HOTEL RESERVATIONS NETWORK INC, 424B4, 2000-02-28

HOTEL RESERVATIONS NETWORK INC
424B4, 2000-02-28
BUSINESS SERVICES, NEC

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As Filed Pursuant to Rule 424(b)(4)
Registration No. 333-90601
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PROSPECTUS
FEBRUARY 25, 2000

[LOGO]

5,400,000 SHARES OF CLASS A COMMON STOCK
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HOTEL RESERVATIONS NETWORK, INC.:

- We are a leading online consolidator of hotel accommodations, providing
service through our websites, affiliated websites and our toll-free call
center.

- Hotel Reservations Network, Inc.
8140 Walnut Hill Lane, Suite 203
Dallas, Texas 75231
(214) 361-7311

SYMBOL AND MARKET:

- ROOM/Nasdaq National Market

THE OFFERING:

- We are offering 5,400,000 shares of our class A common stock.

- The underwriters have an option to purchase from us up to an additional
810,000 shares of our class A common stock to cover overallotments.

- This is our initial public offering.

- Shares of our class A common stock have one vote per share and shares of
our class B common stock have 15 votes per share.

- Closing: March 1, 2000

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PER
SHARE
TOTAL
Public offering price: $16.00 $86,400,000
Underwriting fees: $ 1.12 $ 6,048,000
Proceeds to Hotel Reservations Network, Inc.: $14.88 $80,352,000
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THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 9.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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DONALDSON, LUFKIN & JENRETTE
ALLEN & COMPANY INCORPORATED
BEAR, STEARNS & CO. INC.
THOMAS WEISEL PARTNERS LLC
DLJDIRECT INC.

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<PAGE>
TABLE OF CONTENTS

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PAGE
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Prospectus Summary..................... 1
Risk Factors........................... 9
Special Note Regarding Forward-Looking
Statements........................... 19
Use of Proceeds........................ 19
Dividend Policy........................ 19
Capitalization......................... 20
Dilution............................... 21
Selected Financial Data................ 22
Unaudited Pro Forma Combined Condensed
Statement of Operations.............. 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 28
</TABLE>

Business............................... 38
Management............................. 47
Certain Transactions................... 53
Principal Stockholders................. 56
Description of Capital Stock........... 60
Shares Eligible for Future Sale........ 65
Underwriting........................... 67
Legal Matters.......................... 69
Experts................................ 69
Available Information.................. 70
Reports to Security Holders............ 70
Index to Financial Statements.......... F-1
</TABLE>

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In this prospectus, unless the context otherwise requires, the terms "we,"
"us," "our," "our company" and "Hotel Reservations Network" refer to Hotel
Reservations Network, Inc. and our predecessor entities; and "USAi" and "our
parent" refer to USA Networks, Inc. and its subsidiaries and managed affiliates
(other than our company).

Unless otherwise noted, all numbers discussed in this prospectus are
approximated to the closest round number.

This prospectus includes statistical data regarding our company, the
Internet and the industry in which we compete. This data is based on our records
or is taken or derived from information published or prepared by various
sources, including Jupiter Communications, LLC, Smith Travel Research and Travel
Industry Association of America, all of which are providers of market and
strategic information for the travel industry.

------------------------

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(This page has been left blank intentionally.)
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PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN OUR CLASS A COMMON STOCK. YOU SHOULD READ
THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION AND THE
FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES TO THOSE STATEMENTS.

HOTEL RESERVATIONS NETWORK, INC.

OUR COMPANY

We are a leading online consolidator of hotel accommodations in terms of
hotel rooms booked online, providing service through our websites, affiliated
websites and our toll-free call center. We contract with hotels in advance for
volume purchases and guaranteed availability of hotel rooms at wholesale prices
and sell these rooms to consumers, often at significant discounts to published
rates. In addition, our hotel supply relationships often allow us to offer our
customers hotel accommodation alternatives for otherwise unavailable dates. At
December 31, 1999, we had room supply agreements with approximately 1,500 hotels
in 40 major markets in North America and Western Europe.

We market our hotel accommodations primarily over the Internet through our
own websites, www.hoteldiscount.com and www.180096hotel.com, and through
third-party affiliated websites. We have negotiated affiliate marketing
agreements with many of the leading travel-related websites including Preview
Travel, Expedia (operated by Microsoft), Travelocity (operated by Sabre Inc.),
TravelWeb (operated by Pegasus Systems), Cheap Tickets, Yupi.com, GetThere.com
and over 1,600 other affiliate websites. We also are prominently featured on and
directly linked to most of the leading Internet search engines and online
communities, including America Online, Lycos, Yahoo!, Ticketmaster Online-
CitySearch, Excite and Infoseek. Through these agreements, our hotel
accommodations are prominently featured on and linked to these affiliated
websites on a co-branded or private label basis. By establishing these
wide-ranging affiliations, we believe that we are well-positioned to capitalize
on the expected growth in online hotel bookings regardless of where those
bookings are originated.

We have room supply relationships with a wide range of independent hotel
operators, as well as hotels associated with national chains, including Hilton,
Sheraton, Westin, Radisson, Best Western, Loews, Doubletree and Hampton Inn. Our
hotel suppliers view us as an efficient distribution channel to help maximize
their overall revenues and occupancy levels. Although we contract in advance for
volume room commitments, our hotel supply contracts often allow us to return
unsold rooms without penalty within a specified period of time. In addition,
because we contract to purchase hotel rooms in advance, we are able to manage
billing procedures for the rooms we sell and thereby maintain direct
relationships with our customers. We have developed proprietary revenue
management and reservation systems software that is integrated with our websites
and call center operations. These systems and software enable us to accurately
monitor our room inventory and provide prompt, efficient customer service. Our
hotel supply contracts and revenue management capabilities differentiate us from
retail travel agencies and other commission-based resellers of hotel
accommodations.

Our revenues have increased from $23.3 million in 1996 to $161.8 million in
1999, representing a compound annual growth rate of 90.8%. Internet generated
bookings accounted for 44% of our revenues in 1998 and 81% in 1999. On a pro
forma basis, our net loss for the year ended December 31, 1999 was
$10.5 million, which reflects pro forma amortization of $36.0 million. As a
result of the acquisition of substantially all the assets of TMF, Inc. and HRN
Marketing Corp. on May 10, 1999, $200.3 million of goodwill was created. This
goodwill is being amortized over ten years and, as of December 31, 1999,
goodwill represented approximately 91.8% of the book value of our assets. The
amount of goodwill and related amortization will increase by approximately
$160.0 million due to the issuance of 9,999,900 shares of our class A common
stock to a party designated by TMF, Inc. and

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HRN Marketing Corp. immediately prior to the closing of this offering. At the
closing of this offering, goodwill will be approximately $344.9 million and will
represent 78% of the book value of our assets. The $160.0 million increase in
goodwill will be amortized over the remaining ten-year life of the goodwill,
which will result in total amortization of approximately $37.3 million per year
through May 2009. Goodwill also will increase as a result of a future contingent
payment in connection with this acquisition. In relation to warrants to purchase
1,428,365 shares of our class A common stock which will be issued to third-party
affiliated websites at the completion of this offering in conjunction with
exclusive affiliate distribution and marketing agreements, we will record an
asset of approximately $15.0 million based on the fair market value of the
warrants at the initial public offering price of $16.00 per share. The asset
will be amortized ratably over the terms of the exclusive affiliation
agreements, which range from two to five years. The amount of estimated non-cash
deferred distribution and marketing expense will be $4.6 million, $4.0 million,
$3.4 million, $1.5 million and $1.5 million in each of the next five years,
respectively. In addition, one exclusive affilation agreement provides for
additional cash consideration of $0.5 million. The minimum payment will be
recorded as an asset and amortized ratably to operating expense over the
five-year term of the exclusive affiliation agreement, resulting in expense of
$0.1 million in each of the next five years.

OUR INDUSTRY

Hotel reservations are particularly well-suited to the Internet and the
services of third-party consolidators. The Internet provides an efficient way
for travelers to quickly compare price, quality and location of a variety of
hotel rooms. The hotel industry is extremely fragmented and, unlike airline and
car rental reservations, pricing and availability cannot be controlled easily
through central reservation systems. Moreover, the central reservation systems
often do not provide access to discounted rates or to rooms during otherwise
unavailable dates. Alternative booking methods, such as calling individual
hotels or using publications like guidebooks or yellow pages, are both
cumbersome and time-consuming. Online consolidators like our company are able to
aggregate inventory and market this inventory to travelers over the Internet,
benefitting hotels, travel agents and travelers.

OUR GROWTH STRATEGY

Our objective is to build upon our position as a leading online hotel
consolidator by pursuing the following growth strategies:

- increasing our Internet presence, including our number of Internet
affiliations;

- expanding our hotel supply arrangements in existing markets;

- entering new markets;

- initiating new affiliations with travel agencies, travel and membership
clubs and other groups;

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- enhancing our offering of products and services to include other
travel-related services;

- offering paid advertising on our websites;

- pursuing strategic acquisitions; and

- leveraging our relationship with our parent company, USAi, and its
affiliates.

Our ability to implement our growth strategy may be impaired by the types of
risks described under the section "Risk Factors."

OUR HISTORY

TMF, Inc. was incorporated in Texas in 1991, and HRN Marketing Corp. was
incorporated in Florida in 1998. In the spring of 1998, TMF, Inc. and HRN
Marketing Corp. engaged an advisor to explore a variety of strategic
alternatives. USAi, our parent company, was approached during this process.
Negotiations for a possible transaction began in August of 1998. In connection
with these negotiations, our company was formed in Delaware on March 25, 1999 as
a direct, wholly owned subsidiary of USAi.

On April 13, 1999, we entered into a definitive agreement with USAi, TMF,
Inc., HRN Marketing Corp. and Messrs. David Litman and Robert Diener to acquire
substantially all the assets and liabilities of TMF, Inc. and HRN Marketing
Corp. This transaction was completed on May 10, 1999. Consequently, TMF, Inc.
and HRN Marketing Corp. are, collectively, our predecessor business. Along with
their spouses and trusts for the benefit of some members of their families,
Messrs. Litman and Diener were the sole stockholders of TMF, Inc. and HRN
Marketing Corp. Since the acquisition, Messrs. Litman and Diener have continued
on as our Chief Executive Officer and President, respectively.

At the closing of the acquisition, we paid approximately $162.5 million to
TMF, Inc. and HRN Marketing Corp. This amount consisted of the $150.0 million
purchase price, which was paid in the form of a promissory note, and a
$12.5 million payment for our predecessor business' attainment of financial
targets during its first fiscal quarter of 1999. Approximately $145.0 million of
the principal amount of the promissory note was paid on the day after the
closing, and the final $5.0 million payment was paid on January 31, 2000. Under
the purchase agreement, we were required to pay TMF, Inc. and HRN Marketing
Corp. up to $12.5 million at the end of each of the last three fiscal quarters
in 1999 and for the year ended December 31, 1999 if specified financial targets
were met in each of those quarters and for the year. As a result, we have paid a
total of $25.0 million to a party designated by TMF, Inc. and HRN Marketing
Corp. for the fiscal quarters ended June 30, 1999 and September 30, 1999. We
have accrued for a $12.5 million payment for our year ended December 31, 1999
that we expect to make in the first fiscal quarter of 2000. This payment will be
funded by a capital contribution from USAi.

TMF, Inc. and HRN Marketing Corp. are entitled to a contingent cash payment
based on our performance for the twelve-month period ending March 31, 2000. This
additional payment will be based upon the greater of:

- 2.5 times the total growth in our adjusted earnings for the period; or

- 1.44 times the total growth in our adjusted gross profit for the period
(provided this growth in adjusted gross profit exceeds 50%).

In addition to being a guarantor of our obligations, USAi has agreed to make
this contingent payment on our behalf.

We have entered into an amended and restated asset purchase agreement that
eliminates contingent cash payments based on performance for the twelve-month
periods ending March 31, 2001

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and March 31, 2002. In exchange for the elimination of these cash payments,
immediately prior to the closing of this offering, we will issue to a party
designated by TMF, Inc. and HRN Marketing Corp. 5,100,000 shares of class A
common stock. See "Certain Transactions."

We also are required to issue to a party designated by TMF, Inc. and HRN
Marketing Corp. shares of our class A common stock equal to 10% of the number of
shares of our common stock outstanding immediately prior to the closing of this
offering, or 4,899,900 shares. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Certain Transactions."

Our offices are located at 8140 Walnut Hill Lane, Suite 203, Dallas, Texas
75231, and our telephone numbers are (214) 361-7311, (800) 96-hotel and
(800) 715-7666. Our world wide websites are www.hoteldiscount.com and
www.180096hotel.com. The information on our websites is not incorporated by
reference into this prospectus.

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THE OFFERING

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Class A common stock offered(1)............................. 5,400,000 shares

Common stock to be outstanding after this offering:

Class A common stock(1)(2)................................ 15,399,900 shares
Class B common stock...................................... 38,999,100 shares

Total common stock(1)(2)................................ 54,399,000 shares
</TABLE>

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(1) Excludes 810,000 shares of class A common stock issuable upon exercise of
the overallotment option described in "Underwriting."

(2) Includes 9,999,900 shares of class A common stock to be issued to a party
designated by TMF, Inc. and HRN Marketing Corp. immediately prior to the
closing of this offering. See "Certain Transactions." Excludes 5,500,000
shares of class A common stock reserved for issuance under our stock option
plans as described in "Management--Employee Benefit Plans" and "Management--
Directors' Stock Option Plan"; and 3,876,320 shares of class A common stock
to be reserved for issuance under warrants we have agreed to issue to a
number of our third-party website affiliates upon the closing of this
offering, of which warrants to purchase 1,428,365 shares will be immediately
exercisable and a performance warrant to purchase 2,447,955 shares will be
subject to specified vesting criteria. See "Description of Capital
Stock--Warrants to Purchase Common Stock."

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Voting rights............................. Holders of class A common stock will have one vote per
share.

Relative rights of class A common stock
and class B common stock................ The class A common stock and class B common stock have
substantially identical rights except for conversion and
voting rights. The class A common stock entitles its
holders to one vote per share, and the class B common
stock entitles its holders to 15 votes per share on all
matters submitted to a vote or for the consent of
stockholders unless Delaware law requires otherwise. The
class A common stock and class B common stock will vote
together as a single class on all matters submitted to a
vote or for the consent of stockholders unless Delaware
law requires otherwise. The shares of class B common
stock are convertible at any time at the option of the
holder into shares of class A common stock on a
share-for-share basis. In addition, shares of class B
common stock will be automatically converted into a like
number of shares of class A common stock upon any sale,
conveyance, foreclosure upon, assignment or other
transfer of shares of class B common stock, other than a
transfer to an affiliate of USAi or, in certain
circumstances, a tax-free spin-off or similar
transaction by USAi. See "Description of Capital Stock."

Controlling stockholder................... USAi beneficially owns all the shares of our outstanding
class B common stock, and immediately after this
offering, but before any exercise of the overallotment
option, will beneficially own approximately 71.2% of our
outstanding common stock, representing approximately
97.4% of the total voting power of our common stock. See
"Risk Factors--Our business is controlled by USAi and,
as a result, our other
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<TABLE>
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stockholders will have little or no influence over
stockholders' decisions," "--We may face potential
conflicts of interest with USAi which may harm our
business," "--USAi may sell its shares of our common
stock in the future which may depress our stock price"
and "Principal Stockholders."

Use of proceeds........................... We estimate that the net proceeds from this offering
will be approximately $78.8 million. We expect to use
the net proceeds of this offering for general corporate
purposes, including working capital to support the
continued expansion of our operations, expenses
associated with enhancing our websites, advertising
campaigns and other marketing efforts, capital
expenditures and strategic acquisitions, although we
currently have no commitments to make any acquisitions.
See "Use of Proceeds."

Nasdaq National Market Symbol............. "ROOM"
</TABLE>

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SUMMARY FINANCIAL DATA

The following table presents summary financial data of our company and our
predecessor business. The data was derived from our audited financial statements
and our predecessor business' audited combined financial statements, and
reflects the operations and financial position of our company or our predecessor
business at the dates and for the periods indicated. The table also presents
summary unaudited pro forma combined condensed financial data as of and for the
year ended December 31, 1999. The pro forma combined condensed statements of
operations data gives effect to the acquisition of substantially all the assets
of our predecessor business and to the capital transactions that will occur in
connection with this offering as if they had occurred on January 1, 1999. The
pro forma combined condensed balance sheet data gives effect to the capital
transactions that will occur in connection with this offering as if they had
occurred on December 31, 1999. Pro forma earnings per share data is presented
based on 38,999,100 shares of class B common stock owned by USAi, 9,999,900
shares of class A common stock to be issued to a party designated by TMF, Inc.
and HRN Marketing Corp. immediately prior to the closing of this offering (see
"Prospectus Summary--Our History"), and 5,400,000 shares of class A common stock
issued in this offering, assuming no exercise of the overallotment option. The
information in this table should be read in conjunction with the financial
statements and accompanying notes and other financial data pertaining to our
company and our predecessor business as well as "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus. For a further discussion of the pro forma adjustments,
including the capital transactions that will occur in connection with this
offering, see "Unaudited Pro Forma Combined Condensed Statement of Operations."

<TABLE>
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PREDECESSOR REGISTRANT
-------------------------------------------------- ------------
ACTUAL ACTUAL PRO FORMA
-------------------------------------------------- ------------ ------------
PERIOD
YEAR ENDED DECEMBER 31, PERIOD MAY 11 TO YEAR ENDED
---------------------------------- JANUARY 1 TO DECEMBER 31, DECEMBER 31,
1996 1997 1998 MAY 10, 1999 1999 1999 (1)
-------- -------- -------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
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STATEMENTS OF OPERATIONS DATA:
Net revenues.............................. $23,275 $34,758 $66,472 $ 37,701 $ 124,113 $ 161,814
Operating costs and expenses:
Cost of sales........................... 16,003 23,284 45,818 26,538 89,385 115,923
Selling, general and administrative
(2)................................... 3,857 5,782 9,770 5,669 16,177 22,022
Officers' distributions (2)............. 3,618 6,160 10,126 -- -- --
Non-recurring acquisition-related costs
(3)................................... -- -- -- 20,257 -- --
Amortization of goodwill (4)............ -- -- -- -- 12,897 36,031
------- ------- ------- ----------- ----------- -----------
Total operating costs and expenses.... 23,478 35,226 65,714 52,464 118,459 173,976
------- ------- ------- ----------- ----------- -----------
Operating profit (loss)................. (203) (468) 758 (14,763) 5,654 (12,162)
Other income (expense):
Interest and other, net................. 257 447 911 429 889 1,234
Gain on sale of securities.............. 71 13 74 471 -- 471
------- ------- ------- ----------- ----------- -----------
328 460 985 900 889 1,705
------- ------- ------- ----------- ----------- -----------
Earnings (loss) before income taxes....... 125 (8) 1,743 (13,863) 6,543 (10,457)
Income tax expense (5).................... 38 2 5 -- 2,421 --
------- ------- ------- ----------- ----------- -----------
Net earnings (loss)..................... $ 87 $ (10) $ 1,738 $ (13,863) $ 4,122 $ (10,457)
======= ======= ======= =========== =========== ===========
Basic and diluted earnings (loss) per
share................................. $ 0.11 $ (0.19)
=========== ===========
Basic and diluted weighted average
shares outstanding.................... 38,999,100 54,399,000
=========== ===========
</TABLE>

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<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED (6)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 6,257 $ 6,257 $ 85,009
Deferred revenue............................................ 16,447 16,447 16,447
Net working capital (deficit) (7)........................... (44,754) (32,254) 46,498
Goodwill, net............................................... 187,411 347,409 347,409
Total assets................................................ 204,250 364,248 443,000
Current liability for amounts due under purchase
agreement (7)............................................. 17,500 5,000 5,000
Net stockholders' equity (7)................................ 146,347 318,845 397,597
</TABLE>

<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR REGISTRANT
---------------------------------- ------------ -------------
ACTUAL ACTUAL ACTUAL PRO FORMA
---------------------------------- ------------ ------------- ------------
PERIOD
YEAR ENDED DECEMBER 31, PERIOD MAY 11 TO YEAR ENDED
---------------------------------- JANUARY 1 TO DECEMBER 31, DECEMBER 31,
1996 1997 1998 MAY 10, 1999 1999 1999 (1)
-------- -------- -------- ------------ ------------- ------------
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OTHER DATA:
Total room nights sold................... 183,000 224,000 442,000 295,000 934,000 1,229,000
Cities served (during the period)........ 15 16 27 34 40 40
Internet generated sales (8)............. 6% 21% 44% 70% 86% 81%
CASH FLOW DATA:
Operating activities..................... $ 3,040 $ 647 $ 8,849 $ 17,223 $ 23,763
Investing activities..................... (390) (897) (4,214) 3,006 (159,819)(9)
Financing activities..................... -- -- (2,499) -- 142,313 (9)
EBITDA (10).............................. $ (150) $ (384) $ 990 $ (14,644) $ 18,891
</TABLE>

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(1) Pro forma statements of operations data gives effect to the elimination of
officers' distributions and non-recurring acquisition-related costs,
amortization of goodwill, interest expense and pro forma income taxes. Pro
forma balance sheet data reflects the recapitalization of our capital stock
and the capital contribution of $12.5 million by USAi for the satisfaction
of our acquisition related liability. See "Unaudited Pro Forma Combined
Condensed Statement of Operations."

(2) Our predecessor business distributed substantially all of its earnings
before taxes to its officers and recorded the distributions as expense. We
have new compensation arrangements with our officers and the expense related
to those arrangements is included in selling, general and administrative
costs. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

(3) Our predecessor business paid discretionary bonuses of $0.4 million to its
employees (other than Messrs. Litman and Diener) and incurred $0.2 million
of professional and advisory fees related directly to the acquisition. Our
predecessor business recorded a compensation charge of $18.7 million related
to an agreement that the principal owners of our predecessor business had
with an employee of TMF, Inc. See "Certain Transactions."

(4) As a result of our acquisition of substantially all the assets of our
predecessor business on May 10, 1999, we recorded goodwill of
$200.3 million, representing the unallocated excess of acquisition costs
over net assets acquired, which is being amortized over ten years.
Furthermore, the amount of goodwill and related amortization will increase
by approximately $160.0 million due to the issuance of 9,999,900 shares of
class A common stock to a party designated by TMF, Inc. and HRN Marketing
Corp. immediately prior to the closing of this offering. The pro forma
information reflects the incremental amount of goodwill amortization as if
the acquisition and offering had taken place at the beginning of the periods
presented. TMF, Inc. and HRN Marketing Corp. are also entitled to other
payments based on our future earnings which, if realized, will result in
additional purchase price and goodwill. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Transactions." The pro forma information does not reflect the incremental
amount of goodwill amortization that will occur from the payment of any
additional purchase price by us or USAi.

(5) As of January 1, 1997, our predecessor business elected to be taxed as a
subchapter S corporation and as a result, did not pay federal income taxes.
As of May 11, 1999, in connection with our acquisition of our predecessor
business, we elected to be taxed as a subchapter C corporation as part of
USAi's consolidated group until the completion of this offering.

(6) Balance sheet data is adjusted to give effect to the issuance of 5,400,000
shares of class A common stock in this offering at the initial public
offering price, assuming no exercise of the overallotment option.

(7) As of December 31, 1999, we reflect a $17.5 million current liability
related to additional consideration in connection with the acquisition of
our predecessor business. Of that amount, $5.0 million was paid on
January 31, 2000 and $12.5 million will be funded by a capital contribution
from USAi in our first fiscal quarter of 2000. The pro forma balance sheet
data reflects the elimination of $12.5 million of this liability.

(8) Reflects the percentage of revenues earned from hotel room bookings
generated through our websites or our third-party affiliated websites.

(9) For the period May 11 to December 31, 1999, cash flows used in investing
activities includes $158.0 million of cash used in connection with our
acquisition of our predecessor business. Cash flows from financing
activities includes $142.3 million of net capital contributions by USAi.

(10) EBITDA is defined as operating profit before depreciation and amortization
of goodwill. Prior to the acquisition, EBITDA reflects officers'
distributions and non-recurring acquisition related costs. EBITDA is
presented in this prospectus because we believe it is a widely accepted
valuation indicator for companies in our industry. EBITDA should not be
considered in isolation or as a substitute for measures of financial
performance or liquidity prepared in accordance with generally accepted
accounting principles. EBITDA may not be comparable to calculations of
similarly titled measures presented by other companies. Depreciation expense
for the years ended December 31, 1996, 1997, 1998 and the periods January 1
to May 10, 1999 and May 11 to December 31, 1999 was $53, $84, $232, $119 and
$340, respectively.

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RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE DECIDING WHETHER TO
INVEST IN OUR CLASS A COMMON STOCK. ALL OF THESE RISKS COULD ADVERSELY AFFECT
OUR BUSINESS. THE TRADING PRICE OF OUR CLASS A COMMON STOCK COULD DECLINE
BECAUSE OF GENERAL MARKET CONDITIONS OR IF ANY OR ALL OF THESE RISKS CAME TO
PASS, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT. IN EVALUATING THE RISKS
OF INVESTING IN OUR COMPANY, YOU SHOULD ALSO EVALUATE THE OTHER INFORMATION SET
FORTH IN THIS PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND THE NOTES
ACCOMPANYING THEM.

IN THE FUTURE, IF WE ARE UNABLE TO OBTAIN ARRANGEMENTS WITH HOTEL SUPPLIERS
SIMILAR TO THOSE WE CURRENTLY HAVE, OUR BUSINESS MAY SUFFER.

If we are unable to maintain satisfactory relationships with our existing
hotel suppliers or if our hotel suppliers establish similar or more favorable
relationships with our competitors, our operating results and our business would
be harmed because we would not have the necessary supply of hotel rooms to
satisfy the needs of our customers or our affiliates. Consequently, we would not
be able to successfully compete for customers. Our business depends
significantly upon our ability to contract with hotels in advance for volume
purchases and guaranteed availability. We rely on our hotel suppliers to provide
us with rooms at wholesale prices. However, our contracts with our hotel
suppliers are not exclusive and most of the contracts must be renewed annually.
At times in the past, hotels have reduced our allotment of rooms or renewed our
contracts on less favorable terms and they may do so again in the future.
Furthermore, in order to maintain and grow our business, we will need to
establish new arrangements with hotels in our existing markets and in new
markets. We cannot assure you that we will be able to identify appropriate
hotels or enter into agreements with those hotels on favorable terms, if at all.
This failure could harm the growth of our business and, consequently, our stock
price. See "Business--Competition."

IF HOTELS ARE NOT ABLE TO PROVIDE US WITH AN ADEQUATE SUPPLY OF HOTEL ROOMS, OUR
BUSINESS MAY SUFFER.

If we do not have an adequate supply of hotel rooms, we would not be able to
meet the needs of our customers and our business could be harmed. From time to
time, hotels may not have a sufficient number of hotel rooms to sell to us.
These shortages would be particularly detrimental to our business results if we
do not have available inventory during our peak seasons.

IF WE ARE UNABLE TO MAINTAIN OUR AFFILIATIONS OR OBTAIN NEW AFFILIATIONS WITH
OTHER TRAVEL SERVICE PROVIDERS, WE MAY LOSE ACCESS TO CUSTOMERS AND FACE
INCREASED COMPETITION.

We derive significant benefits, including revenues and customer awareness,
from our arrangements with leading travel websites on the Internet, such as
Preview Travel, Microsoft's Expedia, Sabre's Travelocity, Pegasus System's
TravelWeb, Cheap Tickets, Yupi.com and GetThere.com. Although we currently have
affiliations with these travel websites, these websites also may compete with us
for hotel bookings. If a substantial number of these websites were to terminate
their affiliation with us, we would lose access to the visitors to their
websites and, consequently, we would lose access to potential customers.
Alternatively, if our affiliates offer their own hotel accommodations or if they
develop relationships with our competitors, we would face increased competition
for customers. A loss of online exposure also could be detrimental to our
ability to maintain or enhance our relationships with our hotel suppliers. See
"--The travel industry, particularly the online travel services market, is
highly competitive. If we do not compete successfully, we will not be able to
attract customers and maintain our arrangements with our hotel suppliers." We
also have numerous alliances with travel agencies, travel clubs and other
marketing organizations that we depend on to provide us with a broad market
presence and customer base. However, we cannot assure you that any of these
affiliations will continue, that our strategic affiliations will be successful
or that we will be able to find suitable additions or replacements. The failure
or loss of these affiliations would impair our growth strategy because we would
lose access to customers and face increased competition and, consequently, the
profitability of our business could suffer.

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OUR OPERATING RESULTS FLUCTUATE BECAUSE OF SEASONALITY AND OUR RELIANCE UPON
LEISURE TRAVEL. THESE FLUCTUATIONS MAY CAUSE OUR STOCK PRICE TO DECLINE.

Our operating results fluctuate because our business is seasonal and because
we rely significantly upon revenues from leisure travelers. Therefore, there are
numerous factors beyond our control that affect our operating results. For any
of the reasons listed below, or for other reasons we do not presently
anticipate, it is possible that our operating results will be below market
expectations, including the expectations of financial analysts and investors.
The failure to meet market expectations would have a material and adverse effect
on the price of our class A common stock.

Because of the travel patterns of our customers, we often have higher sales
and gross profits in the fourth quarter during the heavy holiday travel season.
Leisure travelers are sensitive to discretionary spending levels, tend to
curtail travel during general economic downturns and are affected by other
trends or events that may include:

- bad weather or natural disasters;

- fuel price increases;

- travel-related accidents;

- hotel, airline or other travel-related strikes; or

- terrorism.

Other factors that may adversely affect our quarterly operating results
include, but are
not limited to:

- the number of rooms we are able to sell;

- our ability to expand into new markets;

- our ability to develop strong brand recognition and customer loyalty;

- our ability to increase the level of traffic on our websites;

- our ability to retain or expand our wholesale hotel supply arrangements,
obtain satisfactory discounts or obtain sufficient inventory of rooms; and

- the announcement or introduction of lower prices or new travel services
and products by our competitors.

See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Seasonality."

WE MAY SUFFER LOSSES BECAUSE OF OUR INABILITY TO PREDICT THE NUMBER OF ROOMS WE
WILL NEED TO PURCHASE OR BECAUSE OF CUSTOMER CANCELLATIONS.

