You are on page 1of 174

Processed and formatted by SEC Watch - Visit SECWatch.

com

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

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

Commission file number 0-24531

CoStar Group, Inc.


(Exact name of registrant as specified in its charter)

Delaware 52-2091509
(State or other jurisdiction of incorporation or
organization) (I.R.S. Employer Identification No.)

2 Bethesda Metro Center, 10th Floor


Bethesda, Maryland 20814
(Address of principal executive offices) (zip code)

(301) 215-8300
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.01 par value NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:


None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No
x

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities
Exchange Act of 1934.

Large accelerated filer o Accelerated filer x


Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Based on the closing price of the common stock on June 30, 2008 on the Nasdaq Stock Market®, Nasdaq Global Select Market®, the
aggregate market value of registrant’s common stock held by non-affiliates of the registrant was approximately $460 million.

As of February 17, 2009, there were 19,729,419 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement, which is expected to be filed with the Securities and Exchange Commission within
Processed and formatted by SEC Watch - Visit SECWatch.com
120 days after the end of the registrant’s fiscal year ended December 31, 2008, are incorporated by reference into Part III of this Report.
Processed and formatted by SEC Watch - Visit SECWatch.com

TABLE OF CONTENTS

PART I
Item 1. Business 3
Item 1A. Risk Factors 13
Item 1B. Unresolved Staff Comments 20
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 20

PART II
Item 5. Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity
Securities 21
Item 6. Selected Consolidated Financial and Operating Data 23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 36
Item 8. Financial Statements and Supplementary Data 37
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 37
Item 9A. Controls and Procedures 37
Item 9B. Other Information 38

PART III
Item 10. Directors, Executive Officers and Corporate Governance 39
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 39
Item 13. Certain Relationships and Related Transactions, and Director Independence 39
Item 14. Principal Accountant Fees and Services 39

PART IV
Item 15. Exhibits and Financial Statement Schedules 39
Signatures 40
Index to Exhibits 41
Index to Consolidated Financial Statements F-1

2
Processed and formatted by SEC Watch - Visit SECWatch.com

PART I

Item 1. Business

(In this report, the words “we,” “our,” “us,” “CoStar” or the “Company” refer to CoStar Group, Inc. and its direct and indirect subsidiaries.
This report also refers to our websites, but information contained on those sites is not part of this report.)

CoStar Group, Inc., a Delaware corporation, is the number one provider of information/marketing services to the commercial real estate
industry in the United States (“U.S.”) and United Kingdom (“U.K.”) based on the fact that we offer the most comprehensive commercial real
estate database available, have the largest research department in the industry, provide more information/marketing services than any of our
competitors and believe we generate more revenues than any of our competitors. CoStar’s integrated suite of services offers customers online
access to the most comprehensive database of commercial real estate information, which has been researched and verified by our team of
researchers, currently covering the U.S., as well as London and other parts of the U.K. and parts of France. Prior to 2007, CoStar operated
within one segment. Due to the increased size, complexity and funding requirements associated with our international expansion, in 2007 we
began to manage our business geographically in two operating segments, with our primary areas of measurement and decision-making being
the U.S. and International, which includes the U.K. and France.

Since our founding in 1987, CoStar’s strategy has been to provide commercial real estate professionals with critical knowledge to explore
and complete transactions, by offering the most comprehensive, timely and standardized information on U.S. commercial real estate. As a
result of our January 2003 acquisition of Focus Information Limited (now, CoStar U.K. Limited), June 2004 acquisition of Scottish Property
Network, December 2006 acquisition of Grecam S.A.S., and February 2007 acquisition of Property Investment Exchange Limited, we have
extended our offering of comprehensive commercial real estate information to include London and other parts of the U.K. and parts of
France. Information about CoStar’s revenues from, and long-lived assets located in, foreign countries is included in Notes 2 and 12 to our
consolidated financial statements. CoStar’s revenues, net income, assets and liabilities, broken out by segment are set forth in Note 12 to our
consolidated financial statements. Information about risks attendant to our foreign operations is included in “Item 7A. Quantitative and
Qualitative Disclosures about Market Risk.”

We deliver our content to our U.S. customers via an integrated suite of online service offerings that includes information about space
available for lease, comparable sales information, tenant information, information about properties for sale, internet marketing services,
property information for clients’ websites, information about industry professionals and their business relationships, analytic information, data
integration, and industry news. We have created and are continually improving a standardized information platform where the commercial real
estate industry and related businesses can continuously interact and easily facilitate transactions due to the efficient exchange of accurate
information we have supplied.

We have a number of assets that provide a unique foundation for our standardized platform, including the most comprehensive
proprietary database in the industry; the largest research department in the industry; proprietary data collection, information management and
quality control systems; a large in-house product development team; a broad suite of web-based information/marketing services; and a large
base of clients. Our database has been developed and enhanced for more than 21 years by a research department that makes thousands of
daily database updates. In addition to our internal efforts to grow the database, we have obtained and assimilated over 51 proprietary
databases.

CoStar intends to continue to grow its standardized platform of commercial real estate information/marketing services. In 2004, CoStar
began research for a 21-market U.S. expansion effort. By the end of the first quarter of 2006, CoStar had successfully launched service in each
of those 21 markets. In addition, following our acquisition of National Research Bureau in January 2005, we launched various research
initiatives as part of our expansion into real estate information for retail properties. We launched the new retail component of our flagship
product, CoStar Property Professional, in May 2006. In July 2006, we announced our intention to commence actively researching commercial
properties in approximately 81 new Core Based Statistical Areas (“CBSAs”) across the U.S. in an effort to expand the geographical coverage of
our service offerings, including our new retail service. In the fourth quarter of 2007, we released our CoStar Property Professional service in the
81 new CBSAs across the U.S. In 2008, we released CoStar Showcase, an internet marketing service that provides commercial real estate
professionals the opportunity to make their listings accessible to all visitors to our public website, www.CoStar.com.

3
Processed and formatted by SEC Watch - Visit SECWatch.com

CoStar also intends to continue to grow and expand the coverage of its service offerings within the U.K. In December 2006, CoStar’s U.K.
Subsidiary, CoStar Limited, acquired Grecam S.A.S., a provider of commercial property information and market-level surveys, studies and
consulting services, located in Paris, France. In February 2007, CoStar Limited also acquired Property Investment Exchange Limited, a provider
of commercial property information and operator of an online investment property exchange located in London, England. CoStar intends to
integrate its U.K. and French operations more fully with its U.S. operations and eventually to introduce a consistent international platform of
service offerings. Further information about CoStar’s acquisitions is included in Note 3 to our consolidated financial statements.

Our subscription-based information/marketing services, consisting primarily of CoStar Property Professional, CoStar Tenant, CoStar
COMPS Professional and FOCUS services, currently generate more then 90% of our total revenues. Our contracts for our subscription-based
information/marketing services typically have a minimum term of one year and renew automatically. Upon renewal, subscription contract rates
may increase in accordance with contract provisions or as a result of contract renegotiations. To encourage clients to use our services
regularly, we generally charge a fixed monthly amount for our subscription-based services rather than fees based on actual system usage.
Contract rates are based on the number of sites, number of users, organization size, the client’s business focus, geography and the number of
services to which a client subscribes. Our subscription clients generally pay contract fees on a monthly basis, but in some cases may pay us
on a quarterly or annual basis.

Industry Overview

The market for commercial real estate information is vast based on the variety, volume and value of transactions related to commercial real
estate. Each transaction has multiple participants and multiple information requirements, and in order to facilitate transactions, industry
participants must have extensive, accurate and current information. Members of the commercial real estate and related business community
require daily access to current data such as space availability, properties for sale, rental rates, vacancy rates, tenant movements, sales
comparables, supply, new construction, absorption rates and other important market developments to carry out their businesses effectively.
There is a strong need for an efficient marketplace, where commercial real estate professionals can exchange information, evaluate
opportunities using standardized data and interact with each other on a continuous basis.

A large number of parties involved in the commercial real estate and related business community make use of the services we provide in
order to obtain information they need to conduct their businesses, including:

• Sales and leasing brokers • Government agencies


• Property owners • Mortgage-backed security issuers
• Property managers • Appraisers
• Design and construction • Pension fund managers
professionals
• Real estate developers • Reporters
• Real estate investment trust • Tenant vendors
managers
• Investment bankers • Building services vendors
• Commercial bankers • Communications providers
• Mortgage bankers • Insurance companies’ managers
• Mortgage brokers • Institutional advisors
• Retailers • Investors and asset managers

The commercial real estate and related business community generally has operated in an inefficient marketplace because of the fragmented
approach to gathering and exchanging information within the marketplace. Various organizations, including hundreds of brokerage firms,
directory publishers and local research companies, collect data on specific markets and develop software to analyze the information they have
independently gathered. This highly fragmented methodology has resulted in duplication of effort in the collection and analysis of
information, excessive internal cost and the creation of non-standardized data containing varying degrees of accuracy and
comprehensiveness, resulting in a formidable information gap.

4
Processed and formatted by SEC Watch - Visit SECWatch.com

The creation of a standardized information platform for commercial real estate requires an infrastructure including a standardized database,
accurate and comprehensive research capabilities, easy to use technology and intensive participant interaction. By combining its extensive
database, approximately 900 researchers and outside contractors, technological expertise and broad customer base, CoStar believes that it has
created such a platform.

The U.S. and global economies have changed adversely over the past year or more, and the commercial real estate industry has been
negatively impacted. The commercial real estate market has seen a reduction in property sales and leasing activity, lower absorption rates,
climbing vacancy rates and decreases in rental rates and sales prices. The full extent of the impact of our current financial crisis is not yet
clear. As our customers continue to look for ways to reduce spending, we may continue to see reduced demand for our information/marketing
services. However, we believe that even in a weakened economy there is a continuing need for accurate, standardized commercial real estate
information/marketing services. We believe that access to continuously researched verified commercial real estate information becomes even
more valuable in a down market, as industry players assess where market conditions are heading, how their businesses should adapt,
determine what properties are worth, and try to market their properties, among other things. Moreover, outsourcing the labor-intensive task of
conducting basic real estate research may result in cost savings for our clients.

CoStar’s Comprehensive Database

CoStar has spent more than 21 years building and acquiring a database of commercial real estate information, which includes information
on leasing, sales, comparable sales, tenants, and demand statistics, as well as digital images.

As of January 30, 2009, our database of real estate information covered the U.S., as well as London, England and other parts of the U.K.
and parts of France, and contained:

• More than 1.1 million sale and lease listings;


• Over 3.2 million total properties;
• Over 8.9 billion square feet of sale and lease listings;
• Over 5.7 million tenants;
• More than 1.3 million sales transactions valued in the aggregate at over $3.1 trillion; and
• Approximately 7.6 million digital attachments, including building photographs, aerial photographs, plat maps and floor plans.

This highly complex database is comprised of hundreds of data fields, tracking such categories as:

• Location • Mortgage and deed information


• Site and zoning information • For-sale information
• Building characteristics • Income and expense histories
• Space availability • Tenant names
• Tax assessments • Lease expirations
• Ownership • Contact information
• Sales and lease comparables • Historical trends
• Space requirements • Demographic information
• Number of retail stores • Retail sales per square foot

CoStar Research

We have developed a sophisticated data collection organization utilizing a multi-faceted research process. In 2008, our full time
researchers and contractors drove millions of miles, conducted hundreds of thousands of on-site building inspections, and conducted millions
of interviews of brokers, owners and tenants.

Research Department. As of January 30, 2009, we have approximately 900 commercial real estate research professionals and outside
contractors performing research. Our research professionals undergo an extensive training program so that we can maintain consistent
research methods and processes throughout our research department. Our researchers collect and analyze commercial real estate information
through millions of phone calls, e-mails, internet updates and faxes each year, in addition to field inspections, public records review, news
monitoring and direct mail. Each researcher is responsible for maintaining the accuracy and reliability of database information. As part of their
update process, researchers develop cooperative relationships with industry professionals that allow them to gather useful information.
Because of the importance commercial real estate professionals place on our data and our prominent position in the industry, many of these
professionals routinely take the initiative and proactively report available space and transactions to our researchers.

5
Processed and formatted by SEC Watch - Visit SECWatch.com

CoStar has an extensive field research effort that includes physical inspection of properties in order to research new markets, find
additional inventory, photograph properties and verify existing information.

CoStar utilizes 147 high-tech field research vehicles in 41 states and the U.K. Of these vehicles, 100 are custom-designed energy efficient
hybrid cars that are equipped with computers, proprietary Global Positioning System tracking software, high resolution digital cameras and
handheld laser instruments to help precisely measure buildings, geo-code them and position them on digital maps. Some of our researchers
also use custom-designed trucks with the same equipment as well as pneumatic masts that extend up to an elevation of twenty-five feet to
allow for unobstructed building photographs from “birds-eye” views. Each CoStar vehicle uses wireless technology to track and transmit field
data. A typical site inspection consists of photographing the building, measuring the building, geo-coding the building, capturing “For Sale”
or “For Lease” sign information, counting parking spaces, assessing property condition and construction, and gathering tenant information.
Certain researchers canvass properties, interviewing tenants suite by suite. In addition, many of our field researchers are photographers who
take photographs of commercial real estate properties to add to CoStar’s database of digital images.

Data and Image Providers. We license a small portion of our data and images from public record providers and third party data sources.
Licensing agreements with these entities provide for our use of a variety of commercial real estate information, including property ownership,
tenant information, demographic information, maps and aerial photographs, all of which enhance various CoStar services. These license
agreements generally grant us a non-exclusive license to use the data and images in the creation and supplementation of our
information/marketing services and include what we believe are standard terms, such as a contract term ranging from one to five years,
automatic renewal of the contract and fixed periodic license fees or a combination of fixed periodic license fees plus additional fees based upon
our usage.

Management and Quality Control Systems. Our research processes include automated and non-automated controls to ensure the
integrity of the data collection process. A large number of automated data quality tests check for potential errors, including occupancy date
conflicts, available square footage greater than building area, typical floor space greater than land area and expired leases. We also monitor
changes to critical fields of information to ensure all information is kept in compliance with our standard definitions and methodology. Our
non-automated quality control procedures include:

•calling our information sources on recently updated properties to re-verify information;


•reviewing calls our researchers made to their industry contacts to ensure data reported to the researcher is entered correctly into the
database;
•performing periodic research audits and field checks to determine if we correctly canvassed buildings;
•providing training and retraining to our research professionals to ensure accurate data compilation; and
•compiling measurable performance metrics for research teams and managers for feedback on data quality.

Finally, one of the most important and effective quality control measures we rely on is feedback provided by the commercial real estate
professionals using our data every day.

Proprietary Technology

As of January 30, 2009, CoStar had a staff of 90 product development, database and network professionals. CoStar’s information
technology professionals focus on developing new services for our customers and delivering research automation tools that improve the
quality of our data and increase the efficiency of our research analysts.

6
Processed and formatted by SEC Watch - Visit SECWatch.com

Our information technology team is responsible for developing and maintaining CoStar products, including CoStar Property Professional,
CoStar Property Express, CoStar COMPS, CoStar Tenant, CoStar Showcase, CoStar Commercial MLS and CoStar Connect, as well as our
international products. In 2006, CoStar released a major upgrade to its CoStar COMPS service that provides customers with over 100
improvements, including access to for sale information, aerials and enhanced mapping. In 2007, to better support our retail customers, we
added significant features to CoStar Property Professional including tenant proximity and demographic search capability, mapping layers,
detailed retail tenant information and demographics. In 2008, CoStar released CoStar Showcase, an internet marketing service that provides
commercial real estate professionals the opportunity to make their listings accessible to all visitors to our public website, www.CoStar.com.
CoStar has also begun development of an international platform, which will allow CoStar to offer CoStar Property Professional in international
countries.

Our information technology team is responsible for developing the infrastructure necessary to support CoStar’s business processes, our
comprehensive database of commercial real estate information/marketing services and our extensive image library. The team implements
technologies and systems that introduce efficient workflows and controls that increase the production capacity of our research teams and
improve the quality of our data. Over the years, the team has developed data collection and quality control mechanisms that we believe are
unique to the commercial real estate industry. The team continues to develop and modify our enterprise information management system that
integrates CoStar sales, research, field research, customer support and accounting information. We use this system to maintain our
commercial real estate research information, manage contacts with the commercial real estate community, provide research workflow
automation and conduct daily automated quality assurance checks. In addition, our information technology team has also developed fraud-
detection technology to detect and prevent unauthorized access to our services.

Our information technology professionals also maintain the servers and network components necessary to support CoStar services and
research systems. Our encrypted virtual private network provides remote researchers and salespeople secure access to CoStar applications
and network resources. CoStar maintains a comprehensive data protection policy that provides for use of encrypted data fields and off-site
storage of all system backups, among other protective measures. CoStar’s services are continually monitored in an effort to ensure our
customers fast and reliable access.

Services

Our suite of information/marketing services is branded and marketed to our customers. Our services are derived from a database of
building-specific information and offer customers specialized tools for accessing, analyzing and using our information. Over time, we expect to
enhance our existing information/marketing services and develop additional services that make use of our comprehensive database to meet the
needs of our existing customers as well as potential new categories of customers.

Our various information/marketing services are described in detail in the following paragraphs as of January 30, 2009:

CoStar Property Professional® CoStar Property Professional, or “CoStar Property,” is the Company’s flagship service. It provides
subscribers a comprehensive inventory of office, industrial, retail and multifamily properties and land in markets throughout the U.S., including
for-lease and for-sale listings, historical data, building photographs, maps and floor plans. Commercial real estate professionals use CoStar
Property to identify available space for lease, evaluate leasing and sale opportunities, value assets and position properties in the marketplace.
Our clients also use CoStar Property to analyze market conditions by calculating current vacancy rates, absorption rates or average rental
rates, and forecasting future trends based on user selected variables. CoStar Property provides subscribers with powerful map-based search
capabilities as well as a user controlled, password protected extranet (or electronic “file cabinet”) where brokers may share space surveys and
transaction-related documents online, in real time, with team members. When used together with CoStar Connect, CoStar Property enables
subscribers to share space surveys and transaction-related documents with their clients, accessed through their corporate website. CoStar
Property, along with all of CoStar’s other core information/marketing services, are delivered solely via the internet.

CoStar COMPS Professional ® CoStar COMPS Professional, or “COMPS Professional,” provides comprehensive coverage of
comparable sales information in the U.S. commercial real estate industry. It is the industry’s most comprehensive database of comparable sales
transactions and is designed for professionals who need to research property comparables, identify market trends, expedite the appraisal
process and support property valuations. COMPS Professional service offers subscribers numerous fields of property information, access to
support documents (e.g., deeds of trust) for new comparables, demographics and the ability to view for-sale properties alongside sold
properties in three formats – plotted on a map, aerial image or in a table.

7
Processed and formatted by SEC Watch - Visit SECWatch.com

CoStar Tenant® CoStar Tenant is a detailed online business-to-business prospecting and analytical tool providing commercial real estate
professionals with the most comprehensive commercial real estate-related U.S. tenant information available. CoStar Tenant profiles tenants
occupying space in commercial buildings across the U.S. and provides updates on lease expirations - one of the service’s key features - as well
as occupancy levels, growth rates and numerous other facts. Delivering this information via the internet allows users to target prospective
clients quickly through a searchable database that identifies only those tenants meeting certain criteria.

CoStar Showcase® CoStar Showcase offers commercial real estate professionals a simple way to get their for sale and for lease listings in
front of a broad internet audience who search on Google TM, Yahoo ® and Costar.com to find commercial properties. When customers sign up
for CoStar Showcase, their listings become accessible to visitors to Costar.com, who can search those listings for free. To drive traffic to
CoStar Showcase subscriber listings, CoStar invests in Google TM and Yahoo ® keyword based pay-per-click advertising to capture the high
volume traffic of users actively searching for commercial properties on those search engines. As part of their CoStar Showcase subscription,
subscribers also receive customized websites for each of their brokers that displays their bio, photo, contact information and updated listings
that they can use to promote their services.

CoStar Property Express ® CoStar Property Express provides access, via an annual subscription, to a “light” or scaled down version of
CoStar Property. Commercial real estate professionals use CoStar Property Express to look up and search for lease and for sale listings in
CoStar’s comprehensive national database. CoStar Property Express provides base building information, photos, floor plans, maps and a
limited number of reports.

CoStar Listings Express® CoStar Listings Express provides access via an annual subscription to a listings only version of CoStar
Property Express. Commercial real estate professionals use CoStar Listings Express to look up and search for lease and for sale listings in
CoStar’s comprehensive national database. CoStar Listings Express provides base building information, photos, floor plans, maps and a
limited number of reports on only properties that are either for lease or for sale. CoStar Listings Express does not provide information on fully
leased properties, as found in CoStar Property Professional and CoStar Property Express.

CoStar COMPS Express ® CoStar COMPS Express provides users with immediate, subscription free access with payment by credit card
to the CoStar COMPS Professional system on a report-by-report basis. Subscribers also use this on-demand service to research comparable
sales information outside of their subscription markets.

CoStar Connect® CoStar Connect allows commercial real estate firms to license CoStar’s technology and information to market their U.S.
property listings on their corporate websites. Customers enhance the quality and depth of their listing information through access to CoStar’s
database of content and digital images. The service automatically updates via the CoStar Property database and manages customers’ online
property information, providing comprehensive listings coverage and significantly reducing the expense of building and maintaining their
websites’ content and functionality.

CoStar Commercial MLS ® CoStar Commercial MLS is the industry’s most comprehensive collection of researched for sale
listings. CoStar Commercial MLS draws upon CoStar’s large database of digital images and includes office, industrial, multifamily and retail
properties, as well as shopping centers and raw land. CoStar Commercial MLS represents an efficient means for sellers to market their
properties to a large audience and for buyers to easily identify target properties.

CoStar Advertising® CoStar Advertising offers property owners a highly targeted and cost effective way to market a space for lease or a
property for sale directly to the individuals looking for that type of space through interactive advertising. Our advertising model is based on
varying levels of exposure, enabling the advertiser to target as narrowly or broadly as its budget permits. With the CoStar Advertising
program, when the advertiser’s listings appear in a results set, they receive priority positioning and are enhanced to stand out. The advertiser
can also purchase exposure in additional submarkets, or the entire market area so that this ad will appear even when this listing would not be
returned in a results set.

8
Processed and formatted by SEC Watch - Visit SECWatch.com

CoStar Professional Directory® CoStar Professional Directory, a service available exclusively to CoStar Property Professional
subscribers, provides detailed contact information for approximately 1.1 million commercial real estate professionals, including specific
information about an individual’s current and prior activities such as completed transactions, current landlord representation assignments,
sublet listings, major tenants and owners represented and local and national affiliations. Commercial real estate brokers can input their
biographical information and credentials and upload their photo to create personal profiles. Subscribers use CoStar Professional Directory to
network with their peers, identify and evaluate potential business partners, and maintain accurate mailing lists of other industry professionals
for their direct mail marketing efforts.

CoStar Market Report™ The CoStar Market Report provides in-depth current and historical analytical information covering office,
industrial and retail properties across the U.S. Published quarterly, each market report includes details such as absorption rates, vacancy
rates, rental rates, average sales prices, capitalization rates, existing inventory and current construction activity. This data is presented using
standard definitions and calculations developed by CoStar, and offers real estate professionals critical and unbiased information necessary to
make intelligent commercial real estate decisions. CoStar Market Reports are available to CoStar Property Professional subscribers at no
additional charge, and are available for purchase by non-subscribers.

Metropolis™ The Metropolis service is a single interface that combines commercial real estate data from multiple information providers
into a comprehensive resource. The Metropolis service allows a user to input a property address and then view detailed information on that
property from multiple information providers, including CoStar services. This technology offers commercial real estate professionals a simple
and convenient solution for integrating a wealth of third party information and proprietary data, and is currently available for the Southern
California markets.

FOCUS™ CoStar’s U.K. subsidiary, CoStar UK Limited, offers several services, the primary of which is FOCUS. FOCUS is a digital
online service offering information on the U.K. commercial real estate market. This service seamlessly links data on individual properties and
companies across the U.K., including comparable sales, available space, requirements, tenants, lease deals, planning information, socio-
economics and demographics, credit ratings, photos and maps.

SPN™ SPN provides users online access to a comprehensive database of information for properties located in Scotland, including
available space, comparable sales and lease deals.

Propex™ Propex gives users access to the commercial property investment market. It is used by U.K. investment agencies and
professional investors and is a secure online exchange through which investment deals may be introduced. It is a primary channel for the
distribution of live transaction data and property research data in the U.K. investment market. Propex also provides private investors with a
gateway into the commercial property investment market. It is a free-access listing website, which provides details of commercial property
investments. It is used by U.K. agencies to sell investments suitable for the private investor.

Shopproperty.co.uk™ Shopproperty is a listing database of available retail units across the U.K. on a free-access
website. Shopproperty.co.uk is the only specialist listing website with fully licensed Goad street-trader plans.

Grecam™ Our French subsidiary, Grecam S.A.S., provides commercial real estate information throughout the Paris region through its
Observatoire Immobilier D’ Entreprise (“OIE”) service offering. The OIE service provides commercial property availability and transaction
information to its subscribers through both an online service and market reports.

Clients

We draw clients from across the commercial real estate and related business community. Commercial real estate brokers have traditionally
formed the largest portion of CoStar clients, however, we also provide services to owners, landlords, financial institutions, retailers, vendors,
appraisers, investment banks, governmental agencies, and other parties involved in commercial real estate. The following chart lists U.S. and
U.K. clients that are well known or have the highest annual subscription fees in each of the various categories, each as of January 30, 2009.

9
Processed and formatted by SEC Watch - Visit SECWatch.com

Brokers Lenders, Investment Bankers Institutional Advisors, Asset Managers


CB Richard Ellis Capmark — U.K. BlackRock
CB Richard Ellis — U.K. Deutsche Bank Prudential
Colliers Wells Fargo Prudential — U.K.
Colliers Conrad Ritblat Erdman — U.K. JP Morgan Chase Bank Metropolitan Life
Cushman & Wakefield Key Bank ING Clarion Partners
Cushman & Wakefield — U.K. TD Bank Duke Realty Corporation
Weichert Commercial Brokerage Citibank USAA Real Estate Company
Jones Lang LaSalle AEGON USA Realty Advisors, Inc. NorthMarq Capital
Jones Lang LaSalle — U.K. Capmark Financial Group, Inc. AEW Capital Management LP
Grubb & Ellis East West Bank Progressive Casualty Insurance Co.
Gerald Eve — U.K. Q10 Bonneville Mortgage Company
Drivers Jonas — U.K.
Lambert Smith Hampton — U.K.
Charles Dunn Company, Inc.
Marcus & Millichap Owners, Developers Appraisers, Accountants
Mohr Partners Hines Integra
Newmark & Company Real Estate LNR Property Corp Deloitte
CRESA Partners Shorenstein Company, LLC Deloitte — U.K.
Studley Mack-Cali Marvin F. Poer
Coldwell Banker Commercial NRT Manulife Financial KPMG
UGL Equis Industrial Developments International (IDI) GE Capital
FirstService Williams Land Securities — U.K. PGP Valuation
GVA Advantis Thomson Reuters
Binswanger
Re/Max
Carter Retailers Government Agencies
USI Real Estate Brokerage Services Nationwide Insurance U.S. General Services Administration
DAUM Commercial Real Estate Café Rio Mexican Grill, Inc. County of Los Angeles
Services Merle Norman Cosmetics, Inc. Internal Revenue Service
HFF Massage Envy City of Chicago
U.S. Equities Realty 7-Eleven Cook County Assessor’s Office
Sperry Van Ness Dollar General Corporation U.S. Department of Housing and
DTZ — U.K. Walgreens Urban Development
Savillis Commercial — U.K. Town Fair Tire Corporation of London — U.K.
Atis Real — U.K. Rent-A-Center Scottish Enterprise — U.K.
GVA Grimley — U.K. Spencer Gifts LLC Federal Reserve Bank of New York
King Sturge — U.K.

REITs Property Managers Vendors


Brandywine Realty Trust Transwestern Commercial Services Turner Construction Company
Brookfield Properties Lincoln Property Company Kastle Systems
Boston Properties PM Realty Group Comcast Corporation
Liberty Property Trust Navisys Group ADT Security
Kimco Realty Corporation Osprey Management Company MWB — U.K.
Vornado Realty Trust Leggat McCall Properties Cox Communications, Inc.
Simon Property Group, Inc. Asset Plus Corporation Clear Channel Outdoor
Morlin Asset Management LP Verizon Communications, Inc.

10
Processed and formatted by SEC Watch - Visit SECWatch.com

For the years ended December 31, 2006, 2007 and 2008, no single client accounted for more than 5% of our revenues.

Sales and Marketing

As of January 30, 2009, we had 220 sales, marketing and customer support employees, with the majority of our direct sales force located in field
the U.S. and in London, England; Manchester, England; Glasgow, Scotland and Paris, France. Our inside sales team is located in our Marylan
exclusively by telephone and over the internet to support the direct sales force.

Our local offices typically serve as the platform for our in-market sales, customer support and field research operations for their respective r
existing clients, providing ongoing customer support, renewing existing client contracts and identifying cross-selling opportunities. In addition, the

Our sales strategy is to aggressively attract new clients, while providing ongoing incentives for existing clients to subscribe to additional
frequent service demonstrations as well as company-client contact and communication. We place a premium on training new and existing client
satisfaction with our services. Our strategy also involves entering into multi-year, multi-market license agreements with our larger clients.

We seek to make our services essential to our clients’ businesses. To encourage clients to use our services regularly, we generally charge a
actual system usage. Contract rates are generally based on the number of sites, number of users, organization size, the client’s business focus,
clients generally pay contract fees on a monthly basis, but in some cases may pay us on a quarterly or annual basis. In addition, through CoStar C
without a subscription on a pay per use basis.

Our customer service and support staff is charged with ensuring high client satisfaction by providing ongoing customer support.

Our primary marketing methods include: service demonstrations; face to face networking; web-based marketing; direct marketing; communi
industry events; print advertising in trade magazines and local business journals; client referrals; and CoStar Advisor™, the Company’s newslett
marketing are the most cost-effective means for us to find prospective clients. Our web-based marketing efforts include paid advertising with majo
include direct mail, email and telemarketing, and make extensive use of our unique, proprietary database. Once we have identified a prospective clie
of advertising to build brand identity and reinforce the value and benefits of our services. We also sponsor and attend local association activit
reinforce our relationships with our core user groups, including industry-leading events for commercial brokers and retail and financial services ins

In May 2008, we released CoStar Showcase®, an internet marketing service that provides commercial real estate professionals the opportunity
and allows each visitor to search those property listings for free. CoStar Showcase draws additional traffic to our website through searches on Go
are researched and verified by CoStar researchers. CoStar Showcase subscribers need only designate their listings for inclusion in the free proper
our other services, serve as leads for additional cross-selling opportunities.

11
Processed and formatted by SEC Watch - Visit SECWatch.com

Competition

The market for information/marketing services generally is competitive and rapidly changing. In the commercial real estate industry, the princ
providers are:

• quality and depth of the underlying databases;


• ease of use, flexibility, and functionality of the software;
• timeliness of the data;
• breadth of geographic coverage and services offered;
• client service and support;
• perception that the service offered is the industry standard;
• price;
• effectiveness of marketing and sales efforts;
• proprietary nature of methodologies, databases and technical resources;
• vendor reputation;
• brand loyalty among customers; and
• capital resources.

We compete directly and indirectly for customers with the following categories of companies:

• online services or websites targeted to commercial real estate brokers, buyers and sellers of commercial real estate properties, insuran
Information Limited, officespace.com, MrOfficeSpace.com, and TenantWise, Inc;

• publishers and distributors of information/marketing services, including regional providers and national print publications, such as Black’
Yale Robbins, Inc., Reis, Inc., Real Capital Analytics, Inc. and The Smith Guide, Inc.;

• locally controlled real estate boards, exchanges or associations sponsoring property listing services and the companies with whom t
Commercial Association of Realtors Data Services and the Association of Industrial Realtors;

• in-house research departments operated by commercial real estate brokers; and

• public record providers.

As the commercial real estate information/marketing services marketplace develops, additional competitors (including companies which coul
resources than we do) may enter the market and competition may intensify. While we believe that we have successfully differentiated ourselves fro

Proprietary Rights

To protect our proprietary rights in our methodologies, database, software, trademarks and other intellectual property, we depend upon a comb

• trade secret, copyright, trademark, database protection and other laws;


• nondisclosure, noncompetition and other contractual provisions with employees and consultants;
• license agreements with customers;
• patent protection; and
• technical measures.

12
Processed and formatted by SEC Watch - Visit SECWatch.com

We seek to protect our software’s source code, our database and our photography as trade secrets and under copyright law. Although c
copyright registration for many of our databases, photographs, software and other materials. Under current U.S. copyright law, the arrangement an
with respect to our U.K. databases, certain database protection laws provide additional protections of these databases. We license our services un
These agreements restrict the disclosure and use of our information and prohibit the unauthorized reproduction or transfer of the information/mark

We also attempt to protect the secrecy of our proprietary database, our trade secrets and our proprietary information through confidentiality a
include technical measures designed to discourage and detect unauthorized copying of our intellectual property. We have established an inter
services to detect and prevent unauthorized access, and we actively prosecute individuals and firms that engage in this unlawful activity.

We have filed trademark applications to register trademarks for a variety of names for CoStar services and other marks, and have obtained reg
Property”, “CoStar Tenant”, “CoStar Showcase” and “CoStar Group”. Depending upon the jurisdiction, trademarks are generally valid as long a
been found to become generic. We consider our trademarks in the aggregate to constitute a valuable asset. In addition, we have filed several p
have one patent in the U.K. which expires in 2021 covering, among other things, certain of our field research methodologies, and three patents i
elements of CoStar’s proprietary field research technology and mapping tools. We regard the rights under our patents as valuable to our business

Employees

As of January 30, 2009, we employed 1,178 employees. None of our employees is represented by a labor union. We have experienced no work

Available Information

Our investor relations internet website is http://www.costar.com/investors.aspx. The reports we file with or furnish to the Securities and Exch
are available free of charge on our internet website as soon as reasonably practicable after we electronically file such material with, or furnish i
information we file with the Securities and Exchange Commission at the Commission's Public Reference Room at 100 F Street, NE, Washington, D
Room by calling the SEC at 1-800-SEC-0330. The Securities and Exchange Commission maintains an internet site that contains reports, proxy and
with the Commission at http://www.sec.gov.

Item 1A. Risk Factors

Cautionary Statement Concerning Forward-Looking Statements

We have made forward-looking statements in this Report and make forward-looking statements in our press releases and conference calls that
that is not purely historic fact and include, without limitation, statements concerning our financial outlook for 2009 and beyond, our possible or
regarding assumptions about our revenues, EBITDA, fully diluted net income, taxable income, cash flow from operating activities, available cash,
diluted net income per share, weighted-average outstanding shares, capital and other expenditures, effective tax rate, equity compensation charges
acquisitions, contract renewal rate, capital structure, contractual obligations, legal proceedings and claims, our database, database growth, ser
liquidate or realize our long-term investments, management’s plans, goals and objectives for future operations, and growth and markets for o
“Business,” “Risk Factors,” “Properties,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of O
and Procedures” and the Financial Statements and related Notes.

13
Processed and formatted by SEC Watch - Visit SECWatch.com

Our forward-looking statements are also identified by words such as “believes,” “expects,” “thinks,” “anticipates,” “intends,” “estimates” or
estimates reflecting our judgment, beliefs and expectations, not guarantees of future performance. They are subject to a number of assumptions,
expressed or implied in the forward-looking statements. The following important factors, in addition to those discussed or referred to under the he
future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statemen
consolidations within the commercial real estate industry; customer retention; our ability to attract new clients; our ability to sell additional service
acquire and integrate acquisition candidates; our ability to obtain any required financing on favorable terms; global credit market conditions affec
our ability to continue to expand successfully; our ability to effectively penetrate the market for retail real estate information and gain acceptance i
practices; release of new and upgraded services by us or our competitors; data quality; development of our sales force; employee retention; tech
real estate brokers and other strategic partners; legal and regulatory issues; and successful adoption of and training on our services.

Accordingly, you should not place undue reliance on forward-looking statements, which speak only as of, and are based on information avail
statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained o
statements or release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this Report or t

Risk Factors

A downturn or consolidation in the commercial real estate industry may decrease customer demand for our services. The continuing declin
rates and the on-going downturn in the commercial real estate market’s for sale activity may affect our ability to generate revenues and may lead to
revenues or our revenue growth rate to decline and reduce our profitability. A depressed commercial real estate market has a negative impact on
services. Also, companies in this industry are consolidating, often in order to reduce expenses. Consolidation, or other cost-cutting measures by o
our customers, reduce the number of our existing clients, reduce the size of our target market or increase our clients’ bargaining power, all of
profitability.

Negative general economic conditions could increase our expenses and reduce our revenues. Our business and the commercial real esta
success of our business depends on a number of factors relating to general global, national, regional and local economic conditions, including perc
interest rates, taxation policies, availability of credit, employment levels, and wage and salary levels. Negative general economic conditions coul
continuing bank failures and freezing of the credit markets generally, other adverse national and global economic events, as well as any signifi
general, which could negatively affect our financial performance and our stock price. Market disruptions may also contribute to extreme price and v

14
Processed and formatted by SEC Watch - Visit SECWatch.com

unrelated to our operating performance. In addition, a significant increase in inflation could increase our expenses more rapidly than expected, the e
deflation resulting in a decline of prices could reduce our revenues. In the current economic environment, it is difficult to predict whether we will ex
either could have an adverse effect on our results of operations. As a result of current economic conditions, we have recently seen an increase in c
us. If we experience greater cancellations and more reductions of services and failures to timely pay and we do not acquire new clients or sell new
would be adversely affected.

Our revenues and financial position will be adversely affected if we are not able to attract and retain clients. Our success and revenues dep
subscription-based information/marketing services generate the largest portion of our revenues. However, we may be unable to attract new clients,
services. In addition, in order to increase our revenue, we must continue to attract new customers, continue to keep our cancellation rate low
continue to grow our customer base, keep the cancellation rate for customers and services low or sell new services to existing customers as a resu
customers have no need for our services; a decision to use alternative services; customers’ and potential customers’ pricing and budgetary constr
technical problems; or competitive pressures. If clients decide to cancel services or not to renew their subscription agreements, and we do not
revenues and our revenue growth rate may decline.

If we are unable to hire qualified persons for, or retain and continue to develop, our sales force, or if our sales force is unproductive, our r
continue to develop, train and retain our sales force. Our ability to build and develop a strong sales force may be affected by a number of factors
effectively train our sales force; the ability of our sales force to sell an increased number of services; our ability to manage effectively an outbound
the competition we face from other companies in hiring and retaining sales personnel; and our ability to effectively manage a multi-location sales
the members of our sales force, including sales force management, or if our sales force is unproductive, our revenues or growth rate could decline a

Fluctuating foreign currencies may negatively impact our business, results of operations and financial position. Due to our acquisitions o
Propex, a portion of our business is denominated in the British Pound and Euro and as a result, fluctuations in foreign currencies may have an im
currency exchange rates have fluctuated greatly and may continue to fluctuate. Significant foreign currency exchange rate fluctuatio
consolidated revenue. Currencies may be affected by internal factors, general economic conditions and external developments in other countries, a
party to any hedging transactions intended to reduce our exposure to exchange rate fluctuations. We may seek to enter into hedging transactions
acceptable terms or at all. We cannot predict whether we will incur foreign exchange losses in the future. Further, significant foreign exchange fluc
our foreign assets, as well as decrease our revenues and earnings from our foreign subsidiaries, which would reduce our profitability and adversely

15
Processed and formatted by SEC Watch - Visit SECWatch.com

If we are unable to sustain our revenue growth or our operating costs are higher than expected, our profitability may be reduced and o
forecast our revenue growth rate. Many of our expenses, particularly personnel costs and occupancy costs, are relatively fixed. As a result, we ma
expenses or revenue shortfall. We may experience higher than expected operating costs, including increased personnel costs, occupancy costs,
communications costs, travel costs, software development costs, professional fees and other costs. If operating costs exceed our expectations an
operations and financial position will be adversely affected. Additionally, we may not be able to sustain our historic revenue growth rates and
growth depend on continued increased demand for our services. Our sales are affected by, among other things, general economic and comme
preference, a further weakening of the U.S. or global economies or other reasons, may result in decreased revenue and growth, adversely affecting

Competition could render our services uncompetitive. The market for information systems and services in general is highly competitive and ra
recessionary economic conditions, as customer bases and customer spending decrease and service providers are competing for fewer customer res
recognition, larger customer bases, better technology or data, lower prices, easier access to data, greater user traffic or greater financial, technical o
effective marketing campaigns, obtain more data, adopt more aggressive pricing policies, make more attractive offers to potential employees, subscr
quickly to new or emerging technologies or changes in user requirements. If we are unable to retain customers or obtain new customers, our revenu
revenues and higher expenses, which would reduce our profitability.

Litigation or government investigations in which we become involved may significantly increase our expenses and adversely affect our s
lawsuits, threatened lawsuits or government investigations in which we are involved could cost us a significant amount of time and money to def
addition, if any claims are determined against us or if a settlement requires us to pay a large monetary amount, our profitability could be significa
assurances that we will have any or sufficient insurance to cover any litigation claims.

We may be subject to legal liability for collecting displaying or distributing information. Because the content in our database is collected f
of contract, defamation, negligence, unfair competition or copyright or trademark infringement or claims based on other theories. We could also be
links to other websites or information on our website supplied by third parties. Even if these claims do not result in liability to us, we could inc
liability for information distributed by us to others could require us to implement measures to reduce our exposure to such liability, which
information/marketing services to users.

An impairment in carrying value of goodwill could negatively impact our consolidated results of operations and net worth. Goodwill and
reporting unit on October 1st of each year for impairment and are tested for impairment more frequently based upon the existence of one or more ind
units under Statement of Financial Accounting Standards (“SFAS”) No. 142 for consideration of potential impairment of goodwill. We assess the i
or changes in circumstances indicate that the carrying value may not be recoverable. The existence of one or more of the following indicators could

• Significant underperformance relative to historical or projected future operating results;


• Significant changes in the manner of our use of acquired assets or the strategy for our overall business;
• Significant negative industry or economic trends; or
• Significant decline in our market capitalization relative to net book value for a sustained period.

