================================================================================

                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-K

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

                                   ----------

       For the year ended: December 31, 2000 Commission File No.: 0-25581

                           priceline.com Incorporated

             (Exact name of Registrant as specified in its charter)

          Delaware                       0-25581                06-1528493
(State or other Jurisdiction    (Commission File Number)     (I.R.S. Employer
      of Incorporation)                                     Identification No.)
   800 Connecticut Avenue,
    Norwalk, Connecticut                                           06584
(Address of Principal Office)                                   (Zip Code)

       Registrant's telephone number, including area code: (203) 299-8000

                                   ----------

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

           Securities Registered Pursuant to Section 12(g) of the Act:
                    Common Stock, par value $0.008 per share

                                   ----------

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

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

      The aggregate market value of common stock held by non-affiliates of
priceline.com as of March 10, 2001 was approximately $264,900,743 based upon the
closing price reported on March 9, 2001 on the Nasdaq National Market. For
purposes of this disclosure, shares of common stock held by persons who are
known by priceline.com to own more than 5% of the outstanding shares of common
stock and shares held by current executive officers and directors of
priceline.com have been excluded because such persons may be deemed to be
affiliates of priceline.com. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

      The number of outstanding shares of priceline.com's common stock was
200,583,505 as of March 10, 2001.

================================================================================


                       DOCUMENTS INCORPORATED BY REFERENCE

      The information required by Part III of this Annual Report on Form 10-K,
to the extent not set forth in this Form 10-K, is incorporated herein by
reference from priceline.com's definitive proxy statement relating to the annual
meeting of stockholders to be held on May 21, 2001 to be filed with the
Securities and Exchange Commission within 120 days after the end of
priceline.com's fiscal year ended December 31, 2000.

      priceline.com Incorporated Form 10-K for the Year Ended December 31, 2000
Index

                                                                            PAGE
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PART I
Item 1.    Business.......................................................     2
Item 2.    Properties.....................................................    20
Item 3     Legal Proceedings..............................................    20
Item 4.    Submission of Matters to a Vote of Security Holders............    24

PART II
Item 5.    Market for priceline.com's Common Stock and Related Stockholder
           Matters........................................................    25
Item 6.    Selected Financial Data........................................    26
Item 7.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations..........................................    27
Item 7A.   Quantitative and Qualitative Disclosure About Market Risk......    43
Item 8.    Financial Statements and Supplementary Data....................    43
Item 9.    Changes in and Disagreements With Accountants on Accounting
           and Financial Disclosure.......................................    43

PART III
Item 10.   Directors and Executive Officers of the Registrant.............    44
Item 11.   Executive Compensation.........................................    44
Item 12.   Security Ownership of Certain Beneficial Owners and Management.    44
Item 13.   Certain Relationships and Related Transactions.................    44

PART IV
Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K    45
Signatures ...............................................................    49
Financial Statements......................................................    51


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      This Annual Report on Form 10-K and the documents incorporated herein by
reference contain forward-looking statements. These forward-looking statements
are not guarantees of future performance and are subject to certain risks,
uncertainties and assumptions that are difficult to predict; therefore, actual
results may differ materially from those expressed, implied or forecasted in any
such forward-looking statements.

      Expressions of future goals and similar expressions including, without
limitation, "may," "will," "should," "could," "expects," "does not currently
expect," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," "targets, " or "continue," reflecting something other than
historical fact are intended to identify forward-looking statements. The
following factors, among others, could cause our actual results to differ
materially from those described in the forward-looking statements: adverse
changes in our relationships with airlines and other product and service
providers; adverse changes in general market conditions for leisure and other
travel products; systems-related failures; our ability to protect our
intellectual property rights; the effects of increased competition; losses by us
and our licensees; any adverse impact from negative publicity and negative
customer reaction relating to recent announcements concerning us; legal and
regulatory risks; and the ability to attract and retain qualified personnel.
These factors and others are described in more detail below in the section
entitled "Factors That May Affect Future Results." Unless required by law, we
undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. However,
readers should carefully review the reports and documents we file from time to
time with the Securities and Exchange Commission, particularly the Quarterly
Reports on Form 10-Q and any Current Reports on Form 8-K.

                                     PART I

Item 1. Business

General

      Priceline.com Incorporated ("priceline.com," the "Company," "we," "us" or
"our") has pioneered a unique e-commerce pricing system known as a "demand
collection system" that enables consumers to use the Internet to save money on a
range of products and services while enabling sellers to generate incremental
revenue. Using a simple and compelling consumer proposition -- Name Your Own
Price(SM) -- we collect consumer demand, in the form of individual customer
offers, for a particular product or service at a price set by the customer. We
then either communicate that demand directly to participating sellers or access
a proprietary database of inventory available to us for purchase and, based upon
the customer's offer price, elect whether or not to accept that customer's
offer. Consumers agree to hold their offers open for a specified period of time
and, once fulfilled, offers generally cannot be canceled. We benefit consumers
by enabling them to save money, while at the same time benefiting sellers by
providing them with an effective revenue management tool capable of identifying
and capturing incremental revenues. By requiring consumers to be flexible with
respect to brands, sellers and product features, we enable sellers to generate
incremental revenue without disrupting their existing distribution channels or
retail pricing structures.

      Our business model and brand are currently, through us or independent
licensees, supporting several products and service offerings, including the
following:

      o     leisure airline tickets, provided by 10 domestic and 24
            international airline participants, and travel insurance;

      o     hotel rooms, in substantially all major United States markets with
            more than 50 national hotel chains as participants;

      o     rental cars, in substantially all major United States airport
            markets with five leading rental car chains


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            as participants;

      o     new automobiles, in substantially all major United States markets;

      o     home financing services, in substantially all major United States
            markets, which includes home mortgage services, home equity loans
            and refinancing services; and

      o     long distance telephone calling, provided by three carriers, in
            substantially all United States markets.

      For the year ended December 31, 2000, we had revenues of approximately
$1.24 billion. Revenues for the year ended December 31, 2000 consisted primarily
of: (1) travel revenue and (2) other revenue. Travel revenue consisted primarily
of: (1) transaction revenues representing the selling price of airline tickets,
hotel rooms and rental cars and (2) ancillary fees we earned in connection with
the sale of our travel products, including Worldspan reservation booking fees,
customer processing fees and fee income from marketing programs offered in
connection with the sale of our travel products. Other revenues consisted
primarily of: (1) transaction revenues and fees from long distance phone service
and (2) commissions and fees from our home financing and automobile services and
fees from our licensees.

      Priceline.com was formed as a Delaware limited liability company in 1997
and was converted into a Delaware corporation in July 1998. Our common stock is
listed on the Nasdaq National Market under the symbol "PCLN." Our principal
executive offices are located at 800 Connecticut Avenue, Norwalk, Connecticut
06854.

The priceline.com Business Model

      We have developed a unique pricing system known as a "demand collection
system" that uses the information sharing and communications power of the
Internet to create a new way of pricing products and services. We believe we
have created a new balance between the interests of buyers, who are willing to
accept trade-offs in order to save money, and sellers, who are prepared to
generate incremental revenue by selling products at below retail prices,
provided that they can do so without disrupting their existing distribution
channels or retail pricing structures. Our demand collection system allows
consumers to specify the price they are prepared to pay when submitting an offer
for a particular product or service within a specified range of
substitutability. We then either communicate these offers to participating
sellers or access a proprietary database of inventory available to us for
purchase and, based upon the customer's offer price, elect whether or not to
accept that customer's offer. Consumers agree to hold their offers open for a
specified period of time to enable us to fulfill their offers from inventory
provided by participating sellers. Once fulfilled, offers generally cannot be
canceled. This system uses the flexibility of buyers to enable sellers to accept
a lower price in order to sell excess inventory or capacity or increase sales
velocity. We believe that our demand collection system addresses limitations
inherent in traditional seller-driven pricing mechanisms in a manner that offers
substantial benefits to both buyers and sellers. We believe that the principal
advantages of our system include the following:

      o     Cost Savings. Our Name Your Own Price(SM) demand collection system
            allows consumers to save money in a simple and compelling way.
            Buyers effectively trade off flexibility about brands, product
            features and/or sellers in return for prices that are lower than
            those that can be obtained at that time through traditional retail
            distribution channels.

      o     Incremental Revenue For Sellers. Sellers use priceline.com as a
            revenue management tool to generate incremental revenue without
            disrupting their existing distribution channels or retail pricing
            structures. We require consumers to be flexible with respect to
            brands, product features and/or sellers. As a result, sellers'
            brands are not revealed to customers prior to the consummation of a
            transaction, thereby protecting their brand integrity. This
            shielding of brand identity enables sellers to sell products and
            services at discounted prices without cannibalizing their own retail
            sales by publicly announcing discount prices and without competing
            against their own distributors.


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      o     Proprietary Seller Networks. We have assembled proprietary networks
            of industry leading sellers that represent high quality brands. By
            establishing attractive networks of seller participants with
            reputations for quality, scale and national presence, we believe
            that we foster increased participation by both buyers and sellers.

      o     Guaranteed Consumer Demand For Sellers. Each customer who makes an
            offer through priceline.com must guarantee his or her offer with a
            major credit card. The guaranteed aspect of the demand is attractive
            to sellers because they know that we offer them a confirmed sale.

The priceline.com Strategy

      During the second half of 2000, we experienced a decrease in the momentum
of our business as the result of a number of events, including the closing of
the groceries and gas business of WebHouse Club, Inc., one of our licensees,
negative news stories related primarily to customer service issues and the
decline in our stock price. As a result of the challenges facing us in the
second half of 2000, we formulated a turnaround plan in an effort to restore our
business momentum, regain consumer confidence in our value proposition and
achieve profitability. The key elements of our strategy are as follows:

      o     Refocus on our core businesses, particularly travel. Over the near
            term, we intend to focus our resources and attention primarily on
            our travel business. We evaluated each of our existing and planned
            businesses in terms of their unique proposition and ability to be
            profitable within twelve months. As a result, we closed our auto
            insurance, life insurance, business-to-business and wireless
            initiatives in order to focus on our travel business, which includes
            leisure airline tickets, hotel room reservation and rental car
            service.

      o     Strengthen our product offering and customer service. We intend to
            continue to implement improvements to our customer service
            operations and significant enhancements to the functionality,
            clarity, speed and convenience of our website in an attempt to
            improve each customer's experience. In addition, we intend to work
            with participating sellers to develop modifications and/or
            refinements to our existing product offerings to enhance our
            customer proposition.

      o     Strengthen our international relationships. We intend to concentrate
            our attention on our international initiatives in Europe and Asia by
            providing managerial and information technology expertise and
            assistance to our international licensees. We intend to work closely
            with priceline.com Europe to grow its travel business which was
            launched in London in the fourth quarter 2000 and with
            Hutchison-priceline to launch services in Asia.

      o     Motivate and retain employees. We believe that a critical component
            of our success will depend, in part, on our ability to retain,
            attract, integrate and motivate highly qualified technical and
            managerial personnel, for whom competition is intense. As a result,
            we recently implemented, and intend to continue to evaluate and
            enhance as necessary, an employee compensation and retention plan,
            comprised primarily of new equity incentives, designed to retain and
            motivate our employees and managers as we implement our turnaround
            plan.

      Our strategy also included steps to strengthen our balance sheet (see
Recent Developments in Management's Discussion and Analysis of Financial
Condition and Results of Operations) and address certain third party issues,
including seeking our reinstatement to the Connecticut Better Business Bureau,
which was achieved in December 2000. Over time, we intend to regularly assess
the development of our turnaround plan. As a result, we may, in the future,
evaluate modifications to our existing service and/or the introduction of
additional and complimentary product offerings.


4


See Note 4, Restructuring and Special Charges, to our financial statements.

Products and Services

      We launched the priceline.com service on April 6, 1998 with the sale of
leisure airline tickets. Our service now includes the sale of hotel room
reservations, rental cars, new automobiles, home financing services, long
distance telephone calling and travel insurance. In addition, we have launched
initiatives targeting expansion of the priceline.com service to Europe and Asia.

Travel Services

      Leisure Airline Tickets. There are a total of 10 domestic airlines and 24
international airlines participating in our airline ticket service.

      Consumers can make offers to purchase airline tickets through our Web site
or the 1-800-PRICELINE(SM) call center. The vast majority of all airline ticket
requests are made through our Web site. To make an offer, a customer specifies
(1) the origin and destination of the trip, (2) the dates on which the customer
wishes to depart and return, (3) the price the customer is willing to pay and
(4) the customer's valid credit card to guarantee the offer. When making an
offer, consumers must agree to:

      o     fly on any full-service airline;

      o     leave at any time of day between 6 a.m. and 10 p.m. on their desired
            dates of departure and return;

      o     purchase only round trip economy class tickets between the same two
            points of departure and return;

      o     accept the possibility of at least one stop or connection;

      o     receive no frequent flier miles or upgrades; and

      o     accept tickets that cannot be refunded or changed.

      When we receive an offer, we determine whether to fulfill the offer based
upon the business rules stated above and the available fares, rules and
inventory provided to us by our participating airlines. In almost all instances,
a customer is notified whether his or her offer has been accepted within fifteen
minutes. If we are able to obtain an airline ticket within the parameters
specified by the customer, the customer's offer is accepted and his or her
credit card is charged the offer price, plus applicable taxes, surcharges and
standard processing fees, and the ticket is delivered to the customer by the
delivery method specified by the customer. For customers who request it, we
guarantee no more than 1 connection per leg of trip with a maximum of a 3 hour
stop. As with our other travel products, once a customer's offer for airline
tickets is accepted, that offer, in almost all cases, cannot be withdrawn or
cancelled.

      Hotels. Our hotel room reservation service currently is available in
substantially all major cities and metropolitan areas in the United States.
Seller participants in the hotel room reservation service include most of the
significant national hotel chains as well as several important real estate
investment trusts and independent property owners. Hotels participate by filing
secure private discounted rates with related inventory control rules in a global
distribution system database in a central reservation system for hotel rooms.
These specific rates generally are not available to the general public or to
consolidators and other discount distributors who sell to the public. However,
hotel participants may make similar rates available to consolidators or other
discount providers under other arrangements.

      Our hotel room reservation service operates in a manner similar to our
airline ticket service. Consumers are


5


required to accept certain trade-offs with respect to brands, sellers or product
features in return for saving money. For example, consumers are required to
accept a reservation in any hotel within a specified geographic area within a
designated "class" of service (1, 2, 2-1/2, 3, 4 or 5-star) and must accept
limitations on changes and cancellations. As with the airline ticket service,
the target market for our hotel room reservation service is the leisure travel
market.

      Rental Cars. We offer two different rental car services. In December 1999,
priceline.com launched its Insiders Rates(SM) service and, in February 2000, we
launched our Name Your Own Price(SM) service. Our rental car services are
currently available in substantially all major United States airport markets.
The top five brand name airport rental car companies in the United States are
seller participants in our rental car program.

      Under our Insiders Rates(SM) service, participating car rental companies
offer customers who have successfully purchased an airline ticket from us rates
on car rentals in connection with a customer's planned travel arrangements. An
offer is provided to a customer by e-mail and on our Web site when a customer
checks the status of his or her request.

      Our Name Your Own Price(SM) rental car service operates in a manner
similar to our airline ticket and hotel reservation services. Consumers can
access our Web site and select where and when they want to rent a car, what kind
of car they want to rent (i.e., economy, compact, mid-size, SUV) and the price
they want to pay per-day, excluding taxes, fees and surcharges. When we receive
an offer, we determine whether to fulfill the offer based upon the available
rates, rules and inventory. A customer is notified whether his or her offer has
been accepted within one hour. If a customer's offer is accepted, we will
immediately reserve the rental car, charge the customer's credit card and notify
the customer of the car rental company and location providing the rental car.

      Travel Insurance. In July 2000, we started making available to our airline
customers an optional travel insurance package that offers our customers
coverage for, among other things, trip cancellation, medical expenses, emergency
evacuation, and loss of baggage, property and travel documents. The travel
insurance is provided by member companies of American International Group, Inc.,
a leading United States-based international insurance and financial services
organization. We receive a fixed fee from AIG member companies for every
optional insurance package purchased by our customers. The travel insurance
program is made available to every eligible customer who makes an offer for a
priceline.com airline ticket. If a traveler chooses the insurance program, the
cost is charged to the traveler's credit card only if he or she succeeds in
getting a priceline.com airline ticket. If the traveler's ticket offer is not
successful, the cost of the insurance package is not charged.

      Other Travel Services. While we are currently focused on the travel
products and services described above, over time, we may evaluate introducing
other products and services within the leisure travel industry.

Home Financing Services.

      Under the terms of separate agreements with Alliance Partners, L.P. and
LendingTree, our financing service allows consumers to name their interest rate
and points for mortgages of a specified term, including purchase money
mortgages, refinancings and home equity loans.

      As a general matter, to obtain a loan, consumers access our Web site and
specify the amount of the loan, the term, the interest rate and the points that
they are willing to pay. Customers complete a simplified loan application as
part of the process of making an offer. In connection with making an offer,
customers are required to guarantee with a major credit card the payment of a
good-faith deposit that is applied towards closing costs. We notify a customer
within six hours whether his or her offer has been accepted by a participating
lender. Participating lenders may submit counteroffers through us for up to one
business day following the customer's offer.

      Alliance Relationship. Under the terms of an agreement with Alliance
Partners, which was entered into on March 17, 2000, we provide advertising and
marketing support and a license of certain of our intellectual property to an
indirect subsidiary of Alliance Partners. This entity conducts business as a
broker and/or lender of residential mortgage loans under the name
"pricelinemortgage." Pursuant to an intellectual property license from us,


6


pricelinemortgage utilizes the priceline.com Name Your Own Price(SM) business
model. Pricelinemortgage is controlled by First Alliance Bank, a federally
chartered savings association supervised by the Office of Thrift Supervision and
a wholly owned subsidiary of Alliance Partners. Pricelinemortgage has access to
the management resources and expertise of Alliance Partners and its affiliates,
including Alliance Mortgage Company, a residential mortgage lender since 1962.
Alliance Partners provides management services to pricelinemortgage, including
the procurement of personnel and office space and assistance in obtaining
regulatory approvals. Pricelinemortgage is operating in all 50 states.

      LendingTree Relationship. Under our agreement with LendingTree, we are
responsible for maintaining a home equity service on our Web site and for
consumer marketing. LendingTree serves as the back-end processing system, which
presents offers received through our Web site to multiple mortgage lending
institutions for consideration. There are currently more than 20 lenders
participating in the home financing services through LendingTree.

Long Distance Service

      In April, 2000, we launched our Name Your Own Price(sm) for pre-paid
non-refundable long distance service. Our pre-paid long distance service is
available for purchase and use in substantially all United States markets and is
targeted for use by residential customers, university customers and small
business customers. Our service is currently provided by three
telecommunications providers, Net2Phone, DeltaThree and ZeroPlus.com.

      Customers access our Web site and select the country they wish to call,
the number of minutes they want to purchase, the phone number(s) from where they
plan to place their calls and the price they are willing to pay for a block of
prepaid minutes. Customers are generally notified within 15 minutes whether
priceline has accepted their offer.

      If a customer's offer is accepted, he or she is provided with an access
number which he or she must dial to access the provider's network and a secure
four digit PIN. To use our system, customers do not have to switch their
underlying long distance carrier. Each time a customer places a call, he or she
is notified how many minutes remain on his or her account. A customer can return
to our Web site and replenish the account with more minutes at the same price or
a customer can opt to place a new offer for a different block of minutes, a
different price or to call a different country. We intend to enhance our service
by allowing customers to use the service from most any phone.

      We are in the process of evaluating the introduction of additional
services including offering regular long distance ("one plus service") through
our Web site. A "one plus product" would differ from the pre-paid calling card
in that the service would be a post-pay service and customers would switch from
their long distance carrier.

New Car Sales

      Our new automobile service is offered in all 50 states. Our new car sales
service accepts offers for every major brand of automobile. To purchase a new
car through our service, the customer identifies the exact vehicle desired to be
purchased or leased, including the make, model and specified options, the
geographic area in which the customer is willing to pick up the vehicle and the
purchase price or lease price the customer is willing to pay. All sales are made
through factory-authorized dealers.

      Upon receiving an offer for a new car, we transmit the customer's offer to
factory authorized dealers within the specified geographic radius, without
disclosing the identity of the customer. We direct the sale to the first dealer
that notifies us that it is willing to accept the customer's offer.
Participating dealers may submit counteroffers. We then notify the customer to
pick up the vehicle from that dealer and the transaction is closed directly
between them. In most states, when a sale is completed, we are paid a $50 fee
from the customer and a $200 fee from the selling dealer. In other states, we do
not currently receive compensation from the customer or dealer as a result of
regulatory restrictions. If the customer fails to consummate the transaction
within a specified time period after being notified


7


that an offer is accepted, the customer is charged a cancellation fee.

International Licensees

      Asia. In June 2000, we entered into definitive agreements with
subsidiaries of Hutchison Whampoa Limited ("Hutchison") to introduce our
services to several Asian markets. Under the terms of the agreements, we license
our business model and provide our expertise in technology, marketing and
operations to a newly created entity, Hutchison-Priceline Limited.
Hutchison-Priceline Limited pays us an annual licensing fee to use our
intellectual property and reimburses us for the cost of services provided.
Hutchison purchased equity securities in Hutchison-Priceline Limited. We
purchased a convertible note which allows us to take a significant equity stake
in Hutchison-Priceline Limited. In February 2001, Hutchison increased its
interest in Hutchison-Priceline Limited by purchasing a $9.5 million convertible
note. In connection with Hutchison's purchase of the convertible note, Hutchison
received the exclusive right for a period of six months to negotiate with us to
establish a business in Japan offering the priceline.com services.

      Europe. In June 2000, we entered into definitive agreements with
affiliates of General Atlantic Partners, LLC, to introduce our services to
several European markets. Under the terms of the agreements, we license our
business model and provide our expertise in technology, marketing and operations
to priceline.com europe Ltd., which pays us an annual licensing fee to use our
intellectual property and reimburse us for the cost of services provided. In
addition, we purchased a warrant which allows us, under certain conditions, to
take a significant equity stake in priceline Europe Holdings, N.V., the parent
of priceline.com europe Ltd. In January 2001, General Atlantic Partners invested
an additional $25.0 million in priceline Europe Holdings, N.V., bringing its
total investment in the company to $50.0 million. Priceline.com europe Ltd.
began offering airline tickets in the fourth quarter 2000.

      Other international entities. In March 2000, we entered into definitive
agreements to license our business model to MyPrice pty. Ltd., a new company to
introduce our services in Australia and New Zealand. In addition, in September
2000, we entered into a formation agreement with SoftBank E-Commerce Corp. to
introduce our services to Japan. In December 2000, we announced that Myprice
would not proceed with its planned entry into the Australian and New Zealand
markets and that we had discontinued discussions with SoftBank about introducing
our services in Japan and terminated the formation agreement. See Note 4,
Restructuring and Special Charges, to our financial statements.

Indefinitely Delayed or Postponed Ventures.

      As a result of a decrease in the momentum of our business during the
second half of 2000, we announced that we had indefinitely postponed the
implementation of previously planned initiatives we had intended to launch
during 2000, including business-to-business, term life insurance, wireless
telephone and auto insurance services. See Note 4, Restructuring and Special
Charges, to our financial statements.

Marketing and Brand Awareness

      Priceline.com has established itself as one of the most recognized
e-commerce brands through an aggressive marketing and promotion campaign. During
2000, we incurred $67.2 million for advertising expense. We intend to continue
to pursue a marketing strategy designed to promote brand awareness and the
concept that consumers can save money on all products and services offered by
priceline.com. To date, substantially all of our spending has been for
television, radio and, to a lesser extent, newspaper advertising. We have also
used our marketing budget for promotions, an online affiliate program and an
e-mail marketing program to our current customer base. A small portion of our
budget is devoted to public relations. While we intend to continue to promote
the priceline.com brand aggressively, we intend to significantly reduce our
advertising spending in 2001 from amounts spent in 2000.

Competition

      We compete with both online and traditional sellers of the products and
services offered on priceline.com.


8


Current and new competitors can launch new sites at a relatively low cost. In
addition, the traditional retail industry for the products and services we offer
is intensely competitive.

      We currently or potentially compete with a variety of companies with
respect to each product or service we offer. With respect to travel products,
these competitors include:

      o     Internet travel services such as Expedia, Travelocity.com and
            Hotwire, a Web site that offers discounted fares on opaque
            inventory;

      o     traditional travel agencies;

      o     consolidators and wholesalers of airline tickets and other travel
            products, including consolidators such as Cheaptickets.com and Hotel
            Reservation Network;

      o     individual or groups of airlines, hotels, rental car companies,
            cruise operators and other travel service providers; and

      o     operators of travel industry reservation databases such as Worldspan
            and Sabre.

      A number of airlines have invested in and offer discount airfares and
travel services through the Orbitz internet travel service, and a number of
airlines, including a number that participate in our system, participate in and
have received an equity stake from Hotwire. Similar steps may be under
consideration by certain hotel companies and travel service providers.
Competition from these and other sources could have a material adverse effect on
our business, results of operations and financial condition.

      Our current or potential competitors with respect to the arrangement and
sale of new automobiles in the online marketplace include, among others,
Auto-by-Tel, Carsdirect.com, Autoweb.com and Microsoft's CarPoint. To some
extent, we compete for new car shoppers' attention with retail new car dealers,
many of which offer online shopping capabilities.

      With respect to financial service products, our competitors include:

      o     banks and other financial institutions;

      o     online and traditional banks and brokers, including Quicken Mortgage
            and E-Loan; and

      o     insurance companies.

      With respect to long distance services, our current or potential
competitors include long distance providers, local exchange providers that may
be entering the long distance market and Internet Protocol telephone services.

      We potentially face competition from a number of large Internet companies
and services that have expertise in developing online commerce and in
facilitating Internet traffic, including Amazon.com, America Online and Yahoo!,
who could choose to compete with us either directly or indirectly through
affiliations with other e-commerce or off-line companies. Other large companies
with strong brand recognition, technical expertise and experience in Internet
commerce could also seek to compete with us. Competition from these and other
sources could have a material adverse effect on our business, results of
operations and financial condition.