We contract for hotel rooms based on our predictions for the travel market
in the cities we serve. However, we are not always able to return unsold rooms
that we have committed to purchase. If we do not correctly predict demand for
hotel rooms which we are committed to purchase, we would be responsible for
covering the cost of the rooms we are unable to sell. The losses relating to the
lack of demand for rooms we have committed to purchase could be material. To
date, however, we have not incurred material losses due to lack of demand for
rooms we have committed to purchase. In addition, unsold rooms which may be
returned by us sometimes have a cancellation period that expires before the date
a customer can cancel the reservation. Accordingly, we have the risk of loss for
rooms cancelled by a customer subsequent to the period in which we can return
unused rooms.

THE TRAVEL INDUSTRY, PARTICULARLY THE ONLINE TRAVEL SERVICES MARKET, IS HIGHLY
COMPETITIVE. IF WE DO NOT COMPETE SUCCESSFULLY, WE WILL NOT BE ABLE TO ATTRACT
CUSTOMERS AND MAINTAIN OUR ARRANGEMENTS WITH OUR HOTEL SUPPLIERS.

We primarily compete with other consolidators of hotel accommodations,
online travel reservation services and entities that maintain travel-related
websites. We also compete with traditional travel agencies and hotels. We may
face more competition, directly or indirectly, from hotels as hotels enter the
discount rate market or book discount accommodations through travel agents. In
addition, the

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proliferation of special rate offers by hotels may affect the rates that we can
charge our customers, which would affect our profit margins and, in turn, our
business results. Announcements of technological innovations, new services,
business relationships or acquisitions by our competitors could cause our stock
price to decline. Increased competition could reduce our operating margins and
profitability, result in loss of market share and diminish our brand
recognition.

Some of our actual and potential competitors may have competitive
advantages, such as:

- longer operating histories;

- larger customer bases;

- potential to offer greater selection at better prices;

- greater brand recognition;

- more website traffic; or

- significantly greater financial, marketing or other resources.

We cannot assure you that we will be able to successfully compete against
current or future competitors. See "Business--Competition" for a more complete
discussion of our competition.

BECAUSE OUR BUSINESS HAS GROWN SO RAPIDLY, OUR BUSINESS COULD SUFFER IF WE DO
NOT SUCCESSFULLY MANAGE THIS GROWTH AND POTENTIAL FUTURE GROWTH.

Our business has grown very quickly in its few years of operating. We have
rapidly expanded our operations and anticipate further expansion. We began
operations in 1991, and since then, we have launched our online operations,
expanded the number of destinations we offer and increased the number of hotels
with which we have supply arrangements. In addition, we entered into our first
Internet marketing arrangement in 1995, and implemented our first proprietary
website in 1997. These changes have increased our volume of sales and have
placed, and we expect they will continue to place, a strain on our management,
operational and financial resources. We cannot assure you that we will be able
to efficiently or effectively manage the growth of our operations and any
failure to do so may limit our future growth and hamper our business strategy.

THE AMORTIZATION OF DEFERRED DISTRIBUTION AND MARKETING EXPENSES RESULTING FROM
THE ISSUANCE OF THE PERFORMANCE WARRANT TO TRAVELOCITY WILL HAVE AN ADVERSE
IMPACT ON OUR FUTURE OPERATING RESULTS WHOSE MAGNITUDE IS DIFFICULT TO PREDICT.

The value of the performance warrant we will issue to Travelocity upon
completion of this offering, to the extent earned, will be recorded as a
non-cash deferred distribution and marketing expense to be amortized over the
three-year term of our relationship with Travelocity. The amortization will
decrease our net income and negatively impact our future operating results
during that time.

Portions of the performance warrant will vest as we achieve the performance
targets described in "Description of Capital Stock--Warrants to Purchase Common
Stock." This performance warrant, if fully vested, will be exercisable for a
maximum of 2,447,955 shares of our class A common stock. We will record an
additional non-cash deferred distribution and marketing expense related to the
portion of the warrant that vests. At this time, we cannot determine the amount
of this expense because we do not know to what degree we will achieve the
performance targets, the portion of the warrant that will vest or the value of
the vested portion on the date it vests. If our stock price rises significantly
during the term of our relationship with Travelocity, the value of the vested
portion may be high, and the amount of the deferred distribution and marketing
expense will be large. If the amount of that expense is large, it will have an
adverse effect on our income and operating results. If we are forced to expense
the entire performance warrant in one year, the effect on our net income and
operating results for that year will be even more adverse.

The amount of this non-cash deferred distribution and marketing expense is
uncertain, but it could be significant. For example, if the performance warrant
were to fully vest, and if the price of our class A common stock were to
appreciate by 5% each year over the next three years, the aggregate amount of
non-cash deferred distribution and marketing expense that we would amortize
would be

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approximately $27.2 million. If our stock price appreciated by 150% each year
over the next three years, the amount of that expense would be approximately
$270.9 million. These examples are for illustrative purposes only, and we cannot
assure you about the trading price of our class A common stock. For a more
detailed description of the potential financial impact of the warrants, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."

GOODWILL AMORTIZATION WILL, AND CONTINGENT PAYMENTS MAY, HAVE AN ADVERSE IMPACT
ON OUR FUTURE OPERATING RESULTS.

Goodwill is generally created at the time a business is acquired if the
total amount of the purchase price paid is greater than the fair value of the
assets acquired. Goodwill is amortized over a specified period and reduces
earnings as it is amortized. In connection with our acquisition of our
predecessor business, we recorded $200.3 million of goodwill, which will be
amortized over ten years. As of December 31, 1999, goodwill represented
approximately 91.8% of the book value of our assets, and we will amortize
approximately $187.4 million in goodwill ratably through May 2009. The amount of
goodwill and related amortization will increase by approximately $160.0 million
due to the issuance of 9,999,900 shares of class A common stock to a party
designated by TMF, Inc. and HRN Marketing Corp. immediately prior to the closing
of the offering. At the closing of this offering, goodwill will be approximately
$344.9 million and will represent 78% of the book value of our assets. The
$160.0 million increase in goodwill will be amortized over the remaining
ten-year life of the goodwill, which will result in total amortization of
approximately $37.3 million per year through May 2009. We also will make a cash
payment to a party designated by TMF, Inc. and HRN Marketing Corp. for the
twelve-month period ending March 31, 2000. The contingent cash payment, if made,
also will increase our goodwill and future amortization. Based on currently
available financial information, we estimate that payment to be between $30.0
million and $40.0 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Certain Transactions."

OUR BUSINESS DEPENDS SUBSTANTIALLY ON THE CONTINUING EFFORTS OF OUR KEY
EMPLOYEES AND OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO RETAIN OUR KEY
EMPLOYEES AND TO ATTRACT TALENTED NEW PERSONNEL.

We depend substantially on the continued services and performance of our
senior management, particularly David Litman, our Chief Executive Officer,
Robert Diener, our President, and some other key personnel. The loss of services
of either of these executive officers or other key employees could harm the
management of our business and our operating results because of the significant
role these employees play in the operation of our business.

Our future success depends on our ability to identify, attract, hire, train,
retain and motivate other highly skilled technical, managerial, marketing and
customer service personnel. We expect to hire additional key personnel and
support staff in the future. However, we cannot assure you that we will be able
to identify or hire the right individuals to manage our growth effectively.
Competition for such personnel is intense. We may not be able to attract,
assimilate or retain sufficiently qualified personnel. This failure could
negatively impact the day-to-day operations of our business and impair our
growth strategy by decreasing our ability to compete effectively with our
competition and implement expansion initiatives.

ACQUISITIONS WHICH MAY EXPOSE US TO RISKS THAT COULD SIGNIFICANTLY HARM OUR
BUSINESS ARE A PART OF OUR GROWTH STRATEGY.

One part of our growth strategy is to broaden the scope and content of our
existing business through acquisitions. Although we are not currently committed
to any particular acquisitions, our management regularly evaluates acquisition
opportunities as a way for us to remain competitive. See "Business--Our Growth
Strategy." Our failure to successfully complete acquisitions could adversely
affect our ability to compete in the online travel services market. Even if we
are successful in acquiring and integrating businesses, the acquisitions may be
time-consuming, costly or unwise, which may cause our acquisitions not to have
the desired or predicted effects on our operating results and may adversely

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affect our growth strategies. Acquisitions that are completed in the future
would expose us to potential risks. These include risks associated with the:

- assimilation of new operations, sites and personnel;

- unforeseen liabilities, including our uncertainty that the sellers of
acquired businesses will accurately represent the results of operations,
financial condition and business of their companies or will have the means
to satisfy their indemnification obligations;

- diversion of resources from our existing businesses, sites and
technologies;

- inability to generate sufficient revenues or content to offset the costs
and expenses of acquisitions;

- consequences of doing business in international markets, such as the
conversion of foreign currencies;

- maintenance of uniform standards, controls, procedures and policies; and

- potential loss of, or harm to, relationships with employees, customers and
hotel suppliers as a result of integration of new businesses.

OUR BUSINESS IS CONTROLLED BY USAI AND, AS A RESULT, OUR OTHER STOCKHOLDERS WILL
HAVE LITTLE OR NO INFLUENCE OVER STOCKHOLDERS' DECISIONS.

We are currently a wholly owned subsidiary of USAi. Following this offering,
USAi will own 38,999,100 shares of our class B common stock, which has 15 votes
per share. Consequently, USAi will have approximately 97.4% of the total voting
power of our common stock and, therefore, will have the right to control the
outcome of any matter submitted for the vote or consent of our stockholders,
except for when a separate vote of the holders of class A common stock is
required by Delaware law. USAi will have the voting power to control the
election of our board of directors and it will be able to cause the amendment of
our restated certificate of incorporation or our restated bylaws. USAi also may
be able to cause changes in our business without seeking the approval of any
other party. These changes may not be to the advantage of our company or in the
best interest of our other stockholders. For example, USAi will have the power
to prevent, delay or cause a change in control of our company and could take
other actions that might be favorable to USAi, but not necessarily to other
stockholders. Similarly, USAi has the voting power to exercise a controlling
influence over our business and affairs and has the ability to make decisions
concerning such things as:

- mergers or other business combinations;

- purchases or sales of assets;

- offerings of securities;

- indebtedness that we may incur; and

- payments of any dividends.

We cannot assure you that USAi's ownership of our common stock or its
relationship with us will not have a material adverse effect on our business,
financial condition or results of operations, or on the market price of our
class A common stock.

USAi could elect to sell all or a substantial portion of its equity interest
in us to a third party, which would represent a controlling or substantial
interest, without offering to our other stockholders the opportunity to
participate in this transaction. If another party acquires USAi's interest in
us, that third party may be able to control us in the same manner that USAi is
able to control us. A sale to a third party also may adversely affect the market
price of our class A common stock because the change in control may result in a
change in management decisions, business policy and our attractiveness to future
investors. See "--Some of our shares will be eligible for future sale which may
depress our stock price."

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WE MAY FACE POTENTIAL CONFLICTS OF INTEREST WITH USAI WHICH MAY HARM OUR
BUSINESS.

Conflicts of interest may arise between us, on the one hand, and USAi and
its affiliates, on the other hand, in areas relating to past, ongoing and future
relationships, corporate opportunities, indemnity agreements, tax and
intellectual property matters, potential acquisitions or financing transactions,
sales or other dispositions by USAi of shares of our common stock held by it and
the exercise by USAi of its ability to control our management and affairs. For
example, USAi is engaged in a diverse range of media- and entertainment-related
businesses, including businesses engaged in electronic and online commerce, such
as Home Shopping Network, Ticketmaster Online-CitySearch and USA Networks
Interactive, and these businesses may have interests that conflict or compete in
some manner with our business. USAi is under no obligation to share any future
business opportunities available to it with us, unless Delaware Law requires it
to do so, and our restated certificate of incorporation specifically includes
provisions which release USAi from this obligation and any liability that would
result from a breach of these obligations. We cannot assure you that any
conflicts that may arise between us and USAi or any of its affiliates, any loss
of a corporate opportunity to USAi that may otherwise be available to us or any
engagement by USAi in any activity that is similar to our business, will not
harm our business or negatively impact our financial condition or results of
operations because these conflicts of interest or a loss of a corporate
opportunity could result in a loss of customers and, therefore, business. See
"Description of Capital Stock--Corporate Opportunities."

IF OUR SECURITY SYSTEM IS BREACHED, OUR BUSINESS AND REPUTATION COULD SUFFER.

In our business, secured transmission of confidential information (such as
customers' itineraries, hotel and other reservation information, credit card
numbers and expiration dates, personal information and billing addresses) over
public networks is essential to maintaining consumer and supplier confidence.
Although we employ measures such as encryption technology, our current security
measures may not be adequate. Advances in computer capabilities, new discoveries
in the field of cryptography, or other events or developments may result in a
compromise or breach of the methods we use to protect customer transaction
information. A party who can circumvent our security might be able to steal or
misuse this or other information or cause interruptions in our operations.
Security breaches also could expose us to a risk of loss or litigation and
possible liability for failing to secure confidential customer or supplier
information. If any compromise of our security were to occur, it could have a
detrimental effect on our reputation and could adversely affect our ability to
attract customers since the Internet-based portion of our hotel and
travel-related reservations business cannot function without the use of
confidential information transmitted over the Internet. We also may be required
to expend significant financial and other resources to protect against security
breaches or to alleviate problems caused by breaches in the future. Furthermore,
concerns about the security of transactions conducted on the Internet and the
potential compromise of customer privacy may inhibit the growth of commercial
online services generally as a means of conducting commercial transactions
which, in turn, could adversely affect the growth of our business.

WE MAY NOT BE ABLE TO PREVENT OTHERS FROM USING OUR DOMAIN NAMES, TRADE NAMES OR
OTHER INTELLECTUAL PROPERTY WHICH MAY HARM OUR BUSINESS AND EXPOSE US TO
LITIGATION.

Because our hotel reservations business is to a great extent leisure and
retail-oriented, customer name recognition and the "look and feel" (as well as
the underlying functionality) of our website are very important to our ability
to maintain our competitive position. Furthermore, our retail customers often
associate our business with our domain name rather than our corporate or trade
name. Therefore, we regard our domain names and similar intellectual property as
critical to our success. Failure to effectively protect our intellectual
property could harm us through erosion of our brand name or the misappropriation
of our proprietary technologies by our competitors, thereby hindering our
ability to compete effectively. Some of our trade names are not eligible to
receive trademark protection in every country where our products and services
are available.

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In addition, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear and subject
to change. Consequently, we may not be able to maintain domain names in all of
the locations where we conduct business or prevent others from acquiring domain
names that decrease the value of our domain names.

We also may be required to incur significant expenses to protect our rights
or to defend claims by others of alleged infringement of trademarks and other
intellectual property rights of third parties by us. If we do not prevail, we
could be required to stop using our trade names or domain names or to pay
damages. See "Business--Proprietary Rights."

OUR BUSINESS MAY BE HARMED IF OUR INFRASTRUCTURE AND TECHNOLOGY ARE UNABLE TO
HANDLE OUR GROWTH OR BECOME OBSOLETE, ARE DAMAGED OR OTHERWISE FAIL.

We use an internally developed system that supports our websites and
substantially all aspects of transaction processing, including making
reservations and confirmations. Our business may be harmed if we are not able
to:

- accurately project the rate or timing of increases in traffic levels on
our websites;

- upgrade our systems and infrastructure fast enough to accommodate future
traffic levels or to avoid obsolescence; or

- successfully integrate any newly developed or purchased technology with
our existing systems.

Upgrading or expanding our systems would likely be expensive and
time-consuming and could harm our operating results. Capacity constraints could
cause unanticipated system disruptions, slower response times, poor customer
service, impaired quality and speed of reservations and confirmations and delays
in reporting accurate financial information. These factors could result in our
losing customers and, in turn, our arrangements with our hotel suppliers. In
addition, the attention of our management may be diverted by dealing with these
and other operational issues as we grow.

Our call center and substantially all of our computer and communications
systems are located at a single facility in Dallas and, therefore, are
vulnerable to damage or interruption from human error, computer viruses, fire,
flood, power loss, telecommunications failure, physical or electronic break-ins,
sabotage, intentional acts of vandalism, natural disasters and similar events.
We currently do not have redundant systems and do not carry sufficient business
interruption insurance to compensate us for losses that may occur. In addition,
although we back up data on a regular basis, we do not have a formal disaster
recovery plan. See "Business--Technology" for a discussion of our technology and
"Business--Operations" for a discussion of our Internet and call center
operations.

OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH OF ONLINE COMMERCE AND OUR ONLINE
SALES. A DECLINE IN EITHER OF THESE MAY HARM OUR FUTURE SUCCESS.

The success of our business could be adversely affected if online commerce
and our online sales do not continue to grow. Although the number of travelers
making travel reservations and other arrangements through the Internet is
significant, the popularity of the Internet as the medium of choice for
travelers making travel arrangements must continue to grow in order for our
revenues to grow. Our future revenues and profits also depend, to a large
degree, on the widespread acceptance and use of the Internet and online services
as a medium for commerce generally by customers and sellers. The future demand
for and acceptance of products and services delivered over the Internet is
uncertain. For us to achieve significant growth, customers who have historically
used traditional means of commerce will instead need to elect to purchase
products and services online. Customers could potentially use our website for
information but choose to book accommodations directly from hotels or elsewhere.
If online commerce does not grow or if our online sales do not continue to
improve, we will be unable to gain access to a significant number of new
customers and, in turn, the growth of our business and our profitability may
decline significantly.

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OUR BUSINESS DEPENDS ON THE INFRASTRUCTURE OF THE INTERNET TO FUNCTION PROPERLY.
IF THE INTERNET OR OUR TECHNOLOGY FAILS TO PERFORM, OUR BUSINESS MAY BE HARMED.

Our business depends, to a large degree, on the ability of our customers to
access our websites and to book their hotel reservations through our websites or
third-party affiliated websites. Because the retail travel business is
competitive in terms of not only price but also customer convenience, our hotel
reservations business may be materially and adversely affected by disruptions to
the infrastructure of the Internet, to our website or to the websites of our
third-party website affiliates. Potential customers, if they are faced with
outages, errors or significant delays in accessing our website or those of our
third-party website affiliates, may choose to access our competitors' websites
or book their travel arrangements using means other than the Internet.

Major online service providers and the Internet itself have experienced
outages and other delays as a result of software and hardware failures and
intentional disruptions caused by "hackers" and could face outages and delays in
the future. If significant outages and delays occur, these occurrences are
likely to affect the level of Internet usage, consumer and supplier confidence
and the processing of transactions. Furthermore, any system interruptions that
result in the loss of data, the unavailability of our websites or reduced
performance of our reservation system would reduce the volume of reservations
and the attractiveness of our service offerings, which could have a negative
impact on our business and, as a result, our stock price. It is unlikely that we
could make up for the level of orders lost in those circumstances by increased
phone orders.

In addition, the Internet could lose its viability by reason of delays in
the development or adoption of new standards to handle increased levels of
activity or of increased government regulation. The adoption of new standards or
government regulation also may require us to incur substantial compliance costs.
See "--Changing government regulations and legal uncertainties may impair our
future growth and harm our business." If use of the Internet and other online
services does not continue to grow, or grows more slowly than expected, or if
the infrastructure for the Internet and other online services does not
effectively support the growth that may occur, or if the Internet and other
online services do not become a viable commercial marketplace, our future
profitability could be adversely affected because we will lose access to
customers who choose to make hotel reservations through means other than the
Internet.

WE RELY ON THIRD-PARTY SYSTEMS AND SERVICES, AND OUR BUSINESS MAY SUFFER IF THEY
ARE UNAVAILABLE IN THE FUTURE OR IF THEY NO LONGER OFFER QUALITY PERFORMANCE.

We rely on some third-party computer systems and third-party service
providers, including the infrastructure and database of those Internet sites
with which we have relationships, our websites and our call center operations.
We also are dependent on major credit card companies to process payment for our
transactions. Any interruption or termination in these third-party services or a
deterioration in their performance could seriously disrupt our business and
negatively impact our operating results because our customers and potential
customers desire both speed and reliability in using our reservation system. If
our arrangement with any of these third parties is terminated, we may not find
an alternative source of systems support on a timely basis or on commercially
reasonable terms, which would harm our business and our growth by decreasing our
ability to provide our services effectively.

THERE IS UNCERTAINTY REGARDING HOW NEW OR EXISTING TAX LAWS MAY AFFECT OUR
BUSINESS AND OUR INDUSTRY, AND ANY CHANGES TO THESE LAWS MAY ADVERSELY AFFECT
OUR BUSINESS.

Changes in tax laws, determinations, or interpretations that result in
significant additional taxes on our business could have an adverse effect on our
cash flows and results of operations. There is currently great uncertainty as to
whether or how existing laws governing sales and other taxes apply to sales made
through both our online and telephone reservations services. In addition, one or
more states could seek to impose additional income tax obligations or sales tax
collection obligations on out-of-state companies, such as ours, which engage in
or facilitate online commerce. A number of proposals have been made at state and
local levels that could impose these taxes on sales made through both our on-

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line and telephone reservations services or the income derived from these sales.
These proposals, if adopted, could remove a significant competitive advantage of
our online commerce versus standard forms of commerce and, therefore, the growth
of our business. In addition, there is uncertainty as to how certain state taxes
should be applied to the sale of hotel rooms by consolidators such as ourselves.
Changes in policy regarding the state tax applicable to our transactions could
harm our business by subjecting us to significant additional expenses.
Furthermore, there is a possibility that we may be subject to significant taxes
and penalties for any past failures to comply with these requirements.
Additional taxes could negatively affect our cash flows and results of
operations. See "Business--Government Regulation."

CHANGING GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES MAY IMPAIR OUR FUTURE
GROWTH AND HARM OUR BUSINESS.

Some segments of the travel industry are heavily regulated by the United
States and other governments under, for example, consumer protection laws and
unfair and deceptive trade practice regulations. The laws could result in
substantial compliance costs and could interfere with the conduct of our
business. See "Business--Government Regulation."

Currently, few laws and regulations directly apply to the Internet and
commercial online services. However, it is possible that laws and regulations
may be adopted with respect to the Internet or commercial online services
covering issues such as user privacy, pricing, content, copyrights,
distribution, antitrust and characteristics and quality of products and
services. Further, the growth and development of the market for online commerce
may prompt calls for more stringent consumer protection laws. The adoption of
any additional laws or regulations may decrease the growth of the Internet or
commercial online services. In turn, this could decrease the demand for our
products and services and increase our cost of doing business, or otherwise hurt
our business. In addition, the applicability to online commerce of existing laws
in various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve.

OUR EXPANSION INTO INTERNATIONAL MARKETS MAY MAKE US SUSCEPTIBLE TO GLOBAL
ECONOMIC FACTORS, FOREIGN TAX LAW ISSUES, FOREIGN BUSINESS PRACTICES AND
CURRENCY FLUCTUATIONS.

Our addition of international destinations may require us to make
significant investments to develop relationships in these locations for an
extended period of time before we realize returns on these investments, if any.
Providing our customers with international destinations to choose from may
subject us to particular risks, including:

- a decrease in tourism due to adverse political and economic conditions;

- fluctuations in the value of the U.S. dollar relative to other currencies;

- potentially adverse tax consequences;

- reduced protection for intellectual property rights and domain names in
some countries; and

- additional regulatory requirements.

If we do not realize increased sales from our international operations, our
profitability could suffer because of the investment we expect to make in this
effort.

BECAUSE WE ARE AN INTERNET-RELATED TRAVEL SERVICES BUSINESS, OUR STOCK PRICE MAY
FLUCTUATE, AND THE VALUE OF YOUR INVESTMENT MAY BE AFFECTED.

The market prices for stocks of Internet-related travel services companies,
particularly following an initial public offering, frequently experience wide
fluctuations and reach levels that bear no relationship to the operating
performance of these companies. These market prices generally are not
sustainable and are subject to wide variations. If our class A common stock
trades to these levels following this offering, it likely will experience a
material decline thereafter. The stock prices of other publicly-traded
Internet-related companies also have been volatile.

17
<PAGE>
In the past, securities class action litigation often has been brought
against companies following periods of volatility in the market price of their
securities. If our stock price is volatile, we may be the target of securities
litigation in the future. Securities litigation, regardless of merit or outcome,
could result in substantial costs and divert management's attention and
resources and also could have a material adverse effect on our business,
financial condition and results of operations. In particular, we could be
required to pay substantial damages, including punitive damages, if we were to
lose a lawsuit.

SOME OF OUR SHARES WILL BE ELIGIBLE FOR FUTURE SALE WHICH MAY DEPRESS OUR STOCK
PRICE.

Prior to this offering, there has been no market for our class A common
stock and we cannot assure you that a significant public market for our class A
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of our class A common stock in the public market after this
offering, including shares issued upon the conversion of our class B common
stock, or the anticipation of those sales, could adversely affect market prices
prevailing from time to time and could impair our ability to raise capital
through the sale of our equity securities.

In addition, upon completion of this offering, we have agreed to issue
warrants to purchase at the initial public offering price 3,876,320 shares of
class A common stock to a number of our third-party website affiliates. Of these
warrants, warrants to purchase 1,428,365 shares will be immediately exercisable,
and a performance warrant to purchase 2,447,955 shares will be subject to
specified vesting criteria. The shares underlying the performance warrant will
be entitled to two demand registration rights exercisable after the initial
closing of this offering. The registration rights will be subject to customary
limitations, such as minimum offering size and our right to delay or suspend
registration for good-faith business reasons. The performance warrant itself
will not (absent a waiver from us) be exercisable prior to the third anniversary
of the closing of this offering. See "Description of Capital Stock--Warrants to
Purchase Common Stock" and "Shares Eligible for Future Sale" for a more complete
description of all the warrants.

USAI MAY SELL ITS SHARES OF OUR COMMON STOCK IN THE FUTURE WHICH MAY DEPRESS OUR
STOCK PRICE.

Subject to applicable federal securities laws and the restrictions set forth
below, after completion of this offering, USAi may convert its shares of our
class B common stock at any time into shares of class A common stock on a
share-for-share basis. USAi also may transfer its class B common stock to its
affiliates, sell any portion, including all or substantially all, of the shares
of our class A common stock beneficially owned by it or distribute any or all of
these shares of our class A common stock to its stockholders. See "Description
of Capital Stock." Any sales or distributions by USAi of a substantial amount of
our class A common stock in the public market or to its stockholders, or the
perception that these transfers, sales or distributions could occur, could
adversely affect the prevailing market prices for our class A common stock.

We cannot assure you that in any transfer by USAi of its controlling
interest in our company, you or any other holders of our common stock will be
able to participate in this transaction or will realize any premium or other
amounts with respect to the sale.

INVESTORS WHO PURCHASE OUR CLASS A COMMON STOCK IN THIS OFFERING WILL SUFFER AN
IMMEDIATE DILUTION OF THEIR INVESTMENT.

The initial public offering price is expected to be substantially higher
than the book value per share of the outstanding classes of our common stock.
Investors purchasing shares of our class A common stock in this offering will
incur immediate, substantial dilution of their investment of approximately
$15.08 per share. See "Dilution."

18
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains "forward-looking statements" within the meaning of
the securities laws. We have based these forward-looking statements on our
current expectations and projections about future events, based on the
information currently available to us. These forward-looking statements are
principally contained in the sections "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
The forward-looking statements include, among other things, statements relating
to our anticipated financial performance, business prospects, new developments,
new strategies and similar matters.

These forward-looking statements are subject to risks, uncertainties and
assumptions that may affect the operations, performance, development and results
of our business and include, but are not limited to, the risk factors described
under the section "Risk Factors" in this prospectus and the following:

- material adverse changes in economic conditions in our markets;

- future regulatory actions and conditions in our operating areas;

- competition from others;

- successful integration of our divisions' management structures;

- product demand and market acceptance;

- the ability to protect proprietary information and technology or to obtain
necessary licenses on commercially reasonable terms; and

- the ability to obtain and retain key executives and employees.

We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or any other
reason. In light of these risks, uncertainties and assumptions, the
forward-looking statements discussed in this prospectus may not prove correct.

USE OF PROCEEDS

We estimate that we will receive approximately $78,752,000 in net proceeds
from the sale of shares in this offering, after we deduct underwriting discounts
and commissions and an estimated $1,600,000 in expenses payable by us. If the
underwriters exercise their overallotment option in full, we will receive
approximately $90,804,800. We expect to use the net proceeds of this offering
for general corporate purposes, including working capital to support the
continued expansion of our operations, expenses associated with enhancing our
websites, advertising campaigns and other marketing efforts, capital
expenditures and strategic acquisitions, although we currently have no
commitments to make any acquisitions.

As of the date of this prospectus, we cannot specify with certainty the
particular uses for the net proceeds we will receive upon the completion of this
offering. Accordingly, our management will have broad discretion in the
application of the net proceeds. Pending these uses, we intend to invest the net
proceeds from this offering in short-term, interest-bearing, investment-grade
securities.

DIVIDEND POLICY

We do not expect to declare or pay dividends on our common stock in the
foreseeable future. We currently anticipate that we will retain any future
earnings for use in our business.

19
<PAGE>
CAPITALIZATION

The following table gives effect to the recapitalization of our capital
stock and to the issuance of 9,999,900 shares of our class A common stock to a
party designated by TMF, Inc. and HRN Marketing Corp. immediately prior to the
closing of this offering. See "Certain Transactions." The table shows our actual
and unaudited pro forma capitalization as of December 31, 1999 and our adjusted
capitalization as of December 31, 1999 as if the offering had occurred as of
December 31, 1999 and assuming no exercise of the underwriters' overallotment
option. You should read this table together with the financial statements and
accompanying notes included in this prospectus beginning on page F-1 and the
information under "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash....................................................... $ 6,257 $ 6,257 $ 85,009
======== ======== ========
Long-term obligations, less current portion................ $ -- $ -- $ --

Stockholders' equity:
Preferred stock, $0.01 par value; 20,000,000 shares
authorized; none outstanding........................... -- -- --
Common stock:
Class A common stock, $0.01 par value; 600,000,000 shares
authorized; none, 9,999,900, 15,399,900 actual, pro
forma and as adjusted shares, respectively, issued and
outstanding (2)........................................ -- 100 154
Class B common stock, $0.01 par value; 150,000,000 shares
authorized; 38,999,100 actual, pro forma and as
adjusted shares issued and outstanding................. 390 390 390
Additional paid-in capital................................. 141,923 314,321 393,019
Accumulated other comprehensive loss....................... (88) (88) (88)
Retained earnings.......................................... 4,122 4,122 4,122
-------- -------- --------
Total stockholders' equity................................. 146,347 318,845 397,597
-------- -------- --------
Total capitalization................................... $146,347 $318,845 $397,597
======== ======== ========
</TABLE>

- ------------------------

(1) Pro forma capitalization reflects a capital contribution that will be made
by USAi in the first fiscal quarter of 2000 to pay a $12.5 million liability
to a party designated by TMF, Inc. and HRN Marketing Corp. based on the
attainment of specified financial targets during our year ended
December 31, 1999. It also reflects the proposed recapitalization, whereby
USAi will exchange its common stock for 38,999,100 shares of class B common
stock, and 9,999,900 shares of class A common stock to be issued to a party
designated by TMF, Inc. and HRN Marketing Corp. immediately prior to the
closing of this offering. See "Certain Transactions."

