AVIS RENT A CAR INC, S-1/A, 1998-03-02

AVIS RENT A CAR INC
S-1/A, 1998-03-02
AUTO RENTAL & LEASING (NO DRIVERS)

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 1998

REGISTRATION NO. 333-46737

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

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1
TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

AVIS RENT A CAR, INC.

(Exact Name Of Registrant As Specified In Its Charter)

<TABLE>
<S> <C> <C>
DELAWARE 7514 11-3347585
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or classification code number) identification
organization) number)
</TABLE>

900 OLD COUNTRY ROAD
GARDEN CITY, N.Y. 11530
(516) 222-3000

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

JOHN H. CARLEY, ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
AVIS RENT A CAR, INC.
900 OLD COUNTRY ROAD
GARDEN CITY, N.Y. 11530
(516) 222-3000

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------

COPIES TO:

VINCENT J. PISANO, ESQ. STEPHEN H. COOPER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM WEIL, GOTSHAL & MANGES LLP
LLP 767 FIFTH AVENUE
919 THIRD AVENUE NEW YORK, NEW YORK 10153
NEW YORK, NEW YORK 10022 (212) 310-8000
(212) 735-3000 (212) 310-8007 (FAX)
(212) 735-2000 (FAX)

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT TO BE AGGREGATE OFFERING AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED REGISTERED(A) PRICE(B) REGISTRATION FEE
<S> <C> <C> <C>
Common Stock, par value $.01 per share......................... 5,750,000 $189,390,625 $55,870.23
</TABLE>

(a) Includes 750,000 shares which the Underwriters have an option to purchase to
cover over-allotments.

(b) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based upon the average of the high and low sales
prices of the Registrant's Common Stock on February 20, 1998, as reported on
the Composite Tape of the New York Stock Exchange.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>

SUBJECT TO COMPLETION, DATED MARCH 2, 1998

PROSPECTUS

5,000,000 SHARES

[LOGO]
AVIS RENT A CAR, INC.
COMMON STOCK

All of the shares of Common Stock offered hereby will be sold by Avis Rent A
Car, Inc. (the "Company"). The Common Stock is listed on the New York Stock
Exchange ("NYSE") under the symbol "AVI." On February 27, 1998, the last
reported sales price of the Common Stock on the NYSE was $28.63 per share. SEE
"PRICE RANGE OF COMMON STOCK."

SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share...................................... $ $ $
Total (3)...................................... $ $ $
</TABLE>

(1) See "UNDERWRITING" for indemnification arrangements with the Underwriters.

(2) Before deducting expenses payable by the Company estimated at $ .

(3) Cendant Corporation has granted the Underwriters a 30-day option to purchase
in the aggregate up to 750,000 additional shares of Common Stock, solely to
cover over-allotments, if any. If the option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Cendant Corporation will be $ , $ and $ ,
respectively. SEE "UNDERWRITING."

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

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them and subject to
certain conditions, including the approval of certain legal matters by counsel.
The Underwriters reserve the right to withdraw, cancel or modify the offering
and to reject orders in whole or in part. It is expected that delivery of the
shares of Common Stock will be made against payment therefor on or about
, 1998, at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue,
New York, New York 10167.

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

BEAR, STEARNS & CO. INC.

LEHMAN BROTHERS

MERRILL LYNCH & CO.

NATIONSBANC MONTGOMERY SECURITIES LLC

The date of this Prospectus is , 1998
<PAGE>

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE
OF THE COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING
TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".

<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT
OTHERWISE REQUIRES, EACH REFERENCE IN THIS PROSPECTUS TO (I) THE "COMPANY"
REFERS TO AVIS RENT A CAR, INC. AND ITS OPERATING SUBSIDIARIES AND PREDECESSORS,
(II) "ARACS" REFERS TO AVIS RENT A CAR SYSTEM, INC., A WHOLLY-OWNED SUBSIDIARY
OF THE COMPANY, (III) "CENDANT" REFERS TO CENDANT CORPORATION AND ITS
SUBSIDIARIES, (IV) THE "FRANCHISOR" REFERS TO CENDANT CAR RENTAL, INC., A
WHOLLY-OWNED SUBSIDIARY OF CENDANT, AND (V) "WIZCOM" REFERS TO WIZCOM
INTERNATIONAL LTD., AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF CENDANT. UNLESS
OTHERWISE INDICATED OR UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL INFORMATION
CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE OVER-ALLOTMENT OPTION IS NOT
EXERCISED. STATISTICAL INFORMATION CONTAINED HEREIN WITH RESPECT TO THE DOMESTIC
CAR RENTAL INDUSTRY HAS BEEN DERIVED FROM PUBLICLY AVAILABLE SOURCES, INCLUDING
TRADE PUBLICATIONS, WHICH THE COMPANY HAS NOT INDEPENDENTLY VERIFIED BUT
BELIEVES TO BE RELIABLE.