      Many of our current and potential competitors, including Internet
directories and search engines and large traditional retailers, have longer
operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing, technical and other resources than
we have. Some of these competitors may be able to secure products and services
on more favorable terms than we can. In addition, many of these competitors may
be able to devote significantly greater resources to: (1) marketing and
promotional campaigns, (2) attracting


9


traffic to their Web sites, (3) attracting and retaining key employees, (4)
securing vendors and inventory and (5) Web site and systems development.

      Increased competition could result in reduced operating margins and loss
of market share and could damage our brand. There can be no assurance that we
will be able to compete successfully against current and future competitors or
that competition will not have a material adverse effect on our business,
results of operations and financial condition.

Operations and Technology

      Our business is supported by an information systems platform, which was
designed with an emphasis on scalability, performance and reliability. Our core
demand collection and offer processing systems are proprietary to priceline.com.
The software platform and architecture are built on server-side Java, C++ and
SQL scripts integrated with an Oracle relational database system. This internal
platform was designed to include open application protocol interfaces that can
provide connectivity to vendors in the range of industries in which we operate.
These include large global inventory systems, such as airline and hotel room
reservation systems and financial service providers, as well as individual
inventory suppliers, such as auto dealers. Our Internet servers utilize Verisign
digital certificates to help us conduct secure communications and transactions.

      We out-source most of our customer service functions, and use a real-time
interactive voice response system with transfer capabilities to our customer
service centers in Norwalk, Connecticut, Boston, Massachusetts, Columbus, Ohio,
Sunrise, Florida and Brownsville, Pennsylvania.

      Our systems infrastructure, Web and database servers are hosted at Exodus
Communications, Inc. in Jersey City, New Jersey, which provides communication
lines from multiple providers including UUNet and AT&T, as well as 24-hour
monitoring and engineering support. Exodus has its own generator and multiple
back-up systems in Jersey City. We also maintain a second Web hosting facility
at AT&T in New York City. Our network operations center monitors both Web
hosting facilities and is located in Stamford, Connecticut. We are in the
process of moving our network operations center to our Norwalk, Connecticut
headquarters. Both facilities have an uninterruptible power supply system and
generator and redundant servers.

      We also offer phone service through our toll-free number,
1-800-PRICELINE(SM), which allows consumers who do not have access to a
computer, and consumers who choose not to submit their credit card information
via the Internet, to phone in their orders for airline tickets. We also use this
toll-free number to provide customer service.

Intellectual Property

      We currently hold five issued United States patents, Nos. 5,794,207,
5,797,127, 5,897,620, 6,041,308 and 6,085,169, over 25 pending United States
patent applications and corresponding pending international patent applications.
We file additional patent applications on new inventions, as appropriate.

      While we believe that our issued patents and pending patent applications
help to protect our business, there can be no assurance that

      o     any patent can be successfully defended against challenges by third
            parties;

      o     the pending patent applications will result in the issuance of
            patents;

      o     competitors or potential competitors of priceline.com will not
            devise new methods of competing with us that are not covered by our
            patents or patent applications;

      o     because of variations in the application of our business model to
            each of our products and services, our patents will be effective in
            preventing one or more third parties from utilizing a copycat


10


            business model to offer the same product or service in one or more
            categories;

      o     new prior art will not be discovered which may diminish the value of
            or invalidate an issued patent; or

      o     a third party will not have or obtain one or more patents that
            prevent us from practicing features of our business or will require
            us to pay for a license to use those features.

      There has been discussion in the press regarding the examination and
issuance of so called "business-method" patents. As a result, the United States
Patent and Trademark Office has indicated that it intends to intensify the
review process applicable to such patent applications. The new procedures are
not expected to have a direct effect on patents already granted. We cannot
anticipate what effect, if any, the new process will have on our pending patent
applications. See Item 3 - "Legal Proceedings."

      We seek to protect our copyrights, service marks, trademarks, trade dress
and trade secrets through a combination of laws and contractual restrictions,
such as confidentiality agreements. For example, we attempt to register our
trademarks and service marks in the United States and internationally. However,
effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our services are or will be made
available online. See "Factors That May Affect Future Results - Our Success
Depends on Our Ability to Protect Our Intellectual Property."

      We currently own the Internet domain name "priceline.com" in the United
States. Domain names are generally regulated by Internet regulatory bodies. The
relationship between trademark and similar laws and domain name registration is
evolving, including passage during 1999 of the Anti-Cybersquatting Consumer
Protection Act, which significantly enhances the ability to prevent
incorporation by third parties of trademarks into domain names. We actively
pursue infringers who improperly incorporate our trademarks into domain names,
as appropriate, to maintain and enhance the strength of our trademarks. See
"Factors That May Affect Future Results - Our Success Depends On Our Ability To
Protect Our Intellectual Property."

Governmental Regulation

      The products and services we provide are subject to various federal, state
and local regulations. For example, our travel service is subject to laws
governing the offer and/or sale of travel services as well as laws requiring us
to register as a "seller of travel." As a further example, with respect to our
new car sales service, we are subject to regulations governing the registration
and conduct of automobile dealers and brokers.

      We are also subject to laws governing the licensing and conduct of persons
providing mortgage brokerage services. Such laws typically require certain
consumer protection disclosures and loan solicitation procedures. For example,
the Real Estate Settlement Procedures Act prohibits the payment and receipt of
mortgage loan referral fees, and permits persons to be compensated only for the
fair market value of non-referral services. Accordingly, we have structured our
home financing services such that it provides non-referral services such as Web
site development and advertising to a licensed mortgage broker who, in turn,
provides the back-end processing of the loan referrals. It is possible that
governmental authorities could scrutinize our compensation agreement under the
Real Estate Settlement Procedures Act or enact new legislation that might limit
or prohibit our present arrangement.

      All of our services are subject to federal and state consumer protection
laws and regulations prohibiting unfair and deceptive trade practices. See Item
3 - "Legal Proceedings."

      We are also subject to regulations applicable to businesses conducting
online commerce. Today there are relatively few laws specifically directed
toward online services. However, due to the increasing popularity and use of the
Internet and online services, it is possible that laws and regulations will be
adopted with respect to the Internet or online services. These laws and
regulations could cover issues such as online contracts, user privacy, freedom
of expression, pricing, fraud, content and quality of products and services,
taxation, advertising, intellectual property


11


rights and information security. Applicability to the Internet of existing laws
governing issues such as property ownership, copyrights and other intellectual
property issues, taxation, libel, obscenity and personal privacy is uncertain,
but any such new legislation could have a material adverse effect on our
business, operating results and financial condition. In addition, some states
may require us to qualify in that state to do business as a foreign corporation
because our service is available in that state over the Internet. Although we
are qualified to do business in a number of states, failure to meet the
qualifications of certain states could subject us to taxes and penalties.

      As our licensees expand in Europe and Asia, they will also be subject to
various foreign regulations and governing bodies that might limit their products
and services. Likewise, we may be affected by unexpected changes in regulatory
requirements and various tariffs and trade barriers in connection with online
commerce. While our licensees will generally be responsible for complying with
applicable regulations, any failure on their part to comply may have an adverse
effect on us.

Employees

      As of March 28, 2001, we employed approximately 359 full-time employees.
We also retain independent contractors to support our customer service and
system support functions.

      We have never had a work stoppage and our employees are not represented by
any collective bargaining unit. We consider our relations with our employees to
be good. Our future success will depend, in part, on our ability to continue to
attract, integrate, retain and motivate highly qualified technical and
managerial personnel, for whom competition is intense.

Factors That May Affect Future Results

Our Limited Operating History Makes Evaluating Our Business Difficult

      Priceline.com was formed in July 1997 and began operations on April 6,
1998. As a result, we have only a limited operating history on which you can
base an evaluation of our business and prospects. Our prospects must be
considered in the light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets, such as online
commerce, using new and unproven business models. To address these risks and
uncertainties, we must, among other things:

      o     continue to attract leading sellers and consumers to the
            priceline.com service;

      o     maintain and enhance our brand;

      o     attract, integrate, retain and motivate qualified personnel; and

      o     adapt to meet changes in our markets and competitive developments.

We may not be successful in accomplishing these objectives.

We Are Not Profitable and May Continue to Incur Losses

      As of December 31, 2000, we had an accumulated deficit of $1.5 billion. We
have not achieved profitability and may continue to incur losses. A substantial
portion of our revenues to date have been derived from travel products. Over
time, we may introduce new products and services. With respect to current
product and service offerings, we may not have decreased our operating expenses
in connection with our recent restructuring sufficiently to attain
profitability. With respect to possible future product and service offerings, we
may have to increase our operating expenses. For us to make a profit, our
revenues and gross profit margins will need to increase sufficiently


12


to cover these and other possible future costs. Otherwise, we may never achieve
profitability.

Potential Fluctuations in Our Financial Results Make Financial Forecasting
Difficult

      Our revenues and operating results have varied significantly from quarter
to quarter and our revenues and operating results may continue to vary
significantly from quarter to quarter. As a result, quarter to quarter
comparisons of our revenues and operating results may not be meaningful. In
addition, due to our limited operating history and a business model that is,
especially when compared to "brick and mortar" companies, still relatively new
and unproven, it may be difficult to predict our future revenues or results of
operations accurately. Our operating results have recently fallen below the
expectations of securities analysts and investors and may, in one or more future
quarters, fall below such expectations again. If this happens, the trading price
of our common stock would almost certainly be materially and adversely affected.

      Our business has almost no backlog and almost all of our revenues for a
particular quarter are derived from transactions that are both initiated and
completed during that quarter. Our current and future expense levels are based
largely on our investment plans and estimates of future revenues and are, to a
large extent, fixed. Despite our recent restructurings, we may be unable to
further adjust spending in a timely manner to compensate for any unexpected
revenue shortfall, and any significant shortfall in revenues relative to our
planned expenditures could have an immediate adverse effect on our business and
results of operations.

      Our limited operating history makes it difficult for us to assess the
impact of seasonal factors on our business. Nevertheless, we believe that our
business is subject to seasonal fluctuations, reflecting a combination of
seasonality trends for the products and services offered by us and seasonality
patterns affecting Internet use. For example, with regard to our travel
products, demand for leisure travel may increase over summer vacations and
holiday periods, while Internet usage may decline during the summer months. We
believe that our results are affected by seasonal fluctuations in the inventory
made available to the priceline.com service by participating sellers, especially
airlines. Airlines, for example, typically enjoy high demand for tickets through
traditional distribution channels for travel during Thanksgiving and the
year-end holiday period. As a result, during those periods, less excess airline
ticket inventory would be available to us. Our business also may be subject to
cyclical variations for the products and services offered; for example, leisure
travel and home mortgage financing tend to decrease in economic downturns. These
factors could have an adverse effect on our business and results of operations.

We Are Dependent On the Airline Industry and Certain Airlines

      Our financial prospects are significantly dependent upon our sale of
leisure airline tickets. Sales of leisure airline tickets represented a
substantial majority of total revenue for the year ended December 31, 2000.
Leisure travel, including the sale of leisure airline tickets, is dependent on
personal discretionary spending levels. As a result, sales of leisure airline
tickets and other leisure travel products tend to decline during general
economic downturns and recessions. In addition, unforeseen events, such as
political instability, regional hostilities, increases in fuel prices,
imposition of taxes or surcharges by regulatory authorities, travel-related
accidents and unusual weather patterns also may adversely affect the leisure
travel industry. As a result, our business also is likely to be affected by
those events. Further, work stoppages or labor unrest at any of the major
airlines could materially and adversely affect the airline industry and, as a
consequence, our business.

      Sales of airline tickets from our seven largest airline suppliers
accounted for approximately 92.7% and 88.2%, respectively, of airline ticket
revenue for the years ended December 31, 1999 and 2000, respectively. As a
result, currently we are substantially dependent upon the continued
participation of these airlines in the priceline.com service in order to
maintain and continue to grow our total airline ticket revenues and, as a
consequence, our overall revenues. We expect that our travel revenues for the
three months ended March 31, 2001, will be significantly less than our travel
revenues for the three months ended March 31, 2000.

We currently have 34 participating airlines. However, our airline participation
agreements:


13


      o     do not require the airlines to make tickets available for any
            particular routes;

      o     do not require the airlines to provide any specific quantity of
            airline tickets;

      o     do not require the airlines to provide particular prices or levels
            of discount;

      o     do not require the airlines to deal exclusively with us in the
            public sale of discounted airline tickets; and

      o     generally, can be terminated upon relatively short notice.

      These agreements also outline the terms and conditions under which ticket
inventory provided by the airlines may be sold.

      Our agreement with Delta contains certain restrictions relating to the
terms of participation in our service by other carriers and the circumstances
under which we may transfer or license our intellectual property to other travel
providers. It is possible that, as the priceline.com service grows and as other
carriers seek participation in the priceline.com service, these competitively
restrictive provisions of the Delta agreement could raise issues under federal
and state antitrust laws. If that happened, either a federal or state government
agency or private party could initiate litigation seeking to enjoin us and Delta
from enforcing these provisions or seeking to collect treble damages. The
outcome of any such litigation would be uncertain. If, however, such a lawsuit
resulted in an injunction or subjected us to damages, our business and financial
condition could suffer.

      Due to our dependence on the airline industry, we could be severely
affected by changes in that industry, and, in many cases, we will have no
control over such changes or their timing. For example, we believe that the
decline in our revenues in the third quarter 2000 when compared to the
immediately preceding quarter was attributable, in part, to specific events in
the airline industry, including a $20 fuel surcharge imposed by airlines due to
increased fuel prices, a high level of flight cancellations that negatively
affected supply and the introduction by certain airlines of their own special
sale fares which contributed to lower average offer prices for tickets.

      In addition, given the concentration of the airline industry, particularly
in the domestic market, major airlines that are not participating in the
priceline.com service, or our competitors, could exert pressure on other
airlines not to supply us with tickets. Moreover, the airlines may attempt to
establish their own buyer-driven commerce service or participate or invest in
other similar services, like Hotwire, a Web site that offers discounted fares on
opaque inventory, that compete directly with us. We also could be materially
adversely affected by the bankruptcy, consolidation, insolvency or other
material adverse change in the business or financial condition of one or more of
our airline participants.

Our Business Model is Relatively Novel and Unproven

      The priceline.com service is based on a relatively novel and unproven
business model. We will be successful only if consumers and sellers continue to
actively use the priceline.com service. Prior to the launch of the priceline.com
service, consumers and sellers had never bought and sold products and services
through a demand collection system over the Internet. Therefore, it is
impossible to predict the degree to which consumers and sellers will continue to
use the priceline.com service over time.

      Many of the factors influencing consumers' and sellers' willingness to use
the priceline.com service are outside our control. For example, a labor dispute
that disrupts airline service or an airline accident could make consumers
unwilling to use a service like priceline.com that does not permit the customer
to designate the airline on which the customer purchases a ticket. In addition,
a breach of security on the Internet, even if we were not involved, could make
consumers unwilling to place orders online with a credit card. Also, recent
adverse publicity surrounding our recent public announcements and the slowdown
in our business momentum in the second half of 2000 may affect consumers'
willingness to use our service. Consequently, it is possible that consumers and
sellers


14


will never utilize the priceline.com service to the degree necessary for us to
achieve profitability.

We May Not Be Able to Introduce New Products and Services

      Should we decide to introduce additional products, we may incur
substantial expenses and use significant resources. However, we may not be able
to attract sellers, other participants and licensees to provide such products
and services or consumers to purchase such products and services through the
priceline.com service. In addition, if we or our licensees launch new products
or services that are not favorably received by consumers, our reputation and the
value of the priceline.com brand could be damaged.

      The great majority of our experience to date is in the travel industry.
The travel industry is characterized by "expiring" inventories. For example, if
not used by a specific date, an airline ticket, hotel room reservation or rental
car reservation has no value. The expiring nature of the inventory creates
incentives for airlines, hotels and rental car companies to sell seats, hotel
room reservations or rental car reservations at reduced rates. Because we have
only limited experience in selling "non-expiring" inventories on the
priceline.com service, such as new cars or financial services, we cannot predict
whether the priceline.com business model can be successfully applied to such
products and services.

If We Lose Our Key Personnel or Cannot Recruit Additional Personnel, Our
Business May Suffer

      Competition for personnel with experience in Internet commerce is intense.
We depend on the continued services and performance of our executive officers
and other key personnel. We do not have "key person" life insurance policies. If
we do not succeed in attracting new employees or retaining and motivating
current and future employees or executive officers, our business could suffer
significantly. Our ability to retain key employees could be materially adversely
affected by recent developments concerning priceline.com and the decline in the
market price of our common stock and by limitations on our ability to pay cash
compensation that is equivalent to cash paid by traditional businesses and
limitations imposed by our employee benefit plans to issue additional equity
incentives.

We Rely on Third-Party Systems

      We rely on certain third-party computer systems and third-party service
providers, including the computerized central reservation systems of the airline
and hotel industries to satisfy demand for airline tickets and hotel room
reservations. In particular, our travel business is substantially dependent upon
the computerized reservation system of Worldspan, an operator of a database for
the travel industry. Any interruption in these third-party services systems,
including Worldspan's, or deterioration in their performance could have a
material adverse effect on our business. Our agreements with third-party service
providers are terminable upon short notice and often do not provide recourse for
service interruptions. In the event our arrangement with any of such third
parties is terminated, we may not be able to find an alternative source of
systems support on a timely basis or on commercially reasonable terms and, as a
result, our business and results of operations could be materially and adversely
affected.

Intense Competition Could Reduce Our Market Share and Harm Our Financial
Performance

      The markets for the products and services offered on the priceline.com
service are intensely competitive. We compete with both traditional distribution
channels and online services. Increased competition could diminish our ability
to become profitable or result in loss of market share and damage our brand. See
"Competition."

Our Success Depends on Our Ability to Protect Our Intellectual Property

      We regard our intellectual property as critical to our success, and we
rely on trademark, copyright and patent law, trade secret protection and
confidentiality and/or license agreements with our employees, customers,
partners and others to protect our proprietary rights. If we are not successful
in protecting our intellectual property,


15


there could be a material adverse effect on our business.

      While we believe that our issued patents and pending patent applications
help to protect our business, there can be no assurance that:

      o     any patent can be successfully defended against challenges by third
            parties;

      o     pending patent applications will result in the issuance of patents;

      o     competitors or potential competitors of priceline.com will not
            devise new methods of competing with us that are not covered by our
            patents or patent applications;

      o     because of variations in the application of our business model to
            each of our products and services, our patents will be effective in
            preventing one or more third parties from utilizing a copycat
            business model to offer the same product or service in one or more
            categories;

      o     new prior art will not be discovered which may diminish the value of
            or invalidate an issued patent; or

      o     a third party will not have or obtain one or more patents that
            prevent us from practicing features of our business or will require
            us to pay for a license to use those features.

      There has been recent discussion in the press regarding the examination
and issuance of so called "business-method" patents. As a result, the United
States Patent and Trademark Office has indicated that it intends to intensify
the review process applicable to such patent applications. The new procedures
are not expected to have a direct effect on patents already granted. We cannot
anticipate what effect, if any, the new process will have on our pending patent
applications.

      We pursue the registration of our trademarks and service marks in the U.S.
and internationally. However, effective trademark, service mark, copyright and
trade secret protection may not be available in every country in which our
services are made available online. We have licensed in the past, and expect to
license in the future, certain of our proprietary rights, such as trademarks or
copyrighted material, to third parties. These licensees may take actions that
might diminish the value of our proprietary rights or harm our reputation.

Legal Proceedings

      We are a party to the legal proceedings described in Item 3 - "Legal
Proceedings." The defense of the actions described in Item 3 may increase our
expenses and an adverse outcome in any of such actions could have a material
adverse effect on our business and results of operations.

The Success of Our Business Will Depend on Continued Growth of Internet Commerce

      The market for the purchase of products and services over the Internet is
a relatively new and emerging market. As an Internet commerce business, our
future revenues and profits are substantially dependent upon the widespread
acceptance and use of the Internet and other online services as a medium for
commerce by consumers and sellers. If widespread acceptance and growth of
Internet use does not occur, our business and financial performance will suffer.
Rapid growth in the use of and interest in the Internet and other online
services is a recent phenomenon. This growth may not continue. A sufficiently
broad base of consumers may not adopt, or continue to use, the Internet as a
medium of commerce. Demand for and market acceptance of recently introduced
products and services over the Internet are subject to a high level of
uncertainty, and there are few proven products and services. For us to grow,
consumers who historically have purchased through traditional means of commerce,
such as a travel agent for airline tickets or a branch of a bank for home
financings, will need to elect to purchase online products and


16


services. Sellers of products and services will need to adopt or expand use of
the Internet as a channel of distribution.

      The Internet has experienced significant growth in the number of users and
amount of traffic over the recent past. Our success will depend upon the
development and maintenance of the Internet's infrastructure to cope with this
increased traffic. This will require a reliable network backbone with the
necessary speed, data capacity and security, and the timely development of
complementary products, such as high-speed modems, for providing reliable
Internet access and services.

      The Internet has experienced a variety of outages and other delays as a
result of damage to portions of its infrastructure and could face such outages
and delays in the future. Outages and delays are likely to affect the level of
Internet usage generally, as well as the processing of transactions on the
priceline.com Web site. It is unlikely that the level of orders lost in those
circumstances could be made up by increased phone orders. In addition, the
Internet could lose its viability due to delays in the development or adoption
of new standards to handle increased levels of activity or due to increased
government regulation. The adoption of new standards or government regulation
may, however, require us to incur substantial compliance costs and could have a
material adverse effect upon our business and results of operations.

Capacity Constraints and System Failures Could Harm Our Business

      If our systems cannot be expanded to cope with increased demand, fails to
perform, or we experience unanticipated problems in connection with the current
move of our network operations center from Stamford, Connecticut to Norwalk,
Connecticut, we could experience:

      o     unanticipated disruptions in service;

      o     slower response times;

      o     decreased customer service and customer satisfaction; or

      o     delays in the introduction of new products and services;

      any of which could impair our reputation, damage the priceline.com brand
and materially and adversely affect our revenues. Publicity about a service
disruption also could cause a material decline in our stock price.

      We use internally developed systems to operate the priceline.com service,
including transaction processing and order management systems that were designed
to be scaleable. However, if the number of users of the priceline.com service
increases substantially, we will need to significantly expand and upgrade our
technology, transaction processing systems and network infrastructure. We do not
know whether we will be able to accurately project the rate or timing of any
such increases, or expand and upgrade our systems and infrastructure to
accommodate such increases in a timely manner.

      Our ability to facilitate transactions successfully and provide high
quality customer service also depends on the efficient and uninterrupted
operation of our computer and communications hardware systems. The priceline.com
service has experienced periodic system interruptions, which we believe will
continue to occur from time to time. Our systems and operations also are
vulnerable to damage or interruption from human error, natural disasters, power
loss, telecommunication failures, break-ins, sabotage, computer viruses,
intentional acts of vandalism and similar events. While we currently maintain
redundant servers at our Stamford, Connecticut premises to provide limited
service during system disruptions, we do not have fully redundant systems, a
formal disaster recovery plan or alternative providers of hosting services. In
addition, we do not carry sufficient business interruption insurance to
compensate for losses that could occur. Any system failure that causes an
interruption in service or decreases the responsiveness of the priceline.com
service could impair our reputation, damage our brand name and materially
adversely affect our business and results of operations.


17


We May Not Be Able to Keep Up with Rapid Technological and Other Changes

      The markets in which we compete are characterized by rapidly changing
technology, evolving industry standards, frequent new service and product
announcements, introductions and enhancements and changing consumer demands. We
may not be able to keep up with these rapid changes. In addition, these market
characteristics are heightened by the emerging nature of the Internet and the
apparent need of companies from many industries to offer Internet-based products
and services. As a result, our future success will depend on our ability to
adapt to rapidly changing technologies, to adapt our services to evolving
industry standards and to continually improve the performance, features and
reliability of our service in response to competitive service and product
offerings and the evolving demands of the marketplace. In addition, the
widespread adoption of new Internet, networking or telecommunications
technologies or other technological changes could require us to incur
substantial expenditures to modify or adapt our services or infrastructure.

Online Security Breaches Could Harm Our Business

      The secure transmission of confidential information over the Internet is
essential in maintaining consumer and supplier confidence in the priceline.com
service. Substantial or ongoing security breaches - whether instigated
internally or externally -- on our system or other Internet-based systems could
significantly harm our business. We currently require buyers to guarantee their
offers with their credit card, either online or through our toll-free telephone
service. We rely on licensed encryption and authentication technology to effect
secure transmission of confidential information, including credit card numbers.
It is possible that advances in computer capabilities, new discoveries or other
developments could result in a compromise or breach of the technology used by us
to protect customer transaction data.

      We incur substantial expense to protect against and remedy security
breaches and their consequences. However, we cannot guarantee that our security
measures will prevent security breaches. A party that is able to circumvent our
security systems could steal proprietary information or cause significant
interruptions in our operations. For instance, several major Web sites have
experienced significant interruptions as a result of improper direction of
excess traffic to those sites, and computer viruses have substantially disrupted
e-mail and other functionality in a number of countries, including the United
States. Security breaches also could damage our reputation and expose us to a
risk of loss or litigation and possible liability. Our insurance policies carry
low coverage limits, which may not be adequate to reimburse us for losses caused
by security breaches.

      We also face risks associated with security breaches affecting third
parties conducting business over the Internet. Consumers generally are concerned
with security and privacy on the Internet and any publicized security problems
could inhibit the growth of the Internet and, therefore, the priceline.com
service as a means of conducting commercial transactions.

New Businesses We May Enter or Our Existing Licensees May Not Be Successful

      We have entered into, and may enter into in the future, licensing or other
arrangements with third parties in connection with expansion of the
priceline.com service. For example, we licensed our name and business model to
Alliance Capital Partners in connection with our home financing services and to
other third parties in connection with the development of our business model
abroad. These new businesses typically incur start-up costs and operating losses
and may not be successful. If these new businesses are not favorably received by
consumers or are unsuccessful, the association of our brand name and business
model with these new entities may adversely affect our business and reputation
and may dilute the value of our brand name. Further, to the extent that these
new businesses are not successful, we may not be able to recover or be
reimbursed for our ongoing costs associated with their development, which could
have a material adverse effect on our business and results of operations.