(2) Excludes 810,000 shares of class A common stock issuable upon exercise of
the overallotment option described in "Underwriting," 5,500,000 shares of
class A common stock reserved for issuance under our stock option plans as
described in "Management--Employee Benefit Plans" and 3,876,320 shares of
class A common stock to be reserved for issuance under warrants we have
agreed to issue upon the closing of this offering to a number of our
third-party website affiliates as described in "Description of Capital
Stock--Warrants to Purchase Common Stock."

20
<PAGE>
DILUTION

As of December 31, 1999, our pro forma net tangible book value was
approximately $(28.6) million, or $(0.58) per share of common stock. "Pro forma
net tangible book value per share" represents net tangible assets (total
tangible assets less total liabilities) divided by the assumed total number of
shares of common stock outstanding before this offering but after our proposed
recapitalization and the issuance of 9,999,900 shares of our class A common
stock to a party designated by TMF, Inc. and HRN Marketing Corp. immediately
prior to the closing of this offering, which will result in additional goodwill
of approximately $160.0 million. Without taking into account any changes in net
tangible book value after December 31, 1999, other than to give effect to this
offering, the adjusted pro forma net tangible book value of the common stock as
of December 31, 1999 would have been approximately $50.2 million, or $0.92 per
share. The following table shows the effect of the offering as if it had
occurred at December 31, 1999 and illustrates the immediate increase in pro
forma net tangible book value of $1.50 per share to existing shareholders and
the immediate dilution of $15.08 per share to new investors purchasing shares at
the initial public offering price:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $16.00
Pro forma net tangible book value per share as of
December 31, 1999....................................... $(0.58)
Increase in pro forma net tangible book value per share
attributable to the offering............................ $ 1.50
------
Pro forma net tangible book value per share as adjusted
for this offering....................................... $ 0.92
------
Dilution per share to new investors in this offering........ $15.08
======
</TABLE>

The calculation in the table above excludes 810,000 shares issuable upon
exercise of the underwriters' overallotment option.

The following table summarizes the number and percentage of shares of our
common stock purchased, the amount and percentage of consideration paid and the
average price per share paid by existing shareholders and by new investors
purchasing shares of our class A common stock in this offering.

<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED PAID AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders
Class A common stock..................... 9,999,900 18.4% -- -- $ --
Class B common stock (1)................. 38,999,100 71.7% $154,813,000 64.2% 3.97
New investors (2)
Class A common stock..................... 5,400,000 9.9% $ 86,400,000 35.8% 16.00
---------- ----- ------------ -----
Total................................ 54,399,000 100.0% $241,213,000 100.0%
========== ===== ============ =====
</TABLE>

- ------------------------

(1) The total consideration paid by the class B shareholder, USAi, is based on
$194.8 million of net cash paid less a dividend of $40.0 million that we
paid to USAi.

(2) If the underwriters' overallotment option is exercised in full, the number
of shares held by new investors will be increased to 6,210,000 or 11.3% of
the total shares of all classes of common stock to be outstanding after this
offering.

21
<PAGE>
SELECTED FINANCIAL DATA

The following table presents selected financial data of our company and our
predecessor business. The data was derived from our audited financial statements
and our predecessor business' audited combined financial statements, and
reflects the operations and financial position of our company or our predecessor
business at the dates and for the periods indicated. The combined financial
statements as of and for the four year period ended December 31, 1998 were
audited by Grant Thornton LLP, independent certified public accountants. The
combined financial statements for the period January 1 to May 10, 1999
(Predecessor) and the financial statements as of December 31, 1999 and for the
period May 11 to December 31, 1999 (Registrant) were audited by Ernst &
Young LLP, independent auditors. The information in this table should be read in
conjunction with the financial statements and accompanying notes and other
financial data pertaining to our company and our predecessor business as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.

On May 10, 1999, we acquired substantially all the assets and assumed
substantially all the liabilities of our predecessor business. We accounted for
this acquisition using the purchase method of accounting.

<TABLE>
<CAPTION>
PREDECESSOR REGISTRANT
---------------------------------------------- ------------
PERIOD PERIOD
YEAR ENDED DECEMBER 31, JANUARY 1 MAY 11 TO
---------------------------------- TO MAY 10, DECEMBER 31,
1995 1996 1997 1998 1999 1999
(IN THOUSANDS, EXCEPT SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net revenues............. $17,121 $23,275 $34,758 $66,472 $ 37,701 $ 124,113
Operating costs and
expenses:
Cost of sales.......... 12,358 16,003 23,284 45,818 26,538 89,385
Selling, general and
administrative (1)... 2,986 3,857 5,782 9,770 5,669 16,177
Officers' distributions
(1).................. 1,996 3,618 6,160 10,126 -- --
Non-recurring
acquisition-related
costs (2)............ -- -- -- -- 20,257 --
Amortization of
goodwill (3) -- -- -- -- -- 12,897
------- ------- ------- ------- -------- -----------
Total operating costs and
expenses............... 17,340 23,478 35,226 65,714 52,464 118,459
------- ------- ------- ------- -------- -----------
Operating profit
(loss)................. (219) (203) (468) 758 (14,763) 5,654
Other income (expense):
Interest and other,
net.................. 186 257 447 911 429 889
Gain on sale of
securities........... -- 71 13 74 471 --
------- ------- ------- ------- -------- -----------
186 328 460 985 900 889
------- ------- ------- ------- -------- -----------
Earnings (loss) before
income taxes........... (33) 125 (8) 1,743 (13,863) 6,543
Income tax (expense)
benefit (4)............ 9 (38) (2) (5) -- (2,421)
------- ------- ------- ------- -------- -----------
Net earnings (loss)...... $ (24) $ 87 $ (10) $ 1,738 $(13,863) $ 4,122
======= ======= ======= ======= ======== ===========
Basic and diluted
earnings per share..... $ 0.11
===========
Pro forma tax information
(4):
Historical earnings
(loss) before income
tax expense.......... $ 1,743 $(13,863)
Pro forma income tax
benefit (expense).... (645) 5,129
------- --------
Pro forma net earnings
(loss)............... $ 1,098 $ (8,734)
======= ========
</TABLE>

22
<PAGE>

<TABLE>
<CAPTION>
PREDECESSOR REGISTRANT
----------------------------------------------- ------------
YEAR ENDED DECEMBER 31, JANUARY 1 MAY 11 TO
---------------------------------- TO MAY 10, DECEMBER 31,
1995 1996 1997 1998 1999 1999
(IN THOUSANDS, EXCEPT SHARE AND OTHER DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END
OF PERIOD):
Cash and cash
equivalents............ $ 428 $ 3,078 $ 2,828 $ 4,964 $ 25,193 $ 6,257
Deferred revenue......... 1,305 1,470 3,278 7,299 19,293 16,447
Net working capital
(deficit) (5).......... (483) (463) (532) (1,856) (3,311) (44,754)
Goodwill, net............ -- -- -- -- -- 187,411
Total assets............. 4,013 7,105 7,958 14,544 32,127 204,250
Current liability for
amounts due under
purchase agreement
(5).................... -- 17,500
Net stockholders' equity
(deficit).............. (384) (295) (54) (852) (2,129) 146,347
OTHER DATA:
Total room nights sold... 171,000 183,000 224,000 442,000 295,000 934,000
Cities served (during the
period) 21 15 16 27 34 40
Internet generated sales
(6).................... -- 6% 21% 44% 70% 86%
CASH FLOW DATA:
Operating activities..... $ 1,795 $ 3,040 $ 647 $ 8,849 $ 17,223 $ 23,763
Investing activities..... (1,718) (390) (897) (4,214) 3,006 (159,819)
Financing activities..... -- -- -- (2,499) -- 142,313
EBITDA (7)............... $ (193) $ (150) $ (384) $ 990 $(14,644) $ 18,891
</TABLE>

- ------------------------------

(1) Our predecessor business distributed substantially all of its earnings
before taxes to its officers and recorded the distributions as expense. We
have new compensation arrangements with our officers and the expense related
to those arrangements is included in selling, general and administrative
costs. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

(2) Our predecessor business paid discretionary bonuses of $0.4 million to its
employees (other than Messrs. Litman and Diener) and incurred $0.2 million
of professional and advisory fees related directly to the acquisition. Our
predecessor business recorded a compensation charge of $18.7 million related
to an agreement that the principal owners of our predecessor business had
with an employee of TMF, Inc. See "Certain Transactions."

(3) As a result of our acquisition of substantially all the assets of our
predecessor business on May 10, 1999, we recorded goodwill of
$200.3 million, representing the unallocated excess of acquisition costs
over net assets acquired, which is being amortized over ten years.
Furthermore, the amount of goodwill and related amortization will increase
by approximately $160.0 million due to the issuance of 9,999,900 shares of
class A common stock to be issued to a party designated by TMF, Inc. and HRN
Marketing Corp. immediately prior to the closing of this offering. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Transactions."

(4) As of January 1, 1997, our predecessor business elected to be taxed as a
subchapter S corporation and as a result, did not pay federal income taxes.
As of May 11, 1999, in connection with our acquisition of our predecessor
business, we elected to be taxed as a subchapter C corporation as part of
USAi's consolidated group until the completion of this offering.

(5) As of December 31, 1999, we reflect a $17.5 million current liability
related to additional consideration in connection with the acquisition of
our predecessor business. Of that amount, $5.0 million was paid on
January 31, 2000 and $12.5 million will be funded by a capital contribution
from USAi in our first fiscal quarter of 2000.

(6) Reflects the percentage of revenues earned from hotel room bookings
generated through our websites or our third-party affiliated websites.

(7) EBITDA is defined as operating profit before depreciation and amortization
of goodwill. Prior to the acquisition, EBITDA reflects officers'
distributions and non-recurring acquisition-related costs. EBITDA is
presented in this prospectus because we believe it is a widely accepted
valuation indicator for companies in our industry. EBITDA should not be
considered in isolation or as a substitute for measures of financial
performance or liquidity prepared in accordance with generally accepted
accounting principles. EBITDA may not be comparable to calculations of
similarly titled measures presented by other companies. Depreciation expense
for the years ended December 31, 1995, 1996, 1997, 1998 and the periods
January 1 to May 10, 1999 and May 11 to December 31, 1999 was $26, $53, $84,
$232, $119 and $340, respectively.

23
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

The following unaudited pro forma combined condensed statement of operations
has been prepared to give effect to the following capital transactions that will
occur in connection with this offering:

(1) the acquisition of substantially all the assets of our predecessor
business, which was accounted for under the purchase method of
accounting;

(2) the issuance of 9,999,900 shares of our class A common stock to a party
designated by TMF, Inc. and HRN Marketing Corp. immediately prior to the
closing of this offering;

(3) the issuance of our class A common stock in this offering, assuming no
exercise of the overallotment option; and

(4) the recapitalization of our capital stock.

The pro forma combined condensed statement of operations reflects some
assumptions regarding these transactions and the acquisition and is based on the
historical statement of operations of our company and the historical combined
statements of operations of our predecessor business. The combined condensed
statement of operations, including the notes accompanying it, is qualified in
its entirety by reference to, and should be read in conjunction with, the
audited and unaudited combined financial statements, including the notes
accompanying them, of our predecessor business, and the financial statements,
including the notes accompanying them, of our company, all of which are included
in this prospectus.

The pro forma combined condensed statement of operations for the year ended
December 31, 1999 reflects the audited combined statement of operations of our
predecessor business for the period January 1 to May 10, 1999 and the audited
statement of operations of our company for the period May 11 to December 31,
1999, including the pro forma effects of the acquisition referred to in
item (1) above and the capital transactions referred to in items (2) through (4)
above, that will occur in connection with this offering as if such transactions
had occurred as of January 1, 1999.

The pro forma combined condensed statement of operations is presented for
illustrative purposes only. It is not necessarily indicative of the results of
operations which actually would have been reported had these transactions
occurred as of January 1, 1999, nor are they necessarily indicative of our
future financial results of operations.

24
<PAGE>
HOTEL RESERVATIONS NETWORK, INC.

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
PREDECESSOR REGISTRANT
------------ -----------------
JANUARY 1 TO MAY 11 TO PRO FORMA PRO FORMA
YEAR ENDED DECEMBER 31, 1999 MAY 10, 1999 DECEMBER 31, 1999 ADJUSTMENTS COMBINED
- ---------------------------- ------------ ----------------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues.............................. $ 37,701 $ 124,113 $ 161,814
Operating costs and expenses:
Cost of sales........................... 26,538 89,385 115,923
Selling, general and administrative..... 5,669 16,177 $ 176 (1) 22,022
Non-recurring acquisition-related
costs................................. 20,257 -- (20,257)(2) --
Amortization of goodwill................ -- 12,897 23,134 (3) 36,031
-------- ----------- -------- -----------
Total operating costs and expenses........ 52,464 118,459 3,053 173,976
-------- ----------- -------- -----------
Operating profit (loss)................... (14,763) 5,654 (3,053) (12,162)

Interest and other, net................... 429 889 (84)(4) 1,234
Gain on sale of securities................ 471 -- -- 471
-------- ----------- -------- -----------
900 889 (84) 1,705
-------- ----------- -------- -----------
Earnings (loss) before income taxes....... (13,863) 6,543 (3,137) (10,457)
Income tax benefit (expense).............. -- (2,421) 2,421(5) --
-------- ----------- -------- -----------
Net earnings (loss)....................... $(13,863) $ 4,122 $ (716) $ (10,457)
======== =========== ======== ===========

Basic and diluted earnings (loss) per
share................................... $ 0.11 $ (0.19)
=========== ===========
Basic and diluted weighted average shares
outstanding(6).......................... 38,999,100 54,399,000
=========== ===========
</TABLE>

(NOTES FOLLOW)

25
<PAGE>
HOTEL RESERVATIONS NETWORK, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENT

(in thousands, except share data)

(1) We have new compensation arrangements with our officers. The following table
presents historical compensation expense, the amount of compensation expense
that would have been incurred had the new compensation arrangements been in
place and the net amount which represents the pro forma adjustment.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
-------------
<S> <C>
Historical compensation................................. $ 74
Compensation under new arrangements..................... 250
-----
Net pro forma expense adjustment...................... $(176)
=====
</TABLE>

(2) Represents elimination of discretionary compensation and bonuses of
$0.4 million paid to its employees (other than Messrs. Litman and Diener)
and professional and advisory fees of $0.2 million related directly to the
acquisition. In connection with the sale of substantially all the assets of
TMF, Inc. and HRN Marketing Corp., the principal owners entered into an
agreement to pay an executive of TMF, Inc., for past services, 5% of all net
sales proceeds, including all contingent payments, received by the principal
owners in connection with the sale. During the period January 1 to May 10,
1999, the predecessor business recorded a charge of $19.7 million in
connection with this obligation. These payments were directly attributable
to the sale and would not have been paid if the sale had not occurred.

(3) Reflects additional amortization expense resulting from the increase in
goodwill due to the acquisition of substantially all of the assets and
assumption of substantially all of the liabilities of our predecessor
business. The determination and the allocation of the purchase price is set
forth below:

<TABLE>
<S> <C>
Promissory note......................................... $150,000
Initial contingent payments............................. 50,000
Working capital adjustment.............................. (798)
Transaction costs....................................... 611
--------
199,813
Plus: net liabilities assumed........................... 495
--------
Amount initially allocated to goodwill.................. 200,308
Issuance of 4,899,900 shares of class A common stock to
sellers............................................... 78,398
Issuance of 5,100,000 shares of class A common stock to
sellers in lieu of contingent payments................ 81,600
--------
Total allocation of goodwill............................ $360,306
========
</TABLE>

26
<PAGE>
HOTEL RESERVATIONS NETWORK, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENT (CONTINUED)

(in thousands, except share data)

<TABLE>
<S> <C>
Allocation of initial purchase price:
Current assets $ 29,977
Non-current assets 1,285
Goodwill 200,308
Current liabilities 31,653
Non-current liabilities 104
</TABLE>

The purchase price was $149.2 million, net of a working capital adjustment
of $0.8 million based on the specified level of working capital agreed to in
the asset purchase agreement, plus contingent payments based on our
operating performance during (a) the four fiscal quarters for the year ended
December 31, 1999, (b) the year ended December 31, 1999 and (c) the
twelve-month period ended March 31, 2000. Through December 31, 1999, we have
paid a total of $37.5 million for the amounts due for the fiscal quarters
ended March 31, June 30, and September 30, 1999. Our management has
determined that, based on our operating performance, the remaining
$12.5 million of the 1999 contingent payment will be due to a party
designated by TMF, Inc. and HRN Marketing Corp. This payment will be made
during the first fiscal quarter of 2000 and will be funded by a
$12.5 million capital contribution from USAi. See "Certain Transactions."

The pro forma information does not reflect the incremental amount of
goodwill amortization that will occur from the payment of any additional
purchase price by us or by USAi for the twelve-month period ended March 31,
2000. Based on currently available financial information, management
believes that the additional payment will total between $30.0 million and
$40.0 million. If the payment totals $35.0 million, amortization expense, on
a pro forma basis, would increase by $3.5 million and pro forma loss per
share would increase by $0.06.

(4) Represents incremental interest expense at 4.75% on the promissory note of
$5.0 million issued in connection with the acquisition.

(5) Represents the income tax effect of the pro forma adjustments related to the
acquisition of our predecessor business.

(6) Shares outstanding reflect all 38,999,100 shares of our class B common stock
owned by USAi; 9,999,900 shares of our class A common stock to be issued to
a party designated by TMF, Inc. and HRN Marketing Corp. immediately prior to
the closing of this offering; and 5,400,000 shares of our class A common
stock to be issued in this offering, assuming no exercise of the
underwriters' overallotment option. Shares outstanding exclude approximately
1,500,000 shares underlying options that will be granted at the closing of
this offering and 1,428,365 warrants to purchase our class A common stock at
the initial public offering price that will be issued upon completion of
this offering.

27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF OUR COMPANY SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND THE RELATED NOTES ELSEWHERE IN THIS PROSPECTUS AND BEGINNING ON
PAGE F-1. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. OUR ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS MAY
DIFFER MATERIALLY FROM THOSE DESCRIBED IN THESE FORWARD-LOOKING STATEMENTS DUE
TO A NUMBER OF FACTORS. YOU SHOULD READ THE INFORMATION IN THE SECTIONS ENTITLED
"RISK FACTORS" AND "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" FOR
INFORMATION ABOUT OUR PRESENTATION OF FORWARD-LOOKING INFORMATION.

OVERVIEW

We contract with hotels in advance for volume purchases and guaranteed
availability of hotel rooms at wholesale prices and resell these rooms to
consumers through our websites, third-party affiliated websites and our
toll-free call center. At December 31, 1999, we had room supply agreements with
approximately 1,500 hotels in 40 major markets in North America and Western
Europe.

We began booking hotel rooms in six markets in December 1991. We introduced
service in sixteen additional markets through December 1994. During 1995, we
entered into our first Internet marketing arrangement through an affiliation
with a third party. In December 1996, we introduced service in Las Vegas. In
1997, we implemented our first proprietary website and started service in the
Reno and Lake Tahoe markets. In early 1998, our website was fully-automated, and
by mid-1998, we implemented our strategy of pursuing affiliate relationships
with Internet search engines and travel-related websites. We also entered into
eleven new markets in 1998. As of December 31, 1999, we have entered another
thirteen markets. We typically have expanded our relationships with new hotels
and increased our room allotments and bookings with existing hotels in each
market over time as we have demonstrated our ability to fill rooms.

We service our customer base through the Internet and our call center
operations. Although the Internet is generating an increasing proportion of our
business, both operations have experienced significant growth. Our Internet
generated sales accounted for 21%, 44% and 81% of our sales in 1997, 1998 and
1999, respectively.

We bill a customer's credit card in full when a reservation is booked and
pay the hotel after a guest has departed. We record prepaid bookings as deferred
revenue until check-out, at which time revenue is recognized. Accordingly,
prepaid bookings represent payments received for revenue to be recognized in the
future. We also impose a $50 change/cancellation fee that is recorded as revenue
upon change/cancellation of a reservation. Because our customers pay us when a
reservation is booked, charged or cancelled and we do not pay a hotel until
after a guest has departed, we are able to operate with limited or even negative
working capital.

Cost of sales includes room rates contracted for or purchased by us as well
as commissions paid to affiliates and travel agents. We contract with hotels in
advance for volume purchases and guaranteed availability at discounted rates.
Although we contract in advance for volume room commitments, our hotel supply
contracts often allow us to return unsold rooms without penalty within a
specified period of time. Nonetheless, we are responsible for the cost of rooms
cancelled by customers when we can no longer return the room to the hotel. We
have developed proprietary revenue management and reservations systems software
that is integrated with our websites and call center operations. These systems
and software enable us to accurately monitor our room inventory. Consequently,
our gross margins are affected by a number of different factors, including the
mix of rooms sold during peak and off-peak periods, the mix of rooms sold
directly by us or through our affiliates or travel agents, the mix of rooms sold
in various cities and the amount of commissions paid to affiliates and travel
agents. We

28
<PAGE>
typically realize higher gross margins on rooms sold during peak periods and
rooms sold directly by us (rather than by travel agents or our Internet
affiliates).

Operating expenses include selling, general and administrative costs
associated with payroll and related costs, telephone line charges, credit card
processing fees, advertising and promotion costs, depreciation costs and other
miscellaneous expenses. As our Internet-related bookings have increased as a
percentage of our total revenues, our selling, general and administrative costs
have declined as a percentage of revenues due to lower telephone and payroll
costs associated with this sales growth. Prior to the acquisition of our
predecessor business, we did not pay fixed salaries to our two senior executive
officers, but distributed substantially all pre-tax profits to our officers and
recorded these amounts as additional operating expense. As a result of the
acquisition, officers' distributions were eliminated and we entered into new
compensation arrangements with our officers.

As described in "Description of Capital Stock--Warrants to Purchase Common
Stock", in relation to warrants to purchase 1,428,365 shares of our class A
common stock which will be issued to third-party affiliated websites at the
completion of this offering in conjunction with exclusive affiliate distribution
and marketing agreements, we will record an asset of approximately
$15.0 million based on the fair market value of the warrants at the initial
public offering price of $16.00 per share. The asset will be amortized ratably
over the terms of the exclusive affiliation agreements, which range from two to
five years. The amount of estimated non-cash deferred distribution and marketing
expense will be $4.6 million, $4.0 million, $3.4 million, $1.5 million and
$1.5 million in each of the next five years, respectively. In addition, one
exclusive affiliation agreement provides for additional cash consideration of
$0.5 million. The minimum payment will be recorded as an asset and amortized
ratably to operating expense over the five-year term of the exclusive
affiliation agreement, resulting in expense of $0.1 million in each of the next
five years.

The performance warrant that we will issue to Travelocity upon completion of
this offering will be subject to vesting based upon achieving performance
targets, as described in "Description of Capital Stock--Warrants to Purchase
Common Stock." If this performance warrant becomes fully exercisable it will
entitle the holder to acquire approximately 2,447,955 shares of our class A
common stock. We will record an additional non-cash deferred distribution and
marketing expense related to the vested portion of this warrant. The amount of
this non-cash deferred distribution and marketing expense cannot be determined
at this time because it is dependent on the amount of the performance warrant
that vests and the value of the vested portion of the performance warrant at the
vesting date.

The amount of this non-cash deferred distribution and marketing expense
resulting from the performance warrant could be significant. For example, if the
performance warrant were to fully vest and if the price of our class A common
stock were to appreciate by 5% each year over the next three years, the
aggregate amount of non-cash deferred distribution and marketing expense would
be approximately $27.2 million. The aggregate amount of non-cash deferred
distribution and marketing expense would instead be approximately $41.8 million
if the price of our class A common stock appreciated by 25% each year over the
next three years, approximately $102.8 million if that appreciation were 75% per
year over the next three years and approximately $270.9 million if that
appreciation were 150% each year over the next three years. Of course, these
examples are solely for illustrative purposes and we cannot assure you about the
trading price of our class A common stock or the actual amount of non-cash
deferred distribution and marketing expense we will record.

The timing of our recognition of this non-cash deferred distribution and
marketing expense depends on a number of factors that could result in the
expense being recognized over a three-year

29
<PAGE>
period or a shorter period, including the possibility that the entire amount
could be expensed in a single year.

Other income relates mainly to interest and dividends earned on marketable
securities in which we invest working capital generated by our operations. We
have been able to generate positive cash flows from operations as a result of
our billing practices and hotel supply arrangements. Our ability to generate
positive cash flow from operations has allowed us to generate significant
interest and dividend income from investment-related activities. Related
investment income has increased in each of the past five years along with free
cash flow from operations.

On May 10, 1999, we completed our acquisition of our predecessor business
and as of May 11, 1999, we changed our tax status from a subchapter S
corporation to a subchapter C corporation. At the closing of the acquisition, we
paid approximately $162.5 million to TMF, Inc. and HRN Marketing Corp., which
consisted of a $150.0 million promissory note and a $12.5 million payment for
attainment of financial targets during our predecessor business' first fiscal
quarter of 1999. Approximately $145.0 million of the principal amount of the
promissory note was paid on the day after the closing and the final
$5.0 million payment was paid on January 31, 2000. Following the closing, TMF,
Inc. and HRN Marketing Corp. paid $0.8 million to us as a working capital
adjustment to the purchase price based on the specified level of working capital
agreed to in the asset purchase agreement. Under the purchase agreement, we were
required to pay TMF, Inc. and HRN Marketing Corp. up to $12.5 million at the end
of each of the last three fiscal quarters in 1999 and for the year ended
December 31, 1999 if specified financial targets were met in each of those
quarters and for the year. As a result, we have paid a total of $25.0 million to
TMF, Inc. and HRN Marketing Corp. for the fiscal quarters ended June 30, 1999
and September 30, 1999. A final $12.5 million payment for our year ended
December 31, 1999 will be made in the first fiscal quarter of 2000, and will be
funded by a capital contribution from USAi.

TMF, Inc. and HRN Marketing Corp. are entitled to a contingent cash payment
based on our performance for the twelve-month period ending March 31, 2000. In
addition to being a guarantor of our obligations, USAi has agreed to make this
contingent payment on our behalf. See "--Financial position, liquidity and
capital resources" and "Certain Transactions."

For the period May 11 to December 31, 1999, the acquisition resulted in a
significant increase in amortization expense related to the resulting goodwill,
which is being amortized over ten years, and a significant decrease in operating
costs related to the elimination of officers' distributions. Any contingent
purchase price obligation will increase goodwill by the same amount and will
result in an increase in related amortization expense. Any such additional
goodwill will be recorded when the amount becomes reasonably estimable. Because
the performance targets are based on a fiscal year ending March 31, 2000 it is
expected that such amounts will not be reasonably estimable until that date, as
of which date they will be recorded. Amortization of any increase would begin in
the subsequent quarter.

To enhance comparability, the discussion of consolidated results of
operations is supplemented, where appropriate, with separate pro forma financial
information that gives effect to the acquisition as if it had occurred at the
beginning of the respective periods presented.

The pro forma information is not necessarily indicative of the revenues and
cost of sales which actually would have been reported had the acquisition
occurred at the beginning of the respective periods, nor is it necessarily
indicative of future results.

30
<PAGE>
RESULTS OF OPERATIONS

The following table presents results of operations data for our company and
our predecessor business as well as pro forma operations data as a percentage of
total net revenue for the periods presented. Some columns may not add due to
rounding differences.

<TABLE>
<CAPTION>
PREDECESSOR REGISTRANT
-------------------------------------------- ------------
ACTUAL PRO FORMA
----------------------------------------------------------- ------------
PERIOD
JANUARY 1 PERIOD YEAR
YEAR ENDED DECEMBER 31, TO MAY 11 TO ENDED
------------------------------ MAY 10, DECEMBER 31, DECEMBER 31,
1996 1997 1998 1999 1999 1999
<S> <C> <C> <C> <C> <C> <C>
Net revenues....................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Operating costs and expenses:
Cost of sales.................................... 68.8% 67.0% 68.9% 70.4% 72.0% 71.6%
Selling, general and administrative.............. 16.6% 16.6% 14.7% 15.0% 13.0% 13.6%
Officers' distributions.......................... 15.5% 17.7% 15.2% -- -- --
Non-recurring acquisition-related costs.......... -- -- -- 53.7% -- --
Amortization of goodwill......................... -- -- -- -- 10.4% 22.3%
------ ------ ------ ------ ------ ------
Total operating costs and expenses............. 100.9% 101.3% 98.9% 139.2% 95.4% 107.5%
------ ------ ------ ------ ------ ------
Operating profit (loss)........................ (0.9%) (1.3%) 1.1% (39.2%) 4.6% (7.5%)
</TABLE>

TWELVE MONTHS ENDED DECEMBER 31, 1999 VS. TWELVE MONTHS ENDED DECEMBER 31, 1998

We compare the twelve months ended December 31, 1998 to the sum of the
periods January 1 to May 10, 1999 and May 11 to December 31, 1999 for revenues,
cost of sales and selling, general and administrative costs, as we believe this
is the most meaningful presentation.

Revenues for the twelve months ended December 31, 1999 increased by
$95.3 million, or 143.4%, to $161.8 million compared to $66.5 million for the
twelve months ended December 31, 1998. The increase resulted from expansion of
affiliate marketing programs, an increase in the number of hotels for existing
cities and expansion into new cities. Internet generated sales for the twelve
months ended December 31, 1999 increased by $103.0 million, or 357.2%, to
$131.8 million compared to $28.8 million for the twelve months ended
December 31, 1998. As a percentage of total revenues, Internet generated sales
increased to 81% for the twelve months ended December 31, 1999 from 44% for the
twelve months ended December 31, 1998. Non-Internet generated and other sales
for the twelve months ended December 31, 1999 decreased by $7.7 million, or
20.5%, to $29.9 million compared to $37.6 million for the twelve months ended
December 31, 1998.

Cost of sales for the twelve months ended December 31, 1999 increased by
$70.1 million, or 153%, to $115.9 million compared to $45.8 million for the
twelve months ended December 31, 1998. As a percentage of total revenues, cost
of sales increased to 71.6% for the twelve months ended December 31, 1999 from
68.9% for the twelve months ended December 31, 1998. The increase in cost of
sales is primarily due to increased percentage of revenue attributable to
affiliate and travel agent sales (for which we pay commissions), the use of
revenue management techniques to maximize revenues, increased credit card charge
backs and increased competition.