These types of events or indicators and the resulting impairment analysis could result in goodwill impairment charges in the future, which wo
results in the periods of such charges, which may reduce our profitability. As of December 31, 2008, we had $54.3 million of goodwill, $31.5 million i

16
Processed and formatted by SEC Watch - Visit SECWatch.com

Our stock price may be negatively affected by fluctuations in our financial results. Our operating results, revenues and expenses may fluc
reasons, many of which are outside of our control, such as: cancellations or non-renewals of our services; competition; our ability to control exp
consolidation in the real estate industry; our investments in geographic expansion and to increase coverage in existing markets; interest rate fl
successful execution of our expansion plans; data quality; the development of our sales force; managerial execution; employee retention; foreign c
on our services; litigation; acquisitions of other companies or assets; sales, brand enhancement and marketing promotional activities; client s
resources. In addition, changes in accounting policies or practices may affect our level of net income. Fluctuations in our financial results, revenue

Market volatility may have an adverse effect on our stock price. The trading price of our common stock has fluctuated widely in the past, a
widely based on numerous factors, including: economic factors; quarter-to-quarter variations in our operating results; changes in analysts’ es
innovations or new services; general conditions in the commercial real estate industry; developments or disputes concerning copyrights or propr
recent years, the stock market in general, and the shares of internet-related and other technology companies in particular, have experienced extrem
securities issued by many companies for reasons unrelated to the operating performance of the specific companies and may have the same effect o

International operations expose us to additional business risks, which may reduce our profitability. Our international operations and e
fluctuations; adapting to the differing business practices and laws in foreign countries; difficulties in managing foreign operations; limited protect
receivable and longer collection periods; costs of enforcing contractual obligations; impact of recessions in economies outside the U.S.; and
additional burdens on our executive and administrative personnel, systems development, research and sales departments, and general managerial
may incur higher expenses and our profitability may be reduced. Finally, the investment required for additional international expansion could exce
adversely affect our financial position.

Negative conditions in the global credit markets may affect the liquidity of a portion of our long-term investments. Currently our long-ter
primarily student loan securities supported by guarantees from the Federal Family Education Loan Program (“FFELP”) of the U.S. Department of Ed
investors from liquidating their holdings of auction rate securities because the amount of securities submitted for sale has exceeded the amount of
value of ARS all of which failed to settle at auctions. When an auction fails for ARS in which we have invested, we may be unable to liquidate som
these funds, we will not be able to do so until a future auction on these investments is successful, a buyer is found outside the auction process or a
investments at par, we may incur a loss, which would reduce our profitability and adversely affect our financial position.

17
Processed and formatted by SEC Watch - Visit SECWatch.com
Our ARS investments are not currently trading and therefore do not currently have a readily determinable market value. Accordingly, the estim
discounted cash flow model to determine the estimated fair value of our investment in ARS as of December 31, 2008. The assumptions used in prep
spreads, timing and amount of cash flows, liquidity risk premiums, expected holding periods and default risk of the ARS. Based on this assessment
value of our ARS investments of approximately $3.7 million. The decline was deemed to be a temporary impairment and recorded as an unrealized l
ARS are unable to successfully close future auctions and their credit ratings deteriorate, we may be required to record additional unrealized losses
earnings on these investments, which would reduce our profitability and adversely affect our financial position.

If we are unable to enforce or defend our ownership and use of intellectual property, our business, competitive position and operating
intellectual property involved in our methodologies, database, services and software. We rely on a combination of trade secret, patent, copyright a
other contractual provisions and technical measures to protect our intellectual property rights. However, current law may not provide for adequat
to the validity, enforceability and scope of protection of proprietary rights in internet related businesses are uncertain and evolving, and we ca
business could be significantly harmed if we are not able to protect our content and our other intellectual property. The same would be true if a c
intellectual property lawsuits or threatened lawsuits in which we are involved, either as a plaintiff or as a defendant, could cost us a significant
business. In addition, if we do not prevail on any intellectual property claims, this could result in a change to our methodology or information/mark

Our current or future geographic expansion plans may not result in increased revenues, which may negatively impact our business, resu
resources towards increasing the depth of our coverage within existing markets imposes additional burdens on our research, systems development
to increase the depth of our coverage in the U.S. and U.K. If we are unable to manage our expansion efforts effectively, if our expansion efforts t
financial position could be adversely affected. In addition, if we incur significant costs to improve data quality within existing markets, or are not s
expansion may have a material adverse effect on our financial position by increasing our expenses without increasing our revenues, adversely affec

Our continuing expansion into the retail real estate sector may not be completed successfully or may not result in increased revenues, whi
Expanding into the retail real estate sector imposed and continues to impose additional burdens on our research, systems development, sales, mark
expand the number of retail properties contained within our database. If we are unable to manage this expansion effectively, if this expansion effo
financial position could be adversely affected. In addition, if we incur significant costs to expand our retail sector services and we are not success
new services, our expansion may have a material adverse effect on our financial position by increasing our expenses without increasing our revenue

We may not be able to successfully introduce new or upgraded information/marketing services, which could decrease our revenues and ou
continue to introduce new and upgraded services into the marketplace. To be successful, we must adapt to rapid technological changes by cont
upgrades to services imposes heavy burdens on our systems department, management and researchers. This process is costly, and we cannot a
addition, successfully launching and selling a new service puts pressure on our sales and marketing resources. If we are unable to develop new o
and our revenues may decline and our profitability may be reduced. In addition, if we incur significant costs in developing new or upgraded servic
customers fail to accept these new services, it could have a material adverse effect on our results of operations by decreasing our revenues or our r
18
Processed and formatted by SEC Watch - Visit SECWatch.com

Technical problems that affect either our customers’ ability to access our services, or the software, internal applications and systems und
services, lower revenues and increased costs. Our business increasingly depends upon the satisfactory performance, reliability and availability
internet or the services provided by our local exchange carriers or internet service providers could result in slower connections for our customer
experience technical problems in distributing our services, we could experience reduced demand for our information/marketing services. In additio
and may not be efficient or error-free. Our careful development and testing may not be sufficient to ensure that we will not encounter technical pr
Any inefficiencies, errors or technical problems with our software, internal applications and systems could reduce the quality of our services or in
reduce the demand for our services, lower our revenues and increase our costs.

If we are not able to obtain and maintain accurate, comprehensive or reliable data, we could experience reduced demand for our infor
comprehensiveness, accuracy and reliability of the data we provide. The task of establishing and maintaining accurate and reliable data is challeng
comprehensive or reliable, we could experience reduced demand for our services or legal claims by our customers, which could result in lower
processes to update our database. Any inefficiencies, errors, or technical problems with this application could reduce the quality of our data, whic

If we are not able to successfully identify, finance and/or integrate acquisitions, our business operations and financial position could
acquisitions of complementary businesses, services, databases and technologies, and expect to continue to do so in the future. Our strategy to ac
availability of, suitable acquisition candidates. In addition, acquisitions involve numerous risks, including managing the integration of personnel
Grecam S.A.S. in France, CoStar U.K. Limited and Propex in the U.K.; the diversion of management’s attention from other business concerns; the
direct experience; and the potential loss of key employees or clients of the acquired companies. We may not successfully integrate any acquire
Acquisitions could result in dilutive issuances of equity securities, the incurrence of debt, one-time write-offs of goodwill and substantial amort
environment may be difficult and cost prohibitive. We may be unable to obtain financing on favorable terms, or at all, if necessary to financ
businesses. If we are able to obtain financing, the terms may be onerous and more restrictive than we are willing to accept.

Temporary or permanent outages of our computers, software or telecommunications equipment could lead to reduced demand for our in
depend on our ability to protect our database, computers and software, telecommunications equipment and facilities against damage from po
telecommunications failures. Any temporary or permanent loss of one or more of these systems or facilities from an accident, equipment malfu
prevents us from delivering our information/marketing services to clients, we could experience reduced demand for our information/marketing servi

19
Processed and formatted by SEC Watch - Visit SECWatch.com

Changes in accounting and reporting policies or practices may affect our financial results or presentation of results, which may affect our
our net income, which reductions may be independent of changes in our operations. These reductions in reported net income could cause our stoc
of SFAS 123R, which required us to expense the value of granted stock options. We recorded $2.9 million in compensation charges for stock option

Our business depends on retaining and attracting highly capable management and operating personnel. Our success depends in large pa
our President and Chief Executive Officer, Andrew Florance, and our other officers and key employees. Our business requires highly skilled techni
in high demand and are often subject to competing offers. To retain and attract key personnel, we use various measures, including employment agr
officers. These measures may not be enough to retain and attract the personnel we need or to offset the impact on our business of the loss of the se

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters is located in Bethesda, Maryland, where we occupy approximately 60,000 square feet of office space. Our main lea
used primarily by our U.S. segment.

In addition to our Bethesda, Maryland facility, our research operations are principally run out of leased spaces in San Diego, California; Colu
Paris, France. Additionally, we lease office space in a variety of other metropolitan areas, which generally house our field sales offices. These loca
Francisco; Boston; Manchester, England; Orange County, California; Philadelphia; Houston; Atlanta; Phoenix; Detroit; Pittsburgh; Iselin, New
California; Indianapolis; and St. Louis.

We believe these facilities are suitable and appropriately support our business needs.

Item 3. Legal Proceedings

Currently, and from time to time, we are involved in litigation incidental to the conduct of our business. We are not a party to any lawsuit or
counsel, is likely to have a material adverse effect on our financial position or results of operations.

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

We did not submit any matters to a vote of our security holders during the quarter ended December 31, 2008.

20
Processed and formatted by SEC Watch - Visit SECWatch.com

PART II

Item 5. Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock. Our common stock is traded on the Nasdaq Global Select Market® under the symbol “CSGP.” The followin
share of our common stock, as reported by the Nasdaq Global Select Market®.

High Low

Year Ended December 31, 2007


First Quarter $ 52.15 $ 43.44
Second Quarter $ 55.71 $ 44.95
Third Quarter $ 58.49 $ 50.70
Fourth Quarter $ 61.65 $ 44.48

Year Ended December 31, 2008


First Quarter $ 45.31 $ 36.55
Second Quarter $ 51.36 $ 44.39
Third Quarter $ 56.70 $ 43.57
Fourth Quarter $ 45.20 $ 27.00

As of February 1, 2009, there were approximately 260 holders of record of our common stock.

Dividend Policy. We have never declared or paid any dividends on our common stock. Any future determination to pay dividends will be
at the discretion of our Board of Directors, subject to applicable limitations under Delaware law, and will be dependent upon our results of
operations, financial position and other factors deemed relevant by our Board of Directors. We do not anticipate paying any dividends on our
common stock during the foreseeable future, but intend to retain any earnings for future growth of our business.

Recent Issues of Unregistered Securities. We did not issue any unregistered securities during the quarter ended December 31, 2008.

Issuer Purchases of Equity Securities. The following table is a summary of our repurchases of common stock during each of the three
months in the quarter ended December 31, 2008:

ISSUER PURCHASES OF EQUITY SECURITIES

Total Number of Shares


Purchased as Part of Maximum Number of Shares
Total Number of Average Price Paid per Publicly Announced Plans that May Yet Be Purchased
Month, 2008 Shares Purchased Share or Programs Under the Plans or Programs
October 1 through 31    
November 1 through 30    
December 1 through 31 4,220 (1) $29.37  
Total 4,220 $29.37  

(1)The number of shares purchased consists of shares of common stock tendered by employees to the Company to satisfy the
employees’ tax withholding obligations arising as a result of vesting of restricted stock grants under the Company’s 1998 Stock Incentive Plan,
as amended, and the Company’s 2007 Stock Incentive Plan, as amended, which shares were purchased by the Company based on their fair
market value on the vesting date. None of these share purchases were part of a publicly announced program to purchase common stock of the
Company.

21
Processed and formatted by SEC Watch - Visit SECWatch.com

Stock Price Performance Graph

The stock performance graph below shows how an initial investment of $100 in our common stock would have compared to:

•An equal investment in the Standards & Poor's Stock 500 (“S&P 500”) Index.

•An equal investment in the S&P 500 Application Software Index.

The comparison covers the period beginning December 31, 2003, and ending on December 31, 2008, and assumes the reinvestment of
any dividends. You should note that this performance is historical and is not necessarily indicative of future price performance.

compchart

Company / Index 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08


CoStar Group, Inc. 100 110.74 103.53 128.44 113.31 78.99
S&P 500 Index 100 110.88 116.33 134.70 142.10 89.53
S&P 500 Application Software Index 100 111.63 123.57 130.15 144.57 79.03

22
Processed and formatted by SEC Watch - Visit SECWatch.com

Item 6. Selected Consolidated Financial and Operating Data

Selected Consolidated Financial and Operating Data


(in thousands, except per share data and other operating data)

The following table provides selected consolidated financial and other operating data for the five years ended December 31, 2008. The
consolidated statement of operations data shown below for each of the three years ended December 31, 2006, 2007, and 2008 and the
consolidated balance sheet data as of December 31, 2007 and 2008 are derived from audited consolidated financial statements that are included
in this report. The consolidated statement of operations data for each of the years ended December 31, 2004 and 2005 and the consolidated
balance sheet data as of December 31, 2004, 2005, and 2006 shown below are derived from audited consolidated financial statements for those
years that are not included in this report.

Year Ended December 31,


Consolidated Statement of Operations Data: 2004 2005 2006 2007 2008
Revenues $ 112,085 $ 134,338 $ 158,889 $ 192,805 $ 212,428
Cost of revenues 35,384 44,286 56,136 76,704 73,408
Gross margin 76,701 90,052 102,753 116,101 139,020
Operating expenses 69,955 82,710 88,672 98,249 99,232
Income from operations 6,746 7,342 14,081 17,852 39,788
Interest and other income, net 1,314 3,455 6,845 8,045 4,914
Income before income taxes 8,060 10,797 20,926 25,897 44,702
Income tax (benefit) expense , net (16,925) 4,340 8,516 9,946 20,079
Net income $ 24,985 $ 6,457 $ 12,410 $ 15,951 $ 24,623
Net income per share − basic $ 1.38 $ 0.35 $ 0.66 $ 0.84 $ 1.27
Net income per share − diluted $ 1.33 $ 0.34 $ 0.65 $ 0.82 $ 1.26
Weighted average shares outstanding − basic 18,165 18,453 18,751 19,044 19,372
Weighted average shares outstanding − diluted 18,827 19,007 19,165 19,404 19,550

As of December 31,
Consolidated Balance Sheet Data: 2004 2005 2006 2007 2008
Cash, cash equivalents, short-term and long-term
investments $ 117,069 $ 134,185 $ 158,148 $ 187,426 $ 224,590
Working capital 107,875 124,501 154,606 167,441 183,347
Total assets 232,691 248,059 275,437 321,843 334,384
Total liabilities 21,747 23,263 25,327 40,038 30,963
Stockholders’ equity 210,944 224,796 250,110 281,805 303,421

As of December 31,
Other Operating Data: 2004 2005 2006 2007 2008
Number of subscription client sites 9,489 11,464 13,257 14,467 15,920
Millions of properties in database 1.6 1.8 2.1 2.7 3.2

23
Processed and formatted by SEC Watch - Visit SECWatch.com

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking
statements,” including statements about our beliefs and expectations. There are many risks and uncertainties that could cause actual results to
differ materially from those discussed in the forward-looking statements. Potential factors that could cause actual results to differ materially
from those discussed in any forward-looking statements include, but are not limited to, those stated above in Item 1A. under the headings
“Risk Factors  Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors,” as well as those described from time
to time in our filings with the Securities and Exchange Commission.

All forward-looking statements are based on information available to us on the date of this filing and we assume no obligation to update
such statements. The following discussion should be read in conjunction with our Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and other filings with the Securities and Exchange Commission and the consolidated financial statements
and related notes in this Annual Report on Form 10-K.

Overview

CoStar Group, Inc. (“CoStar”) is the number one provider of information/marketing services to the commercial real estate industry in the
U.S. and the U.K. based on the fact that we offer the most comprehensive commercial real estate database available, have the largest research
department in the industry, provide more information/marketing services than any of our competitors and believe we generate more revenues
than any of our competitors. We have created a standardized information/marketing platform where the members of the commercial real estate
and related business community can continuously interact and facilitate transactions by efficiently exchanging accurate and standardized
commercial real estate information. Our integrated suite of online service offerings includes information about space available for lease,
comparable sales information, tenant information, information about properties for sale, internet marketing services, information for clients'
websites, information about industry professionals and their business relationships, analytic information, data integration, and industry news.
Our service offerings span all commercial property types – office, industrial, retail, land, mixed-use, hospitality and multifamily.

Since 1994, we have expanded the geographical coverage of our existing information/marketing services and developed new
information/marketing services. In addition to internal growth, this expansion included the acquisitions of Chicago ReSource, Inc. in Chicago
in 1996 and New Market Systems, Inc. in San Francisco in 1997. In August 1998, we expanded into the Houston region through the acquisition
of Houston-based real estate information provider C Data Services, Inc. In January 1999, we expanded further into the Midwest and Florida by
acquiring LeaseTrend, Inc. and into Atlanta and Dallas/Fort Worth by acquiring Jamison Research, Inc. In February 2000, we acquired
COMPS.COM, Inc., a San Diego-based provider of commercial real estate information. In November 2000, we acquired First Image
Technologies, Inc., a California-based provider of commercial real estate software. In September 2002, we expanded further into Portland,
Oregon through the acquisition of certain assets of Napier Realty Advisors (doing business as REAL-NET). In January 2003, we established a
base in the U.K. with our acquisition of London-based FOCUS Information Limited. In May 2004, we expanded into Tennessee through the
acquisition of Peer Market Research, Inc., and in September 2004, we extended our coverage of the U.K. through the acquisition of Scottish
Property Network (“SPN”). In September 2004, we strengthened our position in Denver, Colorado through the acquisition of substantially all
of the assets of RealComp, Inc., a local comparable sales information provider.

In January 2005, we acquired National Research Bureau, a Connecticut-based leading provider of U.S. shopping center information. In
December 2006, our U.K. subsidiary, CoStar Limited, acquired Grecam S.A.S. (“Grecam”), a provider of commercial property information and
market-level surveys, studies and consulting services located in Paris, France. In February 2007, CoStar Limited also acquired Property
Investment Exchange Limited (“Propex”), a provider of commercial property information and operator of an electronic platform that facilitates
the exchange of investment property located in London, England. In April 2008, we acquired the assets of First CLS, Inc. (doing business as
the Dorey Companies and DoreyPRO), an Atlanta-based provider of local commercial real estate information. The more recent acquisitions are
discussed later in this section under the heading “Recent Acquisitions.”

24
Processed and formatted by SEC Watch - Visit SECWatch.com

In 2004, we began our expansion into 21 new metropolitan markets throughout the U.S., as well as expanding the geographical coverage of
many of our existing U.S. and U.K. markets. We completed our expansion into the 21 new markets in the first quarter of 2006. In early 2005, in
conjunction with the acquisition of National Research Bureau, we launched a major effort to expand our coverage of retail real estate
information. The new retail component of our flagship product, CoStar Property Professional, was unveiled in May 2006 at the International
Council of Shopping Centers’ convention in Las Vegas.

During the second half of 2006, to expand the geographical coverage of our service offerings we began actively researching commercial
properties in 81 new Core Based Statistical Areas (“CBSAs”) in the U.S., increased our U.S. field research fleet by adding 89 vehicles and hired
researchers to staff these vehicles. In March 2007, we signed a long-term lease for a new research facility in White Marsh, Maryland, in
support of our expanded research efforts and hired and trained additional researchers and other personnel. We released our CoStar Property
Professional service in the 81 new CBSAs across the U.S. in the fourth quarter of 2007.

In connection with our acquisitions of Propex and Grecam, we intend to expand the coverage of our service offerings within the U.K. and
integrate our international operations more fully with those of the U.S. We have gained operational efficiencies as a result of consolidating a
majority of our U.K. research operations in one location in Glasgow and combining the majority of our remaining U.K. operations in one central
location in London.

We intend to eventually introduce a consistent international platform of service offerings. In 2007, we introduced the “CoStar Group” as
the brand encompassing our international operations. We believe that our recent U.S. and international expansion and integration efforts have
created a platform for earnings. In fact, our results for 2008 reflect growth in earnings as a result of these investments in our business.

Our financial reporting currency is the U.S. Dollar. Changes in exchange rates can significantly affect our reported results and
consolidated trends. We believe that our increasing diversification beyond the U.S. economy through our international businesses benefits
our shareholders over the long term. We also believe it is important to evaluate our operating results before and after the effect of currency
changes, as it may provide a more accurate comparison of our results of operations over historical periods. Currency volatilities may continue,
which may significantly impact (either positively or negatively) our reported financial results and consolidated trends and comparisons.

We expect to continue to develop and distribute new services, expand existing services within our current platform, consider strategic
acquisitions and expand and develop our sales and marketing organization. For instance, in May 2008, we released CoStar Showcase ® , an
internet marketing service that provides commercial real estate professionals the opportunity to make their listings accessible to all visitors to
our public website, www.CoStar.com. In addition, in April 2008, as described above we acquired the online commercial real estate information
assets of First CLS, Inc. (doing business as the Dorey Companies and DoreyPRO). Any future expansion could reduce our profitability and
increase our capital expenditures. Therefore, while we expect current service offerings to remain profitable, driving overall earnings throughout
2009 and providing substantial cash flow for our business, it is possible that any new investments could cause us to generate losses and
negative cash flow from operations in the future.

Current general economic conditions in the U.S. and the world are negatively affecting business operations for our clients and are
resulting in more business consolidations and, in certain circumstances, failures. As a result of the economic conditions, we have recently
seen an uptick in customer cancellations, reductions of services and failures to pay amounts due us. If cancellations, reductions of services
and failures to pay continue to rise, and we are unable to offset the resulting decrease in revenue by increasing sales to new or existing
customers, our revenues will be adversely affected and our revenue may decline. Additionally, current conditions may cause customers to
reduce expenses, when reducing expenses, customers may be forced to purchase fewer services or cancel all services. We compete against
many other commercial real estate information/marketing service providers for business. If customers choose to cancel our services for cost-
cutting or other reasons, our revenue could decline. The extent and duration of any future continued weakening of the economy is unknown
and there can be no assurance that any of the governmental or private sector initiatives designed to strengthen the economy will be
successful. Because of the current uncertainties in the economic environment, we may not be able to accurately forecast our
revenue. However, we continue to believe that the company is positioned to generate continued, sustained earnings through the end of 2009.

25
Processed and formatted by SEC Watch - Visit SECWatch.com

We currently issue restricted stock and stock options to our officers, directors and employees, and as a result we record additional
compensation expense in our consolidated statements of operations. We plan to continue the use of alternative stock-based compensation for
our officers, directors and employees, which may include, among other things, restricted stock or stock option grants that typically will require
us to record additional compensation expense in our consolidated statements of operations and reduce our net income. We incurred
approximately $4.9 million in total equity compensation expense in 2008.

Our subscription-based information/marketing services, consisting primarily of CoStar Property Professional, CoStar Tenant, CoStar
COMPS Professional, and FOCUS services currently generate more than 90% of our total revenues. CoStar Property Professional, CoStar
Tenant, and CoStar COMPS Professional are generally sold as a suite of similar services and comprise our primary service offering in our U.S.
operating segment. FOCUS is our primary service offering in our International operating segment. Our contracts for our subscription-based
information/marketing services typically have a minimum term of one year and renew automatically. Upon renewal, many of the subscription
contract rates may increase in accordance with contract provisions or as a result of contract renegotiations. To encourage clients to use our
services regularly, we generally charge a fixed monthly amount for our subscription-based services rather than fees based on actual system
usage. Contract rates are generally based on the number of sites, number of users, organization size, the client’s business focus, geography
and the number of services to which a client subscribes. Our subscription clients generally pay contract fees on a monthly basis, but in some
cases may pay us on a quarterly or annual basis. We recognize this revenue on a straight-line basis over the life of the contract. Annual and
quarterly advance payments result in deferred revenue, substantially reducing the working capital requirements generated by accounts
receivable.

For the year ended December 31, 2007, our contract renewal rate was over 90%. For the year ended December 31, 2008, our contract
renewal rate was approximately 89%. As discussed above, our contract renewal rate may continue to decline if continuing negative economic
conditions lead to business failures and/or consolidations and further reductions in customer spending and decreases in the customer base.

Application of Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles (“GAAP”) in
the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the
period reported. The following accounting policies involve a “critical accounting estimate” because they are particularly dependent on
estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. In
addition, while we have used our best estimates based on facts and circumstances available to us at the time, different estimates reasonably
could have been used in the current period. Changes in the accounting estimates we use are reasonably likely to occur from period to period,
which may have a material impact on the presentation of our financial condition and results of operations. We review these estimates and
assumptions periodically and reflect the effects of revisions in the period that they are determined to be necessary.

Valuation of Long-Lived and Intangible Assets and Goodwill

We assess the impairment of long-lived assets, identifiable intangibles and goodwill whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Judgments made by management relate to the expected useful lives of long-lived
assets and our ability to realize any undiscounted cash flows of the carrying amounts of such assets. The accuracy of these judgments may
be adversely affected by several factors, including the factors listed below:

• Significant underperformance relative to historical or projected future operating results;


• Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
• Significant negative industry or economic trends; or
• Significant decline in our market capitalization relative to net book value for a sustained period.

26
Processed and formatted by SEC Watch - Visit SECWatch.com

When we determine that the carrying value of long-lived and identifiable intangible assets may not be recovered based upon the existence
of one or more of the above indicators, we test for impairment.

Goodwill and identifiable intangible assets not subject to amortization are tested annually by each reporting unit on October 1st of each
year for impairment and are tested for impairment more frequently based upon the existence of one or more of the above indicators. We
consider our operating segments, U.S. and International, as our reporting units under Statement of Financial Accounting Standards (“SFAS”)
No. 142 for consideration of potential impairment of goodwill.

The goodwill impairment test is a two-step process. The first step is to determine the fair value of each reporting unit. We estimate the fair
value of each reporting unit based on a projected discounted cash flow model that includes significant assumptions and estimates including
our future financial performance and a weighted average cost of capital. The fair value of each reporting unit is compared to the carrying
amount of the reporting unit. If the carrying value of the reporting unit exceeds the fair value, then the second step of the process is performed
to measure the impairment loss. We measure impairment loss based on a projected discounted cash flow method using a discount rate
determined by our management to be commensurate with the risk in our current business model.

Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the
jurisdictions in which we operate. This process requires us to estimate our actual current tax exposure and assess the temporary differences
resulting from differing treatment of items, such as deferred revenue or deductibility of certain intangible assets, for tax and accounting
purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must
then also assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, to the extent we believe that it is
more-likely-than not that some portion or all of our deferred tax assets will not be realized, we must establish a valuation allowance. To the
extent we establish a valuation allowance or change the allowance in a period, we must reflect the corresponding increase or decrease within
the tax provision in the statements of operations.

Non-GAAP Financial Measures

We prepare and publicly release quarterly unaudited financial statements prepared in accordance with GAAP. We also disclose and
discuss certain non-GAAP financial measures in our public releases. Currently, the non-GAAP financial measure that we disclose is EBITDA,
which is our net income (loss) before interest, income taxes, depreciation and amortization. We disclose EBITDA on a consolidated and an
operating segment basis in our earnings releases, investor conference calls and filings with the Securities and Exchange Commission. The non-
GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we
may disclose different non-GAAP financial measures in order to help our investors more meaningfully evaluate and compare our future results
of operations to our previously reported results of operations.

We view EBITDA as an operating performance measure and as such we believe that the GAAP financial measure most directly
comparable to it is net income (loss). In calculating EBITDA, we exclude from net income (loss) the financial items that we believe should be
separately identified to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined
below the type and scope of these exclusions and the material limitations on the use of these non-GAAP financial measures as a result of
these exclusions. EBITDA is not a measurement of financial performance under GAAP and should not be considered as a measure of liquidity,
as an alternative to net income (loss) or as an indicator of any other measure of performance derived in accordance with GAAP. Investors and
potential investors in our securities should not rely on EBITDA as a substitute for any GAAP financial measure, including net income (loss).
In addition, we urge investors and potential investors in our securities to carefully review the reconciliation of EBITDA to net income (loss)
set forth below, in our earnings releases and in other filings with the Securities and Exchange Commission and to carefully review the GAAP
financial information included as part of our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K that are filed with the
Securities and Exchange Commission, as well as our quarterly earnings releases, and compare the GAAP financial information with our
EBITDA.

27
Processed and formatted by SEC Watch - Visit SECWatch.com

EBITDA is used by management to internally measure our operating and management performance and by investors as a supplemental
financial measure to evaluate the performance of our business that, when viewed with our GAAP results and the accompanying reconciliation,
we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business. We have
spent more than 21 years building our database of commercial real estate information and expanding our markets and services partially through
acquisitions of complementary businesses. Due to the expansion of our information/marketing services, which included acquisitions, our net
income (loss) has included significant charges for purchase amortization, depreciation and other amortization. EBITDA excludes these charges
and provides meaningful information about the operating performance of our business, apart from charges for purchase amortization,
depreciation and other amortization. We believe the disclosure of EBITDA helps investors meaningfully evaluate and compare our
performance from quarter to quarter and from year to year. We also believe EBITDA is a measure of our ongoing operating performance
because the isolation of non-cash charges, such as amortization and depreciation, and non-operating items, such as interest and income taxes,
provides additional information about our cost structure, and, over time, helps track our operating progress. In addition, investors, securities
analysts and others have regularly relied on EBITDA to provide a financial measure by which to compare our operating performance against
that of other companies in our industry.

Set forth below are descriptions of the financial items that have been excluded from our net income (loss) to calculate EBITDA and the
material limitations associated with using this non-GAAP financial measure as compared to net income (loss):

• Purchase amortization in cost of revenues may be useful for investors to consider because it represents the use of our acquired
database technology, which is one of the sources of information for our database of commercial real estate information. We do not
believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

• Purchase amortization in operating expenses may be useful for investors to consider because it represents the estimated attrition of
our acquired customer base and the diminishing value of any acquired trade names. We do not believe these charges necessarily
reflect the current and ongoing cash charges related to our operating cost structure.

• Depreciation and other amortization may be useful for investors to consider because they generally represent the wear and tear on
our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing
cash charges related to our operating cost structure.

• The amount of net interest income we generate may be useful for investors to consider and may result in current cash inflows or
outflows. However, we do not consider the amount of net interest income to be a representative component of the day-to-day
operating performance of our business.

• Income tax expense (benefit) may be useful for investors to consider because it generally represents the taxes which may be payable
for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for
use in our business. However, we do not consider the amount of income tax expense (benefit) to be a representative component of
the day-to-day operating performance of our business.

Management compensates for the above-described limitations of using non-GAAP measures by using a non-GAAP measure only to
supplement our GAAP results and to provide additional information that is useful to gain an understanding of the factors and trends affecting
our business.

28
Processed and formatted by SEC Watch - Visit SECWatch.com

The following table shows our EBITDA reconciled to our net income and our cash flows from operating, investing and financing activities
for the indicated periods (in thousands):

Year Ended December 31,


2006 2007 2008
Net income $ 12,410 $ 15,951 $ 24,623
Purchase amortization in cost of revenues 1,205 2,170 2,284
Purchase amortization in operating expenses 4,183 5,063 4,880
Depreciation and other amortization 6,421 8,914 9,637
Interest income, net (6,845) (8,045) (4,914)
Income tax expense, net 8,516 9,946 20,079
EBITDA $ 25,890 $ 33,999 $ 56,589

Cash flows provided by (used in)


Operating activities $ 32,587 $ 51,732 $ 40,908
Investing activities $ (28,329) $ (40,331) $ 52,430
Financing activities $ 5,582 $ 8,161 $ 11,475

Consolidated Results of Operations

The following table provides our selected consolidated results of operations for the indicated periods (in thousands of dollars and as a
percentage of total revenue):

Year Ended December 31,


2006 2007 2008
Revenues $ 158,889 100.0% $ 192,805 100.0% $ 212,428 100.0%
Cost of
revenues 56,136 35.3 76,704 39.8 73,408 34.6
Gross margin 102,753 64.7 116,101 60.2 139,020 65.4
Operating expenses:
Selling and
marketing 41,774 26.3 51,777 26.9 41,705 19.6
Software
development 12,008 7.6 12,453 6.5 12,759 6.0
General and
administrative 30,707 19.3 36,569 19.0 39,888 18.8
Gain on lease settlement, net  0.0 (7,613) (3.9)  0.0
Purchase
amortization 4,183 2.6 5,063 2.6 4,880 2.3
Total operating
expenses 88,672 55.8 98,249 51.0 99,232 46.7
Income from
operations 14,081 8.9 17,852 9.3 39,788 18.7
Interest and other income, net 6,845 4.3 8,045 4.2 4,914 2.3
Income before income
taxes 20,926 13.2 25,897 13.4 44,702 21.0
Income tax expense,
net 8,516 5.4 9,946 5.2 20,079 9.5
Net income $ 12,410 7.8% $ 15,951 8.3% $ 24,623 11.6%

Comparison of Year Ended December 31, 2008 and Year Ended December 31, 2007

Revenues. Revenues grew to $212.4 million in 2008, from $192.8 million in 2007. This increase in revenue was due to further penetration of
our subscription-based information/marketing services, and successful cross-selling of our services to our customers in existing markets,
combined with continued high renewal rates. Our subscription-based information services consist primarily of CoStar Property Professional,
CoStar Tenant, CoStar COMPS Professional, FOCUS services and Propex services. As of December 31, 2008, our subscription-based
information/marketing services represented more than 90% of our total revenues.

29
Processed and formatted by SEC Watch - Visit SECWatch.com

Gross Margin. Gross margin increased to $139.0 million in 2008, from $116.1 million in 2007. The gross margin percentage increased to
65.4% in 2008, from 60.2% in 2007. The increase in the gross margin resulted principally from revenue growth from our subscription-based
information/marketing services and a decrease in cost of revenues. Cost of revenues decreased to $73.4 million for the year ended December
31, 2008, from $76.7 million for the year ended December 31, 2007 principally due to expansion costs that were incurred in 2007 that were not
incurred in 2008.

Selling and Marketing Expenses. Selling and marketing expenses decreased to $41.7 million in 2008, from $51.8 million in 2007, and
decreased as a percentage of revenues to 19.6% in 2008, from 26.9% in 2007. The decrease was principally due to a reduction in personnel
costs of approximately $5.4 million primarily due to the fact that the sales force sold services with a smaller average price point in 2008, which
resulted in lower average contract values compared to 2007. Additionally, there was a decrease in marketing initiatives of approximately $2.3
million in 2008.

Software Development Expenses. Software development expenses slightly increased to $12.8 million in 2008, from $12.5 million in 2007,
and slightly decreased as a percentage of revenues to 6.0% in 2008, from 6.5% in 2007. The decrease in the percentage was primarily due to
increased revenues in 2008.

General and Administrative Expenses. General and administrative expenses increased to $39.9 million in 2008, from $36.6 million in 2007,
and decreased slightly as a percentage of revenues to 18.8% in 2008, from 19.0% in 2007. The increase in the amount of general and
administrative expenses was principally a result of an increase of approximately $2.5 million in legal fees and an increase of $1.6 million in bad
debt expense.

Gain on Lease Settlement, Net. On September 14, 2007, CoStar U.K Limited, a wholly owned U.K. subsidiary of CoStar, entered into an
agreement with Trafigura Limited to assign to Trafigura our leasehold interest in our office space located in London. The lease assignment was
effective on December 19, 2007. As a result, CoStar U.K. Limited was paid $7.6 million, net of expenses, for the assignment of the lease. There
were no gains on lease settlements in 2008.

Purchase Amortization. Purchase amortization slightly decreased to $4.9 million in 2008, from $5.1 million in 2007, and slightly decreased
as a percentage of revenues to 2.3% in 2008, from 2.6% in 2007.

Interest and Other Income, Net. Interest and other income, net decreased to $4.9 million in 2008, from $8.0 million in 2007. Although, cash
and cash equivalents, short-term and long-term investments were higher in 2008 than in 2007, our interest and other income decreased due to
lower average interest rates in 2008 compared to 2007.

Income Tax Expense, Net. Income tax expense, net increased to $20.1 million in 2008, from $9.9 million in 2007. This increase was primarily
due to higher income before income taxes for 2008 due to our growth and profitability, in addition to a higher effective tax rate in 2008. The
effective tax rate was lower in 2007 due to the gain on lease settlement in the U.K. that was completed in December 2007. The lease settlement
resulted in income in the U.K., which reduced the overall effective tax rate.

Comparison of Business Segment Results for Year Ended December 31, 2008 and Year Ended December 31, 2007

Due to the increased size, complexity and funding requirements associated with our international expansion, in 2007 we began to manage
our business geographically in two operating segments, with our primary areas of measurement and decision-making being the U.S. and
International, which includes the U.K. and France. Management relies on an internal management reporting process that provides segment
revenue and EBITDA, which is our net income before interest, income taxes, depreciation and amortization. Management believes that
segment EBITDA is an appropriate measure for evaluating the operational performance of our segments. EBITDA is used by management to
internally measure our operating and management performance and to evaluate the performance of our business. However, this measure
should be considered in addition to, not as a substitute for or superior to, income from operations or other measures of financial performance
prepared in accordance with GAAP.

30
Processed and formatted by SEC Watch - Visit SECWatch.com

Segment Revenues. CoStar Property Professional, CoStar Tenant, and CoStar COMPS Professional are generally sold as a suite of similar
services and comprise our primary service offering in our U.S. operating segment. U.S. revenues increased to $190.1 million from $170.3 million
for the years ended December 31, 2008 and 2007, respectively. This increase in U.S. revenue is due to further penetration of our U.S.
subscription-based information/marketing services and the successful cross-selling of our service to our customers, combined with a
continued high renewal rate. FOCUS is our primary service offering in our International operating segment. International revenues slightly
decreased to $22.4 million from $22.5 million for the years ended December 31, 2008 and 2007, respectively. This decrease is due to foreign
currency fluctuations. In their functional currency, International revenues increased 7.2% for the year ended December 31, 2008 compared to
the year ended December 31, 2007.

Segment EBITDA. U.S. EBITDA increased to $58.8 million from $32.9 million for the years ended December 31, 2008 and 2007, respectively.
The increase in U.S. EBITDA was due to increased revenues, and lower sales and marketing personnel costs, partially offset by an increase in
legal fees and bad debt expense. International EBITDA decreased to a loss of $2.2 million from $1.1 million earnings for the years ended
December 31, 2008 and 2007, respectively. This decrease is primarily due to gain on lease settlement of $7.6 million in 2007 that did not occur in
2008. International EBITDA also includes a corporate allocation of approximately $1.1 million and $2.6 million for the years ended December 31,
2008 and 2007, respectively. The corporate allocation represents costs incurred for U.S. employees involved in international management and
expansion activities.

Comparison of Year Ended December 31, 2007 and Year Ended December 31, 2006

Revenues. Revenues grew 21.3% to $192.8 million in 2007, from $158.9 million in 2006. This increase in revenue has resulted from continued
penetration of our subscription-based information services, the successful cross-selling of additional products and services to our existing
customer base combined with a continued high renewal rate, and additional revenues from acquired companies, including Grecam, acquired in
December 2006, and Propex, acquired in February 2007. Our subscription-based information services consist primarily of CoStar Property
Professional, CoStar Tenant, CoStar COMPS Professional, FOCUS services and Propex services. As of December 31, 2007, our subscription-
based information services represented approximately 95% of our total revenues.

Gross Margin. Gross margin increased to $116.1 million in 2007, from $102.8 million in 2006. The gross margin percentage decreased to
60.2% in 2007, from 64.7% in 2006. The increase in the gross margin amount resulted principally from revenue growth from our subscription-
based information services, partially offset by an increase in cost of revenues. The decrease in gross margin percentage was principally due to
an increase in the cost of revenues to $76.7 million for 2007, from $56.1 million for 2006. The increase in cost of revenues resulted from
increased research department hiring, training, compensation and other operating costs, principally in connection with our retail and 81 new
CBSA expansions, and our international expansion, as well as increased cost structures associated with the acquisitions of Grecam and
Propex.

Selling and Marketing Expenses. Selling and marketing expenses increased to $51.8 million in 2007, from $41.8 million in 2006, and
increased as a percentage of revenues to 26.9% in 2007, from 26.3% in 2006. The increase in the amount of selling and marketing expenses is
primarily due to increased growth in the sales force, increased marketing efforts, as well as increased cost structures associated with the
acquisition of Propex.

Software Development Expenses. Software development expenses increased to $12.5 million in 2007, from $12.0 million in 2006, and
decreased as a percentage of revenues to 6.5% in 2007, from 7.6% in 2006. The increase in the amount of software development expenses was
primarily due to increased costs associated with the continued development of an international platform. The decrease in the percentage was
primarily due to our continued efforts to control and leverage our costs.

General and Administrative Expenses. General and administrative expenses increased to $36.6 million in 2007, from $30.7 million in 2006,
and decreased slightly as a percentage of revenues to 19.0% in 2007, from 19.3% in 2006. The increase primarily includes increases in
personnel expenses, cost structures associated with the acquisition of Propex and equity compensation.

31
Processed and formatted by SEC Watch - Visit SECWatch.com

Gain on Lease Settlement, Net. On September 14, 2007, CoStar U.K. Limited, a wholly owned U.K. subsidiary of CoStar, entered into an
agreement with Trafigura Limited to assign to Trafigura our leasehold interest in our office space located in London. The lease assignment was
effective on December 19, 2007. As a result, CoStar U.K. Limited was paid $7.6 million, net of expenses, for the assignment of the lease. There
were no gains on lease settlements in 2006.

Purchase Amortization. Purchase amortization increased to $5.1 million in 2007, from $4.2 million in 2006, and remained consistent as a
percentage of revenues at 2.6% in 2007 and 2006. This increase in the amount was due to the acquisitions of Grecam and Propex.

Interest and Other Income, Net. Interest and other income, net increased to $8.0 million in 2007, from $6.8 million in 2006. This increase was
primarily due to higher interest income as a result of higher total short-term investment balances for 2007 and increased interest rates for 2007
as compared to 2006.

Income Tax Expense, Net. Income tax expense, net increased to $9.9 million in 2007, from $8.5 million in 2006. This increase was due to
higher income before income taxes for 2007, partially offset by a lower effective tax rate. The effective tax rate was lower in 2007 due to the gain
on lease settlement in the U.K. that was completed in December 2007. The lease settlement resulted in income in the U.K., which reduced the
overall effective tax rate.