Our Stock Price is Highly Volatile

      The market price of our common stock is highly volatile and is likely to
continue to be subject to wide


18


fluctuations in response to factors such as the following, some of which are
beyond our control:

      o     quarterly variations in our operating results;

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

      o     changes in expectations as to our future financial performance,
            including financial estimates by securities analysts and investors;

      o     changes in our capital structure;

      o     changes in market valuations of other Internet or online service
            companies;

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

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

      o     loss of a major seller participant, such as an airline or hotel
            chain;

      o     changes in the status of our intellectual property rights;

      o     lack of success in the expansion of our business model horizontally
            or geographically;

      o     adverse publicity surrounding recent announcements concerning
            priceline.com;

      o     announcements by third parties of significant claims or proceedings
            against us or adverse developments in pending proceedings;

      o     additions or departures of key personnel; and

      o     stock market price and volume fluctuations.

      Sales of a substantial number of shares of our common stock could
adversely affect the market price of our common stock by introducing a large
number of sellers to the market. Given the volatility that exists for our
shares, such sales could cause the market price of our common stock to decline.

      In addition, the trading prices of Internet stocks in general, including
ours, have experienced extreme price and volume fluctuations. To the extent that
the public's perception of the prospects of Internet or e-commerce companies is
negative, our stock price could decline further regardless of our results. Other
broad market and industry factors may decrease the market price of our common
stock, regardless of our operating performance. Market fluctuations, as well as
general political and economic conditions, such as a recession or interest rate
or currency rate fluctuations, also may decrease the market price of our common
stock. The market value of e-commerce stocks has declined dramatically over
recent months based on profitability and other concerns. The recent declines in
the value of our common stock and market conditions could adversely affect our
ability to raise additional capital.

      We are currently the subject of a number of securities class action
litigations. In the past, securities class action litigation often has been
brought against a company following periods of volatility in the market price of
their securities. To the extent our stock price declines or is volatile, we may
in the future be the target of additional litigation. Securities and other
litigation could result in substantial costs and divert management's attention
and resources.


19


Uncertainty Regarding State Taxes

      We file tax returns in such states as required by law based on principles
applicable to traditional businesses. In addition, we do not collect sales or
other similar taxes in respect of transactions conducted through the
priceline.com service (other than the federal air transportation tax). However,
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 such taxes on the sale of products and
services through the Internet or the income derived from such sales. Such
proposals, if adopted, could substantially impair the growth of e-commerce and
adversely affect our opportunity to become profitable.

      Legislation limiting the ability of the states to impose taxes on
Internet-based transactions has been enacted by the United States Congress.
However, this legislation, known as the Internet Tax Freedom Act, imposes only a
three-year moratorium, which commenced October 1, 1998 and ends on October 21,
2001, on state and local taxes on (1) electronic commerce where such taxes are
discriminatory and (2) Internet access unless such taxes were generally imposed
and actually enforced prior to October 1, 1998. It is possible that the tax
moratorium could fail to be renewed prior to October 21, 2001. Failure to renew
this legislation would allow various states to impose taxes on Internet-based
commerce. The imposition of such taxes could adversely affect our ability to
become profitable.

Regulatory and Legal Uncertainties Could Harm Our Business

      The products and services we offer through the priceline.com service are
regulated by federal and state governments. Our ability to provide such products
and services is and will continue to be affected by such regulations. The
implementation of unfavorable regulations or unfavorable interpretations of
existing regulations by courts or regulatory bodies could require us to incur
significant compliance costs, cause the development of the affected markets to
become impractical and otherwise adversely affect our financial performance. See
"Government Regulation."

Item 2. Properties

      Our executive, administrative and operating offices are located in
approximately 100,000 square feet of leased office space located in Norwalk,
Connecticut. Our network operations center is currently located in 10,000 square
feet of office space located in Stamford, Connecticut. We are subleasing the
Stamford space from Walker Digital on a month-to-month basis and are in the
process of moving our network operations center to Norwalk, Connecticut. See
"Factors That May Affect Future Results -- Capacity Constraints and System
Failures Could Harm Our Business." In addition, we currently lease approximately
47,000 square feet in another location in Norwalk, Connecticut that is
unoccupied and that we currently intend to sublease. We have also has guaranteed
Walker Digital's obligations under a lease of approximately 2,500 square feet of
office space in New York City that is used and paid for by us. We do not own any
real estate as of March 28, 2001.

Item 3. Legal Proceedings

Legal Proceedings

      On January 6, 1999, we received notice that a third party patent applicant
and patent attorney, Thomas G. Woolston, purportedly had filed in December 1998
with the United States Patent and Trademark Office a request to declare an
interference between a patent application filed by Woolston and our U.S. Patent
5,794,207. We are currently awaiting information from the Patent Office
regarding whether it will initiate an interference proceeding.

      On January 19, 1999, Marketel International Inc. (Marketel), a California
corporation, filed a lawsuit against priceline.com, among others. On February
22, 1999, Marketel filed an amended and supplemental complaint. On March 15,
1999, Marketel filed a second amended complaint. On May 9, 2000, Marketel filed
a third amended complaint against priceline.com and Priceline Travel, Inc. The
third amended complaint alleges causes of action for misappropriation of trade
secrets, conversion, false advertising and for correction of inventorship of
U.S. Patent


20


5,794,207. In its third amended complaint, Marketel alleges, among other things,
that the defendants conspired to misappropriate Marketel's business model, which
allegedly was provided in confidence approximately ten years ago. The third
amended complaint also alleges that four former Marketel employees are the
actual sole inventors or co-inventors of U.S. Patent 5,794,207, which was issued
on August 11, 1998 and has been assigned to us. Marketel asks that the patent's
inventorship be corrected accordingly.

      On February 5, February 10 and March 31, 1999, we filed answers
respectively, to the complaint, amended complaint and second amended complaint,
in which we denied the material allegations of liability. On May 19, 2000, we
filed a motion to dismiss the third amended complaint for failure to state a
complaint upon which relief can be granted. We strongly disputed the material
legal and factual allegations contained in Marketel's third amended complaint
and believe that the amended complaint is without merit. In addition, on July
13, 2000, we filed a motion for summary judgment alleging that Marketel has not
identified legally protectable trade secrets and is not entitled to correction
of inventorship of U.S. Patent 5,794,207.

      On December 5, 2000, the United States District Court for the Northern
District of California granted priceline.com's motion for summary judgment with
respect to Marketel's theft of trade secret and patent inventorship claims, and
ruled that there were triable issues of fact as to Marketel's false advertising
claims, although Judge Legge volunteered that it was unlikely that Marketel
could establish damages and suggested that these claims should be voluntarily
dismissed. The false advertising claims were subsequently dismissed by
stipulation, and on February 1, 2001, Judge Legge clarified his inventorship
ruling in favor of priceline.com and entered final judgment in favor of
priceline.com. On March 13, 2001, Marketel filed a Notice of Appeal to the
United States Court of Appeals for the Federal Circuit. We intend to continue
defending vigorously against the action. Pursuant to the indemnification
obligations contained in the Purchase and Intercompany Services Agreement with
Walker Digital, Walker Digital has agreed to indemnify, defend and hold us
harmless for damages, liabilities and legal expenses incurred in connection with
the Marketel litigation. However, Walker Digital currently is experiencing
financial difficulties and is not honoring its indemnification obligation. We
are paying for the defense of this action and recognizing the expense, subject
to a reservation of all rights to recover these amounts from Walker Digital.

      On January 8, 2001, we settled two lawsuits brought by us against
Microsoft Corporation and Expedia, Inc. in U.S. District Court in Connecticut.

      Subsequent to our announcement on September 27, 2000 that revenues for the
third quarter 2000 would not meet expectations, we were served with the
following putative class action complaints:

      o     Weingarten v. priceline.com Incorporated
            and Jay S. Walker
            300 CV 1901 (District of Connecticut).

      o     Twardy v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 1884 (District of Connecticut).

      o     Berdakina v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 1902 (District of Connecticut).

      o     Mazzo v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 1924 (District of Connecticut).


21


      o     Fialkov v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 1954 (District of Connecticut).

      o     Licht al v. priceline.com Incorporated and
            Jay S. Walker 300 CV 2049 (District of Connecticut).

      o     Ayach v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 2062 (District of Connecticut).

      o     Zia v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 1968 (District of Connecticut).

      o     Mazzo v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 1980 (District of Connecticut).

      o     Bazag v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 2122 (District of Connecticut).

      o     Breier v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 2146 (District of Connecticut).

      o     Farzam v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 2176 (District of Connecticut).

      o     Caswell v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 2169 (District of Connecticut).

      o     Howard Gunty Profit Sharing Plan v. priceline.com Inc.
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 1917 (District of Connecticut).

      o     Cerelli v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 1918 (District of Connecticut)

      o     Mayer v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 1923 (District of Connecticut)

      o     Anish v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 1948 (District of Connecticut)


22


      o     Atkin v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 1994 (District of Connecticut).

      o     Lyon v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 2066 (District of Connecticut).

      o     Kwan v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 2069 (District of Connecticut).

      o     Krim v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 2083 (District of Connecticut).

      o     Karas v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 2232 (District of Connecticut).

      o     Michols v. priceline.com Inc.,
            Richard S. Braddock, Daniel H. Schulman and Jay S. Walker
            300 CV 2280 (District of Connecticut).

      All of these cases have been transferred to Judge Dominick J. Squatrito,
and two groups have filed motions requesting to be appointed as lead plaintiff
and lead counsel. By agreement of counsel, once the lead plaintiff and lead
counsel have been appointed, such lead plaintiff and counsel shall have
forty-five days to file an amended and consolidated complaint, and we will
thereafter have forty-five days to respond to the amended and consolidated
complaint. We intend to defend vigorously against these actions.

      In addition, we have been served with a complaint that purports to be a
shareholder derivative action against our Board of Directors and certain of our
current executive officers, as well as us (as a nominal defendant). The
complaint alleges breach of fiduciary duty. The action is captioned Mark
Zimmerman v. priceline.com Incorporated, Jay Walker, R. Braddock, D. Schulman,
P. Allaire, R. Bahna, P. Blackney, W. Ford, M. Loeb, N. Nicholas, N. Peretsman,
18473-NC, (Court of Chancery of Delaware, County of New Castle, State of
Delaware). On February 6, 2001, all defendants moved to dismiss the complaint
for failure to make a demand upon the Board of Directors and failure to state a
cause of action upon which relief can be granted. We intend to defend vigorously
against this action.

      On March 16 and 26, 2001, respectively, two putative class action
complaints were filed in the U.S. District Court for the Southern District of
New York naming priceline.com, Richard S. Braddock, Jay Walker, Paul Francis,
Morgan Stanley Dean Witter & Co., Merrill Lynch, Pierce, Fenner & Smith, Inc.,
BancBoston Robertson Stephens, Inc. and Salomon Smith Barney, Inc. as defendants
(01 Civ. 2262 and 01 Civ. 2576). The complaints allege, among other things, that
priceline.com and the individual defendants named in the complaints violated the
federal securities laws by issuing and selling priceline.com common stock in
priceline.com's March 1999 initial public offering without disclosing to
investors that some of the underwriters in the offering, including the lead
underwriters, had allegedly solicited and received excessive and undisclosed
commissions from certain investors. We intend to defend vigorously against these
actions.

      We have been informed that a sub-committee of the board of directors of
Myprice pty. Ltd. has been formed to evaluate whether a lawsuit should be
instituted against us in connection with our investment in Myprice. If
necessary, we will defend against any such suit vigorously.


23


      We are cooperating with the Connecticut Attorney General's office
concerning complaints by customers received by the Attorney General's office and
intend to continue our cooperation.

      From time to time, we have been and expect to continue to be subject to
legal proceedings and claims in the ordinary course of business, including
claims of alleged infringement of third party intellectual property rights by
it. Such claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources and could adversely effect our
results of operations and business.

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

      No matters were submitted for a vote of stockholders of priceline.com
during the fourth quarter of the year ended December 31, 2000.


24


                                     PART II

Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters

Price Range of Common Stock

      Our common stock has been quoted on the Nasdaq National Market under the
symbol "PCLN" since our initial public offering on March 29, 1999. Prior to such
time, there was no public market for our common stock. The following table sets
forth, for the periods indicated, the high and low closing sales prices per
share of the common stock as reported on the Nasdaq National Market:

1999                                                          High         Low
----                                                          ----         ----

First Quarter (from March 29, 1999).....................     $ 82.875    $ 69.00
Second Quarter..........................................      162.375     59.875
Third Quarter...........................................       112.00     55.625
Fourth Quarter..........................................       76.875     46.750

2000                                                          High         Low
----                                                          ----         ----

First Quarter...........................................     $95.9375    $50.125
Second Quarter..........................................      78.0625     36.125
Third Quarter...........................................      40.5625      10.75
Fourth Quarter..........................................       10.875      1.125

Holders

      As of March 20, 2001, there were approximately 839 stockholders of record
of priceline.com's common stock, although we believe that there are a
significantly larger number of beneficial owners.

Dividend Policy

      We have not declared or paid any cash dividends on our capital stock since
our inception and do not expect to pay any cash dividends for the foreseeable
future. We currently intend to retain future earnings, if any, to finance the
expansion of our business. Under the terms of the certificate of designation
relating to our Series B Preferred Stock, we cannot issue any dividends on
shares of our common stock unless full cumulative dividends have been paid on
the Series B Preferred Stock for all dividend periods ending on or prior to the
proposed date of payment of a dividend on our common stock. Please see the
Recent Developments section of Management's Discussion and Analysis of Financial
Condition for a description of the Series B Preferred Stock.

Recent Sales of Unregistered Securities

      On October 6, 2000, we amended the terms of warrants held by Delta Air
Lines, Inc. In connection with the amendment, we reduced the number of shares of
priceline.com common stock underlying the warrant to 4.675 million shares from
5.5 million shares and reduced the exercise price from $56.63 per share to $4.72
per share. We relied on Section 3(a)(9) of the Securities Act of 1933, as
amended.


25


Item 6. Selected Financial Data

                             SELECTED FINANCIAL DATA

      The selected financial data presented below are derived from our financial
statements, and should be read in connection with those statements, which are
included herein. All share and per share amounts have been retroactively
adjusted to reflect the 1.25:1 stock split during 1999.



                                                                                                                         July 18,
                                                                                                                      (inception to
                                                                                  Year Ended December 31,               December 31,
                                                               -------------------------------------------------      -------------
                                                                  2000                1999               1998              1997
                                                               -----------         -----------         ---------         --------
                                                                            (In thousands, except per share amounts)
                                                                                                             
Statement of Operations Data:
Revenues
     Travel .............................................      $ 1,217,160         $   480,979         $  35,224         $     --
     Other ..............................................           18,236               1,431                13               --
                                                               ------------------------------------------------------------------
Total Revenues ..........................................        1,235,396             482,410            35,237               --
Cost of Revenues:
     Travel .............................................        1,040,306             424,579            36,525               --
     Other ..............................................            2,921                  --                --               --
                                                               ------------------------------------------------------------------
Total Cost of Revenues ..................................        1,043,227             424,579            36,525               --
                                                               ------------------------------------------------------------------
Gross Profit ............................................          192,169              57,831            (1,288)              --
                                                               ------------------------------------------------------------------
Operating Expenses:
     Sales and marketing ................................          148,133              79,577            24,388              441
     General and administrative (including $8,788
     and $1,812 of option payroll taxes in 1999
     and 2000, respectively) ............................           62,693              27,609            18,004            1,012
     Systems and business development ...................           39,192              14,023            11,132            1,060
     Special charge .....................................           34,824                  --                --               --
     Restructuring charge ...............................           32,006                  --                --               --
     Warrant costs, net .................................            8,595             998,832            57,979               --
     Write-off of WebHouse warrant ......................          189,000                  --                --               --
                                                               ------------------------------------------------------------------
          Total operating expenses ......................          514,443           1,120,041           111,503            2,513
                                                               ------------------------------------------------------------------
Operating loss ..........................................         (322,274)         (1,062,210)         (112,791)          (2,513)
Other income (expense) ..................................            7,129               7,120               548
                                                               ------------------------------------------------------------------
Net loss ................................................         (315,145)         (1,055,090)         (112,243)          (2,513)
Preferred stock dividend ................................          (14,382)                 --                --               --
Accretion on preferred stock ............................               --              (8,354)           (2,183)              --
                                                               ------------------------------------------------------------------
Net loss applicable to common shareholders ..............      $  (329,527)        $(1,063,444)        $(114,426)        $ (2,513)
                                                               ==================================================================
Net loss applicable to common shareholders
     per basic and diluted common share .................      $     (1.97)        $     (7.90)        $   (1.41)        $   (.05)
                                                               ==================================================================
Weighted average number of basic and
     diluted common shares outstanding ..................          166,952             134,622            81,231           50,834
                                                               ==================================================================


                                                                                         As of December 31,
                                                                                         ------------------
                                                                  2000                1999               1998              1997
                                                               -----------         -----------         ---------         --------
                                                                                           (In thousands)

                                                                                                             
Cash and cash equivalents and short-term
investments ...........................................        $   100,983         $   171,943         $  53,593         $       6
Working capital .......................................             51,925             172,489            49,922            (2,389)
Total assets ..........................................            195,078             441,886            66,572             1,449
Long-term obligations .................................            359,580                  --             1,015                --
Total liabilities .....................................             84,405              39,250            11,296             2,706
Total stockholders' equity ............................           (248,907)            402,636            55,276            (1,257)



26


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

      The following discussion should be read in conjunction with our financial
statements, including the notes to those statements, included elsewhere in this
Annual Report on Form 10-K, and the lead-in immediately preceding Part I of this
Annual Report on Form 10-K. As discussed in more detail in the lead-in
immediately preceding Part I of this Annual Report on Form 10-K, this discussion
contains forward-looking statements which involve risks and uncertainties. Our
actual results may differ materially from the results discussed in the
forward-looking statements. Factors that might cause those differences include,
but are not limited to, those discussed in "Factors That May Affect Future
Results."

      Overview

      We have pioneered a unique e-commerce pricing system known as a "demand
collection system" that enables consumers to use the Internet to save money on a
wide range of products and services while enabling sellers to generate
incremental revenue. Using a simple and compelling consumer proposition - Name
Your Own Price(SM) - we collect consumer demand, in the form of individual
customer offers, for a particular product or service at a price set by the
customer. We then communicate that demand directly to participating sellers or
access a proprietary database of inventory available to us for purchase and,
based upon the customer's offer price, elect whether or not to accept that
customer's offer. Consumers agree to hold their offers open for a specified
period of time and, once fulfilled, offers generally cannot be canceled. We
benefit consumers by enabling them to save money, while at the same time
benefiting sellers by providing them with an effective revenue management tool
capable of identifying and capturing incremental revenues. By requiring
consumers to be flexible with respect to brands, sellers and product features,
we enable sellers to generate incremental revenue without disrupting their
existing distribution channels or retail pricing structures.

      Our business model and brand are currently, through us or independent
licensees, supporting several products and service offerings, including the
following:

      o     leisure airline tickets, provided by 10 domestic and 24
            international airline participants, and travel insurance;

      o     hotel rooms, in substantially all major United States markets with
            more than 50 national hotel chains as participants;

      o     rental cars, in substantially all major United States airport
            markets with five leading rental car chains as participants;

      o     new automobiles, in substantially all major United States markets;

      o     home financing services, in substantially all major United States
            markets, which includes home mortgage services, home equity loans
            and refinancing services; and

      o     long distance telephone calling, provided by three carriers, in
            substantially all United States markets.

      In certain instances, we have licensed the priceline.com name and demand
collection system to third parties to offer a particular product or service
(home financing) or to offer a number of products or services in a distinct
international region (Europe and Asia). Pursuant to these licensee transactions,
we generally receive a royalty under the license and may also receive fees for
services and reimbursement of certain expenses. We also hold convertible
securities or warrants entitling us to acquire a significant percentage of such
licensee's equity securities upon the occurrence of certain events.


27


      During the second half of 2000, we experienced a decrease in the momentum
of our business as the result of a number of events, including the closing of
the groceries and gas business of WebHouse Club, Inc., one of our licensees,
negative news stories related primarily to customer service issues and the
decline in our stock price. While our results of operations for the year ended
December 31, 2000 compared to the same period last year have, as a general
matter, increased, our results of operations for the fourth quarter 2000 were,
as a general matter, significantly lower than our results of operations in the
third quarter 2000. In particular, new customer offers grew, year over year, as
we added approximately 5.2 million new customers in 2000 compared to 3.0 million
in 1999, but decreased approximately 32% in the fourth quarter 2000 compared to
the third quarter 2000. Similarly, repeat customer offers declined approximately
21% quarter over quarter. These declines are representative of the general
slowing of our business in the fourth quarter 2000. We believe this decline is
attributable to the decrease in the momentum of our business described above and
the general seasonal decline in our travel operations in the fourth quarter.

      We believe that our success will depend in large part on our ability to
achieve profitability, primarily from our travel business, and to continue to
promote the priceline.com brand. We intend to continue to invest in marketing
and promotion, technology and personnel within parameters consistent with
attempts to improve operating results. Our goal is to reduce operating losses
and improve gross margins in an effort to achieve profitability. Our limited
operating history makes the prediction of future results of operations
difficult, and accordingly, we cannot assure you that we will achieve or sustain
revenue growth or profitability.

Recent Developments

      On February 8, 2001, we announced that Delta Air Lines, Inc. had agreed to
restructure its investment in priceline.com. Under the terms of the agreement,
Delta exchanged 6 million shares of Series A Convertible Redeemable PIK
Preferred Stock of priceline.com for 80,000 shares of Series B Redeemable
Preferred Stock of priceline.com and received warrants to purchase approximately
27 million shares of our common stock at an exercise price of $2.97 per share.
The Series B Preferred Stock has an aggregate liquidation preference of $80.0
million and will pay dividends of approximately 3.0 million shares of
priceline.com common stock per year. The Series B Preferred Stock is mandatorily
redeemable on February 6, 2007 and can be redeemed, at either priceline.com's or
Delta's option, upon a change of control of priceline.com. The warrants to
purchase shares of priceline.com common stock issued to Delta are fully vested
and can be exercised at Delta's election at any time prior to the redemption of
the Series B Preferred Stock. To pay the exercise price of the warrants, Delta
will surrender shares of preferred stock valued at the liquidation preference
per share. In connection with the restructuring, Delta received certain
registration rights.

      On February 15, 2001, we announced that Hutchison Whampoa Limited and
Cheung Kong (Holdings) Limited purchased approximately 23.8 million shares of
our common stock at $2.10 per share. In connection with the sale, Hutchison and
Cheung Kong received certain registration rights and Hutchison received a seat
on our Board of Directors. At the same time, Hutchison purchased $9.5 million
worth of Hutchison-Priceline Limited convertible notes. In connection with the
sale, Hutchison received the right, for a period of six months, to negotiate
with us for the establishment of a potential business in Japan. Hutchison and
Cheung Kong also announced at the same time that they purchased an aggregate of
11.3 million shares of our common stock from Jay S. Walker, priceline.com's
founder and former Vice Chairman, for an aggregate purchase price of
approximately $24 million.

      On February 15, 2001, we also announced that we had implemented an
additional reduction in our work-force in an attempt to reduce costs. As a
result, we reduced our work-force by 25 full-time employees and had
approximately 359 full-time employees as of March 28, 2001. The cost of this
reduction in our work-force was approximately $1.2 million, which will be
reflected as a restructuring charge in the first quarter of 2001.

      Please see the unaudited pro forma balance sheet that appears at the end
of this Management's Discussion and Analysis of Financial Condition and Results
of Operations and before Item 7A and presents our financial position at December
31, 2000 after giving effect to the exchange of preferred stock and the sale of
common stock described above. Also, please see Note 4, Restructuring and Special
Charges, attached to our financial statements.


28


Results of Operations

Year Ended December 31, 2000 compared to Year Ended December 31, 1999

Revenues

                                             Year Ended                %
                                             December 31,           Change
                                             ------------           ------
                                                ($000)
                                         2000           1999
                                      ----------      --------
      Travel Revenues ...........     $1,217,160      $480,979        153%

      Other Revenues ............     $   18,236      $  1,431      1,174%

      Total Revenues ............     $1,235,396      $482,410        156%

      Revenues for the twelve months ended December 31, 2000 and 1999 consisted
primarily of: (1) travel revenues and (2) other revenues.

      Travel Revenues

      Travel revenues for the twelve months ended December 31, 2000 consisted
primarily of: (1) transaction revenues representing the selling price of airline
tickets, hotel rooms and rental cars; and (2) ancillary fees we earned in
connection with the sale of our travel products, including Worldspan reservation
booking fees, customer processing fees and fee income from marketing programs
offered in connection with the sale of airline tickets, hotel rooms and rental
cars. Travel revenues for the twelve months ended December 31, 1999 consisted
primarily of: (1) transaction revenues representing the selling price of airline
tickets and hotel rooms; and (2) ancillary fees we earned in connection with the
sale of our travel products, including Worldspan reservation booking fees,
customer processing fees and fee income from marketing programs offered in
connection with the sale of airline tickets and hotel rooms.

      During the twelve months ended December 31, 2000, we sold approximately
4.6 million, 1.7 million and 1.8 million airline tickets, hotel room nights and
rental car days, respectively. During the twelve months ended December 31, 1999,
we sold approximately 2.0 million and 500,000 airline tickets and hotel room
nights, respectively. Our rental car service was not launched until the first
quarter 2000.