Selling, general and administrative costs for the twelve months ended
December 31, 1999 increased by $12.1 million, or 123.6%, to $21.9 million
compared to $9.8 million for the twelve months ended December 31, 1998,
primarily as a result of growth in staffing levels and systems to support
increased operations. As a percentage of net revenues, selling, general and
administrative costs decreased to 13.5% for the twelve months ended
December 31, 1999 from 14.7% for the twelve months ended December 31, 1998 as
telephone and payroll costs decreased as a percentage of net revenues due to an
increase in Internet-related bookings as a percentage of total revenue.

31
<PAGE>
Our predecessor business paid discretionary compensation and bonuses of
$0.4 million to its employees (other than Messrs. Litman and Diener) and
incurred $0.2 million of professional and advisory fees related directly to the
acquisition. In connection with the sale of substantially all the assets of TMF,
Inc. and HRN Marketing Corp., Messrs. Litman and Diener entered into an
agreement to pay a salesperson engaged by TMF, Inc., for past services, 5% of
all net sales proceeds, including all contingent payments, received by the
principal owners in connection with the sale. During the period January 1 to
May 10, 1999, the predecessor business recorded a charge of $19.7 million in
connection with this obligation.

On a pro forma basis, operating loss for the twelve months ended
December 31, 1999 decreased by $13.2 million to a loss of $12.2 million compared
to a loss of $25.4 million for the twelve months ended December 31, 1998. Pro
forma operating loss for the twelve months ended December 31, 1998 of
$25.4 million is calculated as historical operating profit ($0.8 million) plus
pro forma adjustments for goodwill amortization expense ($36.0 million),
officers' salary expense ($0.3 million) and the elimination of historical
officers' distributions ($10.1 million). Pro forma results reflect the new
compensation arrangements with our officers, which are significantly lower than
historical amounts incurred and recorded by our predecessor business, as
substantially all of our predecessor business' earnings before taxes were
distributed to its officers.

Historical amortization expense of $12.9 million in the period May 11 to
December 31, 1999 relates to goodwill of $200.3 million from the acquisition of
our predecessor business which is being amortized over ten years.

Other income relates mainly to interest and dividends earned on marketable
securities. Other income for the twelve months ended December 31, 1999 increased
by $0.8 million to $1.8 million compared to $1.0 million for the twelve months
ended December 31, 1998 due to the sale of securities at the time of the
acquisition and an increase in cash flow from operations.

Our effective tax rate for the period May 11, 1999 to December 31, 1999 is
37%, which reflects the federal and state income taxes. In 1998 and in the
period from January 1 to May 10, 1999, we were taxed as a subchapter S
corporation and, accordingly, the tax liability was incurred by our
shareholders.

TWELVE MONTHS ENDED DECEMBER 31, 1998 VS. TWELVE MONTHS ENDED DECEMBER 31, 1997

Revenues for the twelve months ended December 31, 1998 increased by
$31.7 million, or 91.2%, to $66.5 million compared to $34.8 million for the
twelve months ended December 31, 1997. The increase resulted primarily from
higher revenues generated from our websites and expansion into new markets. We
introduced our fully-automated website in January 1998 and implemented our
strategy of pursuing affiliate relationships with Internet search engines and
travel-related websites during the second quarter of 1998. Internet generated
sales for the twelve months ended December 31, 1998 increased by $21.6 million,
or 299.6%, to $28.8 million compared to $7.2 million for the twelve months ended
December 31, 1997. As a percentage of total revenues, Internet generated sales
increased to approximately 44% for the twelve months ended December 31, 1998
from approximately 21% for the twelve months ended December 31, 1997.
Non-Internet generated and other sales for the twelve months ended December 31,
1998 increased by $10.1 million, or 36.6%, to $37.7 million compared to
$27.6 million for the twelve months ended December 31, 1997. The increase in
non-Internet generated sales resulted from repeat and referral customers and
increased marketing programs with travel agents and membership groups. In
addition, we entered the Atlanta, Reno and Lake Tahoe markets in December 1997
and realized the full impact of these markets in 1998.

Cost of sales for the twelve months ended December 31, 1998 increased by
$22.5 million, or 96.8%, to $45.8 million compared to $23.3 million for the
twelve months ended December 31, 1997. As a percentage of total revenues, cost
of sales increased to 68.9% for the twelve months ended December 31, 1998 from
67% for the twelve months ended December 31, 1997. The increase in cost of

32
<PAGE>
sales is primarily due to increased commissions paid to affiliates and travel
agents (for which we pay commissions), the use of revenue management techniques
to maximize revenue and increased competition.

Selling, general and administrative costs for the twelve months ended
December 31, 1998 increased by $4.0 million, or 69%, to $9.8 million compared to
$5.8 million for the twelve months ended December 31, 1997. As a percentage of
net revenues, selling, general and administrative costs decreased to 14.7% for
the twelve months ended December 31, 1998 from 16.6% for the twelve months ended
December 31, 1997 as Internet-related bookings increased and associated
telephone and payroll costs decreased as a percentage of revenue.

Officers' distributions for the twelve months ended December 31, 1998
increased by $4.0 million to $10.1 million compared to $6.1 million for the
twelve months ended December 31, 1997 due to higher profits, as substantially
all profits were distributed as salary and distribution to the officers and
recorded as expense.

On a pro forma basis, operating loss for the twelve months ended
December 31, 1998 decreased by $5.2 million, or 17%, to a loss of $25.4 million
compared to a loss of $30.6 million for the twelve months ended December 31,
1997. The pro forma operating loss for the year ended December 31, 1997 of
$30.6 million is calculated as historical operating loss ($0.5 million) plus pro
forma adjustments for goodwill amortization expense ($36.0 million), officers'
salary expense ($0.3 million) and the elimination of historical officers'
distributions ($6.2 million). Pro forma results reflect the new compensation
arrangements with our officers, which are significantly lower than historical
amounts incurred and recorded by our predecessor business, as substantially all
of our predecessor business' earnings before taxes were distributed to its
officers. Pro forma goodwill amortization for this period is $36.0 million.

Other income relates mainly to interest and dividends earned on marketable
securities. Investment income for the twelve months ended December 31, 1998
increased by $0.5 million, or 114.1%, to $1.0 million compared to $0.5 million
for the twelve months ended December 31, 1997 due to increased cash flow from
operations.

SELECTED QUARTERLY OPERATING RESULTS

The following table sets forth certain historical statements of operations
data of our company and our predecessor business for the eight quarters ended
December 31, 1999. This information has been derived from unaudited historical
financial records of our company and our predecessor business. In our
management's opinion, the unaudited historical information has been prepared on
the same basis as the annual financial statements of our predecessor business
and includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation for the quarters presented. This information
should be read in conjunction with the financial statements of our company and
our predecessor business and the accompanying notes included elsewhere in this
prospectus. The operating results for any quarter are not necessarily indicative
of results for any future period.

33
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR (UNAUDITED)
------------------------------------------------------------------------
PERIOD
THREE MONTHS ENDED ----------
----------------------------------------------------------- APRIL 1
MARCH 31, JUNE 30, SEPTEMBER 30, DEC. 31, MARCH 31, TO MAY 10,
1998 1998 1998 1998 1999 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>

Net revenues........... $9,051 $14,281 $17,462 $25,678 $22,921 $ 14,780

Operating costs and
expenses:
Cost of sales........ 6,100 10,048 12,268 17,402 15,852 10,686
Selling, general and
administrative..... 1,650 2,410 2,520 3,190 3,657 2,012
Officers'
distributions...... 556 482 780 8,308 -- --
Non-recurring
acquisition-related
costs.............. -- -- -- -- -- 20,257
Amortization of
goodwill........... -- -- -- -- -- --
------ ------- ------- ------- ------- --------
Total operating
costs and
expenses......... 8,306 12,940 15,568 28,900 19,509 32,955
------ ------- ------- ------- ------- --------
Operating profit
(loss)........... 745 1,341 1,894 (3,222) 3,412 (18,175)

Other income (expense):
Interest and other,
net................ 99 166 211 435 243 186
Gain on sale of
securities......... -- -- -- 74 -- 471
------ ------- ------- ------- ------- --------
99 166 211 509 243 657
Earnings (loss) before
income taxes......... 844 1,507 2,105 (2,713) 3,655 (17,518)
Income tax expense..... -- -- -- 5 -- --
------ ------- ------- ------- ------- --------
Net earnings
(loss)............. $ 844 $ 1,507 $ 2,105 $(2,718) $ 3,655 $(17,518)
====== ======= ======= ======= ======= ========

<CAPTION>
REGISTRANT (UNAUDITED)
------------------------------------------
PERIOD
----------- THREE MONTHS ENDED
MAY 11 ----------------------------
TO JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues........... $23,018 $47,652 $53,443
Operating costs and
expenses:
Cost of sales........ 16,774 34,950 37,661
Selling, general and
administrative..... 2,580 6,389 7,208
Officers'
distributions...... -- -- --
Non-recurring
acquisition-related
costs.............. -- -- --
Amortization of
goodwill........... 2,809 5,025 5,063
------- ------- -------
Total operating
costs and
expenses......... 22,163 46,364 49,932
------- ------- -------
Operating profit
(loss)........... 855 1,288 3,511
Other income (expense):
Interest and other,
net................ 172 582 135
Gain on sale of
securities......... -- -- --
------- ------- -------
172 582 135
Earnings (loss) before
income taxes......... 1,027 1,870 3,646
Income tax expense..... 380 692 1,349
------- ------- -------
Net earnings
(loss)............. $ 647 $ 1,178 $ 2,297
======= ======= =======
</TABLE>

SEASONALITY

We have historically experienced seasonal fluctuations in our operating
results, with the fourth quarter contributing the highest portion of our annual
revenue due to the higher volume of travelers during the fall shopping and
holiday season. Furthermore, the travel industry is subject to seasonal
fluctuations dependent upon business and leisure travel patterns. If seasonality
in the travel industry causes quarterly fluctuations, there could be a material
adverse effect on our business and the value of your stock. See "Risk
Factors--Our operating results fluctuate because of seasonality and our reliance
upon leisure travel. These fluctuations may cause our stock price to decline."

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

At the closing of the acquisition, we paid approximately $162.5 million to
TMF, Inc. and HRN Marketing Corp. The payment consisted of the $150.0 million
purchase price, which was paid in the form of a promissory note, and a
$12.5 million payment for the attainment of financial targets during our
predecessor business' first fiscal quarter of 1999. On the day after the
closing, $145.0 million of the principal amount of the promissory note was paid
and the final $5.0 million payment was paid on January 31, 2000. The purchase
price was subject to a working capital adjustment and TMF, Inc. and HRN
Marketing Corp. paid us approximately $0.8 million following the closing as a
working capital adjustment to the purchase price based on the specified level of
working capital agreed to in the asset purchase agreement. We have paid an
additional $25.0 million to TMF, Inc. and HRN Marketing Corp. for our attainment
of specified financial targets during our fiscal quarters ended June 30, 1999
and September 30, 1999. We have accrued for a $12.5 million payment for our
attainment of financial

34
<PAGE>
targets during the year ended December 31, 1999 that we expect to make in the
first fiscal quarter of 2000 with funds contributed by USAi.

In addition, a party designated by TMF, Inc. and HRN Marketing Corp. is
entitled to a contingent cash payment based on our performance for the
twelve-month period ending March 31, 2000.

This additional payment will be based upon the greater of:

- 2.5 times the total growth in our adjusted earnings for the period; or

- 1.44 times the total growth in our adjusted gross profit for the period
(provided this growth in adjusted gross profit exceeds 50%).

Based on currently available financial information we believe that the
additional payment will total between $30.0 million and $40.0 million. Under an
assumption agreement, USAi has agreed to make this contingent payment on our
behalf.

We are required to issue to a party designated by TMF, Inc. and HRN
Marketing Corp. shares of our class A common stock equal to 10% of the number of
shares of our common stock outstanding immediately prior to the closing of this
offering.

Pursuant to an amendment to the asset purchase agreement, we have agreed to
issue, immediately prior to the closing of this offering, 5,100,000 shares of
class A common stock to a party designated by TMF, Inc. and HRN Marketing Corp.
in exchange for releasing our obligation to make additional performance-based
payments covering the twelve-month periods ending March 31, 2001 and 2002.

The 10% equity issuance, additional performance-based payments and the
amended asset purchase agreement will result in additional goodwill of
approximately $195.0 million (assuming a $35.0 million performance-based payment
for the twelve-month period ending March 31, 2000) which would result in
incremental goodwill amortization of approximately $20.0 million per year over
the remaining amortization period. See "Risk Factors--Goodwill amortization
will, and contingent payments may, have an adverse impact on our future
operating results" and "Certain Transactions."

Net cash provided by operating activities was $17.2 million and
$23.8 million for the period January 1 to May 10, 1999 and the period May 11 to
December 31, 1999, respectively. Net cash provided by operating activities was
$3.0 million, $0.6 million and $8.8 million for the years ended December 31,
1996, 1997 and 1998, respectively. Net cash provided by operating activities
reflects officers' distributions and non-recurring acquisition-related costs. We
paid officers' distributions of $3.6 million, $6.2 million and $10.1 million in
the years ended December 31, 1996, 1997 and 1998, respectively. During the
period January 1 to May 10, 1999, our predecessor business paid discretionary
bonuses of $7.2 million to its employees (other than Messrs. Litman and Diener)
and incurred $0.2 million of professional and advisory fees related directly to
the acquisition. We will not incur such amounts in the future, as our
predecessor business distributed substantially all profits to its officers. As
of May 11, 1999, we entered into new compensation arrangements with our officers
and paid discretionary bonuses related to the acquisition. Operating cash flow
is generated based on our practice of billing a customer's credit card in full
when a reservation is booked, and paying the hotel after a guest has departed.
We record prepaid bookings as deferred revenue until check-out. Accordingly, to
the extent customers do not cancel their reservations, prepaid bookings
represent payments received for revenue to be recognized in the future. Net cash
provided by prepaid bookings was $12.0 million for the period January 1 to
May 10, 1999, and $0.2 million, $1.8 million and $4.0 million for the years
ended December 31, 1996, 1997 and 1998, respectively. Net cash used in reducing
prepaid bookings was $2.8 million for the period May 11 to December 31, 1999.

We declared and paid a dividend of $40.0 million to USAi on September 30,
1999.

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Cash proceeds from operating activities and available cash were used to
purchase marketable securities (net) of ($3.2) million and $0.5 million for the
periods January 1 to May 10, 1999 and May 11 to December 31, 1999, respectively.
Cash proceeds were used to purchase marketable securities (net) of
$0.3 million, $0.4 million and $3.6 million for the years ended December 31,
1996, 1997 and 1998, respectively.

Capital expenditures were $0.2 million and $1.1 million in the periods
January 1 to May 10, 1999 and May 11 to December 31, 1999, respectively. Capital
expenditures were $0.1 million, $0.5 million and $0.7 million for the years
ended December 31, 1996, 1997 and 1998, respectively. Capital expenditures were
primarily used for computers, furniture, equipment and software.

We anticipate that we will need to invest working capital towards the
development and expansion of our overall operations, including expansion into
new cities and increasing our penetration in existing markets.

Our company generates significant cash flows from operations and cash flows
are expected to increase as revenues increase due to our billing and payment
policies. Our company anticipates that cash on hand and cash provided by
operating activities will be sufficient to fund our operations for the next
twelve months and for a foreseeable period after twelve months. Additional funds
could be necessary, however, to complete strategic acquisitions or other
business combinations in 2000 or beyond. Management has no such plans at this
time.

MARKET RELATED RISKS

We currently have no significant floating rate indebtedness, hold no
derivative instruments and do not earn income denominated in foreign currencies.
All of our revenue is recognized in dollars. Accordingly, changes in interest
rates do not generally have a material direct effect on our financial position.
However, to the extent that changes in interest rates and currency exchange
rates affect general economic conditions, we would be affected by such changes.
In addition, we also are subject to some risk from currency fluctuations because
the hotel rooms in foreign markets that we contract to purchase are paid for in
the currency of the country where they are located and are paid for by us in
advance of our reselling the rooms to our customers. As less than 10% of our
revenues are currently derived from hotel accommodations in foreign markets, we
do not believe we have any significant foreign currency exchange risk and as a
result, do not hedge against foreign currency exchange rate changes.

YEAR 2000

The widespread use of computer programs that rely on two-digit dates to
perform computation and decision-making functions may cause computer systems,
including systems and software used by our company and our websites, to
malfunction in the Year 2000, and may lead to significant business delays and
disruptions in our business and operations in the United States and
internationally. We have completed our plan to minimize the impact of this Year
2000 problem on our operations. The dollar cost of our Year 2000 compliance was
approximately $75,000, substantially all of which has been spent through the
date of this offering. As of the date of this prospectus, we have not
experienced any significant Year 2000 problems and, therefore, the risk that any
Year 2000 problems will occur in the future has diminished significantly.

In addition to our internal systems, several systems provided by third
parties are required for the operation of our services, any of which may contain
software code that still might prove not to be Year 2000 compliant. These
systems include server software used to operate our network servers, software
controlling routers, switches and other components of our data network, disk
management software used to control our data disk arrays, firewall, security,
monitoring and back-up software, as well as desktop PC applications software. In
most cases, we employ widely available software applications and

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other products from leading third-party vendors, and expect that these vendors
will provide any required upgrades or modifications in a timely fashion.
However, any failure of third-party suppliers to provide Year 2000 compliant
versions of the products used by us could result in a temporary disruption of
our services or otherwise disrupt our operations. Although as of the date of
this prospectus we have not experienced any material disruptions in our
operations, an undiscovered failure to achieve Year 2000 compliance by
third-party systems could result in complete failure or inaccessibility of our
services and could adversely affect our business, financial condition and
results of operations.

Although, as of the date of this prospectus, we have not experienced any
material disruptions in our operations from Year 2000 related issues, Year 2000
compliance problems potentially could undermine the general infrastructure
necessary to support our operations. For instance, we depend on third-party
Internet service providers for connectivity to the Internet. Any interruption of
service from our Internet service providers could result in a temporary
interruption of our services. Moreover, the effects of Year 2000 compliance
deficiencies on the integrity and stability of the Internet are difficult to
predict. A significant disruption in the ability of businesses and consumers to
reliably access the Internet or portions of it would have an adverse effect on
demand for our services and, therefore, could adversely impact our business,
financial condition and results of operations.

TAX MATTERS

Prior to the completion of this offering, we were included in the
consolidated federal income tax return of USAi. Under a tax sharing agreement
with USAi, we paid our parent amounts equal to the taxes that we would otherwise
have paid if we had filed a separate federal income tax return. We also were
included in certain state and local tax returns of USAi. Upon the completion of
this offering, because USAi's equity ownership in our company will fall below
80%, we will no longer be included in the consolidated federal income tax return
of USAi or any of its state and local returns. Thus, following completion of
this offering, we will be required to file our own federal, state and local
income tax returns on a stand-alone basis and will make all of our tax payments
directly to the relevant taxing authorities. We also will have no further rights
or obligations under the tax sharing agreement with USAi, except with respect to
periods ending on or before the completion of this offering.

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BUSINESS

OVERVIEW

In terms of hotel rooms booked online, we are a leading online consolidator
of hotel accommodations, providing service through various websites and our
toll-free call center. We contract with hotels in advance for volume purchases
at wholesale prices and sell these rooms to consumers, often at significant
discounts to published rates. In addition, these hotel supply relationships
often allow us to offer our customers hotel accommodation alternatives for
otherwise unavailable dates.

INDUSTRY BACKGROUND

THE GROWTH OF ONLINE TRAVEL SERVICES. The U.S. travel industry is large and
growing. The Travel Industry Association of America estimates that consumers in
the U.S. spent in excess of $515 billion on business and leisure travel in 1998,
making travel one of the nation's largest industries. Lodging accounts for a
significant share of these travel expenditures. According to Smith Travel
Research, the U.S. lodging industry generated $93 billion in revenues in 1998.

Online sales of travel services have become an important part of the overall
travel industry and have expanded dramatically in recent years due to the
increased acceptance of the Internet by both travel service providers and
consumers. According to a May 1999 study by Jupiter Communications, the U.S.
online travel market has more than doubled from $911 million in 1997 to
$2.2 billion in 1998. Jupiter Communications projects that online travel
bookings will increase from $4.2 billion in 1999 to $16.6 billion in 2003,
representing a compound annual growth rate of 41%. For travel service providers,
the Internet is an efficient distribution channel and offers a medium to reach
more travelers and increase occupancy. The Internet also enables dynamic,
real-time updating of pricing and availability and targeted marketing of last
minute "specials" in order to maximize occupancy and yields. Consumers, on the
other hand, are attracted by the convenience of purchasing travel products and
services via the Internet because it provides an efficient way for customers to
quickly compare travel options and make reservations.

HOTEL RESERVATIONS ON THE INTERNET. Hotel reservations are particularly
well-suited to the Internet and the services of third-party consolidators. The
hotel industry is extremely fragmented. Historically, hotels have relied on
travel agencies and internal sales departments as their primary distribution
channel. These traditional channels have not enabled hotels to maximize capacity
and generally have offered limited assistance to the traveler. In addition, the
central reservation system that hotels and travel agents rely upon often does
not have access to discounted rates or to rooms during otherwise unavailable
dates. Alternative booking methods, such as calling individual hotels or using
publications like guidebooks or yellow pages, are both cumbersome and
time-consuming.

According to a May 1999 study by Jupiter Communications, online hotel
bookings totaled $282 million in 1998. In addition, Jupiter Communications
projects that online hotel bookings will increase from $630 million in 1999 to
$4.2 billion in 2003, representing a compound annual growth rate of 60%.

Online consolidators like our company are able to aggregate inventory from
various travel service providers and market this inventory to travelers over the
Internet, often at reduced rates. To the hotel industry, consolidators offer an
efficient distribution platform that improves hotel occupancy levels and helps
maximize overall revenues for hotels. Travel agents use consolidators because
they typically pay commissions quickly and consistently and strengthen their
relationships with their customers by allowing them to provide better customer
service and competitive prices. Travelers enjoy access to the selection of
inventory and generally lower rates that consolidators typically provide. In
addition, consolidators offer both travel agents and travelers with information
about specific services from many different travel providers, which is becoming
increasingly important as the number of travel options continues to expand.

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OUR COMPETITIVE STRENGTHS

We are a leading online consolidator of hotel accommodations, providing
service through our websites, third-party affiliated websites and our toll-free
call center. We have achieved a leading position, in part, by establishing the
competitive strengths described below.

ESTABLISHED SUPPLY RELATIONSHIPS WITH HOTELS. We have developed supply
relationships with approximately 1,500 hotels. Due to our proven ability to sell
rooms in volume, we are able to secure room inventory during both peak and
off-peak time periods and often are permitted to return unsold rooms without a
penalty within a specified period of time. We believe we have established a
customer base that has made us a reliable distribution channel for hotels. When
featured on our websites, our hotel suppliers also benefit from our extensive
online exposure, which may not be economical for them to replicate on their own.

WIDE VARIETY OF OFFERINGS IN POPULAR DESTINATIONS. At December 31, 1999, we
offered accommodations in 40 major metropolitan markets. In each market, we seek
to offer a range of hotel options at a variety of prices. We are typically able
to secure rooms at a substantial discount from the published rates, which allows
us to offer our customers substantial discounts off quoted hotel room prices,
and to provide our customers with hotel accommodations alternatives for
otherwise unavailable dates. Set forth below are the domestic and international
destinations we currently serve:

<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL
- ---------------------------------------------------------------------- ----------------------
<S> <C> <C> <C>
Anaheim Nashville Amsterdam
Atlanta New Orleans Berlin
Atlantic City New York Florence
Baltimore Orlando Frankfurt
Boston Palm Beach London
Chicago Philadelphia Milan
Cleveland Phoenix Paris
Dallas Reno Rome
Denver San Antonio Toronto
Florida Keys San Diego Vancouver
Ft. Lauderdale San Francisco Venice
Houston Seattle
Las Vegas Tahoe
Los Angeles Tampa
Miami Washington D.C.
</TABLE>

Our two most important markets, New York and Las Vegas, represent a
significant portion of our revenues. Although we expect these markets to
continue to represent a significant portion of our revenues in the near term, we
expect the percentage of our revenues represented by New York and Las Vegas to
decline as we expand our presence in both our existing markets and new markets.

EASY TO USE WEBSITES. Through our fully-automated websites, customers can
quickly and easily compare price, availability and amenity options, view photos
of accommodations and maps of the relevant area and securely book room
reservations with or without any assistance from our operators. Our
user-friendly websites are designed for intuitive operation and include helpful
guidance to "walk" consumers through each step of booking a hotel reservation
and completing an online transaction. Multiple room options are displayed
simultaneously based on availability for the date(s) requested to assist in
comparison shopping. We do not require customers to pre-register or to provide
detailed personal information to use our website, which allows for more
convenient access and reduces customer concerns about online privacy. Our
website, www.180096hotel.com, was one of the Internet sites to be recognized as
"Best of the Web" by U.S. News and World Report Online in December of 1998.

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We established our first proprietary website in 1997 and our Internet
generated bookings have accounted for an increasing percentage of our total room
bookings in recent periods. Internet generated bookings accounted for 21%, 44%
and 81% of our total bookings in 1997, 1998 and 1999, respectively.

AFFILIATIONS WITH A NUMBER OF INTERNET WEBSITES. We have negotiated
marketing agreements with many of the leading travel-related websites including
Preview Travel, Microsoft's Expedia, Sabre's Travelocity, Pegasus System's
TravelWeb, Cheap Tickets, Yupi.com, GetThere.com and over 1,600 other affiliate
websites. Through these agreements, our websites are prominently featured on and
linked to these affiliated websites on a co-branded or private label basis in
exchange for a commission we pay based on bookings we receive through them. In
some instances, our website is positioned as the preferred hotel accommodations
option on our third-party affiliated websites. In addition, some of our
affiliates, such as Preview Travel, are fully integrated with our websites, and
as a result, their customers have direct access to our hotel accommodation
offerings, and we are in the process of integrating our hotel accommodation
offerings with Travelocity's network. We also are prominently featured on most
of the leading Internet search engines and online communities, including America
Online, Lycos, Yahoo!, Ticketmaster Online-City Search, Excite and Infoseek. We
believe our ability to establish such wide-ranging Internet affiliations and
Internet presence has positioned us to capitalize upon the expected growth in
online hotel bookings regardless of where these reservations are originated,
through our websites or through our third-party affiliated websites.

For 1998, 16% of our Internet generated bookings were made through our
online affiliations. For 1999, 40% of our Internet generated bookings were made
through our online affiliations and no single affiliate accounted for more than
10% of our revenue.

AFFILIATIONS WITH OTHER PROVIDERS OF TRAVEL SERVICES. We work with a
network of thousands of agencies to ensure awareness of our accommodations and
booking options. We believe travel agencies view us as complementary to their
business. Travel agencies typically book rooms through a central reservation
system, such as Sabre or Galileo, at "rack" rates (the regular non-discounted
published rate), corporate rates (typically 10-15% lower than the rack rate) or
other discount rates. However, the lowest rates offered by some hotels are often
not displayed. In addition, many available rooms do not appear on a central
reservation system if the hotel is predicting maximum capacity. We offer agents
one-stop shopping to check rates, confirm availability, obtain inventory and
promptly receive commission payments. We also offer travel agents access to
accommodations at discounted rates or for otherwise unavailable dates, which
improves their relationship with customers. In 1998, 8% of our sales were
generated through travel agencies and for 1999, 3% of our sales were generated
through travel agencies.

We also are affiliated with a number of travel clubs and other membership
groups. Our services are featured as a benefit in many of the major hotel and
travel club programs including Quest, Entertainment and the Texaco Auto/Travel
Club. In addition, we are promoted by a number of prominent membership programs
including GNC, Great Earth, Damark and 24-hour Fitness Centers.

REVENUE MANAGEMENT TECHNIQUES. Unlike companies that book rooms on a
commission basis, we contract with hotels in advance for volume purchases and
guaranteed availability at discounted rates. Although we contract in advance for
volume room commitments, our hotel supply contracts often allow us to return
unsold rooms without penalty within a specified period of time. In addition,
because we contract to purchase hotel rooms in advance, we are able to manage
billing procedures for the rooms we sell and thereby maintain direct
relationships with our customers. We have developed proprietary revenue
management and reservation systems software which assists us in enhancing our
revenues. Our inventory tracking system and other software are integrated with
our websites and call center operations and enable us to accurately monitor our
room inventory.

POSITIVE CASH FLOW FROM OPERATIONS. Our operations generate positive cash
flow, even during periods of significant growth. We bill a customer's credit
card in full upon booking of a reservation, which occurs prior to check-in. Our
typical payment terms with hotels are within 30 days of receipt of

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invoice, which generally occurs after the customer checks out. As a result of
our payment policies, we generate significant investment income on cash balances
and incur low expenses from collecting accounts receivable. In addition, our
room supply arrangements typically allow us to return unsold inventory without
penalty within specified periods of time.

EXCELLENT CUSTOMER SERVICE. We have invested in technology, personnel and
training to facilitate a high level of customer service. Using our
fully-automated websites, customers can quickly review pricing, availability and
amenities of available inventory, book accommodations and receive instant
confirmation. For customers who prefer to book reservations by telephone, we
maintain a call center staffed by sales agents that are trained and
knowledgeable to answer questions about and review hotel options we offer to our
customers. We monitor call center conversations and hold times to ensure that
our customer service standards are properly maintained.

OUR GROWTH STRATEGY

Our objective is to build upon our position as a leading hotel consolidator
by pursuing the following growth strategies.

INCREASING OUR INTERNET PRESENCE, INCLUDING OUR NUMBER OF INTERNET
AFFILIATES. We intend to continue to establish strategic marketing affiliations
with additional Internet portals, search engines, content providers, communities
and other travel-related websites to capitalize on their brand recognition and
significant customer traffic levels. Although we have established affiliations
with most of the major Internet travel websites and search engines, many of
these affiliations have been operational only for a short time. As existing
affiliations mature and new ones are implemented, we believe that our Internet
traffic will continue to grow.

EXPANDING OUR HOTEL SUPPLY ARRANGEMENTS IN EXISTING MARKETS. We currently
account for only a small portion of the total hotel rooms that are sold in our
existing markets. Our proven ability to fill room commitments and our reputation
for reliable payment has allowed us to steadily increase our room inventory in
existing markets by broadening our hotel base and increasing inventory with our
current hotels. Each year we have been increasing our available room inventory
and revenues in each of our existing markets. We believe that there are
opportunities to expand our service in existing markets.

