agreement and the schedules and exhibits
hereto, the Stockholders Agreement, the Confidentiality Agreement and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement among the parties with
respect to the subject matter hereof and supersede and preempt any prior understandings, agreements
or representations by or among the parties, written or oral, that may have related to the subject
matter hereof in any way.



          SECTION
8.7.   Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. The parties further agree to
replace such invalid, illegal or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the greatest extent possible, the economic, business
and other purposes of such invalid, illegal or unenforceable provision.



          SECTION
8.8.   Amendment and Waiver. This Agreement may be amended or modified only
upon the written consent of the Company and Elevation, and any provision of this Agreement may be
waived only upon the written consent of the party entitled to performance of such provision;
provided that Elevation may consent to amend or modify or to waive any provision on behalf
of all of the Purchasers. No waiver of any breach of any agreement or provision herein contained
shall be deemed a waiver of any preceding or succeeding breach thereof nor of any other agreement
or provision herein contained.



          SECTION
8.9.   Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach, default or
noncompliance by another party under this Agreement, shall impair any such right, power or remedy,
nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent or approval of any kind or
character on the Purchasers’ part of any breach, default or noncompliance under this Agreement or
any waiver on such party’s part of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent



29









 







specifically set forth in such writing. All remedies, either under this Agreement, by law, or
otherwise afforded to any party, shall be cumulative and not alternative.



          SECTION
8.10.   Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the party to be
notified; (b) when sent by confirmed facsimile or e-mail if sent during normal business hours of
the recipient, if not, then on the next business day; or (c) one (1) business day after deposit
with a nationally recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to the addresses set forth below:


If to the Company:



Homestore, Inc.

30700 Russell Ranch Road

Westlake Village, CA 91362

Fax: (805) 557-2689

E-mail: mike.douglas@homestore.com

Attn: Michael R. Douglas, General Counsel


with a copy, which shall not constitute notice, to:



Latham & Watkins LLP

633 West Fifth Street, Suite 4000

Los Angeles, CA 90071

Fax: (213) 891-8763

E-mail: ted.sonnenschein@lw.com; and

             david.hernand@lw.com

Attn: Edward Sonnenschein, Jr., Esq.

         David Hernand, Esq.


If to the Purchasers:



Elevation Partners, L.P.

2800 Sand Hill Road

Menlo Park, CA 94025

Fax: (650) 687-6710

E-mail: fred@elevation.com

Attn: Fred Anderson


with a copy to which shall not constitute notice, to:





30









 







Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017

Fax: (212) 455-2502

E-mail: mponce@stblaw.com

Attn: Mario Ponce, Esq.



          SECTION
8.11.   Interpretation. The words “hereof”, “herein” and “hereunder” and
words of like import used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. When reference is made in this Agreement to an Article or
a Section, such reference shall be to an Article or Section of this Agreement, unless otherwise
indicated. The table of contents, table of defined terms and headings contained in this Agreement
are for convenience of reference only and shall not affect in any way the meaning or interpretation
of this Agreement. The language used in this Agreement shall be deemed to be the language chosen
by the parties hereto to express their mutual intent, and no rule of strict construction shall be
applied against any party. Whenever the context may require, any pronouns used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns
and pronouns shall include the plural, and vice versa. Any reference to any federal, state, local
or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. Whenever the words “include,” “includes” or
“including” are used in this Agreement, they shall be deemed to be followed by the words “without
limitation.”



          SECTION 8.12.   Governing Law; Jurisdiction; Waiver of Jury Trial.




          (a)   This Agreement shall be governed in all respects by the Laws of the State of New York.
Any disagreement, issue, dispute, claim, demand or controversy arising out of or relating to this
Agreement (each, a “Dispute”) shall be brought in the United States District Court for the
Southern District of New York in New York, New York or any New York State court sitting in New
York, New York, so long as one of such courts shall have subject matter jurisdiction over such
Dispute. Each of the parties hereby irrevocably consents to the jurisdiction of such courts (and
of the appropriate appellate courts therefrom) in any such Dispute and irrevocably waives, to the
fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of
the venue of any such Dispute in any such court and that any such Dispute which is brought in any
such court has been brought in an inconvenient forum. Process in any such Dispute may be served on
any party anywhere in the world, whether within or without the jurisdiction of any such court.
Without limiting the foregoing, each party agrees that service of process on such party as provided
in Section 8.10 shall be deemed effective service of process on such party.




          (b)   EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING



31









 






OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.




          SECTION
8.13.   No Special Damages. Each party agrees that there shall be no special,
exemplary, punitive or multiple damages connected with or resulting from any breach of this
Agreement, or actions undertaken in connection with or related hereto, including any such damages
which are based upon breach of contract, tort, breach of warranty, strict liability, statute,
operation of law or any other theory of recovery, except to the extent such damages are actually
paid by a party hereunder to a third party, and hereby waives any rights to claim such damages.
For purposes of clarity, the foregoing does not exclude consequential, indirect or incidental
damages. Notwithstanding anything to the contrary in the foregoing, no damages (including lost
profits) based on potential appreciation of the value of the Common Stock, of hypothetical
investment returns or of potential alternative investments shall be taken into account in
determining the amount of damages.



          SECTION
8.14.   Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together shall constitute one
instrument.



[Remainder of Page Intentionally Left Blank.]




 

32




 









 








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



	 	 	 	 	 	 	 
	 	 	HOMESTORE, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Allan P. Merrill
 

Name: ALLAN P. MERRILL
	 	 
	 

	 	 	 	Title: EXECUTIVE VICE PRESIDENT	 	 
	 
	 	 	 	 	 	 
	 	 	ELEVATION PARTNERS, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Elevation Associates, L.P.,	 	 
	 

	 	 	 	As General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Elevation Associates, LLC,	 	 
	 

	 	 	 	As General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Fred D. Anderson	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: FRED D. ANDERSON	 	 
	 

	 	 	 	Title: MANAGING DIRECTOR	 	 






[Preferred Stock Purchase Agreement]