      Our "bind" rate is the percentage of unique offers that we ultimately
fulfill. Since April 1999, each initial offer and any resubmitted offers are
treated as a single offer - a unique offer - for purposes of measuring our total
offer volume and our offer fulfillment rates. Previously, each had been counted
as a separate offer. Therefore, comparisons with prior periods may not be
meaningful. Our "bind rate" for all unique airline ticket, hotel room and rental
car offers were as follows:

                                                   Unique Offers For
                                                   -----------------

                                              Airline    Hotel      Rental
                                              Tickets    Rooms       Cars
                                              -------    -----       ----

      Year Ended      December 31, 2000        47.9%      47.1%      43.1%

      Year Ended      December 31, 1999        34.1%      32.2%       N/A


29


      Travel revenues, and total revenues, increased during the twelve months
ended December 31, 2000 over the prior year primarily as a result of the
substantial development of our unique customer base, to which we added
approximately 5.2 million new customers during the twelve months ended December
31, 2000. In addition, we generated approximately 4.3 million repeat customer
offers during the twelve months ended December 31, 2000. A unique customer is
defined as someone who has made a guaranteed offer for at least one of our
products. We believe our customer base grew during the twelve months ended
December 31, 2000 as a result of the substantial increase in our advertising
expenditures throughout 2000, and due to the availability of additional product
inventory generated from adding three additional domestic air carriers during
the fourth quarter 1999 and two additional major rental cars companies during
the second quarter 2000.

      Travel revenues for the twelve months ended December 31, 2000 increased
approximately 153% to $1,217.0 million from approximately $481.0 million for the
twelve months ended December 31, 1999, primarily as a result of an increase in
revenues from airline ticket sales. Ancillary fee revenues we earned in
connection with the sale of our travel products for the twelve months ended
December 31, 2000 increased from the same period a year ago as a result of
volume driven increases in Worldspan reservation booking fees and customer
processing fees in the airline and hotel room and rental car services. The
processing fees for the airline and hotel room services were introduced during
the second quarter 1999.

      Adaptive marketing revenues for the year ended December 31, 2000 decreased
$2.3 million, or 10.3%, compared to the same period a year ago. During the
fourth quarter 2000, we eliminated adaptive marketing revenues, which were
historically accretive to our travel revenues and gross margins, but which we
now believe negatively impacted customer satisfaction. Seasonal variations in
our travel business, where the third and fourth quarters are typically weaker
than the first two quarters, have historically and are expected to continue to
impact our travel revenues. Travel products, particularly airline tickets,
continue to account for the majority of our revenue.

      Other Revenues

      Other revenues during the twelve months ended December 31, 2000 consisted
primarily of: (1) transaction revenues and fees from our long distance phone
service and (2) commissions and fees from our home financing and automobile
services, and license fees from our WebHouse Club licensee and our international
licensees. Other revenues during the twelve months ended December 31, 1999
consisted primarily of commissions and fees from our home financing and
automobile services and WebHouse Club licensee.

      Other revenues for the twelve months ended December 31, 2000 increased
approximately 1,174% to $18.2 million from $1.4 million for the twelve months
ended December 31, 1999, primarily as a result of $10.3 million of transaction
revenue and fees received from our long distance telephone service, launched
during the second quarter 2000. In addition, we received fee income from our
financial and auto service products introduced in the first quarter of 2000.
Licensing fees from WebHouse Club and Myprice pty. ltd. were approximately $1.3
million and $600,000, respectively, in 2000 and ceased during the fourth quarter
2000 with the shutdown of the WebHouse Club business and the indefinite
postponement of the launch of Myprice's services in Australia.


30


Cost of Revenues and Gross Profit

                                                 Year Ended                %
                                                 December 31,            Change
                                                 ------------            ------
                                                    ($000)
                                            2000             1999
                                        ------------       --------
      Cost of Travel Revenues ....      $  1,040,306       $424,579        145%
          % of Travel Revenues....              85.5%          88.3%
      Cost of Other Revenues .....      $      2,921             --         --
          % of Other Revenues ....              16.0%            --
      Total Cost of Revenues .....      $  1,043,227       $425,579        145%
          % of Revenues ..........              84.4%          88.0%

      Cost of Revenues

      Cost of Travel Revenues. Cost of travel revenues consist of product costs
and supplier warrant costs. For the twelve months ended December 31, 2000,
product costs consisted of: (1) the cost of airline tickets from our suppliers,
net of the federal air transportation tax, segment fees and passenger facility
charges imposed in connection with the sale of airline tickets; (2) the cost of
hotel rooms from our suppliers, net of hotel tax; and (3) the cost of rental
cars from our suppliers, net of applicable taxes. For the twelve months ended
December 31, 1999, our product costs consisted of (1) the cost of airline
tickets from our suppliers, net of the federal air transportation tax, segment
fees and passenger facility charges imposed in connection with the sale of
airline tickets; and (2) the cost of hotel rooms from our suppliers, net of
hotel tax.

      Our supplier warrant costs for the twelve month periods ended December 31,
2000 and 1999 were approximately $1.5 million in each period, which represent a
non-cash expense related to the issuance of common stock warrants to one of our
airline program participants in January 1999. The cost of the warrants has been
fully amortized and, accordingly, we will not incur this expense in the future.

      Cost of Other Revenues. For the twelve months ended December 31, 2000,
cost of other revenues consisted of the cost of long distance telephone service
incurred by priceline.com.


31


      Gross Profit

                                              Year Ended                    %
                                             December 31,                 Change
                                             ------------                 ------
                                                ($000)
                                         2000             1999
                                      ----------       ----------
      Travel Gross Profit ......      $  176,854       $   56,400         213.6%
          Travel Gross Margin...            14.5%            11.7%
      Other Gross Profit .......          15,315            1,431         970.2%
         Other Gross Margin ....            84.0%             100%
      Total Gross Profit .......      $  192,169       $   57,831         232.3%
         Total Gross Margin ....            15.6%            12.0%

      Travel Gross Profit. Travel gross profit consists of travel revenues less
the cost of travel revenues. For the twelve months ended December 31, 2000,
travel gross profit increased over the same period in 1999 as a result of
increased transactional sales volume and increased Worldspan reservation booking
and customer processing fee revenues. In addition to increasing transactional
volume, we also have increased the average margin on air tickets and hotel rooms
as compared to the same period in 1999. The fee portion of the travel
transactions are an integral component in pricing acceptance decisions we make.

      For the twelve months ended December 31, 2000, travel gross margin
increased from the same period of 1999 as a result of increased average margin
on air tickets and hotel rooms and increased Worldspan and customer processing
fees. We intend to continue to improve travel gross margin in 2001, which may
adversely affect our ability to promote top-line revenue growth.

      Other Gross Profit. Other gross profit consists of other revenues less the
cost of other revenues. For the twelve months ended December 31, 2000, other
gross profit increased over the same period in 1999 as a result of the
introduction of the long distance telephone product, the expansion of financial
and auto services and fees from certain licensees.

      For the twelve months ended December 31, 2000, other gross margin
increased from the same period of 1999 as a result of the introduction and
expansion of additional products for long distance telephone, financial and
autos services during 2000.


32


      Operating Expenses

      Sales and Marketing

                                              Year Ended                  %
                                             December 31,              Change
                                             ------------              ------
                                                ($000)
                                          2000          1999
                                        --------       -------
      Advertising ................      $ 67,205       $40,684           65.2%
      Other Sales & Marketing.....      $ 80,928       $38,893          108.1%
                                        --------       -------
      Total ......................      $148,133       $79,577
      % of Revenues ..............          12.0%         16.5%

      Sales and marketing consists of advertising expenses and other sales and
marketing expenses. Advertising expenses consist primarily of: (1) television
and radio advertising; (2) agency fees and production costs for television and
radio commercials; and (3) on-line and print advertisements. For the twelve
months ended December 31, 2000, advertising expenses increased over the same
period in 1999 primarily due to substantial expenses related to the television
advertising campaign launched in January 2000 and television advertising
launched in the fourth quarter 2000 (approximately $18.9 million) as part of a
customer retention program designed to counteract the effects of our negative
momentum in the third and fourth quarter 2000 and restore customer confidence.
We intend to continue to pursue an advertising and branding campaign at lower
spending levels in order to continue to attract new users and retain existing
users. We intend to decrease significantly our advertising expense in 2001 and
place greater reliance on tactical radio and direct marketing programs and
campaigns targeting our large customer base. There can be no assurance that we
will be successful in achieving revenue growth targets as advertising spending
is reduced.

      Other sales and marketing expenses consist primarily of: (1) credit card
processing fees; (2) fees paid to third-party service providers that operate our
call centers; (3) provisions for customer credit card charge-backs; and (4)
compensation for our sales and marketing personnel. For the twelve months ended
December 31, 2000, other sales and marketing expenses increased over the same
period in 1999 due to increased costs to run the customer service call centers,
increased credit card processing fees, and increased payroll and related
expenses resulting from growing our employee base. The increases in other sales
and marketing expenses were driven by substantial increases in customer offers
and revenue.


33


      General and Administrative

                                                Year Ended                  %
                                               December 31,               Change
                                               ------------               ------
                                                  ($000)
                                            2000          1999
                                           -------       -------
      General & Administrative ..........  $53,905       $25,798          109.0%
      Payroll Tax Expense on Employee
      Stock Options .....................    8,787         1,812          385.1%
                                           -------       -------
      Total .............................  $62,692       $27,609          127.1%
      % of Revenues .....................      5.1%          5.7%

      General and administrative expenses consist primarily of: (1) compensation
for personnel; (2) fees for outside professionals; (3) telecommunications costs;
and (4) occupancy expenses. General and administrative expenses increased during
the twelve months ended December 31, 2000 over the same period in 1999 as a
result of increased headcount and resulting payroll and overhead costs
associated with the expansion of our product offerings and increases in our
revenue base. In addition, for the twelve months ended December 31, 2000, we
incurred charges of $8.8 million for payroll taxes relating to options exercised
under our employee stock option plans. For the twelve months ended December 31,
1999, payroll taxes relating to options exercised in accordance with our
employee stock option plans amounted to $1.8 million.

      Systems and Business Development

                                                Year Ended                  %
                                               December 31,               Change
                                               ------------               ------
                                                  ($000)
                                            2000         1999
                                          ---------    ---------
      Systems & Business Development      $  39,192    $  14,023          179.5%
      % of Revenues ................            3.2%         2.9%

      Systems and business development expenses for all periods consist
primarily of: (1) payments to outside contractors, (2) depreciation and
amortization on computer hardware and software, (3) compensation to our
information technology and product development staff, and (4) data
communications and other expenses associated with operating our internet site.
For the twelve months ended December 31, 2000, systems and business development
expenses increased over the same periods in 1999 due to increased staffing
requirements and resulting consulting, payroll and overhead costs related to the
expansion of our product offerings and technological infrastructure. In
addition, in 2000, we recognized increased depreciation and amortization
expenses resulting primarily from capital expenditures and increased internal
software development costs.

Restructuring and Special Charge

      In 2000, we recorded restructuring charges of approximately $32.0 million
and a special charge of approximately $34.8 million. During the second half of
2000, we experienced a decrease in the momentum of our business as the result of
a number of events. As a result, we formulated a turnaround plan with the
intention of increasing our operating efficiencies and refocusing our business
and resources principally on our core travel products. The restructuring charge
resulted from the implementation of our turnaround plan, as a result of which,
we reduced our work force, consolidated our real estate, exited certain product
lines and indefinitely postponed the


34


launch of certain international ventures. Of the approximately $66.8 million
recorded for the restructuring and special charges, approximately $37.3 million
was non-cash. Approximately $5.0 million of the cash charge was expended in the
fourth quarter 2000 and the remaining $24.6 million is accrued on our balance
sheet as a liability and will be paid through 2004.

                                        Restructuring     Special         Total

Charges requiring cash outlay              $16,297        $13,205        $29,502
Asset impairment charges                    15,709         21,619         37,328
                                           -------        -------        -------
                                           $32,006        $34,824        $66,830
                                           =======        =======        =======

Accrued at December 31, 2000               $13,470        $11,093        $24,563
                                           =======        =======        =======

Long-term portion                          $ 4,865        $   243        $ 5,108
                                           =======        =======        =======

Current portion                            $ 8,605        $10,850        $19,455
                                           =======        =======        =======

      The components of the restructuring charge are as follows:



                                                                  Expected To Be Paid In
                                                         ------------------------------------------
                              Charged in     Paid in                                        2004 and
                                 2000         2000        2001        2002        2003     Thereafter
                              ----------     ------      ------      ------      ------    ----------

                                                                           
Employee termination costs      $ 3,807      $1,167      $2,399      $  241      $   --      $   --

Real estate costs                 9,603         317       4,663       1,676       1,735       1,213

Asset impairments                17,474         809         955          --          --          --

Other                             1,122         534         588          --          --          --
                                -------      ------      ------      ------      ------      ------

                                $32,006      $2,827      $8,605      $1,917      $1,735      $1,213
                                =======      ======      ======      ======      ======      ======


      As a result of our restructuring, our work force was reduced by
approximately 125 full-time employees in the fourth quarter 2000. The employee
termination costs primarily represent severance expense.

      The real estate restructuring costs primarily represent the estimated net
lease expense related to real estate we decided we no longer needed and which we
will not utilize in the future and the cost of certain required refurbishments
to that real estate. The real estate restructuring costs also relate to our
decision to abandon plans to open a new network operations center in a new
leased space in Norwalk, Connecticut. This decision accounted for a significant
portion of the real estate costs and a portion of the asset impairment, as
previously capitalized costs were written off.

      The asset impairment relates to the write-off of the net capitalized value
of equipment and software related to businesses we elected to exit during the
fourth quarter 2000, including business-to-business, term life insurance and
cellular telephone services, as well as abandoned equipment and software
projects (approximately $11.0 million). In addition, it consists of $3.1 million
related to our decision to abandon plans to participate in the establishment of
an independent licensee in Japan and approximately $1.9 million related to other
potential product offerings and intellectual property no longer to be pursued as
part of our turnaround plan.


35


      Other restructuring charges include professional and other fees and costs
associated with the restructuring activities.

      The components of the special charge are as follows:

                                                     Expected To Be Paid In
                                                     ----------------------
                            Charged in    Paid in
                               2000         2000         2001       2002
                             -------      -------      -------      ----

      Employee expenses      $14,482      $   142      $ 6,297      $  7

      Asset impairment        17,107           --        1,373       236

      Other                    3,235           55        3,180        --
                             -------      -------      -------      ----

                             $34,824      $   197      $10,850      $243
                             =======      =======      =======      ====

      Employee expenses primarily represent costs associated with retention
programs and the acceleration of employee loan forgiveness of $8.0 million.
During the fourth quarter 2000, we incurred $5.7 million of expense related to
retention bonuses paid to employees as part of our turnaround plan.

      Asset impairments consist primarily of the write-down to estimated net
realizable value of receivables or loans (either loans to independent licensees
or receivables that represented reimbursable expenses that were incurred on the
licensee's behalf as part of the contractual arrangement) from independent
licensees that ceased or significantly restructured their operations during the
fourth quarter 2000, including approximately $7.8 million related to Myprice,
the Australian based company launched in early 2000 to introduce our
buyer-driven commerce platform to Australia and New Zealand, $1.7 million
related to WebHouse Club and $1.1 million related to Perfect Yardsale. Asset
impairment also includes a charge of $6.3 million for the unrecoverable
reimbursable expenses due to us from Walker Digital in connection with Walker
Digital's contractual obligations to fund certain patent and intellectual
property litigation costs. Other includes amounts accrued for our estimated
exposure for litigation related to shareholder lawsuit costs and other claims.

Warrant Costs

      In the fourth quarter 2000, we amended the terms of certain warrants to
purchase our common stock held by Delta Air Lines, Inc. As a result, we recorded
an $8.6 million non-cash charge. In connection with the amendment, we reduced
the number of shares underlying the warrant to 4.67 million shares from 5.5
million shares and reduced the exercise price from $56.63 per share to $4.72 per
share.

Write-Off of WebHouse Club Warrant

      On October 5, 2000, the Priceline WebHouse Club, Inc., a privately-held
licensees of ours, announced that it would be ceasing operations. In the fourth
quarter 1999, we received a warrant in WebHouse Club in exchange for services
rendered and, upon receipt of the warrant, recognized approximately $189 million
of income representing the estimated fair value of the warrant, based on an
independent valuation. As a result of WebHouse Club ceasing operations, in the
third quarter 2000, we recorded a non-cash charge of approximately $189 million
to write off the full carrying value of the warrant.

Interest Income, Net


36


                                                Year Ended             %
                                               December 31,          Change
                                               ------------          ------
                                                  ($000)
                                             2000        1999
                                            ------      ------
      Interest Income, Net............      $9,687      $7,501        29.1%

      For the twelve months ending December 31, 2000, interest income on cash
and marketable securities increased primarily due to higher balances resulting
from our initial public offering of common stock in April of 1999 and our
follow-on public offering of common stock in August of 1999.

Year Ended December 31, 1999

      We did not commence operations until April 1998. Accordingly, we do not
believe that a comparison with the prior year is meaningful.

Revenues

      Revenues for the year ended December 31, 1999 were $482.4 million and were
comprised primarily of: (1) transaction revenues representing the selling price
of airline tickets, hotel rooms and rental cars; (2) fee income from adaptive
marketing programs offered in connection with our product offerings; (3)
ancillary revenues consisting primarily of Worldspan reservation booking fees
and customer processing fees; and (4) fee income from our home financing and
auto programs.

      Revenues increased during 1999 as a result of the substantial development
of our unique customer base, repeat purchases by existing customers and the
inclusion of the hotel room, rental car, automobile, and home financing services
and adaptive marketing programs. We launched certain of our services in select
geographic markets during 1999 and then expanded to other regions. During 1999,
our hotel room reservation service expanded from 25 cities to nationwide
coverage. Our auto program was launched in the New York City area and expanded
to cover 26 states at December 31, 1999. Our rental car service was launched
nationally during the fourth quarter.

      As of December 31, 1999, we had a base of approximately 3.8 million unique
customers. Of the total unique customer base, approximately 3.0 million made
their first offer during 1999. During 1999, our customers made approximately 4.3
million offers for services.

      Ancillary revenues for the year ended December 31, 1999 increased as a
result of volume driven increases in Worldspan reservation booking fees and the
introduction of a customer processing fee in the airline and hotel services.
Fee-based income and ancillary revenues represented 8.4% of total revenues for
the year ended December 31, 1999.

Product Costs and Gross Profit

      For the year ended December 31, 1999, product costs were $424.5 million,
88% of revenues, our gross profit was $57.8 million and our gross margin was
12.0%. Product costs were comprised of (1) the cost of airline tickets from our
suppliers, net of the federal air transportation tax, segment fees and passenger
facility charges imposed in connection with the sale of airline tickets; (2) the
cost of hotel rooms from our suppliers, net of hotel tax; and (3) supplier
warrant costs that represent a non-cash expense related to the issuance of
common stock warrants to one of our airline program participants in January
1999.

      Gross profit is comprised of revenues less cost of revenues. During 1999,
gross profit was positive as a result of the transactional sales volumes that
were sold at positive margins, and the launch of products generating fee-based
revenues. Because fee-based and ancillary revenues generally do not involve
separate costs, these revenues had a disproportionately positive impact on total
gross profit and made a substantial contribution to gross profit for


37


the year ended December 31, 1999.

      For the year ended December 31, 1999, gross margin increased each quarter
as a result of increased sales volume, increased fee-based revenue and decreased
sales of tickets that were sold below cost. Fee-based revenues, such as adaptive
marketing revenues, ancillary revenues and revenues from financial services and
automobiles generate higher margins than transaction revenues, on which the
gross margin generated is derived from the spread between customer payments and
product costs.

Operating Expenses

Warrant Costs, Net

      Warrant costs, net were $998.8 million in 1999 and consist of the fair
value of warrants issued to airline suppliers during 1999, as discussed above.
Such costs were partially offset by warrant income of $188.8 million recognized
in the fourth quarter 1999 as a result of the receipt of warrants to purchase
common stock of WebHouse Club, Inc.

Sales and Marketing

      Sales and marketing expenses for the year ended December 31, 1999 were
approximately $79.5 million, 16.5% of revenues, and consisted primarily of: (1)
advertising and promotions; (2) credit card processing fees; (3) fees payable to
a third party service provider that operates our call center; (4) compensation
for our sales and marketing personnel; and (5) provisions for customer
charge-backs (based upon a percentage reflecting our historical experience).

General and Administrative

      General and administrative expenses for the year ended December 31, 1999
were approximately $27.6 million, 5.7% of revenues, and were comprised primarily
of compensation for personnel, fees for outside professionals,
telecommunications and other overhead costs, including occupancy expense. The
year ended December 31, 1999 included a charge of $1,812 relating to option
payroll taxes resulting from the exercise of employee stock options. Excluding
this expense, general and administrative expense was 5.3% of revenues for the
year ended December 31, 1999. Excluding this charge, general and administrative
expenses increased as a result of increased payroll and overhead costs
associated with the expansion of our product offerings and increases in our
revenue base.

Systems and Business Development

      Systems and business development expenses for the year ended December 31,
1999 were approximately $14.0 million, 2.9% of revenues, and were comprised
primarily of: (1) compensation to our information technology and product
development staff; (2) payments to outside contractors; (3) data communications
and other expenses associated with operating our Web site; and (4) depreciation
and amortization on computer hardware and software. During 1999, systems and
business development expenses increased due to increased payroll costs,
increased depreciation and amortization resulting from increased capital
expenditures and increased development costs associated with the expansion of
our product offerings and technological infrastructure.

      In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use." This SOP requires
capitalization of certain costs of computer software developed or obtained for
internal use. We adopted this SOP on January 1, 1999 and, during the year ended
December 31, 1999, we capitalized approximately $13.9 million of computer
software developed or obtained for internal use. Amortization of such costs
aggregated approximately


38


$1.1 million during the year ended December 31, 1999.

Other Income, Net

      Other income, net, for the year ended December 31, 1999 was approximately
$7.1 million and was primarily comprised of interest income. Interest income on
cash and marketable securities increased due to higher cash and cash equivalent
balances resulting from our initial public offering of common stock in April of
1999 and our secondary public offering of common stock in August of 1999.

Year Ended December 31, 1998

      We were formed in July 1997, but did not commence operations until April
1998. Accordingly, comparisons with prior periods are not meaningful.

Revenues

      Total revenues for the year ended December 31, 1998 were $35.2 million.
Since commencement of operations in April 1998, essentially all revenues
consisted of airline ticket sales, hotel room reservations and related adaptive
marketing programs. Our automobile sales service, which was launched on a test
basis in the New York metropolitan area in July 1998, did not contribute
materially to revenues during the period.

Product Costs and Gross Profit (Loss)

      Cost of revenues for the year ended December 31, 1998 totaled $36.5
million, consisting of product costs of $33.5 million and supplier warrant costs
of $3.0 million. Product costs represent the cost of airline tickets from our
suppliers, net of the federal air transportation tax, segment fees and passenger
facility charges imposed in connection with the sale of airline tickets.
Supplier warrant costs represent a non-cash expense related to the pro-rata
amount of the Delta Air Lines, Inc. warrant earned prior to December 31, 1998,
the date on which the Delta Air Lines, Inc. warrant was amended.

      Gross profit (loss), which is comprised of revenues less cost of revenues,
was $(1.3) million for the year ended December 31, 1998. Excluding the effect of
the non-cash supplier warrant costs, we would have had gross profit of $1.7
million for the year ended December 31, 1998. In 1998, we sold a substantial
number of tickets below cost in order to increase airline and adaptive marketing
revenues, build a record of successful transactions, and enhance the
priceline.com brand. Because the fees generated by adaptive marketing programs
have historically involved no separate costs, adaptive marketing revenues had a
disproportionately positive impact on our total gross margin. The adaptive
marketing program with Capital One accounted for all of our adaptive marketing
revenues in 1998.

Operating Expenses

      Warrant Cost, net. Warrant costs, net for the year ended December 31, 1998
totaled $58.0 million, or 164.5% of revenues. Supplier start up warrant costs
consist of a non-cash charge representing the fair value of warrants issued to
certain participating airlines in our service in connection with securing the
airline's participation in our service.

      Sales and Marketing. Sales and marketing expenses for the year ended
December 31, 1998 totaled $24.4 million, or 69.2% of revenues. The expenses were
comprised of: (1) advertising and promotional items; (2) fees payable to a third
party service provider, which operates our call center; (3) credit card
processing fees; (4) provisions for customer credit card charge-backs (based
upon a percentage reflecting our historical experience); and (5) compensation
for our sales and marketing personnel.

      General and Administrative. General and administrative expenses for the
year ended December 31, 1998


39


totaled $18.0 million or 51.1% of revenues. General and administrative expenses
consist primarily of compensation for personnel, fees for outside professionals,
telecommunications and other overhead costs, including occupancy expense. In
July 1998, we issued 8,125,000 shares of Common Stock, to the Chairman and Chief
Executive Officer that resulted in the recognition of a charge of $6.5 million
with respect to these shares. The shares were issued as compensation for
agreeing to accept the position.

      Systems and Business Development. Systems and business development
expenses for the year ended December 31, 1998 totaled $11.1 million, or 31.6% of
revenues. Systems and business development expenses are comprised primarily of
compensation to our information technology and product development staff and
payments to outside contractors, data communications and other expenses
associated with operating our Web site and, to a lesser extent, depreciation on
computer hardware and licensing fees for computer software.

Other Income, Net

      Other income, net for the year ended December 31, 1998 totaled
approximately $548,000, reflecting approximately $633,000 of interest income
earned by us on our cash balances, net of interest expense for the period.

Liquidity and Capital Resources

      As of December 31, 2000, we had approximately $101.5 million in cash, cash
equivalents, restricted cash and short-term investments. However, as of December
31, 2000, after giving effect to the investment by Hutchison Whampoa Limited and
Cheung Kong (Holdings) Limited described above, on a pro forma basis, we had
approximately $146.5 million in cash, cash equivalents, restricted cash and
short-term investments. Approximately $13.6 million is restricted cash
collateralizing certain letters of credit issued in favor of certain suppliers
and landlords. We generally invest excess cash, cash equivalents and short-term
investments predominantly in debt instruments that are highly liquid, of
high-quality investment grade, and predominantly have maturities of less than
one year with the intent to make such funds readily available for operating
purposes. Please see the unaudited pro forma balance sheet that appears at the
end of this Management's Discussion and Analysis of Financial Condition and
Results of Operation.