ENTERING NEW MARKETS. We began offering hotel accommodations in one new
market in 1997, eleven new markets in 1998 and thirteen new markets in 1999. We
receive a number of inquiries for other destinations and have identified
numerous cities for future expansion. We plan to enter additional domestic and
international markets in future periods.

INITIATING NEW AFFILIATIONS WITH TRAVEL AGENCIES, TRAVEL AND MEMBERSHIP
CLUBS AND OTHER GROUPS.
We will pursue opportunities to increase our affiliations with travel agents,
travel clubs, membership organizations and other groups. Currently, a small
percentage of our revenue is derived from group and convention bookings. In many
of our markets, these sources account for a significant portion of hotel
accommodations. In addition, we have established affiliations with only a small
percentage of the travel agencies in the United States. Through more aggressive
marketing of our product and service offerings, we plan to further penetrate our
accessibility to these customer groups.

ENHANCING OUR OFFERING OF PRODUCTS AND SERVICES TO INCLUDE OTHER
TRAVEL-RELATED SERVICES. From the date of our inception, we have focused
exclusively on the hotel reservation market. However, there are a number of
complementary travel-related products which we could market to our customers,
such as vacation packages, vacation rentals, time share rentals, apartment
rentals, tours, theater tickets, and travel insurance. While we are committed to
continuing our expertise in the hotel room reservation market, our growing
customer base and affiliations represent an attractive distribution platform for
additional products.

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OFFERING PAID ADVERTISING ON OUR WEBSITES. We currently offer limited
third-party advertising on our websites and our online newsletter, but with our
growing popularity, we believe they would be valuable platforms for other travel
service providers, advertisers in our destination cities and other businesses.
We intend to explore these options to increase our advertising revenues.

PURSUING STRATEGIC ACQUISITIONS. We intend to explore opportunities to
acquire other travel-related consolidators and online travel companies that we
believe will allow us to expand our offerings of hotels or other travel-related
products.

LEVERAGING OUR RELATIONSHIP WITH OUR PARENT COMPANY, USAI, AND ITS
AFFILIATES. Our recent acquisition by USAi provides us with access to several
potentially valuable cross-marketing opportunities with other entities also
controlled by USAi, such as the USA Network and the Sci-Fi Channel, Ticketmaster
Online-City Search, USA Broadcasting and Home Shopping Network. In addition, our
relationship with USAi may provide us with valuable expertise and resources that
will assist us in the growth of our business.

OPERATIONS

INTERNET OPERATIONS. Our Internet operations have allowed us to expand our
customer base, improve customer service and reduce transactional costs. We offer
hotel accommodations through our www.hoteldiscount.com and www.180096hotel.com
websites and over 1,600 affiliate websites. Our websites are completely
automated and allow customers to compare hotel booking options, price,
availability and amenities and to book, charge and confirm orders within
seconds. Our websites are designed to provide customers with quick, efficient
and flexible service in a manner that facilitates comparison shopping. Our
Internet generated bookings accounted for 21%, 44% and 81% of our total bookings
in 1997, 1998 and 1999, respectively.

CALL CENTER OPERATIONS. We currently employ approximately 180 people in our
call center in Dallas, Texas. Our toll-free call center handles inbound calls
from our toll-free numbers (1-800-96-hotel and 1-800-715-7666) and hundreds of
travel clubs and affinity groups. On average, our call center receives
approximately 6,000 calls per day and provides customer service for our
toll-free numbers customers, our Internet customers, and a number of our
affiliated travel and membership clubs. Our highly-trained commissioned call
center sales force is equipped to quickly review a comprehensive list of the
hotels and prices in individual markets and to provide information on location
and amenities. Our management continuously monitors wait times and phone
conversations to ensure superior sales technique and compliance with our
policies. Our call center recently began operating 24 hours a day, seven days a
week to handle the increase in demand from our customers. We also have entered
into a relationship with Ticketmaster Online-CitySearch, another USAi
subsidiary, to assist us in handling additional calls from our customers. Our
non-Internet generated sales accounted for 79% of our sales in 1997, 56% in 1998
and 19% in 1999.

REVENUE MANAGEMENT TECHNIQUES. We have developed revenue management and
booking software that allows us to monitor available rooms, prices and sales
trends on a real-time basis to maximize revenues and gross margins, to process
transactions quickly and to provide prompt, effective customer service. We have
integrated this software with our websites and call center operations so that
customers always receive current room availability and pricing information. We
are developing enhancements to our software which will enable us to further
automate and enhance our revenue management capabilities.

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SUPPLY ARRANGEMENTS

We contract with hotels in advance for volume purchases and guaranteed
availability. We obtain room inventory from approximately 1,500 hotels through
two primary methods: (a) contracting for initial room allotments on a
non-recourse basis, where we have the opportunity to purchase rooms at
predetermined wholesale rates and to return unsold inventory to the hotel within
a specified period of time, and (b) purchasing rooms in advance when we feel
there is a strong likelihood of selling all of the rooms. Most of our wholesale
arrangements allow us to return unsold rooms without penalty. However, most of
our contracts are not exclusive and must be renewed annually. See "Risk
Factors--In the future, if we are unable to obtain arrangements with hotel
suppliers similar to those we currently have, our business may suffer."

Our proprietary software allows us to continuously update our room
availability and keeps us aware of our supply needs. As a result, we are able to
monitor our room supply and return rooms or request additional rooms as
necessary. We have developed a strong reputation with our hotel suppliers
because we are able to fill a consistently high percentage of our contracted
room allotments.

MARKETING AND SALES

We have achieved our historical growth with only a modest advertising and
marketing budget. We intend to increase our marketing efforts in future periods
to capitalize upon our success and to expand customer awareness by actively
pursuing the following sales and marketing initiatives.

ONLINE MARKETING SOURCES. Our websites, www.hoteldiscount.com and
www.180096hotel.com, are among the most accessed and used hotel booking sites on
the Internet. Our websites also are integrated into most of the leading
travel-related websites on the Internet, and are prominently featured on and
linked to many of the leading Internet search engines and online communities.
Our standard affiliate agreements contain provisions whereby we pay a commission
for bookings originated from that website. In 1997, we began circulating a
weekly online newsletter highlighting available hotels and rates in selected
markets to subscribers. Our subscribers have increased from 30,000 at
December 31, 1997 to over 700,000 at December 31, 1999. We will seek to continue
to expand this number of subscribers as traffic on our websites increases. In
addition, we also purchase online advertising for preferred placement on certain
websites.

TRAVEL AGENCIES, TRAVEL CLUBS AND OTHER MEMBERSHIP ORGANIZATIONS. We
consider travel agencies to be marketing affiliates and, as such, work with a
network of thousands of agencies to ensure awareness of our accommodations and
booking options. We pay a commission to travel agents who book rooms on behalf
of their customers. Commissions are tracked by the International Association of
Travel Agents' numbers that are input directly on our websites or provided to
our call center agents at the time of booking. We also are affiliated with a
variety of travel clubs and membership organizations which promote our company
as a source of hotel accommodations. In addition, we provide hotel accommodation
booking services for a number of membership clubs on a private label basis.

MEDIA PROMOTION. We have developed a significant media network through our
use of television, radio, newspapers and magazines. Our President, Mr. Robert
Diener, is featured regularly on over 100 radio stations across the country. In
addition, our services have been featured by such media outlets as The New York
Times, the Los Angeles Times, USA Today, The Wall Street Journal and The Chicago
Tribune and have been profiled on CNN, CBS, MSNBC and CNBC.

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TECHNOLOGY

We have developed proprietary booking software that automatically updates
room availability and enables us to provide efficient customer service. The
software is integrated with our websites and call center operations and
completes booking, billing and accounting functions within seconds. In addition,
the software reports daily bookings by hotel, city and room type so that
management can monitor room availability. We are continuing to improve our
revenue management capabilities and are currently developing enhancements to our
software which will automatically adjust the presentation of information on our
websites based on booking activity. We expect this enhanced software to become
operational in mid-2000. We also intend to continue to develop or purchase
technology-driven enhancements to our websites and back-office systems in order
to continue to improve our efficiency and profit margins.

Our hardware platform for the Internet consists of an IBM RS 6000 and
Silicon Graphics Internet servers. We maintain our database on an IBM AS model
720 with a RAID disk storage tower and conduct daily backup functions for
off-site storage. We access the Internet backbone via T-1 data communication
lines. Our call center operations are managed by a Lucent Definity G3 Octel
switch. We also maintain backup in the event of power outages. Our systems have
not experienced significant downtime in over four years. We maintain an Internet
firewall to protect our internal systems. All credit card transactions are
processed using encryption technology, including public key cryptology and
secured socket layer technology.

COMPETITION

The online travel services market is new, rapidly evolving, intensely
competitive and has relatively low barriers to entry. We believe that
competition in the online travel services market is based predominantly on:

- price;

- selection and availability of hotel rooms;

- selection of destination markets;

- ease of use of online booking service;

- customer service;

- reliability; and

- travel-related content.

We compete against other consolidators of hotel accommodations, hotels,
travel agencies and other online travel services. Currently, most hotels sell
their services through travel agencies, travel wholesalers or directly to
customers, mainly by telephone. Increasingly, major hotels are offering travel
products and services directly to consumers through their own websites. We
believe that this trend will continue. Hotels and travel agents also may
continue to rely upon central reservations systems. In the online travel
services market, we compete with travel-related websites such as Preview Travel,
Microsoft's Expedia, Sabre's Travelocity, Pegasus System's TravelWeb,
Priceline.com, Travelscape and GetThere.com, among others. Although we currently
have agreements with many of these websites under which our booking engine is
prominently displayed on and integrated into their websites, we cannot assure
you that these affiliations will continue in the future or that they will
continue to be beneficial to our business and we may find ourselves in
competition with these affiliates. See "Risk Factors--If we are unable to
maintain our affiliations or obtain new affiliations with other travel service
providers, we may lose access to customers and face increased competition." As
the market for online travel services grows, we believe that companies already
involved in the online travel services industry, as well as traditional travel
suppliers and travel agencies, will increase their efforts to develop services

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that compete with our online services. We also face potential competition from
Internet companies not yet in the leisure travel market and from travel
companies not yet operating online. We are unable to anticipate which other
companies are likely to offer services in the future that will compete with the
services we provide.

In addition, many of our current and potential competitors have greater
brand recognition, longer operating histories, larger customer bases and
significantly greater financial, marketing and other resources than us and may
enter into strategic or commercial relationships with larger, more established
and well-financed companies. Some of our competitors may be able to secure
services and products from travel suppliers on more favorable terms, devote
greater resources to marketing and promotional campaigns and devote
substantially more resources to website and systems development than our
company. New technologies and the continued enhancement of existing technologies
also may increase competitive pressures on our company. We cannot assure you
that we will be able to compete successfully against current and future
competitors or address increased competitive pressures. See "Risk Factors--The
travel industry, particularly the online travel services market, is highly
competitive. If we do not compete successfully, we will not be able to attract
customers and maintain our arrangements with our hotel suppliers."

PROPRIETARY RIGHTS

We regard our domain names and similar intellectual property as critical to
our success. We rely on a combination of laws and contractual restrictions with
our employees, customers, suppliers, affiliates and others to establish and
protect our proprietary rights. Despite these precautions, it may be possible
for a third party to copy or otherwise obtain and use our intellectual property
without authorization. In addition, we cannot assure you that others will not
independently develop substantially similar intellectual property. Although we
are pursuing the registration of our key trademarks in the United States, some
of our trade names are not eligible to receive trademark protection. In
addition, effective trademark protection may not be available or may not be
sought by us in every country in which our products and services are made
available online, including the United States. Our failure to protect our
intellectual property in a meaningful manner could materially adversely affect
our business or result in erosion of our brand name.

From time to time we may be subject to legal proceedings and claims in the
ordinary course of our business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties by our
company. In addition, litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. This litigation,
regardless of outcome or merit, could result in substantial costs and diversion
of management and technical resources, any of which could materially harm our
business. See "Risk Factors--We may not be able to prevent others from using our
domain names, trade names or other intellectual property which may harm our
business and expose us to litigation."

GOVERNMENT REGULATION

Some segments of the travel industry are heavily regulated by the federal
and state governments and foreign governments and, accordingly, some services we
offer are affected by these regulations. All of our services are subject to
federal and state consumer protection laws and regulations prohibiting unfair
and deceptive trade practices. In addition, federal regulations concerning the
display and presentation of information currently applicable to hotel booking
services could be extended to us in the future. These consumer protection laws
could result in substantial compliance costs and could interfere with the
conduct of our business.

Although there are very few laws and regulations directly applicable to the
protections of consumers with respect to Internet commerce, it is possible that
legislation will be enacted in this area

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and could cover such topics as permissible online content and user privacy
(including the collection, use, retention and transmission of personal
information provided by an online user). Furthermore, the growth and demand for
online commerce could result in more stringent consumer protection laws that
impose additional compliance burdens on online companies. See "Risk
Factors--Changing government regulations and legal uncertainties may impair our
future growth and harm our business."

Moreover, in many states there is currently great uncertainty whether or how
existing laws governing issues such as property ownership, sales and other
taxes, libel and personal privacy apply to the Internet and commercial online
services. These issues may take years to resolve. For example, tax authorities
in a number of states, as well as a Congressional advisory commission, are
currently reviewing the appropriate tax treatment of companies engaged in online
commerce, and new state tax regulations may subject us to additional state sales
and income taxes. In addition, it is unclear how certain state taxes apply to
the sale of hotel rooms by consolidators such as ourselves. New legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to our business, or the application of existing laws
and regulations to the Internet and commercial online services could result in
significant additional taxes on our business. These taxes could have an adverse
effect on our cash flows and results of operations. Furthermore, there is a
possibility that we may be subject to significant fines or other payments for
any past failures to comply with these requirements.

Federal legislation imposing some limitations on the ability of states to
impose taxes on Internet-based sales was enacted in 1998. The Internet Tax
Freedom Act, as this legislation is known, imposes a three-year moratorium on
state and local taxes on Internet access (unless these taxes were in effect
prior to October 1, 1998) but only where these taxes are multiple or
discriminatory on electronic commerce. It is possible that the legislation will
not be renewed when it terminates in October 2001. Failure to renew the
legislation could allow state and local government to impose taxes on Internet-
based sales, and these taxes could hurt our business.

EMPLOYEES

As of December 31, 1999, we had approximately 268 employees. Of the total,
93 people were employed in sales; 32 in reservation services; 41 in customer
service; six in sales support; 42 in finance and accounting; six in revenue
management; nine in programming and technical support; and 14 in management. We
have never had a work stoppage and none of our employees is represented by a
labor union. We consider our employee relationships to be positive.

FACILITIES

Our operations are headquartered in Dallas, Texas, where we lease an
aggregate of approximately 28,000 square feet of office space. In addition, we
have a right to use an additional 4,500 square feet of office space, if
necessary. We currently pay approximately $31,400 per month, which will increase
periodically, to a maximum of approximately $34,914 per month, until May 31,
2003. Our lease for this space expires in 2003.

We also have a small office in Miami, Florida, where we rent approximately
851 square feet of office space for approximately $1,246 per month. Our lease
for this space expires in 2002.

LEGAL PROCEEDINGS

We are not currently involved in any material legal proceedings. Our
operations are subject to federal, state and local laws and regulations. Our
management believes that our company is in general compliance with applicable
laws, regulations and permits, including operating permits, safety, health,
environmental and consumer protection laws and regulations.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding our executive
officers and directors as of February 1, 2000:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
David Litman.............................. 42 Chief Executive Officer and Director
Robert Diener............................. 41 President, Treasurer and Director
Jack Rubin................................ 48 Chief Financial and Strategic Officer
Shauna Martin............................. 28 General Counsel and Secretary
Sandra D'Arcy............................. 52 Executive Vice President
Barry Baker............................... 47 Director
Beverly A. Harms.......................... 64 Director, Nominee
Victor A. Kaufman......................... 56 Director
Dara Khosrowshahi......................... 30 Director
Eli J. Segal.............................. 57 Director, Nominee
Michael Sileck............................ 40 Director
</TABLE>

Mr. Litman serves as our Chief Executive Officer and Secretary and as a
director of our company. He founded our predecessor business with Mr. Diener in
1991 and served as its Chief Executive Officer. From 1985 to 1990, he served as
the Chief Executive Officer of World Enterprises, Inc., an airline ticketing
company, which he co-founded with Mr. Diener. Prior to that time, Mr. Litman was
an attorney with the law firm of Johnson & Gibbs in Dallas, Texas.

Mr. Diener serves as our President and as a director of our company. He
founded our predecessor business with Mr. Litman in 1991 and served as its
President and Treasurer. From 1985 to 1990, he served as the President of World
Enterprises, Inc., an airline ticketing company, which he co-founded with
Mr. Litman. Prior to that time, Mr. Diener was an attorney with the law firm of
Gibson, Dunn & Crutcher in Los Angeles, California.

Mr. Rubin has served as the Chief Financial and Strategic Officer of our
company since December 28, 1999. Prior to then, he served as a Senior Vice
President for NCH Corporation in Irving, Texas and from 1981 to 1991 he served
as a Vice President of the same corporation. While at NCH Corporation,
Mr. Rubin served as the Chief Executive Officer of various subsidiaries in five
different industries. Mr. Rubin is a CPA and a CVA.

Ms. Martin serves as our General Counsel and Secretary. Ms. Martin has
served as our General Counsel since January 24, 2000 and as our Secretary since
February 1, 2000. From 1998 to 2000, Ms. Martin served as General Counsel and
Secretary to TriStar Aerospace Co., a distributor of aerospace hardware, which
was publicly traded on the New York Stock Exchange. Prior to February 1998,
Ms. Martin was an attorney with the law firm of Husch & Eppenberger in
Springfield, Missouri.

Ms. D'Arcy has served as the Executive Vice President of our company since
1998. From 1994 to 1998, she served as a Vice President of our predecessor
business. Prior to that time, she held management positions at various corporate
travel companies including Maritz Travel, formerly The Travel, BTI, formerly IVI
Travel, and XTS Travel.

Mr. Baker has served as a director of our company since November 1999. He
has been President and Chief Operating Officer of USAi since March 1999.
Mr. Baker was Executive Vice President of Sinclair Broadcast Group, Inc. and
served as Chief Executive Officer designate and as a director of Sinclair
Communications, Inc. from June 1996 through February 1999. From 1989 through
May 1996, he was the founder and served as Chief Executive Officer of River City
Broadcasting, L.P., which was

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acquired by Sinclair Broadcasting. Mr. Baker serves as a director of
Ticketmaster Online-CitySearch, Inc., USAi, iBEAM Broadcasting Corporation and
Production Resource Group, Inc.

Ms. Harms has been nominated to serve as a director of our company effective
immediately upon the closing of this offering. Since 1990, she has been Senior
Vice President of Managed Investments for Communications Equity Associates
(CEA), a Tampa based firm with offices worldwide, where she sponsors investments
in start up companies funded through CEA partnerships. Prior to that, she was
President of Gulfstream Cablevision, a cable system in the Tampa, Florida area,
and was the owner and CEO of cable systems in suburban Syracuse, New York. She
was President and CEO of TeleCable Sale, Inc., one of the cable industry's first
successful advertising interconnects. She also owned and operated AM/FM radio
stations in New York and New Hampshire. Ms. Harms previously served on the Board
of Directors of the New York State Cable Association and on the advisory boards
of USBG Broadcasting and River City Broadcasting. Most recently, she has served
on the Board of Directors of 2d interactive, an interactive kiosk company
targeting young adults on college campuses and AccentHEALTH, a media company
delivering healthcare information to patients in 10,000 medical waiting rooms
nationwide.

Mr. Kaufman has served as a director of our company since November 1999.
Since October 1999, Mr. Kaufman has served as Vice Chairman of USAi. From
January 1997 until October 1999, Mr. Kaufman served in the Office of the
Chairman for USAi, and from November 1997 until October 1999, he served as Chief
Financial Officer for USAi. Prior to that time, he served as Chairman and Chief
Executive Officer of Savoy since March 1992 and as a director of Savoy since
February 1992. Mr. Kaufman was the founding Chairman and Chief Executive Officer
of Tri-Star Pictures, Inc. from 1983 until December 1987, at which time he
became President and Chief Executive Officer of Tri-Star's successor company,
Columbia Pictures Entertainment, Inc. He resigned from these positions at the
end of 1989 following the acquisition of Columbia by Sony USA, Inc. Mr. Kaufman
joined Columbia in 1974 and served in a variety of senior positions at Columbia
and its affiliates prior to the founding of Tri-Star. Mr. Kaufman also serves as
a director of Ticketmaster Online-CitySearch, Inc. and USAi.

Mr. Khosrowshahi has served as a director of our company since
November 1999. Since August 1999, Mr. Khosrowshahi has been President of USA
Networks Interactive, a division of USAi. Prior to that time, Mr. Khosrowshahi
was the Vice President of Strategic Planning for USAi and USANi LLC since March
1998. Prior to joining USAi, from 1991 to 1998, he was at Allen & Company
Incorporated where he was a Vice President from 1995 to 1996 and a Director from
1996 to 1998. Mr. Khosrowshahi also serves as a director of Ticketmaster
Online-CitySearch, Inc., BET.com LLC and FreePC.

Mr. Segal has been nominated to serve as a director of our company effective
immediately upon the closing of this offering. He currently serves as President
and CEO of The Welfare to Work Partnership. He also serves as the Chair of the
University of Michigan Center for Learning through Community Service and
Co-Chair of the National Alliance to End Homelessness. Mr. Segal has served as
Chairman of the Board of School Sports, Inc., an online network and high school
sports magazine celebrating the world of high school sports, since December
1996. Mr. Segal previously served as Assistant to the President of the United
States from January 1993 to February 1996. In October 1993, Mr. Segal was
confirmed by the United States Senate to the additional position as the first
Chief Executive Officer of the Corporation for National Service. Prior to that,
Mr. Segal served as President of Bits & Pieces, Inc., a direct mail consumer
product company, from 1984 to January 1993, and publisher of GAMES magazine, a
monthly publication from 1990 to January 1993. Mr. Segal also serves as a
director of Fannie Mae, Citizens Financial Group, Tower Air, City Year and the
Board of Overseers of the Heller School of Brandeis University.

Mr. Sileck has served as a director of our company since December 23, 1999.
Since October 12, 1999, Mr. Sileck has served as Chief Financial Officer of USA
Networks, Inc. Prior to that time,

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<PAGE>
Mr. Sileck had served as CFO for USA Networks, a division of USA Networks, Inc.,
since September 1999. Before joining USA Networks, Mr. Sileck served as Vice
President of Finance at Sinclair Broadcast Group from June 1996 to August 1999.
Prior to that, he served as Director of Finance at River City Broadcasting from
July 1990 to June 1996.

BOARD COMPOSITION

Our board of directors is currently comprised of six directors. Upon
completion of this offering, under our restated certificate of incorporation,
the number of directors will be fixed from time to time by resolution of the
board of directors. All members of the board of directors are elected annually
by our stockholders. Four of our current directors are directors, officers or
employees of USAi. See "Risk Factors--Our business is controlled by USAi and, as
a result, our other stockholders will have little or no influence over
stockholders' decisions."

Our board of directors has a compensation committee initially consisting of
Mr. Baker and Mr. Kaufman. The compensation committee makes recommendations to
our board of directors concerning salaries and incentive compensation for our
officers and employees, including equity compensation for our senior executives.
In addition, the board of directors has an audit committee comprised of
Mr. Baker and Mr. Kaufman that reviews and monitors our corporate financial
reporting and audits, as well as any other accounting-related matters. After the
independent directors are elected to our board of directors, they will be
appointed to serve on our audit and compensation committees.

DIRECTOR COMPENSATION

Mr. Segal and Ms. Harms will receive options to purchase 5,000 shares of our
class A common stock under the Directors' Stock Option Plan at an exercise price
equal to the initial public offering price per share upon election to our board
of directors. See "-- Directors' Stock Option Plan." Upon completion of this
offering and election to our board of directors, Mr. Segal and Ms. Harms each
will receive 5,000 additional discretionary stock options under the 2000 Stock
Plan. See "--Employee Benefits Plans." In addition, Mr. Khoshrowshahi will
receive options to purchase 100,000 shares of our class A common stock under the
2000 Stock Plan at an exercise price equal to the initial public offering price
per share.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The board of directors has a compensation committee, comprised of Mr. Baker
and Mr. Kaufman. No interlocking relationship exists between our board of
directors or the compensation committee and the board of directors or
compensation committee of any company other than USAi.

Each of our directors who is not an employee of our company or one of our
affiliates receives an annual retainer of $20,000 per year. We also pay each of
our non-employee directors $1,000 for each board meeting and each board
committee meeting attended, plus reimbursement for all reasonable expenses
incurred as a result of attendance at any of these meetings.

EXECUTIVE COMPENSATION

The following table sets forth summary information concerning the
compensation awarded to, earned by or paid for services rendered during the
years ended December 31, 1998 and 1999 by our Chief Executive Officer and our
other executive officers and during the year ended December 31, 1999 by our
Chief Financial and Strategic Officer, all of whom earned in excess of $100,000
in compensation during those years (the "Named Executive Officers").

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<PAGE>

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
David Litman, Chief Executive Officer........... 1998(1) $4,966,078 -- $8,093
1999 $ 125,000(2)
Robert Diener, President and Treasurer.......... 1998(1) $4,966,078 -- $8,093
1999 $ 125,000(2)
Jack Rubin, Chief Financial and Strategic $ 180,000(3) -- --
Officer....................................... 1999
Sandra D'Arcy, Executive Vice President......... 1998 $ 140,000 -- $5,824
1999 $ 160,000 61,481 $6,577
</TABLE>

- --------------------------

(1) From January 1, 1997 until May 10, 1999, our predecessor business was a
subchapter S corporation, and substantially all its earnings before taxes
were distributed to its officers. As our executive officers were the
officers and stockholders of our predecessor business, the previous
compensation for our executive officers does not accurately reflect their
current or future compensation.

(2) Reflects annualized compensation for 1999. Actual compensation was $37,000
for the period May 11 to December 31, 1999.

(3) Reflects annualized amount of compensation under Mr. Rubin's employment
agreement. As Mr. Rubin began his employment on December 28, 1999, he earned
only a portion of that amount.

Messrs. Litman and Diener are not parties to an employment agreement with our
company.

Mr. Rubin is party to an employment agreement, dated December 12, 1999, under
which he agrees to serve as the Chief Financial and Strategic Officer of our
company in return for an annual salary, discretionary bonus and incentive or
non-qualified stock options to purchase an aggregate of 100,000 shares of our
class A common stock.

EMPLOYEE BENEFIT PLANS

2000 STOCK PLAN. We have adopted the 2000 Stock Plan, subject to the
approval of our stockholders, and reserved 5,400,000 shares of class A common
stock for issuance under the plan. The 2000 Stock Plan provides for the grant of
incentive stock options to our employees, including our officers and employee
directors, and for the grant of nonstatutory stock options and stock purchase
rights, or SPRs, to our employees, directors and consultants, and employees of
our affiliates. Unless terminated sooner, the 2000 Stock Plan will terminate
automatically on February 21, 2010.

The administrator of the 2000 Stock Plan has the power to determine the
terms of the options or SPRs granted, including the exercise price of the option
or SPR, the number of shares subject to each option or SPR, the exercisability
of the option or SPR, and the form of consideration payable upon such exercise.
In addition, the administrator has the authority to amend, suspend or terminate
the 2000 Stock Plan, provided that no such action may affect any shares of
class A common stock previously issued and sold or any option previously granted
under the plan. The maximum number of shares covered by options that each
optionee may be granted during the duration of the 2000 Stock Plan is 80% of the
total number of shares authorized for issuance under the 2000 Stock Plan.

The terms and conditions of options granted to optionees will be set forth
in individual option agreements between the company and the optionee. Options
are generally exercisable as determined by the administrator and set forth in
the option agreements. Unless otherwise set forth in the individual option
agreement, options granted under the 2000 Stock Plan generally must be exercised
within 90 days following the end of the optionee's status as an employee,
director or consultant other than as a result of termination for cause, death or
disability; in the case of termination for cause, options automatically
terminate and expire on the date of termination and in the event of death or
disability options must be exercised within twelve months after the optionee's
termination, but in no event later than the expiration of the option's terms.

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<PAGE>
In the case of SPRs, unless the administrator determines otherwise, the
restricted stock purchase agreement shall grant our company a repurchase option
exercisable upon the voluntary or involuntary termination of a purchaser's
employment or consulting relationship with our company for any reason, including
death or disability. The purchase price for shares repurchased under the
restricted stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to our company. The repurchase option shall lapse at a rate determined by the
administrator.

The exercise price of all incentive stock options granted under the 2000
Stock Plan must be at least equal to the fair market value of the class A common
stock on the date of grant. The exercise price of nonstatutory stock options and
SPRs granted under the 2000 Stock Plan is determined by the administrator, but
with respect to nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code, the exercise price must be at least equal to the fair
market value of the class A common stock on the date of grant. With respect to
any participant who owns stock possessing more than 10% of the voting power of
all classes of our outstanding capital stock, the exercise price of any
incentive stock option granted must be at least equal to 10% of the fair market
value on the grant date, and the term of the incentive stock option must not
exceed five years. The term of all other options granted under the 2000 Stock
Plan may not exceed ten years. Options and SPRs granted under the 2000 Stock
Plan are generally not transferable by the optionee, and each option and SPR is
exercisable only by the optionee during his or her lifetime.

The 2000 Stock Plan provides that in the event of a merger of our company
with or into another corporation, or of a sale of substantially all of our
assets, each option and SPR shall be assumed or an equivalent option substituted
for it by the surviving corporation. If the outstanding options and SPRs are not
assumed or substituted for by the surviving corporation, the administrator shall
provide for the optionee to vest and to have the right to exercise the option or
SPR as to all of the optioned stock, including shares as to which it would not
otherwise be vested or exercisable. If the administrator makes an option or SPR
vested and exercisable in full in the event of a merger or sale of assets, the
administrator shall notify the optionee that the option or SPR shall be fully
exercisable for a period of 15 days from the date of notice, and the option or
SPR will terminate upon the expiration of the period.

DIRECTORS' STOCK OPTION PLAN

We have adopted the Directors' Stock Option Plan, subject to the approval of
our stockholders, and reserved 100,000 shares of class A common stock for
issuance under the plan. The Directors' Stock Option Plan provides for the grant
of nonstatutory stock options to members of our Board of Directors who are not,
at the time of grant, employees of our company and/or any of our affiliates.
Unless terminated sooner, the plan will terminate automatically on February 21,
2010.