Comparison of Business Segment Results for Year Ended December 31, 2007 and Year Ended December 31, 2006

Due to the increased size, complexity and funding requirements associated with our international expansion, in 2007 we began to manage
our business geographically in two operating segments, with our primary areas of measurement and decision-making being the U.S. and
International, which includes the U.K. and France. Management relies on an internal management reporting process that provides revenue and
segment EBITDA, which is our net income before interest, income taxes, depreciation and amortization. Management believes that segment
EBITDA is an appropriate measure for evaluating the operational performance of our segments. EBITDA is used by management to internally
measure our operating and management performance and to evaluate the performance of our business. However, this measure should be
considered in addition to, not as a substitute for or superior to, income from operations or other measures of financial performance prepared in
accordance with GAAP.

Segment Revenues. U.S. revenues increased to $170.3 million from $146.1 million for the years ended December 31, 2007 and 2006,
respectively. This increase in U.S. revenue is due to further penetration of our U.S. subscription-based information services and the successful
cross-selling into our customer base across our service platform in existing markets, combined with a continued high renewal rate.
International revenues increased to $22.5 million from $12.8 million for the years ended December 31, 2007 and 2006, respectively. This increase
in international revenue is principally a result of a combination of further penetration of our subscription-based information services in the
U.K. and the acquisitions of Grecam and Propex.

Segment EBITDA. U.S. EBITDA increased to $32.9 million from $26.2 million for the years ended December 31, 2007 and 2006, respectively.
The increase in U.S. EBITDA was due to increased revenues, partially offset by increased research costs and growth in our sales force as a
result of our expansion. International EBITDA increased to $1.1 million from a loss of $315,000 for the years ended December 31, 2007 and 2006,
respectively. This increase is primarily due to the assignment of our lease to Trafigura, offset by our increased investment in international
expansion. International EBITDA also includes a corporate allocation of approximately $2.6 million and $1.0 million for the years ended
December 31, 2007 and 2006, respectively. The corporate allocation represents costs incurred for U.S. employees involved in international
management and expansion activities.

32
Processed and formatted by SEC Watch - Visit SECWatch.com

Consolidated Quarterly Results of Operations

The following tables summarize our consolidated results of operations on a quarterly basis for the indicated periods (in thousands, except
per share amounts, and as a percentage of total revenues):

2007 2008
Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31
Revenues $ 44,831 $ 47,794 $ 49,340 $ 50,840 $ 52,264 $ 53,478 $ 53,757 $ 52,929
Cost of revenues 17,826 19,318 19,551 20,009 19,721 18,341 17,613 17,733
Gross margin 27,005 28,476 29,789 30,831 32,543 35,137 36,144 35,196
Operating expenses 25,569 28,230 25,952 18,498 25,313 26,627 24,864 22,428
Income from operations 1,436 246 3,837 12,333 7,230 8,510 11,280 12,768
Interest and other income,
net 1,862 1,891 2,072 2,220 1,938 1,243 951 782
Income before income taxes 3,298 2,137 5,909 14,553 9,168 9,753 12,231 13,550
Income tax expense, net 1,484 962 2,659 4,841 4,126 4,318 5,586 6,049
Net income $ 1,814 $ 1,175 $ 3,250 $ 9,712 $ 5,042 $ 5,435 $ 6,645 $ 7,501
Net income per share −
basic $ 0.10 $ 0.06 $ 0.17 $ 0.51 $ 0.26 $ 0.28 $ 0.34 $ 0.39
Net income per share −
diluted $ 0.09 $ 0.06 $ 0.17 $ 0.50 $ 0.26 $ 0.28 $ 0.34 $ 0.38

2007 2008
Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31
Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues 39.8 40.4 39.6 39.4 37.7 34.3 32.8 33.5
Gross margin 60.2 59.6 60.4 60.6 62.3 65.7 67.2 66.5
Operating expenses 57.0 59.1 52.6 36.4 48.5 49.8 46.2 42.4
Income from operations 3.2 0.5 7.8 24.2 13.8 15.9 21.0 24.1
Interest and other income,
net 4.1 4.0 4.2 4.4 3.7 2.3 1.8 1.5
Income before income
taxes 7.3 4.5 12.0 28.6 17.5 18.2 22.8 25.6
Income tax expense, net 3.3 2.0 5.4 9.5 7.9 8.0 10.4 11.4
Net income 4.0% 2.5% 6.6% 19.1% 9.6% 10.2% 12.4% 14.2%

Recent Acquisitions

Propex. On February 16, 2007, CoStar Limited acquired Property Investment Exchange Limited (“Propex”), a provider of web-based
commercial property information and operator of an electronic platform that facilitates the exchange of investment property in the U.K.
Propex’s suite of electronic platforms and listing websites give users access to the U.K. commercial property investment and leasing markets.
CoStar Limited acquired all outstanding capital stock of Propex for approximately $22.0 million, consisting of cash, deferred consideration and
21,526 shares of CoStar common stock.

First CLS, Inc. On April 1, 2008, we acquired certain assets of First CLS, Inc. (doing business as the Dorey Companies and DoreyPRO), an
Atlanta-based provider of local commercial real estate information for $3.0 million in initial cash consideration and deferred consideration
payable within approximately six months of the one-year anniversary of closing.

Accounting Treatment. These acquisitions were accounted for using purchase accounting. The purchase price for the Propex acquisition
was primarily allocated to acquired customer base, trade names, and goodwill. The purchase price for the First CLS, Inc. acquisition was
primarily allocated to acquired customer base. The acquired customer base for the acquisitions, which consists of one distinct intangible asset
for each acquisition and is composed of acquired customer contracts and the related customer relationships, is being amortized on a 125%
declining balance method over ten years. The Propex acquired trade name is being amortized on a straight-line basis over

33
Processed and formatted by SEC Watch - Visit SECWatch.com

three years. We recorded goodwill of approximately $15.0 million for the Propex acquisition and $1.1 million for the First CLS, Inc. acquisition.
Goodwill is not amortized, but is subject to annual impairment tests. The results of operations of Propex and First CLS, Inc. have been
consolidated with those of the Company since the respective dates of the acquisitions and are not considered material to our consolidated
financial statements. Accordingly, pro forma financial information has not been presented for either acquisition.

Liquidity and Capital Resources

Our principal sources of liquidity are cash, cash equivalents and short-term investments. Total cash, cash equivalents and short-term
investments were $195.3 million at December 31, 2008 compared to $187.4 million at December 31, 2007. The increase in cash, cash equivalents
and short-term investments for the year ended December 31, 2008 was primarily due to net cash from operating activities of approximately $40.9
million partially offset by the reclassification of approximately $33.1 million par value auction rate securities (“ARS”) from short-term
investments to long-term investments in the first quarter of 2008.

Net cash provided by operating activities for the year ended December 31, 2008 was $40.9 million compared to $51.7 million for the year
ended December 31, 2007. The $10.8 million decrease in net cash provided by operating activities is primarily due to approximately $3.3 million
decreased cash receipts on accounts receivable due to increased balances and declining economic conditions and increased payments for
accounts payable and accrued expenses of approximately $9.8 million which included the $2.9 million payment of deferred consideration for the
Propex acquisition, approximately $400,000 in payments for a Propex data agreement, and payment of approximately $1.4 million in value added
taxes related to the lease settlement.

Net cash provided by investing activities was $52.4 million for the year ended December 31, 2008, compared to net cash used in investing
activities of $40.3 million for the year ended December 31, 2007. This $92.7 million increase in net cash provided by investing activities was
primarily due to the decision to invest in money market funds and U.S. treasuries instead of short-term investment instruments, which resulted
in a net sale of investments of approximately $59.1 million in the year ended December 31, 2008 compared to a net purchase of investments of
approximately $9.3 million in the year ended December 31, 2007. In addition, we used $3.0 million in cash as initial consideration for the
purchase of First CLS, Inc. in the year ended December 31, 2008, as compared to $16.7 million in cash consideration used for the acquisition of
Propex in the year ended December 31, 2007. We also purchased approximately $10.6 million less in property, equipment and other assets
during the year ended December 31, 2008 compared to the year ended December 30, 2007.

Net cash provided by financing activities was $11.5 million for the year ended December 31, 2008 compared to $8.2 million for the year
ended December 31, 2007. The higher net cash provided by financing activities in 2008 compared to 2007 is due to an increase in excess tax
benefits from stock options partially offset by a decrease in proceeds from the exercise of stock options.

Contractual Obligations. The following table summarizes our principal contractual obligations at December 31, 2008 and the effect such
obligations are expected to have on our liquidity and cash flows in future periods (in thousands):

2014 and
Total 2009 2010-2011 2012-2013 thereafter
Operating leases $ 23,596 $ 8,264 $ 10,041 $ 4,276 $ 1,015
Purchase
obligations(1) 2,971 2,242 294 290 145
Total contractual principal cash obligations $ 26,567 $ 10,506 $ 10,335 $ 4,566 $ 1,160

(1)Amounts do not include (i) contracts with initial terms of twelve months or less, or (ii) multi-year contracts that may be terminated by a
third party or us.

During 2008, we incurred capital expenditures of approximately $3.7 million. We expect to make capital expenditures in 2009 of
approximately $4.0 million to $7.0 million.

34
Processed and formatted by SEC Watch - Visit SECWatch.com

To date, we have grown in part by acquiring other companies and we may continue to make acquisitions. Our acquisitions may vary in size a
other means of funding to make these acquisitions. In April 2008, we paid $3.0 million in initial cash consideration and made a commitment
anniversary of closing for the online commercial real estate information assets of First CLS, Inc., an Atlanta-based provider of local commercial real

Based on current plans, we believe that our available cash combined with positive cash flow provided by operating activities should be suffici

As of December 31, 2008, we had $33.1 million of long-term investments in student loan ARS, which failed to settle at auctions. The majo
primarily securities supported by guarantees from the Federal Family Education Loan Program (“FFELP”) of the U.S. Department of Education. Wh
the short term. In the event we need to immediately access these funds, we may have to sell these securities at an amount below par value. Based
and our expected operating cash flows, we do not anticipate having to sell these investments below par value in order to operate our business in th

As of December 31, 2008, we had utilized all of our U.S. net operating loss carryforwards for federal income tax purposes. As a result, we expec

Inflation may affect the way we operate in the U.S. and abroad. In general, we believe that over time we are able to increase the prices of our se
not believe the impact of inflation has significantly affected our operations, and we do not anticipate that inflation will have a material impact on ou

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 “Accounting for Uncertainty in Incom
effective for our company as of January 1, 2007. FIN 48 addresses the determination of how tax benefits claimed or expected to be claimed on a tax r
the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained upon examination by the taxing
in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being r
with FIN 48 did not have a material impact on our results of operations and financial position.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framew
fair value measurements. SFAS 157 does not require any new fair value measurements under GAAP and is effective for fiscal years beginning afte
157-2, “Partial Deferral of the Effective Date of Statement 157”, (“FSP 157-2”), which delays the effective date of SFAS 157 to January 1, 2009 for
disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). Effective January 1, 2008, we adopted the po
did not have a material impact on our results of operations and financial position. In October 2008, the FASB issued FSP 157-3, “Determining the
clarifies the application of SFAS 157 to markets that are not active and provides an example illustrating key considerations for determining the fa
upon issuance, including prior periods for which financial statements had not been issued. The adoption of this standard did not have an impact on

35
Processed and formatted by SEC Watch - Visit SECWatch.com

In February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial Assets and Financial Liabilities — Including an amend
measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 is eff
on January 1, 2008 and have not elected to apply the fair value option to any of our financial instruments. The adoption of SFAS 159 did not have

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141R”), which will change the accounti
31, 2008. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction a
accounting treatment and disclosure for certain specific items in a business combination. SFAS 141R will have an impact on accounting for busi
business combination with an acquisition date subsequent to December 31, 2008.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—An Amendment of AR
for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years beginning on or
impact on our results of operations or financial position.

In April 2008, the FASB issued FSP SFAS No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”), which is effec
adoption of FSP 142-3 is not permitted. FSP 142-3 requires additional footnote disclosures about the impact of our ability or intent to renew or exte
intangibles, how we account for costs incurred to renew or extend such agreements, the time until the next renewal or extension period by as
intangibles acquired after December 31, 2008, FSP 142-3 requires that we consider our experience regarding renewal and extensions of similar a
arrangements, FSP 142-3 requires that we use the assumptions of a market participant putting the intangible to its highest and best use in determ
December 31, 2008, and its effect will depend on the specifics of the intangible acquired.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”), which identifies
be used in the preparation of financial statements. SFAS 162 is effective as of November 17, 2008. The adoption of SFAS 162 did not have a materia

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We provide information/marketing services to the commercial real estate and related business community in the U.S., U.K. and France. Our f
such, fluctuations in the British Pound and Euro may have an impact on our business, results of operations and financial position. For the year en
11% of total revenue. For the year ended December 31, 2008, our revenue would have decreased by approximately $2.2 million if the U.S. dollar
denominated in foreign currencies. A 10% strengthening of the U.S. dollar exchange rate against all currencies with which we have exposure at D
carrying amount of net assets. For the year ended December 31, 2008, our revenue would have increased by approximately $2.2 million if the U.S. d
denominated in foreign currencies. A 10% weakening of the U.S. dollar exchange rate against all currencies with which we have exposure at D
carrying amount of net assets. We currently do not use financial instruments to hedge our exposure to exchange rate fluctuations with respect to
reduce our exposure to exchange rate fluctuations, but we may be unable to enter into hedging transactions successfully, on acceptable terms
included a loss from foreign currency translation adjustments of approximately $8.5 million.

36
Processed and formatted by SEC Watch - Visit SECWatch.com

We do not have material exposure to market risks associated with changes in interest rates related to cash equivalent securities held as of
equivalents and short-term investments. If there is an increase or decrease in interest rates, there will be a corresponding increase or decre
investments. Based on our ability to access our cash, cash equivalents and short-term investments, and our expected operating cash flows, we
operate our business in the foreseeable future.

Included within our long-term investments are investments in mostly AAA rated student loan ARS. These securities are primarily securities
December 31, 2008, auctions for $33.1 million of our investments in auction rate securities failed. As a result, we may not be able to sell these inv
event we need to immediately liquidate these investments, we may have to locate a buyer outside the auction process, who may be unwilling to
value of these investments in ARS as of December 31, 2008, we determined that there was a decline in the fair value of our ARS investments of app
as an unrealized loss in other comprehensive income in stockholders’ equity. If the issuers are unable to successfully close future auctions and th
investments as a temporary impairment and recognize a greater unrealized loss in other comprehensive income or as an other-than-temporary imp
and short-term investments, and our expected operating cash flows, we do not anticipate having to sell these securities below par value in orde
financial statements for further discussion.

We have approximately $70.7 million in intangible assets as of December 31, 2008. As of December 31, 2008, we believe our intangible asse
operate and our own relative performance could change the assumptions used to evaluate intangible asset recoverability. In the event that we dete
to the amount by which the carrying amount of the assets exceeds the fair value of the asset. We continue to monitor these assumptions and their

Item 8. Financial Statements and Supplementary Data

Financial Statements meeting the requirements of Regulation S-X are set forth beginning at page F-1. Supplementary data is set forth in “Mana
under the caption “Consolidated Results of Operations.”

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

None.

Item 9A. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or
within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and
Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls
how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required
and procedures.

37
Processed and formatted by SEC Watch - Visit SECWatch.com

As of December 31, 2008, we carried out an evaluation, under the supervision and with the participation of our management, including our Ch
and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer conclude
reasonable assurance level.

Management’s Report on Internal Control over Financial Reporting

Management of CoStar is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessm
Securities and Exchange Commission, internal control over financial reporting is a process designed by, or supervised by, the Company’s principa
the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles.

The Company’s internal control over financial reporting is supported by written policies and procedures, that (1) pertain to the maintenance
dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of finan
receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and director
unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any ev
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of the Company's annual financial statements, management of the Company has undertaken an assessment
December 31, 2008 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations
included an evaluation of the design of the Company's internal control over financial reporting and testing of the operational effectiveness of the C

Based on this assessment, management did not identify any material weakness in the Company's internal control, and management has concl
December 31, 2008.

Ernst & Young, LLP, the independent registered public accounting firm that audited the Company's financial statements included in this
financial reporting, a copy of which is included in this Annual Report on Form 10-K.

There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affe
reporting.

Item 9B. Other Information.

None.

38
Processed and formatted by SEC Watch - Visit SECWatch.com

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item is incorporated by reference to our Proxy Statement for our 2009 annual meeting of stockholders.

Item 11. Executive Compensation

The information required by this Item is incorporated by reference to our Proxy Statement for our 2009 annual meeting of stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated by reference to our Proxy Statement for our 2009 annual meeting of stockholders.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated by reference to our Proxy Statement for our 2009 annual meeting of stockholders.

Item 14. Principal Accountant Fees and Services

The information required by this Item is incorporated by reference to our Proxy Statement for our 2009 annual meeting of stockholders.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1) The following financial statements are filed as a part of this report: CoStar Group, Inc. Consolidated Financial Statements.

(a)(2) All schedules are omitted because they are not applicable or not required or because the required information is incorporated herein by r
this report.

(a)(3) The documents required to be filed as exhibits to this Report under Item 601 of Regulation S-K are listed in the Exhibit Index included else

39
Processed and formatted by SEC Watch - Visit SECWatch.com

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Act of 1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City of Bethesda, State of Maryland, on the 23rd day of February
2009.

COSTAR GROUP, INC.

By: /S/ Andrew C. Florance


Andrew C. Florance
President and Chief Executive Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Andrew C.
Florance and Brian J. Radecki, and each of them individually, as their true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the
same, with all exhibits thereto and to all documents in connection therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, herein by ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.

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

Signature Capacity Date

/S/ Michael R. Klein Chairman of the Board February 23, 2009


Michael R. Klein

/S/ Andrew C. Florance Chief Executive Officer and February 23, 2009
Andrew C. Florance President and a Director
(Principal Executive Officer)

/S/ Brian J. Radecki Chief Financial Officer February 23, 2009


Brian J. Radecki (Principal Financial and Accounting Officer)

/S/ David Bonderman Director February 23, 2009


David Bonderman

/S/ Warren H. Haber Director February 23, 2009


Warren H. Haber

/S/ Josiah O. Low, III Director February 23, 2009


Josiah O. Low, III

/S/ Christopher Nassetta Director February 23, 2009


Christopher Nassetta

/S/ Michael Glosserman Director February 23, 2009


Michael Glosserman

40
Processed and formatted by SEC Watch - Visit SECWatch.com

INDEX TO EXHIBITS

Exhibit
No. Description
2.1 Offer Document by CoStar Limited for the share capital of Focus Information Limited (Incorporated by reference to Exhibit 2.1 to
Amendment No. 2 to the Registration Statement on Form S-3 of the Registrant (Reg. No. 333-106769) filed with the Commission on
August 14, 2003).
3.1 Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 the Registration Statement on Form S-1 of the
Registrant (Reg. No. 333-47953) filed with the Commission on March 13, 1998 (the “1998 Form S-1”)).
3.2 Certificate of Amendment of Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to the Registrant’s
Report on Form 10-Q for the quarter ended June 30, 1999).
3.3 Amended and Restated By-Laws (filed herewith).
4.1 Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Registrant’s Report on Form 10-K for the year
ended December 31, 1999).
*10.1 CoStar Group, Inc. 1998 Stock Incentive Plan, as amended (Incorporated by reference to Exhibit 10.1 to the Registrant’s Report on
Form 10-Q for the quarter ended September 30, 2005).
*10.2 CoStar Group, Inc. 2007 Stock Incentive Plan, as amended (filed herewith).
*10.3 CoStar Group, Inc. 2007 Stock Incentive Plan French Sub-Plan (Incorporated by reference to Exhibit 10.3 to the Registrant’s
Report on Form 10-K for the year ended December 31, 2007).
*10.4 Form of Stock Option Agreement between the Registrant and certain of its officers, directors and employees (Incorporated by
reference to Exhibit 10.8 to the Registrant’s Report on Form 10-K for the year ended December 31, 2004).
*10.5 Form of Stock Option Agreement between the Registrant and Andrew C. Florance (Incorporated by reference to Exhibit 10.8.1 to
the Registrant’s Report on Form 10-K for the year ended December 31, 2004).
*10.6 Form of Restricted Stock Agreement between the Registrant and certain of its officers, directors and employees (Incorporated by
reference to Exhibit 10.9 to the Registrant’s Report on Form 10-K for the year ended December 31, 2004).
*10.7 Form of 2007 Plan Restricted Stock Grant Agreement between the Registrant and certain of its officers, directors and employees
(Incorporated by reference to Exhibit 99.1 to the Registrant’s Report on Form 8-K filed June 22, 2007).
*10.8 Form of 2007 Plan Incentive Stock Option Grant Agreement between the Registrant and certain of its officers and employees (filed
herewith).
*10.9 Form of 2007 Plan Incentive Stock Option Grant Agreement between the Registrant and Andrew C. Florance (filed herewith).
*10.10 Form of 2007 Plan Nonqualified Stock Option Grant Agreement between the Registrant and certain of its officers and employees
(filed herewith).
*10.11 Form of 2007 Plan Nonqualified Stock Option Grant Agreement between the Registrant and certain of its directors (filed herewith).
*10.12 Form of 2007 Plan Nonqualified Stock Option Grant Agreement between the Registrant and Andrew C. Florance (filed herewith).
*10.13 Form of 2007 Plan French Sub-Plan Restricted Stock Agreement between the Registrant and certain of its employees
(Incorporated by reference to Exhibit 10.10 to the Registrant’s Report on Form 10-K for the year ended December 31, 2007).
*10.14 CoStar Group, Inc. Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2006).
*10.15 Employment Agreement for Andrew C. Florance (Incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the
Registration Statement on Form S-1 of the Registrant (Reg. No. 333-47953) filed with the Commission on April 27, 1998).

41
Processed and formatted by SEC Watch - Visit SECWatch.com

INDEX TO EXHIBITS  (Continued)

Exhibit No. Description


*10.16 First Amendment to Andrew C. Florance Employment Agreement, effective January 1, 2009 (filed herewith).
*10.17 Executive Service Contract dated February 16, 2007, between Property Investment Exchange Limited and Paul Marples
(Incorporated by reference to Exhibit 10.14 to the Registrant’s Report on Form 10-K for the year ended December 31, 2007).
*10.18 Form of Indemnification Agreement between the Registrant and each of its officers and directors (Incorporated by reference to
Exhibit 10.1 to the Registrant’s Report on Form 10-Q for the quarter ended March 31, 2004).
10.19 Office Lease, dated August 12, 1999, between CoStar Realty Information, Inc. and Newlands Building Ventures, LLC
(Incorporated by reference to Exhibit 10.2 to the Registrant’s Report on Form 10-Q for the quarter ended September 30, 1999).
10.20 Office Sublease, dated June 14, 2002, between CoStar Realty Information, Inc., CoStar Group, Inc. and Gateway, Inc. (Incorporated
by reference to Exhibit 10.2 to the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2002).
10.21 Exercise of option to extend lease term and sublease amendment, dated February 22, 2007 between Gateway, Inc. and CoStar
Realty Information, Inc. and CoStar Group, Inc. (Incorporated by reference to Exhibit 10.11 to the Registrant’s Report on Form 10-
K for the year ended December 31, 2006).
10.22 Addendum No. 3 to Office Lease, dated as of May 12, 2004, between Newlands Building Venture, LLC, and CoStar Realty
Information, Inc. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Report on Form 10-Q for the quarter ended June 30,
2004).
10.23 Office Lease, dated as of February 23, 2005, between CoStar Realty Information, Inc. and Crestpointe III, LLC. (Incorporated by
reference to Exhibit 10.13 to the Registrant’s Report on Form 10-K for the year ended December 31, 2004).
10.24 Office Lease Agreement, dated March 16, 2007, between Corporate Place I Business Trust and CoStar Group, Inc. (Incorporated
by reference to Exhibit 10.2 to the Registrant’s Report on Form 10-Q for the quarter ended March 31, 2007).
10.25 Agreement for Lease among Nokia UK Limited, Focus Information Limited and CoStar Group, Inc., dated November 23, 2007
(Incorporated by reference to Exhibit 10.22 to the Registrant’s Report on Form 10-K for the year ended December 31, 2007).
10.26 Contract for Sale and Purchase between Focus Information Limited and Trafigura Limited, dated September 14, 2007 (Incorporated
by reference to Exhibit 10.1 to the Registrant’s Report on Form 10-Q for the quarter ended September 30, 2007).
21.1 Subsidiaries of the Registrant (filed herewith).
23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (filed herewith).
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (filed herewith).
32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (filed herewith).

* Management Contract or Compensatory Plan or Arrangement.

42
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm F-2


Consolidated Statements of Operations for the years ended December 31, 2006, 2007 and 2008 F-4
Consolidated Balance Sheets as of December 31, 2007 and 2008 F-5
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2006, 2007 and 2008 F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2007 and 2008 F-7
Notes to Consolidated Financial Statements F-8

F-1
Processed and formatted by SEC Watch - Visit SECWatch.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of CoStar Group, Inc.

We have audited the accompanying consolidated balance sheets of CoStar Group, Inc. as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2008.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
CoStar Group, Inc. at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years
in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

As also discussed in Note 9 to the consolidated financial statements, under the heading Income Taxes, the Company adopted FASB
Interpretation No. 48 “Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109” effective January 1, 2007.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), CoStar's
internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2009 expressed an unqualified
opinion thereon.

/S/ Ernst & Young LLP

McLean, Virginia
February 19, 2009

F-2
Processed and formatted by SEC Watch - Visit SECWatch.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of CoStar Group, Inc.

We have audited CoStar Group, Inc.’s (“CoStar”) internal control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). CoStar’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based
on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, CoStar maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based
on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets as of December 31, 2008 and 2007 and the related consolidated statements of operations, stockholders’ equity
and cash flows for each of the three years in the period ended December 31, 2008 of CoStar Group, Inc. and our report dated February 19, 2009
expressed an unqualified opinion thereon.

/S/ Ernst & Young LLP

McLean, Virginia
February 19, 2009

F-3
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


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

Year Ended December 31,


2006 2007 2008

Revenues $ 158,889 $ 192,805 $ 212,428


Cost of revenues 56,136 76,704 73,408
Gross margin 102,753 116,101 139,020

Operating expenses:
Selling and marketing 41,774 51,777 41,705
Software development 12,008 12,453 12,759
General and administrative 30,707 36,569 39,888
Gain on lease settlement, net  (7,613) 
Purchase amortization 4,183 5,063 4,880
88,672 98,249 99,232
Income from operations 14,081 17,852 39,788
Interest and other income, net 6,845 8,045 4,914
Income before income taxes 20,926 25,897 44,702
Income tax expense, net 8,516 9,946 20,079
Net income $ 12,410 $ 15,951 $ 24,623

Net income per share  basic $ 0.66 $ 0.84 $ 1.27


Net income per share  diluted $ 0.65 $ 0.82 $ 1.26

Weighted average outstanding shares  basic 18,751 19,044 19,372


Weighted average outstanding shares  diluted 19,165 19,404 19,550

See accompanying notes.

F-4
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


CONSOLIDATED BALANCE SHEETS
(in thousands except per share data)

December 31,
2007 2008
ASSETS

Current assets:
Cash and cash equivalents $ 57,785 $ 159,982
Short-term investments 129,641 35,268
Accounts receivable, less allowance for doubtful accounts of approximately $2,959 and $3,213 as of
December 31, 2007 and 2008, respectively 10,875 12,294
Deferred income taxes, net 2,716 2,036
Prepaid expenses and other current assets 4,661 2,903
Total current assets 205,678 212,483

Long-term investments  29,340


Deferred income taxes, net 2,233 3,392
Property and equipment, net 24,045 16,876
Goodwill 61,854 54,328
Intangibles and other assets, net 25,711 16,421
Deposits and other assets 2,322 1,544
Total assets $ 321,843 $ 334,384

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable $ 3,299 $ 1,636
Accrued wages and commissions 7,489 7,217
Accrued expenses 15,505 7,754
Income taxes payable 191 1,907
Deferred revenue 10,374 9,442
Deferred rent 1,379 1,180
Total current liabilities 38,237 29,136

Deferred income taxes, net 1,801 132


Income taxes payable  1,695

Commitments and Contingencies  

Stockholders’ equity:
Preferred stock, $0.01 par value; 2,000 shares authorized; none outstanding  
Common stock, $0.01 par value; 30,000 shares authorized; 19,474 and 19,733 issued and outstanding as of
December 31, 2007 and 2008, respectively 195 197
Additional paid-in capital 317,570 333,983
Accumulated other comprehensive income (loss) 5,626 (13,796)
Accumulated deficit (41,586) (16,963)
Total stockholders’ equity 281,805 303,421
Total liabilities and stockholders’ equity $ 321,843 $ 334,384

See accompanying notes

F-5
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)

Accumulated
Additional Other Total
Comprehensive Common Stock Paid-In Unearned Comprehensive Accumulated Stockholders’
Income Shares Amount Capital Compensation Income (Loss) Deficit Equity
Balance at December
31, 2005 18,674 $ 187 $ 295,920 $ (2,712) $ 1,348 $ (69,947) $ 224,796
Net income 12,410      12,410 12,410
Foreign currency
translation
adjustment 2,950     2,950  2,950
Net unrealized gain
on short-term
investments 222     222  222
Comprehensive
income $ 15,582
Exercise of stock
options 270 3 6,566    6,569
Swaps of shares for
exercise (20) (1) (938)    (939)
Restricted stock
grants 165 2 34    36
Restricted stock
grants
surrendered (12)  (234)    (234)
Stock
compensation
expense, net of
forfeitures   4,094    4,094
Employee Stock
Purchase Plan
(ESPP) 4  206    206
Impact upon
adoption of
SFAS 123R   (2,712) 2,712   
Balance at December
31, 2006 19,081 191 302,936  4,520 (57,537) 250,110
FIN 48 Adjustment   26    26
Balance at January 1,
2007 19,081 191 302,962  4,520 (57,537) 250,136
Net income 15,951      15,951 15,951
Foreign currency
translation
adjustment 873     873  873
Net unrealized gain
on short-term
investments 233     233  233
Comprehensive
income $ 17,057
Exercise of stock
options 289 3 8,127    8,130
Restricted stock
grants 131 1 (1)    
Restricted stock
grants
surrendered (58)  (635)    (635)
Consideration for
Propex 22  1,010    1,010
Stock
compensation
expense, net of
forfeitures   5,440    5,440
Processed and formatted by SEC Watch - Visit SECWatch.com
ESPP 9  407    407
Excess tax benefit
for exercised
stock options   260    260
Balance at December
31, 2007 19,474 195 317,570  5,626 (41,586) 281,805
Net income 24,623      24,623 24,623
Foreign currency
translation
adjustment (14,061)     (14,061)  (14,061)
Net unrealized loss
on short-term
investments (5,361)     (5,361)  (5,361)
Comprehensive
income $ 5,201
Exercise of stock
options 198 2 6,555    6,557
Restricted stock
grants 102 1     1
Restricted stock
grants
surrendered (49) (1) (695)    (696)
Stock compensation
expense, net of
forfeitures   4,907    4,907
ESPP 8  329    329
Excess tax benefit
for exercised
stock options   5,317    5,317
Balance at December
31, 2008 19,733 $ 197 $ 333,983 $  $ (13,796) $ (16,963) $ 303,421

See accompanying notes.

F-6
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Year Ended December 31,


2006 2007 2008
Operating activities:
Net income $ 12,410 $ 15,951 $ 24,623
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 5,734 7,778 8,360
Amortization 6,076 8,369 8,441
Deferred income tax expense, net 7,658 9,946 2,148
Provision for losses on accounts receivable 1,813 2,464 4,042
Excess tax benefit from stock options   (5,317)
Stock-based compensation expense 4,155 5,440 4,940
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (5,080) (2,944) (6,196)
Interest receivable (164) (67) 533
Prepaid expenses and other current assets (1,205) (755) 1,464
Deposits (246) (670) 652
Accounts payable and accrued expenses 688 6,721 (3,044)
Deferred revenue 748 (501) 262
Net cash provided by operating activities 32,587 51,732 40,908

Investing activities:
Purchases of short-term investments (108,876) (116,609) (4,839)
Sales of short-term investments 95,393 107,286 63,949
Purchases of property and equipment and other assets (12,959) (14,271) (3,656)
Acquisitions, net of cash acquired (1,887) (16,737) (3,024)
Net cash (used in) provided by investing activities (28,329) (40,331) 52,430

Financing activities:
Excess tax benefit from stock options   5,317
Proceeds from transactions in stock based plans 5,582 8,161 6,158
Net cash provided by financing activities 5,582 8,161 11,475

Effect of foreign currency exchange rates on cash and cash equivalents 254 64 (2,616)
Net increase in cash and cash equivalents 10,094 19,626 102,197
Cash and cash equivalents at beginning of year 28,065 38,159 57,785
Cash and cash equivalents at end of year $ 38,159 $ 57,785 $ 159,982

See accompanying notes

F-7
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008

1. ORGANIZATION

CoStar Group, Inc. (the “Company”) has created a comprehensive, proprietary database of commercial real estate information covering the
United States, as well as parts of the United Kingdom and France. Based on its unique database, the Company provides information/marketing
services to the commercial real estate and related business community and operates within two segments, U.S. and International. The
Company’s information/marketing services are typically distributed to its clients under subscription-based license agreements, which typically
have a minimum term of one year and renew automatically.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation. Accounting policies are consistent for each operating
segment.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of
America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain previously reported amounts have been reclassified to conform to the Company’s current presentation.

Revenue Recognition

The Company primarily derives revenues from providing access to its proprietary database of commercial real estate information. The
Company generally charges a fixed monthly amount for its subscription-based services. Subscription contract rates are based on the number
of sites, number of users, organization size, the client’s business focus and the number of services to which a client subscribes. Subscription-
based license agreements typically have a minimum term of one year and renew automatically.

Revenues from subscription-based services are recognized on a straight-line basis over the term of the agreement. Deferred revenue
results from advance cash receipts from customers or amounts billed in advance to customers from the sales of subscription licenses and is
recognized over the term of the license agreement.

Cost of Revenues

Cost of revenues principally consists of salaries and related expenses for the Company’s researchers who collect and analyze the
commercial real estate data that is the basis for the Company’s information/marketing services. Additionally, cost of revenues includes the
cost of data from third party data sources, which is expensed as incurred, and the amortization of database technology.

Significant Customers

No single customer accounted for more than 5% of the Company’s revenues for each of the years ended December 31, 2006, 2007 and
2008.

F-8
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

Foreign Currency Translation

The Company’s functional currency in its foreign locations is the local currency. Assets and liabilities are translated into U.S. dollars as of
the balance sheet date. Revenues, expenses, gains and losses are translated at the average exchange rates in effect during each period. Gains
and losses resulting from translation are included in accumulated other comprehensive income. Net gains or losses resulting from foreign
currency exchange transactions are included in the consolidated statements of operations. There were no material gains or losses from foreign
currency exchange transactions for the years ended December 31, 2008 and 2007.

Comprehensive Income

The components of accumulated other comprehensive income were as follows (in thousands):

Year Ended December 31,


2007 2008
Foreign currency translation adjustment $ 5,540 $ (8,521)
Accumulated net unrealized gain (loss) on investments, net of tax 86 (5,275)
Total accumulated other comprehensive income (loss) $ 5,626 $ (13,796)

Advertising Costs

The Company expenses advertising costs as incurred. Advertising expense were approximately $4.0 million, $2.3 million and $2.8 million
for the years ended December 31, 2006, 2007 and 2008, respectively.

Income Taxes

The Company provides for income taxes under the provisions of Statement of Financial Accounting Standards No. 109 “Accounting for
Income Taxes” (“SFAS No. 109”). Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and
the basis reported in the Company’s consolidated financial statements. Deferred tax liabilities and assets are determined based on the
difference between the financial statement and the tax basis of assets and liabilities using enacted rates expected to be in effect during the year
in which the differences reverse. Valuation allowances are provided against assets, including net operating losses, if it is anticipated that some
or all of the asset may not be realized through future taxable earnings or implementation of tax planning strategies.

Net Income Per Share

Net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the
period on a basic and diluted basis. The Company’s potentially dilutive securities include stock options and restricted stock. Diluted net
income per share considers the impact of potentially dilutive securities except in periods in which there is a net loss, as the inclusion of the
potential common shares would have an anti-dilutive effect.

Stock-Based Compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R “Share Based Payment” (“SFAS
123R”), which addresses the accounting for share-based payment transactions in which the Company receives employee services in exchange
for equity instruments., The statement generally requires that equity instruments issued in such transactions be accounted for using a fair-
value based method and the fair value of such equity instruments be recognized as expense in the consolidated statements of operations.

F-9
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

Stock-Based Compensation  (Continued)

Under the fair-value recognition provisions of SFAS 123R, stock-based compensation cost is estimated at the grant date based on the fair
value of the awards expected to vest and recognized as expense ratably over the requisite service period of the award. The Company
recognizes compensation costs for awards with graded vesting on a straight-line basis.

The Company adopted SFAS 123R using the modified prospective method, which requires the application of the accounting standard as
of January 1, 2006. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. Upon adoption of SFAS 123R, the Company recorded a charge of approximately $35,000 representing
the cumulative effect of a change in accounting principle. This amount was recorded in general and administrative expenses in the
consolidated statements of operations for the year ended December 31, 2006.

The impact of the adoption of SFAS 123R on the Company's results of operations for the year ended December 31, 2006, was as follows
(in thousands, except per share data):

Income from operations $ (2,860)


Income before taxes $ (2,860)
Net income $ (1,784)
Basic earnings per share $ (0.10)
Diluted earnings per share $ (0.09)

SFAS 123R requires cash flows resulting from excess tax benefits to be classified as part of cash flows from financing activities. Excess tax
benefits represent tax benefits related to exercised options in excess of the associated deferred tax asset for such options. There were no
excess tax benefits as a result of adopting SFAS 123R for the year ended December 31, 2006, and no amounts were classified as an operating
cash outflow or a financing cash inflow in the accompanying consolidated statement of cash flows. Net cash proceeds from the exercise of
stock options were approximately $6.6 million; $8.1 million and $6.6 million for the years ended December 31, 2006, 2007 and 2008,
respectively. There were approximately $5.3 million of excess tax benefits realized from stock option exercises for the year ended December 31,
2008.

Stock-based compensation expense for stock options, restricted stock and the employee stock purchase plan included in the Company's
results of operations for the years ended December 31, was as follows (in thousands):

Year Ended December 31,


2006 2007 2008
Cost of revenues $ 317 $ 926 $ 547
Selling and marketing 1,263 1,118 400
Software development 202 340 423
General and administrative 2,373 3,056 3,570
Total $ 4,155 $ 5,440 $ 4,940

F-10
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Cash equivalents consist of money market fund investments and U.S. Government Securities. As of December 31, 2007 and 2008, cash of
$754,000 and $518,000, respectively, was held to support letters of credit for security deposits.

Investments

The Company accounts for investments in accordance with Statement of Financial Accounting Standards No. 115“Accounting for
Certain Investments in Debt and Equity Securities” (“SFAS No. 115”), The Company determines the appropriate classification of investments
at the time of purchase and reevaluates such designation as of each balance sheet date. The Company considers all of its investments to be
available-for-sale. Short-term investments consist of commercial paper, government/federal notes and bonds and corporate obligations with
maturities greater than 90 days at the time of purchase. Available-for-sale short-term investments with contractual maturities beyond one year
are classified as current in the Company’s consolidated balance sheets because they represent the investment of cash that is available for
current operations. Long-term investments consist of auction rate securities. Investments are carried at fair market value.

Concentration of Credit Risk and Financial Instruments

The Company performs ongoing credit evaluations of its customers’ financial condition and generally does not require that its customers’
obligations to the Company be secured. The Company maintains reserves for credit losses, and such losses have been within management’s
expectations. The large size and widespread nature of the Company’s customer base and lack of dependence on individual customers mitigate
the risk of nonpayment of the Company’s accounts receivable. The carrying amount of the accounts receivable approximates the net realizable
value. The carrying value of the Company’s financial instruments including cash and cash equivalents, short-term investments, long-term
investments, accounts receivable, accounts payable, and accrued expenses approximates fair value.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The Company
regularly reviews the allowance by considering factors such as historical experience, the aging of the balances, and current economic
conditions that may affect a customer’s ability to pay.

Property and Equipment

Property and equipment are stated at cost. All repairs and maintenance costs are expensed as incurred. Depreciation and amortization are
calculated on a straight-line basis over the following estimated useful lives of the assets:

Leasehold improvements Shorter of lease term or useful life


Furniture and office equipment Five to seven years
Research vehicles Five years
Computer hardware and software Two to five years

Internal use software costs are capitalized in accordance with Statement of Position No. 98-1, “Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use” (“SOP 98-1”). Qualifying costs incurred during the application development stage, which
consist primarily of outside services and purchased software license costs, are capitalized and amortized over the estimated useful life of the
asset. All other costs are expensed as incurred.

F-11
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

Goodwill, Intangibles and Other Assets

Goodwill represents the excess of costs over the fair value of assets of businesses acquired. Goodwill and intangible assets subject to
amortization that arose from acquisitions prior to July 1, 2001, have been amortized on a straight-line basis over their estimated useful lives in
accordance with Accounting Principles Board Opinion No. 17, “Intangible Assets” (“APB 17”). The Company adopted the provisions of
Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), as of January 1, 2002. Goodwill
and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but
instead tested for impairment at least annually by reporting unit in accordance with the provisions of SFAS No. 142. The goodwill impairment
test is a two-step process. The first step is to determine the fair value of each reporting unit. The estimate of the fair value of each reporting
unit is based on a projected discounted cash flow model that includes significant assumptions and estimates including our future financial
performance and a weighted average cost of capital. The fair value of each reporting unit is compared to the carrying amount of the reporting
unit. If the carrying value of the reporting unit exceeds the fair value, then the second step of the process is performed to measure the
impairment loss. The impairment loss is measured based on a projected discounted cash flow method using a discount rate determined by
our management to be commensurate with the risk in our current business model.

SFAS No. 142 also requires that intangible assets with estimable useful lives that arose from acquisitions on or after July 1, 2001, be
amortized over their respective estimated useful lives using a method of amortization that reflects the pattern in which the economic benefits of
the intangible assets are consumed or otherwise used up, and reviewed for impairment in accordance with Statement of Financial Accounting
Standards No. 144 (“SFAS 144”), “Accounting for Impairment or Disposal of Long-Lived Assets”.

Acquired database technology, customer base and trade names and other are related to the Company’s acquisitions (See Notes 3 and 6).
Acquired database technology and trade names and other are amortized on a straight-line basis over periods ranging from two to ten years.
The acquired intangible asset characterized as customer base consists of one distinct intangible asset composed of acquired customer
contracts and the related customer relationships. Acquired customer bases that arose from acquisitions prior to July 1, 2001 are amortized on a
straight-line basis principally over a period of ten years. Acquired customer bases that arose from acquisitions on or after July 1, 2001 are
amortized on a 125% declining balance method over ten years. The cost of capitalized building photography is amortized on a straight-line
basis over five years.