      Net cash used by operating activities was $19.7 million for the twelve
months ended December 31, 2000. Net cash used by operating activities during
2000 was primarily attributable to net loss from operations. Net cash used in
operating activities was $63.0 million for the twelve months ended December 31,
1999. Net cash used in operating activities during 1999 was primarily
attributable to net losses from operations.

      Net cash used in investing activities was $41.7 million and $77.0 million
for the twelve months ended December 31, 2000 and 1999, respectively. Net cash
used in investing activities was primarily related to purchases of property and
equipment and, in the first half of 2000, to purchase convertible notes and
warrants in certain licensees and to purchase certain equity investments,
described more fully below.

      In February 2000, we made an equity investment of $5.0 million in Last
Minute.com, a U.K. based e-commerce company, and in December 1999, we made an
investment of $2.0 million in Lending Tree. In the fourth quarter 2000, we
incurred a $2.6 million loss on the sale of our holdings in LastMinute.com and
Lending Tree. We sold the substantial majority of our holdings in these two
companies during the fourth quarter 2000 and we intend to sell the remaining
holdings in the first quarter of 2001.

      In February 2000, we purchased a $3.6 million convertible secured note in
an affiliate of Alliance Capital Partners, pursuant to our agreement with
Alliance in connection with our financial services product.

      During the second quarter, we purchased convertible notes in the amounts
of $11.1 million and $6.7 million in Hutchison-Priceline Limited and Myprice
Pty. Ltd., respectively, pursuant to our agreements to develop our products in
certain Asian and Australian markets. In addition, we purchased a warrant in the
amount of $3.2 million from priceline.com europe Ltd. pursuant to our agreements
to develop our products in Europe. During the third


40


quarter 2000, we purchased a convertible note in priceline.com Auto Insurance
Agency, Inc. in the amount of $7.5 million. In the fourth quarter 2000, the
launch of Myprice was indefinitely postponed and we recorded a charge related to
the write-down to the estimated net realizable value of our loan to Myprice and,
in January 2001, we decided not to move forward with priceline.com Auto
Insurance Agency, Inc. and our $7.5 million was returned and the convertible
note cancelled.

      We have certain commitments for capital expenditures as part of our
ongoing business cycle. None of these commitments are material to our financial
position either individually or in the aggregate. Capital expenditures for 2001
are expected to be approximately $20 million and will be primarily focused on
computer equipment, software and internally developed software.

      Net cash provided by financing activities was $14.0 million for the twelve
months ended December 31, 2000, primarily as a result of cash inflow related to
the exercise of employee stock options. Net cash provided by financing
activities was $210.8 million for the twelve months ended December 31, 1999,
primarily as a result of proceeds from our initial public offering and secondary
offering. As discussed above, in February 2001, we received approximately $50.0
million from the sale of 23.8 million shares of common stock at a price of $2.10
per share.

      In the fourth quarter 2000, we received approximately $3.3 million in cash
from the repayment of a loan made to our Chairman in 1999.

      We believe that our existing cash balances and liquid resources will be
sufficient to fund our operating activities, capital expenditures and other
obligations through at least the next twelve months. However, if during that
period or thereafter, we are not successful in generating sufficient cash flow
from operations or in raising additional capital when required in sufficient
amounts and on terms acceptable to us, we may be required to reduce our planned
capital expenditures and scale back the scope of our business plan, either of
which could have a material adverse effect on our projected financial condition
or results of operation. We cannot assure you that we will generate sufficient
cash flow from operations in the future, that anticipated revenue growth will be
realized or that future borrowings or equity contributions will be available in
amounts sufficient to make anticipated capital expenditures or finance our
business plan.

Recent Accounting Pronouncements

      In July 1999, the FASB issued Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of Effective Date of FASB
No. 133". The Statement defers for one year the effective date of FASB Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities". The
rule now will apply to fiscal quarters of fiscal years beginning after June 15,
2000. In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" was issued. The statement will require the recognition of
all derivatives as either assets or liabilities in the balance sheet and the
measurement of those instruments at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of the derivative's change in fair value will be immediately
recognized in earnings. We believe the adoption of this statement will not have
a material impact on our results of operations, financial position or cash
flows.

      In September 2000, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 140, which replaces SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No.
125). It revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures,
but it carries over most of the provisions of SFAS No. 125 without
reconsideration. The remaining provisions of SFAS No. 140 are effective for
transactions occurring after March 15, 2001. We believe that the adoption of the
remaining provisions will not have a material effect on our financial condition
or results of operations.


41


                        Unaudited Pro Forma Balance Sheet

      The Unaudited Pro Forma Balance Sheet at December 31, 2000 presents our
financial position assuming that (a) the exchange of Series A Convertible
Redeemable PIK Preferred Stock for Series B Redeemable Preferred Stock and (b)
the issuance of approximately 23.8 million shares of our common stock at $2.10
per share, each of which are described in more detail in Recent Developments,
had each occurred on December 31, 2000.



                                                                          Actual                            Pro-forma
                                                                       December 31,        Pro-forma       December 31,
ASSETS                                                                     2000           Adjustments         2000
                                                                      (in thousands)     (in thousands)   (in thousands)
                                                                                                  
CURRENT ASSETS:
      Cash and cash equivalents                                        $    77,024       $    50,000(a)    $   127,024
      Restricted cash                                                       13,568                --            13,568
      Short-term investments                                                10,952                --            10,952
      Accounts receivable, net of allowance for doubtful accounts of
           $2,372 and $1,961 at December 31, 2000                           13,889                --            13,889
      Prepaid expenses and other current assets                             15,790                --            15,790
                                                                       -----------       -----------       -----------
           Total current assets                                            131,223            50,000           181,223
PROPERTY AND EQUIPMENT, net                                                 37,083                --            37,083
RELATED PARTY RECEIVABLE                                                     3,503                --             3,503
WARRANTS TO PURCHASE COMMON STOCK OF LICENSEES                               3,250                --             3,250
OTHER ASSETS                                                                20,019                --            20,019
                                                                       -----------       -----------       -----------
      TOTAL ASSETS                                                     $   195,078       $    50,000       $   245,078
                                                                       ===========       ===========       ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
      Accounts payable                                                 $    40,691       $        --       $    40,691
      Accrued expenses                                                      33,172                              33,172
      Other current liabilities                                              5,434                --             5,434
                                                                       -----------       -----------       -----------
           Total current liabilities                                        79,297                --            79,297
      Accrued expenses                                                       5,108                               5,108
                                                                       -----------       -----------       -----------
           Total liabilities                                                84,405                --            84,405

MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK                         359,580           (359,580)(b)           --
MANDATORILY REDEEMABLE PREFERRED STOCK                                          --            80,000(c)         80,000

STOCKHOLDERS' EQUITY/(DEFICIENCY)
      Common stock                                                           1,454               190(d)          1,644
      Treasury stock                                                      (326,633)               --          (326,633)
      Additional paid-in capital                                         1,618,956           329,390(e)      1,948,346
      Deferred compensation                                                (13,053)               --           (13,053)
      Accumulated other comprehensive loss                                  (1,156)               --            (1,156)
      Accumulated deficit                                               (1,528,475)               --        (1,528,475)
                                                                       -----------       -----------       -----------
           Total stockholders' equity/(deficiency)                        (248,907)          329,580            80,673
                                                                       -----------       -----------       -----------

      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                       $   195,078       $    50,000       $   245,078
                                                                       ===========       ===========       ===========


(a)   Excludes the payment of transaction fees of approximately $.6 million.
(b)   Gives effect to the exchange of 6 million shares of Series A Redeemable
      Convertible PIK Preferred Stock, liquidation preference $59.93 per share.
(c)   Gives effect to the issuance of 80,000 shares of Series B Redeemable
      Preferred Stock, liquidation preference $1,000.00 per share.
(d)   Gives effect to sale of 23.8 million shares of priceline.com common stock,
      par value $0.008 per share, to Hutchison Whampoa Limited and Cheung Kong
      (Holdings) Limited at $2.10 per share.
(e)   Gives effect to the net impact of transactions described in (b), (c), and
      (d) above.


42


Item 7A. Quantitative and Qualitative Disclosure About Market Risk

      Priceline.com currently has no floating rate indebtedness, holds no
derivative instruments other than through investments in licensees described in
this Annual Report on Form 10-K and does not earn significant foreign-sourced
income. Accordingly, changes in interest rates or currency exchange rates do not
generally have a direct effect on priceline.com's financial position. However,
changes in currency exchange rates may affect the cost of international airline
tickets and international hotel reservations offered through the priceline.com
service, and so indirectly affect consumer demand for such products and
priceline.com's revenue. In addition, to the extent that changes in interest
rates and currency exchange rates affect general economic conditions,
priceline.com would also be affected by such changes.

Item 8. Financial Statements and Supplementary Data

      The following financial statements of priceline.com and the independent
auditors' report are filed as part of this Annual Report on Form 10-K (See Item
14):

      Balance Sheets as of December 31, 2000 and December 31, 1999; Statements
of Operations, Changes in Stockholders' Equity and Cash Flows for the years
ended December 31, 2000, December 31, 1999 and December 31, 1998; Notes to
Financial Statements and Independent Auditors' Report.

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

      None.


43


                                    PART III

Item 10. Directors and Executive Officers of the Registrant

      Information regarding the Company's directors and executive officers and
compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended, required by Part III, Item 10, will be included in our Proxy Statement
relating to our annual meeting of stockholders to be filed with the Securities
and Exchange Commission within 120 days after the end of our fiscal year ended
December 31, 2000.

Item 11. Executive Compensation

      Information required by Part III, Item 11, will be included in our Proxy
Statement relating to our annual meeting of stockholders to be filed with the
Securities and Exchange Commission within 120 days after the end of our fiscal
year ended December 31, 2000.

Item 12. Security Ownership of Certain Beneficial Owners and Management

      Information required by Part III, Item 12, will be included in our Proxy
Statement relating to our annual meeting of stockholders to be filed with the
Securities and Exchange Commission within 120 days after the end of our fiscal
year ended December 31, 2000.

Item 13. Certain Relationships and Related Transactions

      Information regarding certain of our relationships and related
transactions will be included in our Proxy Statement relating to our annual
meeting of stockholders to be filed with the Securities and Exchange Commission
within 120 days after the end of our fiscal year ended December 31, 2000.


44


                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

      (a)   List of Documents Filed as a Part of this Annual Report on Form
            10-K:

      The following financial statements of priceline.com and the independent
auditors' report are filed as part of this Annual Report on Form 10-K.

      Balance Sheets as of December 31, 2000 and December 31, 1999; and the
related Statements of Operations, Changes in Stockholders' Equity and Cash Flows
for the years ended December 31, 2000, December 31, 1999, and December 31, 1998;
Notes to Financial Statements; and Independent Auditors' Report.

      (b)   Reports on Form 8-K:

      During the fourth quarter 2000, priceline.com filed Current Reports on
Form 8-K, dated November 6, 2000, November 22, 2000, December 8, 2000, December
19, 2000 and December 29, 2000.

      (c)   Exhibits

      The exhibits listed below are filed as a part of this Annual Report on
Form 10-K.

                                  EXHIBIT INDEX

  Exhibit Number              Description
  --------------              -----------

      2.1(a)            Agreement of Merger, dated as of July 31, 1998, between
                        priceline.com LLC and the Registrant.
      3.1(a)            Form of Amended and Restated Certificate of
                        Incorporation of the Registrant.
      3.2(a)            Form of By-Laws of the Registrant.
      4.1               Reference is hereby made to Exhibits 3.1 and 3.2.
      4.2(a)            Specimen Certificate for Registrant's Common Stock.
      4.3(a)            Amended and Restated Registration Rights Agreement,
                        dated as of December 8, 1998, among the Registrant and
                        certain stockholders of the Registrant.
      10.1.1(a)         1997 Omnibus Plan of the Registrant.
      10.1.2(a)         1999 Omnibus Plan of the Registrant.
      10.2(a)           Stock Purchase Agreement, dated July 31, 1998, among the
                        Registrant and the investors named therein, as amended.
      10.3(a)           Stock Purchase Agreement, dated as of December 8, 1998,
                        among the Registrant and the investors named therein, as
                        amended.
      10.4              Reference is hereby made to Exhibit 4.3.
      10.5(a)           Purchase and Intercompany Services Agreement, dated
                        April 6, 1998, among the Registrant, Walker Asset
                        Management Limited Partnership, Walker Digital
                        Corporation and Priceline Travel, Inc.
      10.6.1(a)         Employment Agreement, dated as of January 1, 1998,
                        between Jay S. Walker, Walker Digital Corporation, the
                        Registrant and Jesse M. Fink.
      10.6.2(a)         Amendment No. 1 to Employment Agreement, dated November
                        16, 1998 between the Registrant and Jesse M. Fink.
      10.7.1(a)         Employment Agreement, dated as of July 23, 1998, between
                        the Registrant and Timothy G. Brier.
      10.7.2(a)         Amendment No. 1 to Employment Agreement, dated November
                        16, 1998, between the Registrant and Timothy G. Brier.
      10.8(a)           Amended and Restated Employment Agreement, dated as of
                        August 15, 1998, by and between the Registrant and
                        Richard S. Braddock.
      10.9(a)           Airline Participation Agreement, dated April 1998, by
                        and among the Registrant, Priceline Travel, Inc. and
                        Trans World Airlines, Inc.


45


      10.10(a)+         Airline Participation Agreement, dated October 2, 1998,
                        by and among the Registrant, Priceline Travel, Inc. and
                        Northwest Airlines, Inc.
      10.11.1(a)+       General Agreement, dated August 31, 1998, by and among
                        the Registrant, Priceline Travel, Inc. and Delta Air
                        Lines, Inc.
      10.11.2(a)+       Airline Participation Agreement, dated August 31, 1998,
                        by and among the Registrant, Priceline Travel, Inc. and
                        Delta Air Lines, Inc.
      10.11.3(a)+       Amendment to the Airline Participation Agreement and the
                        General Agreement, dated December 31, 1998, between and
                        among the Registrant, Priceline Travel, Inc. and Delta
                        Air Lines, Inc.
      10.11.4(c)        Letter Agreement, dated July 16, 1999, between the
                        Registrant and Delta Air Lines, Inc.
      10.11.5(e)        Master Agreement, dated November 17, 1999, between the
                        Registrant and Delta Air Lines, Inc.
      10.11.6(e)        Amendment to the Airline Participation Agreement and the
                        General Agreement, dated November 17, 1999, by and among
                        the Registrant, Priceline Travel, Inc. and Delta Air
                        Lines, Inc.
      10.11.7+          Participation Warrant Agreement, dated as of November
                        17, 1999, between the Registrant and Delta Air Lines,
                        Inc.
      10.12(a)+         Airline Participation Agreement, dated December 31,
                        1998, by and among the Registrant, Priceline Travel,
                        Inc. and America West Airlines.
      10.13(a)+         Internet Marketing and Licensing Agreement, as of August
                        1, 1998, between the Registrant and LendingTree, Inc.
      10.14(a)          Systems Access Agreement, dated as of August 4, 1997,
                        between the Registrant and WORLDPAN, L.P.
      10.15(a)          Master Agreement for Outsourcing Call Center Support,
                        dated as of April 6, 1998, between the Registrant and
                        CALLTECH Communications, Incorporated.
      10.16(a)          Form of Participation Warrant Agreement.
      10.17.1(a)+       Participation Warrant Agreement, dated as of December
                        31, 1998.
      10.17.2(a)+       Amendment No. 1, dated as of February 4, 1999, to
                        Warrant Participation Agreement, dated as of December
                        31, 1999.
      10.17.3(a)+       Amendment No. 2, dated as of March 3, 1999, to
                        Participation Warrant Agreement, dated as of December
                        31, 1998, as previously amended to Amendment No. 1 to
                        Warrant Participation Agreement, dated as of February 4,
                        1999.
      10.18(c)          Employment Agreement, dated as of June 14, 1999, between
                        the Registrant and Daniel H. Schulman.
      10.19.1(c)        Airline Participation Agreement, dated July 16, 1999,
                        between the Registrant and Continental Airlines, Inc.
      10.19.2(c)        Participation Warrant Agreement, dated July 16, 1999,
                        between the Registrant and Continental Airlines, Inc.
      10.19.3(e)        First Amendment to Participation Warrant Agreement,
                        dated as of November 17, 1999, by and between the
                        Registrant and Continental Airlines, Inc.
      10.19.4+          Participation Warrant Agreement, dated November 17,
                        1999, between the Registrant and Continental Airlines,
                        Inc.
      10.20(d)          License Agreement, dated July 20, 1999 between Walker
                        Digital Corporation and the Registrant.
      10.21(e)          Sublease, dated October 1999, between Oxford Health
                        Plans, Inc., as Sub-Landlord, and the Registrant, as
                        Sub-Tenant, and Agreement of Lease, dated June 16, 1993,
                        as amended, between Prudential Insurance Company of
                        America, as Landlord, and Oxford Health Plans, Inc., as
                        Tenant.
      10.22.1(e)        Securityholders' Agreement, dated as of October 26,
                        1999, among the Registrant, Priceline WebHouse Club,
                        Inc., Walker Digital, LLC and the Investors signatory
                        thereto.
      10.22.2+          Intellectual Property License Agreement, dated as of
                        October 26, 1999, between the Registrant and Priceline
                        WebHouse Club, Inc.
      10.22.3+          Marketing and Technical Services Agreement, dated as of
                        October 26, 1999, between the Registrant and Priceline
                        WebHouse Club, Inc.
      10.22.4+          Warrant Agreement, dated as of October 26, 1999, between
                        the Registrant and Priceline WebHouse Club, Inc.
      10.22.5+          Services Agreement, dated as of October 26, 1999,
                        between the Registrant and Priceline WebHouse Club, Inc.
      10.23.1+          Airline Participation Agreement, dated as of November
                        15, 1999, by and between the Registrant and United Air
                        Lines, Inc.
      10.23.2+          Participation Warrant Agreement, dated as of November
                        15, 1999, by and between the Registrant and United Air
                        Lines, Inc.
      10.24.1+          Airline Participation Agreement, dated as of November
                        17, 1999, by and between the Registrant and US Airways,
                        Inc.
      10.24.2+          Participation Warrant Agreement, dated as of November
                        17, 1999, by and between the Registrant and US Airways,
                        Inc.
      10.25.1+          Airline Participation Agreement, dated as of November
                        17, 1999, by and between the Registrant and American
                        Airlines, Inc.
      10.25.2+          Participation Warrant Agreement, dated as of November
                        17, 1999, by and between the Registrant and American


46


                        Airlines, Inc.
      10.26+            Participation Warrant Agreement, dated as of November
                        17, 1999, by and between the Registrant and Trans World
                        Airlines, Inc.
      10.27+            Participation Warrant Agreement, dated as of November
                        17, 1999, by and between the Registrant and Northwest
                        Airlines, Inc.
      10.28+            Participation Warrant Agreement, dated as of November
                        17, 1999, by and between the Registrant and America West
                        Airlines
      10.29(e)          Continuing Employment Agreement, dated as of December
                        16, 1999, between the Registrant and Melissa M. Taub.
      10.30(f)          Employment Agreement, dated December 3, 1999, between
                        the Registrant and Michael McCadden.
      10.31(f)          Employment Agreement, dated December 30, 1999 between
                        the Registrant and Jeffery H. Boyd.
      10.32(f)          Employment Agreement, dated February 18, 2000, between
                        the Registrant and Heidi G. Miller.
      10.33(f)          Promissory Note, dated February 10, 2000 between Jeffery
                        H. Boyd and the Registrant.
      10.34(f)          Amendment to Promissory Note, dated March 28, 2000,
                        between Jeffery H. Boyd and the Registrant.
      10.35(f)          Promissory Note, dated March 7, 2000, between Heidi G.
                        Miller and the Registrant.
      10.36(f)          Stock Option Agreement, dated February 18, 2000, by and
                        between the Registrant and Heidi G. Miller.
      10.37(f)          Amendment to Promissory Note, dated March 28, 2000,
                        between Daniel H. Schulman and the Registrant.
      10.38(f)          Amendment Number One to the Priceline.com Incorporated
                        1999 Omnibus Plan.
      10.39(f)+         Formation and Funding Agreement, dated as of March 17,
                        2000, by and between the Registrant and Alliance
                        Partners, LP.
      10.40(g)          Certificate of Designation, Preferences and Rights of
                        Series A Convertible Redeemable PIK Preferred Stock of
                        priceline.com Incorporated.
      10.41(g)          priceline.com Incorporated 1999 Omnibus Plan, as
                        amended.
      10.42(g)          Amended and Restated Promissory Note, dated May 18,
                        2000, between priceline.com Incorporated and Daniel H.
                        Schulman.
      10.43(g)          Amendment to Employment Agreement, dated June 12, 2000,
                        between priceline.com Incorporated and Richard Braddock
      10.44(g)          Lease, dated as of May 1, 2000, between the parties
                        listed therein, as Landlord and priceline.com
                        Incorporated, as Tenant.
      10.45(g)          Convertible Note, dated June 27, 2000, between
                        Hutchison-Priceline Limited, as obligor, and PCLN Asia,
                        Inc., as holder.
      10.46(h)          Amended and Restated Promissory Note, dated August 21,
                        2000, between priceline.com Incorporated and Heidi
                        Miller.
      10.47(h)          Amendment Employment Agreement, dated August 21, 2000,
                        between priceline.com Incorporated and Heidi Miller.
      10.48(h)          Second Amended and Restate Promissory Note, dated August
                        21, 2000, between priceline.com Incorporated and Jeffery
                        H. Boyd.
      10.49(h)          Amendment to Offer Letter, dated August 21, 2000,
                        between priceline.com Incorporated and Jeffery H. Boyd.
      10.50(h)          Second Amended and Restated Promissory Note, dated
                        August 21, 2000, between priceline.com Incorporated and
                        Daniel H. Schulman.
      10.51(h)          Amendment to Employment Agreement, dated August 21,
                        2000, between priceline.com Incorporated and Daniel H.
                        Schulman.
      10.52(i)          Certificate of Designation, Preferences and Rights of
                        Series B Redeemable Preferred Stock of priceline.com
                        Incorporated.
      10.53(i)          Warrant Agreement, dated February 6, 2001, by and
                        between priceline.com Incorporated and Delta Air Lines,
                        Inc.
      10.54(i)          Stockholder Agreement, dated February 6, 2001, between
                        priceline.com Incorporated and Delta Air Lines, Inc.
      10.55(j)          Priceline.com 2000 Employee Stock Option Plan.
      10.56(j)          Agreement, dated November 20, 2000, between
                        priceline.com Incorporated and Robert Mylod.
      10.57(k)          Stock Purchase Agreement, dated as of February 15, 2001,
                        among priceline.com Incorporated, Prime Pro Group
                        Limited and Forthcoming Era Limited.
      10.58(k)          Registration Rights Agreement, dated as of February 15,
                        2001, among priceline.com Incorporated, Prime Pro Group
                        Limited and Forthcoming Era Limited.

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


47


      10.59             Amended and Restated Employment Agreement, dated
                        December 20, 2000, by and between priceline.com
                        Incorporated and Daniel H. Schulman.
      10.60             Promissory Note, Dated July 2, 1999, by and between
                        priceline.com Incorporated and Daniel H. Schulman.
      10.61             Amended and Restated Employment Agreement, dated
                        November 20, 2000, by and between priceline.com
                        Incorporated and Jeffery H. Boyd.
      10.62             Employment Agreement, dated November 20, 2000, by and
                        between priceline.com Incorporated and Robert Mylod.
      10.63             Employment Agreement, dated November 20, 2000, by and
                        between priceline.com Incorporated and Michael McCadden.
      10.64             Employment Agreement, dated December 20, 2000, by and
                        between priceline.com Incorporated and Ronald Rose.
      10.65             Amended Participation Warrant Agreement, dated November
                        2, 2000, by and between priceline.com Incorporated and
                        Delta Air Lines, Inc.
     23.1              Consent of Deloitte & Touche LLP.

----------
(a)   Previously filed as an exhibit to the Form S-1 (Registration No.
      333-69657) filed in connection with priceline.com's initial public
      offering and incorporated herein by reference.
(b)   Previously filed as an exhibit to the Form 10-Q filed on May 17, 1999 and
      incorporated herein by reference.
(c)   Previously filed as an exhibit to the Form S-1 (Registration No.
      333-83513) filed in connection with priceline.com's secondary public
      offering and incorporated herein by reference.
(d)   Previously filed as an exhibit to the Form 10-Q for the quarterly period
      ended September 30, 1999.
(e)   Previously filed as an exhibit to the Form 10-K for the year ended
      December 31, 1999.
(f)   Previously filed as an exhibit to the Form 10-Q for the quarterly period
      ended March 31, 2000.
(g)   Previously filed as an exhibit to the Form 10-Q for the quarterly period
      ended June 30, 2000.
(h)   Previously filed as an exhibit to the Form 10-Q for the quarterly period
      ended September 30, 2000.
(i)   Previously filed as an exhibit to the Form 8-K filed on February 8, 2001.
(j)   Previously filed as an exhibit to the Form S-8 filed on February 14, 2001.
(k)   Previously filed as an exhibit to the Form 8-K filed on February 20, 2001.
+     Certain portions of this document have been omitted pursuant to a
      confidential treatment request.


48


                                   Signatures

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        PRICELINE.COM INCORPORATED


                                        By: /s/ Daniel H. Schulman
                                            ------------------------------------

                                            Name: Daniel H. Schulman
                                            Title: Chief Executive Officer
                                            Date: March 28, 2001

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

  Signature                             Title                          Date
  ---------                             -----                          ----


  /s/ Richard S. Braddock    Chairman                             March 28, 2001
-------------------------
  Richard S. Braddock


  /s/ Daniel H. Schulman     President, Chief Executive           March 28, 2001
-------------------------    Officer and Director (Principal
  Daniel H. Schulman         Executive Officer)


  /s/ Thomas P. D'Angelo     Senior Vice President, Finance       March 28, 2001
-------------------------    and Controller
  Thomas P. D'Angelo         (Principal Accounting Officer)


  /s/ Robert Mylod           Chief Financial Officer              March 28, 2001
-------------------------
  Robert Mylod


  /s/ Paul A. Allaire        Director                             March 28, 2001
-------------------------
  Paul A. Allaire


  /s/ Ralph M. Bahna         Director                             March 28, 2001
-------------------------
  Ralph M. Bahna


  /s/ Paul J. Blackney       Director                             March 28, 2001
-------------------------
  Paul J. Blackney


  /s/ William E. Ford        Director                             March 28, 2001
-------------------------
  William E. Ford


49


  Signature                             Title                          Date
  ---------                             -----                          ----


  /s/ Marshall Loeb          Director                             March 28, 2001
-------------------------
  Marshall Loeb


  /s/ N. J. Nicholas, Jr.    Director                             March 28, 2001
-------------------------
  N. J. Nicholas, Jr.