The administrator of the plan has the power to interpret the plan, to
prescribe, amend and rescind rules and regulations relating to the plan, and to
make all determinations necessary or advisable for the administration of the
plan.

The terms and conditions of options granted to directors will be set forth
in individual option agreements between our company and the director. Options
will be automatically granted with respect to 5,000 shares of class A common
stock upon a director's election to office, and thereafter annually on the date
of the annual meeting of stockholders of the company at which such director is
re-elected to office, at an exercise price equal to the fair market value of
such shares on the trading date immediately preceding the date of grant. The
options will vest ratably over three years.

The term of options granted under the plan is ten years; HOWEVER, unless
otherwise provided by our Board of Directors or the Committee at the time of
grant, or thereafter, options granted under the

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<PAGE>
plan generally must be exercised within 120 days following a director's
termination of service. Options granted under the plan are generally not
transferable by the optionee, and each option is exercisable only by the
optionee during his or her lifetime.

The plan generally provides that in the event of a reorganization, merger,
liquidation, sale or disposition of substantially all of the assets of our
company or an acquisition by an individual, entity or group of the majority of
the voting equity of our company, all options shall become exercisable, and
during the 60-day period following such event, each director shall have the
right to elect to receive a cash-out of each option, in an amount equal to the
per share "change of control price" over the exercise price, multiplied by the
number of shares with respect to which this cash-out treatment has been elected.

INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY

Our restated certificate of incorporation limits the liability of our
directors for a breach of their fiduciary duty as a director to the fullest
extent permitted by law. Delaware law provides that a corporation's certificate
of incorporation may contain a provision eliminating or limiting the personal
liability of directors for monetary damages for breach of their fiduciary duties
as directors, except for liability (a) for any breach of their duty of loyalty
to the corporation or its stockholders, (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(c) for unlawful payments of dividends or unlawful stock repurchases or
redemptions or (d) for any transaction from which the director derived an
improper personal benefit. Our restated certificate of incorporation also
provides that we are required to indemnify, to the fullest extent permitted by
law, any of our directors, officers or employees.

Our restated bylaws provide that (a) we are required to indemnify our
directors and officers to the fullest extent permitted by law, subject to very
limited exceptions, (b) we may indemnify our other employees and agents to the
fullest extent permitted by law, (c) we are required to advance expenses, as
incurred, to our directors and officers in connection with a legal proceeding,
subject to very limited exceptions and (d) the rights conferred in our restated
bylaws are not the exclusive remedy for our directors, officers and employees.

At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We also are not aware of any threatened litigation or
proceeding that might result in a claim for indemnification.

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<PAGE>
CERTAIN TRANSACTIONS

ACQUISITION OF OUR PREDECESSOR

In April 1999, we entered into a purchase agreement with USAi, TMF, Inc.,
HRN Marketing Corp. and Messrs. David Litman and Robert Diener to acquire
substantially all the assets and liabilities of our predecessor business. The
acquisition was completed on May 10, 1999. Messrs. Litman and Diener are
currently our Chief Executive Officer and President, respectively. Prior to the
acquisition, Messrs. Litman and Diener, their spouses and trusts for the benefit
of some members of their respective families were the sole stockholders of
TMF, Inc. and HRN Marketing Corp.

At the closing of the acquisition, we paid approximately $162.5 million to
TMF, Inc. and HRN Marketing Corp., which consisted of a promissory note in the
principal amount of $150.0 million, bearing interest at 4.75% annually, and a
$12.5 million payment for attainment of financial targets by our predecessor
business during the fiscal quarter ended March 31, 1999. Approximately
$145.0 million of the principal amount of this promissory note was paid on the
day after the closing and the final $5.0 million payment was paid on
January 31, 2000. Following the closing, TMF, Inc. and HRN Marketing Corp. paid
$0.8 million to us as a working capital adjustment to the purchase price based
on the specified level of working capital agreed to in the asset purchase
agreement. Under the purchase agreement, we were required to pay TMF, Inc. and
HRN Marketing Corp. up to $12.5 million at the end of each of the last three
fiscal quarters in 1999 and for the year ended December 31, 1999 if specified
financial targets were met by us in each of those quarters and for the year. As
a result, we have paid a total of $25.0 million to a party designated by TMF,
Inc. and HRN Marketing Corp. for our attainment of specified financial targets
during our fiscal quarters ended June 30, 1999 and September 30, 1999. We have
accrued for a $12.5 million payment for our year ended December 31, 1999 that we
expect to make in the first fiscal quarter of 2000. This payment will be funded
by a capital contribution from USAi.

Under the asset purchase agreement, TMF, Inc. and HRN Marketing Corp. were
entitled to contingent cash payments over the next three years. The amount of
these contingent payments would have depended on our performance for the
twelve-month periods ending March 31, 2000, 2001 and 2002, respectively. These
additional payments would have been based upon the greater of:

- a multiple of the total growth in our adjusted earnings before taxes from
the previous year; or

- a multiple of the total growth in our adjusted gross profit from the
previous year.

Following the twelve-month period ending March 31, 2000, TMF, Inc. and HRN
Marketing Corp. are entitled to payment from us equal to the greater of:

- 2.5 times the total growth in our adjusted earnings for the period; or

- 1.44 times the total growth in our adjusted gross profit for the period
(provided this growth in adjusted gross profit exceeds 50%).

Under an assumption agreement, USAi has agreed to pay, on our behalf, the
contingent payment for the twelve-month period ending March 31, 2000. See "Risk
Factors--Goodwill amortization will, and contingent payments may, have an
adverse impact on our future operating results."

As of February 2, 2000, we entered into an amended and restated asset
purchase agreement under which our contingent cash payment obligations for the
twelve-month periods ending March 31, 2001

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<PAGE>
and 2002 were extinguished in exchange for our agreement to issue to a party
designated by TMF, Inc. and HRN Marketing Corp. 5,100,000 shares of our class A
common stock immediately prior to the closing of this offering. In addition,
under the amended and restated asset purchase agreement, we are obligated to
issue to a party designated by TMF, Inc. and HRN Marketing Corp. a number of
shares of class A common stock equal to 10% of our outstanding common stock
immediately prior to the completion of this offering. As a result, under the
amended and restated asset purchase agreement, we will issue to TMF Liquidating
Trust, as the party designated by TMF, Inc. and HRN Marketing Corp., 9,999,900
shares of class A common stock immediately prior to the closing of this
offering.

The shares of class A common stock to be issued to TMF Liquidating Trust
will be subject to a four year restriction on transferability, except as
described below. After the first anniversary of our initial public offering, TMF
Liquidating Trust may transfer all or any portion of these shares to Messrs.
Litman or Diener or an immediate family member of either, or trusts for their
benefit. Also, the Trust may transfer up to 5% of the number of shares
originally issued to it to a salesperson engaged by TMF, Inc. who agrees to be
bound by the transfer restrictions. After the first anniversary of the initial
closing of this offering, the Trust may transfer up to 1,959,960 shares of class
A common stock and may transfer an additional 489,990 shares of class A common
stock after the second anniversary and the third anniversary. Furthermore, upon
the death, permanent disability or termination of employment without cause of
Mr. Litman or Mr. Diener, the shares held by the deceased, disabled or
terminated person or his family members or trusts for their benefit, shall
become freely transferable subject to a limitation on the number of shares that
may be sold on any one day. After the first anniversary of the initial closing
of this offering, the trust and its permitted transferees shall be entitled to
tag along on specified sales of common stock made by USAi and its affiliates.
Finally, after the fourth anniversary, holders of these shares shall be entitled
to one demand registration right on customary terms and conditions.

Under the terms of the purchase agreement, each of Messrs. Litman and
Diener, TMF, Inc. and HRN Marketing Corp. are required to indemnify us up to the
value of the purchase price paid to TMF, Inc. and HRN Marketing Corp. for
specified losses, including breaches of the purchase agreement's representations
and warranties. Each of Messrs. Litman and Diener guaranteed the obligations of
TMF, Inc. and HRN Marketing Corp. under the purchase agreement and USAi
guaranteed our obligations under the purchase agreement. Furthermore, under the
terms of the purchase agreement, each of Messrs. Litman and Diener have agreed
not to compete with our business for a five-year period following the
termination of their employment with our company or any of our affiliates.

OTHER TRANSACTIONS

TICKETMASTER. Since April 28, 1999, we have had arrangements with
Ticketmaster LLC ("Ticketmaster"), a wholly owned subsidiary of USAi, under
which Ticketmaster acts as our agent and sells hotel rooms to our customers
using our websites. On April 28, 1999, we entered into an arrangement with
Ticketmaster that provides that we pay an initial set up fee of $1,500, $12 per
operator hour of initial agent training and all telephone usage charges. We also
pay Ticketmaster a service fee of $7.50 for each completed transaction. In
return, Ticketmaster answers calls from our customers in a manner consistent
with our policies.

On July 14, 1999, we entered into a second arrangement with Ticketmaster
regarding sales in Nashville, New Orleans, Dallas, Houston, Las Vegas and
San Antonio, which provides for Ticketmaster agents to sell Ticketmaster's
products in these cities upon requests for hotel reservations there. Although we
pay no set up fees, training costs or telephone usage charges under this
arrangement, we do pay a service fee of $15 per completed transaction. In
return, Ticketmaster answers calls from our customers in a manner consistent
with our policies.

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<PAGE>
On May 13, 1999, we entered into an arrangement with Ticketmaster
Online-CitySearch, Inc. ("TMCS"), a publicly-traded company controlled by USAi,
which operates CitySearch's Reservation Center. Under the arrangement, TMCS will
market our hotel products via the Internet in return for (1) links from our
websites and newsletters to TMCS's website and (2) 5% commissions on the total
booking price on all orders placed and exercised through CitySearch links.

Each of these three arrangements is terminable at will.

HOME SHOPPING NETWORK AND USA NETWORKS. We have certain arrangements for
cable television commercial advertisements with USAi affiliates. From time to
time since early December 1999, Home Shopping Network has featured
advertisements on our behalf in exchange for a 5% commission on the revenue
generated by the advertisements. We also have been featured on USA Network from
time to time pursuant to a similar arrangement. These advertisements may appear
again in the future on either Home Shopping Network or USA Network or USAi's
other cable channel, The Sci-Fi Channel. However, no agreement or other
commitment currently exists for such an arrangement, and it is possible that
future advertisements will be on different terms.

We will continue to consider expanding the scope of our relationships with
Ticketmaster, TMCS, Home Shopping Network, USA Network, The Sci-Fi Channel and
other USAi affiliates. In particular we are exploring a relationship with the
Electronic Commerce and Services Division of USAi, which provides integrated
electronic services to businesses including teleservices, customer care and
systems development.

USAI. Prior to the completion of this offering, we were included in the
consolidated federal income tax return of USAi. Under a tax sharing agreement
with USAi, we paid our parent amounts equal to the taxes that we would otherwise
have paid if we had filed a separate federal income tax return. We also were
included in certain state and local tax returns of USAi. Upon the completion of
this offering, because USAi's equity ownership in our company will fall below
80%, we will no longer be included in the consolidated federal income tax return
of USAi or any of its state and local returns. Thus, following completion of
this offering, we will be required to file our own federal, state and local
income tax returns on a stand-alone basis and will make all of our tax payments
directly to the relevant taxing authorities. We will also have no further rights
or obligations under the tax sharing agreement with USAi, except with respect to
periods ending on or before the completion of this offering.

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<PAGE>
PRINCIPAL STOCKHOLDERS

The following tables set forth certain beneficial ownership information with
respect to our company and USAi, the majority stockholder of our company.

OUR CLASS A COMMON STOCK

The following table sets forth, as of the date of this prospectus, certain
information regarding the beneficial ownership of our class A common stock
giving effect to our recapitalization by (a) each person or entity who is known
by us to own beneficially 5% or more of our outstanding class A common stock;
(b) each director of our company; (c) each of our Named Executive Officers; and
(d) all of our directors and executive officers as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
VOTING POWER
(OF ALL CLASSES)(2)
-------------------
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF SHARES BEFORE AFTER
OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) BENEFICIALLY OWNED (1) OFFERING OFFERING
- ------------------- ---------------------- ---------------------- -------- --------
<S> <C> <C> <C> <C>
USA Networks, Inc..................... 38,999,100 71.2% 98.3% 97.4%
152 West 57th Street, 42nd Floor
New York, NY 10019
David Litman (3)(4)................... 9,999,900 18.4% 1.7% 1.7%
Robert Diener (3)(4).................. 9,999,900 18.4% 1.7% 1.7%
Jack Rubin (3)........................ -- -- -- --
Sandra D'Arcy (3)..................... -- -- -- --
Barry Baker (5)....................... -- -- -- --
Victor A. Kaufman (5)................. -- -- -- --
Dara Khosrowshahi (5)................. -- -- -- --
Michael Sileck (5).................... -- -- -- --
All executive officers and directors
as a group (9 persons).............. 9,999,900 18.4% 1.7% 1.7%
</TABLE>

- ------------------------
(1) All numbers shown give effect to the sale of 5,400,000 shares of our
class A common stock in this offering. No shares of class A common stock
were issued or are outstanding, and no shares of class A common stock were
beneficially owned, prior to this offering, other than shares issuable upon
conversion of our outstanding class B common stock and shares issued to a
party designated by TMF, Inc. and HRN Marketing Corp. immediately prior to
this offering. Under our restated certificate of incorporation, shares of
our class B common stock are convertible at any time into an equal number of
shares of our class A common stock. The percentage of shares beneficially
owned assumes the conversion of all shares of class B common stock
beneficially owned by USAi. Beneficial ownership is determined in accordance
with the rules of the Commission and generally includes voting or investment
power with respect to securities. Except as otherwise indicated by footnote,
and subject to community property laws where applicable, the persons named
in the table above have sole voting and investment power with respect to all
shares of class A common stock shown as beneficially owned by them.
(2) Percentage of total voting power of all classes after this offering gives
effect to the sale of 5,400,000 shares of class A common stock in this
offering. Percentage of total voting power before and after the offering is
based on one vote for each share of our class A common stock and 15 votes
for each share of our class B common stock, calculated assuming no
conversion of our class B common stock by any holder.
(3) The address of Messrs. Litman, Diener, Rubin and Ms. D'Arcy is c/o Hotel
Reservations Network, Inc., 8140 Walnut Hill Lane, Suite 203, Dallas, TX
75231.
(4) HRN Marketing Corp. is in the process of liquidating its business and has
transferred all of its assets to TMF, Inc., which also is in the process of
liquidation and has formed TMF Liquidating Trust, a liquidating trust. The
liquidating trust holds the remaining assets of TMF, Inc. Messrs. Litman and
Diener are the trustees of that liquidating trust and, along with their
spouses and minor children, are the sole shareholders of TMF, Inc. and the
beneficiaries of the liquidating trust. Messrs. Litman and Diener disclaim
beneficial ownership of each other's shares and each other's family members'
shares.
(5) The address of Messrs. Baker, Kaufman, Khosrowshahi and Sileck is c/o USA
Networks, Inc., 152 West 57th Street, 42nd Floor, New York, NY 10019.

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<PAGE>
OUR CLASS B COMMON STOCK

The following table sets forth, as of the date of this prospectus, certain
information regarding the beneficial ownership of our class B common stock
giving effect to our recapitalization by (a) each person or entity who is known
by us to own beneficially 5% or more or of our outstanding class B common stock;
(b) each director of our company; (c) each of our Named Executive Officers; and
(d) all of our directors and executive officers as a group.

<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY PERCENTAGE OF
OF BENEFICIAL OWNER OWNED (1) CLASS (1)
- ------------------- ---------------- -------------
<S> <C> <C>
USA Networks, Inc........................................... 38,999,100 100%
152 West 57th Street, 42nd Floor
New York, NY 10019
David Litman (2)............................................ -- --
Robert Diener (2)........................................... -- --
Jack Rubin (2).............................................. -- --
Sandra D'Arcy (2)........................................... -- --
Barry Baker (3)............................................. -- --
Victor A. Kaufman (3)....................................... -- --
Dara Khosrowshahi (3)....................................... -- --
Michael Sileck (3).......................................... -- --
All executive officers and directors as a group (9 -- --
persons)..................................................
</TABLE>

- ------------------------

(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Except as otherwise indicated by footnote, and subject to
community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all shares of
class B common stock shown as beneficially owned by them. Shares of our
class B common stock may be converted at any time into an equal number of
shares of our class A common stock.

(2) The address of Messrs. Litman, Diener, Rubin and Ms. D'Arcy is c/o Hotel
Reservations Network, Inc., 8140 Walnut Hill Lane, Suite 203, Dallas, TX
75231.

(3) The address of Messrs. Baker, Kaufman, Khosrowshahi and Sileck is c/o USA
Networks, Inc., 152 West 57th Street, 42nd Floor, New York, NY 10019.

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<PAGE>
USAI COMMON STOCK

The following table sets forth, as of January 31, 2000, information relating
to the beneficial ownership of the common stock of USAi by (a) each director of
our company; (b) the Named Executive officers of our company; and (c) all
executive officers and directors of our company as a group. The information set
forth in this section reflects USAi's two-for-one stock split which became
effective for holders of record at the close of business on February 10, 2000.

<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE OF TOTAL
NAME AND ADDRESS NUMBER OF OF VOTING POWER
OF BENEFICIAL OWNER SHARES CLASS (1) (OF ALL CLASSES) (2)
- ------------------- ---------- ---------- --------------------
<S> <C> <C> <C>
David Litman (3)...................................... -- -- --
Robert Diener (3)..................................... -- -- --
Jack Rubin (3)........................................ -- -- --
Sandra D'Arcy (3)..................................... -- -- --
Barry Baker (4)(5).................................... 610,600 * *
Victor A. Kaufman (4)(6).............................. 940,338 -- --
Dara Khosrowshahi (4)(7).............................. 123,726 * *
Michael Sileck (4).................................... -- -- --
All executive officers and directors as a group (9 1,674,664 * *
persons)............................................
</TABLE>

- ------------------------

* The percentage of shares beneficially owned does not exceed 1% of the class.

(1) The percentage of beneficial ownership listed assumes the conversion of any
shares of USAi class B common stock owned by such listed person, but does
not assume the conversion of USAi class B common stock owned by any other
person. Beneficial ownership has been determined in accordance with the
rules of the Commission. Shares of USAi class B common stock are convertible
at any time into an equal number of shares of USAi common stock.

(2) The percentage of votes for all classes is based on one vote for each share
of USAi common stock and ten votes for each share of USAi class B common
stock (assuming no conversion of USAi class B common stock).

(3) The address of Messrs. Litman, Diener, Rubin and Ms. D'Arcy is c/o Hotel
Reservations Network, Inc., 8140 Walnut Hill Lane, Suite 203, Dallas, TX
75231.

(4) The address of Messrs. Baker, Kaufman, Khosrowshahi and Sileck is c/o USA
Networks, Inc., 152 West 57th Street, 42nd Floor, New York, NY 10019.

(5) Includes 10,600 shares of USAi common stock and options to purchase 600,000
shares of USAi common stock granted under USAi's stock option plans.

(6) Consists of 34,338 shares of USAi common stock and options to purchase
906,000 shares of USAi common stock granted under USAi's stock option plans.

(7) Consists of 3,726 shares of USAi common stock and options to purchase
120,000 shares of USAi common stock granted under USAi's stock option plans.

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<PAGE>
USAI CLASS B COMMON STOCK

The following table sets forth, as of January 31, 2000, information relating
to the beneficial ownership of the class B common stock of USAi. The information
set forth in this section reflects USAi's two-for-one stock split which became
effective for holders of record at the close of business on February 10, 2000.

<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY PERCENTAGE OF
OF BENEFICIAL OWNER OWNED (1) CLASS
- ------------------- ---------------- -------------
<S> <C> <C>
Barry Diller (2)............................................ 63,033,452 100%
c/o USA Networks, Inc.
152 West 57th Street, 42nd Floor
New York, NY 10019
</TABLE>

- ------------------------

(1) All or any portion of the USAi class B common stock may be converted at any
time into an equal number of shares of USAi common stock.

(2) These figures do not include any unissued shares of USAi common stock or
USAi class B common stock issuable upon conversion of certain shares
beneficially owned by Liberty Media Corporation or The Seagram Company Ltd.

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

The following summary of the terms of our capital stock is qualified in its
entirety by reference to the applicable provisions of Delaware law and our
restated certificate of incorporation and restated bylaws.

COMMON STOCK

At the completion of this offering, there will be 15,399,900 shares of
class A common stock outstanding and 38,999,100 shares of class B common stock
outstanding, and we will be authorized to issue an additional 584,600,100 shares
of class A common stock and 111,000,900 shares of class B common stock. Stock
options covering up to 5,400,000 shares of class A common stock are available
for grant under the 2000 Stock Plan, and options covering an aggregate of
approximately 1,500,000 shares of class A common stock will be granted upon
completion of this offering. See "Management--Employee Benefit Plans--2000 Stock
Plan." Stock options covering up to 100,000 shares of class A common stock are
available for grant under our Directors' Stock Option Plan, and options covering
an aggregate of 20,000 shares will be granted upon completion of this offering
but will not have been exercised. See "Management--Employee Benefit Plans." All
of the outstanding shares of our class B common stock are held by USAi. Except
as otherwise provided by applicable law, each share of class B common stock
issued and outstanding has 15 votes on any matter submitted to a vote of our
stockholders and each share of class A common stock issued and outstanding has
one vote on any matter submitted to a vote of stockholders. The class A common
stock and the class B common stock will vote together as a single class on all
matters submitted to a vote of our stockholders unless otherwise required by
law.

While held by USAi or any of its affiliates, each share of class B common
stock may be converted at any time into one share of class A common stock at the
option of the holder, and this one-to-one conversion ratio is to be equitably
preserved in the event of our merger, consolidation or other reorganization.

Our restated certificate of incorporation provides that:

- we will reserve and keep available out of our authorized but unissued
shares of class A common stock, solely for the purpose of effecting the
conversion of the shares of the class B common stock, the number of shares
of class A common stock necessary to effect the conversion of all
outstanding shares of class B common stock;

- prior to a spin-off transaction that is on a tax-free basis ("Tax-Free
Spin-Off"), shares of class B common stock automatically will be converted
into a like number of shares of class A common stock upon any sale,
conveyance, foreclosure upon, assignment or other transfer of the class B
common stock, other than transfers to an affiliate of USAi;

- each share of class B common stock held by USAi or any of its affiliates
may be converted into a share of class A common stock at the class
B holder's option prior to a Tax-Free Spin-Off;

- if 20% or less of the value of our outstanding stock is issued by us in
this offering or otherwise before the Tax-Free Spin-Off, each share of
class B common stock automatically will convert into one share of class A
common stock immediately prior to the Tax-Free Spin-Off, unless and to the
extent that, the class B common stockholder delivers to us an opinion of
counsel that we find reasonably satisfactory to the effect that the
conversion is likely to prevent or delay the class B warrantholder's
ability to obtain a favorable ruling from the Internal Revenue Service
that the transaction would qualify as a Tax-Free Spin-Off or will
otherwise create a significant risk of material adverse tax consequence to
USAi, its affiliates or their stockholders;

- except as provided below, after the Tax-Free Spin-Off, any outstanding
shares of class B common stock will no longer be convertible into shares
of class A common stock for a period of five years; and

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<PAGE>
- shares of class B common stock automatically will convert into shares of
class A common stock on the fifth anniversary of the Tax-Free Spin-Off,
unless, before the Tax-Free Spin-Off, the class B common stockholder
delivers to us an opinion of counsel that we find reasonably satisfactory
to the effect that the conversion could prevent or delay the class
B common stockholder's ability to obtain a favorable ruling from the
Internal Revenue Service stating that the transfer would qualify as a
Tax-Free Spin-Off.

WARRANTS TO PURCHASE COMMON STOCK

COMMON STOCK PURCHASE WARRANTS. We have agreed to issue, upon completion of
this offering, warrants to purchase, in the aggregate, up to 1,428,365 shares of
class A common stock to a number of companies that operate websites that provide
links to our websites. These warrants will be exercisable for a three-year
period at a price per share equal to the initial public offering price in this
offering and are subject to customary anti-dilution protections. Neither these
warrants nor the underlying shares of class A common stock are transferable
until after the first anniversary of this offering.

PERFORMANCE WARRANT. In addition, immediately upon completion of the
initial closing of this offering, we will issue to Travelocity a performance
warrant to purchase up to 2,447,955 shares of our class A common stock at an
exercise price equal to the initial public offering price per share in this
offering, subject to customary anti-dilution protections. This warrant will be
earned over a three-year period if performance targets are met, as described
below, and will be exercisable for one year after the third anniversary of the
initial closing of this offering, except as described below. As set forth below,
one-third of this warrant will be earned if we receive the targeted amount of
bookings from Travelocity and Preview Travel in the periods indicated:

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JANUARY 29,
------------------------------------------
2001 2002 2003
---- ---- ----
<S> <C> <C> <C>
Target.............................. $140 million $218 million $298 million
Minimum............................. $ 55 million $ 80 million $110 million
</TABLE>

If the bookings are less than the target but more than the minimum in any
period, a proportionate part of the one-third of the warrant eligible to be
earned during the period will be earned. The proportionate part that will be
earned will be equal to the percentage of the target represented by the actual
results, multiplied by the number of warrant shares eligible to be earned during
that period. If the bookings are less than the target but more than the minimum
less $10.0 million in any period, bookings in the next twelve-month period will
be used to earn the unearned portion of the warrant from the last period. In
addition, in order for any portion of this warrant to be earned, we must
generate at least $40.0 million of aggregate bookings from Travelocity and
Preview Travel in each of the two twelve-month periods ending January 29, 2002
and 2003.

We may decide to waive the requirements for earning portions of the warrant
in order to prevent the termination of various aspects of Travelocity's
relationship with us. Under the performance warrant, if Travelocity has not
earned a portion of the warrant entitling it to acquire at least 1,060,699
warrant shares by July 29, 2001, 1,632,052 warrant shares by January 29, 2002 or
1,904,019 warrant shares by July 29, 2003, it will be permitted to display the
hotel offerings of our competitors and/or hotel offerings arranged by
Travelocity or its affiliates for cities covered by the relationship on the
Travelocity network. If we were to waive these requirements, all warrant shares
deemed earned because of the waiver would be exercisable on the date of the
waiver for a period that will end on the earlier of the second anniversary of
the date of the waiver and the fourth anniversary of the initial closing of this
offering.

Under the performance warrant, Travelocity also will be permitted to
terminate its relationship with us if we materially fail to comply with
specified standards concerning the management and operations of our online
services or our other obligations to Travelocity or if we fail to account for

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<PAGE>
more than 10% of Travelocity's hotel bookings during the twelve-month period
after our services are integrated into the Travelocity network. In the case of
this type of termination, the portion of the warrant that has already been
earned as of the date of termination will become exercisable on the date of
termination, but Travelocity will forfeit the opportunity to earn any further
portion of the performance warrant.

Travelocity also will have two demand registration rights with respect to
the shares underlying the performance warrant. The two demand registration
rights will be exercisable, subject to customary limitations, after the initial
closing of this offering, although the performance warrant itself will not
(absent a waiver from us) be exercisable prior to the third anniversary of the
initial closing of this offering.

PREFERRED STOCK

At the completion of this offering, we will be authorized to issue 20
million shares of preferred stock. Our board of directors is authorized, subject
to limitations prescribed by Delaware law, to determine the terms and conditions
of the preferred stock, including whether the shares of preferred stock will be
issued in one or more series, the number of shares to be included in each series
and the powers, designations, preferences and rights of the shares. Our board of
directors also is authorized to designate any qualifications, limitations or
restrictions on the shares without any further vote or action by the
stockholders. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of our company and may adversely
affect the voting and other rights of the holders of our common stock, which
could have an adverse impact on the market price of our class A common stock. We
have no current plan to issue any shares of preferred stock.

CORPORATE OPPORTUNITIES

Our restated certificate of incorporation provides that "USA Networks" (for
purposes of this discussion only, as defined below) and its officers, directors
and employees do not have a fiduciary duty or any other obligation to share any
business opportunities with us and releases USAi from any liability that would
result from a breach of this kind of obligation. Specifically, our restated
certificate of incorporation provides as follows:

- USA Networks has no duty to refrain from engaging in lines of business
similar to ours;

- USA Networks, its officers, directors and employees are not liable to us
or our stockholders for breach of a fiduciary duty by reason of its
activities;

- if USA Networks acquires knowledge of a potential transaction or matter
which may be a corporate opportunity for both USA Networks and our
company, USA Networks will have no duty to communicate or offer corporate
opportunities to us and is not liable for breach of any fiduciary duty as
a stockholder of our company because it pursues or acquires the corporate
opportunity for itself, directs the corporate opportunity to another
person, or does not communicate information regarding the corporate
opportunity to our company;

- nothing in the restated certificate of incorporation amends or modifies,
or will amend or modify, in any respect any written contractual
arrangement between USA Networks and our company; and

- in the event that an officer of our company who is also a director of USA
Networks is expressly offered a potential transaction or matter which may
be a corporate opportunity for both our company and USA Networks, the
corporate opportunity offered to the officer of our company, in his or her
capacity as an officer, belongs to our company.

For purposes of this section:

(1) a director of our company who is chairman of the board of directors of
our company or of a committee of our board of directors is not deemed to
be an officer of our company by reason

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<PAGE>
of holding that position (without regard to whether the position is
deemed an office of our company under the restated bylaws of our
company), unless that person is a full-time employee of our company;

(2) the term "company" means our company and all corporations, partnerships,
joint ventures, associations and other entities in which our company
beneficially owns, directly or indirectly, 50% or more of the
outstanding voting stock, voting power, partnership interests or similar
voting interests; and

(3) the term "USA Networks" means USA Networks, Inc., a Delaware
corporation, USANi LLC, a Delaware limited liability company, and all
corporations, partnerships, joint ventures, associations and other
entities (other than our company), as defined in accordance with this
paragraph) in which USA Networks beneficially owns, directly or
indirectly, 50% or more of the outstanding voting stock, voting power,
partnership interests or similar voting interests.

The provisions of our restated certificate of incorporation described in
this section expire on the date that USA Networks ceases to beneficially own
common stock representing at least 20% of the total voting power of all classes
of our outstanding capital stock entitled to vote in the election of directors
and on the date that no director or officer of our company is also a director or
officer of USA Networks. In addition to any vote of the stockholders required by
law, until the time that USA Networks ceases to beneficially own common stock
representing at least 20% of the total voting power of all classes of
outstanding capital stock of our company entitled to vote in the election of
directors, the affirmative vote of the holders of more than 80% of the total
voting power of all classes of outstanding capital stock of our company is
required to alter, amend or repeal in a manner adverse to the interests of USA
Networks, or adopt any provision adverse to the interests of USA Networks and
inconsistent with, the corporate opportunity provisions described above.