Long-Lived Assets

In accordance with SFAS 144, long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to
amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimate
undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount for which the carrying amount of the asset exceeds the fair value of the
asset.

Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair
value less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposed group classified as held for sale would be
presented separately in the appropriate asset and liability sections of the balance sheet.

Goodwill and intangible assets not subject to amortization are tested annually for impairment by reporting unit, and are tested for
impairment more frequently if events and circumstances indicate that the asset might be impaired. The Company’s operating segments, U.S.
and International, are the reporting units tested for potential impairment under SFAS No. 142. An impairment loss is recognized to the extent
that the carrying amount exceeds the asset’s fair value.

F-12
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 “Accounting for Uncertainty in
Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which became effective for the Company as of January 1, 2007. FIN
48 addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial
statements. Under FIN 48, the Company must recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the
tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate resolution. The Company’s reassessment of its tax positions in accordance with FIN 48 did not have
a material impact on its results of operations and financial position.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a
framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. SFAS 157 does not
require any new fair value measurements under GAAP and is effective for fiscal years beginning after November 15, 2007. In February 2008,
the FASB issued FASB Staff Position (“FSP”) 157-2, “Partial Deferral of the Effective Date of Statement 157” (“FSP 157-2”), which delays the
effective date of SFAS 157 to January 1, 2009 for all non-financial assets and non-financial liabilities, except those that are recognized or
disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). Effective January 1, 2008, the Company
adopted the portion of SFAS 157 that was not deferred under FSP 157-2. The adoption of SFAS 157 did not have a material impact on the
Company’s results of operations or financial position. In October 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
Financial Asset in a Market That Is Not Active” (“FSP 157-3”), which clarifies the application of SFAS 157 to markets that are not active and
provides an example illustrating key considerations for determining the fair value of financial assets when their markets are not active. FSP 157-
3 was effective upon issuance, including prior periods for which financial statements had not been issued. The adoption of this standard did
not have an impact on the Company’s results of operations or financial position.

In February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial Assets and Financial Liabilities — Including an
amendment of FASB Statement No. 115” (“SFAS 159”), which permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at fair value. SFAS 159 is effective for fiscal years beginning on or after
December 31, 2007. The Company adopted SFAS 159 on January 1, 2008 and has elected not to apply the fair value option to any of its
financial instruments. The adoption of SFAS 159 did not have a material impact on the Company’s results of operations or financial position.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141R”), which will change the
accounting for any business combination the Company enters into with an acquisition date after December 31, 2008. Under SFAS 141R, an
acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition date fair value
with limited exceptions. SFAS 141R will change the accounting treatment and disclosure for certain specific items in a business combination.
SFAS 141R will have an impact on accounting for business combinations once adopted, but its effect will depend upon the specifics of any
business combination with an acquisition date subsequent to December 31, 2008.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—An Amendment of
ARB No. 51” (“SFAS 160”), which establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for
the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The adoption of SFAS 160
is not expected to have a material impact on the Company’s results of operations or financial position.

F-13
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

Recent Accounting Pronouncements  (Continued)

In April 2008, the FASB issued FSP SFAS No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”), which is
effective for all fiscal years and interim periods beginning after December 15, 2008. Early adoption of FSP 142-3 is not permitted. FSP 142-3
requires additional footnote disclosures about the impact of the Company’s ability or intent to renew or extend agreements related to existing
intangibles or expected future cash flows from those intangibles, how the Company accounts for costs incurred to renew or extend such
agreements, the time until the next renewal or extension period by asset class, and the amount of renewal or extension costs capitalized, if any.
For any intangibles acquired after December 31, 2008, FSP 142-3 requires that the Company consider its experience regarding renewal and
extensions of similar arrangements in determining the useful life of such intangibles. If the Company does not have experience with similar
arrangements, FSP 142-3 requires that the Company use the assumptions of a market participant putting the intangible to its highest and best
use in determining the useful life. The adoption of FSP 142-3 will impact intangibles acquired after December 31, 2008, and its effect will depend
on the specifics of the intangible acquired.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”), which
identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial
statements. SFAS 162 is effective as of November 17, 2008. The adoption of SFAS 162 did not have a material impact on the Company’s results
of operations or financial position.

3. ACQUISITIONS

On February 16, 2007, CoStar Limited, a wholly owned U.K. subsidiary of CoStar, acquired all of the outstanding capital stock of Property
Investment Exchange Limited (“PropexTM”) for approximately $22.0 million, consisting of cash, deferred consideration and 21,526 shares of
CoStar common stock. Propex provides web-based commercial property information and operates an electronic platform that facilitates the
exchange of investment property in the U.K. Propex’s suite of electronic platforms and listing websites give users access to the U.K.
commercial property investment and leasing markets.

On April 1, 2008, the Company acquired certain assets of First CLS, Inc. (doing business as the Dorey Companies and DoreyPRO), an
Atlanta-based provider of local commercial real estate information for $3.0 million in initial cash consideration and deferred consideration
payable within approximately six months of the one-year anniversary of closing.

These acquisitions were accounted for using the purchase method of accounting. The purchase price of the Propex acquisition was
primarily allocated to customer base, trade name, and goodwill. The purchase price of the First CLS, Inc. acquisition was primarily allocated to
acquired customer base. The acquired customer base for the acquisitions, which consists of one distinct intangible asset for each acquisition
and is composed of acquired customer contracts and the related customer relationships, is being amortized on a 125% declining balance
method over ten years. The Propex acquired trade name is amortized on a straight-line basis over three years. We recorded goodwill of
approximately $15.0 million for the Propex acquisition and $1.1 million for the First CLS, Inc. acquisition. Goodwill is not amortized, but is
subject to annual impairment tests. The results of operations of Propex and First CLS, Inc. have been consolidated with those of the Company
since the date of the acquisition and are not considered material to our consolidated financial statements. Accordingly, pro forma financial
information has not been presented for either acquisition.

F-14
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

4. INVESTMENTS

The Company accounts for investments in accordance with Statement of Financial Accounting Standards No. 115“Accounting for
Certain Investments in Debt and Equity Securities” (“SFAS No. 115”). The Company determines the appropriate classification of investments
at the time of purchase and reevaluates such designation as of each balance sheet date. The Company considers all of its investments to be
available-for-sale. Short-term investments consist of commercial paper, government/federal notes and bonds and corporate obligations with
maturities greater than 90 days at the time of purchase. Available-for-sale short-term investments with contractual maturities beyond one year
are classified as current in the Company’s consolidated balance sheets because they represent the investment of cash that is available for
current operations. Long-term investments consist of auction rate securities. Investments are carried at fair market value.

Scheduled maturities of investments classified as available-for-sale as of December 31, 2008 are as follows (in thousands):

Maturity Fair Value


Due in:
2009 $ 5,226
2010-2013 26,881
2014-2018 917
2019 and thereafter 31,131
64,155
Securities with multiple maturities 453
Investments $ 64,608

The realized gains on the Company’s investments for the years ended December 31, 2007 and 2008 was approximately $24,000 and
$329,000, respectively. The realized losses on the Company’s investments for the years ended December 31, 2007 and 2008 was approximately
$232,000 and $489,000, respectively.

Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are
reported as a separate component of other comprehensive income in stockholders’ equity until realized. Realized gains and losses from the
sale of available-for-sale securities are determined on a specific-identification basis. A decline in market value of any available-for-sale security
below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to
earnings and a new cost basis for the security is established. Dividend and interest income are recognized when earned.

The unrealized losses on the Company’s investments as of December 31, 2007 and 2008 were generated primarily from increases in interest
rates. The losses are considered temporary, as the contractual terms of these investments do not permit the issuer to settle the security at a
price less than the amortized cost of the investment. Because the Company has the ability to hold these investments until a recovery of fair
value, which may be maturity, it does not consider these investments to be other-than-temporarily impaired as of December 31, 2007 and 2008.

F-15
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

4. INVESTMENTS  (CONTINUED)

The components of the investments in a loss position for more than twelve months consists of the following (in thousands):

December 31,
2007 2008
Aggregate Gross Aggregate Gross
Fair Unrealized Fair Unrealized
Value Losses Value Losses
Federal debt securities $ 1,592 $ (15) $  $ 
Corporate debt securities 13,886 (49) 22,136 (1,494)
$ 15,478 $ (64) $ 22,136 $ (1,494)

The components of the investments in a loss position for less than twelve months consists of the following (in thousands):

December 31,
2007 2008
Aggregate Gross Aggregate Gross
Fair Unrealized Fair Unrealized
Value Losses Value Losses
Auction rate securities $  $  $ 29,340 $ (3,710)
Federal debt securities 531 (1) 19 (1)
Corporate debt securities 21,234 (148) 6,976 (366)
$ 21,765 $ (149) $ 36,335 $ (4,077)

The gross unrealized gains as of December 31, 2007 and 2008 were approximately $330,000 and $128,000, respectively.

5. FAIR VALUE

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a
framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. The Company adopted
the provisions of SFAS 157 as of January 1, 2008 for financial instruments. Although the adoption of SFAS 157 did not materially impact its
financial position, results of operations, or cash flow, the Company is now required to provide additional disclosures as part of its financial
statements.

F-16
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

5. FAIR VALUE  (CONTINUED)

SFAS 157 establishes a three-tier fair value hierarchy, which categorizes the inputs used in measuring fair value. These tiers include:
Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own assumptions.

In accordance with SFAS 157, the following table represents the Company's fair value hierarchy for its financial assets (cash, cash
equivalents and investments) measured at fair value on a recurring basis as of December 31, 2008 (in thousands):

Level 1 Level 2 Level 3 Total


Cash $ 29,297 $  $  $ 29,297
Money market funds 130,685   130,685
Corporate debt securities  35,132  35,132
Government-sponsored enterprise obligations  136  136
Auction rate securities   29,340 29,340
Total $ 159,982 $ 35,268 $ 29,340 $ 224,590

The Company’s Level 2 assets consist of corporate debt securities and government-sponsored enterprise obligations, which do not have
directly observable quoted prices in active markets. The Company’s corporate debt securities are valued using matrix pricing, which is an
acceptable practical expedient under SFAS 157 for inputs.

The Company’s Level 3 assets consist of variable rate debt instruments with an auction-reset feature, Auction Rate Securities (“ARS”),
whose underlying assets are primarily student loan securities supported by guarantees from the FFELP of the U.S. Department of Education.

The following table presents the Company’s Level 3 assets measured at fair value on a recurring basis using significant unobservable
inputs as defined in SFAS 157, as of December 31, 2008 (in thousands):

Auction
Rate
Securities
Balance at December 31, 2007 $ 53,975
Unrealized loss included in other comprehensive income (3,710)
Settlements (20,925)
Balance at December 31, 2008 $ 29,340

ARS are variable rate debt instruments whose interest rates are reset approximately every 28 days. The underlying securities have
contractual maturities greater than twenty years. The ARS are recorded at fair value. Typically, the carrying value of ARS approximates fair
value due to frequent resetting of the interest rates.

As of December 31, 2008, the Company held ARS with $33.1 million par value, all of which failed to settle at auctions. The majority of
these investments are of high credit quality with AAA credit ratings and are primarily student loan securities supported by guarantees from
the FFELP of the U.S. Department of Education. The Company may not be able to liquidate and fully recover the carrying value of the ARS in
the near term. As a result, these securities are classified as long-term investments in the Company’s consolidated balance sheet as of
December 31, 2008.

F-17
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

5. FAIR VALUE  (CONTINUED)

While the Company continues to earn interest on its ARS investments at the maximum contractual rate, these investments are not
currently trading and therefore do not currently have a readily determinable market value. Accordingly, the estimated fair value of the ARS no
longer approximates par value. The Company has used a discounted cash flow model to determine the estimated fair value of its investment in
ARS as of December 31, 2008. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, credit
spreads, timing and amount of cash flows, liquidity risk premiums, expected holding periods, and default risk. Based on this assessment of fair
value, as of December 31, 2008, the Company determined there was a decline in the fair value of its ARS investments of approximately $3.7
million. The decline was deemed to be a temporary impairment and recorded as an unrealized loss in other comprehensive income in
stockholders’ equity. In addition, while a majority of the ARS are currently rated AAA, if the issuers are unable to successfully close future
auctions and their credit ratings deteriorate, the Company may be required to record additional unrealized losses in other comprehensive
income or an other-than-temporary impairment charge to earnings on these investments.

6. PROPERTY AND EQUIPMENT

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

December 31,
2007 2008

Leasehold improvements $ 8,357 $ 7,808


Furniture, office equipment and research vehicles 19,874 19,305
Computer hardware and software 27,735 27,938
55,966 55,051
Accumulated depreciation and amortization (31,921) (38,175)
Property and equipment, net $ 24,045 $ 16,876

7. GOODWILL

The changes in the carrying amount of goodwill by operating segment consist of the following (in thousands):

United States International Total


Goodwill, December 31, 2006 $ 30,428 $ 16,069 $ 46,497
Acquisitions  14,806 14,806
Effect of foreign currency translation  551 551
Goodwill, December 31, 2007 30,428 31,426 61,854
Acquisitions 1,119  1,119
Effect of foreign currency translation  (8,645) (8,645)
Goodwill, December 31, 2008 $ 31,547 $ 22,781 $ 54,328

The Company recorded goodwill of approximately $15.0 million for the Propex acquisition in February 2007. The Company recorded
goodwill of approximately $1.1 million in connection with the First CLS, Inc. acquisition in April 2008. The decrease in goodwill in 2008 is
related to foreign currency fluctuations.

During the fourth quarters of 2007 and 2008, the Company completed the annual impairment test of goodwill and concluded that goodwill
was not impaired.

F-18
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

8. INTANGIBLES AND OTHER ASSETS

Intangibles and other assets consist of the following (in thousands, except amortization period data):

Weighted-
Average
Amortization
December 31,
Period
2007 2008 (in years)

Building photography $ 10,799 $ 11,011 5


Accumulated amortization (6,708) (7,711)
Building photography, net 4,091 3,300

Acquired database technology 21,390 20,711 4


Accumulated amortization (20,573) (20,361)
Acquired database technology, net 817 350

Acquired customer base 50,891 48,198 10


Accumulated amortization (34,374) (37,192)
Acquired customer base, net 16,517 11,006

Acquired trade names and other 9,089 7,744 6


Accumulated amortization (4,803) (5,979)
Acquired trade names and other, net 4,286 1,765

Intangibles and other assets, net $ 25,711 $ 16,421

Amortization expense for intangibles and other assets was approximately $6.1 million for the year ended December 31, 2006 and $8.4
million for the years ended December 31, 2007 and 2008, respectively.

In the aggregate, amortization for intangibles and other assets existing as of December 31, 2008 for future periods is expected to be
approximately $5.4 million, $2.4 million, $1.9 million, $1.1 million and $1.0 million for the years ending December 31, 2009, 2010, 2011, 2012 and
2013, respectively.

F-19
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

9. INCOME TAXES

The components of the provision (benefit) for income taxes attributable to operations consist of the following (in thousands):

Year Ended December 31,


2006 2007 2008

Current:
Federal $ 414 $ 574 $ 18,289
State 220 821 3,842
Total current 634 1,395 22,131
Deferred:
Federal 7,497 9,716 (408)
State 1,077 72 (52)
Foreign (692) (1,237) (1,592)
Total deferred 7,882 8,551 (2,052)
Total provision for income taxes $ 8,516 $ 9,946 $ 20,079

The components of deferred tax assets and liabilities consists of the following (in thousands):

December 31,
2007 2008

Deferred tax assets:


Reserve for bad debts $ 799 $ 928
Accrued compensation 1,286 2,144
Stock compensation 1,603 2,115
Net operating losses 3,177 3,077
Restructuring reserve 45 
Alternative minimum tax credits 1,393 
Capital loss carryovers  345
Unrealized loss on securities  2,088
Other liabilities 1,001 1,401
Total deferred tax assets 9,304 12,098

Deferred tax liabilities:


Prepaids (739) (522)
Depreciation (427) (626)
Identified intangibles associated with purchase
accounting (4,927) (2,607)
Total deferred tax liabilities (6,093) (3,755)

Net deferred tax asset 3,211 8,343


Valuation allowance (63) (3,047)
Net deferred taxes $ 3,148 $ 5,296

The net long-term deferred tax liability shown on the balance sheet includes deferred tax liabilities and assets related to the international
operations of the Company.

F-20
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

9. INCOME TAXES  (CONTINUED)

For the years ended December 31, 2007 and 2008, a valuation allowance has been established for certain deferred tax assets due to the
uncertainty of realization. The Company’s change in valuation allowance was a decrease of approximately $274,000 for the year ended
December 31, 2007 and an increase of approximately $3.0 million for the year ended December 31, 2008. The increase for the year ended
December 31, 2008 is due to an increase in the valuation allowance required for the deferred tax assets for international loss carryforwards,
capital loss carryforwards, and unrealized losses on securities. The increase in the valuation allowance for the deferred tax asset for unrealized
losses has been recorded as an adjustment to other comprehensive income. The valuation allowance for the year ended December 31, 2007
was primarily attributable to deferred tax assets for state net operating loss carryforwards.

For the year ended December 31, 2008, the Company had income of approximately $52.7 million subject to applicable U.S. federal and state
income tax laws and a loss of approximately $8.0 million subject to applicable international tax laws.

The Company’s provision for income taxes resulted in effective tax rates that varied from the statutory federal income tax rate as follows
(in thousands):

Year Ended December 31,


2006 2007 2008

Expected federal income tax provision at statutory rate $ 7,115 $ 8,805 $ 15,646
State income taxes, net of federal benefit 1,014 841 2,505
Foreign income taxes, net effect 119 156 497
Stock compensation 528 146 87
(Decrease) increase in valuation allowance (267) (274) 1,023
Other adjustments 7 272 321
Income tax expense, net $ 8,516 $ 9,946 $ 20,079

The Company paid approximately $858,000, $1.1 million, and $13.4 million in income taxes for the years ended December 31, 2006, 2007 and
2008, respectively.

The Company has net operating loss carryforwards for international income tax purposes of approximately $10.1 million, which do not
expire.

The Company adopted FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized no material
adjustment in the liability for unrecognized income tax benefits. At the adoption date of January 1, 2007, the Company had $217,000 of
unrecognized tax benefits, all of which would favorably affect the effective tax rate if recognized in future periods, and $52,000 of accrued
penalties and $47,000 of accrued interest. The Company’s continuing practice is to recognize interest and penalties related to income tax
matters in income tax expense.

The following tables summarize the activity related to the Company’s unrecognized tax benefits (in thousands):

Unrecognized tax benefit as of January 1, 2007 $ 217


Increase for current year tax positions 44
Increase for prior year tax positions (6)
Expiration of the statute of limitation for assessment of
taxes (22)
Unrecognized tax benefit as of December 31, 2007 $ 233

F-21
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
9. INCOME TAXES  (CONTINUED)

Unrecognized tax benefit as of December 31, 2007 $ 233


Increase for current year tax positions 1,451
Increase for prior year tax positions (9)
Expiration of the statute of limitation for assessment of
taxes (117)
Unrecognized tax benefit as of December 31, 2008 $ 1,558

Approximately $142,000 and $233,000 of the unrecognized tax benefit as of December 31, 2008, and 2007, respectively, would favorably
affect the annual effective tax rate, if recognized in future periods. During 2008, the Company recognized approximately $145,000 of interest and
$9,000 of penalties, and had total accruals of approximately $173,000 for interest and $34,000 for penalties as of December 31, 2008. During 2007,
the Company recognized approximately $36,000 of interest and $11,000 of penalties, and had total accruals of approximately $74,000 for interest
and $57,000 for penalties as of December 31, 2007. The Company does not anticipate the amount of the unrecognized tax benefits to change
significantly over the next twelve months.

The Company’s federal and state income tax returns for tax years 2005 through 2007 remain open to examination. The Company’s U.K.
income tax returns for tax years 2002 through 2007 remain open to examination.

10. GAIN ON LEASE SETTLEMENT, NET

On September 14, 2007, CoStar Limited, a wholly owned U.K. subsidiary of CoStar, entered into an agreement with Trafigura Limited to
assign to Trafigura the leasehold interest in the office space located in London. The lease assignment was completed on December 19, 2007.
As a result, CoStar U.K. was paid approximately $7.6 million, net of expenses, for the assignment of the lease. The expenses associated with
the lease settlement included legal, moving and the disposal of assets.

11. COMMITMENTS AND CONTINGENCIES

The Company leases office facilities and office equipment under various noncancelable-operating leases. The leases contain various
renewal options. Rent expense for the years ended December 31, 2006, 2007 and 2008 was approximately $7.0 million, $8.1 million and $8.0
million, respectively.

Future minimum lease payments as of December 31, 2008 are as follows (in thousands):

2009 $ 8,264
2010 5,652
2011 4,389
2012 3,221
2013 1,055
2014 and thereafter 1,015
$ 23,596

Currently, and from time to time, the Company is involved in litigation incidental to the conduct of its business. The Company is not a
party to any lawsuit or proceeding that, in the opinion of management, is likely to have a material adverse effect on its financial position or
results of operations.

F-22
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

12. SEGMENT REPORTING

Due to the increased size, complexity, and funding requirements associated with the Company’s international expansion, in 2007 the
Company began to manage the business geographically in two operating segments, with the primary areas of measurement and decision-
making being the U.S. and International, which includes the U.K. and France. The Company’s subscription-based information/marketing
services, consisting primarily of CoStar Property Professional® , CoStar Tenant ® , CoStar COMPS Professional® , and FOCUSTM services,
currently generate more than 90% of the Company’s total revenues. CoStar Property Professional, CoStar Tenant, and CoStar COMPS
Professional are generally sold as a suite of similar services and comprise the Company’s primary service offering in the U.S. operating
segment. FOCUS is the Company’s primary service offering in the International operating segment. Management relies on an internal
management reporting process that provides revenue and segment EBITDA, which is the Company’s net income before interest, income taxes,
depreciation and amortization. Management believes that segment EBITDA is an appropriate measure for evaluating the operational
performance of our segments. EBITDA is used by management to internally measure operating and management performance and to evaluate
the performance of the business. However, this measure should be considered in addition to, not as a substitute for or superior to, income
from operations or other measures of financial performance prepared in accordance with GAAP.

Summarized information by segment was as follows (in thousands):

Year Ended December 31,


2006 2007 2008
Revenues
United States $ 146,073 $ 170,298 $ 190,075
International 12,816 22,507 22,353
Total revenues $ 158,889 $ 192,805 $ 212,428

EBITDA
United States $ 26,205 $ 32,872 $ 58,813
International (315) 1,127 (2,224)
Total EBITDA $ 25,890 $ 33,999 $ 56,589

Reconciliation of EBITDA to net income


EBITDA $ 25,890 $ 33,999 $ 56,589
Purchase amortization in cost of revenues (1,205) (2,170) (2,284)
Purchase amortization in operating expenses (4,183) (5,063) (4,880)
Depreciation and other amortization (6,421) (8,914) (9,637)
Interest income, net 6,845 8,045 4,914
Income tax expense, net (8,516) (9,946) (20,079)
Net income $ 12,410 $ 15,951 $ 24,623

International EBITDA includes a corporate allocation of approximately $1.0 million, $2.6 million and $1.1 million for the years ended
December 31, 2006, 2007 and 2008, respectively.

F-23
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

12. SEGMENT REPORTING — (CONTINUED)

Summarized information by segment consists of the following (in thousands):

December 31,
2007 2008
Property and equipment, net
United States $ 18,162 $ 13,927
International 5,883 2,949
Total property and equipment, net $ 24,045 $ 16,876

Goodwill
United States $ 30,428 $ 31,547
International 31,426 22,781
Total goodwill $ 61,854 $ 54,328

Assets
United States $ 308,373 $ 353,084
International 72,659 43,474
Total segment assets $ 381,032 $ 396,558

Reconciliation of segment assets to total assets


Total segment assets $ 381,032 $ 396,558
Investment in subsidiaries (18,343) (18,343)
Intercompany receivables (40,846) (43,831)
Total assets $ 321,843 $ 334,384

Liabilities
United States $ 21,581 $ 24,180
International 61,025 40,053
Total segment liabilities $ 82,606 $ 64,233

Reconciliation of segment liabilities to total liabilities


Total segment liabilities $ 82,606 $ 64,233
Intercompany payables (42,568) (33,270)
Total liabilities $ 40,038 $ 30,963

F-24
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

13. STOCKHOLDERS’ EQUITY

Preferred Stock

The Company has 2,000,000 shares of preferred stock, $0.01 par value, authorized for issuance. The Board of Directors may issue the
preferred stock from time to time as shares of one or more classes or series.

Common Stock

The Company has 30,000,000 shares of common stock, $0.01 par value, authorized for issuance. Dividends may be declared and paid on
the common stock, subject in all cases to the rights and preferences of the holders of preferred stock and authorization by the Board of
Directors. In the event of liquidation or winding up of the Company and after the payment of all preferential amounts required to be paid to the
holders of any series of preferred stock, any remaining funds shall be distributed among the holders of the issued and outstanding common
stock.

14. NET INCOME PER SHARE

The following table sets forth the calculation of basic and diluted net income per share (in thousands except per share data):

Year Ended December 31,


2006 2007 2008
Numerator:
Net income $ 12,410 $ 15,951 $ 24,623
Denominator:
Denominator for basic net income per share  weighted-average outstanding shares 18,751 19,044 19,372
Effect of dilutive securities:
Stock options and restricted stock 414 360 178
Denominator for diluted net income per share  weighted-average outstanding
shares 19,165 19,404 19,550

Net income per share  basic $ 0.66 $ 0.84 $ 1.27


Net income per share  diluted $ 0.65 $ 0.82 $ 1.26

Stock options to purchase approximately 86,900, 80,400 and 250,200 shares were outstanding as of December 31, 2006, 2007 and 2008,
respectively, but were not included in the computation of diluted earnings per share because the exercise price of the stock options was
greater than the average share price of the common shares and, therefore, the effect would have been anti-dilutive.

F-25
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

15. EMPLOYEE BENEFIT PLANS

Stock Incentive Plans

In June 1998, the Company’s Board of Directors adopted the 1998 Stock Incentive Plan (as amended, the “1998 Plan”) prior to
consummation of the Company’s initial public offering. In April 2007, the Company’s Board of Directors adopted the CoStar Group, Inc. 2007
Stock Incentive Plan (as amended, the “2007 Plan”), subject to stockholder approval, which was obtained on June 7, 2007. All shares of
common stock that were authorized for issuance under the 1998 Plan that, as of June 7, 2007, remained available for issuance under the 1998
Plan (excluding shares subject to outstanding awards) were rolled into the 2007 Plan and, as of that date, no shares of common stock were
available under the 1998 Plan. The 1998 Plan continues to govern unexercised and unexpired awards issued under the 1998 Plan prior to June
7, 2007. The 1998 Plan provides for the grant of stock and stock options to officers, directors and employees of the Company and its
subsidiaries. Stock options granted under the 1998 Plan might be incentive or non-qualified. The exercise price for an incentive stock option
may not be less than the fair market value of the Company’s common stock on the date of grant. The vesting period of the options and
restricted stock grants is determined by the Board of Directors and is generally three to four years. Upon the occurrence of a Change of
Control, as defined in the 1998 Plan, all outstanding unexercisable options and restricted stock grants under the 1998 Plan immediately become
exercisable.

The 2007 Plan provides for the grant of stock options, restricted stock, restricted stock units, and stock appreciation rights to officers,
employees, directors and consultants of the Company and its subsidiaries. Stock options granted under the 2007 Plan may be non-qualified or
may qualify as incentive stock options. Except in limited circumstances related to a merger or other acquisition, the exercise price for an option
may not be less than the fair market value of the Company’s common stock on the date of grant. The vesting period for each grant of options,
restricted stock, restricted stock units and stock appreciation rights under the 2007 Plan is determined by the Board of Directors and is
generally three to four years, subject to minimum vesting periods for restricted stock and restricted stock units of at least one year. The
Company has reserved the following shares of common stock for issuance under the 2007 Plan: (a) 1,000,000 shares of common stock, plus (b)
121,875 shares of common stock that were authorized for issuance under the 1998 Plan that, as of June 7, 2007, remained available for issuance
under the 1998 Plan (not including any Shares that were subject as of such date to outstanding awards under the 1998 Plan), and (c) any
shares of common stock subject to outstanding awards under the 1998 Plan as of June 7, 2007 that on or after such date cease for any reason
to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in
vested and nonforfeitable shares). Unless terminated sooner, the 2007 Plan will terminate in April 2017, but will continue to govern unexercised
and unexpired awards issued under the 2007 Plan prior to that date. Approximately 1.1 million and 880,000 shares were available for future
grant under the 2007 Plan as of December 31, 2007 and 2008, respectively.

F-26
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

15. EMPLOYEE BENEFIT PLANS  (CONTINUED)

Stock Incentive Plans  (Continued)

Option activity was as follows:

Weighted-
Average Aggregate
Weighted- Remaining Intrinsic
Range of Average Contract Value
Number of Exercise Exercise Life (in (in
Shares Price Price years) thousands)
9.00 -
Outstanding at December 31, 2005 1,473,897 $ $52.13 $ 29.76
Granted 96,900 $ 51.92 $ 51.92
9.00 -
Exercised (269,755) $ $45.18 $ 24.35
18.28 -
Canceled or expired (26,565) $ $45.18 $ 37.85
9.00 -
Outstanding at December 31, 2006 1,274,477 $ $52.13 $ 32.23
48.25 -
Granted 7,000 $ $54.12 $ 50.77
9.00 -
Exercised (288,757) $ $45.18 $ 28.16
21.28 -
Canceled or expired (24,875) $ $51.92 $ 44.82
16.20 -
Outstanding at December 31, 2007 967,845 $ $54.12 $ 33.25
43.99 -
Granted 93,900 $ $55.07 $ 45.76
17.77 -
Exercised (198,434) $ $45.18 $ 33.05
39.00 -
Canceled or expired (47,725) $ $52.13 $ 46.36
16.20 -
Outstanding at December 31, 2008 815,586 $ $55.07 $ 33.98 4.77 $ 3,692

9.00 -
Exercisable at December 31, 2006 929,324 $ $52.13 $ 28.93
16.20 -
Exercisable at December 31, 2007 826,782 $ $52.13 $ 31.07
16.20 -
Exercisable at December 31, 2008 701,975 $ $54.12 $ 31.84 4.10 $ 3,692

The aggregate intrinsic value is calculated as the difference between (i) the closing price of the common stock at December 31, 2006, 2007
and 2008 and (ii) the exercise prices of the underlying awards, multiplied by the shares underlying options as of December 31, 2006, 2007 and
2008, that had an exercise price less than the closing price on that date. Options to purchase 269,755, 288,757, and 198,434 shares were
exercised for the years ended December 31, 2006, 2007, and 2008, respectively. The aggregate intrinsic value of options exercised, determined
as of the date of option exercise, was $7.4 million, $7.5 million and $3.4 million, respectively.

At December 31, 2008, there was $10.5 million of unrecognized compensation cost related to stock-based payments, net of forfeitures,
which is expected to be recognized over a weighted-average-period of 1.9 years.

The weighted-average grant date fair value of each option granted during the years ended December 2006, 2007 and 2008 was $33.45,
$32.70 and $27.81, respectively.

F-27
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

15. EMPLOYEE BENEFIT PLANS  (CONTINUED)

Stock Incentive Plans  (Continued)

The Company estimated the fair value of each option granted on the date of grant using the Black-Scholes option-pricing model, using the
assumptions noted in the following table:

Year Ended December 31,


2006 2007 2008

Dividend yield 0% 0% 0%
Expected volatility 61% 61% 59%
Risk-free interest rate 4.7% 4.7% 3.0%
Expected life (in years) 5 5 5

The assumptions above and the estimation of expected forfeitures are based on multiple facts, including historical employee behavior
patterns of exercising options and post-employment termination behavior, expected future employee option exercise patterns, and the
historical volatility of the Company’s stock price.

The following table summarizes information regarding options outstanding at December 31, 2008:

Options Outstanding Options Exercisable


Weighted-Average
Remaining
Range of Contractual Life Weighted-Average Weighted-Average
Exercise Price Number of Shares (in years) Exercise Price Number of Shares Exercise Price
$ 16.20 - $18.06 99,617 2.76 $ 17.94 99,617 $ 17.94
$ 18.12 - $22.87 102,828 3.44 $ 20.78 102,828 $ 20.78
$ 23.06 - $28.15 118,171 3.45 $ 27.04 118,171 $ 27.04
$ 29.00 - $30.75 95,275 3.19 $ 30.33 95,275 $ 30.33
$ 32.00 - $39.00 89,932 4.59 $ 38.75 89,932 $ 38.75
$ 39.53 - $43.99 135,938 6.91 $ 42.49 63,063 $ 40.79
$ 44.06 - $45.18 85,625 5.76 $ 44.83 85,625 $ 44.83
$ 46.81 - $51.92 70,200 7.64 $ 51.49 46,464 $ 51.48
$ 54.12 - $54.12 3,000 8.42 $ 54.12 1,000 $ 54.12
$ 55.07 - $55.07 15,000 9.67 $ 55.07 0 $ 0.00
$ 16.20 - $55.07 815,586 4.77 $ 33.98 701,975 $ 31.84

The following table presents unvested restricted stock awards activity for the year ended December 31, 2008:

Weighted-
Average
Grant Date
Number of Fair Value
Shares per Share
Unvested restricted stock at December 31, 2007 258,588 $ 48.55
Granted 102,177 $ 48.76
Vested (54,009) $ 46.49
Canceled (33,403) $ 47.86
Unvested restricted stock at December 31, 2008 273,353 $ 49.12

F-28
Processed and formatted by SEC Watch - Visit SECWatch.com

COSTAR GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

15. EMPLOYEE BENEFIT PLANS  (CONTINUED)

Employee 401(k) Plan

The Company maintains a 401(k) Plan (the “401(k)”) as a defined contribution retirement plan for all eligible employees. The 401(k)
provides for tax-deferred contributions of employees’ salaries, limited to a maximum annual amount as established by the Internal Revenue
Service. In 2006, 2007 and 2008, the Company matched 100% of employee contributions up to a maximum of 6% of total compensation.
Amounts contributed to the 401(k) by the Company to match employee contributions for the years ended December 31, 2006, 2007 and 2008
were approximately $2.0 million, $2.3 million and $2.6 million, respectively. The Company paid administrative expenses in connection with the
401(k) plan of approximately $25,000, $22,000 and $28,000 for the years ended December 31, 2006, 2007 and 2008, respectively.

Employee Pension Plan

The Company maintains a company personal pension plan for all eligible employees in the Company’s London, England office. The plan
is a defined contribution plan. Employees are eligible to contribute a portion of their salaries, subject to a maximum annual amount as
established by the Inland Revenue. The Company contributes a match subject to the percentage of the employees’ contribution. Amounts
contributed to the plan by the Company to match employee contributions for the years ended December 31, 2006, 2007 and 2008 were
approximately $193,000, $281,000 and $265,000, respectively.

Employee Stock Purchase Plan

As of August 1, 2006, the Company introduced an Employee Stock Purchase Plan (“ESPP”), pursuant to which eligible employees
participating in the plan authorize the Company to withhold from the employees’ compensation and use the withheld amounts to purchase
shares of the Company's common stock at 90% of the market price. Participating employees are able to purchase common stock under this plan
during the offering period. The offering period begins the second Saturday before each of the Company’s regular pay dates and ends on each
of the Company’s regular pay dates. There were 86,308 and 78,840 shares available for purchase under the plan as of December 31, 2007 and
2008, respectively and approximately 9,000 and 7,400 shares of the Company’s common stock were purchased during 2007 and 2008,
respectively.

F-29
Processed and formatted by SEC Watch - Visit SECWatch.com

Exhibit 3.3

AMENDED AND RESTATED BY-LAWS

OF

COSTAR GROUP, INC.

ARTICLE I

Offices

The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The Corporation
may also have offices at other places, within or without the State of Delaware, as the Board of Directors or the Chairman of the Board may from
time to time determine or the business of the Corporation may require.

ARTICLE II

Stockholders

SECTION 1. Place of Meeting. Meetings of the stockholders shall be held at such place, within or without the State of Delaware, as
the Board of Directors designates.

SECTION 2. Annual Meeting. The annual meeting of the stockholders of the Corporation shall be held on such date and at such
time as may be designated by the Board of Directors, for the purpose of electing Directors and for the transaction of such other business as
may be properly brought before the meeting.

SECTION 3. Special Meetings. Except as otherwise provided in the Certificate of Incorporation or by the General Corporation Law of
Delaware (the “DGCL”), special meetings of the stockholders of the Corporation may be called at any time by the Chairman of the Board or the
President and shall be called by the President or the Secretary at the request in writing of a majority of the Board of Directors. Such a request
shall state the purpose or purposes of the proposed meeting. Any special meeting of the stockholders shall be held on such date, and at such
time as the Board of Directors or the officer calling the meeting may designate. At a special meeting of the stockholders, no business shall be
transacted and no corporate action shall be taken other than that stated in the notice of the meeting unless all of the stockholders are present
in person or by proxy, in which case any and all business may be transacted at the meeting.
Processed and formatted by SEC Watch - Visit SECWatch.com

SECTION 4. Notice of Meetings. Written notice of each meeting of the stockholders shall be given not less than ten (10) nor more
than sixty (60) days before the date of the meeting to each stockholder of the Corporation entitled to vote at such meeting. The notice shall
state the place, date and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is
called. Notice may be given personally, by mail or by electronic transmission in accordance with Section 232 of the DGCL. If mailed, such
notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to each stockholder at such stockholder's
address appearing on the books of the Corporation or given by the stockholder for such purpose. Notice by electronic transmission shall be
deemed given as provided in Section 232 of the DGCL. An affidavit of the mailing or other means of giving any notice of any stockholders'
meeting, executed by the Secretary, Assistant Secretary or any transfer agent of the Corporation giving the notice, shall be prima facie
evidence of the giving of such notice or report. Notice shall be deemed to have been given to all stockholders of record who share an address
if notice is given in accordance with the "householding" rules set forth in Rule 14a-3(e) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Section 233 of the DGCL.

SECTION 5. Quorum. At any meeting of the stockholders, the holders of a majority in number of the total issued and outstanding
shares of stock of the Corporation entitled to vote at such meeting, present in person or represented by proxy, shall constitute a quorum of the
stockholders for all purposes, unless the representation of a larger number of shares shall be required by law, by the Certificate of
Incorporation or by these By-Laws, in which case the representation of the number of shares so required shall constitute a quorum.

SECTION 6. Adjourned Meetings. Whether or not a quorum shall be present in person or represented at any annual or special
meeting of the stockholders, the Board of Directors (by majority vote), Chairman of the Board or the President may adjourn the meeting from
time to time for any reason. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the stockholders may
transact any business which might have been transacted by them at the original meeting. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the adjourned meeting.

SECTION 7. Voting. Except as otherwise provided in the Certificate of Incorporation or by law, each stockholder shall be entitled to
one vote for each share of the capital stock of the Corporation registered in the name of such stockholder upon the books of the Corporation.
Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting
may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. When a quorum is present at a meeting of the stockholders, except as otherwise
provided by law or by the Certificate of Incorporation, Directors shall be elected by a plurality of the votes cast at a meeting of stockholders
by the stockholders entitled to vote in the election and, whenever any corporate action, other than the election of Directors is to be taken, it
shall be authorized by a majority of the votes cast at a meeting of stockholders by the stockholders entitled to vote thereon.

2
Processed and formatted by SEC Watch - Visit SECWatch.com

Shares of the capital stock of the Corporation belonging to the Corporation or to another corporation, if a majority of the shares
entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled
to vote nor be counted for quorum purposes.

SECTION 8. Stockholder Proposals.

(a) Annual Meeting.

(i) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business other
than nominations to be considered by the stockholders may be made at an annual meeting of stockholders only (A) pursuant to the
Corporation's notice of meeting (or any supplement thereto), (B) by or at the direction of the Board of Directors, or (C) by any stockholder of
the Corporation who is a stockholder of record at the time the notice provided for in this Section 8(a) is delivered to the Secretary of the
Corporation, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 8(a).

(ii) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to
clause (C) of the foregoing paragraph, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and
such business must be a proper subject for stockholder action. To be timely, a stockholder's notice must be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of business on the seventy-fifth (75th) day nor earlier than the close of
business on the one hundred fifth (105th) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is more than thirty (30) days before or more than seventy (70) days after such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred fifth (105th) day prior to
such annual meeting and not later than the close of business on the later of the seventy-fifth (75th) day prior to such annual meeting or the
tenth (10th) day following the date on which public announcement (as defined below) of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time
period (or extend any time period) for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth:

(A) as to each person whom the stockholder proposes to nominate for election or re-election as a
director (1) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in
an election contest, or is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the Exchange
Act, and (2) such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected;

(B) as to any other business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any
resolutions proposed for consideration and in the event that such business includes a proposal to amend the Bylaws of the
Corporation, the language of the proposed amendment), the reasons for conducting such business at the meeting and any
substantial interest (within the meaning of Item 5 of Schedule 14A under the Exchange Act) in such business of such stockholder and
the beneficial owner (within the meaning of Section 13(d) of the Exchange Act), if any, on whose behalf the proposal is made;

3
Processed and formatted by SEC Watch - Visit SECWatch.com

(C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the
nomination is made or the business is proposed:

(1) the name and address of such stockholder, as they appear on the Corporation's books,
and the name and address of such beneficial owner,

(2) the class and number of shares of capital stock of the Corporation which are owned of
record by such stockholder and such beneficial owner as of the date of the notice, and the stockholder's agreement to notify the
Corporation in writing within five business days after the record date for such meeting of the class and number of shares of capital
stock of the Corporation owned of record by the stockholder and such beneficial owner as of the record date for the meeting, and

(3) a representation that the stockholder intends to appear in person or by proxy at the
meeting to propose such nomination or business;

(D) as to the stockholder giving the notice or, if the notice is given on behalf of a beneficial owner
on whose behalf the nomination is made or the business is proposed, as to such beneficial owner:

(1) the class and number of shares of capital stock of the Corporation which are beneficially
owned (as defined below) by such stockholder or beneficial owner as of the date of the notice, and the stockholder's agreement to
notify the Corporation in writing within five business days after the record date for such meeting of the class and number of shares of
capital stock of the Corporation beneficially owned by such stockholder or beneficial owner as of the record date for the meeting,

(2) a description of any agreement, arrangement or understanding with respect to the


nomination or other business between or among such stockholder or beneficial owner and any other person, including without
limitation any agreements that would be required to be disclosed pursuant to Item 5 or Item 6 of Exchange Act Schedule 13D
(regardless of whether the requirement to file a Schedule 13D is applicable to the stockholder or beneficial owner) and the
stockholder's agreement to notify the Corporation in writing within five business days after the record date for such meeting of any
such agreement, arrangement or understanding in effect as of the record date for the meeting,

(3) a description of any agreement, arrangement or understanding (including any derivative


or short positions, profit interests, options, hedging transactions, and borrowed or loaned shares) that has been entered into as of
the date of the stockholder's notice by, or on behalf of, such stockholder or beneficial owner, the effect or intent of which is to
mitigate loss, manage risk or benefit from changes in the share price of any class of the Corporation’s capital stock, or increase or
decrease the voting power of the stockholder or beneficial owner with respect to shares of stock of the Corporation, and the
stockholder's agreement to notify the Corporation in writing within five business days after the record date for such meeting of any
such agreement, arrangement or understanding in effect as of the record date for the meeting,

4
Processed and formatted by SEC Watch - Visit SECWatch.com

(4) a representation whether the stockholder or the beneficial owner, if any, will engage in a
solicitation with respect to the nomination or business and, if so, the name of each participant (as defined in Item 4 of Schedule 14A
under the Exchange Act) in such solicitation and whether such person intends or is part of a group which intends to deliver a proxy
statement and/or form of proxy to holders of at least the percentage of the Corporation's outstanding capital stock required to
approve or adopt the business to be proposed (in person or by proxy) by the stockholder.