  /s/ Nancy B. Peretsman     Director                             March 28, 2001
-------------------------
  Nancy B. Peretsman


  /s/ Ian F. Wade            Director                             March 28, 2001
-------------------------
  Ian F. Wade


50


                           PRICELINE.COM INCORPORATED
                          INDEX TO FINANCIAL STATEMENTS
                                                                        Page No.
                                                                        --------

Independent Auditor's Report.                                              52

Balance Sheets for the years ended December 31, 2000 and                   53
December 31, 1999

Statements of Operations for the years ended December 31, 2000,            54
December 31, 1999 and December 31, 1998

Statements of Changes in Stockholders' Equity for the years ended          55
December 31, 2000, December 31, 1999 and December 31, 1998

Statements of Cash Flows for the years ended December 31,2000,             56
December 31, 1999 and December 31, 1998

Notes to Financial Statements                                              57


51


                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
priceline.com Incorporated

      We have audited the accompanying balance sheets of priceline.com
Incorporated (the "Company") as of December 31, 2000 and 1999, and the related
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2000 and
1999, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.


/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
Stamford, Connecticut
February 15, 2001


52


                           priceline.com Incorporated
                                 BALANCE SHEETS
                                 (In thousands)



                                                                                 December 31,
                                                                       -----------------------------
                                                                          2000              1999
                                                                       -----------       -----------
                                                                                   
ASSETS
Current assets:
  Cash and cash equivalents .......................................    $    77,024       $   124,383
  Restricted cash .................................................         13,568             8,789
  Short-term investments ..........................................         10,952            38,771
  Accounts receivable, net of allowance for doubtful accounts of
    $2,372 and $1,961 at December 31, 2000 and 1999, respectively .         13,889            21,289
  Prepaid expenses and other current assets .......................         15,790            18,507
                                                                       -----------       -----------

    Total current assets ..........................................        131,223           211,739
Property and equipment, net .......................................         37,083            28,006
Related party receivable ..........................................          3,503             8,838
Warrants to purchase common stock of licensees ....................          3,250           189,000
Other assets ......................................................         20,019             4,303
                                                                       -----------       -----------
    Total assets ..................................................    $   195,078       $   441,886
                                                                       ===========       ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable ................................................    $    40,691       $    24,302
  Accrued expenses ................................................         33,172            13,695
  Other current liabilities .......................................          5,434             1,253
                                                                       -----------       -----------
    Total current liabilities .....................................         79,297            39,250
 Accrued expenses .................................................          5,108
                                                                       -----------       -----------
    Total liabilities .............................................         84,405            39,250

MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK ................        359,580                --

Stockholders' equity:
Common stock, $0.008 par value, authorized 1,000,000,000 shares,
  181,798,204 and 163,866,912 issued, respectively ................          1,454             1,311
Treasury stock, 5,450,236 shares ..................................       (326,633)               --
Additional paid-in capital ........................................      1,618,956         1,581,708
Deferred compensation .............................................        (13,053)               --
Accumulated other comprehensive loss ..............................         (1,156)               --
Accumulated deficit ...............................................     (1,528,475)       (1,180,383)
                                                                       -----------       -----------
Total stockholders' equity ........................................       (248,907)          402,636
                                                                       -----------       -----------

    Total liabilities and stockholders' equity ....................    $   195,078       $   441,886
                                                                       ===========       ===========


See notes to financial statements.


53


                           priceline.com Incorporated
                            STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)



                                                                              Years Ended December 31,
                                                                  ---------------------------------------------
                                                                      2000              1999            1998
                                                                  -----------       -----------       ---------
                                                                                             
Travel revenues ............................................      $ 1,217,160       $   480,979       $  35,224
Other revenues .............................................           18,236             1,431              13
                                                                  -----------       -----------       ---------
  Total Revenues ...........................................        1,235,396           482,410          35,237

Cost of travel revenues ....................................        1,038,783           423,056          33,496
Cost of other revenues .....................................            2,921                --              --
Supplier warrant costs .....................................            1,523             1,523           3,029
                                                                  -----------       -----------       ---------
  Total costs of revenues ..................................        1,043,227           424,579          36,525
                                                                  -----------       -----------       ---------

Gross profit (loss) ........................................          192,169            57,831          (1,288)
                                                                  -----------       -----------       ---------

Operating expenses:
  Sales and marketing ......................................          148,133            79,577          24,388
  General and administrative (including $8,788 and $1,812 of
    option payroll taxes in 2000 and 1999) .................           62,693            27,609          18,004
  Systems and business development .........................           39,192            14,023          11,132
  Special charge ...........................................           34,824                --              --
  Restructuring charge .....................................           32,006                --              --
  Warrant costs, net .......................................            8,595           998,832          57,979
  Write-off of WebHouse warrant ............................          189,000                --              --
                                                                  -----------       -----------       ---------
   Total operating expenses ................................          514,443         1,120,041         111,503
                                                                  -----------       -----------       ---------

Operating loss .............................................         (322,274)       (1,062,210)       (112,791)
Other income (expense):
      Loss on sale of equity investment ....................           (2,558)               --              --
      Interest income ......................................            9,687             7,501             548
      Other expense ........................................               --              (381)             --
                                                                  -----------       -----------       ---------
       Total other income (expense) ........................            7,129             7,120             548
                                                                  -----------       -----------       ---------

Net loss ...................................................         (315,145)       (1,055,090)       (112,243)
Preferred stock dividend ...................................          (14,382)               --              --
Accretion on preferred stock ...............................               --            (8,354)         (2,183)
                                                                  -----------       -----------       ---------
Net loss applicable to common stockholders .................      $  (329,527)      $(1,063,444)      $(114,426)
                                                                  ===========       ===========       =========

Net loss applicable to common stockholders per
  basic and diluted common share ...........................      $     (1.97)      $     (7.90)      $   (1.41)
                                                                  ===========       ===========       =========

Weighted average number of basic and diluted
  common shares outstanding ................................          166,952           134,622          81,231
                                                                  ===========       ===========       =========


See notes to financial statements.


54


                           priceline.com Incorporated
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (In thousands)



                                                          Preferred Stock              Common Stock           Additional
                                                    ------------------------------------------------------      Paid-in
                                                       Shares         Amount         Shares        Amount       Capital
                                                    ---------------------------------------------------------------------
                                                                                               
Balance, January 1, 1998 ........................            --    $        --         51,670   $       413   $       843
Issuance of common stock and
  common stock subscriptions ....................                                      41,555           333        32,663
Issuance of Series A convertible
  preferred stock ...............................        17,289            173                                     19,827
Issuance of Series B convertible
  preferred stock ...............................        13,837            138                                     54,276
Accretion on preferred stock ....................                                                                   2,183
Issuance of options to purchase
  common stock ..................................                                                                     245
Issuance of warrants to purchase
  common stock ..................................                                                                  61,121
Net loss ........................................
                                                    ---------------------------------------------------------------------

Balance, December 31, 1998 ......................        31,126    $       311         93,225   $       746   $   171,158
Conversion of Series A convertible
  preferred stock ...............................       (17,289)          (173)        21,611           173
Conversion of Series B convertible
  preferred stock ...............................       (13,837)          (138)        17,297           138
Accretion on preferred stock ....................                                                                   8,354
Issuance of common stock ........................                                      11,000            88       208,329
Exercise of options and warrants ................                                      20,734           166         3,233
Issuance of warrants to purchase common stock ...                                                               1,190,634
Net loss ........................................
                                                    ---------------------------------------------------------------------

Balance, December 31, 1999 ......................            --    $        --        163,867   $     1,311   $ 1,581,708

Net loss applicable to common shareholders ......
Unrealized loss on investments ..................

    Total comprehensive loss ....................

Exchange of common stock for Series A mandatorily
  redeemable Preferred Stock ....................
Issuance of common stock under deferred
  compensation plans ............................                                       7,450            60        14,705
Amortization of deferred compensation ...........
Exercise of options and warrants ................                                      10,481            83        13,948
Warrants to purchase common stock ...............                                                                   8,595
Common stock dividends on series A
 mandatorily redeemable preferred stock .........
                                                    ---------------------------------------------------------------------

Balance, December 31, 2000 ......................            --             --        181,798         1,454   $ 1,618,956
                                                    ===========    ===========    ===========   ===========   ===========


                                                                   Accumulated
                                                                      Other              Treasury Stock
                                                     Accumulated   Comprehensive   --------------------------
                                                       Deficit        Loss            Shares         Amount
                                                    ----------------------------------------------------------
                                                                                        
Balance, January 1, 1998 ........................   $      (2,513)  $        --             --      $      --
Issuance of common stock and
  common stock subscriptions ....................
Issuance of Series A convertible
  preferred stock ...............................
Issuance of Series B convertible
  preferred stock ...............................
Accretion on preferred stock ....................          (2,183)
Issuance of options to purchase
  common stock ..................................
Issuance of warrants to purchase
  common stock ..................................
Issuance of warrants to purchase common stock ...
Net loss ........................................        (112,243)
                                                    ----------------------------------------------------------

Balance, December 31, 1998 ......................   $     (116,939) $        --             --      $      --
Conversion of Series A convertible
  preferred stock ...............................
Conversion of Series B convertible
  preferred stock ...............................
Accretion on preferred stock ....................          (8,354)
Issuance of common stock ........................
Exercise of options and warrants ................
Issuance of warrants to purchase common stock ...
Net loss ........................................      (1,055,090)
                                                    ----------------------------------------------------------

Balance, December 31, 1999 ......................   $  (1,180,383)  $        --             --      $      --

Net loss applicable to common shareholders ......        (329,527)
Unrealized loss on investments ..................                        (1,156)

    Total comprehensive loss ....................

Exchange of common stock for Series A mandatorily
  redeemable Preferred Stock ....................                                       (6,000)      (359,580)
Issuance of common stock under deferred
  compensation plans ............................
Amortization of deferred compensation ...........
Exercise of options and warrants ................
Warrants to purchase common stock ...............
Common stock dividends on series A
 mandatorily redeemable preferred stock .........         (18,565)                         550         32,947
                                                    ----------------------------------------------------------

Balance, December 31, 2000 ......................   $  (1,528,475)  $    (1,156)        (5,450)      (326,633)
                                                    =============   ===========    ===========    ===========



                                                     Deferred
                                                    Compensation       Total
                                                    ---------------------------
                                                                 
Balance, January 1, 1998 ........................   $        --     $    (1,257)
Issuance of common stock and
  common stock subscriptions ....................                        32,996
Issuance of Series A convertible
  preferred stock ...............................                        20,000
Issuance of Series B convertible
  preferred stock ...............................                        54,414
Accretion on preferred stock ....................
Issuance of options to purchase
  common stock ..................................                           245
Issuance of warrants to purchase
  common stock ..................................                        61,121
Net loss ........................................                      (112,243)
                                                    ---------------------------

Balance, December 31, 1998 ......................   $        --      $    55,276
Conversion of Series A convertible
  preferred stock ...............................                             --
Conversion of Series B convertible
  preferred stock ...............................                             --
Accretion on preferred stock ....................                             --
Issuance of common stock ........................                       208,417
Exercise of options and warrants ................                         3,399
Issuance of warrants to purchase common stock ...                     1,190,634
Net loss ........................................                    (1,055,090)
                                                    ---------------------------

Balance, December 31, 1999 ......................   $        --     $   402,636

Net loss applicable to common shareholders ......                      (329,527)
Unrealized loss on investments ..................                        (1,156)
                                                                    -----------
    Total comprehensive loss ....................                      (330,683)

Exchange of common stock for Series A mandatorily
  redeemable Preferred Stock ....................                      (359,580)
Issuance of common stock under deferred
  compensation plans ............................       (14,765)             --
Amortization of deferred compensation ...........         1,712           1,712
Exercise of options and warrants ................                        14,031
Warrants to purchase common stock ...............                         8,595
Common stock dividends on series A
 mandatorily redeemable preferred stock .........                        14,382
                                                    ---------------------------

Balance, December 31, 2000 ......................   $   (13,053)       (248,907)
                                                    ===========     ===========


See notes to financial statements.


55


                           priceline.com Incorporated
                            STATEMENTS OF CASH FLOWS
                                 (In thousands)



                                                                   Year ended      Year ended      Year ended
                                                                   December 31,    December 31,    December 31,
                                                                   --------------------------------------------
                                                                      2000             1999            1998
                                                                   --------------------------------------------
                                                                                            
OPERATING ACTIVITIES:
Net loss ....................................................      $(315,145)      $(1,055,090)      $(112,243)
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Depreciation and amortization .............................         17,385             5,348           1,860
  Provision for uncollectible accounts ......................          7,354             3,127             581
  Warrant costs .............................................          8,595         1,189,111          67,866
  Webhouse warrant ..........................................        189,000          (189,000)             --
  Net loss on disposal of fixed assets ......................         12,398                --              --
  Net loss on sale of equity investments ....................          2,558                --              --
  Asset impairment ..........................................          4,886                --              --
   Compensation expense arising from deferred stock awards ..          1,711                --              --
  Changes in assets and liabilities:
    Accounts receivable .....................................          7,401           (29,617)         (4,757)
    Prepaid expenses and other current assets ...............          1,194           (12,043)         (1,922)
    Related party receivables ...............................         (3,484)               --              --
    Accounts payable and accrued expenses ...................         45,155            28,470           8,300
    Other ...................................................          1,276            (3,331)            112
                                                                   -------------------------------------------
  Net cash used in operating activities .....................        (19,716)          (63,025)        (40,203)
                                                                   -------------------------------------------

INVESTING ACTIVITIES:
  Additions to property and equipment .......................        (37,320)          (27,416)         (6,607)
  Purchase of convertible notes and warrants of licencees ...        (25,676)           (2,000)
  Proceeds from sales/maturities of investments .............         31,101                --              --
  Funding of restricted cash and bank certificate of deposits         (4,779)           (8,789)           (680)
  Investment in marketable securities .......................         (5,000)          (38,771)
                                                                   -------------------------------------------
  Net cash used in investing activities .....................        (41,674)          (76,976)         (7,287)
                                                                   -------------------------------------------

FINANCING ACTIVITIES:
  Related party payable .....................................             --                --          (1,072)
  Issuance of long-term debt ................................             --                --           1,000
  Payment of long-term debt .................................             --            (1,000)
  Principal payments under capital lease obligations ........             --               (25)            (22)
  Issuance of common stock and subscription units ...........         14,031           211,816          26,495
  Payment received on stockholder note ......................             --                --             250
  Issuance of Series A convertible preferred stock ..........             --                --          20,000
  Issuance of Series B convertible preferred stock ..........             --                --          54,415
                                                                   -------------------------------------------
  Net cash provided by financing activities .................         14,031           210,791         101,066
                                                                   -------------------------------------------

NET INCREASE IN CASH AND CASH EQUIVALENTS ...................        (47,359)           70,790          53,576
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..............        124,383            53,593              17
                                                                   -------------------------------------------

CASH AND CASH EQUIVALENTS, END OF PERIOD ....................      $  77,024       $   124,383       $  53,593
                                                                   ===========================================

SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid during the period for interest ..................      $       4       $        37       $      61
                                                                   ===========================================


See notes to financial statements.


56


                          NOTES TO FINANCIAL STATEMENTS

1.    BUSINESS DESCRIPTION

      Priceline.com Incorporated ("priceline.com", or the "Company") has
pioneered a unique e-commerce pricing system known as a "demand collection
system" that enables consumers to use the Internet to save money on a range of
products and services while enabling sellers to generate incremental revenue.
Using a simple and compelling consumer proposition - Name Your Own Price(sm) -
priceline.com collects consumer demand, in the form of individual customer
offers, for a particular product or service at a price set by the customer. The
Company then either communicates that demand directly to sellers or accesses a
proprietary database of inventory available to the Company for purchase and,
based upon the customer's offer price, elects whether or not to accept that
customer offer. Consumers agree to hold their offers open for a specified period
of time and, once fulfilled, offers generally cannot be canceled. The Company
benefits consumers by enabling them to save money, while at the same time
benefiting sellers by providing them with an effective revenue management tool
capable of identifying and capturing incremental revenues. By requiring
consumers to be flexible with respect to brands, sellers and product features,
priceline.com enables sellers to generate incremental revenue without disrupting
their existing distribution channels or retail pricing structures.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of Presentation -- The financial statements for all periods
presented include the financial statements of priceline.com and Priceline
Travel. On March 24, 1999, priceline.com exercised its call option to purchase
Priceline Travel for nominal consideration and Priceline Travel was merged into
priceline.com. All significant inter-company transactions have been eliminated.

      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 reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

      Fair Value of Financial Instruments -- The Company's financial
instruments, including cash and cash equivalents, accounts receivable-net and
accounts payable, are carried at cost which approximates their fair value
because of the short-term maturity of these financial instruments. The Company's
investment in Lending Tree, Inc. was valued at market at December 31, 2000, and
at cost at December 31, 1999, since there was no market in 1999 for the
securities. The carrying value of the capital lease obligations and long-term
debt approximates fair value because the interest rates on these obligations are
comparable to the interest rates that could have been obtained at the dates of
the respective balance sheets.

      Cash and Cash Equivalents, and Short-term Investments -- The Company
invests excess cash primarily in money market accounts, certificates of
deposits, and short-term commercial paper. All highly liquid instruments with an
original maturity of three months or less are considered cash equivalents.
Investments in equity securities are classified as available for sale and are
recorded at fair value with any unrealized holding gains or losses, net of tax,
included as a component of other comprehensive income.

      Restricted Cash -- Restricted cash collateralizes letters of credit issued
in favor of certain suppliers and landlords. The letters of credit expire
between April through December of 2001 and are generally subject to automatic
renewal upon expiration of the letter of credit.

      Property and Equipment -- Property and equipment are stated at cost.
Depreciation and amortization of property and equipment is computed on a
straight-line basis over the estimated useful lives of the assets or, when
applicable, the life of the lease, whichever is shorter.


57


      Impairment of Long-Lived Assets -- The Company evaluates the
recoverability of its long-lived assets in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash flows
attributable to such assets.

      Software Capitalization -- In 1999, the Company adopted Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." This standard requires certain direct development
costs associated with internal-use software to be capitalized including external
direct costs of material and services and payroll costs for employees devoting
time to the software projects. These costs are included in software and are
amortized over a period not to exceed three years beginning when the asset is
substantially ready for use. Costs incurred during the preliminary project
stage, as well as maintenance and training costs, are expensed as incurred.

      Revenues and Cost of Revenues -- Revenues and related costs are primarily
recognized, if and when, the Company accepts and fulfills the customer's offer.
The Company provides refunds and makes certain customer accommodations to
satisfy disputes and complaints. The Company accrues for such estimated losses
and classifies the resulting expense as an addition to the allowance for
doubtful accounts. Transaction revenue primarily represents the selling price of
airline tickets, hotel rooms, rental cars and long distance phone service. For
these transactions, the Company, among other things, establishes the price it
will accept, has total discretion in supplier selection, purchases and takes
title and is the merchant of record. The Company records as revenue the amount
received from the customer, net of taxes. The amount that the Company pays the
respective airline, hotel, rental car company or long distance provider is
recorded as a cost of revenue.

      Fixed fee or commission revenues primarily represent revenues primarily
derived from home financing, travel insurance and automobile sales. For those
transactions, where the Company receives either a percentage of the transaction
or a fixed fee, revenues are recorded net.

      As part of the travel transaction, the Company also generated revenues
through adaptive marketing programs with third parties that pay the Company fees
for marketing their customer acquisition programs. Additionally, the Company
generates revenues from third party sources, including a customer processing fee
for airline, hotel and rental car services, and ancillary reservation booking
fees from the Worldspan reservation system for booking of airline flight
segments and hotel reservations through the Worldspan system. Consumer
processing fees are payable to the Company and recognized as revenue upon
completion of successful transactions. Licensing and royalty fees are recognized
as earned.

      Sales and Marketing -- Sales and marketing expenses are comprised
primarily of costs of radio and newspaper advertising, costs of the third-party
call center, credit card processing fees, provisions for customer accommodations
and charge-backs, and compensation for the Company's sales and marketing
personnel. All sales and marketing costs are expensed as incurred.

      Systems and Business Development -- Systems and business development
expenses are comprised primarily of compensation to the Company's information
systems and product development staff and payments to outside contractors, data
communications and other expenses associated with operating the Company's Web
site, depreciation on computer hardware and licensing fees for computer
software. Such costs are expensed as incurred.

      Equity-Based Compensation -- The Company accounts for stock-based employee
compensation arrangements in accordance with provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
complies with the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." Under APB Opinion No. 25, compensation expense is
based on the difference, if any, on the date of grant, between the fair value of
priceline.com's stock and the exercise price


58


of the option.

      The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable. The measurement date
of the fair value of the equity instrument issued is the earlier of the date on
which the counterparty's performance is complete or the date on which it is
probable that performance will occur.

      Income Taxes -- The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes," which requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
temporary difference between the financial statement and tax basis of assets and
liabilities using presently enacted tax rates in effect. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be realized.

      During the period that priceline.com operated as an LLC, it was treated
substantially as a partnership for tax purposes and, accordingly, the tax effect
of its activities accrued to its members through July 1998.

      Net Loss Per Share -- The Company computes basic and diluted earnings per
share in accordance with SFAS 128, "Earnings per Share". SFAS 128 requires the
Company to report both basic earnings per share, which is based on the weighted
average number of common shares outstanding, and diluted earnings per share,
which is based on the weighted average number of common shares outstanding and
all dilutive potential common shares outstanding. Since the Company incurred
losses for all periods presented, the inclusion of options in the calculation of
weighted average common shares is anti-dilutive; and therefore there is no
difference between basic and diluted earnings per share.

      Segment Reporting -- The Company operates and manages its business as a
single segment. The only significant discrete financial information, Revenues
and Gross Profit by Travel Services and Other, are disclosed in Note 3 in the
financial statements. All of the operations and identifiable assets are in the
United States.

      Reclassification -- Certain amounts in prior years' financial statements
have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements

      In July 1999, the Financial Accounting Standards Board ("FASB") issued
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of Effective Date of FASB No. 133". The Statement defers for
one year the effective date of FASB Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The rule now will apply to
fiscal quarters of fiscal years beginning after June 15, 2000. In June 1998,
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" was
issued. The statement will require the recognition of all derivatives as either
assets or liabilities in the balance sheet and the measurement of those
instruments at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of the
derivative's change in fair value will be immediately recognized in earnings.
Management believes the adoption of this statement will not have a


59


material impact on its results of operations, financial position or cash flow.

      Pending Accounting Pronouncements -- In September 2000, FASB issued SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" which replaces SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS No. 125"). It revises the standards for accounting for securitizations
and other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of the provisions of SFAS No. 125 without
reconsideration. The remaining provisions of SFAS No. 140 are effective for
transactions occurring after March 15, 2001. Management believes that the
adoption of the remaining provisions will not have a material effect on the
Company's financial condition or results of operations.

Business Risk -- Business risks include the following:

      Competition -- The markets for the products and services offered on the
priceline.com service are intensely competitive. The Company competes with both
traditional distribution channels and online services. The Company currently or
potentially competes with a variety of companies with respect to each product or
services offered. The Company potentially faces competition from a number of
large online services that have expertise in developing online commerce and in
facilitating Internet traffic. Many competitors have significant competitive
advantages. For example, airlines, hotels and other suppliers also sell their
products and services directly to consumers and have established Web sites.
Internet directories, search engines and large traditional retailers have
significantly greater operating histories, customer bases, technical expertise,
brand recognition and/or online commerce experience than the Company. In
addition, certain competitors may be able to devote significantly greater
resources to furthering their business.

      Dependence on Airline Industry and Certain Carriers -- The Company's near
term, and possibly long term, prospects are significantly dependent upon the
sale of leisure airline tickets. Sales of leisure airline tickets represented
approximately 80%, 85%, and 86% of total revenues for the years ended December
31, 2000, 1999 and 1998, respectively. As a result, currently the Company is
substantially dependent upon the continued participation of the airlines in the
priceline.com service in order to maintain and/or grow its revenues.
Significantly reducing the Company's dependence on the airlines is likely to
take a long period of time and there can be no guarantee that the Company will
succeed in reducing that dependence.

      Concentration of Credit Risk -- Financial instruments, which potentially
subject the Company to concentrations of credit risk, are principally bank
deposits and accounts receivable. Cash and cash equivalents and marketable
securities are deposited with high credit quality financial institutions.
Accounts receivable are derived from the revenues earned from customers in the
U.S. and are denominated in U.S. dollars. The Company maintains an allowance for
uncollectible accounts based upon the expected collectibility of accounts
receivable.

3.    REVENUES AND GROSS PROFIT (LOSS)

      Travel revenues represent transaction revenue for airline tickets, hotel
rooms, rental cars and ancillary fees, including adaptive marketing fees,
Worldspan segment fees, customer processing fees and travel insurance fees. The
fee portion of the travel transactions are an integral component in pricing
acceptance decisions the Company makes. Other revenues relates to transaction
revenue from long distance phone service and commissions and fees from home
financing and automobile services and certain licensees.