Any person purchasing or otherwise acquiring any interest in shares of our
capital stock is deemed to have notice of and to have consented to the foregoing
provisions of our restated certificate of incorporation described above.

ANTITAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS

Some provisions of our restated certificate of incorporation and our
restated bylaws may render more difficult, or have the effect of discouraging,
unsolicited takeover bids from third parties or the removal of incumbent
management of our company or may otherwise adversely affect the market price for
the class A common stock. These provisions include the right of the holders of
our class B common stock to 15 votes per share, as compared to one vote per
share for the holders of our class A common stock, and the prohibition against
stockholders calling special meetings. In addition, our restated certificate of
incorporation authorizes our board of directors to issue, without stockholder
approval, 20 million shares of preferred stock with voting, conversion and other
rights and preferences that could adversely affect the voting power or other
rights of the holders of our common stock. See "--Preferred stock." Although
these provisions do not have a substantial practical significance to investors
while USAi, through its ownership of our common stock, is in a position to
effectively control all matters affecting our company, these provisions could
have the effect of depriving stockholders of an opportunity to sell their shares
at a premium over prevailing market prices should USAi no longer have control of
our company.

EFFECT OF ANTITAKEOVER STATUTE

We are subject to Section 203 of Delaware law, the Antitakeover Law, which
regulates corporate acquisitions. The Antitakeover Law prevents some Delaware
corporations, including those whose securities are listed for trading on the
Nasdaq National Market, from engaging in a "business combination" with any
"interested stockholder" for three years after the stockholder became an
interested stockholder. For purposes of the Antitakeover Law, a "business
combination" includes a

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<PAGE>
merger or consolidation involving our company and the interested stockholder and
the sale of more than ten percent of our assets. In general, the Antitakeover
Law defines an "interested stockholder" as any entity or person beneficially
owning 15% or more of the outstanding voting stock of our company and any entity
or person affiliated with or controlling, or controlled by, that entity or
person. Although Delaware Law permits us to "opt out" of this Antitakeover Law
with an express provision in our original or amended certificate of
incorporation or in bylaws approved by at least a majority of the stockholders,
we have not "opted out" of the Antitakeover Law. Nevertheless, the restrictions
of the Antitakeover Law will not apply to our significant stockholder, USAi,
because when USAi became an "interested stockholder," we did not have a class of
voting stock (x) listed on a national securities exchange, (y) authorized for
quotation on the Nasdaq Stock Market or (z) held of record by more than 2,000
stockholders.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for our class A common stock is ChaseMellon
Shareholder Services, L.L.C.

LISTING

Our class A common stock has been approved for quotation on the Nasdaq
National Market under the trading symbol "ROOM."

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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our class A common
stock, and we cannot assure you that a significant public market for our
class A common stock will develop or be sustained after this offering. Future
sales of substantial amounts of our class A common stock, including shares
issued upon conversion of our class B common stock, in the public market after
this offering, or the anticipation of those sales, could adversely affect market
prices prevailing from time to time and could impair our ability to raise
capital through the sale of our equity securities. The market price of our stock
could be subject to fluctuations resulting from factors such as the following,
some of which are beyond our control:

- quarterly variations in our operating results;

- operating results that vary from the expectations of securities analysts
and investors;

- changes in expectations as to our future financial performance;

- changes in market valuations of other travel, Internet or online service
companies;

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

- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;

- loss of several of our hotel room supply arrangements;

- additions or departures of key personnel; and

- future sales of our common stock.

Upon completion of this offering, we will have 15,399,900 shares of our
class A common stock outstanding, assuming no exercise of the underwriters'
overallotment option, and 38,999,100 shares of our class B common stock
outstanding. Shares of class B common stock, however, are convertible for shares
of class A common stock on a share-for-share basis at the election of the
holder. Of the shares of class A common stock expected to be outstanding after
this offering (plus any additional shares sold upon exercise of the
underwriters' overallotment option), all of the shares sold in this offering
will be freely transferable without restriction under the Securities Act, unless
they are held by "affiliates" of our company, as that term is used under the
Securities Act. All shares of our class A common stock held by our affiliates
are control securities. The shares of our class A common stock issued to a party
designated by TMF, Inc. and HRN Marketing Corp. immediately prior to this
offering, the shares of our class A common stock issuable upon conversion of the
class B common stock and all of the outstanding shares of our class B common
stock owned by USAi also will be "restricted shares," as that term is defined in
Rule 144 of the Securities Act. Restricted and control securities may not be
sold in the public market unless they qualify for an exemption from registration
under Rule 144 or Rule 701 or another exemption under the Securities Act.

The 9,999,900 shares to be issued to a party designated by TMF, Inc. and HRN
Marketing Corp. will be subject to a four year restriction on transfer, except
that after the first anniversary of this offering, that party may transfer up to
1,959,960 shares of class A common stock and may transfer an additional 489,990
shares of class A common stock after the second anniversary and the third
anniversary. The four year restriction on transfer is also subject to other
exceptions as described in "Certain Transactions." The holder of a majority of
those 9,999,900 shares will have one demand registration right exercisable after
the fourth anniversary of this offering. See "Certain Transactions."

In addition, upon completion of this offering, we have agreed to issue to a
number of third-party affiliate website companies warrants to acquire up to
1,428,365 shares of our class A common stock at the initial public offering
price. Neither the warrant nor the underlying shares of class A common stock
will be transferable until after the first anniversary of this offering. Upon
completion of this offering, we also will issue a performance warrant to
purchase up to 2,447,955 shares of our class A common stock at the initial
public offering price. The holder of this warrant also will have two demand
registration rights with respect to the shares underlying the warrant that will
be exercisable, subject to customary limitations, after the closing of this
offering. The warrant may not be transferred except that

65
<PAGE>
a transfer after the first anniversary of the date it is issued to an affiliate
of the entity to which it was issued is permitted. The warrant (absent a waiver
by us) will not be exercisable until the third anniversary of the date it is
issued. See "Description of Capital Stock--Common Stock Purchase Warrants."

There also are 5,500,000 shares of class A common stock reserved for
issuance upon the exercise of stock options under our 2000 Stock Plan and our
Directors' Stock Option Plan. See "Management--Employee Benefit Plans."

We and each of our directors, executive officers and our existing
stockholders have agreed that, without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation on behalf of the underwriters, none of
them will, during the period ending 180 days after the date of this prospectus:

- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend, file a registration statement or otherwise
transfer or dispose of, directly or indirectly, any shares of class A
common stock or any securities convertible into or exercisable or
exchangeable for class A common stock; or

- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock.

The restrictions described in this paragraph do not apply to some
circumstances, including:

- the sale of the shares to the underwriters in this offering;

- the grant of options to some officers, directors, employees or
consultants, provided these options are not exercisable prior to the end
of the lock-up period; and

- other transfers of any shares of class A common stock by some of the
foregoing persons to any "associate," as that term is defined in
Rule 12b-2 under the Exchange Act, of that person which agrees to be bound
by the foregoing provisions.

In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after the date of this prospectus, a person or persons whose
shares are aggregated and who has beneficially owned restricted shares for at
least one year, including the holding period of any prior owner of the shares,
except an affiliate of our company, would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of
(a) 1% of the number of shares of our class A common stock then outstanding,
which will equal approximately 153,999 shares of class A common stock
immediately after this offering but before any exercise of the overallotment
option or (b) the average weekly trading volume of our class A common stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to any sale. Sales under Rule 144 also are subject to manner of sale provisions
and notice requirements and to the availability of current public information
about our company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of our company at any time during the three months preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years, including the holding period of any prior owner except an affiliate, is
entitled to sell shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.

Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions of Rule 144. Any employee, officer or
director of or consultant to our company who purchased his or her shares
pursuant to a written compensatory plan or contract may be entitled to rely on
the resale provisions of Rule 701. Rule 701 permits affiliates to sell their
shares under Rule 144 without complying with the holding period requirements of
Rule 144. Rule 701 also provides that non-affiliates may sell shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. Under
Rule 701, all holders of shares are required to wait until 90 days after the
date of this prospectus before selling their shares.

66
<PAGE>
UNDERWRITING

Subject to the terms and conditions of an underwriting agreement dated the
date of this prospectus, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Allen & Company
Incorporated, Bear, Stearns & Co. Inc., Thomas Weisel Partners LLC and
DLJDIRECT Inc. (the "Representatives"), have severally agreed to purchase from
us the respective number of shares of class A common stock set forth opposite
their names below at the initial public offering price less the underwriting
fees set forth on the cover page of this prospectus.

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation......... 1,452,502
Allen & Company Incorporated................................ 899,166
Bear, Stearns & Co. Inc..................................... 899,166
Thomas Weisel Partners LLC.................................. 899,166
DLJDIRECT Inc............................................... 100,000

Chase H&Q................................................... 50,000
Credit Suisse First Boston Corporation...................... 50,000
A.G. Edwards & Sons, Inc.................................... 50,000
Goldman, Sachs & Co......................................... 50,000
ING Barings LLC............................................. 50,000
Lazard Freres & Co. LLC..................................... 50,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 50,000
PaineWebber Incorporated.................................... 50,000
Prudential Securities Incorporated.......................... 50,000
Salomon Smith Barney Inc.................................... 50,000
SG Cowen Securities Corporation............................. 50,000

Adams, Harkness & Hill, Inc................................. 25,000
George K. Baum & Company.................................... 25,000
William Blair & Company, L.L.C.............................. 25,000
J.C. Bradford & Co.......................................... 25,000
The Chapman Company......................................... 25,000
Dain Rauscher Wessels....................................... 25,000
Fahnestock & Co. Inc........................................ 25,000
First Albany Corporation.................................... 25,000
First Southwest Company..................................... 25,000
Gabelli & Co. Inc........................................... 25,000
Gerard Klauer Mattison & Co., Inc........................... 25,000
Janney Montgomery Scott LLC................................. 25,000
Johnston, Lemon & Co. Incorporated.......................... 25,000
Morgan Keegan & Company, Inc................................ 25,000
Needham & Co. Inc........................................... 25,000
Parker/Hunter Incorporated.................................. 25,000
U.S. Bancorp Piper Jaffray Inc.............................. 25,000
Raymond James & Associates Inc.............................. 25,000
Ryan, Beck & Co., Inc....................................... 25,000
Sanders Morris Harris....................................... 25,000
Sands Brothers & Co. Ltd.................................... 25,000
Stephens Inc................................................ 25,000
Sutro & Co. Incorporated.................................... 25,000
Tucker Anthony Cleary Gull.................................. 25,000
---------
Total..................................................... 5,400,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to other
specified conditions. The underwriters are obligated to purchase and accept

67
<PAGE>
delivery of all the shares (other than those shares covered by the overallotment
option described below) if they purchase any of the shares.

The underwriters initially propose to offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less a
concession not in excess of $0.67 per share. The underwriters may allow, and
such dealers may re-allow, a concession not in excess of $0.10 per share on
sales to other dealers. After the initial offering of the shares to the public,
the representatives may change the public offering price and such concessions at
any time without notice.

We have granted the underwriters an option, exercisable for 30 days from the
date of this prospectus, to purchase, from time to time, in whole or in part, up
to 810,000 additional shares at the public offering price less the underwriting
fees. The underwriters may exercise such option solely to cover overallotments,
if any, made in connection with this offering. To the extent that the
underwriters exercise such option, such underwriter will become obligated,
subject to specified conditions, to purchase a number of additional shares
approximately proportionate to such underwriter's initial purchase commitment.

The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of class A common stock.

<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share............................................ $1.12 $1.12
Total................................................ $6,048,000 $6,955,200
</TABLE>

We have agreed to indemnify the underwriters against specified civil
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments that the underwriters may be required to make in respect
of any of those liabilities.

The underwriters have reserved for sale, at the initial public offering
price, 810,000 shares of the class A common stock for employees, directors and
other persons associated with us who have expressed an interest in purchasing
such shares of common stock in this offering. The number of shares of class A
common stock available for sale to the general public in this offering will be
reduced to the extent such persons purchase the reserved shares. Any reserved
shares not so purchased will be offered by the underwriters to the general
public on the same terms as the other shares offered hereby.

We estimate that expenses of the offering will total $1.6 million.

We, USAi and those of our executive officers and directors who are holders
of our common and preferred stock have agreed that, subject to some exceptions
for a period of 180 days from the date of this prospectus, we will not, without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation:

- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, any shares of class A common stock or any securities convertible
into or exercisable or exchangeable for class A common stock;

- purchase any option or contract to sell any shares of class A common stock
or any securities convertible into or exercisable or exchangeable for
class A common stock;

- grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of class A common stock or
any securities convertible into or exercisable or exchangeable for
class A common stock; or

- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any class A
common stock or any securities convertible into or exercisable or
exchangeable for class A common stock (regardless of whether any of the
transactions described above is to be settled by the delivery of common
stock, or such other securities, in cash or otherwise).

68
<PAGE>
In addition, during such period, we also have agreed not to file any
registration statement with respect to, and each of our executive officers and
directors and several of our shareholders have agreed not to make any demand
for, or exercise any right with respect to, the registration of any shares of
class A common stock or any securities convertible into or exercisable or
exchangeable for class A common stock without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation.

Our class A common stock has been approved for quotation on the Nasdaq
National Market under the symbol "ROOM".

The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.

Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of class A common
stock included in this offering in any jurisdiction where action for that
purpose is required. The shares included in this offering may not be offered or
sold, directly or indirectly, nor may this prospectus or any other offering
material or advertisement in connection with the offer and sale of any such
shares be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
this offering and the distribution of this prospectus. This prospectus is not an
offer to sell or a solicitation of an offer to buy any shares of class A common
stock included in this offering in any jurisdiction where that would not be
permitted or legal.

In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
class A common stock. Specifically, the underwriters may overallot this
offering, thereby creating a syndicate short position. In addition, the
underwriters may bid for and purchase shares of class A common stock in the open
market to cover such syndicate short position or to stabilize the price of the
class A common stock. These activities may stabilize or maintain the market
price of the class A common stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.

Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners LLC has been named as a lead-manager or
co-manager on 110 filed public offerings of equity securities, of which 79 have
been completed, and has acted as a syndicate member in an additional 54 public
offerings of equity securities. Thomas Weisel Partners LLC does not have any
material relationship with us or any of our officers, directors or controlling
persons, except with respect to its contractual relationship with us under the
underwriting agreement entered into in connection with this offering.

Some of the underwriters engage in transactions with, and perform services
for, our company in the ordinary course of business and have engaged and may in
the future engage in investment banking transactions with us, for which they
receive customary compensation.

LEGAL MATTERS

Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York will pass upon
certain legal matters for our company in connection with this offering. Certain
legal matters will be passed upon for the underwriters by Davis Polk & Wardwell,
New York, New York.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1999, and for the period from May 11, 1999 to
December 31, 1999, and the combined financial statements of TMF, Inc. and HRN
Marketing Corp. (Predecessor) for the period January 1, 1999 to May 10, 1999 as
set forth in their reports. We have included these financial statements in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's reports given on their authority as experts in accounting and
auditing.

69
<PAGE>
Grant Thornton LLP, independent certified public accountants, have audited
the combined financial statements of our predecessor at December 31, 1997 and
1998, and for each of the three years in the period ended December 31, 1998, as
set forth in their report. We have included our financial statements in the
prospectus and elsewhere in the registration statement in reliance on Grant
Thornton LLP's report given on their authority as experts in accounting and
auditing.

AVAILABLE INFORMATION

We have filed a registration statement on Form S-1 regarding the offering
with the SEC. This prospectus, which is a part of the registration statement,
does not contain all of the information included in the registration statement
and you should refer to the registration statement and its exhibits to read that
information. References in this prospectus to any of our contracts or other
documents are not necessarily complete and you should refer to the exhibits
attached to the registration statement for copies of the actual contract or
document. Copies of the registration statement are on file at the offices of the
Securities and Exchange Commission and may be inspected without charge at the
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of the registration statement may be obtained from the Public Reference
Section of the Commission upon payment of the fee prescribed by the Commission.
Information on Hotel Reservations Network can be obtained from the Public
Reference Room by calling 1-800-SEC-0330. The Commission maintains a website
that contains all information filed electronically by us, including reports,
proxy and information statements. The address of the Commission's website is
(http://www.sec.gov).

We intend to list our class A common stock on the Nasdaq National Market.
Reports, proxy statements and other information concerning us can be inspected
at: the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.

REPORTS TO SECURITY HOLDERS

We intend to distribute to our shareholders annual reports containing
audited financial statements and will make available copies of our quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.

70
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Hotel Reservations Network, Inc.

Reports of Independent Auditors........................... F-2

Balance Sheet at December 31, 1999........................ F-4

Combined Statement of Operations TMF, Inc. (d/b/a Hotel
Reservations Network) and HRN Marketing Corp.
(Predecessor) for the period from January 1 to May 10,
1999.................................................... F-5

Statement of Operations for the period from May 11 to
December 31, 1999....................................... F-5

Statement of Stockholders' Deficit TMF, Inc. (d/b/a Hotel
Reservations Network) and HRN Marketing Corp.
(Predecessor) for the period from January 1 to May 10,
1999.................................................... F-6

Statement of Stockholders' Equity for the period from
May 11 to December 31, 1999............................. F-6

Statement of Cash Flows TMF, Inc. (d/b/a Hotel
Reservations Network) and HRN Marketing Corp.
(Predecessor) for the period from January 1 to May 10,
1999.................................................... F-7

Statement of Cash Flows for the period from May 11 to
December 31, 1999....................................... F-7

Notes to Financial Statements............................. F-8

TMF, Inc. (d/b/a Hotel Reservations Network) and HRN
Marketing Corp.
-- Audited Combined Financial Statements

Report of Independent Certified Public Accountants........ F-16

Combined Balance Sheets at December 31, 1997 and 1998..... F-17

Combined Statements of Operations for the years ended
December 31, 1996, 1997 and 1998........................ F-18

Combined Statement of Changes in Stockholders' Deficit for
the years ended December 31, 1996, 1997 and 1998........ F-19

Combined Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998........................ F-20

Notes to Combined Financial Statements.................... F-21
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
TMF, Inc. and HRN Marketing Corp.

We have audited the accompanying combined statements of operations,
stockholders' equity, and cash flows of TMF, Inc. (d/b/a Hotel Reservations
Network) and HRN Marketing Corp. for the period January 1, 1999 through May 10,
1999. These combined financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the 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 audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined results of operations and cash flows of TMF,
Inc. (d/b/a Hotel Reservations Network) and HRN Marketing Corp. for the period
January 1, 1999 through May 10, 1999 in conformity with accounting principles
generally accepted in the United States.

ERNST & YOUNG LLP

Dallas, Texas
November 22, 1999

F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Hotel Reservations Network, Inc.

We have audited the accompanying balance sheet of Hotel Reservations Network,
Inc. as of December 31, 1999, and the related statements of operations,
stockholders' equity, and cash flows for the period May 11, 1999 through
December 31, 1999. 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 audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hotel Reservations Network,
Inc. at December 31, 1999, and the results of its operations and its cash flows
for the period May 11, 1999 through December 31, 1999 in conformity with
accounting principles generally accepted in the United States.

ERNST & YOUNG LLP

Dallas, Texas
January 28, 2000, except for Note 11
as to which the date
is February 24, 2000

F-3
<PAGE>
HOTEL RESERVATIONS NETWORK, INC.

BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
1999
-------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 6,257
Marketable securities....................................... 4,906
Accounts and notes receivable............................... 78
Prepaid hotel rooms......................................... 938
Due from USAi............................................... 85
Other current assets........................................ 885
--------
Total current assets.................................... 13,149
PROPERTY AND EQUIPMENT
Computer equipment.......................................... 1,642
Buildings and leasehold improvements........................ 233
Furniture and other equipment............................... 453
--------
2,328
Less accumulated depreciation and amortization............ (340)
--------
1,988
OTHER ASSETS
Goodwill, net of amortization of $12,897.................... 187,411
Deferred tax asset.......................................... 1,638
Other assets................................................ 64
--------
$204,250
========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade..................................... $ 16,252
Deferred revenue............................................ 16,447
Amounts due under acquisition agreement..................... 17,500
Due to USAi for income taxes................................ 4,008
Other accrued liabilities................................... 3,696
--------
Total current liabilities............................... 57,903
COMMITMENTS AND CONTINGENCIES............................... --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 20,000,000 shares
authorized, none outstanding.............................. --
Class A common stock, $.01 par value; 600,000,000 shares
authorized, none outstanding.............................. --
Class B common stock, $.01 par value; 150,000,000 shares
authorized, 38,999,100 shares outstanding................. 390
Additional paid-in capital.................................. 141,923
Accumulated other comprehensive loss........................ (88)
Retained earnings........................................... 4,122
--------
Total stockholders' equity................................ 146,347
--------
$204,250
========
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE>
HOTEL RESERVATIONS NETWORK, INC.

STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
PERIOD PERIOD
JANUARY 1 MAY 11
TO MAY 10, TO DECEMBER 31,
1999 1999
------------- ----------------
(PREDECESSOR)
-------------
<S> <C> <C>
Net revenues................................................ $ 37,701 $ 124,113
Operating costs and expenses
Cost of sales............................................. 26,538 89,385
Selling, general and administrative....................... 5,669 16,177
Non-recurring acquisition related costs................... 20,257 --
Amortization of goodwill.................................. -- 12,897
----------- -----------
Total operating costs and expenses...................... 52,464 118,459
----------- -----------
Operating profit (loss)................................. (14,763) 5,654
Other income (expense):
Interest income......................................... 434 1,054
Interest expense........................................ (5) (165)
Gain on sale of marketable securities................... 471 --
----------- -----------
900 889
----------- -----------
Earnings (loss) before income taxes....................... (13,863) 6,543
Income tax expense........................................ -- (2,421)
----------- -----------
NET EARNINGS (LOSS)......................................... $ (13,863) $ 4,122
=========== ===========
Basic and diluted earnings per share........................ $ 0.11
===========
Basic and diluted weighted average shares outstanding....... 38,999,100
===========
</TABLE>

<TABLE>
<CAPTION>
PERIOD
JANUARY 1
TO MAY 10,
1999
------------
<S> <C> <C>
Pro forma information:
Historical loss before income taxes benefit................. $ (13,863)
Pro forma income tax benefit................................ 5,129
------------
Pro forma net loss.......................................... $ (8,734)
============
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE>
HOTEL RESERVATIONS NETWORK, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>

CLASS A
TOTAL TMF COMMON HRN MARKETING COMMON
STOCKHOLDERS' STOCK COMMON STOCK PREFERRED STOCK STOCK
EQUITY ------------------- --------------------- -------------------- --------
(DEFICIT) SHARES $ SHARES $ SHARES $ SHARES
------------- -------- -------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
BALANCE AT JANUARY 1, 1999.... $ (852) 1,000 $ -- 1,000 $ --
Capital Contribution........ 12,900 -- --
Comprehensive income:
Net loss for the period
January 1, 1999 to May 10,
1999...................... (13,863) -- -- -- --
Less: reclassification
adjustment for gains
included in net loss...... (314) -- -- -- --
--------
Comprehensive loss........ (14,177) --
Deficit of Predecessor
Company as of May 10, 1999
prior to the change in
capitalization due to the
-------- ----- ------ -----
Acquisition............... $ (2,129) 1,000 $ -- 1,000
======== ===== ====== =====
SUCCESSOR
Initial capitalization of
Company in conjunction
with the Acquisition...... $157,313 -- $ -- --
Comprehensive income:
Net earnings for the period
May 11 to December 31,
1999...................... 4,122
Unrealized losses on
available for sale
securities, net of tax
benefit of $51............ (88)
--------
Comprehensive income...... 4,034
--------

Capital contributions by USAi
related to the payment of
contingent purchase price... 25,000

Dividend distribution to
USAi........................ (40,000)
-------- ----- ----- ------ -----
BALANCE AT DECEMBER 31,
1999........................ $146,347 -- $ -- --
======== ===== ====== =====

<CAPTION>
TMF AND
CLASS A CLASS B HRN
COMMON COMMON MARKETING RETAINED ACCUMULATED
STOCK STOCK ADDITIONAL ADDITIONAL EARNINGS OTHER
-------- --------------------- PAID-IN PAID-IN (ACCUMULATED COMPREHENSIVE
$ SHARES $ CAPITAL CAPITAL DEFICIT) INCOME
-------- ---------- -------- ---------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
BALANCE AT JANUARY 1, 1999.... $ 2 $ (1,168) $ 314
Capital Contribution........ 12,900
Comprehensive income:
Net loss for the period
January 1, 1999 to May 10,
1999...................... -- (13,863) --
Less: reclassification
adjustment for gains
included in net loss...... -- -- (314)

Comprehensive loss........ -- --
Deficit of Predecessor
Company as of May 10, 1999
prior to the change in
capitalization due to the
---- -------- -------- -----
Acquisition............... $ 2 $ 12,900 $(15,031) $ --
==== ======== ======== =====
SUCCESSOR
Initial capitalization of
Company in conjunction
with the Acquisition...... $ -- 38,999,100 $ 390 $156,923 $ -- $ --
Comprehensive income:
Net earnings for the period
May 11 to December 31,
1999...................... 4,122 --
Unrealized losses on
available for sale
securities, net of tax
benefit of $51............ -- (88)

Comprehensive income......

Capital contributions by USAi
related to the payment of
contingent purchase price... 25,000 -- --
Dividend distribution to
USAi........................ (40,000) -- --
------ ---------- ------ -------- -------- -----
BALANCE AT DECEMBER 31,
1999........................ $ -- 38,999,100 $ 390 $141,923 $ 4,122 $ (88)
====== ========== ====== ======== ======== =====
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE>
HOTEL RESERVATIONS NETWORK, INC.

STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD
JANUARY 1 PERIOD MAY 11
TO MAY 10, TO DECEMBER 31,
------------ ---------------
1999 1999
------------ ---------------
(PREDECESSOR
COMPANY)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)......................................... $(13,863) $ 4,122
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation.............................................. 119 340
Amortization of goodwill.................................. -- 12,897
Gain on sale of marketable securities..................... (471) --
Non-cash compensation charge.............................. 12,900 --
Deferred income taxes..................................... -- (1,587)
Changes in current assets and liabilities:
Accounts and notes receivable........................... 20 (16)
Prepaid hotel rooms..................................... (179) (418)
Accounts payable........................................ 7,123 4,759
Deferred revenue........................................ 11,994 (2,846)
Other accrued liabilities............................... (371) 6,990
Other, net.............................................. (49) (478)
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 17,223 23,763
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of TMF and Marketing, net of cash acquired.... -- (157,985)
Capital expenditures...................................... (222) (1,092)
Purchase of marketable securities......................... (8,434) (1,500)
Proceeds from sale of marketable securities............... 11,631 996
Other, net................................................ 31 (238)
-------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES... 3,006 (159,819)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions by USAi............................. -- 182,313
Dividend distribution to USAi............................. -- (40,000)
-------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............. -- 142,313
-------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 20,229 6,257
Cash and cash equivalents at beginning of period............ 4,964 --
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 25,193 $ 6,257
======== =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-7
<PAGE>
HOTEL RESERVATIONS NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION

On May 10, 1999, Hotel Reservations Network, Inc. ("Hotel Reservations
Network" or the "Company"), a wholly-owned subsidiary of USA Networks, Inc.
("USAi"), acquired substantially all of the assets and assumed substantially all
of the liabilities of TMF, Inc. ("TMF") and HRN Marketing Corp. ("Marketing")
(the "Acquisition"). See Note 3. The Company operates the Hotel Reservations
Network, a leading consolidator of hotel rooms for resale in the consumer market
in the United States. Until its acquisition by Hotel Reservations Network, TMF
operated the Hotel Reservations Network. Marketing, which was formed on
August 17, 1998 and commenced operations in October 1998, specialized in
Internet marketing and provided, on a contract basis, marketing, advertising,
promotional activities and public relations to TMF. Marketing also performed
banner advertising, linking programs, search engine placement and arranging for
Internet affiliations for TMF.

The Acquisition was accounted for under the purchase method of accounting.
The accompanying balance sheet as of December 31, 1999 and the statements of
operations, cash flows and stockholders' equity for the period May 11 to
December 31, 1999 give effect to the Acquisition. The accompanying financial
statements prior to the Acquisition reflect the financial position, results of
operations and cash flows of TMF and Marketing (the "Predecessor") on a combined
basis based upon their historical basis of accounting. The Predecessor financial
statements are presented on a combined basis since the companies were controlled
by common shareholders, although neither company had a controlling interest in
the other. All significant intercompany accounts and transactions are eliminated
in the combined financial statements.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Charges for hotel accommodations are billed to customers in advance. The
related payments are included in deferred revenue and recognized as income at
the conclusion of the customer's stay at the hotel.

The Company offers rooms that are contracted for in advance or are prepaid.
Unsold contracted rooms may be returned by the Company based on a cancellation
period, which generally expires before the date the customer may cancel the
hotel reservation. Customers are subject to a penalty for all cancellations or
changes to the reservation. The Company bears the risk of loss for all prepaid
rooms and rooms cancelled by a customer subsequent to the period in which the
Company can return the unused rooms. To date, the Company has not incurred
significant losses under the room contracts with hotels.

CASH EQUIVALENTS

Cash and cash equivalents include cash and short-term investments.
Short-term investments consist primarily of U.S. Treasury Securities, U.S.
Government agencies and certificates of deposit with original maturities of less
than 91 days.

MARKETABLE SECURITIES

Marketable debt and equity securities are classified as available for sale
and are carried at market value. Unrealized gains and losses, net of related
income tax, are recorded as a component of

F-8
<PAGE>
HOTEL RESERVATIONS NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accumulated other comprehensive income in stockholders' equity until realized.
Realized gains and losses on the sale of investments are based upon the
specific-identification method and are included in the statement of operations.

FINANCIAL INSTRUMENTS

The carrying value of all financial instruments approximates their fair
value due to the short maturity of the respective instruments.

PREPAID HOTEL ROOMS

Prepaid hotel rooms are carried at cost and are expensed at the conclusion
of the customer's stay at the hotel. The Company reviews the carrying value of
prepaid hotel rooms and provides a carrying adjustment, if necessary. As of
December 31, 1999, no carrying adjustment was recorded.