The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the
Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation including information
relevant to a determination whether such proposed nominee can be considered an independent director. The foregoing notice
requirements of this Section 8(a)(ii) shall not apply to a stockholder if the stockholder has notified the Corporation of his or her
intention to present a stockholder proposal at an annual meeting only pursuant to and in compliance with Rule 14a-8 under the
Exchange Act and such proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies
for such annual meeting.

(iii) Notwithstanding anything in Section 8(a)(ii) above to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation at an annual meeting is increased by more than fifty percent of its previous size and there
is no public announcement naming all of the nominees for directors or specifying the size of the increased Board of Directors made by the
Corporation at least one hundred and five (105) days prior to the first anniversary of the preceding year's annual meeting, a stockholder's
notice required by this Section 8(a) shall also be considered timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the
tenth (10th) day following the day on which such public announcement is first made by the Corporation.

(b) Special Meeting. Only such business shall be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be
made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (A) by or at the
direction of the Board of Directors or (B) provided that the Board of Directors has determined that directors shall be elected at such meeting,
by any stockholder of the Corporation who is a stockholder of record at the time the notice provided for in this Section 8(b) is delivered to the
Secretary of the Corporation, who is entitled to vote at the meeting and upon such election and who complies with the notice procedures set
forth in this Section 8, including delivery of information set forth in Section 8(a)(ii). In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder entitled to vote in such election
of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporation's notice of
meeting, if the notice required by paragraph (a)(ii) of this Section 8 shall be delivered to the Secretary at the principal

5
Processed and formatted by SEC Watch - Visit SECWatch.com

executive offices of the Corporation not earlier than the close of business on the one hundred fifth (105th) day prior to such special meeting
and not later than the close of business on the later of the seventy-fifth (75th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board
of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special
meeting commence a new time period (or extend any time period) for the giving of a stockholder's notice as described above.

(c) General.

(i) Only such persons who are nominated in accordance with the procedures set forth in this Section 8 shall be eligible
to be elected at an annual or special meeting of stockholders of the Corporation to serve as directors and only such business shall be
conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this
Section 8. Except as otherwise provided by law, the Board of Directors shall have the power and duty to determine whether a nomination or
any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set
forth in this Section 8 (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made
solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies in compliance with such stockholder's
representation as required by clause (a)(ii)(D)(4) of this Section 8). If any proposed nomination or business was not made or proposed in
compliance with this Section 8, the Chairman of the meeting shall have the power and duty to declare that such nomination shall be
disregarded or that such proposed business shall not be transacted. Notwithstanding the foregoing provisions of this Section 8, unless
otherwise required by law, if the stockholder does not provide the information required under clauses (a)(ii)(C) and (a)(ii)(D) of this Section 8
to the Corporation within five business days following the record date for an annual or special meeting or if the stockholder (or a qualified
representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination
or proposed business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that
proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 8, to be considered a qualified
representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or authorized by a
writing executed by such stockholder (or a reliable reproduction or electronic transmission of the writing) delivered to the Corporation’s
Secretary prior to the making of such nomination or proposal at such meeting by such stockholder stating that such person is authorized to
act for such stockholder as proxy at the meeting of stockholders.

(ii) For purposes of this Section 8, a "public announcement" shall mean disclosure in a press release reported by the
Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act. For purposes of clause (a)(ii)(D)(1) of this
Section 8, shares shall be treated as "beneficially owned" by a person if the person beneficially owns such shares, directly or indirectly, for
purposes of Section 13(d) of the Exchange Act and Regulations 13D and 13G thereunder or has or shares pursuant to any agreement,
arrangement or understanding (whether or not in writing): (A) the right to acquire such shares (whether such right is exercisable immediately or
only after the passage of time or the fulfillment of a condition or both), (B) the right to vote such shares, alone or in concert with others and/or
(C) investment power with respect to such shares, including the power to dispose of, or to direct the disposition of, such shares.

6
Processed and formatted by SEC Watch - Visit SECWatch.com

(iii) Nothing in this Section 8 shall be deemed to affect any rights of the holders of any series of Preferred Stock to elect
directors pursuant to any applicable provisions of the Certificate of Incorporation.

SECTION 9. Organization.

(a) The Chairman of the Board of Directors or, in the absence of the Chairman of the Board, the President or other officer
designated by the Board of Directors shall call all meetings of the stockholders to order, and shall preside at all meetings of the stockholders.
In the absence of the Chairman of the Board and the President or other officer designated by the Board of Directors, the holders of a majority
in number of the shares of stock of the Corporation present in person or represented by proxy and entitled to vote at such meeting shall elect a
presiding officer for purposes of such meeting. The Secretary of the Corporation shall act as Secretary of all meetings of the stockholders; but
in the absence of the Secretary, the presiding officer may appoint any person to act as secretary of the meeting.

(b) The Board of Directors shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the Chairman or
presiding officer of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts
as, in the judgment of such Chairman or presiding officer, are necessary, appropriate or convenient for the proper conduct of the meeting,
including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in the meeting to stockholders of record of the Corporation, their duly
authorized and constituted proxies and such other persons as the Chairman or presiding officer shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and
regulation of the opening and closing of the polls for balloting and matters which are to be voted on by ballot.

SECTION 10. Proxies. Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in
person or by one or more agents authorized by a written proxy, which may be in the form of a telegram, cablegram or other means of electronic
transmission, signed by the person and filed with the Secretary of the Corporation. A proxy shall be deemed signed if the stockholder's
signature is placed on the proxy by the stockholder or the stockholder's attorney-in-fact. A duly executed proxy shall be irrevocable if it states
that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder
may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the
proxy or by filing another duly executed proxy bearing a later date with the Secretary of the Corporation. A proxy is not revoked by the death
or incapacity of the maker unless, before the vote is counted, written notice of such death or incapacity is received by the Corporation.

7
Processed and formatted by SEC Watch - Visit SECWatch.com

SECTION 11. Meetings by Remote Communications. The Board of Directors may, in its sole discretion, determine that a meeting of
stockholders shall not be held at any place, but may instead be held solely by means of remote communication in accordance with
Section 211(a)(2) of the DGCL. If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as
the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote
communication (a) participate in a meeting of stockholders and (b) be deemed present in person and vote at a meeting of stockholders whether
such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the Corporation shall implement
reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a
stockholder or proxyholder; (ii) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a
reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or
hear the proceedings of the meeting substantially concurrently with such proceedings; and (iii) if any stockholder or proxyholder votes or
takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the
Corporation.

ARTICLE III

Directors

SECTION 1. Powers. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors,
which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate of
Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders.

SECTION 2. Number and Term of Office; Election; Qualification. The Board of Directors shall consist of not less than two and not
more than seven Directors, the exact number to be fixed from time to time by resolution passed by a majority of the Board of Directors. The
Directors shall, except as hereinafter otherwise provided for filling vacancies, be elected at the annual meeting of stockholders, and shall hold
office until their respective successors are elected and qualified or until their earlier resignation or removal.

SECTION 3. Removal, Vacancies and Additional Directors. The stockholders may, at any special meeting the notice of which shall
state that it is called for that purpose, remove, with or without cause, any Director. Vacancies caused by any such removal, or any vacancy
caused by the death or resignation of any Director or for any other reason, and any newly created directorship resulting from any increase in
the authorized number of Directors, may be filled by the affirmative vote of a majority of the Directors then in office, even if less than a quorum,
and any Director so elected to fill any such vacancy or newly created directorship shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.

8
Processed and formatted by SEC Watch - Visit SECWatch.com

When one or more Directors shall resign effective at a future date, a majority of the Directors then in office, including those who have
so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall
become effective, and each Director so chosen shall hold office as herein provided in connection with the filling of other vacancies.

SECTION 4. Place of Meeting. Any meeting of the Board of Directors shall be held at such place, within or without the State of
Delaware, as the Board of Directors designates.

SECTION 5. Regular Meetings. Regular meetings of the Board of Directors shall be held on such dates and at such times as the
Board from time to time by resolution shall determine. No notice shall be required for any regular meeting of the Board of Directors; but a copy
of every resolution fixing or changing the time or place of regular meetings shall be mailed to every Director at least five days before the first
meeting held in pursuance thereof, or shall be sent to such director at such place by telecopy, telegraph, electronic transmission or other form
of recorded communication, or be delivered personally or by telephone, in each case at least three days before the first meeting held in
pursuance thereof.

SECTION 6. Special Meetings. Special meetings of the Board of Directors may be called by direction of the Chairman of the Board,
the President or by any two of the Directors then in office.

The person or persons authorized to call special meetings of the Board of Directors may fix the place and time of such
meetings. Notice of each such meeting shall be given to each director, if by mail, addressed to such director at his or her residence or usual
place of business, at least two (2) days before the day on which such meeting is to be held, or shall be sent to such director at such place by
telecopy, telegraph, electronic transmission or other form of recorded communication, or be delivered personally or by telephone, in each case
at least twenty-four (24) hours prior to the time set for such meeting. Unless otherwise indicated in the notice thereof, any and all business
may be transacted at any special meeting.

SECTION 7. Quorum; Vote. Subject to the provisions of Section 3 of this Article III, fifty percent or more of the members of the
Board of Directors in office shall constitute a quorum for the transaction of business and the vote of the majority of the Directors present at
any meeting of the Board of Directors at which a quorum is present shall be the act of the Board of Directors. If at any meeting of the Board
there is less than a quorum present, a majority of those present may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present, whereupon the meeting may be held, as adjourned, without further notice.

SECTION 8. Organization. The Chairman of the Board shall preside at all meetings of the Board of Directors. In the absence of the
Chairman of the Board, an acting Chairman shall be elected from the Directors present to preside at such meeting. The Secretary of the
Corporation shall act as Secretary of all meetings of the Directors; but in the absence of the Secretary, the Chairman may appoint any person
to act as Secretary of the meeting.

9
Processed and formatted by SEC Watch - Visit SECWatch.com

SECTION 9. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the Directors of the Corporation. The Board may designate one or more Directors as
alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent provided by resolution passed by a majority of the whole Board,
shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and the affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending these By-Laws; and unless
such resolution, these By-laws, or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority
to declare a dividend or to authorize the issuance of stock.

Each committee shall determine its rules with respect to notice, quorum, voting and the taking of action, provided that such rules shall
be consistent with law, the rules in these By-Laws applicable to the Board of Directors and the resolution of the Board of Directors
establishing the committee. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when
required.

SECTION 10. Conference Telephone Meetings. Unless otherwise restricted by the Certificate of Incorporation or by these By-Laws,
the members of the Board of Directors or any committee designated by the Board, may participate in a meeting of the Board or such committee,
as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in person at such meeting.

SECTION 11. Consent of Directors or Committee in Lieu of Meeting. Unless otherwise restricted by the Certificate of Incorporation
or by these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing and the writing or writings
are filed with the minutes of proceedings of the Board or committee, as the case may be.

SECTION 12. Fees and Compensation of Directors. Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or determined by resolution of the Board of Directors.

10
Processed and formatted by SEC Watch - Visit SECWatch.com

ARTICLE IV

Officers

SECTION 1. General. The Board of Directors shall elect, at its first meeting after each annual meeting of the stockholders, the officers
of the Corporation, which shall include a Chairman of the Board, a Chief Executive Officer, a Chief Financial Officer, a President, one or more
Vice Presidents, a Secretary and a Treasurer. The failure to hold such election shall not of itself terminate the term of office of any officer. The
Board of Directors may elect such additional officers it deems desirable for the conduct of the business of the Corporation pursuant to the
provisions of Section 10 of this Article IV. All officers shall hold office at the pleasure of the Board of Directors. Any officer may resign at any
time upon written notice to the Corporation. Officers may, but need not, be Directors. Any number of offices may be held by the same person.

SECTION 2. Term of Office; Removal; Vacancies. Each officer shall hold office until his or her successor is elected and qualified or
until his or her earlier resignation or removal and all officers, agents and employees shall be subject to removal, with or without cause, at any
time by the Board of Directors. The removal of an officer without cause shall be without prejudice to his contract rights, if any but the election
or appointment of an officer shall not of itself create contract rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time by the officers appointing them. Any vacancy caused by the
death, resignation or removal of any officer, or otherwise, may be filled by the Board of Directors.

SECTION 3. Powers and Duties. In addition to the powers and duties of the officers of the Corporation as set forth in these By-
Laws, the officers shall have such powers and duties as generally pertain to their respective offices as well as such authority and such duties
as from time to time may be determined by the Board of Directors.

SECTION 4. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of
Directors; shall, subject to the control of the Board of Directors, oversee the formulation of the strategic plans and direction of the business of
the Corporation, in conjunction with the Chief Executive Officer; and shall have such powers and shall perform such duties as may be
assigned to him or her from time to time by these By-Laws or by the Board of Directors. All actions heretofore taken by the Chairman of the
Board in the name or on behalf of the Corporation, including the execution and delivery in the name and on behalf of the Corporation of
agreements, bonds, contracts, deeds, mortgages, certificates for shares of stock of the Corporation and other instruments, documents and
certificates are in all respects ratified, approved, confirmed and adopted as of the date of such action, execution or delivery, with the same
effect as if expressly authorized by the By-laws of the Corporation on the date thereof.

11
Processed and formatted by SEC Watch - Visit SECWatch.com

SECTION 5. President and Chief Executive Officer. Unless otherwise specified by the Board of Directors, the President shall be the
Chief Executive Officer of the Corporation and, subject to the control of the Board of Directors, shall have general charge and control of all the
Corporation's business and affairs, and shall have all powers and perform all duties incident to the office of President. In the absence of the
Chairman of the Board, the President shall preside at all meetings of the stockholders and shall have such other powers and perform such
other duties as may from time to time be assigned to the President by these By-Laws or by the Board of Directors.

SECTION 6. Chief Financial Officer. The Chief Financial Officer of the Corporation shall have overall responsibility and authority for
the financial affairs of the Corporation including, without limitation, oversight of the Corporation's accounting, inventory, management
information systems, internal audit and billing functions, subject to the authority of the Board of Directors, and shall have such other powers
and perform such other duties as may from time to time be assigned to the Chief Financial Officer by these By-Laws or by the Board of
Directors.

SECTION 7. Vice Presidents. Each Vice President shall have all powers and shall perform all duties incident to the office of Vice
President and shall have such other powers and perform such other duties as may from time to time be assigned to such officer by these By-
Laws or by the Board of Directors or the President.

SECTION 8. Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors and the minutes of all meetings
of the stockholders in books provided for that purpose; shall attend to the giving or serving of all notices of the Corporation; shall have
custody of the corporate seal of the Corporation and shall affix the same to such documents and other papers as the Board of Directors or the
President shall authorize and direct; shall have charge of the stock certificate books, transfer books and stock ledgers and such other books
and papers as the Board of Directors or the President shall direct, all of which shall at all reasonable times be open to the examination of any
Director, upon application, at the office of the Corporation during business hours; and shall have all powers and shall perform all duties
incident to the office of Secretary and shall also have such other powers and shall perform such other duties as may from time to time be
assigned to the Secretary by these By-Laws or by the Board of Directors or the President.

SECTION 9. Treasurer. The Treasurer shall have custody of, and when proper shall pay out, disburse or otherwise dispose of, all
funds and securities of the Corporation which may have come into his or her hands; may endorse on behalf of the Corporation for collection
checks, notes and other obligations and shall deposit the same to the credit of the Corporation in such bank or banks or depositary or
depositaries as the Board of Directors may designate; shall sign all receipts and vouchers for payments made to the Corporation; shall enter or
cause to be entered regularly in the books of the Corporation kept for the purpose full and accurate accounts of all moneys received or paid or
otherwise disposed of by such officer and whenever required by the Board of Directors or the President shall render statements of such
accounts; shall, at all reasonable times, exhibit such Treasurer's books and accounts to any Director of the Corporation upon application at the
office of the Corporation during business hours; and shall have all powers and shall perform all duties incident to the office of Treasurer and
shall also have such other powers and shall perform such other duties as may from time to time be assigned to the Treasurer by these By-Laws
or by the Board of Directors or the President.

12
Processed and formatted by SEC Watch - Visit SECWatch.com

SECTION 10. Additional Officers. The Board of Directors may from time to time elect such other officers (who may but need not be
Directors), including a Controller, Assistant Treasurers, Assistant Secretaries and Assistant Controllers, as the Board may deem advisable and
such officers shall have the usual powers and duties pertaining to their offices, together with such other powers and duties as may from time
to time be assigned to them by the Board of Directors or the President.

The Board of Directors may from time to time by resolution delegate to any Assistant Treasurer or Assistant Treasurers any of the
powers or duties herein assigned to the Treasurer; and may similarly delegate to any Assistant Secretary or Assistant Secretaries any of the
powers or duties herein assigned to the Secretary.

SECTION 11. Giving of Bond by Officers. All officers of the Corporation, if required to do so by the Board of Directors, shall furnish
bonds to the Corporation for the faithful performance of their duties, in such penalties and with such conditions and security as the Board
shall require.

SECTION 12. Voting Upon Stocks. Unless otherwise ordered by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer, the President, the Chief Financial Officer or any Vice President shall have full power and authority on behalf of the
Corporation to attend and to act and to vote, or in the name of the Corporation to execute proxies to vote, at any meeting of stockholders of
any corporation in which the Corporation may hold stock, and at any such meeting shall possess and may exercise, in person or by proxy, any
and all rights, powers and privileges incident to the ownership of such stock. The Board of Directors may from time to time, by resolution,
confer like powers upon any other person or persons.

SECTION 13. Compensation of Officers. The officers of the Corporation shall be entitled to receive such compensation for their
services as shall from time to time be determined by the Board of Directors, subject to the rights, if any, of such officers under any contract of
employment.

ARTICLE V

Indemnification of Directors and Officers

SECTION 1. Rights to Indemnification; Advancement of Expenses. To the fullest extent required or permitted by applicable law, the
Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed
action, suit, arbitration, alternative dispute mechanism, hearing or proceeding (collectively, a “Proceeding”), whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or was or has agreed to become a Director or officer of the
Corporation, or, while a Director or officer of the Corporation, is or was serving or has agreed to serve at the request of the Corporation as a
Director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust or other enterprise (including service with
respect to an employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, and may indemnify
any person who was or is a party or is threatened to be made a party to a Proceeding by reason of the fact that he is or was or has agreed to
become an employee or agent of the

13
Processed and formatted by SEC Watch - Visit SECWatch.com

Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee, agent or trustee of
another corporation, partnership, joint venture, trust or other enterprise (including service with respect to an employee benefit plan), against
all expenses (including attorneys' fees), liabilities, losses, judgments, fines, penalties and amounts paid in settlement actually and reasonably
incurred by such person or on his or her behalf in connection with such action, suit or proceeding and any appeal therefrom, if such person
acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or Proceeding, had no reasonable cause to believe his or her conduct was unlawful; except that in the case of an
action or suit by or in the right of the Corporation to procure a Judgment in its favor (l) such indemnification shall be limited to expenses
(including attorneys' fees) actually and reasonably incurred by such person in the defense or settlement of such Proceeding, and (2) no
indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem
proper. Notwithstanding the foregoing, except with respect to a proceeding to enforce rights to indemnification or advance payment of
expenses under this Article V, the Corporation shall be required to indemnify a Director or officer under this Article V in connection with any
Proceeding (or part thereof) initiated by such person only if such Proceeding (or part thereof) was authorized by the Board of Directors.

SECTION 2. Successful Defense. To the extent that a Director or officer of the Corporation has been successful on the merits or
otherwise in defense of any Proceeding referred to in Section 1 of this Article V or in defense of any claim, issue or matter therein, or in any
Proceeding brought by a Director or officer to enforce rights to indemnification or advance payment of expenses granted pursuant to this
Article V, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.

SECTION 3. Determination that Indemnification is Proper. Any indemnification of a Director or officer of the Corporation under
Section 1 of this Article V (unless ordered by a court or required under Section 2 of this Article V) shall be made by the Corporation unless a
determination is made that indemnification of the Director or officer is not proper in the circumstances because he or she has not met the
applicable standard of conduct set forth in Section 1. Any such determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of Directors who were not parties to such Proceeding, or (2) by a committee of such Directors designated by majority
vote of such Directors, even though less than a quorum, or (3) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested Directors so directs, by independent legal counsel in a written opinion, or (4) by the vote of a majority of the stockholders
present or voting by proxy at an annual or special meeting of the stockholders.

14
Processed and formatted by SEC Watch - Visit SECWatch.com

SECTION 4. Advance Payment of Expenses. Unless the Board of Directors otherwise determines in a specific case, expenses
incurred by a Director or officer in defending a Proceeding shall be paid by the Corporation in advance of the final disposition of such
Proceeding upon receipt of an undertaking by or on behalf of the Director or officer to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the Corporation as authorized in this Article V. Such expenses incurred by other employees
and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. The Board of Directors may
authorize the Corporation's legal counsel to represent such Director, officer, employee or agent in any Proceeding, whether or not the
Corporation is a party to such Proceeding.

SECTION 5. Survival: Preservation of Other Rights. All rights granted to Directors or officers pursuant to this Article V shall vest at
the time a person becomes a Director or officer of the Corporation. All rights granted pursuant to this Article V shall be deemed to be contract
rights and any repeal or modification thereof shall be prospective only and shall not adversely affect any right or obligation then existing with
respect to any state of facts then or previously existing or any Proceeding previously or thereafter brought or threatened based in whole or in
part upon any such state of facts. Such contract rights to indemnification and advance payment of expenses may not be modified retroactively
without the consent of such Director or officer.

The indemnification and rights to advance payment of expenses provided by this Article V shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under statute, any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of
such a person. The Corporation may enter into an agreement with any of its Directors, officers, employees or agents providing for
indemnification and advancement of expenses, including attorneys’ fees, that may change, enhance, qualify or limit any right to
indemnification or advancement of expenses created by this Article V.

SECTION 6. Severability. If this Article V or any portion hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each Director or officer and may indemnify each employee or agent of the
Corporation as to costs, charges and expenses (including attorneys' fees), judgment, fines and amounts paid in settlement with respect to any
Proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the fullest extent
permitted by any applicable portion of this Article V that shall not have been invalidated and to the fullest extent permitted by applicable law.

SECTION 7. Subrogation. In the event of payment of indemnification to a person described in Section 1 of this Article V, the
Corporation shall be subrogated to the extent of such payment to any right of recovery such person may have and such person, as a condition
of receiving indemnification from the Corporation, shall execute all documents and do all things that the Corporation may deem necessary or
desirable to perfect such right of recovery, including the execution of such documents necessary to enable the Corporation effectively to
enforce any such recovery.

15
Processed and formatted by SEC Watch - Visit SECWatch.com

SECTION 8. No Duplication of Payments. The Corporation shall not be liable under this Article V to make any payment in
connection with any claim made against a person described in Section 1 of this Article V to the extent such person has otherwise received
payment (under any insurance policy, by-law or otherwise) of the amounts otherwise indemnifiable hereunder.

SECTION 9. Procedure for Obtaining Indemnification or Advancement of Expenses.

(a) To receive indemnification under this Article V, an indemnitee shall submit to the Corporation a written request, which shall
include documentation or information which is necessary to determine whether indemnification is payable under this Article V and which is
reasonably available to the indemnitee. Upon receipt by the Corporation of such a written request, if required by the DGCL (but only if
required by the DGCL), a determination regarding whether indemnification is payable under this Article V shall be made, based upon the facts
known at the time, in accordance with Section 3 of this Article V.

(b) To receive an advancement of expenses under this Article V, an indemnitee shall submit to the Corporation a written request,
which shall reasonably evidence the costs and expenses incurred by the indemnitee and shall include or be accompanied an undertaking by or
on behalf of the indemnitee to repay any expenses advanced if it shall ultimately be determined by a court of competent jurisdiction in a final,
nonappeable adjudication that the indemnitee is not entitled to indemnification under this Article V.

SECTION 10. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer,
employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability
or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the
DGCL.

ARTICLE VI

Capital Stock

SECTION 1. Certificates For Shares of Stock. The shares of the Corporation shall be represented by certificates, provided that the
Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of stock shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. The
certificates for shares of stock of the Corporation shall be in such form, not inconsistent with the Certificate of Incorporation, as shall be
approved by the Board of Directors. All certificates shall be signed by the Chairman of the Board, the Chief Executive Officer, the President,
the Chief Financial Officer or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and
shall not be valid unless so signed.

16
Processed and formatted by SEC Watch - Visit SECWatch.com

In case any officer or officers who shall have signed any such certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the
Corporation, such certificate or certificates may nevertheless be issued and delivered as through the person or persons who signed such
certificate or certificates had not ceased to be such officer or officers of the corporation.

All certificates for shares of stock shall be consecutively numbered as the same are issued. The name of the person owning the
shares represented thereby with the number of such shares and the date of issue thereof shall be entered on the books of the corporation.

Except as hereinafter provided, all certificates surrendered to the Corporation for transfer shall be canceled, and no new certificates
shall be issued until former certificates for the same number of shares have been surrendered and canceled.

SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a person owning a certificate for shares of stock of the Corporation
alleges that it has been lost, stolen or destroyed, such person shall file in the office of the Corporation an affidavit setting forth, to the best of
such person's knowledge and belief, the time, place and circumstances of the loss, theft or destruction, and, if required by the Board of
Directors, a bond of indemnity or other indemnification sufficient in the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the alleged loss, theft or destruction of any such certificate or the
issuance of a new certificate or uncertificated shares in replacement therefore. Thereupon the Corporation may cause to be issued to such
person a new certificate or uncertificataed shares in replacement for the certificate alleged to have been lost, stolen or destroyed. Upon the
stub of every new certificate so issued shall be noted the fact of such issue and the number, date and the name of the registered owner of the
lost, stolen or destroyed certificate in lieu of which the new certificate is issued.

SECTION 3. Transfer of Shares. Shares of stock of the Corporation shall be transferred on the books of the Corporation by the
registered holder thereof, in person or by his attorney duly authorized in writing, and if such shares are represented by a certificate, upon
surrender of such certificate properly endorsed or accompanied by a duly executed stock power and the payment of any taxes thereon and
cancellation of such certificate(s) for the number of shares of stock to be transferred, except as provided in Section 2 of this Article; provided,
however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer.

SECTION 4. Dividends. Subject to the provisions of the Certificate of Incorporation, the Board of Directors shall have power to
declare and pay dividends upon shares of stock of the Corporation, but only out of funds available for the payment of dividends as provided
by law.

Subject to the provisions of the Certificate of Incorporation, any dividends declared upon the stock of the Corporation shall be
payable on such date or dates as the Board of Directors shall determine. If the date fixed for the payment of any dividend shall in any year fall
upon a legal holiday, then the dividend payable on such date shall be paid on the next day not a legal holiday.

17
Processed and formatted by SEC Watch - Visit SECWatch.com

SECTION 5. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its
books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except
as otherwise provided by law.

SECTION 6. Regulations. The Board of Directors may make such additional rules and regulations as it may deem expedient concerning the
issue, transfer and registration of shares of stock of the Corporation.

ARTICLE VII

Notices

SECTION 1. General. Subject to Article II, Section 4 and Article III, Sections 5 and 6 hereof, whenever, under the provisions of the
statutes or of the Certificate of Incorporation or of these By-Laws, notice is required to be given to any Director or stockholder, such notice
may be given in writing, by mail, addressed to such Director or stockholder, at his or her address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to directors may also be given by telegram, telephone, telecopy, electronic transmission or other form of recorded
communication, or be delivered personally.

SECTION 2. Waiver. Whenever any notice whatever is required to be given by law, by the Certificate of Incorporation or by these
By-Laws to any person or persons, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.

ARTICLE VIII

Miscellaneous Provisions

SECTION 1. Checks, Notes, etc. All checks, drafts, bills of exchange, acceptances, notes or other obligations or orders for the
payment of money shall be signed and, if so required by the Board of Directors, countersigned by such officers of the Corporation and/or
other persons as the Board of Directors from time to time shall designate.

Checks, drafts, bills of exchange, acceptances, notes, obligations and orders for the payment of money made payable to the
Corporation may be endorsed for deposit to the credit of the Corporation with a duly authorized depository by the Treasurer and/or such other
officers or persons as the Board of Directors from time to time may designate.

18
Processed and formatted by SEC Watch - Visit SECWatch.com

SECTION 2. Loans. No loans and no renewals of any loans shall be contracted on behalf of the Corporation except as authorized by
the Board of Directors. When authorized to do so, any officer or agent of the Corporation may effect loans and advances for the Corporation
from any bank, trust company or other institution or from any firm, corporation or individual, and for such loans and advances may make,
execute and deliver promissory notes, bonds or other evidences of indebtedness of the Corporation. When authorized so to do, any officer or
agent of the Corporation may pledge, hypothecate or transfer, as security for the payment of any and all loans, advances, indebtedness and
liabilities of the corporation, any and all stocks, securities and other personal property at any time held by the Corporation, and to that end
may endorse, assign and deliver the same. Such authority may be general or confined to specific instances.

SECTION 3. Contracts. Except as otherwise provided in these By-Laws or by law or as otherwise directed by the Board of Directors,
the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or any other officer elected by the Board
pursuant to Article IV hereof shall be authorized to execute and deliver, in the name and on behalf of the corporation, all agreements, bonds,
contracts, deeds, mortgages, and other instruments, either for the Corporation's own account or in a fiduciary or other capacity, and the seal of
the corporation, if appropriate, shall be affixed thereto by any of such officers or the Secretary or an Assistant Secretary. The Board of
Directors, the Chairman of the Board, the President or any other officer elected by the Board pursuant to Article IV hereof so designated by
the Board of Directors may authorize any other officer, employee or agent to execute and deliver, in the name and on behalf of the Corporation,
agreements, bonds, contracts, deeds, mortgages, and other instruments, either for the Corporation's own account or in a fiduciary or other
capacity, and, if appropriate, to affix the seal of the Corporation thereto. The grant of such authority by the Board or any such officer may be
general or confined to specific instances.

SECTION 4. Offices Outside of Delaware. Except as otherwise required by the laws of the State of Delaware, the Corporation may
have an office or offices and keep its books, documents and papers outside of the State of Delaware at such place or places as from time to
time may be determined by the Board of Directors or the Chairman of the Board.

SECTION 5. Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal
shall be kept in the custody of the Secretary. A duplicate of the seal may be kept and be used by any officer of the Corporation designated by
the Board of Directors, the Chairman of the Board or the President.

SECTION 6. Fiscal Year. The fiscal year of the Corporation shall be such fiscal year as the Board of Directors from time to time by
resolution shall determine.

SECTION 7. Reliance Upon Books, Reports and Records. Each Director and each member of any committee designated by the Board of
Directors shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of
the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees,
or committees of the Board of Directors so designated, or by any other person as to matters which such director or committee member
reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or
on behalf of the Corporation.

19
Processed and formatted by SEC Watch - Visit SECWatch.com

SECTION 8. Subject to Law and Certificate of Incorporation. All powers, duties and responsibilities provided for in these Bylaws,
whether or not explicitly so qualified, are qualified by the Certificate of Incorporation and applicable law.

ARTICLE IX

Amendments

In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly
authorized to adopt, amend or repeal these By-laws. In addition to any requirements of law and any other provision of these By-laws or the
Certificate of Incorporation, and notwithstanding any other provision of these By-laws, the Certificate of Incorporation or any provision of law
which might otherwise permit a lesser vote or no vote, the affirmative vote of the holders of at least a majority in voting power of the issued
and outstanding stock entitled to vote generally in the election of directors, voting together as a single class, shall be required for the
stockholders to amend or repeal, or adopt any provision inconsistent with, any provision of these By-laws; provided, that the affirmative vote
of the holders of at least 66-2/3% in voting power of the issued and outstanding stock entitled to vote generally in the election of directors,
voting together as a single class, shall be required for the stockholders to amend or repeal, or adopt any provision inconsistent with, any
provision of Article II, Sections 3 and 8; Article V and this Article IX.

Effecttive January 22, 2009

20
Processed and formatted by SEC Watch - Visit SECWatch.com

Exhibit 10.2

CoStar Logo

COSTAR GROUP, INC.

2007 STOCK INCENTIVE PLAN


(Amended effective December 11, 2008)

1. Purpose

The purpose of the CoStar Group, Inc. 2007 Stock Incentive Plan (the “Plan”) is to advance the interests of CoStar Group, Inc. (the
“Company”) by enabling the Company and its subsidiaries to attract, retain and motivate employees of the Company by providing for or
increasing the proprietary interests of such individuals in the Company, and by enabling the Company to attract, retain and motivate its
nonemployee directors and further align their interests with those of the shareholders of the Company by providing for or increasing the
proprietary interests of such directors in the Company. The Plan provides for the grant of Incentive and Nonqualified Stock Options, Stock
Appreciation Rights, Restricted Stock and Restricted Stock Units, any of which may be performance-based, as determined by the Committee.

2. Definitions

As used in the Plan, the following terms shall have the meanings set forth below:

(a) “Award” means an Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, or
Restricted Stock Unit granted to a Participant pursuant to the provisions of the Plan, any of which the Committee may structure to qualify in
whole or in part as a Performance Award.

(b) “Award Agreement” means a written agreement or other instrument as may be approved from time to time by the Committee
implementing the grant of each Award. An Agreement may be in the form of an agreement to be executed by both the Participant and the
Company (or an authorized representative of the Company) or certificates, notices or similar instruments as approved by the Committee.

(c) “Board” means the board of directors of the Company.

(d) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rulings and regulations issues
thereunder.

(e) “Committee” means the Committee delegated the authority to administer the Plan in accordance with Section 16.

(f) “Common Share” means a share of the Company’s common stock, subject to adjustment as provided in Section 11.

(g) “Company” means CoStar Group, Inc., a Delaware corporation.


Processed and formatted by SEC Watch - Visit SECWatch.com

(h) “Fair Market Value” means, as of any given date, the closing sales price on such date during normal trading hours (or, if there
are no reported sales on such date, on the last date prior to such date on which there were sales) of the Common Shares on NASDAQ, the
New York Stock Exchange Composite Tape or, if not listed on such exchanges, on any other national securities exchange on which the
Common Shares are listed, in any case, as reporting in such source as the Committee shall select. If there is no regular public trading market for
such Common Shares, the Fair Market Value of the Common Shares shall be determined by the Committee in good faith and in compliance with
Section 409A of the Code.

(i) “Incentive Stock Option” means a stock option that is intended to qualify as an “incentive stock option” within the meaning of
Section 422 of the Code.

(j) “Nonemployee Director” means each person who is, or is elected to be, a member of the Board or the board of directors of any
Subsidiary and who is not an employee of the Company or any Subsidiary.

(k) “Nonqualified Stock Option” means a stock option that is not intended to qualify as an “incentive stock option” within the
meaning of Section 422 of the Code.

(l) “Option” means an Incentive Stock Option and/or a Nonqualified Stock Option granted pursuant to Section 6 of the Plan.

(m) “Participant” means any individual described in Section 3 to whom Awards have been granted from time to time by the
Committee and any authorized transferee of such individual.

(n) “Performance Award” means an Award, the grant, issuance, retention, vesting or settlement of which is subject to satisfaction
of one or more performance criteria pursuant to Section 12.

(o) “Plan” means the CoStar Group, Inc. 2007 Stock Incentive Plan as set forth herein and as amended from time to time.

(p) “Prior Plan” means the CoStar Group, Inc. 1998 Stock Incentive Plan.

(q) “Qualifying Performance Criteria” has the meaning set forth in Section 12(b).

(r) “Restricted Stock” means Common Shares granted pursuant to Section 8 of the Plan.

(s) “Restricted Stock Unit” means an Award granted to a Participant pursuant to Section 8 pursuant to which Common Shares or
cash in lieu thereof may be issued in the future.

(t) “Stock Appreciation Right” means a right granted pursuant to Section 7 of the Plan that entitles the Participant to receive, in
cash or Common Shares or a combination thereof, as determined by the Committee, value equal to or otherwise based on the excess of (i) the
market price of a specified number of Common Shares at the time of exercise over (ii) the exercise price of the right, as established by the
Committee on the date of grant.

2
Processed and formatted by SEC Watch - Visit SECWatch.com

(u) “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the
Company where each of the corporations in the unbroken chain other than the last corporation owns stock possessing at least 50 percent or
more of the total combined voting power of all classes of stock in one of the other corporations in the chain, and if specifically determined by
the Committee in the context other than with respect to Incentive Stock Options, may include an entity in which the Company has a significant
ownership interest or that is directly or indirectly controlled by the Company.

(v) “Substitute Awards” means Awards granted or Common Shares issued by the Company in assumption of, or in substitution or
exchange for, awards previously granted, or the right or obligation to make future awards, by a corporation acquired by the Company or any
Subsidiary or with which the Company or any Subsidiary combines.

3. Eligibility

Any person who is an officer or employee of the Company or of any Subsidiary (including any director who is also an employee, in
his or her capacity as such) shall be eligible for selection by the Committee for the grant of Awards hereunder. In addition, Nonemployee
Directors shall be eligible for the grant of Awards hereunder as determined by the Committee. In addition any service provider who has been
retained to provide consulting, advisory or other services to the Company or to any Subsidiary shall be eligible for selection by the Committee
for the grant of Awards hereunder. Options intending to qualify as Incentive Stock Options may only be granted to employees of the
Company or any Subsidiary within the meaning of the Code, as selected by the Committee.

4. Effective Date and Termination of Plan

This Plan was adopted by the Board and became effective as of April 26, 2007 (the “Effective Date”), subject to the approval by the
Company’s stockholders. All Awards granted under this Plan are subject to, and may not be exercised before, the approval of this Plan by the
stockholders prior to the first anniversary date of the effective date of the Plan by the affirmative vote of the holders of a majority of the
outstanding Common Shares of the Company present, or represented by proxy, and entitled to vote, at a meeting of the Company’s
stockholders or by written consent in accordance with the laws of the State of Delaware; provided that if such approval by the stockholders of
the Company is not forthcoming, all Awards previously granted under this Plan shall be void. The Plan shall remain available for the grant of
Awards until the tenth (10th) anniversary of the Effective Date. Notwithstanding the foregoing, the Plan may be terminated at such earlier time
as the Board may determine. Termination of the Plan will not affect the rights and obligations of the Participants and the Company arising
under Awards theretofore granted and then in effect.

3
Processed and formatted by SEC Watch - Visit SECWatch.com

5. Common Shares Subject to the Plan and to Awards

(a) Aggregate Limits. The aggregate number of Shares issuable pursuant to all Awards shall not exceed 1,000,000 shares, plus
(i) any Shares that were authorized for issuance under the Prior Plan that, as of June 7, 2007, remain available for issuance under the Prior Plan
(not including any Shares that are subject to, as of June 7, 2007, outstanding awards under the Prior Plan or any Shares that prior to June 7,
2007 were issued pursuant to awards granted under the Prior Plan) and (ii) any Shares subject to outstanding awards under the Prior Plan as of
June 7, 2007 that on or after such date cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the
awards to the extent they are exercised for or settled in vested and nonforfeitable shares). The aggregate number of Common Shares available
for grant under this Plan and the number of Common Shares subject to outstanding Awards shall be subject to adjustment as provided in
Section 11. The Common Shares issued pursuant to Awards granted under this Plan may be shares that are authorized and unissued or shares
that were reacquired by the Company, including shares purchased in the open market.

(b) Issuance of Common Shares. For purposes of this Section 5, the aggregate number of Common Shares available for Awards
under this Plan at any time shall not be reduced by (i) shares subject to Awards that have been terminated, expired unexercised, forfeited or
settled in cash, (ii) shares subject to Awards that have been retained by the Company in payment or satisfaction of the exercise price,
purchase price or tax withholding obligation of an Award, or (iii) shares subject to Awards that otherwise do not result in the issuance of
Common Shares in connection with payment or settlement of an Award. In addition, Common Shares that have been delivered (either actually
or by attestation) to the Company in payment or satisfaction of the exercise price, purchase price or tax withholding obligation of an Award
shall be available for Awards under this Plan.

(c) Tax Code Limits. The aggregate number of Common Shares subject to Awards granted under this Plan during any calendar year
to any one Participant shall not exceed 200,000, which number shall be calculated and adjusted pursuant to Section 11 only to the extent that
such calculation or adjustment will not affect the status of any Award intended to qualify as “performance based compensation” under
Section 162(m) of the Code but which number shall not count any tandem SARs (as defined in Section 7). Any Common Shares that may be
issued under this Plan may be issued pursuant to the exercise of Incentive Stock Options.

(d) Substitute Awards. Substitute Awards shall not reduce the Common Shares authorized for issuance under the Plan or
authorized for grant to a Participant in any calendar year. Additionally, in the event that a corporation acquired by the Company or any
Subsidiary, or with which the Company or any Subsidiary combines, has shares available under a pre-existing plan approved by shareholders
and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing
plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition
or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or
combination) may be used for Awards under the Plan and shall not reduce the Common Shares authorized for issuance under the Plan;
provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of
the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not employees, directors or
consultants of the Company or its Subsidiaries immediately before such acquisition or combination.