60


      Revenue and gross profit for the years ended December 31, 2000, 1999, and
1998 as follows (in thousands):

                                      2000              1999             1998
Revenue
  Travel                           $1,217,160        $ 480,979         $ 35,224
  Other                                18,236            1,431               13
                                   ----------        ---------         --------
                                   $1,235,396        $ 482,410         $ 35,237
                                   ==========        =========         ========

Gross profit (loss)
  Travel                           $  176,854        $  56,400         $ (1,301)
  Other                                15,315            1,431               13
                                   ----------        ---------         --------
                                   $  192,169        $  57,831         $ (1,288)
                                   ==========        =========         ========

4.    RESTRUCTURING AND SPECIAL CHARGES

      In 2000, the Company recorded restructuring charges of approximately $32.0
million and a special charge of approximately $34.8 million. The restructuring
charge resulted from the Company's review of its operations with the intention
of increasing efficiencies and refocusing its business principally on its core
travel products. As a result of this review, the Company primarily decided to
reduce its work force, consolidate its real estate and rationalize certain
international markets and potential product line offerings.

      Liabilities related to restructuring and special charges are included in
accounts payable ($1.6 million), short-term accrued expenses ($17.9 million) and
long-term accrued expenses ($5.1 million) and are summarized as follows (in
thousands):

                                        Restructuring     Special         Total

Charges requiring cash outlay              $16,297        $13,205        $29,502
Asset impairment charges                    15,709         21,619         37,328
                                           -------        -------        -------
                                           $32,006        $34,824        $66,830
                                           =======        =======        =======

Accrued at December 31, 2000               $13,470        $11,093        $24,563
                                           =======        =======        =======

Long-term portion                          $ 4,865        $   243        $ 5,108
                                           =======        =======        =======

Current portion                            $ 8,605        $10,850        $19,455
                                           =======        =======        =======

The components of the restructuring charges follow (in thousands):


61




                                                                  Expected To Be Paid In
                                                         ------------------------------------------
                              Charged in     Paid in                                        2004 and
                                 2000         2000        2001        2002        2003     Thereafter
                              ----------     -------     ------      ------      ------    ----------
                                                                           
Employee termination costs      $ 3,807      $1,167      $2,399      $  241      $   --      $   --

Real estate costs                 9,603         317       4,663       1,676       1,735       1,213

Asset impairments                17,474         809         955          --          --          --

Other                             1,122         534         588          --          --          --
                                -------      ------      ------      ------      ------      ------

                                $32,006      $2,827      $8,605      $1,917      $1,735      $1,213
                                =======      ======      ======      ======      ======      ======


      As a result of the restructuring, the Company's work force was reduced by
approximately 125 full-time employees. The employee termination costs primarily
represent severance. The real estate costs primarily represent the estimated net
lease expense related to space the Company has decided it no longer needs and
which it will not utilize in the future along with certain required
refurbishments to that space. As part of the restructuring, the Company chose to
abandon its plan to open a new network operations center in a new leased space.
This decision accounted for a significant portion of the real estate costs and a
portion of the asset impairment, as previously capitalized costs were written
off. The asset impairments are comprised of computer hardware and software costs
related to the Company's plans not to pursue certain potential product offerings
and activities, as well as abandoned equipment and software projects ($11.0
million). Asset impairments also includes costs related to the abandonment of
plans to participate in the establishment of a licensee in Japan ($3.1 million)
and other potential product offerings and intellectual property no longer to be
pursued in accordance with the Company's restructuring plan ($1.9 million).
Certain asset costs that were written off have yet to be paid. Other
restructuring charges include professional and other fees and costs incurred in
2000 associated with the restructuring activities.

The components of the special charge follow (in thousands):

                                                          Expected To Be Paid In
                                                          ----------------------
                              Charged in     Paid in
                                 2000          2000          2001         2002
                                -------       -------       -------       ----

Employee expenses               $14,482       $   142       $ 6,297       $  7

Asset impairments                17,107            --         1,373        236

Other                             3,235            55         3,180         --
                                -------       -------       -------       ----

                                $34,824       $   197       $10,850       $243
                                =======       =======       =======       ====

      Employee expenses primarily represent costs associated with retention
programs (retention through December 31, 2000) and the acceleration of employee
loan forgiveness of $8.0 million. During the fourth quarter, the Company
incurred $5.7 million of expense (paid in February 2001) related to employee
stay


62


bonuses. These bonuses were expensed over the stay period.

      Asset impairments consist primarily of the write-down to estimated net
realizable value of receivables (either loans or receivables that represented
reimbursable expenses that were incurred on the licensee's behalf as part of the
contractual arrangement) from independent licensees that ceased or significantly
restructured their operations during the fourth quarter, including approximately
$1.7 million related to WebHouse Club, $7.8 million related to Myprice pty., Ltd
(the Company's Australian licensee), and $1.1 million related to Perfect
Yardsale. Asset impairments also includes a charge of $6.3 million for the
unrecoverable reimbursable expenses due to the Company from Walker Digital in
connection with their contractual obligations to fund certain patent and
intellectual property litigation costs. Other includes amounts accrued for the
Company's estimated exposure for litigation related to shareholder lawsuits and
for other claims.

5.    SHORT-TERM INVESTMENTS

      At December 31, 2000 and 1999, the Company held short term instruments
which were classified as trading securities; accordingly, they are carried at
fair value on the balance sheet. Marketable securities at December 31, 2000
include the following (in thousands):

                                                 December 31,       December 31,
                                                    2000               1999
                                                 Fair Value         Fair Value
                                                 -------------------------------
Discounted commercial paper                        $10,391            $22,578
Asset backed securities                                 --              3,443
Municipal bonds and notes                               --             12,750
Lending Tree, Inc.                                     561                 --
                                                   --------------------------
                                                    10,952             38,771
                                                   ==========================

      As of December 31, 2000 and 1999, the Company held a $561,000 and $2.0
million equity investment, respectively, in Lending Tree, Inc., an
internet-based home financing service provider. The Company deems these
securities to be available for sale. As of December 31, 1999, the Lending Tree
investment was recorded in other assets. As of December 31, 2000, the Lending
Tree investment has been classified as a short-term investment due to
management's intent to sell the Lending Tree stock in 2001. The Company owns
less than 20% of Lending Tree and did not exert significant influence over the
investee. Because there was no readily determinable value for shares of Lending
Tree at December 31, 1999, the Company valued its investment at cost. During
2000, Lending Tree conducted an initial public offering and established a market
for its common stock. With respect to Lending Tree stock, the Company has
recorded approximately $1.2 million in unrealized losses during 2000. The
Company's home financing service is offered through a joint marketing
arrangement with Lending Tree.

6.    ACCOUNTS RECEIVABLE

      A summary of the activity in the allowance for uncollectible accounts for
the years ended December 31, 2000, 1999 and 1998 is as follows (in thousands):


63


                                             2000            1999          1998
                                          -------------------------------------
Balance, beginning of year                $ 1,961         $   291            --
Provision charged to expense                7,354           3,127           581
Charge-offs                                (6,943)         (1,457)         (290)
                                          -------------------------------------
Balance, end of year                      $ 2,372         $ 1,961         $ 291
                                          =====================================

7.    PROPERTY AND EQUIPMENT

      Property and equipment at December 31, 2000 and 1999 consists of the
following (in thousands):

                                              Estimated
                                             Useful Lives
                                                (years)       2000       1999
                                             ----------------------------------
Computer equipment and software                     3       $ 46,647   $ 33,242
Office equipment, furniture & fixtures and
  leasehold improvements                         3 to 7        5,523      2,173
                                                            -------------------
Total                                                         52,170     35,415
Less accumulated depreciation and
  amortization                                               (15,087)    (7,409)
                                                            -------------------
Property and equipment, net                                 $ 37,083   $ 28,006
                                                            ===================

      Fixed asset depreciation and amortization expense was approximately
$15,825, $5,337 and $1,860 for the years ended December 31, 2000, 1999 and 1998.

8.    OTHER ASSETS AND WARRANTS TO PURCHASE COMMON STOCK OF LICENSEES

      Other assets at December 31, 2000 and 1999 consists of the following (in
thousands):



                                                                            2000        1999
                                                                                  
Lending Tree common stock                                                      (a)      $2,000
Convertible loans and other advances-priceline Asia                        $11,110
Convertible loans and other advances-Alliance Partner Capital/MyPrice        6,456         284
Other                                                                        2,453       2,019
                                                                           -------      ------
                                                                           $20,019      $4,303
                                                                           =======      ======


(a)   The Company intends to sell this instrument in 2001 and accordingly has
      included it in short-term investments as of December 31, 2000 (Note 5).

      "Convertible loans and other advances-priceline Asia" represents a
convertible note and receivables for reimbursable expenses from a licensee.
"Convertible loans and other advances-Alliance Partner Capital/MyPrice"
represents convertible notes, receivables for reimburseable expenses incurred by
the Company and billed to Alliance and the estimated net realizable value of the
amounts due to the Company from its Australian licensee.


64


      At December 31, 2000, the warrants to purchase shares of priceline.com
Europe Ltd are carried at cost, $3.2 million, which the Company believes
approximates the fair value. The Company purchased these warrants for cash in
2000. The underlying shares are not publicly traded.

      During 1999, the Company received warrants to purchase shares of its
licensee, Priceline Webhouse Club, Inc. in exchange for services rendered. The
warrants were non-forfeitable, fully vested upon grant, excercisable in 2004 or
earlier upon the occurrence of certain events, and did not require the
performance of any additional services by the Company. Upon receipt of the
warrant, the Company recognized approximately $189 million of income
representing the estimated fair value of the warrants, based on an independent
valuation. During the third quarter of 2000, when WebHouse Club ceased
operations, the Company recorded a non-cash charge of approximately $189 million
to write off the full carrying value of these warrants.

9.    STOCKHOLDERS' EQUITY

      In April 1998, priceline.com issued warrants to purchase 125,000 shares of
Common Stock, at a zero exercise price, to a non-employee in exchange for
services rendered to the Company. The estimated fair value of the warrants at
the date of grant of $100,000 was based on the value of the equivalent shares as
of the grant date, and has been reflected as sales and marketing expense and
additional paid-in-capital.

      In July 1998, priceline.com issued 8,125,000 shares of Common Stock, to
the Chairman and Chief Executive Officer that resulted in the recognition of a
charge of $6,500,000 with respect to these shares. The shares were issued as
compensation for agreeing to accept the position.

      In April 1999, the Company completed an initial public offering in which
it sold 10,000,000 shares of its Common Stock, $0.008 par value. Offering
proceeds to the Company, net of underwriter discounts and commissions and other
related expenses, were approximately $144.3 million. At the time of the
offering, shares of the Series A and Series B Preferred Stock were automatically
converted into an equal number of shares of Common Stock.

      In August 1999, the Company completed a public offering in which it sold
1,000,000 shares of its Common Stock and certain stockholders of the Company
sold 3,500,000 shares of Common Stock at a price of $67.00 per share. Offering
proceeds to priceline.com, net of underwriters discounts and commissions and
related expenses, were approximately $62.5 million.

      As part of an employee retention program, the Company issued approximately
7.5 million shares of restricted stock and recorded a charge of approximately
$1.7 million during the fourth quarter of 2000. This non-cash charge is included
in General and Administrative expense on the Statement of Operations. The
accrual for the shares issued was recorded at the market value on the date of
grant with a corresponding contra to Stockholders' Equity (Deferred
Compensation). The shares vest and are earned, over various periods through
December 2002. Approximately $9.8 million of the remaining deferred compensation
of approximately $13.1 million on the balance sheet at December 31, 2000 is
expected to be a 2001 expense.

10.   PREFERRED STOCK

      In February 2000, the Board of Directors authorized an amendment to the
Company's certificate of incorporation to allow the Company to issue a new
series of preferred stock designated as Series A Convertible Redeemable PIK
Preferred Stock ("Series A Preferred Stock"). The total number of Series A
Preferred Stock which the Company is authorized to issue is six million shares,
par value $.01 per share.

      The Series A Preferred Stock has special voting powers and preferences.
Specifically, the Series A Preferred Stock has a liquidation preference of
$59.93 per share plus an amount equal to any dividends accrued or accumulated
but not paid. The Series A Preferred Stock accrues dividends payable in shares
of the Company's Common Stock at a rate of 8% per annum commencing April 1,
2000. Dividends on the Series A


65


Preferred Stock are payable semi-annually on October 1st and April 1st of each
year starting October 1, 2000.

      The Series A Preferred Stock may be redeemed at the option of the Company
in whole or in part at any time after April 1, 2003 at $59.93 per share in cash,
plus accrued but unpaid dividends. The Series A Preferred Stock is subject to
mandatory redemption on April 1, 2010. The Series A Preferred Stock is
convertible at the option of the holder into shares of the Company's Common
Stock on a one-for-one basis at any time prior to redemption, subject to certain
anti-dilution adjustments. Holders of the Series A Preferred Stock vote together
with holders of Common Stock on all matters and in certain limited circumstances
are entitled to a separate class vote. Holders of Series A Preferred Stock are
entitled to specified cash payments in the event of certain business combination
transactions involving the Company.

See Note 11 to the financial statements.

11.   DELTA AIR LINES

      In August 1998, priceline.com entered into a warrant agreement with Delta
Air Lines, Inc. ("Delta") to purchase up to 18,892,603 shares of Common Stock at
an exercise price of approximately $0.93 per share (the "Delta Warrant") for
agreeing to participate in the priceline.com service. Vesting was contingent
upon achievement of certain predetermined performance thresholds. However, there
was no penalty for failure to provide ticket inventory to satisfy these
performance thresholds. Accordingly, no expense was recorded when the warrant
was issued. On December 31, 1998, the Company amended its agreement with Delta
to eliminate the vesting contingencies and fix the number of shares subject to
the warrant at 18,619,402. The warrants were immediately vested on the date of
grant, in that they are not subject to any forfeiture for any reason. The
amended Delta Warrant was to become exercisable at the earlier of seven years or
over three years upon the achievement of certain performance thresholds. The
agreement does not require Delta to make any performance commitments, is
non-exclusive and allows Delta to participate in other programs similar to the
priceline.com service. Accordingly, the Company recognized approximately $58.7
million of expense based upon the fair value of the warrant on December 31,
1998, of which $3.0 million is included in cost of revenues-supplier warrant
costs and $55.7 million is included in expenses-warrant costs, net in the
accompanying statements of operations.

      In November 1999, the Company further amended the Delta warrant to provide
Delta with a cashless exercise right. Upon the exercise of the warrant, Delta
acquired a total of 16,525,834 shares of Common Stock of priceline.com. In
conjunction with that transaction, Delta sold 2,085,767 shares of priceline.com
Common Stock to priceline.com's founder and Vice Chairman Jay S. Walker for an
aggregate purchase price of $125 million. The Company further gave Delta the
right to exchange six million shares of priceline.com Common Stock for six
million shares of newly issued convertible preferred stock that may be converted
into priceline.com stock on a one-for-one basis.

      During the second quarter of 2000, the Company received six million shares
of its Common Stock held by Delta in exchange for six million shares of its
Series A Convertible Redeemable PIK Preferred Stock with a liquidation
preference of approximately $360 million and a conversion price of $59.93 per
share. The six million shares of Common Stock received by the Company are
included in Treasury Stock on the Company's balance at December 31, 2000. In the
fourth quarter of 2000, the Company issued Delta from treasury stock 549,764
shares of Common Stock as a dividend on the Series A Preferred Stock.

      During the fourth quarter of 2000, the Company reached an agreement with
Delta to amend the terms of previously issued warrants. As part of this
agreement, the excercise price of the warrants was reduced to $4.72 per share
and the number of warrants was reduced by approximately 825,000 warrants to
approximately 4.7 million. The Company recorded a $8.6 million charge related to
this transaction.

      In February 2001, the Company reached an agreement with Delta to exchange
the Series A Preferred Stock for 80,000 shares of Series B Redeemable Preferred
Stock with a total liquidation preference of $80


66


million and warrants to purchase approximately 26.9 million shares of Common
Stock at an exercise price of $2.97 per share.

12.   OTHER WARRANTS TO PURCHASE COMMON STOCK

      On December 31, 1998, priceline.com issued warrants to purchase 937,500
shares of Common Stock, at an exercise price of $3.20 per share, to three
airlines in recognition of their being among the original participants in the
priceline.com service. Because there are no requirements as to the nature or
length of that participation, and the warrants are not subject to forfeiture for
any reason, the Company recognized approximately $2.3 million of expense based
upon the fair value of the warrants at December 31, 1998. That amount is
included in expenses-warrant costs, net in the accompanying statements of
operations.

      On January 29, 1999, priceline.com issued warrants to an airline to
purchase 1.25 million shares of Common Stock at an exercise price of $6.40 per
share. The warrants become exercisable as follows, 50% on January 29, 2000 and
50% on January 29, 2001. The agreement requires the airline to make available to
priceline.com airline ticket inventory on certain specified terms and conditions
for two years. If the airline does not provide the specified airline ticket
inventory, the unexercised warrants are returnable and a substantial penalty
will be imposed. The fair value of the warrant of $3.1 million at the grant date
was capitalized and will be amortized over the two year period during which
services are expected to be provided to the Company.

      During July 1999, priceline.com issued to Continental Airlines a warrant
to purchase Common Stock that will become exercisable upon the earlier of July
2004 or upon the achievement of certain performance thresholds. However, the
agreement does not require Continental to make any performance commitments.
Accordingly, priceline.com incurred a non-cash charge of approximately $88.4
million during the third quarter of 1999 representing the fair value of the
warrant on the grant date.

      In November 1999, the Company amended the Continental warrant to allow the
exercise price to fall within the range of the warrants issued to other airlines
discussed below. Priceline.com recorded a charge of approximately $3.5 million
during the fourth quarter of 1999 as a result of the warrant amendment.

      In November 1999, the Company entered into separate Participation Warrant
Agreements with each of eight major domestic airlines relating to their
inclusion in the Company's leisure airline ticket service. Under the
Participation Warrant Agreements, the airlines were granted warrants to purchase
a total of 20 million shares of priceline.com Common Stock at exercise prices
ranging from $52.625 to $59.933 per share. All warrants were fully vested on the
date of grant, but generally are not exercisable until November 2005, subject to
acceleration under certain circumstances. Priceline.com incurred additional
warrant costs of approximately $1.1 billion during the fourth quarter of 1999 as
a result of the issuance of these warrants.

13.   STOCK OPTION PLANS

      In February 1999, the Company adopted the 1999 Omnibus Plan (the "1999
Plan"), which provides for grants of, among other things, stock options and
restricted stock as incentives and rewards to encourage employees, officers,
consultants and directors in the long term success of the Company. In addition,
the Company had previously adopted the 1997 Omnibus Plan (the "1997 Plan"). The
1999 Plan originally authorized the issuance of 9,375,000 shares of Common
Stock. In April 2000, the stockholders of the Company approved an amendment to
the 1999 Plan that, among other things, increased the number of shares
authorized for issuance to 25,375,000. The 1997 authorizes the issuance of
23,875,000 shares of Common Stock. Generally, options from both plans vest over
three years from the date of grant; however, the compensation committee of the
Board of Directors may, in its discretion, designate the period of time over
which a stock option vests. Compensation expense for options granted to
non-employees, included in general and administrative expense, aggregated $0, $0
and $245,000, during the years ended December 31, 2000, 1999 and 1998,
respectively.


67


      In February 2000, in connection with the hiring of Heidi G. Miller, the
Company adopted a stock option plan that authorized the issuance of options to
purchase 2,500,000 million shares of Common Stock (the "Heidi Miller Plan"). In
October 2000, the Company adopted the 2000 Employee Stock Option Plan that
authorized the issuance of options to purchase 6,000,000 shares of Common Stock
(the "2000 Plan") to employees of the Company. In November 2000, in connection
with the hiring of Robert Mylod, the Company adopted a stock option and
restricted stock plan that authorized the issuance of 1,200,000 shares of Common
Stock (the "Robert Mylod Plan" and, together with the 1997 Plan, the 1999 Plan,
the Heidi Miller Plan and the 2000 Plan, the "Plans").

      As part of an employee retention program, in the fourth quarter 2000, an
aggregate of 8.45 million options to purchase Common Stock were returned to the
Company by certain of its officers. Subject to the availability of a sufficient
number of shares authorized for issuance, the Company has committed to issue 4.6
million options to purchase Common Stock to these officers at least six months
and one day after they returned their options, with an exercise price at the
then prevailing market price.

      Additionally, as part of the employee retention program, during the fourth
quarter of 2000, the Company issued approximately 9.8 million options to
purchase shares of Common Stock at the then weighted average market price of
$2.53 per share.

      The following summarizes the transactions pursuant to the Plans:


68




                                                                 Weighted
                                                                  Average       Option Price
                                                   Shares       Option Price        Range
                                                 --------------------------------------------
                                                                         
Granted during 1998                              23,449,219      $     0.93        $0.80-3.20
Forfeited                                          (189,374)           0.80              0.80
Cancelled                                          (815,625)           0.80              0.80
                                                 --------------------------------------------
Balance at December 31, 1998                     22,444,220      $     0.94        $0.80-3.20
Granted                                           6,481,833           55.99       3.20-139.25
Exercised                                        (1,614,697)           1.02         0.80-8.00
Forfeited                                          (286,616)          20.74       0.80-139.25
                                                 --------------------------------------------
Balance at December 31, 1999                     27,024,740      $    13.93      $0.80-139.25
Granted                                          30,964,852           28.64        1.53-95.94
Exercised                                        (9,633,262)           1.46        0.80-67.63
Forfeited                                        (5,451,326)          42.74       0.80-139.25
Cancelled                                        (8,450,000)          52.85       25.63-76.88
                                                 --------------------------------------------
Balance at December 31, 2000                     34,455,004      $    16.42      $0.80-139.25
                                                 ============================================


                                                      2000           1999            1998
                                                                           
Exerciseable at December 31:                     14,346,038      16,708,585             None
                                                 ============================================
Available for grant at December 31:               4,922,037       4,610,563         1,430,780
                                                 ============================================
Weighted average fair value options granted
  during the year ended December 31:                  21.28           52.45              0.15
                                                 ============================================


Weighted-average assumptions used in
determining fair value of options grants:                          Grant year
                                                 --------------------------------------------
                                                       2000            1999              1998
                                                                             
Dividend yield                                            0%              0%                0%
Expected volatility                                     141%            107%                0%
Risk-free interest rates                                6.1%            5.9%              6.0%
Expected lives                                      3 years         3 years           3 years


      The fair value of options granted during the year was determined on the
date of grant using the Black-Scholes method.

      The following table summarizes information about stock options outstanding
at December 31, 2000:


69




                                OPTIONS OUTSTANDING                 OPTIONS EXERCISABLE
                     ----------------------------------------     ------------------------
                         Number        Weighted      Weighted        Number       Weighted
   Range of           Outstanding       Average      Average      Exercisable     Average
   Exercise              as of         Remaining     Exercise        as of        Exercise
    Prices             12/31/2000        Life         Price        12/31/2000      Price
------------------------------------------------------------------------------------------
                                                                    
$ .80-$   .93          10,489,084        7.56        $ 0.81        10,384,258      $ 0.81
1.53-2.75               9,837,850        9.89          2.53                 -           -
3.20-  13.00            1,991,776        8.28          5.92         1,051,575        4.97
20.44- 139.25          12,136,294        8.33         42.87         2,910,205       62.78
                       -------------------------------------       -----------------------
$ .80-$139.25          34,455,004        8.54        $16.42        14,346,038      $13.70
                       ==========                                  ===========


      Had compensation costs been determined based upon the fair value at grant
date, the Company's pro forma net loss and pro forma net loss per share for the
years ended December 31, 2000, 1999 and 1998 would have been reported as follows
(in thousands, except per share amounts):

2000                                                   Reported       Pro Forma
--------------------------------------------------------------------------------
Net loss                                             $  315,145       $  392,542
Net loss applicable to common shareholders              329,527          406,924
Basic and diluted loss per common share              $     1.97             2.44

1999                                                   Reported        Pro Forma
--------------------------------------------------------------------------------
Net loss                                             $1,055,090       $1,295,758
Net loss applicable to common shareholders            1,063,444        1,304,112
Basic and diluted loss per common share              $     7.90             9.69

1998                                                   Reported        Pro Forma
--------------------------------------------------------------------------------
Net loss                                             $  112,243       $  114,613
Net loss applicable to common shareholders              114,426          116,797
Basic and diluted loss per common share              $     1.41             1.44

      The fair value of options granted was determined on the date of grant
using the Black-Scholes method.

14.   TAXES

      Income Taxes - Through July 31, 1998, priceline.com operated as a limited
liability company and income taxes (benefits) accrued to the members.
Accordingly, no income taxes (benefits) were reflected in the accompanying
financial statements during the period that the Company operated as a limited
liability company. Since converting from an LLC to a corporation in July 1998,
the Company has incurred net operating losses for financial accounting purposes
of approximately $1.5 billion, and accordingly, no provision for income taxes is
reflected in the accompanying statements of operations.

      The tax effects of temporary differences that give rise to significant
portions of deferred tax assets at December 31, 2000 and 1999 are as follows (in
thousands):


70


                                                      2000              1999
                                                  -----------------------------

Warrant costs                                     $       627         $ 488,989
Net operating loss carryforwards                    1,206,385           459,455
Capital loss carryforward                              78,874                --
Restructuring costs                                     9,463                --
Start-up costs                                          1,630             2,300
Other                                                    (389)           (2,801)
Less valuation allowance                           (1,296,590)         (947,943)
                                                  -----------------------------
Deferred tax asset, net                           $        --         $      --
                                                  =============================

      A valuation allowance for the full amount of the net deferred tax asset
was recorded at December 31, 2000 and 1999 and represents the portion of tax
operating loss carryforwards and other items for which it is currently more
likely than not that the benefit of such items will not be realized. Such
valuation allowance increased by approximately $349 million and $910 million for
the years ended December 31, 2000 and 1999.

      At December 31, 2000, the Company had approximately $2.9 billion of net
operating loss carryforwards for income tax purposes, expiring from December 31,
2018 to December 31, 2020, some or all of which may be subject to limitation on
future utilization under Section 382 of the Internal Revenue Code of 1986.
Section 382 imposes limitations on the availability of a net operating loss
carryforward ("NOL") after a more than 50 percentage point ownership change (as
statutorily defined) occurs with respect to the Company's Common Stock. The
amount of the NOL incurred prior to the ownership change, if such change occurs,
which can be utilized in each subsequent year may be limited based on the value
of the Company on the date of such ownership change.