PROPERTY AND EQUIPMENT

Property and equipment, including significant improvements, are recorded at
cost. Repairs and maintenance and any gains or losses on dispositions are
included in operations.

Depreciation and amortization is provided for on a straight-line basis to
allocate the cost of depreciable assets to operations over their estimated
service lives.

<TABLE>
<CAPTION>
ASSET CATEGORY DEPRECIATION/AMORTIZATION PERIOD
- -------------- --------------------------------
<S> <C>
Computer equipment................................ 3 to 5 years
Leasehold improvements............................ 4 to 7 years
Furniture and other equipment..................... 3 to 10 years
</TABLE>

LONG-LIVED ASSETS INCLUDING INTANGIBLES

The Company's accounting policy regarding the assessment of the
recoverability of the carrying value of long-lived assets, including goodwill
and property and equipment, is to review the carrying value of the assets if the
facts and circumstances suggest that they may be impaired. If this review
indicates that the carrying value will not be recoverable, as determined based
on the projected undiscounted future cash flows, the carrying value is reduced
to its estimated fair value.

ADVERTISING

Advertising expense for the period January 1 to May 10, 1999 and the period
May 11 to December 31, 1999 was $1,375 and $5,205, respectively.

The Company capitalizes costs paid for advertising to specific target
audiences on third party Internet websites that have resulted in hotel room
bookings for which the revenue has not been recognized as of the balance sheet
date. The capitalized costs are amortized over a period of no more than three
months, which approximates the period over which the revenue is earned. As of
December 31, 1999, capitalized advertising is $182. Other advertising costs are
expensed in the period incurred.

F-9
<PAGE>
HOTEL RESERVATIONS NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES

The Predecessor to the Company elected to be taxed as an S corporation for
Federal income tax purposes and thus generally did not pay federal income taxes.

Since May 11, 1999, the Company is included in the consolidated tax return
of USAi. The Company's financial statements for the period May 11 to
December 31, 1999 reflect income tax expense computed on a stand-alone basis at
the applicable federal and state tax rates.

The statements of operations for the period January 1 to May 10, 1999 do not
include a provision for income taxes using C corporation rates. The unaudited
pro forma net income includes a provision for federal income taxes that would
have been required had the Predecessor not elected to be treated as an
S corporation.

Furthermore, the Company accounts for income taxes under the liability
method, and deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled on a stand-alone basis.

EARNINGS PER SHARE

The Company had no dilutive stock options or other potential dilutive common
stock equivalents; therefore, there is no difference in basic and diluted
earnings per share. Earnings per share is presented for the period May 11 to
December 31, 1999 as if the 38,999,100 shares of class B common stock exchanged
for USAi's 100 shares of common stock under the terms of the recapitalization
(see Note 11) were outstanding for the entire period. Earnings per share is not
presented for the Predecessor since such amount is not meaningful.

ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
footnotes thereto. Actual results could differ from those estimates.

NOTE 3--BUSINESS ACQUISITION

On May 10, 1999, the Company completed its acquisition of substantially all
of the assets of TMF and Marketing. The transaction has been accounted for under
the purchase method of accounting. The purchase price was $149.2 million, net of
a working capital adjustment of $0.8 million, plus contingent payments based on
operating performance during the year ending December 31, 1999 and for the
twelve month periods ending March 31, 2000, 2001 and 2002 (See Note 11 for
information about an amendment to this obligation). The purchase price was paid
in the form of a cash payment of $145 million on May 11, 1999 and a promissory
note of $5 million which is due on January 30, 2000 and which bears interest at
4.75% per annum. Interest for the period May 11 to December 31, 1999 on the
promissory note was $153.

F-10
<PAGE>
HOTEL RESERVATIONS NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 3--BUSINESS ACQUISITION (CONTINUED)
The Company is required to issue the sellers of our predecessor business the
number of shares of our class A common stock equal to approximately 10% of the
aggregate value of the equity of the Company immediately prior to a transaction,
as defined, including an initial public offering or sale or merger of the
Company.

The initial contingent payments total $50.0 million, of which $37.5 million
has been paid through December 31, 1999 by the Company with funds contributed by
USAi in consideration of equity interests, including $12.5 million at the date
of Acquisition. The remaining $12.5 million has been accrued based on the
attainment of the operating performance targets for the year ended December 31,
1999, and will be paid with funds contributed by USAi. The purchase price,
including the initial contingent payments of $50.0 million for the year ending
December 31, 1999, has been preliminarily allocated to the assets acquired and
liabilities assumed based on their respective fair values at the date of
purchase. The unallocated excess of acquisition costs over net assets acquired
of $200.3 million has been allocated to goodwill, which is being amortized over
ten years.

The following unaudited pro forma combined condensed financial information
for the year ended December 31, 1998 and 1999, is presented to show the results
of the Company as if the Acquisition occurred at the beginning of the periods
presented. The pro forma results include certain adjustments, including
increased amortization related to goodwill and other intangibles, interest
expense and income tax expense, and are not necessarily indicative of what the
results would have been had the transaction actually occurred on the
aforementioned dates. See Note 11.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1998 1999
-------- ---------
(UNAUDITED)
<S> <C> <C>
Net revenues............................................ $66,472 $161,814
Net earnings (loss)..................................... (8,649) 3,493
Basic and diluted earnings (loss) per share............. $ (.22) $ .09
</TABLE>

NOTE 4--MARKETABLE SECURITIES--AVAILABLE FOR SALE

Investments in marketable securities--available for sale consist of the
following:

<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------
PRE-TAX PRE-TAX
UNREALIZED UNREALIZED
COST MARKET GAIN LOSS
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Government bonds............................. $2,189 $2,087 $ -- $102
Medium term notes............................ 2,856 2,819 -- 37
------ ------ ---- ----
$5,045 $4,906 $ -- $139
====== ====== ==== ====
</TABLE>

The marketable securities have an aggregate face value of $5,045. Maturities
of marketable securities--available for sale are $1,500, $200, $100 and $3,245
in 2000, 2003, 2004 and 2005 and thereafter, respectively. The unrealized loss
of $139 is shown as a component of comprehensive loss net of income tax benefits
of $51.

F-11
<PAGE>
HOTEL RESERVATIONS NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 4--MARKETABLE SECURITIES--AVAILABLE FOR SALE (CONTINUED)
Realized gains and losses consist of the following:

<TABLE>
<CAPTION>
JANUARY 1 MAY 11
TO MAY 10, TO DECEMBER 31,
1999 1999
------------- ---------------
(PREDECESSOR)
<S> <C> <C>
Gross realized gains.............................. $ 533 $ --
Gross realized losses............................. (62) --
------- --------
$ 471 $ --
======= ========
</TABLE>

NOTE 5--INCOME TAXES

A reconciliation of total income tax expense to the amounts computed by
applying the statutory federal income tax rate to earnings before income taxes
for the period May 11 to December 31, 1999 is shown as follows:

<TABLE>
<S> <C>
Income tax expense at the federal statutory rate of 34%..... $ 2,225
State income taxes, net of effect of federal tax benefit.... 196
--------
Income tax expense.......................................... $ 2,421
========
</TABLE>

The components of income tax expense are as follows:

<TABLE>
<S> <C>
Current income tax expense:
Federal................................................... $ 3,520
State..................................................... 488
--------
Current income tax expense:............................. 4,008
--------

Deferred income tax benefit:
Federal................................................... 1,393
State..................................................... 194
--------
Deferred income tax benefit............................. 1,587
--------
Total net income tax expense............................ $ 2,421
========
</TABLE>

The deferred tax benefit of $1,587 as of December 31, 1999 is related
entirely to the tax effects of cumulative temporary differences arising from the
amortization of goodwill, which is amortized over 10 years for book purposes and
15 years for tax purposes. The effective tax rate is 37% which reflects the
federal statutory rate and applicable state income tax rates.

F-12
<PAGE>
HOTEL RESERVATIONS NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 6--COMMITMENTS AND CONTINGENCIES

The Company leases office space and equipment used in connection with its
operations under various operating leases. Future minimum payments under these
non-cancelable agreements total $2,036 and are $607, $601, $590 and $238 in the
years 2000, 2001, 2002 and 2003, respectively.

Expenses charged to operations under these agreements were $108 and $382 for
the period from January 1 to May 10, 1999 and the period May 11 to December 31,
1999, respectively.

At December 31, 1999, the Company has $1,769 of outstanding letters of
credit that expire between March and December 2000. The outstanding letters of
credit are collateralized by $2,000 of investments that are classified as cash
equivalents.

As of December 31, 1999, the Company has non-cancelable commitments for
hotel rooms totalling $4,612, which relate to the period January 1, 2000 to
December 31, 2000. Furthermore, the Company has non-cancelable commitments under
advertising contracts with third party Internet websites totalling $4,028 as of
December 31, 1999.

NOTE 7--LITIGATION

In the ordinary course of business, the Company is engaged in various
lawsuits; however, the Company is not currently involved in any material legal
proceedings. In the opinion of management, the ultimate outcome of the various
lawsuits should not have a material impact on the liquidity, results of
operations or financial condition of the Company.

NOTE 8--RELATED PARTY TRANSACTIONS

The Company has arrangements with Ticketmaster LLC ("Ticketmaster") a wholly
owned subsidiary of USAi that allows Ticketmaster to sell hotel rooms to the
Company's customers using the Company's websites. Furthermore, the Company
entered into an arrangement with Ticketmaster for teleservices in certain
markets. For the period May 11 to December 31, 1999, the Company incurred fees
of $93 under these arrangements.

The Company entered into an arrangement with Ticketmaster Online-CitySearch,
Inc. ("TMCS"), an indirect subsidiary of USAi which operates CitySearch's
Reservation Center. Under the arrangement, TMCS will market the Company's hotel
products via the Internet in return for (1) links from the Company's websites
and newsletters to TMCS's website and (2) a 5% commission on total booking price
on all orders placed and exercised through City Site links. The commission paid
to TMCS for the period May 11 to December 31, 1999 was not material.

The Company has certain arrangements for cable television commercial
advertisements with USAi affiliates. Under the agreements, the Company receives
promotional advertising in return for a 5% commission on total booking price on
all orders resulting from the advertising. The commission paid for the period
May 11 to December 31, 1999 was not material.

NOTE 9--NON-RECURRING ACQUISITION RELATED COSTS

During the period January 1 to May 10, 1999, the Predecessor paid
discretionary compensation and bonuses of $398 to its employees (other than
Messrs. Diener and Litman, the principal owners of the predecessor) and incurred
professional and advisory fees of $159 related directly to the acquisition.

F-13
<PAGE>
HOTEL RESERVATIONS NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 9--NON-RECURRING ACQUISITION RELATED COSTS (CONTINUED)
In connection with the sale of substantially all the assets of TMF and
Marketing, the principal owners entered into an agreement to pay an executive of
TMF for past services 5% of all net sales proceeds, including all contingent
payments, received by the principal owners in connection with the sale. During
the period January 1 to May 10, 1999, the Predecessor recorded a charge of
$19,700 in connection with this obligation, of which $6,800 was paid in cash at
the time of closing and $12,900 represents an estimate of the amount to be
satisfied directly by the sellers of the predecessor company. Accordingly the
Company has treated the $12,900 as a non-cash compensation charge in the
statement of cash flows.

NOTE 10--BENEFIT PLANS

The Company offers a plan pursuant to Section 401(k) of the Internal Revenue
Code (the "Plan") covering substantially all full-time employees who are not
party to collective bargaining agreements and those employees who are
non-resident aliens. The Company's share of the matching employer contributions
is set at the discretion of management. The expense for the Plan for the period
January 1 to May 10, 1999 and the period May 11 to December 31, 1999 was $6 and
$11, respectively.

NOTE 11--SUBSEQUENT EVENTS

The Company expects to complete an initial public offering of 5,400,000
shares at $16.00 per share in the first fiscal quarter of 2000. Effective
February 24, 2000, the Company recapitalized its common stock into class A
common stock having one vote per share and class B common stock having 15 votes
per share. The Company authorized 600,000,000 shares of class A common stock,
150,000,000 shares of class B common stock and 20,000,000 shares of preferred
stock. Shares of class A common stock will be sold to the public in the
offering. USAi was issued shares of class B common stock in exchange for its
shares of common stock. Under the asset purchase agreement, the Company is
required to issue to the sellers of the predecessor business, shares of class A
common stock equal to 10% of the aggregate value of the equity (4,899,900
shares) of the Company immediately prior to the offering. This will result in
additional goodwill of $78.4 million that will be amortized over the remaining
ten-year life assigned to goodwill.

Pursuant to an amendment to the asset purchase agreement, the Company has
agreed to issue 5,100,000 shares of class A common stock to the sellers in
exchange for releasing the obligation of the Company to make additional
performance-based payments covering the twelve month periods ending March 31,
2001 and 2002. This will result in additional goodwill of $81.6 million that
will be amortized over the remaining ten-year life assigned to the goodwill.

Immediately prior to the offering the Company will have 9,999,900 shares of
class A common stock and 38,999,100 shares of class B common stock outstanding.

In January 2000, the Company entered into an exclusive affiliate
distribution and marketing agreement with Travelocity and will issue to
Travelocity a performance warrant upon the completion of the public offering.
The performance warrants will be subject to vesting based on achieving certain
performance targets. If the performance warrants are fully vested and
exercisable it will entitle the holder to acquire 2,447,955 shares of class A
common stock at the initial public offering price. The Company also entered into
other exclusive affiliate distribution and marketing agreements and has

F-14
<PAGE>
HOTEL RESERVATIONS NETWORK, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

NOTE 11--SUBSEQUENT EVENTS (CONTINUED)
agreed to issue 1,428,365 warrants to purchase class A common stock at the
initial public offering price upon completion of the offering.

All stock warrants will be accounted for in accordance with EITF 96-18. In
relation to warrants to purchase 1,428,365 shares of class A common stock which
will be issued to third-party affiliated websites at the completion of this
offering in conjunction with exclusive affiliate distribution and marketing
agreements, the Company will record an asset of approximately $15.0 million
based on the fair market value of the warrants at initial public offering price
of $16.00 per share. The asset will be amortized ratably over the terms of the
exclusive affiliation agreements, which range from two to five years. The amount
of estimated non-cash deferred distribution and marketing expense will be
$4.6 million, $4.0 million, $3.4 million, $1.5 million and $1.5 million in each
of the next five years, respectively. In addition, one exclusive affiliation
agreement provides for additional cash consideration of $0.5 million. The
minimum payment will be recorded as an asset and amortized ratably to operating
expense over the five-year term of the exclusive affiliation agreement,
resulting in expense of $0.1 million in each of the next five years.

Furthermore, certain affiliation agreements provide for minimum commissions
to be paid by us to the affiliate. Aggregate guaranteed commissions are
$1.9 million, $0.4 million and $0.4 million over the next three years. Such
guaranteed commissions are expected to be expensed as actual commissions are
earned by the affiliate. The fair value on the issue date of the non-performance
related warrants (which are nonforfeitable, fully vested and exercisable), will
be amortized over the term of the related affiliation agreement as a non-cash
deferred distribution and marketing expense. The performance warrants, which
will be subject to vesting based on the achievement of defined performance
targets will be valued at the time the award is probable of being earned. The
portion of the value related to the completed term of the related affiliation
agreement will be expensed, and the remaining non-cash deferred distribution and
marketing expense will be amortized over the remaining term of the affiliation
agreement. The value of such related warrants may be subject to adjustment until
such time that the warrant is nonforfeitable, fully vested and exercisable.

F-15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
TMF, Inc. and HRN Marketing Corp.

We have audited the accompanying combined balance sheets of TMF, Inc. (d/b/a
Hotel Reservations Network) and HRN Marketing Corp. as of December 31, 1997 and
1998, and the related combined statements of operations, changes in
stockholders' deficit and cash flows for each of the three years in the period
ended December 31, 1998. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 combined financial position of TMF, Inc. (d/b/a
Hotel Reservations Network) and HRN Marketing Corp. as of December 31, 1997 and
1998, and the combined results of their operations and their combined cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.

GRANT THORNTON LLP

Dallas, Texas
February 26, 1999

F-16
<PAGE>
TMF, INC. (D/B/A HOTEL RESERVATIONS NETWORK)
AND HRN MARKETING CORP.

COMBINED BALANCE SHEETS

DECEMBER 31,

(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
1997 1998
ASSETS -------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $2,828 $ 4,964
Marketable securities--available for sale................. 4,083 7,672
Accounts receivable....................................... 89 127
Prepaid hotel rooms....................................... 204 341
Other current assets...................................... 177 381
------ -------
TOTAL CURRENT ASSETS.................................... 7,381 13,485

PROPERTY AND EQUIPMENT--AT COST
Equipment................................................. 309 440
Software.................................................. 289 613
Furniture and fixtures.................................... 123 325
------ -------
721 1,378
Less accumulated depreciation........................... 176 408
------ -------
545 970

OTHER ASSETS................................................ 32 89
------ -------
$7,958 $14,544
====== =======
LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable.......................................... $4,530 $ 7,947
Deferred revenue.......................................... 3,278 7,299
Deferred tax liability.................................... 49 44
Accrued liabilities....................................... 56 51
------ -------
TOTAL CURRENT LIABILITIES............................... 7,913 15,341
OTHER LIABILITIES........................................... 99 55
STOCKHOLDERS' DEFICIT
Common stock
TMF, Inc. $.01 par value; 1,000 shares authorized,
issued and outstanding in 1997 and 1998............... -- --
HRN Marketing Corp., $.01 par value; 1,000 shares
authorized, issued and outstanding in 1998............ -- --
Additional paid-in capital................................ 1 2
Accumulated other comprehensive income.................... 351 314
Accumulated deficit....................................... (406) (1,168)
------ -------
TOTAL STOCKHOLDERS' DEFICIT............................. (54) (852)
------ -------
$7,958 $14,544
====== =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-17
<PAGE>
TMF, INC. (D/B/A HOTEL RESERVATIONS NETWORK)
AND HRN MARKETING CORP.

COMBINED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
NET REVENUES................................................ $23,275 $34,758 $66,472

OPERATING COSTS AND EXPENSES
Cost of sales............................................. 16,003 23,284 45,818
Officers' distributions................................... 3,618 6,160 10,126
Selling, general and administrative....................... 3,857 5,782 9,770
------- ------- -------
23,478 35,226 65,714
------- ------- -------
Operating profit (loss)............................... (203) (468) 758
OTHER INCOME
Interest and other, net................................... 257 447 911
Gain on sales of securities, net of losses of $6, $0 and
$24, respectively....................................... 71 13 74
------- ------- -------
328 460 985
------- ------- -------
Earnings (loss) before income taxes................... 125 (8) 1,743
INCOME TAX EXPENSE.......................................... 38 2 5
------- ------- -------
NET EARNINGS (LOSS)................................... $ 87 $ (10) $ 1,738
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-18
<PAGE>
TMF, INC. (D/B/A HOTEL RESERVATIONS NETWORK)

AND HRN MARKETING CORP.

COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
------------------- PAID-IN COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL INCOME DEFICIT DEFICIT
-------- -------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996........... 1,000 $ -- $ 1 $124 $ (483) $ (358)

Comprehensive income:
Net earnings........................ -- -- -- -- 87 87
Unrealized gain on marketable
securities available for sale, net
of tax effect of $11.............. -- -- -- 22 -- --
Less: reclassification adjustment
for gains included in net
earnings net of tax effect of
$24............................. -- -- -- (47) -- --
----
-- -- -- (25) -- (25)
-------
Total comprehensive income...... 62
------ ---- ---- ---- ------- -------
Balances at December 31, 1996......... 1,000 -- 1 99 (396) (296)
Comprehensive income:
Net loss............................ -- -- -- -- (10) (10)
Unrealized gain on marketable
securities available for sale..... -- -- -- 263 -- --
Less: reclassification adjustment
for gains included in net
earnings net of tax effect of
$2.............................. -- -- -- (11) -- --
----
-- -- -- 252 -- 252
-------
Total comprehensive income...... 242
------ ---- ---- ---- ------- -------
Balances at December 31, 1997......... 1,000 -- 1 351 (406) (54)

Comprehensive income:
Net earnings........................ -- -- -- -- 1,738 1,738
Unrealized gain on marketable
securities available for sale..... -- -- -- 32 -- --
Less: reclassification adjustment
for gains included in net
earnings net of tax effect of
$5.............................. -- -- -- (69) -- --
----
-- -- -- (37) -- (37)
-------
Total comprehensive income...... 1,701
-------
Sale of common stock of HRN Marketing
Corp................................ 1,000 -- 1 -- -- 1
Capital distributions to
stockholders........................ -- -- -- -- (2,500) (2,500)
------ ---- ---- ---- ------- -------
Balances at December 31, 1998......... 2,000 $ -- $ 2 $314 $(1,168) $ (852)
====== ==== ==== ==== ======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-19
<PAGE>
TMF, INC. (D/B/A HOTEL RESERVATIONS NETWORK)
AND HRN MARKETING CORP.

COMBINED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)....................................... $ 87 $ (10) $ 1,738
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities
Loss on sale of property and equipment.................. -- 9 --
Depreciation............................................ 53 84 232
Gain on sale of marketable securities................... (71) (13) (74)
Deferred income taxes................................... 38 -- --
Changes in operating assets and liabilities
Accounts receivable................................... 113 (40) (38)
Receivable from sale of securities.................... (203) 203 --
Prepaid hotel rooms................................... 43 (102) (137)
Other current assets.................................. 63 (96) (204)
Other assets.......................................... (24) (1) (57)
Accounts payable...................................... 1,233 1,336 3,417
Accrued bonuses....................................... 1,562 (2,641) --
Deferred revenue...................................... 166 1,808 4,021
Accrued liabilities and other......................... (20) 110 (49)
------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES........... 3,040 647 8,849

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment....................... (57) (482) (657)
Proceeds from sale of equipment........................... -- 4 --
Purchase of marketable securities......................... (4,512) (3,000) (10,158)
Proceeds from sales of marketable securities.............. 4,179 2,581 6,601
------- ------- --------
NET CASH USED IN INVESTING ACTIVITIES............... (390) (897) (4,214)

CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock...................................... -- -- 1
Capital distributions to stockholders..................... -- -- (2,500)
------- ------- --------
NET CASH USED IN FINANCING ACTIVITIES............... -- -- (2,499)
------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... 2,650 (250) 2,136

Cash and cash equivalents at beginning of period............ 428 3,078 2,828
------- ------- --------
Cash and cash equivalents at end of period.................. $ 3,078 $ 2,828 $ 4,964
======= ======= ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-20
<PAGE>
TMF, INC. (D/B/A HOTEL RESERVATIONS NETWORK)
AND HRN MARKETING CORP.

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)

NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION

TMF, Inc. ("TMF") operates Hotel Reservations Network, a leading online
consolidator of hotel rooms for resale in the consumer market in the United
States. Its affiliate, HRN Marketing Corp. ("Marketing"), which was formed on
August 17, 1998 and commenced operations on October 1, 1998, specializes in
Internet marketing and provides on a contract basis, the marketing, advertising,
promotional activities and public relations for TMF. In addition, Marketing
performs banner advertising, linking programs, search engine placement and
arranging for Internet affiliations for TMF.

The accompanying combined financial statements as of December 31, 1998, and
since October 1, 1998, present TMF and Marketing (collectively, the "Company")
on a combined basis since the companies are controlled by common shareholders,
although neither company has a controlling interest in the other.

On May 10, 1999, Hotel Reservations Network, Inc. ("Hotel Reservations
Network"), a wholly-owned subsidiary of USA Networks, Inc. ("USAi"), acquired
substantially all of the assets of TMF and Marketing. See Note 8.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows:

CASH EQUIVALENTS

The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.

MARKETABLE SECURITIES

Marketable debt and equity securities are classified as available for sale
and are carried at market value. Unrealized gains and losses are recorded as a
component of accumulated other comprehensive income in stockholders' equity
until realized. Realized gains and losses on the sale of investments are based
upon the specific identification method and are included in the statement of
operations.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis in amounts sufficient to relate the cost of depreciable
assets to operations over their estimated useful lives of five to seven years.

PREPAID HOTEL ROOMS

F-21
<PAGE>
TMF, INC. (D/B/A HOTEL RESERVATIONS NETWORK)
AND HRN MARKETING CORP.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

REVENUE RECOGNITION

The Company offers rooms that are contracted for in advance or are prepaid.
Unsold contracted rooms may be returned by the Company based on a cancellation
period, which generally expires before the date the customer may cancel the
hotel reservation. Customers are subject to a penalty for all cancellation or
changes to the reservation. The Company bears the risk of loss for all prepaid
rooms and rooms cancelled by a customer subsequent to the period in which the
Company can return the unused rooms. To date the Company has not incurred
significant losses under the room contracts with hotels.

ADVERTISING AND PROMOTION COSTS

Advertising and promotion costs are expensed when the advertising first
takes place and were approximately $500, $1,000 and $2,600 for the years ended
December 31, 1996, 1997 and 1998, respectively.

The Company capitalizes costs paid for advertising to specific target
audiences on third party Internet websites that have resulted in hotel room
bookings for which revenue has not been recognized as of the balance sheet date.
The capitalized costs are amortized over a period of no more than three months,
which approximates the period over which the revenue is earned. At December 31,
1998, the amount capitalized was $125.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

NOTE 3--MARKETABLE SECURITIES--AVAILABLE FOR SALE

Investments in marketable securities--available for sale consist of the
following:

<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------------------- --------------------------------------------------------------
MARKET UNREALIZED MARKET UNREALIZED UNREALIZED NET UNREALIZED
COST VALUE GAIN COST VALUE GAIN LOSS GAIN (LOSS)
-------- -------- ---------- -------- -------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Government bonds........... $2,844 $2,887 $ 43 $3,384 $3,369 $ 6 $(21) $(15)
Common stocks.............. 744 1,081 337 985 1,359 381 (7) 374
Mutual funds, primarily
invested in government
bonds.................... 95 115 20 2,945 2,944 -- (1) (1)
------ ------ ---- ------ ------ ---- ---- ----
$3,683 $4,083 $400 $7,314 $7,672 $387 $(29) $358
====== ====== ==== ====== ====== ==== ==== ====
</TABLE>

F-22
<PAGE>
TMF, INC. (D/B/A HOTEL RESERVATIONS NETWORK)
AND HRN MARKETING CORP.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)

NOTE 3--MARKETABLE SECURITIES--AVAILABLE FOR SALE (CONTINUED)
Scheduled maturities of debt securities classified as available for sale at
December 31, 1998 were as follows:

<TABLE>
<CAPTION>
MARKET
DUE IN COST VALUE
- ------ -------- --------
<S> <C> <C>
1999........................................................ $ 100 $ 100
2000 - 2003................................................. 914 915
2004 - 2008................................................. 2,020 1,995
2009 and later.............................................. 350 359
------ ------
$3,384 $3,369
====== ======
</TABLE>

NOTE 4--COMMITMENTS

LETTERS OF CREDIT

At December 31, 1998, the Company had a letter of credit of $500 outstanding
under an agreement expiring in October 1999. Investments with a fair value of
approximately $900 were pledged to secure the letter of credit.

The Company also had unsecured letters of credit outstanding with various
hotels. At December 31, 1998, the unsecured letters of credit totaled $425. They
expire in March 2000.

OPERATING LEASES

The Company conducts a portion of its operations in leased facilities. The
minimum rental commitments under these leases, which are noncancellable, are as
follows:

Rent expense for the years ended December 31, 1996, 1997 and 1998 was
approximately $100, $113 and $211, respectively.

NOTE 5--INCOME TAXES

TMF elected S corporation status for Federal income tax purposes effective
January 1, 1997. As a result, TMF does not pay Federal income taxes, except for
the Federal taxes related to built-in gains which existed at January 1, 1997.
Tax expense related to built-in gains was $2 and $5 for the years ended
December 31, 1997 and 1998. At January 1, 1997, TMF had net unrealized built-in
gains of approximately $150 which, if recognized during the ten-year recognition
period beginning on January 1, 1997, will result in a tax liability. TMF has
recorded a deferred income tax liability of $49 and $44 at December 31, 1997 and
1998, respectively. Marketing has also elected S corporation status for Federal
income tax purposes.

F-23
<PAGE>
TMF, INC. (D/B/A HOTEL RESERVATIONS NETWORK)
AND HRN MARKETING CORP.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)

NOTE 5--INCOME TAXES (CONTINUED)
The income tax provision reconciled to the tax computed at the statutory
Federal rate for the year ended December 31, 1996 is as follows:

<TABLE>
<S> <C>
Federal tax expense at statutory rate....................... $43
Dividend exclusion.......................................... (3)
Other....................................................... (2)
---
$38
===
</TABLE>

NOTE 6--CONTINGENCIES

In conducting its activities, the Company from time to time is the subject
of various claims arising from the ordinary course of business. In the opinion
of management, the ultimate resolution of such claims are not expected to have a
material adverse effect upon the financial position or operations of the
Company.

NOTE 7--RELATED PARTY TRANSACTIONS--OFFICERS' COMPENSATION

During 1996, 1997, and 1998, the Company's stockholders received officers'
distributions of $3,618, $6,160 and $10,126, respectively.

NOTE 8--BENEFIT PLANS

Effective January 1, 1998, the Company offers a plan pursuant to
Section 401(k) of the Internal Revenue Code (the "Plan") covering substantially
all full-time employees who are not party to collective bargaining agreements
and those employees who are non-resident aliens. The Company's share of the
matching employer contributions is set at the discretion of management. The
expense for the Plan for the year ended December 31, 1998 was $16.

NOTE 9--SUBSEQUENT EVENT (UNAUDITED)

On May 10, 1999, Hotel Reservations Network completed the acquisition of
substantially all of the assets of TMF and Marketing. The purchase price was
$149.2 million plus contingent payments based on operating performance of TMF
and Marketing during the year ending December 31, 1999 and the twelve month
periods ending March 31, 2000, 2001 and 2002.

F-24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

FEBRUARY 25, 2000

[LOGO]

5,400,000 SHARES OF CLASS A COMMON STOCK

---------------

PROSPECTUS

---------------

DONALDSON, LUFKIN & JENRETTE
ALLEN & COMPANY INCORPORATED
BEAR, STEARNS & CO. INC.
THOMAS WEISEL PARTNERS LLC
DLJDIRECT INC.

---------------------------------------------------------

You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized anyone to provide you with
information different from that which is contained in this prospectus. We are
offering to sell shares of class A common stock and seeking offers to buy shares
of class A common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the class A common stock.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

Until March 22, 2000, all dealers that buy, sell or trade in our class A
common stock, whether or not participating in this offering, may be required to
deliver a prospectus. This delivery requirement is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------