4
Processed and formatted by SEC Watch - Visit SECWatch.com

6. Options

(a) Option Awards. Options may be granted at any time and from time to time prior to the termination of the Plan to Participants as
determined by the Committee. No Participant shall have any rights as a stockholder with respect to any Common Shares subject to Option
hereunder until said Common Shares have been issued, except that the Committee may authorize dividend equivalent accruals with respect to
such Common Shares. Each Option shall be evidenced by an Award Agreement. Options granted pursuant to the Plan need not be identical
but each Option must contain and be subject to the terms and conditions set forth below.

(b) Price. The Committee will establish the exercise price per Common Share under each Option, which, in no event will be less than
the Fair Market Value of the Common Shares on the date of grant; provided, however, that the exercise price per Common Share with respect to
an Option that is granted in connection with a merger or other acquisition as a substitute or replacement award for options held by optionees
of the acquired entity may be less than 100% of the market price of the Common Shares on the date such Option is granted if such exercise
price is based on a formula set forth in the terms of the options held by such optionees or in the terms of the agreement providing for such
merger or other acquisition. The exercise price of any Option may be paid in Common Shares, cash, certified check, money order or a
combination thereof, as determined by the Committee, including an irrevocable commitment by a broker to pay over such amount from a sale of
the Common Shares issuable under an Option, the delivery of previously owned Common Shares and withholding of Common Shares
deliverable upon exercise.

(c) No Repricing. Other than in connection with a change in the Company’s capitalization (as described in Section 11) the exercise
price of an Option may not be reduced without stockholder approval (including canceling previously awarded Options and regranting them
with a lower exercise price).

(d) Provisions Applicable to Options. The date on which Options become exercisable shall be determined at the sole discretion of
the Committee and set forth in an Award Agreement. Unless provided otherwise in the applicable Award Agreement, to the extent that the
Committee determines that an approved leave of absence or employment on a less than full-time basis is not a termination of employment, the
vesting period and/or exercisability of an Option shall be adjusted by the Committee during or to reflect the effects of any period during which
the Participant is on an approved leave of absence or is employed on a less than full-time basis.

(e) Term of Options and Termination of Employment: The Committee shall establish the term of each Option, which in no case
shall exceed a period of ten (10) years from the date of grant. Unless an Option earlier expires upon the expiration date established pursuant to
the foregoing sentence, upon the termination of the Participant’s employment, his or her rights to exercise an Option then held shall be
determined by the Committee and set forth in an Award Agreement.

5
Processed and formatted by SEC Watch - Visit SECWatch.com

(f) Incentive Stock Options. Notwithstanding anything to the contrary in this Section 6, in the case of the grant of an Option
intending to qualify as an Incentive Stock Option: (i) if the Participant owns stock possessing more than 10 percent of the combined voting
power of all classes of stock of the Company (a “10% Common Shareholder”), the exercise price of such Option must be at least 110 percent of
the Fair Market Value of the Common Shares on the date of grant and the Option must expire within a period of not more than five (5) years
from the date of grant, and (ii) termination of employment will occur when the person to whom an Award was granted ceases to be an
employee (as determined in accordance with Section 3401(c) of the Code and the regulations promulgated thereunder) of the Company and its
Subsidiaries. Notwithstanding anything in this Section 6 to the contrary, options designated as Incentive Stock Options shall not be eligible
for treatment under the Code as Incentive Stock Options (and will be deemed to be Nonqualified Stock Options) to the extent that either (a) the
aggregate Fair Market Value of Common Shares (determined as of the time of grant) with respect to which such Options are exercisable for the
first time by the Participant during any calendar year (under all plans of the Company and any Subsidiary) exceeds $100,000, taking Options
into account in the order in which they were granted, or (b) such Options otherwise remain exercisable but are not exercised within three (3)
months of Termination of employment (or such other period of time provided in Section 422 of the Code).

7. Stock Appreciation Rights

Stock Appreciation Rights may be granted to Participants from time to time either in tandem with or as a component of other Awards
granted under the Plan (“tandem SARs”) or not in conjunction with other Awards (“freestanding SARs”) and may, but need not, relate to a
specific Option granted under Section 6. The provisions of Stock Appreciation Rights need not be the same with respect to each grant or each
recipient. Any Stock Appreciation Right granted in tandem with an Award may be granted at the same time such Award is granted or at any
time thereafter before exercise or expiration of such Award. All freestanding SARs shall be granted subject to the same terms and conditions
applicable to Options as set forth in Section 6 and all tandem SARs shall have the same exercise price, vesting, exercisability, forfeiture and
termination provisions as the Award to which they relate. Subject to the provisions of Section 6 and the immediately preceding sentence, the
Committee may impose such other conditions or restrictions on any Stock Appreciation Right as it shall deem appropriate. Stock Appreciation
Rights may be settled in Common Shares, cash or a combination thereof, as determined by the Committee and set forth in the applicable Award
Agreement. Other than in connection with a change in the Company’s capitalization (as described in Section 11) the exercise price of Stock
Appreciation Rights may not be reduced without stockholder approval (including canceling previously awarded Stock Appreciation Rights
and regranting them with a lower exercise price).

8. Restricted Stock and Restricted Stock Units

(a) Restricted Stock and Restricted Stock Unit Awards. Restricted Stock and Restricted Stock Units may be granted at any time
and from time to time prior to the termination of the Plan to Participants as determined by the Committee. Restricted Stock is an award or
issuance of Common Shares the grant, issuance, retention, vesting and/or transferability of which is subject during specified periods of time to
such conditions (including continued employment or performance conditions) and terms as the Committee deems appropriate. Restricted Stock
Units are Awards denominated in units of Common Shares under which the issuance of Common Shares is subject to such conditions
(including continued employment or performance conditions) and terms as the Committee deems appropriate. Each grant of Restricted Stock
and Restricted Stock Units shall be evidenced by an Award Agreement.

6
Processed and formatted by SEC Watch - Visit SECWatch.com

Unless determined otherwise by the Committee, each Restricted Stock Unit will be equal to one Common Share and will entitle a Participant to
either the issuance of Common Shares or payment of an amount of cash determined with reference to the value of Common Shares. To the
extent determined by the Committee, Restricted Stock and Restricted Stock Units may be satisfied or settled in Common Shares, cash or a
combination thereof. Restricted Stock and Restricted Stock Units granted pursuant to the Plan need not be identical but each grant of
Restricted Stock and Restricted Stock Units must contain and be subject to the terms and conditions set forth below.

(b) Contents of Agreement. Each Award Agreement shall contain provisions regarding (i) the number of Common Shares or
Restricted Stock Units subject to such Award or a formula for determining such number, (ii) the purchase price of the Common Shares, if any,
and the means of payment, (iii) the performance criteria, if any, and level of achievement versus these criteria that shall determine the number
of Common Shares or Restricted Stock Units granted, issued, retainable and/or vested, (iv) such terms and conditions on the grant, issuance,
vesting and/or forfeiture of the Common Shares or Restricted Stock Units as may be determined from time to time by the Committee, (v) the
term of the performance period, if any, as to which performance will be measured for determining the number of such Common Shares or
Restricted Stock Units, and (vi) restrictions on the transferability of the Common Shares or Restricted Stock Units. Common Shares issued
under a Restricted Stock Award may be issued in the name of the Participant and held by the Participant or held by the Company, in each case
as the Committee may provide.

(c) Vesting and Performance Criteria. The grant, issuance, retention, vesting and/or settlement of shares of Restricted Stock and
Restricted Stock Units will occur when and in such installments as the Committee determines or under criteria the Committee establishes,
which may include Qualifying Performance Criteria; provided, however, that, except in the case of a change of control of the Company, the
death or disability of the Participant or awards granted to employees of the Company or any Subsidiary in appreciation of past service to the
Company or a Subsidiary pursuant to a Company program or policy that applies to all such employees on an equal basis, vesting of Restricted
Stock and Restricted Stock Units shall be no earlier than three (3) years from the date of grant for Awards not subject to vesting based on
performance criteria and one (1) year from the date of grant for Awards that vest based on the achievement of performance criteria.
Notwithstanding anything in this Plan to the contrary, the performance criteria for any Restricted Stock or Restricted Stock Unit that is
intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code will be a measure based on one
or more Qualifying Performance Criteria selected by the Committee and specified when the Award is granted.

(d) Discretionary Adjustments and Limits. Subject to the limits imposed under Section 162(m) of the Code for Awards that are
intended to qualify as “performance based compensation,” notwithstanding the satisfaction of any performance goals, the number of Common
Shares granted, issued, retainable and/or vested under an Award of Restricted Stock or Restricted Stock Units on account of either financial
performance or personal performance evaluations may, to the extent specified in the Award Agreement, be reduced by the Committee on the
basis of such further considerations as the Committee shall determine.

7
Processed and formatted by SEC Watch - Visit SECWatch.com

(e) Voting Rights. Unless otherwise determined by the Committee, Participants holding shares of Restricted Stock granted
hereunder may exercise full voting rights with respect to those shares during the period of restriction. Participants shall have no voting rights
with respect to Common Shares underlying Restricted Stock Units unless and until such Common Shares are reflected as issued and
outstanding shares on the Company’s stock ledger.

(f) Dividends and Distributions. Participants in whose name Restricted Stock is granted shall be entitled to receive all dividends
and other distributions paid with respect to those Common Shares, unless determined otherwise by the Committee. The Committee will
determine whether any such dividends or distributions will be automatically reinvested in additional shares of Restricted Stock and subject to
the same restrictions on transferability as the Restricted Stock with respect to which they were distributed or whether such dividends or
distributions will be paid in cash. Common Shares underlying Restricted Stock Units shall be entitled to dividends or dividend equivalents
only to the extent provided by the Committee.

9. Deferral of Gains

The Committee may, in an Award Agreement or otherwise, provide for the deferred delivery of Common Shares upon settlement,
vesting or other events with respect to Restricted Stock or Restricted Stock Units. Notwithstanding anything herein to the contrary, in no
event will any deferral of the delivery of Common Shares or any other payment with respect to any Award be allowed if the Committee
determines, in its sole discretion, that the deferral would result in the imposition of the additional tax under Section 409A(a)(1)(B) of the Code.

10. Conditions and Restrictions Upon Securities Subject to Awards

The Committee may provide that the Common Shares issued upon exercise of an Option or Stock Appreciation Right or otherwise
subject to or issued under an Award shall be subject to such further agreements, restrictions, conditions or limitations as the Committee in its
discretion may specify prior to the exercise of such Option or Stock Appreciation Right or the grant, vesting or settlement of such Award,
including without limitation, conditions on vesting or transferability, forfeiture or repurchase provisions and method of payment for the
Common Shares issued upon exercise, vesting or settlement of such Award (including the actual or constructive surrender of Common Shares
already owned by the Participant) or payment of taxes arising in connection with an Award. Without limiting the foregoing, such restrictions
may address the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any Common Shares
issued under an Award, including without limitation (i) restrictions under an insider trading policy or pursuant to applicable law, (ii)
restrictions designed to delay and/or coordinate the timing and manner of sales by Participant and holders of other Company equity
compensation arrangements, (iii) restrictions as to the use of a specified brokerage firm for such resales or other transfers, and (iv) provisions
requiring Common Shares to be sold on the open market or to the Company in order to satisfy tax withholding or other obligations.

8
Processed and formatted by SEC Watch - Visit SECWatch.com

11. Adjustment of and Changes in the Stock

The number and kind of Common Shares available for issuance under this Plan (including under any Awards then outstanding), and
the number and kind of Common Shares subject to the limits set forth in Section 5 of this Plan, shall be equitably adjusted by the Committee to
reflect any reorganization, reclassification, combination of shares, stock split, reverse stock split, spin-off, dividend or distribution of
securities, property or cash (other than regular, quarterly cash dividends), or any other equity restructuring transaction, as that term is defined
in Statement of Financial Accounting Standards No. 123 (revised). Such adjustment may be designed to comply with Section 425 of the Code
or, except as otherwise expressly provided in Section 5(c) of this Plan, may be designed to treat the Common Shares available under the Plan
and subject to Awards as if they were all outstanding on the record date for such event or transaction or to increase the number of such
Common Shares to reflect a deemed reinvestment in Common Shares of the amount distributed to the Company’s securityholders. The terms of
any outstanding Award shall also be equitably adjusted by the Committee as to price, number or kind of Common Shares subject to such
Award, vesting, and other terms to reflect the foregoing events, which adjustments need not be uniform as between different Awards or
different types of Awards.

In the event there shall be any other change in the number or kind of outstanding Common Shares, or any stock or other securities
into which such Common Shares shall have been changed, or for which it shall have been exchanged, by reason of a change of control, other
merger, consolidation or otherwise in circumstances that do not involve an equity restructuring transaction, as that term is defined in
Statement of Financial Accounting Standards No. 123 (revised), then the Committee shall determine the appropriate adjustment, if any, to be
effected. In addition, in the event of such change described in this paragraph, the Committee may accelerate the time or times at which any
Award may be exercised and may provide for cancellation of such accelerated Awards that are not exercised within a time prescribed by the
Committee in its sole discretion.

No right to purchase fractional shares shall result from any adjustment in Awards pursuant to this Section 11. In case of any such
adjustment, the Common Shares subject to the Award shall be rounded down to the nearest whole share. The Company shall notify
Participants holding Awards subject to any adjustments pursuant to this Section 11 of such adjustment, but (whether or not notice is given)
such adjustment shall be effective and binding for all purposes of the Plan.

12. Qualifying Performance-Based Compensation

(a) General. The Committee may establish performance criteria and level of achievement versus such criteria that shall determine
the number of Common Shares, units, or cash to be granted, retained, vested, issued or issuable under or in settlement of or the amount
payable pursuant to an Award, which criteria may be based on Qualifying Performance Criteria or other standards of financial performance
and/or personal performance evaluations. In addition, the Committee may specify that an Award or a portion of an Award is intended to
satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code, provided that the performance criteria for

9
Processed and formatted by SEC Watch - Visit SECWatch.com

such Award or portion of an Award that is intended by the Committee to satisfy the requirements for “performance-based compensation”
under Section 162(m) of the Code shall be a measure based on one or more Qualifying Performance Criteria selected by the Committee and
specified at the time the Award is granted. The Committee shall certify the extent to which any Qualifying Performance Criteria has been
satisfied, and the amount payable as a result thereof, prior to payment, settlement or vesting of any Award that is intended to satisfy the
requirements for “performance-based compensation” under Section 162(m) of the Code. Notwithstanding satisfaction of any performance
goals, the number of Common Shares issued under or the amount paid under an award may, to the extent specified in the Award Agreement,
be reduced by the Committee on the basis of such further considerations as the Committee in its sole discretion shall determine.

(b) Qualifying Performance Criteria. For purposes of this Plan, the term “Qualifying Performance Criteria” shall mean any one or
more of the following performance criteria, either individually, alternatively or in any combination, applied to either the Company as a whole or
to a business unit or Subsidiary, either individually, alternatively or in any combination, and measured either annually or cumulatively over a
period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in
each case as specified by the Committee: (i) cash flow (before or after dividends), (ii) earnings or earnings per share (including earnings before
interest, taxes, depreciation and amortization), (iii) stock price, (iv) return on equity, (v) total stockholder return, (vi) return on capital or
investment (including return on total capital, return on invested capital, or return on investment), (vii) return on assets or net assets, (viii)
market capitalization, (ix) economic value added, (x) debt leverage (debt to capital), (xi) revenue, (xii) income or net income, (xiii) operating
income, (xiv) operating profit or net operating profit, (xv) operating margin or profit margin, (xvi) return on operating revenue, (xvii) cash from
operations, (xviii) operating ratio, (xix) operating revenue, or (xx) customer service. To the extent consistent with Section 162(m) of the Code,
the Committee (A) shall appropriately adjust any evaluation of performance under a Qualifying Performance Criteria to eliminate the effects of
charges for restructurings, discontinued operations, extraordinary items and all items of gain, loss or expense determined to be extraordinary or
unusual in nature or related to the acquisition or disposal of a segment of a business or related to a change in accounting principle all as
determined in accordance with standards established by opinion No. 30 of the Accounting Principles Board (APA Opinion No. 30) or other
applicable or successor accounting provisions, as well as the cumulative effect of accounting changes, in each case as determined in
accordance with generally accepted accounting principles or identified in the Company’s financial statements or notes to the financial
statements, and (B) may appropriately adjust any evaluation of performance under a Qualifying Performance Criteria to exclude any of the
following events that occurs during a performance period: (i) asset write-downs, (ii) litigation, claims, judgments or settlements, (iii) the effect
of changes in tax law or other such laws or provisions affecting reported results, (iv) accruals for reorganization and restructuring programs
and (v) accruals of any amounts for payment under this Plan or any other compensation arrangement maintained by the Company.

10
Processed and formatted by SEC Watch - Visit SECWatch.com

13. Transferability

Unless the Committee provides otherwise, each Award may not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated by a Participant other than by will or the laws of descent and distribution, and each Option or Stock Appreciation Right shall be
exercisable only by the Participant during his or her lifetime.

14. Compliance with Laws and Regulations

This Plan, the grant, issuance, vesting, exercise and settlement of Awards thereunder, and the obligation of the Company to sell,
issue or deliver Common Shares under such Awards, shall be subject to all applicable foreign, federal, state and local laws, rules and
regulations, stock exchange rules and regulations, and to such approvals by any governmental or regulatory agency as may be required. The
Company shall not be required to register in a Participant’s name or deliver any Common Shares prior to the completion of any registration or
qualification of such shares under any foreign, federal, state or local law or any ruling or regulation of any government body which the
Committee shall determine to be necessary or advisable. To the extent the Company is unable to or the Committee deems it infeasible to obtain
authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful
issuance and sale of any Common Shares hereunder, the Company and its Subsidiaries shall be relieved of any liability with respect to the
failure to issue or sell such Common Shares as to which such requisite authority shall not have been obtained. No Option shall be exercisable
and no Common Shares shall be issued and/or transferable under any other Award unless a registration statement with respect to the Common
Shares underlying such Option is effective and current or the Company has determined that such registration is unnecessary.

15. Withholding

To the extent required by applicable federal, state, local or foreign law, a Participant shall be required to satisfy, in a manner
satisfactory to the Company, any withholding tax obligations that arise by reason of an Option exercise, disposition of Common Shares issued
under an Incentive Stock Option, the vesting of or settlement of an Award, an election pursuant to Section 83(b) of the Code or otherwise with
respect to an Award. The Company and its Subsidiaries shall not be required to issue Common Shares, make any payment or to recognize the
transfer or disposition of Common Shares until such obligations are satisfied. The Committee may provide for or permit the minimum statutory
withholding obligations to be satisfied through the mandatory or elective sale of Common Shares and/or by having the Company withhold a
portion of the Common Shares that otherwise would be issued to him or her upon exercise of the Option or the vesting or settlement of an
Award, or by tendering Common Shares previously acquired.

16. Administration of the Plan

(a) Committee of the Plan. The Plan shall be administered by the Compensation Committee of the Board or the Board itself. Any
power of the Committee may also be exercised by the Board, except to the extent that the grant or exercise of such authority would cause any
Award or transaction to become subject to (or lose an exemption under) the short-swing profit recovery provisions of Section 16 of the
Securities Exchange Act of 1934 or cause an Award designated as a Performance Award not to qualify for treatment as performance-based
compensation under Section 162(m) of the Code. To the extent that any permitted action taken by the Board conflicts with action taken by

11
Processed and formatted by SEC Watch - Visit SECWatch.com

the Committee, the Board action shall control. The Compensation Committee may by resolution authorize one or more officers of the Company
to perform any or all things that the Committee is authorized and empowered to do or perform under the Plan, and for all purposes under this
Plan, such officer or officers shall be treated as the Committee; provided, however, that the resolution so authorizing such officer or officers
shall specify the total number of Awards (if any) such officer or officers may award pursuant to such delegated authority, and any such Award
shall be subject to the form of Award Agreement theretofore approved by the Compensation Committee. No such officer shall designate
himself or herself as a recipient of any Awards granted under authority delegated to such officer. In addition, the Compensation Committee
may delegate any or all aspects of the day-to-day administration of the Plan to one or more officers or employees of the Company or any
Subsidiary, and/or to one or more agents.

(b) Powers of Committee. Subject to the express provisions of this Plan, the Committee shall be authorized and empowered to do all
things that it determines to be necessary or appropriate in connection with the administration of this Plan, including, without limitation: (i) to
prescribe, amend and rescind rules and regulations relating to this Plan and to define terms not otherwise defined herein; (ii) to determine
which persons are Participants, to which of such Participants, if any, Awards shall be granted hereunder and the timing of any such Awards;
(iii) to grant Awards to Participants and determine the terms and conditions thereof, including the number of Common Shares subject to
Awards and the exercise or purchase price of such Common Shares and the circumstances under which Awards become exercisable or vested
or are forfeited or expire, which terms may but need not be conditioned upon the passage of time, continued employment, the satisfaction of
performance criteria, the occurrence of certain events (including events which constitute a change of control), or other factors; (iv) to establish
and verify the extent of satisfaction of any performance goals or other conditions applicable to the grant, issuance, exercisability, vesting
and/or ability to retain any Award; (v) to prescribe and amend the terms of the agreements or other documents evidencing Awards made under
this Plan (which need not be identical) and the terms of or form of any document or notice required to be delivered to the Company by
Participants under this Plan; (vi) to determine the extent to which adjustments are required pursuant to Section 11; (vii) to interpret and
construe this Plan, any rules and regulations under this Plan and the terms and conditions of any Award granted hereunder, and to make
exceptions to any such provisions in good faith and for the benefit of the Company; and (viii) to make all other determinations deemed
necessary or advisable for the administration of this Plan.

(c) Determinations by the Committee. All decisions, determinations and interpretations by the Committee regarding the Plan, any
rules and regulations under the Plan and the terms and conditions of or operation of any Award granted hereunder, shall be final and binding
on all Participants, beneficiaries, heirs, assigns or other persons holding or claiming rights under the Plan or any Award. The Committee shall
consider such factors as it deems relevant, in its sole and absolute discretion, to making such decisions, determinations and interpretations
including, without limitation, the recommendations or advice of any officer or other employee of the Company and such attorneys, consultants
and accountants as it may select.

12
Processed and formatted by SEC Watch - Visit SECWatch.com

17. Amendment of the Plan or Awards

The Board may amend, alter or discontinue this Plan and the Committee may amend, or alter any agreement or other document
evidencing an Award made under this Plan but, except as specifically provided for hereunder, no such amendment shall, without the approval
of the stockholders of the Company (a) reduce the exercise price of outstanding Options or Stock Appreciation Rights, (b) reduce the price at
which Options may be granted below the price provided for in Section 6 or (c) otherwise amend the Plan in any manner requiring stockholder
approval by law or under the NASDAQ’s listing requirements. No amendment or alteration to the Plan or an Award or Award Agreement shall
be made which would impair the rights of the holder of an Award, without such holder’s consent, provided that no such consent shall be
required if the Committee determines in its sole discretion and prior to the date of any change of control that such amendment or alteration
either is required or advisable in order for the Company, the Plan or the Award to satisfy any law or regulation or to meet the requirements of
or avoid adverse financial accounting consequences under any accounting standard.

18. Miscellaneous

(a) No Liability of Company. The Company and any Subsidiary or affiliate which is in existence or hereafter comes into existence
shall not be liable to a Participant or any other person as to: (i) the non-issuance or sale of Common Shares as to which the Company has been
unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful
issuance and sale of any Common Shares hereunder; and (ii) any tax consequence expected, but not realized, by any Participant or other
person due to the receipt, exercise or settlement of any Award granted hereunder.

(b) Non-Exclusivity of Plan. Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of
the Company for approval shall be construed as creating any limitations on the power of the Board or the Committee to adopt such other
incentive arrangements as either may deem desirable, including without limitation, the granting of restricted stock or stock options otherwise
than under this Plan or an arrangement not intended to qualify under Code Section 162(m), and such arrangements may be either generally
applicable or applicable only in specific cases.

(c) Governing Law. This Plan and any agreements or other documents hereunder shall be interpreted and construed in accordance
with the laws of the Delaware and applicable federal law.

(d) No Right to Employment, Reelection or Continued Service. Nothing in this Plan or an Award Agreement shall interfere with or
limit in any way the right of the Company, its Subsidiaries and/or its affiliates to terminate any Participant’s employment, service on the Board
or service for the Company at any time or for any reason not prohibited by law, nor shall this Plan or an Award itself confer upon any
Participant any right to continue his or her employment or service for any specified period of time. Neither an Award nor any benefits arising
under this Plan shall constitute an employment contract with the Company, any Subsidiary and/or its affiliates.

(e) Unfunded Plan. The Plan is intended to be an unfunded plan. Participants are and shall at all times be general creditors of the
Company with respect to their Awards. If the Committee or the Company chooses to set aside funds in a trust or otherwise for the payment of
Awards under the Plan, such funds shall at all times be subject to the claims of the creditors of the Company in the event of its bankruptcy or
insolvency.

13
Processed and formatted by SEC Watch - Visit SECWatch.com

Exhibit 10.8

o Grantee’s Copy
o Company's Copy

COSTAR GROUP, INC.


2007 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT

To «Name»:

CoStar Group, Inc. (the "Company") has granted you an option (the "Option") under the CoStar Group, Inc. 2007 Stock Incentive
Plan, as amended from time to time (the "Plan"), to purchase «NoShares» shares (the "Shares") of common stock of the Company (the
"Common Stock"), at «Price» per share (the "Exercise Price"). The date of grant is «DateofGrant».

This Option is subject in all respects to the applicable provisions of the Plan, a copy of which is attached, except as otherwise
noted. By signing this agreement (the "Agreement"), you acknowledge that you have received and read the Plan. This Agreement
incorporates the Plan by reference and specifies other applicable terms and conditions. All capitalized terms not defined by this Agreement
have the meanings given in the Plan. The Compensation Committee of the Company's Board of Directors (or other administrator of the Plan,
the "Administrator") may adjust the number of Shares and the Exercise Price with respect to your Option from time to time in accordance with
the Plan.

Subject to the terms of the Plan, the Option is intended to be an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and will be interpreted accordingly; provided, however that the Option will be an
incentive stock option only to the extent that the aggregate Fair Market Value (determined at the date of grant) of the stock with respect to
which incentive stock options are exercisable for the first time by you during any calendar year (under the Plan and all other plans of the
Company and its subsidiary corporations, within the meaning of Code Section 422(d)), does not exceed $100,000. This limitation will be
applied by taking Options into account in the order in which such Options were granted. If, by design or operation, the Option exceeds this
limit, the excess will be treated as a nonqualified stock option.

In addition to the terms, conditions, and restrictions set forth in the Plan, the following terms, conditions, and restrictions apply to the
Option:

(1) Vesting. The schedule for exercising the Option is as follows, subject to the expiration provisions set forth in Section 3 below:
Processed and formatted by SEC Watch - Visit SECWatch.com

a. You may exercise the Option on the following schedule:

[Set forth vesting schedule.]

No portion of the Option that is unexercisable at your termination of employment will thereafter become
exercisable, unless the Administrator determines otherwise.

b. The Option will become immediately exercisable in full upon the occurrence of a Change in Control.

“Change in Control” means the occurrence of any one or more of the following events:

i. a Person (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended) (other than the Company, any Company subsidiary, any Company benefit plan, or
any underwriter temporarily holding securities for an offering of such securities) acquires ownership of
more than 80% of the undiluted total voting power of the Company’s then outstanding securities eligible
to vote to elect members of the Board (the “Company Voting Securities”);

ii. consummation of a merger, consolidation or reorganization of the Company with or into any other entity,
unless the holders of the Company Voting Securities outstanding immediately before such consummation,
together with any trustee or other fiduciary holding securities under a Company benefit plan, hold
securities that represent immediately after such merger or consolidation at least 20% of the combined
voting power of the then outstanding voting securities of either the Company or the other surviving entity
or its parent; or

iii. the stockholders of the Company approve (A) a plan of complete liquidation or dissolution of the
Company or (B) an agreement for the Company’s sale or disposition of all or substantially all of the
Company’s assets, and such liquidation, dissolution, sale or disposition is consummated.

2
Processed and formatted by SEC Watch - Visit SECWatch.com

Even if other tests are met, a Change in Control has not occurred under any circumstances in which the Company
files for bankruptcy protection or is reorganized following a bankruptcy filing.

The provisions of Section 4 will also apply if the Change in Control is a Substantial Corporate Change (as defined
in those provisions).

c. The Administrator may, in its sole discretion, accelerate the time at which you may exercise part or all of the Option.

d. The vesting period and/or exercisability of the Option may be adjusted by the Administrator to reflect the decreased level of
employment during any period in which you are on an approved leave of absence or employed on a less than full time basis,
provided, that the Administrator may take into consideration any accounting consequences to the Company.

(2) Exercise. Subject to this Agreement and the Plan, unless the Administrator determines otherwise, you may exercise the Option only
by a written “Notice of Exercise” to the Company or its designee on a form specified by the Company on or before the date the
Option expires. Unless the Administrator determines otherwise, each such Notice must:

a. state your election to exercise the Option and the number of Shares with respect to which you are exercising the Option;

b. be signed by you or, if you have died or become disabled, by the party entitled to exercise the Option;

c. contain such representations as the Company reasonably requires; and

d. be accompanied by payment of the Exercise Price in full through one, or a combination, of the following payment methods,
which method(s) shall be indicated in the Notice of Exercise:

i. cashier's or certified check in the amount of the Exercise Price payable to the order of the Company;

ii. direction to the Company through your Notice of Exercise to send the share certificates to be issued under this
Option to a licensed broker acceptable to the Company as your agent in exchange for the broker's tendering to the
Company cash (or acceptable cash equivalents) equal to the Exercise Price, for the Shares with respect to which the
Option is being exercised, as part of a cashless exercise;

3
Processed and formatted by SEC Watch - Visit SECWatch.com

iii. unless the Administrator determines otherwise, by surrender to the Company of shares of Common Stock with a
Fair Market Value on the date of exercise equal to all or part of the Exercise Price (with any balance paid by cash or
check or, unless the Administrator determines otherwise, deducted from salary or other amounts payable to you),
for the Shares with respect to which the Option is being exercised; provided, however, that you may not surrender
(turn in) previously held or owned Common Stock of the Company as payment unless you have held such stock for
more than six months before the surrender. For purposes hereof, the date of exercise shall be the date of delivery of
(A) the duly executed Notice of Exercise and (B) the shares tendered for payment of the Exercise Price;

iv. unless the Administrator determines otherwise, attestation of ownership of Common Stock and issuance of a net
number of shares upon Option exercise; or

v. unless the Administrator determines otherwise, by the Company withholding from the shares of Common Stock
otherwise issuable to you upon the exercise of the Option (or portion thereof) the whole number of shares with a
Fair Market Value on the date of exercise equal to all or part of the Exercise Price (rounded down, with any balance
paid by cash or check or, unless the Administrator determines otherwise, deducted from salary or other amounts
payable to you on such date of exercise). For purposes hereof, the date of exercise shall be the date of delivery of
the duly executed Notice of Exercise.

The Company shall not be obligated to issue any shares of Common Stock until you have paid the total Exercise Price for
that number of shares of Common Stock you have elected to purchase. Shares of Common Stock will be issued as soon as is practical
after exercise.

(3) Expiration. The Option will expire no later than the close of business on «ExpirationDate» (ten years from the date of grant or five
years for an ISO granted to a more-than 10% stockholder on the date of grant).

Unless the Administrator determines otherwise at any time, you will forfeit any unexercised portions of the Option (whether
or not then exercisable) upon the first to occur of:

a. the Option's expiration under the preceding sentence,

4
Processed and formatted by SEC Watch - Visit SECWatch.com

b. the 90th day after your resignation, including retirement (for any reason other than disability),

c. the 90th day after the Company terminates your employment (for any reason other than disability),

d. in the event of the termination of your employment for disability (as determined by the Administrator), the earlier of (i) the
first anniversary of the termination of your employment and (ii) 30 days after you cease to have a disability, where, for
purposes of this Agreement, “disability” means the inability to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be
expected to last for a continuous period of not less than twelve months,

e. the first anniversary of your date of death, and

f. the date you violate any covenant not to compete, nonsolicitation covenant or similar covenant in effect between you and
the Company.

The Administrator, in its sole discretion, will determine all questions of whether particular terminations or leaves of absence
are terminations of employment for purposes of this Agreement.

If you exercise an Option more than 90 days after termination of employment with the Company, you will only receive
incentive stock option treatment to the extent provided under the Code, and becoming or remaining an employee of another related
company (that is not a Subsidiary) or an independent contractor to the Company will not prevent loss of incentive stock option
status as a result of the formal termination of employment unless otherwise provided under the Code.

(4) Substantial Corporate Change. Upon a Substantial Corporate Change, any portion of this Option that is unexercised will terminate
unless provision is made in writing in connection with such transaction for:

a. assumption or continuation of outstanding Options; or

b. the substitution for such Options, with appropriate adjustments as to the number and kind of shares of stock and prices, in
which event the Option will continue in the manner and under the terms so provided.

Unless the Board determines otherwise, if an Option would otherwise terminate pursuant to the preceding sentence, you will have the
right, at such time before the consummation of the transaction causing such termination as the Board reasonably designates, to
exercise any unexercised portions of the Option, whether or not previously exercisable.

5
Processed and formatted by SEC Watch - Visit SECWatch.com

A “Substantial Corporate Change” means the occurrence of any one or more of the following events:

i. a Person (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934,
as amended) (other than the Company, any Company subsidiary, any Company benefit plan, or any underwriter
temporarily holding securities for an offering of such securities) acquires ownership of 100% of the combined
voting power of all classes of stock of the Company;

ii. merger, consolidation or reorganization of the Company with or into one or more entities in which the Company is
not the surviving corporation (other than a merger or consolidation with a wholly owned subsidiary, a
reincorporation of the Company in a different jurisdiction or other transaction in which there is no substantial
change in the stockholders of the Company or their relative stock holdings);

iii. merger, consolidation or reorganization of the Company in which the Company is the surviving corporation, but
after which the stockholders of the Company immediately prior to such merger (other than any stockholder that
merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to
own their shares or other equity interest in the Company;

iv. the liquidation or dissolution of the Company; or

v. the sale or disposition of all or substantially all of the Company’s assets.

(5) Taxes.

a. You understand and agree that the Company has not advised you regarding your income tax liability in connection with the
Option. To the extent required by applicable federal, state, local or foreign law, you shall make arrangements satisfactory to
the Company in its sole discretion for the satisfaction of any withholding tax obligations that arise by reason of an Option
exercise or disposition of shares issued as a result of an Option exercise. The Company shall not be required to issue shares
or to recognize the disposition of such shares until such obligations are satisfied.

6
Processed and formatted by SEC Watch - Visit SECWatch.com

b. By accepting the Option, you agree that, unless and to the extent you have otherwise satisfied any U.S. federal income and
other taxes, including state, local or non-U.S. income or employment tax obligations, related to the exercise of the Option that
are required to be withheld and paid over to the applicable tax authorities (the “Tax Withholding Obligations”) in a manner
permitted or required by the Administrator pursuant to the Plan, the Company is authorized (but not required) to deduct and
retain without notice from the shares of Common Stock issuable to you in respect of the exercised portion of the Option the
whole number of shares (rounding down) having a Fair Market Value on the exercise date or, if not a trading day, the first
trading day before the exercise date (as determined by the Company consistent with any applicable tax requirements)
sufficient to satisfy the applicable Tax Withholding Obligation. If the withheld shares are not sufficient to satisfy your Tax
Withholding Obligation, you agree to pay to the Company as soon as practicable, by cash or check or, unless otherwise
determined by the Administrator, deducted from salary or other amounts payable to you, any amount of the Tax
Withholding Obligation that is not satisfied by the withholding of shares of Common Stock described above.

c. You are ultimately liable and responsible for all taxes owed by you in connection with the Option, regardless of any action
the Company takes or any transaction pursuant to this Section 5 with respect to any tax withholding obligations that arise in
connection with the Option. The Company makes no representation or undertaking regarding the treatment of any tax
withholding in connection with the grant, issuance, vesting or exercise of the Option or the subsequent sale of any of the
shares of Common Stock acquired upon exercise of the Option. The Company does not commit and is under no obligation to
structure the Option to reduce or eliminate your tax liability.

(6) Company Postponement of Delivery. The Company may postpone issuing and delivering any Shares for so long as the Company
determines to be necessary or advisable to satisfy the following:

a. completing or amending any registration or qualification of the Shares or satisfying any exemption from registration under
any federal or state law, rule, or regulation;

b. complying with any requests for representations under the Plan;

c. receiving proof satisfactory to the Company that a person seeking to exercise the Option after your death or disability is
authorized and entitled to exercise the Option; and

7
Processed and formatted by SEC Watch - Visit SECWatch.com

d. satisfying any federal, state, or local tax withholding obligations.

(7) Compliance with Securities Laws.

a. If, at the time the Company should issue you Shares because of your exercise of the Option, no current registration
statement under the Securities Act of 1933 (the "Act") covers such issuance, you must, before the Company will issue such
Shares to you:

i. represent to the Company, in form satisfactory to the Company's counsel, that you are acquiring the Shares for
your own account and not with a view to reselling or distributing the Shares; and

ii. agree that you may not sell, transfer, or otherwise dispose of the Shares issued to you under the Option unless:

A. a registration statement under the Act is effective at the time of disposition with respect to the Shares
sold, transferred, or otherwise disposed of; or

B. the Company has received an opinion of counsel or other information and representations satisfactory to
it to the effect that registration under the Act is not required by reason of Rule 144 under the Act or
otherwise.

b. Notwithstanding anything herein to the contrary, you may not exercise the Option, and the Company shall not be obligated
to deliver any shares of Common Stock, during any period when the Company determines that the exercisability of the
Option or the delivery of shares hereunder would violate any applicable federal or state securities laws or other laws or
regulations.

(8) Restrictions on Resales. The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the
timing and manner of any resales by you or other subsequent transfers by you of any shares of Common Stock issued as a result of
the exercise of the Option, including without limitation (a) restrictions under an insider trading policy, (b) restrictions designed to
delay and/or coordinate the timing and manner of sales by you and other optionholders and (c) restrictions as to the use of a
specified brokerage firm for such resales or other transfers.

8
Processed and formatted by SEC Watch - Visit SECWatch.com

(9) Not an Employment Contract. Nothing in this Agreement restricts the right of the Company or any of its affiliates to terminate your
employment at any time, with or without cause. The termination of employment, whether by the Company or any of its affiliates or
otherwise, and regardless of the reason therefore, has the consequences provided for hereunder, under the Plan and under any
applicable employment or severance agreement.

(10) Non-Transferability of Option. You may not assign or transfer the Option to anyone other than by will or the laws of descent and
distribution and the Option shall be exercisable only by you during your lifetime. The Company may cancel the Option if you attempt
to assign or transfer it in a manner inconsistent with this Section 10.

(11) Limitation of Interest. You understand and agree that you will not be deemed for any purpose to be a stockholder of the Company
with respect to any of the Shares unless and until they have been issued to you after your exercise of this Option and payment for
the Shares. Neither you (individually or as a member of a group) nor any beneficiary or other person claiming under or through you
shall have any right, title, interest, or privilege in or to any shares of Common Stock allocated or reserved for the purpose of the Plan
or subject to this Agreement except as to such shares of Common Stock, if any, as shall have been issued to such person upon
exercise of the Option or any part of it.

(12) No Fractional Shares. At the time of exercise, the Company will round down any fractional Shares but will not make any cash or other
payments in settlement of fractional shares eliminated by rounding. If you have not then exercised the Option in full, the Company
will carry forward the fractional Shares rather than eliminating them.

(13) No Limitation on Company Actions. You understand and agree that the existence of this Option will not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, or other
changes in the Company's capital structure or its business or any merger or consolidation of the Company, or any issuance of bonds,
debentures, preferred or other stocks with preference ahead of or convertible into, or otherwise affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or
any other corporate act or proceeding, whether of a similar character or otherwise.

(14) General.

a. This Agreement and the Plan constitute the entire understanding between you and the Company regarding the Option. Any
prior agreements, commitments or negotiations concerning the Option are superseded.

b. The laws of the State of Delaware will govern all matters relating to this Agreement, without regard to the principles of
conflict of laws.

9
Processed and formatted by SEC Watch - Visit SECWatch.com

c. Any notice you give to the Company (including notice of exercise of all or part of the Option) must be in writing and either
hand-delivered or mailed to the Corporate Secretary of the Company (or to the Chief Financial Officer if either you would
receive the notice or the position is vacant). If mailed, it should be sent by certified mail and be addressed to the foregoing
executive at the Company's then corporate headquarters. Any notice given to you will be addressed to you at your address
as reflected on the personnel records of the Company. You may change the address for notice by like notice to the
Company. Notice will be deemed to have been duly delivered when hand-delivered, or, if mailed, two business days after
such notice is postmarked.

d. As a condition of this Option, you, on behalf of yourself, your heirs, successors and personal representatives ("you and
your successors"), agree that any dispute or disagreement which may arise hereunder shall be decided by the
Administrator. You and your successors agree to accept as binding, conclusive and final all decisions or interpretations of
the Administrator concerning any questions arising under the Plan with respect to the Option, and you and your successors
hereby explicitly waive any right to judicial review.

e. In the event that any provision of this Agreement is declared to be illegal, invalid or otherwise unenforceable by a court of
competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and
enforceable, or otherwise deleted, and the remainder of the terms hereunder shall not be affected except to the extent
necessary to reform or delete such illegal, invalid or unenforceable provision.

f. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs,
beneficiaries, successors and assigns.

g. The headings preceding the text of the sections hereof are inserted solely for convenience of reference, and shall not
constitute a part of this Agreement, nor shall they affect its meaning, construction or effect.

h. All questions arising under the Plan or under this Agreement shall be decided by the Administrator in its total and absolute
discretion.

10
Processed and formatted by SEC Watch - Visit SECWatch.com

i. Wherever a conflict may arise between the terms of this Agreement and the terms of the Plan, the terms of the Plan will
control.

COSTAR GROUP, INC.


By: ________________________
Name: ______________________
Title: ______________________

11
Processed and formatted by SEC Watch - Visit SECWatch.com

ACKNOWLEDGMENT

I acknowledge receipt of a copy of the attached Plan. I represent that I have read and am familiar with the Plan's terms. I accept the
Option subject to all of the terms and provisions of this Agreement and of the Plan under which it is granted, as the Plan may be amended in
accordance with its terms. I agree to accept as binding, conclusive, and final all decisions or interpretations of the Administrator concerning
any questions arising under the Plan with respect to the Option.