      At December 31, 2000, the Company had approximately $192 million of
capital loss carryforwards, which expire December 31, 2005. At December 31,
2000, the Company also had approximately $1.4 million of research credit
carryforwards. Such credit carryforwards expire from December 31, 2019 to
December 31, 2020.

      Approximately $625 million of the Company's tax net operating loss at
December 31, 2000 relates to the exercise of stock options which have been
granted under the Company's various stock option plans, and gives rise to
compensation which is includable in the taxable income of the applicable
employees and deductible by the Company for federal and state income tax
purposes. Additionally, approximately $1.06 billion of the Company's tax net
operating loss relates to the excess of tax deductions from the exercise of
certain stock warrants granted by the Company in excess of the associated
warrant costs recorded for financial accounting purposes. Subsequent tax
benefits recognized with respect to approximately $693 million of the valuation
allowance for deferred tax assets which are attributable to these deductions
will be allocated directly to contributed capital.

      The Company has available for income tax purposes the following net
operating loss, capital loss, and tax credit carryforwards (in thousands):


71


                                Equity                    Capital Loss  Research
Scheduled      Operations    Transactions*      Total     Carryforward   Credit
to Expire:
      2005                                                  191,559
      2018         21,475             --         21,475          --
      2019      1,125,534      1,151,681      2,277,215          --        663
      2020         98,657        532,550        631,207          --        807
                ---------      ---------      ---------                  -----
                1,245,666      1,684,231      2,929,897     191,559      1,470
                =========      =========      =========     =======      =====

*Tax benefit, if and when realized, will be recorded directly to Additional
Paid-In-Capital.

      The effective income tax rate of the Company is different from the amount
computed using applicable statutory federal rates as a result of the following
items (in thousands):



                                                     2000            1999           1998
                                                  ----------------------------------------
                                                                         
Income tax benefit at federal statutory rate      $ 110,301       $ 369,281       $ 39,285
Adjustment due to:
  LLC status through July 31, 1998                                                  (7,090)
  State taxes and other                              20,125          64,605          5,790
  Increase in valuation allowance                  (130,426)       (433,886)       (37,985)
                                                  ----------------------------------------
Income tax benefit                                $      --       $      --       $     --
                                                  ========================================


      Federal Air Transportation Tax--A Federal transportation tax is imposed
upon the sale of airline tickets. The tax is based on a percentage of the cost
of transportation, which was 9% for periods prior to October 1, 1998, 8% for the
period October 1, 1998 through September 30, 1999 and 7.5% thereafter. The
Company has historically interpreted the tax regulations as requiring that the
tax be computed based on the amount charged by the airline to priceline.com for
the airline ticket and the Company's participating airlines have collected and
remitted the tax based on this amount. Prior to October 21, 1999, the Company
accrued for federal transportation tax liability on the excess of the price
charged by priceline.com over its cost. Beginning on, and subsequent to, October
21, 1999, the Company has collected and remitted federal transportation tax on
the excess of the price charged by the Company over its cost.

15.   COMMITMENTS AND CONTINGENCIES

      Legal Proceedings - The Company is engaged in litigation as a defendant in
cases involving alleged patent infringement, employee, and shareholders'
derivative and class action suits. From time to time, the Company has been and
expects to continue to be subject to legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of third
party intellectual property rights by it. Such claims, even if not meritorious,
could result in the expenditure of significant financial and managerial
resources and could adversely effect the Company's results of operations and
business. See Item 3, Legal Proceedings.

      Employment Contracts - At December 31, 2000, priceline.com had entered
into employment agreements with certain members of senior management that
provide for minimum annual compensation of approximately $2.3 million in the
aggregate. The agreements provide for periods of employment of up to three
years. Generally, the agreements provide for aggregated salary payments of up to
$3.8 million for wrongful


72


termination and a gross-up for the payment of parachute excise taxes.

      Operating Leases - The Company leases certain facilities and equipment
through operating leases. Rental expense for operating leases was $2,504,000,
$1,411,000 and $706,000 for the years ended December 31, 2000, 1999 and 1998,
respectively. Minimum payments for operating leases having initial or remaining
non-cancelable terms in excess of one year are as follows (in thousands):



                                       Years ended December 31,
                                                                                       After
        2001              2002           2003          2004             2005            2005            Total
-------------------------------------------------------------------------------------------------------------
                                                                                     
       1,864             1,845          1,750         1,736            1,724           9,685           18,604


16.   BENEFIT PLAN

      Priceline.com adopted a defined contribution 401(k) savings plan (the
Plan) during 1998 covering all employees who are at least 21 years old and have
completed 6 months of service. The Plan allows eligible employees to contribute
up to 20% of their eligible earnings, subject to a statutorily prescribed annual
limit. The Company may make matching contributions on a discretionary basis to
the Plan. All participants are fully vested in their contributions and
investment earnings. During the three years ended December 31, 2000, the Company
did not make any matching contributions to the Plan.

17.   OTHER RELATED PARTY TRANSACTIONS

      During the years ended December 31, 1999 and 1998, Walker Digital provided
the Company with services including subleasing office facilities to the Company
amounting to approximately $1.4 million and $706,000, respectively. The Company
charged Walker Digital approximately $2.3 million, $1.8 million and $385,000 for
the years ended December 31, 2000, 1999 and 1998, respectively, for certain
reimburseable expenses and services, including legal and accounting services and
IT infrastructure. Such amounts have been offset against general and
administrative expenses in the accompanying statements of operations. See Note
4.

      In December 1998, priceline.com completed a private placement of Series B
Convertible Preferred Stock with several investors, including General Atlantic
Partners and Vulcan Ventures Incorporated. Fees of $850,000 have been paid to a
company, in which a director a priceline.com is a director and stockholder, in
connection with this transaction.

      At December 31, 1999, the Company had loans outstanding to officers with
face amounts aggregating approximately $9.3 million ($6.0 from Dan Schulman and
$3.3 million from Rick Braddock). During 2000, as part of their employment
agreements, the Company made loans of $3.0 million to Heidi Miller and $2.0
million to Jeff Boyd. The Company made an additional loan to Dan Schulman of
$3.0 million in 2000. The loans all bear interest and were not contingent upon
the employees exercising their options to purchase Common Stock. Subject to
certain prepayment obligations and to forgiveness in the event of certain
changes of control, death, or termination without cause or for good reason,
pursuant to the terms of these loans, accrued interest and principal are payable
after five years, but are forgiven under certain circumstances. On an on-going
basis, the Company expensed the loans over their expected five year term.

      During 2000, Mr. Braddock repaid the principal due of $3.3 million on his
loan and the Company forgave the interest due of $294,000. Pursuant to the terms
of Ms. Miller's employment agreement which she entered into at the time she
joined the Company, in connection with her separation from the Company, her loan
was forgiven during the fourth quarter of 2000. In connection with his promotion
to Chief Operating Officer and his return of certain stock options, Mr. Boyd's
loan was forgiven in full. In addition, one half of Mr. Schulman's loan was
forgiven in connection with the Company's employee retention plan and his return
of


73


certain stock options.

18.   SUBSEQUENT EVENTS

      During February, 2001, the Company reached an agreement to sell
approximately 24 million shares of its Common Stock to Hutchison Whampoa Ltd in
a private placement. The net proceeds received was approximately $50.0 million.
Hutchison Whampoa will assume a seat on the Company's Board of Directors.

      Also in February, 2001, the Company announced another restructuring in
order to reduce operating costs. This restructuring will reduce the workforce by
25 personnel. The charge for this restructuring of $1.2 million related
primarily to severance, will be recorded in the first quarter of 2001. The
Company believes that the entire amount of the charge will be disbursed in 2001.

19.   SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

      The follow table sets forth certain interim financial information for the
years ended December 31, 2000 and 1999.


74




                                                   First           Second          Third           Fourth
                                                  Quarter         Quarter         Quarter         Quarter
                                                  ---------------------------------------------------------
                                                           (In thousands, except per share amounts)
                                                                                      
2000:
Revenues:
     Travel ................................      $ 311,607       $ 346,822       $ 335,699       $ 223,032
     Other .................................          2,191           5,273           5,635           5,137
                                                  ---------------------------------------------------------
Total revenues .............................        313,798         352,095         341,334         228,169
Cost of revenues:
     Travel ................................        265,051         296,767         286,134         192,354
     Other .................................            101             533           1,146           1,141
                                                  ---------------------------------------------------------
Total cost of revenues .....................        265,152         297,300         287,280         193,495
                                                  ---------------------------------------------------------
Gross profit ...............................         48,646          54,795          54,054          34,674
                                                  ---------------------------------------------------------
Operating expenses:
   Sales and marketing .....................         40,449          37,617          35,569          34,498
   General and administrative ..............         18,611          17,729          12,283          14,070
   Systems and business development ........          5,868           6,695          11,420          15,209
   Special charge ..........................             --              --              --          34,824
   Restructuring charge ....................             --              --              --          32,006
   Warrant costs, net ......................             --              --              --           8,595
   Write-off of Webhouse warrant ...........             --              --         189,000              --
                                                  ---------------------------------------------------------
Total operating expenses ...................         64,928          62,041         248,272         139,202
Operating loss .............................        (16,282)         (7,246)       (194,218)       (104,528)
Other income (expense) .....................          2,715           2,725           2,296            (607)
                                                  ---------------------------------------------------------
Net loss ...................................        (13,567)         (4,521)       (191,922)       (105,135)
Preferred stock dividend ...................             --          (7,191)         (7,191)             --
                                                  ---------------------------------------------------------
Net loss applicable to common stockholders .      $ (13,567)      $ (11,712)      $(199,113)      $(105,135)
                                                  =========================================================

Net loss applicable to commom stockholders
per basic and diluted common share .........      ($   0.08)      ($   0.07)      ($   1.19)      ($   0.62)
                                                  =========================================================

Weighted average number of basic and diluted
common shares outstanding ..................        166,467         165,399         167,059         168,662
                                                  =========================================================

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



75




                                                          First           Second          Third           Fourth
                                                         Quarter         Quarter         Quarter         Quarter
                                                         --------------------------------------------------------
                                                           (In thousands, except per share amounts)
                                                                                            
1999:
Revenues:
     Travel .......................................      $ 49,338       $ 111,389       $ 151,961       $ 168,291
     Other ........................................            73             175             261             922
                                                         --------------------------------------------------------
Total revenues ....................................        49,411         111,564         152,222         169,213
Cost of revenues:
     Travel .......................................        44,040         101,045         134,009         145,485
     Other ........................................            --              --              --              --
                                                         --------------------------------------------------------
Total cost of revenues ............................        44,040         101,045         134,009         145,485
                                                         --------------------------------------------------------
Gross profit ......................................         5,371          10,519          18,213          23,728
                                                         --------------------------------------------------------
Operating expenses:
   Sales and marketing ............................        17,138          17,733          21,413          23,293
   General and administrative .....................         3,667           5,503           8,390          10,049
   Systems and business development ...............         2,184           3,469           4,593           3,777
   Warrant costs, net .............................            --              --          88,389         910,443
                                                         --------------------------------------------------------
Total operating expenses ..........................        22,989          26,705         122,785         947,562
Operating loss ....................................       (17,618)        (16,186)       (104,572)       (923,834)
Other income ......................................           458           1,929           2,356           2,377
                                                         --------------------------------------------------------
Net loss ..........................................       (17,160)        (14,257)       (102,216)       (921,457)
Accretion on preferred stock ......................        (8,354)             --              --              --
                                                         --------------------------------------------------------
Net loss applicable to common stockholders ........      $(25,514)      $ (14,257)      $(102,216)      $(921,457)
                                                         ========================================================

Net loss applicable to commom stockholders
per basic and diluted common share ................      ($  0.27)      ($   0.10)      ($   0.71)      ($   5.91)
                                                         ========================================================

Weighted average number of basic and diluted common
shares outstanding ................................        94,939         142,320         144,501         156,032
                                                         ========================================================



76


                                  EXHIBIT INDEX

  Exhibit Number              Description
  --------------              -----------

      2.1(a)            Agreement of Merger, dated as of July 31, 1998, between
                        priceline.com LLC and the Registrant.
      3.1(a)            Form of Amended and Restated Certificate of
                        Incorporation of the Registrant.
      3.2(a)            Form of By-Laws of the Registrant.
      4.1               Reference is hereby made to Exhibits 3.1 and 3.2.
      4.2(a)            Specimen Certificate for Registrant's Common Stock.
      4.3(a)            Amended and Restated Registration Rights Agreement,
                        dated as of December 8, 1998, among the Registrant and
                        certain stockholders of the Registrant.
      10.1.1(a)         1997 Omnibus Plan of the Registrant.
      10.1.2(a)         1999 Omnibus Plan of the Registrant.
      10.2(a)           Stock Purchase Agreement, dated July 31, 1998, among the
                        Registrant and the investors named therein, as amended.
      10.3(a)           Stock Purchase Agreement, dated as of December 8, 1998,
                        among the Registrant and the investors named therein, as
                        amended.
      10.4              Reference is hereby made to Exhibit 4.3.
      10.5(a)           Purchase and Intercompany Services Agreement, dated
                        April 6, 1998, among the Registrant, Walker Asset
                        Management Limited Partnership, Walker Digital
                        Corporation and Priceline Travel, Inc.
      10.6.1(a)         Employment Agreement, dated as of January 1, 1998,
                        between Jay S. Walker, Walker Digital Corporation, the
                        Registrant and Jesse M. Fink.
      10.6.2(a)         Amendment No. 1 to Employment Agreement, dated November
                        16, 1998 between the Registrant and Jesse M. Fink.
      10.7.1(a)         Employment Agreement, dated as of July 23, 1998, between
                        the Registrant and Timothy G. Brier.
      10.7.2(a)         Amendment No. 1 to Employment Agreement, dated November
                        16, 1998, between the Registrant and Timothy G. Brier.
      10.8(a)           Amended and Restated Employment Agreement, dated as of
                        August 15, 1998, by and between the Registrant and
                        Richard S. Braddock.
      10.9(a)           Airline Participation Agreement, dated April 1998, by
                        and among the Registrant, Priceline Travel, Inc. and
                        Trans World Airlines, Inc.
      10.10(a)+         Airline Participation Agreement, dated October 2, 1998,
                        by and among the Registrant, Priceline Travel, Inc. and
                        Northwest Airlines, Inc.
      10.11.1(a)+       General Agreement, dated August 31, 1998, by and among
                        the Registrant, Priceline Travel, Inc. and Delta Air
                        Lines, Inc.
      10.11.2(a)+       Airline Participation Agreement, dated August 31, 1998,
                        by and among the Registrant, Priceline Travel, Inc. and
                        Delta Air Lines, Inc.
      10.11.3(a)+       Amendment to the Airline Participation Agreement and the
                        General Agreement, dated December 31, 1998, between and
                        among the Registrant, Priceline Travel, Inc. and Delta
                        Air Lines, Inc.
      10.11.4(c)        Letter Agreement, dated July 16, 1999, between the
                        Registrant and Delta Air Lines, Inc.
      10.11.5(e)        Master Agreement, dated November 17, 1999, between the
                        Registrant and Delta Air Lines, Inc.
      10.11.6(e)        Amendment to the Airline Participation Agreement and the
                        General Agreement, dated November 17, 1999, by and among
                        the Registrant, Priceline Travel, Inc. and Delta Air
                        Lines, Inc.
      10.11.7+          Participation Warrant Agreement, dated as of November
                        17, 1999, between the Registrant and Delta Air Lines,
                        Inc.
      10.12(a)+         Airline Participation Agreement, dated December 31,
                        1998, by and among the Registrant, Priceline Travel,
                        Inc. and America West Airlines.
      10.13(a)+         Internet Marketing and Licensing Agreement, as of August
                        1, 1998, between the Registrant and LendingTree, Inc.
      10.14(a)          Systems Access Agreement, dated as of August 4, 1997,
                        between the Registrant and WORLDPAN, L.P.
      10.15(a)          Master Agreement for Outsourcing Call Center Support,
                        dated as of April 6, 1998, between the Registrant and
                        CALLTECH Communications, Incorporated.
      10.16(a)          Form of Participation Warrant Agreement.
      10.17.1(a)+       Participation Warrant Agreement, dated as of December
                        31, 1998.
      10.17.2(a)+       Amendment No. 1, dated as of February 4, 1999, to
                        Warrant Participation Agreement, dated as of December
                        31,


77


                        1999.
      10.17.3(a)+       Amendment No. 2, dated as of March 3, 1999, to
                        Participation Warrant Agreement, dated as of December
                        31, 1998, as previously amended to Amendment No. 1 to
                        Warrant Participation Agreement, dated as of February 4,
                        1999.
      10.18(c)          Employment Agreement, dated as of June 14, 1999, between
                        the Registrant and Daniel H. Schulman.
      10.19.1(c)        Airline Participation Agreement, dated July 16, 1999,
                        between the Registrant and Continental Airlines, Inc.
      10.19.2(c)        Participation Warrant Agreement, dated July 16, 1999,
                        between the Registrant and Continental Airlines, Inc.
      10.19.3(e)        First Amendment to Participation Warrant Agreement,
                        dated as of November 17, 1999, by and between the
                        Registrant and Continental Airlines, Inc.
      10.19.4+          Participation Warrant Agreement, dated November 17,
                        1999, between the Registrant and Continental Airlines,
                        Inc.
      10.20(d)          License Agreement, dated July 20, 1999 between Walker
                        Digital Corporation and the Registrant.
      10.21(e)          Sublease, dated October 1999, between Oxford Health
                        Plans, Inc., as Sub-Landlord, and the Registrant, as
                        Sub-Tenant, and Agreement of Lease, dated June 16, 1993,
                        as amended, between Prudential Insurance Company of
                        America, as Landlord, and Oxford Health Plans, Inc., as
                        Tenant.
      10.22.1(e)        Securityholders' Agreement, dated as of October 26,
                        1999, among the Registrant, Priceline WebHouse Club,
                        Inc., Walker Digital, LLC and the Investors signatory
                        thereto.
      10.22.2+          Intellectual Property License Agreement, dated as of
                        October 26, 1999, between the Registrant and Priceline
                        WebHouse Club, Inc.
      10.22.3+          Marketing and Technical Services Agreement, dated as of
                        October 26, 1999, between the Registrant and Priceline
                        WebHouse Club, Inc.
      10.22.4+          Warrant Agreement, dated as of October 26, 1999, between
                        the Registrant and Priceline WebHouse Club, Inc.
      10.22.5+          Services Agreement, dated as of October 26, 1999,
                        between the Registrant and Priceline WebHouse Club, Inc.
      10.23.1+          Airline Participation Agreement, dated as of November
                        15, 1999, by and between the Registrant and United Air
                        Lines, Inc.
      10.23.2+          Participation Warrant Agreement, dated as of November
                        15, 1999, by and between the Registrant and United Air
                        Lines, Inc.
      10.24.1+          Airline Participation Agreement, dated as of November
                        17, 1999, by and between the Registrant and US Airways,
                        Inc.
      10.24.2+          Participation Warrant Agreement, dated as of November
                        17, 1999, by and between the Registrant and US Airways,
                        Inc.
      10.25.1+          Airline Participation Agreement, dated as of November
                        17, 1999, by and between the Registrant and American
                        Airlines, Inc.
      10.25.2+          Participation Warrant Agreement, dated as of November
                        17, 1999, by and between the Registrant and American
                        Airlines, Inc.
      10.26+            Participation Warrant Agreement, dated as of November
                        17, 1999, by and between the Registrant and Trans World
                        Airlines, Inc.
      10.27+            Participation Warrant Agreement, dated as of November
                        17, 1999, by and between the Registrant and Northwest
                        Airlines, Inc.
      10.28+            Participation Warrant Agreement, dated as of November
                        17, 1999, by and between the Registrant and America West
                        Airlines
      10.29(e)          Continuing Employment Agreement, dated as of December
                        16, 1999, between the Registrant and Melissa M. Taub.
      10.30(f)          Employment Agreement, dated December 3, 1999, between
                        the Registrant and Michael McCadden.
      10.31(f)          Employment Agreement, dated December 30, 1999 between
                        the Registrant and Jeffery H. Boyd.
      10.32(f)          Employment Agreement, dated February 18, 2000, between
                        the Registrant and Heidi G. Miller.
      10.33(f)          Promissory Note, dated February 10, 2000 between Jeffery
                        H. Boyd and the Registrant.
      10.34(f)          Amendment to Promissory Note, dated March 28, 2000,
                        between Jeffery H. Boyd and the Registrant.
      10.35(f)          Promissory Note, dated March 7, 2000, between Heidi G.
                        Miller and the Registrant.
      10.36(f)          Stock Option Agreement, dated February 18, 2000, by and
                        between the Registrant and Heidi G. Miller.
      10.37(f)          Amendment to Promissory Note, dated March 28, 2000,
                        between Daniel H. Schulman and the Registrant.
      10.38(f)          Amendment Number One to the Priceline.com Incorporated
                        1999 Omnibus Plan.
      10.39(f)+         Formation and Funding Agreement, dated as of March 17,
                        2000, by and between the Registrant and Alliance
                        Partners, LP.
      10.40(g)          Certificate of Designation, Preferences and Rights of
                        Series A Convertible Redeemable PIK Preferred Stock of
                        priceline.com Incorporated.

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


78


      10.41(g)          priceline.com Incorporated 1999 Omnibus Plan, as
                        amended.
      10.42(g)          Amended and Restated Promissory Note, dated May 18,
                        2000, between priceline.com Incorporated and Daniel H.
                        Schulman.
      10.43(g)          Amendment to Employment Agreement, dated June 12, 2000,
                        between priceline.com Incorporated and Richard Braddock
      10.44(g)          Lease, dated as of May 1, 2000, between the parties
                        listed therein, as Landlord and priceline.com
                        Incorporated, as Tenant.
      10.45(g)          Convertible Note, dated June 27, 2000, between
                        Hutchison-Priceline Limited, as obligor, and PCLN Asia,
                        Inc., as holder.
      10.46(h)          Amended and Restated Promissory Note, dated August 21,
                        2000, between priceline.com Incorporated and Heidi
                        Miller.
      10.47(h)          Amendment Employment Agreement, dated August 21, 2000,
                        between priceline.com Incorporated and Heidi Miller.
      10.48(h)          Second Amended and Restate Promissory Note, dated August
                        21, 2000, between priceline.com Incorporated and Jeffery
                        H. Boyd.
      10.49(h)          Amendment to Offer Letter, dated August 21, 2000,
                        between priceline.com Incorporated and Jeffery H. Boyd.
      10.50(h)          Second Amended and Restated Promissory Note, dated
                        August 21, 2000, between priceline.com Incorporated and
                        Daniel H. Schulman.
      10.51(h)          Amendment to Employment Agreement, dated August 21,
                        2000, between priceline.com Incorporated and Daniel H.
                        Schulman.
      10.52(i)          Certificate of Designation, Preferences and Rights of
                        Series B Redeemable Preferred Stock of priceline.com
                        Incorporated.
      10.53(i)          Warrant Agreement, dated February 6, 2001, by and
                        between priceline.com Incorporated and Delta Air Lines,
                        Inc.
      10.54(i)          Stockholder Agreement, dated February 6, 2001, between
                        priceline.com Incorporated and Delta Air Lines, Inc.
      10.55(j)          Priceline.com 2000 Employee Stock Option Plan.
      10.56(j)          Agreement, dated November 20, 2000, between
                        priceline.com Incorporated and Robert Mylod.
      10.57(k)          Stock Purchase Agreement, dated as of February 15, 2001,
                        among priceline.com Incorporated, Prime Pro Group
                        Limited and Forthcoming Era Limited.
      10.58(k)          Registration Rights Agreement, dated as of February 15,
                        2001, among priceline.com Incorporated, Prime Pro Group
                        Limited and Forthcoming Era Limited.
      10.59             Amended and Restated Employment Agreement, dated
                        December 20, 2000, by and between priceline.com
                        Incorporated and Daniel H. Schulman.
      10.60             Promissory Note, Dated July 2, 1999, by and between
                        priceline.com Incorporated and Daniel H. Schulman.
      10.61             Amended and Restated Employment Agreement, dated
                        November 20, 2000, by and between priceline.com
                        Incorporated and Jeffery H. Boyd.
      10.62             Employment Agreement, dated November 20, 2000, by and
                        between priceline.com Incorporated and Robert Mylod.
      10.63             Employment Agreement, dated November 20, 2000, by and
                        between priceline.com Incorporated and Michael McCadden.
      10.64             Employment Agreement, dated December 20, 2000, by and
                        between priceline.com Incorporated and Ronald Rose.
      10.65             Amended Participation Warrant Agreement, dated November
                        2, 2000, by and between priceline.com Incorporated and
                        Delta Air Lines, Inc.
      23.1              Consent of Deloitte & Touche LLP.

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(a)   Previously filed as an exhibit to the Form S-1 (Registration No.
      333-69657) filed in connection with priceline.com's initial public
      offering and incorporated herein by reference.
(b)   Previously filed as an exhibit to the Form 10-Q filed on May 17, 1999 and
      incorporated herein by reference.
(c)   Previously filed as an exhibit to the Form S-1 (Registration No.
      333-83513) filed in connection with priceline.com's secondary public
      offering and incorporated herein by reference.
(d)   Previously filed as an exhibit to the Form 10-Q for the quarterly period
      ended September 30, 1999.
(e)   Previously filed as an exhibit to the Form 10-K for the year ended
      December 31, 1999.
(f)   Previously filed as an exhibit to the Form 10-Q for the quarterly period
      ended March 31, 2000.
(g)   Previously filed as an exhibit to the Form 10-Q for the quarterly period
      ended June 30, 2000.
(h)   Previously filed as an exhibit to the Form 10-Q for the quarterly period
      ended September 30, 2000.


79



(i)   Previously filed as an exhibit to the Form 8-K filed on February 8, 2001.
(j)   Previously filed as an exhibit to the Form S-8 filed on February 14, 2001.
(k)   Previously filed as an exhibit to the Form 8-K filed on February 20, 2001.
+     Certain portions of this document have been omitted pursuant to a
      confidential treatment request.


80