Date: ___________________________________
Signature of Grantee/Participant

NO ONE MAY SELL, TRANSFER, OR DISTRIBUTE THIS OPTION OR THE SECURITIES THAT MAY BE PURCHASED UPON EXERCISE OF THIS
OPTION WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY OR OTHER INFORMATION AND REPRESENTATIONS SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

12
Processed and formatted by SEC Watch - Visit SECWatch.com

Exhbit 10.9

® Grantee’s Copy
® Company's Copy

COSTAR GROUP, INC.


2007 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT

To Andrew C. Florance:

CoStar Group, Inc. (the "Company") has granted you an option (the "Option") under the CoStar Group, Inc. 2007 Stock Incentive
Plan, as amended from time to time (the "Plan"), to purchase «NoShares» shares (the "Shares") of common stock of the Company (the
"Common Stock"), at «Price» per share (the "Exercise Price"). The date of grant is «DateofGrant».

This Option is subject in all respects to the applicable provisions of the Plan, a copy of which is attached, except as otherwise
noted. By signing this agreement (the "Agreement"), you acknowledge that you have received and read the Plan. This Agreement
incorporates the Plan by reference and specifies other applicable terms and conditions. All capitalized terms not defined by this Agreement
have the meanings given in the Plan. The Compensation Committee of the Company's Board of Directors (or other administrator of the Plan,
the "Administrator") may adjust the number of Shares and the Exercise Price with respect to your Option from time to time in accordance with
the Plan.

Subject to the terms of the Plan, the Option is intended to be an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and will be interpreted accordingly; provided, however that the Option will be an
incentive stock option only to the extent that the aggregate Fair Market Value (determined at the date of grant) of the stock with respect to
which incentive stock options are exercisable for the first time by you during any calendar year (under the Plan and all other plans of the
Company and its subsidiary corporations, within the meaning of Code Section 422(d)), does not exceed $100,000. This limitation will be
applied by taking Options into account in the order in which such Options were granted. If, by design or operation, the Option exceeds this
limit, the excess will be treated as a nonqualified stock option.

In addition to the terms, conditions, and restrictions set forth in the Plan, the following terms, conditions, and restrictions apply to the
Option:
Processed and formatted by SEC Watch - Visit SECWatch.com

(1) Vesting. The schedule for exercising the Option is as follows, subject to the expiration provisions set forth in Section 3 below:

a. You may exercise the Option on the following schedule:

[Set forth vesting schedule.]

Except as specifically provided otherwise herein, no portion of the Option that is unexercisable at your
termination of employment will thereafter become exercisable, unless the Administrator determines
otherwise.

b. The Option will become immediately exercisable in full upon the occurrence of a Change in Control.

“Change in Control” means the occurrence of any one or more of the following events:

A. a Person (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended) (other than the Company, any Company subsidiary, any Company benefit plan, or
any underwriter temporarily holding securities for an offering of such securities) acquires ownership of
more than 80% of the undiluted total voting power of the Company’s then outstanding securities eligible
to vote to elect members of the Board (the “Company Voting Securities”);

B. consummation of a merger, consolidation or reorganization of the Company with or into any other entity,
unless the holders of the Company Voting Securities outstanding immediately before such consummation,
together with any trustee or other fiduciary holding securities under a Company benefit plan, hold
securities that represent immediately after such merger or consolidation at least 20% of the combined
voting power of the then outstanding voting securities of either the Company or the other surviving entity
or its parent; or

C. the stockholders of the Company approve (A) a plan of complete liquidation or dissolution of the
Company or (B) an agreement for the Company’s sale or disposition of all or substantially all of the
Company’s assets, and such liquidation, dissolution, sale or disposition is consummated.

2
Processed and formatted by SEC Watch - Visit SECWatch.com

Even if other tests are met, a Change in Control has not occurred under any circumstances in which the Company
files for bankruptcy protection or is reorganized following a bankruptcy filing.

The provisions of Section 4 will also apply if the Change in Control is a Substantial Corporate Change (as defined
in those provisions).

c. Subject to, and as permitted by, the Plan, that portion of the Option that is not otherwise exercisable will become immediately
exercisable in full upon:

i. the termination of your employment by the Company without Cause (as defined in the Employment
Agreement between Andrew C. Florance and the Company effective as of January 1, 1998, as amended
(the “Employment Agreement”)) pursuant to Section 7(a) of the Employment Agreement; or

ii. the termination of your employment by you for Good Reason (as defined in the Employment Agreement)
pursuant to Section 7(c) of the Employment Agreement.

d. Upon the termination of your employment on account of your Disability (as defined in the Employment Agreement)
pursuant to Section 9 of the Employment Agreement or in the event of your death, a pro rata portion of your unvested
Options that would have become otherwise exercisable during the calendar year of your termination will become exercisable
immediately. Such pro rata amount shall be determined by multiplying the number of unvested options that would have
vested in the calendar year of termination by a fraction, the numerator of which is the number of complete weeks you were
employed during the year of termination and the denominator of which is fifty-two.

e. The Administrator may, in its sole discretion (subject to, and as permitted by, the Plan), accelerate the time at which you may
exercise part or all of the Option.

f. The vesting period and/or exercisability of the Option may be adjusted by the Administrator to reflect the decreased level of
employment during any period in which you are on an approved leave of absence or employed on a less than full time basis,
provided, that the Administrator may take into consideration any accounting consequences to the Company.

3
Processed and formatted by SEC Watch - Visit SECWatch.com

(2) Exercise. Subject to this Agreement and the Plan, unless the Administrator determines otherwise, you may exercise the Option only
by a written “Notice of Exercise” to the Company or its designee on a form specified by the Company on or before the date the
Option expires. Unless the Administrator determines otherwise, each such Notice must:

a. state your election to exercise the Option and the number of Shares with respect to which you are exercising the Option;

b. be signed by you or, if you have died or become disabled, by the party entitled to exercise the Option;

c. contain such representations as the Company reasonably requires; and

d. be accompanied by payment of the Exercise Price in full through one, or a combination, of the following payment methods,
which method(s) shall be indicated in the Notice of Exercise:

i. cashier's or certified check in the amount of the Exercise Price payable to the order of the Company;

ii. direction to the Company through your Notice of Exercise to send the share certificates to be issued under this
Option to a licensed broker acceptable to the Company as your agent in exchange for the broker's tendering to the
Company cash (or acceptable cash equivalents) equal to the Exercise Price, for the Shares with respect to which the
Option is being exercised, as part of a cashless exercise;

iii. unless the Administrator determines otherwise, by surrender to the Company of shares of Common Stock with a
Fair Market Value on the date of exercise equal to all or part of the Exercise Price (with any balance paid by cash or
check or, unless the Administrator determines otherwise, deducted from salary or other amounts payable to you),
for the Shares with respect to which the Option is being exercised; provided, however, that you may not surrender
(turn in) previously held or owned Common Stock of the Company as payment unless you have held such stock for
more than six months before the surrender. For purposes hereof, the date of exercise shall be the date of delivery of
(A) the duly executed Notice of Exercise and (B) the shares tendered for payment of the Exercise Price;

4
Processed and formatted by SEC Watch - Visit SECWatch.com

iv. unless the Administrator determines otherwise, attestation of ownership of Common Stock and issuance of a net
number of shares upon Option exercise; or

v. unless the Administrator determines otherwise, by the Company withholding from the shares of Common Stock
otherwise issuable to you upon the exercise of the Option (or portion thereof) the whole number of shares with a
Fair Market Value on the date of exercise equal to all or part of the Exercise Price (rounded down, with any balance
paid by cash or check or, unless the Administrator determines otherwise, deducted from salary or other amounts
payable to you on such date of exercise). For purposes hereof, the date of exercise shall be the date of delivery of
the duly executed Notice of Exercise.

The Company shall not be obligated to issue any shares of Common Stock until you have paid the total Exercise Price for
that number of shares of Common Stock you have elected to purchase. Shares of Common Stock will be issued as soon as is practical
after exercise.

(3) Expiration. The Option will expire no later than the close of business on «ExpirationDate» (ten years from the date of grant or five
years for an ISO granted to a more-than 10% stockholder on the date of grant).

The exercise period for the Options shall be until the first to occur of:

a. the Option's expiration under the preceding sentence,

b. the 60th day after the cessation of your employment as a result of the termination of your employment by you without Good
Reason pursuant to Section 7(d) of the Employment Agreement;

c. the 60th day after the cessation of your employment as a result of the termination of your employment by the Company for
Cause pursuant to Section 7(b) of the Employment Agreement;

d. the 180th day after the cessation of your employment as a result of the termination of your employment (a) by the Company
without Cause pursuant to Section 7(a) of the Employment Agreement or (b) by you for Good Reason pursuant to Section
7(c) of the Employment Agreement; provided, however, that to the extent you exercise the Option on or after the 90th day
following such termination, the Option may not qualify as an Incentive Stock Option;

5
Processed and formatted by SEC Watch - Visit SECWatch.com

e. one year after the cessation of your employment as a result of the termination of your employment for Disability;

f. the first anniversary of your date of death; and

g. after the termination of your employment, the date you violate any covenant not to compete, nonsolicitation covenant or
similar covenant in effect between you and the Company.

Pursuant to Section 4(c) of the Employment Agreement, if you do not exercise the Option on or prior to the date the Option
expires or is no longer exercisable, you shall be deemed to have made a “cashless exercise” of the unexercised, exercisable portion of
the Option on the last day that the Option may be exercised (the “Deemed Exercise Date”), and the Company shall pay to you within
thirty days of the Deemed Exercise Date a cash payment equal to the amount that results from multiplying the total number of shares
underlying the unexercised, exercisable portion of the Option multiplied by a number equal to the difference between the closing price
of the Company’s common stock on the Deemed Exercise Date (or if the Deemed Exercise Date is not a trading day, then on the
trading day immediately preceding the Deemed Exercise Date) and the exercise price of the Option; provided, however, that the
cashless exercise alternative shall not be available if your employment has been terminated by the Company for Cause or by you
without Good Reason.

The Administrator, in its sole discretion, will determine all questions of whether particular terminations or leaves of absence
are terminations of employment for purposes of this Agreement.

If you exercise an Option more than 90 days after termination of employment with the Company, you will only receive
incentive stock option treatment to the extent provided under the Code, and becoming or remaining an employee of another related
company (that is not a Subsidiary) or an independent contractor to the Company will not prevent loss of incentive stock option
status as a result of the formal termination of employment unless otherwise provided under the Code.

(4) Substantial Corporate Change. Upon a Substantial Corporate Change, any portion of this Option that is unexercised will terminate
unless provision is made in writing in connection with such transaction for:

a. assumption or continuation of outstanding Options; or

6
Processed and formatted by SEC Watch - Visit SECWatch.com

b. the substitution for such Options, with appropriate adjustments as to the number and kind of shares of stock and prices, in
which event the Option will continue in the manner and under the terms so provided.

Unless the Board determines otherwise, if an Option would otherwise terminate pursuant to the preceding sentence, you will have the
right, at such time before the consummation of the transaction causing such termination as the Board reasonably designates, to
exercise any unexercised portions of the Option, whether or not previously exercisable.

A “Substantial Corporate Change” means the occurrence of any one or more of the following events:

i. a Person (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934,
as amended) (other than the Company, any Company subsidiary, any Company benefit plan, or any underwriter
temporarily holding securities for an offering of such securities) acquires ownership of 100% of the combined
voting power of all classes of stock of the Company;

ii. merger, consolidation or reorganization of the Company with or into one or more entities in which the Company is
not the surviving corporation (other than a merger or consolidation with a wholly owned subsidiary, a
reincorporation of the Company in a different jurisdiction or other transaction in which there is no substantial
change in the stockholders of the Company or their relative stock holdings);

iii. merger, consolidation or reorganization of the Company in which the Company is the surviving corporation, but
after which the stockholders of the Company immediately prior to such merger (other than any stockholder that
merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to
own their shares or other equity interest in the Company;

iv. the liquidation or dissolution of the Company; or

v. the sale or disposition of all or substantially all of the Company’s assets.

7
Processed and formatted by SEC Watch - Visit SECWatch.com

(5) Taxes.

a. You understand and agree that the Company has not advised you regarding your income tax liability in connection with the
Option. To the extent required by applicable federal, state, local or foreign law, you shall make arrangements satisfactory to
the Company in its sole discretion for the satisfaction of any withholding tax obligations that arise by reason of an Option
exercise or disposition of shares issued as a result of an Option exercise. The Company shall not be required to issue shares
or to recognize the disposition of such shares until such obligations are satisfied.

b. By accepting the Option, you agree that, unless and to the extent you have otherwise satisfied any U.S. federal income and
other taxes, including state, local or non-U.S. income or employment tax obligations, related to the exercise of the Option that
are required to be withheld and paid over to the applicable tax authorities (the “Tax Withholding Obligations”) in a manner
permitted or required by the Administrator pursuant to the Plan, the Company is authorized (but not required) to deduct and
retain without notice from the shares of Common Stock issuable to you in respect of the exercised portion of the Option the
whole number of shares (rounding down) having a Fair Market Value on the exercise date or, if not a trading day, the first
trading day before the exercise date (as determined by the Company consistent with any applicable tax requirements)
sufficient to satisfy the applicable Tax Withholding Obligation. If the withheld shares are not sufficient to satisfy your Tax
Withholding Obligation, you agree to pay to the Company as soon as practicable, by cash or check or, unless otherwise
determined by the Administrator, deducted from salary or other amounts payable to you, any amount of the Tax
Withholding Obligation that is not satisfied by the withholding of shares of Common Stock described above.

c. You are ultimately liable and responsible for all taxes owed by you in connection with the Option, regardless of any action
the Company takes or any transaction pursuant to this Section 5 with respect to any tax withholding obligations that arise in
connection with the Option. The Company makes no representation or undertaking regarding the treatment of any tax
withholding in connection with the grant, issuance, vesting or exercise of the Option or the subsequent sale of any of the
shares of Common Stock acquired upon exercise of the Option. The Company does not commit and is under no obligation to
structure the Option to reduce or eliminate your tax liability.

8
Processed and formatted by SEC Watch - Visit SECWatch.com

(6) Company Postponement of Delivery. The Company may postpone issuing and delivering any Shares for so long as the Company
determines to be necessary or advisable to satisfy the following:

a. completing or amending any registration or qualification of the Shares or satisfying any exemption from registration under
any federal or state law, rule, or regulation;

b. complying with any requests for representations under the Plan;

c. receiving proof satisfactory to the Company that a person seeking to exercise the Option after your death or disability is
authorized and entitled to exercise the Option; and

d. satisfying any federal, state, or local tax withholding obligations.

(7) Compliance with Securities Laws.

a. If, at the time the Company should issue you Shares because of your exercise of the Option, no current registration
statement under the Securities Act of 1933 (the "Act") covers such issuance, you must, before the Company will issue such
Shares to you:

i. represent to the Company, in form satisfactory to the Company's counsel, that you are acquiring the Shares for
your own account and not with a view to reselling or distributing the Shares; and

ii. agree that you may not sell, transfer, or otherwise dispose of the Shares issued to you under the Option unless:

A. a registration statement under the Act is effective at the time of disposition with respect to the Shares
sold, transferred, or otherwise disposed of; or

B. the Company has received an opinion of counsel or other information and representations satisfactory to
it to the effect that registration under the Act is not required by reason of Rule 144 under the Act or
otherwise.

b. Notwithstanding anything herein to the contrary, you may not exercise the Option, and the Company shall not be obligated
to deliver any shares of Common Stock, during any period when the Company determines that the exercisability of the
Option or the delivery of shares hereunder would violate any applicable federal or state securities laws or other laws or
regulations.

9
Processed and formatted by SEC Watch - Visit SECWatch.com

(8) Restrictions on Resales. The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the
timing and manner of any resales by you or other subsequent transfers by you of any shares of Common Stock issued as a result of
the exercise of the Option, including without limitation (a) restrictions under an insider trading policy, (b) restrictions designed to
delay and/or coordinate the timing and manner of sales by you and other optionholders and (c) restrictions as to the use of a
specified brokerage firm for such resales or other transfers.

(9) Not an Employment Contract. Nothing in this Agreement restricts the right of the Company or any of its affiliates to terminate your
employment at any time, with or without cause. The termination of employment, whether by the Company or any of its affiliates or
otherwise, and regardless of the reason therefore, has the consequences provided for hereunder, under the Plan and under any
applicable employment or severance agreement.

(10) Non-Transferability of Option. You may not assign or transfer the Option to anyone other than by will or the laws of descent and
distribution and the Option shall be exercisable only by you during your lifetime. The Company may cancel the Option if you attempt
to assign or transfer it in a manner inconsistent with this Section 10.

(11) Limitation of Interest. You understand and agree that you will not be deemed for any purpose to be a stockholder of the Company
with respect to any of the Shares unless and until they have been issued to you after your exercise of this Option and payment for
the Shares. Neither you (individually or as a member of a group) nor any beneficiary or other person claiming under or through you
shall have any right, title, interest, or privilege in or to any shares of Common Stock allocated or reserved for the purpose of the Plan
or subject to this Agreement except as to such shares of Common Stock, if any, as shall have been issued to such person upon
exercise of the Option or any part of it.

(12) No Fractional Shares. At the time of exercise, the Company will round down any fractional Shares but will not make any cash or other
payments in settlement of fractional shares eliminated by rounding. If you have not then exercised the Option in full, the Company
will carry forward the fractional Shares rather than eliminating them.

(13) No Limitation on Company Actions. You understand and agree that the existence of this Option will not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, or other
changes in the Company's capital structure or its business or any merger or consolidation of the Company, or any issuance of bonds,
debentures, preferred or other stocks with preference ahead of or convertible into, or otherwise affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or
any other corporate act or proceeding, whether of a similar character or otherwise.

10
Processed and formatted by SEC Watch - Visit SECWatch.com

(14) General.

a. This Agreement and the Plan constitute the entire understanding between you and the Company regarding the Option. Any
prior agreements, commitments or negotiations concerning the Option are superseded.

b. The laws of the State of Delaware will govern all matters relating to this Agreement, without regard to the principles of
conflict of laws.

c. Any notice you give to the Company (including notice of exercise of all or part of the Option) must be in writing and either
hand-delivered or mailed to the Corporate Secretary of the Company (or to the Chief Financial Officer if either you would
receive the notice or the position is vacant). If mailed, it should be sent by certified mail and be addressed to the foregoing
executive at the Company's then corporate headquarters. Any notice given to you will be addressed to you at your address
as reflected on the personnel records of the Company. You may change the address for notice by like notice to the
Company. Notice will be deemed to have been duly delivered when hand-delivered, or, if mailed, two business days after
such notice is postmarked.

d. As a condition of this Option, you, on behalf of yourself, your heirs, successors and personal representatives ("you and
your successors"), agree that any dispute or disagreement which may arise hereunder shall be decided by the
Administrator. You and your successors agree to accept as binding, conclusive and final all decisions or interpretations of
the Administrator concerning any questions arising under the Plan with respect to the Option, and you and your successors
hereby explicitly waive any right to judicial review.

e. In the event that any provision of this Agreement is declared to be illegal, invalid or otherwise unenforceable by a court of
competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and
enforceable, or otherwise deleted, and the remainder of the terms hereunder shall not be affected except to the extent
necessary to reform or delete such illegal, invalid or unenforceable provision.

f. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs,
beneficiaries, successors and assigns.

11
Processed and formatted by SEC Watch - Visit SECWatch.com

g. The headings preceding the text of the sections hereof are inserted solely for convenience of reference, and shall not
constitute a part of this Agreement, nor shall they affect its meaning, construction or effect.

h. All questions arising under the Plan or under this Agreement shall be decided by the Administrator in its total and absolute
discretion.

i. Wherever a conflict may arise between the terms of this Agreement and the terms of the Plan, the terms of the Plan will
control.

COSTAR
GROUP, INC.

By: ______________________________

Name: ______________________________

Title: ______________________________

12
Processed and formatted by SEC Watch - Visit SECWatch.com

ACKNOWLEDGMENT

I acknowledge receipt of a copy of the attached Plan. I represent that I have read and am familiar with the Plan's terms. I accept the
Option subject to all of the terms and provisions of this Agreement and of the Plan under which it is granted, as the Plan may be amended in
accordance with its terms. I agree to accept as binding, conclusive, and final all decisions or interpretations of the Administrator concerning
any questions arising under the Plan with respect to the Option.

Date: ____________________________________
Signature of Grantee/Participant

NO ONE MAY SELL, TRANSFER, OR DISTRIBUTE THIS OPTION OR THE SECURITIES THAT MAY BE PURCHASED UPON EXERCISE OF THIS
OPTION WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY OR OTHER INFORMATION AND REPRESENTATIONS SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

13
Processed and formatted by SEC Watch - Visit SECWatch.com

Exhibit 10.10

® Grantee’s Copy
® Company's Copy
COSTAR GROUP, INC.
2007 STOCK INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT

To «Name»:

CoStar Group, Inc. (the "Company") has granted you a nonqualified stock option (the "Option") under the CoStar Group, Inc. 2007
Stock Incentive Plan, as amended from time to time (the "Plan"), to purchase «NoShares» shares (the "Shares") of common stock of the
Company (the "Common Stock"), at «Price» per share (the "Exercise Price"). The date of grant is «DateofGrant».

This Option is subject in all respects to the applicable provisions of the Plan, a copy of which is attached, except as otherwise
noted. By signing this agreement (the "Agreement"), you acknowledge that you have received and read the Plan. This Agreement
incorporates the Plan by reference and specifies other applicable terms and conditions. All capitalized terms not defined by this Agreement
have the meanings given in the Plan. The Compensation Committee of the Company's Board of Directors (or other administrator of the Plan,
the "Administrator") may adjust the number of Shares and the Exercise Price with respect to your Option from time to time in accordance with
the Plan.

This Option is not intended to be an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended, and
will be interpreted accordingly.

In addition to the terms, conditions, and restrictions set forth in the Plan, the following terms, conditions, and restrictions apply to the
Option:

(1) Vesting. The schedule for exercising the Option is as follows, subject to the expiration provisions set forth in Section 3 below:

a. You may exercise the Option on the following schedule:

[Set forth vesting schedule.]


Processed and formatted by SEC Watch - Visit SECWatch.com

No portion of the Option that is unexercisable at your termination of employment, consultancy,


directorship or other position making you an eligible participant under the Plan will thereafter become
exercisable, unless the Administrator determines otherwise.

b. The Option will become immediately exercisable in full upon the occurrence of a Change in Control.

“Change in Control” means the occurrence of any one or more of the following events:

i. a Person (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended) (other than the Company, any Company subsidiary, any Company benefit plan, or
any underwriter temporarily holding securities for an offering of such securities) acquires ownership of
more than 80% of the undiluted total voting power of the Company’s then outstanding securities eligible
to vote to elect members of the Board (the “Company Voting Securities”);

ii. consummation of a merger, consolidation or reorganization of the Company with or into any other entity,
unless the holders of the Company Voting Securities outstanding immediately before such consummation,
together with any trustee or other fiduciary holding securities under a Company benefit plan, hold
securities that represent immediately after such merger or consolidation at least 20% of the combined
voting power of the then outstanding voting securities of either the Company or the other surviving entity
or its parent; or

iii. the stockholders of the Company approve (A) a plan of complete liquidation or dissolution of the
Company or (B) an agreement for the Company’s sale or disposition of all or substantially all of the
Company’s assets, and such liquidation, dissolution, sale or disposition is consummated.

Even if other tests are met, a Change of Control has not occurred under any circumstances in which the Company
files for bankruptcy protection or is reorganized following a bankruptcy filing.

The provisions of Section 4 will also apply if the Change in Control is a Substantial Corporate Change (as defined
in those provisions).

2
Processed and formatted by SEC Watch - Visit SECWatch.com

c. The Administrator may, in its sole discretion, accelerate the time at which you may exercise part or all of the Option.

d. The vesting period and/or exercisability of the Option may be adjusted by the Administrator to reflect the decreased level of
employment or other applicable service during any period in which you are on an approved leave of absence or employed or
providing applicable services on a less than full time basis, provided, that the Administrator may take into consideration any
accounting consequences to the Company.

(2) Exercise. Subject to this Agreement and the Plan, unless the Administrator determines otherwise, you may exercise the Option only
by a written “Notice of Exercise” to the Company or its designee on a form specified by the Company on or before the date the
Option expires. Unless the Administrator determines otherwise, each such Notice must:

a. state your election to exercise the Option and the number of Shares with respect to which you are exercising the Option;

b. be signed by you or, if you have died or become disabled, by the party entitled to exercise the Option;

c. contain such representations as the Company reasonably requires; and

d. be accompanied by payment of the Exercise Price in full through one, or a combination, of the following payment methods,
which method(s) shall be indicated in the Notice of Exercise:

i. cashier's or certified check in the amount of the Exercise Price payable to the order of the Company;

ii. direction to the Company through your Notice of Exercise to send the share certificates to be issued under this
Option to a licensed broker acceptable to the Company as your agent in exchange for the broker's tendering to the
Company cash (or acceptable cash equivalents) equal to the Exercise Price, for the Shares with respect to which the
Option is being exercised, as part of a cashless exercise;

3
Processed and formatted by SEC Watch - Visit SECWatch.com

iii. unless the Administrator determines otherwise, by surrender to the Company of shares of Common Stock with a
Fair Market Value on the date of exercise equal to all or part of the Exercise Price (with any balance paid by cash or
check or, unless the Administrator determines otherwise, deducted from salary or other amounts payable to you),
for the Shares with respect to which the Option is being exercised; provided, however, that you may not surrender
(turn in) previously held or owned Common Stock of the Company as payment unless you have held such stock for
more than six months before the surrender. For purposes hereof, the date of exercise shall be the date of delivery of
(A) the duly executed Notice of Exercise and (B) the shares tendered for payment of the Exercise Price;

iv. unless the Administrator determines otherwise, attestation of ownership of Common Stock and issuance of a net
number of shares upon Option exercise; or

v. unless the Administrator determines otherwise, by the Company withholding from the shares of Common Stock
otherwise issuable to you upon the exercise of the Option (or portion thereof) the whole number of shares with a
Fair Market Value on the date of exercise equal to all or part of the Exercise Price (rounded down, with any balance
paid by cash or check or, unless the Administrator determines otherwise, deducted from salary or other amounts
payable to you on such date of exercise). For purposes hereof, the date of exercise shall be the date of delivery of
the duly executed Notice of Exercise.

The Company shall not be obligated to issue any shares of Common Stock until you have paid the total Exercise Price for
that number of shares of Common Stock you have elected to purchase. Shares of Common Stock will be issued as soon as is practical
after exercise.

(3) Expiration. The Option will expire no later than the close of business on «ExpirationDate» (ten years from the date of grant).

Unless the Administrator determines otherwise at any time, you will forfeit any unexercised portions of the Option (whether
or not then exercisable) upon the first to occur of:

a. the Option's expiration under the preceding sentence,

4
Processed and formatted by SEC Watch - Visit SECWatch.com

b. the 90th day after your resignation, including retirement (for any reason other than disability),

c. the 90th day after the Company terminates your employment or other applicable service (for any reason other than
disability),

d. in the event of the termination of your employment or other applicable service to the Company for disability (as determined
by the Administrator), the earlier of (i) the first anniversary of the termination of your service and (ii) 30 days after you cease
to have a disability, where, for purposes of this Agreement, “disability” means the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in
death or that has lasted or can be expected to last for a continuous period of not less than twelve months,

e. the first anniversary of your date of death, and

f. the date you violate any covenant not to compete, nonsolicitation covenant or similar covenant in effect between you and
the Company.

The Administrator, in its sole discretion, will determine all questions of whether particular terminations or leaves of absence are
terminations of employment or other applicable service for purposes of this Agreement.

(4) Substantial Corporate Change. Upon a Substantial Corporate Change, any portion of this Option that is unexercised will terminate
unless provision is made in writing in connection with such transaction for:

a. assumption or continuation of outstanding Options; or

b. the substitution for such Options, with appropriate adjustments as to the number and kind of shares of stock and prices, in
which event the Option will continue in the manner and under the terms so provided.

Unless the Board determines otherwise, if an Option would otherwise terminate pursuant to the preceding sentence, you will have the
right, at such time before the consummation of the transaction causing such termination as the Board reasonably designates, to
exercise any unexercised portions of the Option, whether or not previously exercisable.

A “Substantial Corporate Change” means the occurrence of any one or more of the following events:

5
Processed and formatted by SEC Watch - Visit SECWatch.com

i. a Person (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934,
as amended) (other than the Company, any Company subsidiary, any Company benefit plan, or any underwriter
temporarily holding securities for an offering of such securities) acquires ownership of 100% of the combined
voting power of all classes of stock of the Company;

ii. merger, consolidation or reorganization of the Company with or into one or more entities in which the Company is
not the surviving corporation (other than a merger or consolidation with a wholly owned subsidiary, a
reincorporation of the Company in a different jurisdiction or other transaction in which there is no substantial
change in the stockholders of the Company or their relative stock holdings);

iii. merger, consolidation or reorganization of the Company in which the Company is the surviving corporation, but
after which the stockholders of the Company immediately prior to such merger (other than any stockholder that
merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to
own their shares or other equity interest in the Company;

iv. the liquidation or dissolution of the Company; or

v. the sale or disposition of all or substantially all of the Company’s assets.

(5) Taxes.

a. You understand and agree that the Company has not advised you regarding your income tax liability in connection with the
Option. To the extent required by applicable federal, state, local or foreign law, you shall make arrangements satisfactory to
the Company in its sole discretion for the satisfaction of any withholding tax obligations that arise by reason of an Option
exercise or disposition of shares issued as a result of an Option exercise. The Company shall not be required to issue shares
or to recognize the disposition of such shares until such obligations are satisfied.

6
Processed and formatted by SEC Watch - Visit SECWatch.com

b. By accepting the Option, you agree that, unless and to the extent you have otherwise satisfied any U.S. federal income and
other taxes, including state, local or non-U.S. income or employment tax obligations, related to the exercise of the Option that
are required to be withheld and paid over to the applicable tax authorities (the “Tax Withholding Obligations”) in a manner
permitted or required by the Administrator pursuant to the Plan, the Company is authorized (but not required) to deduct and
retain without notice from the shares of Common Stock issuable to you in respect of the exercised portion of the Option the
whole number of shares (rounding down) having a Fair Market Value on the exercise date or, if not a trading day, the first
trading day before the exercise date (as determined by the Company consistent with any applicable tax requirements)
sufficient to satisfy the applicable Tax Withholding Obligation. If the withheld shares are not sufficient to satisfy your Tax
Withholding Obligation, you agree to pay to the Company as soon as practicable, by cash or check or, unless otherwise
determined by the Administrator, deducted from salary or other amounts payable to you, any amount of the Tax
Withholding Obligation that is not satisfied by the withholding of shares of Common Stock described above.

c. You are ultimately liable and responsible for all taxes owed by you in connection with the Option, regardless of any action
the Company takes or any transaction pursuant to this Section 5 with respect to any tax withholding obligations that arise in
connection with the Option. The Company makes no representation or undertaking regarding the treatment of any tax
withholding in connection with the grant, issuance, vesting or exercise of the Option or the subsequent sale of any of the
shares of Common Stock acquired upon exercise of the Option. The Company does not commit and is under no obligation to
structure the Option to reduce or eliminate your tax liability.

(6) Company Postponement of Delivery. The Company may postpone issuing and delivering any Shares for so long as the Company
determines to be necessary or advisable to satisfy the following:

a. completing or amending any registration or qualification of the Shares or satisfying any exemption from registration under
any federal or state law, rule, or regulation;

b. complying with any requests for representations under the Plan;

c. receiving proof satisfactory to the Company that a person seeking to exercise the Option after your death or disability is
authorized and entitled to exercise the Option; and

d. satisfying any federal, state, or local tax withholding obligations.

7
Processed and formatted by SEC Watch - Visit SECWatch.com

(7) Compliance with Securities Laws.

a. If, at the time the Company should issue you Shares because of your exercise of the Option, no current registration
statement under the Securities Act of 1933 (the "Act") covers such issuance, you must, before the Company will issue such
Shares to you:

i. represent to the Company, in form satisfactory to the Company's counsel, that you are acquiring the Shares for
your own account and not with a view to reselling or distributing the Shares; and

ii. agree that you may not sell, transfer, or otherwise dispose of the Shares issued to you under the Option unless:

A. a registration statement under the Act is effective at the time of disposition with respect to the Shares
sold, transferred, or otherwise disposed of; or

B. the Company has received an opinion of counsel or other information and representations satisfactory to
it to the effect that registration under the Act is not required by reason of Rule 144 under the Act or
otherwise.

b. Notwithstanding anything herein to the contrary, you may not exercise the Option, and the Company shall not be obligated
to deliver any shares of Common Stock, during any period when the Company determines that the exercisability of the
Option or the delivery of shares hereunder would violate any applicable federal or state securities laws or other laws or
regulations.

(8) Restrictions on Resales. The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the
timing and manner of any resales by you or other subsequent transfers by you of any shares of Common Stock issued as a result of
the exercise of the Option, including without limitation (a) restrictions under an insider trading policy, (b) restrictions designed to
delay and/or coordinate the timing and manner of sales by you and other optionholders and (c) restrictions as to the use of a
specified brokerage firm for such resales or other transfers.

(9) Not an Employment Contract. Nothing in this Agreement restricts the right of the Company or any of its affiliates to terminate your
employment or other service at any time, with or without cause. The termination of employment or service, whether by the Company
or any of its affiliates or otherwise, and regardless of the reason therefore, has the consequences provided for hereunder, under the
Plan and under any applicable employment, severance or other agreement.

8
Processed and formatted by SEC Watch - Visit SECWatch.com

(10) Non-Transferability of Option. You may not assign or transfer the Option to anyone other than by will or the laws of descent and
distribution and the Option shall be exercisable only by you during your lifetime. The Company may cancel the Option if you attempt
to assign or transfer it in a manner inconsistent with this Section 10.

(11) Limitation of Interest. You understand and agree that you will not be deemed for any purpose to be a stockholder of the Company
with respect to any of the Shares unless and until they have been issued to you after your exercise of this Option and payment for
the Shares. Neither you (individually or as a member of a group) nor any beneficiary or other person claiming under or through you
shall have any right, title, interest, or privilege in or to any shares of Common Stock allocated or reserved for the purpose of the Plan
or subject to this Agreement except as to such shares of Common Stock, if any, as shall have been issued to such person upon
exercise of the Option or any part of it.

(12) No Fractional Shares. At the time of exercise, the Company will round down any fractional Shares but will not make any cash or other
payments in settlement of fractional shares eliminated by rounding. If you have not then exercised the Option in full, the Company
will carry forward the fractional Shares rather than eliminating them.

(13) No Limitation on Company Actions. You understand and agree that the existence of this Option will not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, or other
changes in the Company's capital structure or its business or any merger or consolidation of the Company, or any issuance of bonds,
debentures, preferred or other stocks with preference ahead of or convertible into, or otherwise affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or
any other corporate act or proceeding, whether of a similar character or otherwise.

(14) General.

a. This Agreement and the Plan constitute the entire understanding between you and the Company regarding the Option. Any
prior agreements, commitments or negotiations concerning the Option are superseded.

b. The laws of the State of Delaware will govern all matters relating to this Agreement, without regard to the principles of
conflict of laws.

9
Processed and formatted by SEC Watch - Visit SECWatch.com

c. Any notice you give to the Company (including notice of exercise of all or part of the Option) must be in writing and either
hand-delivered or mailed to the Corporate Secretary of the Company (or to the Chief Financial Officer if either you would
receive the notice or the position is vacant). If mailed, it should be sent by certified mail and be addressed to the foregoing
executive at the Company's then corporate headquarters. Any notice given to you will be addressed to you at your address
as reflected on the personnel records of the Company. You may change the address for notice by like notice to the
Company. Notice will be deemed to have been duly delivered when hand-delivered, or, if mailed, two business days after
such notice is postmarked.

d. As a condition of this Option, you, on behalf of yourself, your heirs, successors and personal representatives ("you and
your successors"), agree that any dispute or disagreement which may arise hereunder shall be decided by the
Administrator. You and your successors agree to accept as binding, conclusive and final all decisions or interpretations of
the Administrator concerning any questions arising under the Plan with respect to the Option, and you and your successors
hereby explicitly waive any right to judicial review.

e. In the event that any provision of this Agreement is declared to be illegal, invalid or otherwise unenforceable by a court of
competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and
enforceable, or otherwise deleted, and the remainder of the terms hereunder shall not be affected except to the extent
necessary to reform or delete such illegal, invalid or unenforceable provision.

f. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs,
beneficiaries, successors and assigns.

g. The headings preceding the text of the sections hereof are inserted solely for convenience of reference, and shall not
constitute a part of this Agreement, nor shall they affect its meaning, construction or effect.

h. All questions arising under the Plan or under this Agreement shall be decided by the Administrator in its total and absolute
discretion.

10
Processed and formatted by SEC Watch - Visit SECWatch.com

i. Wherever a conflict may arise between the terms of this Agreement and the terms of the Plan, the terms of the Plan will
control.

COSTAR
GROUP, INC.
By:
_____________________________

Name: ___________________________

Title: _____________________________

11
Processed and formatted by SEC Watch - Visit SECWatch.com

ACKNOWLEDGMENT

I acknowledge receipt of a copy of the attached Plan. I represent that I have read and am familiar with the Plan's terms. I accept the
Option subject to all of the terms and provisions of this Agreement and of the Plan under which it is granted, as the Plan may be amended in
accordance with its terms. I agree to accept as binding, conclusive, and final all decisions or interpretations of the Administrator concerning
any questions arising under the Plan with respect to the Option.

Date: ____________________________________
Signature of Grantee/Participant

NO ONE MAY SELL, TRANSFER, OR DISTRIBUTE THIS OPTION OR THE SECURITIES THAT MAY BE PURCHASED UPON EXERCISE OF THIS OPTION
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY OR OTHER
INFORMATION AND REPRESENTATIONS SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

12
Processed and formatted by SEC Watch - Visit SECWatch.com

Exhibit 10.11
® Grantee’s Copy
® Company's Copy
COSTAR GROUP, INC.
2007 STOCK INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT

To «Name»:

CoStar Group, Inc. (the "Company") has granted you a nonqualified stock option (the "Option") under the CoStar Group, Inc. 2007
Stock Incentive Plan, as amended from time to time (the "Plan"), to purchase «NoShares» shares (the "Shares") of common stock of the
Company (the "Common Stock"), at «Price» per share (the "Exercise Price"). The date of grant is «DateofGrant».

This Option is subject in all respects to the applicable provisions of the Plan, a copy of which is attached, except as otherwise
noted. By signing this agreement (the "Agreement"), you acknowledge that you have received and read the Plan. This Agreement
incorporates the Plan by reference and specifies other applicable terms and conditions. All capitalized terms not defined by this Agreement
have the meanings given in the Plan. The Compensation Committee of the Company's Board of Directors (or other administrator of the Plan,
the "Administrator") may adjust the number of Shares and the Exercise Price with respect to your Option from time to time in accordance with
the Plan.

This Option is not intended to be an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended, and
will be interpreted accordingly.

In addition to the terms, conditions, and restrictions set forth in the Plan, the following terms, conditions, and restrictions apply to the
Option:

(1) Vesting. The schedule for exercising the Option is as follows, subject to the expiration provisions set forth in Section 3 below:

a. You may exercise the Option on the following schedule:

[Set forth vesting schedule.]


Processed and formatted by SEC Watch - Visit SECWatch.com

No portion of the Option that is unexercisable at your termination of employment, consultancy,


directorship or other position making you an eligible participant under the Plan will thereafter become
exercisable, unless the Administrator determines otherwise.

b. The Option will become immediately exercisable in full upon the occurrence of a Change in Control.

“Change in Control” means the occurrence of any one or more of the following events:

i. a Person (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended) (other than the Company, any Company subsidiary, any Company benefit plan, or
any underwriter temporarily holding securities for an offering of such securities) acquires ownership of
more than 80% of the undiluted total voting power of the Company’s then outstanding securities eligible
to vote to elect members of the Board (the “Company Voting Securities”);

ii. consummation of a merger, consolidation or reorganization of the Company with or into any other entity,
unless the holders of the Company Voting Securities outstanding immediately before such consummation,
together with any trustee or other fiduciary holding securities under a Company benefit plan, hold
securities that represent immediately after such merger or consolidation at least 20% of the combined
voting power of the then outstanding voting securities of either the Company or the other surviving entity
or its parent; or

iii. the stockholders of the Company approve (A) a plan of complete liquidation or dissolution of the
Company or (B) an agreement for the Company’s sale or disposition of all or substantially all of the
Company’s assets, and such liquidation, dissolution, sale or disposition is consummated.

Even if other tests are met, a Change of Control has not occurred under any circumstances in which the Company
files for bankruptcy protection or is reorganized following a bankruptcy filing.

2
Processed and formatted by SEC Watch - Visit SECWatch.com

The provisions of Section 4 will also apply if the Change in Control is a Substantial Corporate Change (as defined
in those provisions).

c. The Administrator may, in its sole discretion, accelerate the time at which you may exercise part or all of the Option.

d. The vesting period and/or exercisability of the Option may be adjusted by the Administrator to reflect the decreased level of
employment or other applicable service during any period in which you are on an approved leave of absence or employed or
providing applicable services on a less than full time basis, provided, that the Administrator may take into consideration any
accounting consequences to the Company.

(2) Exercise. Subject to this Agreement and the Plan, unless the Administrator determines otherwise, you may exercise the Option only
by a written “Notice of Exercise” to the Company or its designee on a form specified by the Company on or before the date the
Option expires. Unless the Administrator determines otherwise, each such Notice must:

a. state your election to exercise the Option and the number of Shares with respect to which you are exercising the Option;

b. be signed by you or, if you have died or become disabled, by the party entitled to exercise the Option;

c. contain such representations as the Company reasonably requires; and

d. be accompanied by payment of the Exercise Price in full through one, or a combination, of the following payment methods,
which method(s) shall be indicated in the Notice of Exercise:

i. cashier's or certified check in the amount of the Exercise Price payable to the order of the Company;

ii. direction to the Company through your Notice of Exercise to send the share certificates to be issued under this
Option to a licensed broker acceptable to the Company as your agent in exchange for the broker's tendering to the
Company cash (or acceptable cash equivalents) equal to the Exercise Price, for the Shares with respect to which the
Option is being exercised, as part of a cashless exercise;

3
Processed and formatted by SEC Watch - Visit SECWatch.com

iii. unless the Administrator determines otherwise, by surrender to the Company of shares of Common Stock with a
Fair Market Value on the date of exercise equal to all or part of the Exercise Price (with any balance paid by cash or
check or, unless the Administrator determines otherwise, deducted from salary or other amounts payable to you),
for the Shares with respect to which the Option is being exercised; provided, however, that you may not surrender
(turn in) previously held or owned Common Stock of the Company as payment unless you have held such stock for
more than six months before the surrender. For purposes hereof, the date of exercise shall be the date of delivery of
(A) the duly executed Notice of Exercise and (B) the shares tendered for payment of the Exercise Price;

iv. unless the Administrator determines otherwise, attestation of ownership of Common Stock and issuance of a net
number of shares upon Option exercise; or

v. unless the Administrator determines otherwise, by the Company withholding from the shares of Common Stock
otherwise issuable to you upon the exercise of the Option (or portion thereof) the whole number of shares with a
Fair Market Value on the date of exercise equal to all or part of the Exercise Price (rounded down, with any balance
paid by cash or check or, unless the Administrator determines otherwise, deducted from salary or other amounts
payable to you on such date of exercise). For purposes hereof, the date of exercise shall be the date of delivery of
the duly executed Notice of Exercise.

The Company shall not be obligated to issue any shares of Common Stock until you have paid the total Exercise Price for
that number of shares of Common Stock you have elected to purchase. Shares of Common Stock will be issued as soon as is practical
after exercise.

(3) Expiration. The Option will expire no later than the close of business on «ExpirationDate» (ten years from the date of grant).

Unless the Administrator determines otherwise at any time, you will forfeit any unexercised portions of the Option (whether
or not then exercisable) upon the first to occur of:

a. the Option's expiration under the preceding sentence,

4
Processed and formatted by SEC Watch - Visit SECWatch.com

b. the 90th day after your resignation, including retirement (for any reason other than disability),

c. the 90th day after the Company terminates your employment or other applicable service (for any reason other than
disability),

d. in the event of the termination of your employment or other applicable service to the Company for disability (as determined
by the Administrator), the earlier of (i) the first anniversary of the termination of your service and (ii) 30 days after you cease
to have a disability, where, for purposes of this Agreement, “disability” means the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in
death or that has lasted or can be expected to last for a continuous period of not less than twelve months,

e. the first anniversary of your date of death, and

f. the date you violate any covenant not to compete, nonsolicitation covenant or similar covenant in effect between you and
the Company.

The Administrator, in its sole discretion, will determine all questions of whether particular terminations or leaves of absence are
terminations of employment or other applicable service for purposes of this Agreement.

(4) Substantial Corporate Change. Upon a Substantial Corporate Change, any portion of this Option that is unexercised will terminate
unless provision is made in writing in connection with such transaction for:

a. assumption or continuation of outstanding Options; or

b. the substitution for such Options, with appropriate adjustments as to the number and kind of shares of stock and prices, in
which event the Option will continue in the manner and under the terms so provided.

Unless the Board determines otherwise, if an Option would otherwise terminate pursuant to the preceding sentence, you will have the
right, at such time before the consummation of the transaction causing such termination as the Board reasonably designates, to
exercise any unexercised portions of the Option, whether or not previously exercisable.

A “Substantial Corporate Change” means the occurrence of any one or more of the following events:

5
Processed and formatted by SEC Watch - Visit SECWatch.com

i. a Person (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934,
as amended) (other than the Company, any Company subsidiary, any Company benefit plan, or any underwriter
temporarily holding securities for an offering of such securities) acquires ownership of 100% of the combined
voting power of all classes of stock of the Company;

ii. merger, consolidation or reorganization of the Company with or into one or more entities in which the Company is
not the surviving corporation (other than a merger or consolidation with a wholly owned subsidiary, a
reincorporation of the Company in a different jurisdiction or other transaction in which there is no substantial
change in the stockholders of the Company or their relative stock holdings);

iii. merger, consolidation or reorganization of the Company in which the Company is the surviving corporation, but
after which the stockholders of the Company immediately prior to such merger (other than any stockholder that
merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to
own their shares or other equity interest in the Company;

iv. the liquidation or dissolution of the Company; or

v. the sale or disposition of all or substantially all of the Company’s assets.

(5) Taxes. All taxes, if any, in respect of the Option or any payments to you hereunder shall be solely your responsibility and shall be
paid by you.

(6) Company Postponement of Delivery. The Company may postpone issuing and delivering any Shares for so long as the Company
determines to be necessary or advisable to satisfy the following:

a. completing or amending any registration or qualification of the Shares or satisfying any exemption from registration under
any federal or state law, rule, or regulation;

b. complying with any requests for representations under the Plan;

6
Processed and formatted by SEC Watch - Visit SECWatch.com

c. receiving proof satisfactory to the Company that a person seeking to exercise the Option after your death or disability is
authorized and entitled to exercise the Option; and

d. satisfying any federal, state, or local tax withholding obligations.

(7) Compliance with Securities Laws.

a. If, at the time the Company should issue you Shares because of your exercise of the Option, no current registration
statement under the Securities Act of 1933 (the "Act") covers such issuance, you must, before the Company will issue such
Shares to you:

i. represent to the Company, in form satisfactory to the Company's counsel, that you are acquiring the Shares for
your own account and not with a view to reselling or distributing the Shares; and

ii. agree that you may not sell, transfer, or otherwise dispose of the Shares issued to you under the Option unless:

A. a registration statement under the Act is effective at the time of disposition with respect to the Shares
sold, transferred, or otherwise disposed of; or

B. the Company has received an opinion of counsel or other information and representations satisfactory to
it to the effect that registration under the Act is not required by reason of Rule 144 under the Act or
otherwise.

b. Notwithstanding anything herein to the contrary, you may not exercise the Option, and the Company shall not be obligated
to deliver any shares of Common Stock, during any period when the Company determines that the exercisability of the
Option or the delivery of shares hereunder would violate any applicable federal or state securities laws or other laws or
regulations.

(8) Restrictions on Resales. The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the
timing and manner of any resales by you or other subsequent transfers by you of any shares of Common Stock issued as a result of
the exercise of the Option, including without limitation (a) restrictions under an insider trading policy, (b) restrictions designed to
delay and/or coordinate the timing and manner of sales by you and other optionholders and (c) restrictions as to the use of a
specified brokerage firm for such resales or other transfers.

7
Processed and formatted by SEC Watch - Visit SECWatch.com

(9) Not an Employment Contract. Nothing in this Agreement restricts the right of the Company or any of its affiliates to terminate your
employment or other service at any time, with or without cause. The termination of employment or service, whether by the Company
or any of its affiliates or otherwise, and regardless of the reason therefore, has the consequences provided for hereunder, under the
Plan and under any applicable employment, severance or other agreement.

(10) Non-Transferability of Option. You may not assign or transfer the Option to anyone other than by will or the laws of descent and
distribution and the Option shall be exercisable only by you during your lifetime. The Company may cancel the Option if you attempt
to assign or transfer it in a manner inconsistent with this Section 10.

(11) Limitation of Interest. You understand and agree that you will not be deemed for any purpose to be a stockholder of the Company
with respect to any of the Shares unless and until they have been issued to you after your exercise of this Option and payment for
the Shares. Neither you (individually or as a member of a group) nor any beneficiary or other person claiming under or through you
shall have any right, title, interest, or privilege in or to any shares of Common Stock allocated or reserved for the purpose of the Plan
or subject to this Agreement except as to such shares of Common Stock, if any, as shall have been issued to such person upon
exercise of the Option or any part of it.

(12) No Fractional Shares. At the time of exercise, the Company will round down any fractional Shares but will not make any cash or other
payments in settlement of fractional shares eliminated by rounding. If you have not then exercised the Option in full, the Company
will carry forward the fractional Shares rather than eliminating them.

(13) No Limitation on Company Actions. You understand and agree that the existence of this Option will not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, or other
changes in the Company's capital structure or its business or any merger or consolidation of the Company, or any issuance of bonds,
debentures, preferred or other stocks with preference ahead of or convertible into, or otherwise affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or
any other corporate act or proceeding, whether of a similar character or otherwise.

8
Processed and formatted by SEC Watch - Visit SECWatch.com

(14) General.

a. This Agreement and the Plan constitute the entire understanding between you and the Company regarding the Option. Any
prior agreements, commitments or negotiations concerning the Option are superseded.

b. The laws of the State of Delaware will govern all matters relating to this Agreement, without regard to the principles of
conflict of laws.

c. Any notice you give to the Company (including notice of exercise of all or part of the Option) must be in writing and either
hand-delivered or mailed to the Corporate Secretary of the Company (or to the Chief Financial Officer if either you would
receive the notice or the position is vacant). If mailed, it should be sent by certified mail and be addressed to the foregoing
executive at the Company's then corporate headquarters. Any notice given to you will be addressed to you at your address
as reflected on the personnel records of the Company. You may change the address for notice by like notice to the
Company. Notice will be deemed to have been duly delivered when hand-delivered, or, if mailed, two business days after
such notice is postmarked.

d. As a condition of this Option, you, on behalf of yourself, your heirs, successors and personal representatives ("you and
your successors"), agree that any dispute or disagreement which may arise hereunder shall be decided by the
Administrator. You and your successors agree to accept as binding, conclusive and final all decisions or interpretations of
the Administrator concerning any questions arising under the Plan with respect to the Option, and you and your successors
hereby explicitly waive any right to judicial review.

e. In the event that any provision of this Agreement is declared to be illegal, invalid or otherwise unenforceable by a court of
competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and
enforceable, or otherwise deleted, and the remainder of the terms hereunder shall not be affected except to the extent
necessary to reform or delete such illegal, invalid or unenforceable provision.

f. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs,
beneficiaries, successors and assigns.

g. The headings preceding the text of the sections hereof are inserted solely for convenience of reference, and shall not
constitute a part of this Agreement, nor shall they affect its meaning, construction or effect.

9
Processed and formatted by SEC Watch - Visit SECWatch.com

h. All questions arising under the Plan or under this Agreement shall be decided by the Administrator in its total and absolute
discretion.

i. Wherever a conflict may arise between the terms of this Agreement and the terms of the Plan, the terms of the Plan will
control.

COSTAR
GROUP, INC.

By: ________________________________
Name:
_____________________________

Title: ______________________________

10
Processed and formatted by SEC Watch - Visit SECWatch.com

ACKNOWLEDGMENT

I acknowledge receipt of a copy of the attached Plan. I represent that I have read and am familiar with the Plan's terms. I accept the
Option subject to all of the terms and provisions of this Agreement and of the Plan under which it is granted, as the Plan may be amended in
accordance with its terms. I agree to accept as binding, conclusive, and final all decisions or interpretations of the Administrator concerning
any questions arising under the Plan with respect to the Option.

Date: ____________________________________
Signature of Grantee/Participant

NO ONE MAY SELL, TRANSFER, OR DISTRIBUTE THIS OPTION OR THE SECURITIES THAT MAY BE PURCHASED UPON EXERCISE OF THIS OPTION
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY OR OTHER
INFORMATION AND REPRESENTATIONS SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

11
Processed and formatted by SEC Watch - Visit SECWatch.com

Exhibit 10.12

® Grantee’s Copy
® Company's Copy

COSTAR GROUP, INC.


2007 STOCK INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT

To Andrew C. Florance:

CoStar Group, Inc. (the "Company") has granted you a nonqualified stock option (the "Option") under the CoStar Group, Inc. 2007
Stock Incentive Plan, as amended from time to time (the "Plan"), to purchase «NoShares» shares (the "Shares") of common stock of the
Company (the "Common Stock"), at «Price» per share (the "Exercise Price"). The date of grant is «DateofGrant».

This Option is subject in all respects to the applicable provisions of the Plan, a copy of which is attached, except as otherwise
noted. By signing this agreement (the "Agreement"), you acknowledge that you have received and read the Plan. This Agreement
incorporates the Plan by reference and specifies other applicable terms and conditions. All capitalized terms not defined by this Agreement
have the meanings given in the Plan. The Compensation Committee of the Company's Board of Directors (or other administrator of the Plan,
the "Administrator") may adjust the number of Shares and the Exercise Price with respect to your Option from time to time in accordance with
the Plan.

This Option is not intended to be an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended, and
will be interpreted accordingly.

In addition to the terms, conditions, and restrictions set forth in the Plan, the following terms, conditions, and restrictions apply to the
Option:

(1) Vesting. The schedule for exercising the Option is as follows, subject to the expiration provisions set forth in Section 3 below:

a. You may exercise the Option on the following schedule:

[Set forth vesting schedule.]


Processed and formatted by SEC Watch - Visit SECWatch.com

Except as specifically provided otherwise herein, no portion of the Option that is unexercisable at your
termination of employment will thereafter become exercisable, unless the Administrator determines
otherwise.

b. The Option will become immediately exercisable in full upon the occurrence of a Change in Control.

“Change in Control” means the occurrence of any one or more of the following events:

A. a Person (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended) (other than the Company, any Company subsidiary, any Company benefit plan, or
any underwriter temporarily holding securities for an offering of such securities) acquires ownership of
more than 80% of the undiluted total voting power of the Company’s then outstanding securities eligible
to vote to elect members of the Board (the “Company Voting Securities”);

B. consummation of a merger, consolidation or reorganization of the Company with or into any other entity,
unless the holders of the Company Voting Securities outstanding immediately before such consummation,
together with any trustee or other fiduciary holding securities under a Company benefit plan, hold
securities that represent immediately after such merger or consolidation at least 20% of the combined
voting power of the then outstanding voting securities of either the Company or the other surviving entity
or its parent; or

C. the stockholders of the Company approve (A) a plan of complete liquidation or dissolution of the
Company or (B) an agreement for the Company’s sale or disposition of all or substantially all of the
Company’s assets, and such liquidation, dissolution, sale or disposition is consummated.

Even if other tests are met, a Change in Control has not occurred under any circumstances in which the Company
files for bankruptcy protection or is reorganized following a bankruptcy filing.

2
Processed and formatted by SEC Watch - Visit SECWatch.com

The provisions of Section 4 will also apply if the Change in Control is a Substantial Corporate Change (as defined
in those provisions).

c. Subject to, and as permitted by, the Plan that portion of the Option that is not otherwise exercisable will become immediately
exercisable in full upon:

i. the termination of your employment by the Company without Cause (as defined in the Employment
Agreement between Andrew C. Florance and the Company effective as of January 1, 1998, as amended
(the “Employment Agreement”)) pursuant to Section 7(a) of the Employment Agreement; or

ii. the termination of your employment by you for Good Reason (as defined in the Employment Agreement)
pursuant to Section 7(c) of the Employment Agreement.

d. Upon the termination of your employment on account of your Disability (as defined in the Employment Agreement)
pursuant to Section 9 of the Employment Agreement or in the event of your death, a pro rata portion of your unvested
Options that would have become otherwise exercisable during the calendar year of your termination will become exercisable
immediately. Such pro rata amount shall be determined by multiplying the number of unvested options that would have
vested in the calendar year of termination by a fraction, the numerator of which is the number of complete weeks you were
employed during the year of termination and the denominator of which is fifty-two.

e. The Administrator may, in its sole discretion (subject to, and as permitted by, the Plan), accelerate the time at which you may
exercise part or all of the Option.

f. The vesting period and/or exercisability of the Option may be adjusted by the Administrator to reflect the decreased level of
employment during any period in which you are on an approved leave of absence or employed on a less than full time basis,
provided, that the Administrator may take into consideration any accounting consequences to the Company.

(2) Exercise. Subject to this Agreement and the Plan, unless the Administrator determines otherwise, you may exercise the Option only
by a written “Notice of Exercise” to the Company or its designee on a form specified by the Company on or before the date the
Option expires. Unless the Administrator determines otherwise, each such Notice must:

3
Processed and formatted by SEC Watch - Visit SECWatch.com

a. state your election to exercise the Option and the number of Shares with respect to which you are exercising the Option;

b. be signed by you or, if you have died or become disabled, by the party entitled to exercise the Option;

c. contain such representations as the Company reasonably requires; and

d. be accompanied by payment of the Exercise Price in full through one, or a combination, of the following payment methods,
which method(s) shall be indicated in the Notice of Exercise:

i. cashier's or certified check in the amount of the Exercise Price payable to the order of the Company;

ii. direction to the Company through your Notice of Exercise to send the share certificates to be issued under this
Option to a licensed broker acceptable to the Company as your agent in exchange for the broker's tendering to the
Company cash (or acceptable cash equivalents) equal to the Exercise Price, for the Shares with respect to which the
Option is being exercised, as part of a cashless exercise;

iii. unless the Administrator determines otherwise, by surrender to the Company of shares of Common Stock with a
Fair Market Value on the date of exercise equal to all or part of the Exercise Price (with any balance paid by cash or
check or, unless the Administrator determines otherwise, deducted from salary or other amounts payable to you),
for the Shares with respect to which the Option is being exercised; provided, however, that you may not surrender
(turn in) previously held or owned Common Stock of the Company as payment unless you have held such stock for
more than six months before the surrender. For purposes hereof, the date of exercise shall be the date of delivery of
(A) the duly executed Notice of Exercise and (B) the shares tendered for payment of the Exercise Price;

iv. unless the Administrator determines otherwise, attestation of ownership of Common Stock and issuance of a net
number of shares upon Option exercise; or

4
Processed and formatted by SEC Watch - Visit SECWatch.com

v. unless the Administrator determines otherwise, by the Company withholding from the shares of Common Stock
otherwise issuable to you upon the exercise of the Option (or portion thereof) the whole number of shares with a
Fair Market Value on the date of exercise equal to all or part of the Exercise Price (rounded down, with any balance
paid by cash or check or, unless the Administrator determines otherwise, deducted from salary or other amounts
payable to you on such date of exercise). For purposes hereof, the date of exercise shall be the date of delivery of
the duly executed Notice of Exercise.

The Company shall not be obligated to issue any shares of Common Stock until you have paid the total Exercise Price for
that number of shares of Common Stock you have elected to purchase. Shares of Common Stock will be issued as soon as is practical
after exercise.

(3) Expiration. The Option will expire no later than the close of business on «ExpirationDate» (ten years from the date of grant).

The exercise period for the Options shall be until the first to occur of:

a. the Option's expiration under the preceding sentence,

b. the 60th day after the cessation of your employment as a result of the termination of your employment by you without Good
Reason pursuant to Section 7(d) of the Employment Agreement;

c. the 60th day after the cessation of your employment as a result of the termination of your employment by the Company for
Cause pursuant to Section 7(b) of the Employment Agreement;

d. the 180th day after the cessation of your employment as a result of the termination of your employment (a) by the Company
without Cause pursuant to Section 7(a) of the Employment Agreement or (b) by you for Good Reason pursuant to Section
7(c) of the Employment Agreement;

e. one year after the cessation of your employment as a result of the termination of your employment for Disability;

f. the first anniversary of your date of death; and

g. after the termination of your employment, the date you violate any covenant not to compete, nonsolicitation covenant or
similar covenant in effect between you and the Company.

5
Processed and formatted by SEC Watch - Visit SECWatch.com

Pursuant to Section 4(c) of the Employment Agreement, if you do not exercise the Option on or prior to the date the Option
expires or is no longer exercisable, you shall be deemed to have made a “cashless exercise” of the unexercised, exercisable portion of
the Option on the last day that the Option may be exercised (the “Deemed Exercise Date”), and the Company shall pay to you within
thirty days of the Deemed Exercise Date a cash payment equal to the amount that results from multiplying the total number of shares
underlying the unexercised, exercisable portion of the Option multiplied by a number equal to the difference between the closing price
of the Company’s common stock on the Deemed Exercise Date (or if the Deemed Exercise Date is not a trading day, then on the
trading day immediately preceding the Deemed Exercise Date) and the exercise price of the Option; provided, however, that the
cashless exercise alternative shall not be available if your employment has been terminated by the Company for Cause or by you
without Good Reason.

The Administrator, in its sole discretion, will determine all questions of whether particular terminations or leaves of absence
are terminations of employment for purposes of this Agreement.

(4) Substantial Corporate Change. Upon a Substantial Corporate Change, any portion of this Option that is unexercised will terminate
unless provision is made in writing in connection with such transaction for:

a. assumption or continuation of outstanding Options; or

b. the substitution for such Options, with appropriate adjustments as to the number and kind of shares of stock and prices, in
which event the Option will continue in the manner and under the terms so provided.

Unless the Board determines otherwise, if an Option would otherwise terminate pursuant to the preceding sentence, you will have the
right, at such time before the consummation of the transaction causing such termination as the Board reasonably designates, to
exercise any unexercised portions of the Option, whether or not previously exercisable.

A “Substantial Corporate Change” means the occurrence of any one or more of the following events:

i. a Person (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934,
as amended) (other than the Company, any Company subsidiary, any Company benefit plan, or any underwriter
temporarily holding securities for an offering of such securities) acquires ownership of 100% of the combined
voting power of all classes of stock of the Company;

6
Processed and formatted by SEC Watch - Visit SECWatch.com

ii. merger, consolidation or reorganization of the Company with or into one or more entities in which the Company is
not the surviving corporation (other than a merger or consolidation with a wholly owned subsidiary, a
reincorporation of the Company in a different jurisdiction or other transaction in which there is no substantial
change in the stockholders of the Company or their relative stock holdings);

iii. merger, consolidation or reorganization of the Company in which the Company is the surviving corporation, but
after which the stockholders of the Company immediately prior to such merger (other than any stockholder that
merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to
own their shares or other equity interest in the Company;

iv. the liquidation or dissolution of the Company; or

v. the sale or disposition of all or substantially all of the Company’s assets.

(5) Taxes.

a. You understand and agree that the Company has not advised you regarding your income tax liability in connection with the
Option. To the extent required by applicable federal, state, local or foreign law, you shall make arrangements satisfactory to
the Company in its sole discretion for the satisfaction of any withholding tax obligations that arise by reason of an Option
exercise or disposition of shares issued as a result of an Option exercise. The Company shall not be required to issue shares
or to recognize the disposition of such shares until such obligations are satisfied.

b. By accepting the Option, you agree that, unless and to the extent you have otherwise satisfied any U.S. federal income and
other taxes, including state, local or non-U.S. income or employment tax obligations, related to the exercise of the Option that
are required to be withheld and paid over to the applicable tax authorities (the “Tax Withholding Obligations”) in a manner
permitted or required by the Administrator pursuant to the Plan, the Company is authorized (but not required) to deduct and
retain without notice from the shares of Common Stock issuable to you in respect of the exercised portion of the Option the
whole number of shares (rounding down) having a Fair Market Value on the exercise date or, if not a trading day, the first
trading day before the exercise date (as determined by the Company consistent with any applicable tax requirements)
sufficient to satisfy the applicable Tax Withholding Obligation. If the withheld shares are not sufficient to satisfy your Tax
Withholding Obligation, you agree to pay to the Company as soon as practicable, by cash or check or, unless otherwise
determined by the Administrator, deducted from salary or other amounts payable to you, any amount of the Tax
Withholding Obligation that is not satisfied by the withholding of shares of Common Stock described above.

7
Processed and formatted by SEC Watch - Visit SECWatch.com

c. You are ultimately liable and responsible for all taxes owed by you in connection with the Option, regardless of any action
the Company takes or any transaction pursuant to this Section 5 with respect to any tax withholding obligations that arise in
connection with the Option. The Company makes no representation or undertaking regarding the treatment of any tax
withholding in connection with the grant, issuance, vesting or exercise of the Option or the subsequent sale of any of the
shares of Common Stock acquired upon exercise of the Option. The Company does not commit and is under no obligation to
structure the Option to reduce or eliminate your tax liability.

(6) Company Postponement of Delivery. The Company may postpone issuing and delivering any Shares for so long as the Company
determines to be necessary or advisable to satisfy the following:

a. completing or amending any registration or qualification of the Shares or satisfying any exemption from registration under
any federal or state law, rule, or regulation;

b. complying with any requests for representations under the Plan;

c. receiving proof satisfactory to the Company that a person seeking to exercise the Option after your death or disability is
authorized and entitled to exercise the Option; and

d. satisfying any federal, state, or local tax withholding obligations.

(7) Compliance with Securities Laws.

a. If, at the time the Company should issue you Shares because of your exercise of the Option, no current registration
statement under the Securities Act of 1933 (the "Act") covers such issuance, you must, before the Company will issue such
Shares to you:

8
Processed and formatted by SEC Watch - Visit SECWatch.com

i. represent to the Company, in form satisfactory to the Company's counsel, that you are acquiring the Shares for
your own account and not with a view to reselling or distributing the Shares; and

ii. agree that you may not sell, transfer, or otherwise dispose of the Shares issued to you under the Option unless:

A. a registration statement under the Act is effective at the time of disposition with respect to the Shares
sold, transferred, or otherwise disposed of; or

B. the Company has received an opinion of counsel or other information and representations satisfactory to
it to the effect that registration under the Act is not required by reason of Rule 144 under the Act or
otherwise.

b. Notwithstanding anything herein to the contrary, you may not exercise the Option, and the Company shall not be obligated
to deliver any shares of Common Stock, during any period when the Company determines that the exercisability of the
Option or the delivery of shares hereunder would violate any applicable federal or state securities laws or other laws or
regulations.

(8) Restrictions on Resales. The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the
timing and manner of any resales by you or other subsequent transfers by you of any shares of Common Stock issued as a result of
the exercise of the Option, including without limitation (a) restrictions under an insider trading policy, (b) restrictions designed to
delay and/or coordinate the timing and manner of sales by you and other optionholders and (c) restrictions as to the use of a
specified brokerage firm for such resales or other transfers.

(9) Not an Employment Contract. Nothing in this Agreement restricts the right of the Company or any of its affiliates to terminate your
employment at any time, with or without cause. The termination of employment, whether by the Company or any of its affiliates or
otherwise, and regardless of the reason therefore, has the consequences provided for hereunder, under the Plan and under any
applicable employment or severance agreement.

9
Processed and formatted by SEC Watch - Visit SECWatch.com

(10) Non-Transferability of Option. You may not assign or transfer the Option to anyone other than by will or the laws of descent and
distribution and the Option shall be exercisable only by you during your lifetime. The Company may cancel the Option if you attempt
to assign or transfer it in a manner inconsistent with this Section 10.

(11) Limitation of Interest. You understand and agree that you will not be deemed for any purpose to be a stockholder of the Company
with respect to any of the Shares unless and until they have been issued to you after your exercise of this Option and payment for
the Shares. Neither you (individually or as a member of a group) nor any beneficiary or other person claiming under or through you
shall have any right, title, interest, or privilege in or to any shares of Common Stock allocated or reserved for the purpose of the Plan
or subject to this Agreement except as to such shares of Common Stock, if any, as shall have been issued to such person upon
exercise of the Option or any part of it.

(12) No Fractional Shares. At the time of exercise, the Company will round down any fractional Shares but will not make any cash or other
payments in settlement of fractional shares eliminated by rounding. If you have not then exercised the Option in full, the Company
will carry forward the fractional Shares rather than eliminating them.

(13) No Limitation on Company Actions. You understand and agree that the existence of this Option will not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, or other
changes in the Company's capital structure or its business or any merger or consolidation of the Company, or any issuance of bonds,
debentures, preferred or other stocks with preference ahead of or convertible into, or otherwise affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or
any other corporate act or proceeding, whether of a similar character or otherwise.

(14) General.

a. This Agreement and the Plan constitute the entire understanding between you and the Company regarding the Option. Any
prior agreements, commitments or negotiations concerning the Option are superseded.

b. The laws of the State of Delaware will govern all matters relating to this Agreement, without regard to the principles of
conflict of laws.

10
Processed and formatted by SEC Watch - Visit SECWatch.com

c. Any notice you give to the Company (including notice of exercise of all or part of the Option) must be in writing and either
hand-delivered or mailed to the Corporate Secretary of the Company (or to the Chief Financial Officer if either you would
receive the notice or the position is vacant). If mailed, it should be sent by certified mail and be addressed to the foregoing
executive at the Company's then corporate headquarters. Any notice given to you will be addressed to you at your address
as reflected on the personnel records of the Company. You may change the address for notice by like notice to the
Company. Notice will be deemed to have been duly delivered when hand-delivered, or, if mailed, two business days after
such notice is postmarked.

d. As a condition of this Option, you, on behalf of yourself, your heirs, successors and personal representatives ("you and
your successors"), agree that any dispute or disagreement which may arise hereunder shall be decided by the
Administrator. You and your successors agree to accept as binding, conclusive and final all decisions or interpretations of
the Administrator concerning any questions arising under the Plan with respect to the Option, and you and your successors
hereby explicitly waive any right to judicial review.

e. In the event that any provision of this Agreement is declared to be illegal, invalid or otherwise unenforceable by a court of
competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and
enforceable, or otherwise deleted, and the remainder of the terms hereunder shall not be affected except to the extent
necessary to reform or delete such illegal, invalid or unenforceable provision.

f. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs,
beneficiaries, successors and assigns.

g. The headings preceding the text of the sections hereof are inserted solely for convenience of reference, and shall not
constitute a part of this Agreement, nor shall they affect its meaning, construction or effect.

h. All questions arising under the Plan or under this Agreement shall be decided by the Administrator in its total and absolute
discretion.

11
Processed and formatted by SEC Watch - Visit SECWatch.com

i. Wherever a conflict may arise between the terms of this Agreement and the terms of the Plan, the terms of the Plan will
control.

COSTAR GROUP, INC.


By:
____________________________
Name:
___________________________

Title: ____________________________

12
Processed and formatted by SEC Watch - Visit SECWatch.com

ACKNOWLEDGMENT

I acknowledge receipt of a copy of the attached Plan. I represent that I have read and am familiar with the Plan's terms. I accept the
Option subject to all of the terms and provisions of this Agreement and of the Plan under which it is granted, as the Plan may be amended in
accordance with its terms. I agree to accept as binding, conclusive, and final all decisions or interpretations of the Administrator concerning
any questions arising under the Plan with respect to the Option.

Date: ____________________________________
Signature of Grantee/Participant

NO ONE MAY SELL, TRANSFER, OR DISTRIBUTE THIS OPTION OR THE SECURITIES THAT MAY BE PURCHASED UPON EXERCISE OF THIS
OPTION WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY OR OTHER INFORMATION AND REPRESENTATIONS SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

13
Processed and formatted by SEC Watch - Visit SECWatch.com

Exhibit 10.16

FIRST AMENDMENT
TO ANDREW C. FLORANCE EMPLOYMENT AGREEMENT

THIS FIRST AMENDMENT to the Employment Agreement is made and entered into December __, 2008, effective as of January 1,
2009 by and between CoStar Realty Information, Inc. (“Company”) and Andrew C. Florance (“Executive”).

W I T N E S S E T H;

WHEREAS, Company and Executive are parties to that certain Employment Agreement dated as of April 24, 1998, effective as of
January 1, 1998 (the “Employment Agreement”) pursuant to which Executive is employed as Company’s President and Chief Executive Officer;
and

WHEREAS, Company and Executive desire to amend the terms of the Employment Agreement as set forth herein effective as of
January 1, 2009 (the Employment Agreement, as amended, is hereinafter referred to as the “Agreement”), in order to comply with the
provisions of Section 409A of the Internal Revenue Code and the rules and regulations promulgated thereunder and to make certain other
clarifying revisions.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1. Section 4(a) is deleted and replaced in its entirety to read as follows:

“The annual base salary (the “Base Salary”) of Executive under this Agreement shall be at the rate set by the Compensation
Committee of the Board of Directors of the Company (the “Compensation Committee”) or the Board of Directors of the
Company (the “Board”) annually. Base Salary shall be payable in biweekly or such other installments as shall be consistent
with the Company’s payroll procedures for its senior executives.”

2. Section 4(b) is deleted and replaced in its entirety to read as follows:

“The Company shall maintain for the benefit of Executive during the term of Executive’s employment under this Agreement
(and, where applicable, for such period thereafter as Executive is entitled to payments thereunder pursuant to this
Agreement) an executive cash bonus program (the “Bonus Program”) on the terms set by the Compensation Committee or
the Board, which will provide Executive with an opportunity to receive an annual cash bonus based on attainment of
performance objectives set annually by the Compensation Committee or the Board. The annual bonus shall be paid as soon
as reasonably practicable after the end of the calendar year for which it is earned and, in any case, no later than March 15 of
the following calendar year.”
Processed and formatted by SEC Watch - Visit SECWatch.com

3. Section 7(a) is deleted and replaced in its entirety to read as follows:

“(a) By the Company Without Cause. The Company may terminate Executive’s employment at any time, without
Cause (as defined herein), upon sixty (60) days written notice to Executive. If the Company terminates Executive’s
employment without Cause, Executive: (x) shall receive through the later of (i) the expiration of the Current Term or (ii) one
year from the date of termination, the compensation provided for under paragraph 4(a) of this Agreement, provided that any
payments that would otherwise be made under this subsection (x) after March 15 of the year following the calendar year of
termination shall be paid to Executive no later than March 15 of the year following the calendar year of termination of
employment; (y) shall be entitled to receive the bonus he would have received under the Bonus Program (as in effect on the
date of termination) as if he continued in the position he held immediately prior to termination for the balance of the calendar
year in which such termination occurs, provided that such bonus shall be paid no later than March 15 of the year following
the calendar year of termination of employment; and (z) shall be, if not otherwise, fully vested in all stock options granted to
Executive under the Company’s stock incentive plans (as in effect on the date of termination). Upon termination of
Executive’s employment without Cause, the exercise period for all vested options shall be one-hundred eighty (180) days
after cessation of employment.

4. The last paragraph of Section 7(c) is deleted and replaced in its entirety to read as follows:

“If Executive terminates his employment for Good Reason, Executive: (x) shall receive through the later of (i) the
expiration of the Current Term or (ii) one year from the date of termination, the compensation provided for under
paragraph 4(a) of this Agreement, provided that any payments that would otherwise be made under this subsection
(x) after March 15 of the year following the calendar year of termination shall be paid to Executive no later than
March 15 of the year following the calendar year of termination of employment; (y) shall be entitled to receive the
bonus he would have received under the Bonus Program (as in effect on the date of termination) as if he continued
in the position he held immediately prior to termination for the balance of the calendar year in which such
termination occurs, provided that such bonus shall be paid no later than March 15 of the year following the
calendar year of termination of employment; and (z) shall be, if not otherwise, fully vested in all stock options
granted to Executive under the Company’s stock incentive plans (as in effect on the date of termination). Upon
termination of Executive’s employment with Good Reason, the exercise period for all vested options shall be one-
hundred eighty (180) days after cessation of employment.

2
Processed and formatted by SEC Watch - Visit SECWatch.com

5. A new Section 7(e) shall be added and read as follows:

“In the event that under the terms of the applicable stock incentive plan(s), all or any portion of Executive’s stock
options that are not otherwise fully vested upon termination of employment and are scheduled to vest pursuant to
Section 7 in connection with such termination cannot be accelerated in accordance with the terms of this
Agreement, then Executive shall be entitled to receive cash consideration for each share underlying that portion of
Executive’s stock options that cannot be so accelerated equal to the excess (if any) of the highest closing price of
the Company’s common stock during the 180 days following Executive's date of termination (or, if the Company is
no longer publicly traded as of the date of termination, the per-share price in connection with the transaction(s) that
resulted in the Company no longer being publicly traded) over the exercise price of such option. Any such cash
consideration shall be paid within 10 days following the date the amount of the payment pursuant to this Section
7(e) is determined.”

6. Section 9 is amended to add the following to the end of subsection (ii) of the first sentence of Section 9: “, payable no later than
March 15 of the year following the calendar year of termination.”

7. Section 10 is amended to add the following to the end of subsection (ii) of the first sentence of Section 10: “, payable no later
than March 15 of the year following the calendar year of termination.”

8. Section 22 is amended by adding the following sentence to the end thereof: “In all events, any amount payable under this
Section 22 shall be paid no later than the end of the calendar year after the applicable tax is remitted to the applicable taxing
authority.”

3
Processed and formatted by SEC Watch - Visit SECWatch.com

9. A new Section 23 is added as follows:

Compliance with Section 409A. It is the intention of the parties hereto that this Agreement comply with the
provisions of Section 409A of the Internal Revenue Code (the “Code”) and the rules and regulations promulgated
thereunder (collectively, “Section 409A”). Notwithstanding anything in this Agreement to the contrary, to the
extent that the Company determines, in its sole discretion, that any payment or benefit to be provided under the
Agreement to or for the benefit of Executive would be subject to the additional tax imposed under Section
409A(a)(1)(B) of the Code, the commencement of such payments and/or benefits shall be delayed (but only to the
extent necessary under Section 409A) until the earlier of (i) the date that is six months after Executive’s “separation
from service” (as such term is defined under Section 409A) or (ii) the date of Executive’s death. Any payments
delayed pursuant to section (i) of the preceding sentence shall be paid on the first day of the seventh month after
Executive’s separation from service, or as soon as reasonably practicable thereafter and any remaining payments
shall be made as originally scheduled (e.g. if payments under Section 7(a)(x) of the Agreement would be subject to
the additional tax, Executive would not receive payments for six months after termination, then would receive six
months of base salary on the first day of the seventh month after termination, and the remaining installments of
base salary provided by Section 7(a)(x) (approximately six months’ base salary) would be paid to Executive as
provided by Section 4(a)). In the event of Executive’s death, any payments shall be made pursuant to section (ii) of
the sentence above no later than the later of (a) 75 days following the Executive’s death, or (b) the last
day of Executive’s taxable year in which such death occurs.

10. Counterparts. This First Amendment, for the convenience of the parties, may be executed in any number of counterparts, all of
which when taken together shall constitute one and the same agreement.

11. Except as modified hereby, the Employment Agreement continues in full force and effect.

IN WITNESS WHEREOF, the parties have executed this First Amendment on the day and year first above written.

COSTAR REALTY INFORMATION, INC.

By: /s/ Michael Klein


Michael Klein
Chairman of the Board

/s/ Andrew C. Florance


Andrew C. Florance

4
Processed and formatted by SEC Watch - Visit SECWatch.com

Exhibit 21.1

SUBSIDIARIES OF THE REGISTRANT

a) CoStar Realty Information, Inc., a Delaware corporation

b) CoStar Limited, a U.K. company

c) CoStar U.K. Limited, a U.K. company

d) Property Investment Exchange Limited, a U.K. company

e) Grecam S.A.S., a Societée par Actions Simplifiée


Exhbit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements of CoStar Group, Inc. on Form S-8 Nos. 333-82599, 333-
92165, 333-45770, 333-69548, 333-135709 and 333-143968 of our reports dated February 19, 2009 with respect to the consolidated financial
statements of CoStar Group, Inc. and the effectiveness of internal control over financial reporting of CoStar Group, Inc., included in this
Annual Report (Form 10-K) for the year ended December 31, 2008.

/S/ Ernst & Young LLP

McLean, Virginia
February 19, 2009

Exhibit 31.1
CERTIFICATION

I, Andrew C. Florance, certify that:

1. I have reviewed this annual report on Form 10-K of CoStar Group, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact nec
statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all m
registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defi
reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our sup
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report i

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under o
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions a
period covered by this report based on such evaluation; and

d) Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registra
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporti

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial rep
directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reas
and report financial information; and
Processed and formatted by SEC Watch - Visit SECWatch.com
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal co

Date: February 23, 2009 By:

Exhibit 31.2

CERTIFICATION

I, Brian J. Radecki, certify that:

1. I have reviewed this annual report on Form 10-K of CoStar Group, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact nec
statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all m
registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defi
reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our sup
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report i

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under o
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions a
period covered by this report based on such evaluation; and

d) Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registra
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporti

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial rep
directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reas
and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal co

Date: February 23, 2009 By:

Exhibit 32.1

CoStar Group, Inc.


2 Bethesda Metro Center, 10th floor
Bethesda, MD 20814

February 23, 2009

Securities and Exchange Commission


450 5th Street, NW
Washington, DC 20549

Re: Certification Of Principal Executive Officer Pursuant To 18 U.S.C. Sec. 1350

Dear Ladies and Gentlemen:

In connection with the accompanying Annual Report on Form 10-K of CoStar Group, Inc., for the year ended December 31, 2008, I,
Processed and formatted by SEC Watch - Visit SECWatch.com
Andrew C. Florance, Chief Executive Officer of CoStar Group, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) such Annual Report on Form 10-K of CoStar Group, Inc., for the year ended December 31, 2008, fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C 78m or 78o (d)); and

2) the information contained in such Annual Report on Form 10-K of CoStar Group, Inc., for the year ended December 31, 2008, fairly
presents, in all material respects, the financial condition and results of operations of CoStar Group, Inc.

By: /S/ Andrew C. Florance


Andrew C. Florance
Chief Executive Officer
(Principal Executive Officer and
Duly Authorized Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise
adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been
provided to CoStar Group, Inc. and will be retained by CoStar Group, Inc. and furnished to the Securities and Exchange Commission or its staff
upon request.

In accordance with Item 601 of Regulation S-K, this certification is being “furnished” as Exhibit 32.1 to CoStar Group, Inc.’s annual report
and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject
to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange
Act, except as expressly set forth by specific reference in such a filing.
Exhibit 32.2

CoStar Group, Inc.


2 Bethesda Metro Center, 10th floor
Bethesda, MD 20814

February 23, 2009

Securities and Exchange Commission


450 5th Street, NW
Washington, DC 20549

Re: Certification Of Principal Financial Officer Pursuant To 18 U.S.C. Sec. 1350

Dear Ladies and Gentlemen:

In connection with the accompanying Annual Report on Form 10-K of CoStar Group, Inc., for the year ended December 31, 2008, I, Brian J.
Radecki, Chief Financial Officer of CoStar Group, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that:

1) such Annual Report on Form 10-K of CoStar Group, Inc., for the year ended December 31, 2008, fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)); and

2) the information contained in such Annual Report on Form 10-K of CoStar Group, Inc., for the year ended December 31, 2008, fairly
presents, in all material respects, the financial condition and results of operations of CoStar Group, Inc.

By: /S/ Brian J. Radecki


Brian J. Radecki
Chief Financial Officer
(Principal Financial and Accounting Officer and Duly Authorized
Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise
adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been
provided to CoStar Group, Inc. and will be retained by CoStar Group, Inc. and furnished to the Securities and Exchange Commission or its staff
upon request.

In accordance with Item 601 of Regulation S-K, this certification is being “furnished” as Exhibit 32.2 to CoStar Group, Inc.’s annual report
and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject
to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange
Act, except as expressly set forth by specific reference in such a filing.