CENDANT OWNS ALL OF THE OUTSTANDING EQUITY OF THE FRANCHISOR WHICH, IN TURN,
OWNS THE AVIS WORLDWIDE VEHICLE RENTAL SYSTEM (THE "AVIS SYSTEM"). IN 1997, THE
FRANCHISOR ENTERED INTO A 50 YEAR FRANCHISE AGREEMENT WITH THE COMPANY GRANTING
THE COMPANY THE RIGHT TO OPERATE AS A FRANCHISEE UNDER THE AVIS SYSTEM (THE
"MASTER LICENSE AGREEMENT"). WIZCOM, THE OWNER OF THE DATA PROCESSING AND
INFORMATION SYSTEM USED IN CONNECTION WITH THE VEHICLE RENTAL BUSINESS AND WHICH
FORMS A PART OF THE AVIS SYSTEM (THE "WIZARD SYSTEM"), ENTERED INTO A 50 YEAR
COMPUTER SERVICES AGREEMENT WITH THE COMPANY WITH RESPECT TO ITS USE OF THE
WIZARD SYSTEM.

THE COMPANY

The Company is a holding company which, through its operating subsidiary,
ARACS, operates the second largest general use car rental business in the world,
based on total revenue and volume of rental transactions. The Company rents
vehicles to business and leisure travelers through approximately 612 rental
locations in both airport and non-airport (downtown and suburban) markets in the
United States, Canada, Puerto Rico, the U.S. Virgin Islands, Argentina,
Australia and New Zealand. On August 20, 1997, ARACS purchased The First Gray
Line Corporation ("First Gray Line"), the then second largest Avis System
franchisee in North America with locations in Southern California (including Los
Angeles International Airport ("LAX") and San Diego International Airport),
Nevada (including McCarran International Airport (Las Vegas)), and Arizona.
During 1997, including First Gray Line on a pro forma basis from January 1,
1997, the Company completed over 14.5 million rental transactions with a fleet
that averaged approximately 200,000 vehicles and generated total revenue of
approximately $2.2 billion, of which approximately 89% was derived from its
operations in the United States. On February 20, 1998, ARACS signed an agreement
with Hayes Leasing Company, Inc. ("Hayes"), the second largest Avis System
franchisee in North America with six locations in the state of Texas, including
Dallas/Fort Worth ("DFW") Airport, San Antonio Airport and Austin Municipal
Airport, to acquire the assets of its car rental business for approximately $85
million in cash, plus the refinancing of fleet-related indebtedness.

3
<PAGE>
domestic rental locations (including First Gray Line) produced approximately 87%
of the Avis System's revenue in the United States, with the balance derived from
391 locations operated by 71 other Avis System franchisees, of which five
(including Hayes) accounted for approximately 7% of the Avis System's U.S.
revenue. The Company is the sole franchisee of the Avis System in the
international markets in which it operates. The Avis System in Europe, Africa,
part of Asia and the Middle East is operated under franchise by Avis Europe Ltd.
("Avis Europe"), which is not affiliated with the Company. Management believes
that the strong recognition of the Avis brand name, the breadth of the Avis
System and the sophistication of the Wizard System enable the Company and other
Avis System franchisees to provide consistent quality, pricing and service to
business and leisure customers worldwide.

The domestic vehicle rental industry has experienced significant growth over
the past five years. According to information provided by major U.S. airports,
vehicle rental industry revenues have increased at a compound annual rate of
approximately 10% since 1992. Management believes that factors such as increases
in airline passenger traffic, increased business travel and demographic trends,
among others, continue to expand the demand for rental vehicles. Based on
concessionable revenues reported by 163 airports in the United States at which
the Company operates, the Company has historically maintained the second leading
market share in the industry, with a 24% share for the eleven months ended
November 1997. The Company's network of airport rental locations, which it
believes is among the nation's largest, accounted for approximately 86% of its
domestic revenue in 1997.

The Company has historically targeted its marketing efforts toward business
travelers, who accounted for approximately 63% of the Company's domestic revenue
in 1997. The Company believes that business travelers, many of whom rent the
Company's vehicles pursuant to agreements between the Company and their
employers, have represented an important factor in the growth and stability of
its business. While the Company continues to focus on business travelers, it
intends to leverage its strong airport presence by expanding its marketing
efforts toward the leisure travel market in order to increase its fleet
utilization during non-peak business periods and extend the average length of
its rentals. During 1997, leisure travelers accounted for approximately 37% of
the Company's domestic revenue.

The Company utilizes the Wizard System, which it believes is one of the most
sophisticated information management systems in the car rental industry. Key
functions of the Wizard System include: (i) global reservations processing, (ii)
rental agreement generation and administration and (iii) fleet accounting and
control. The Company has also developed software applications that utilize the
data gathered by the Wizard System and third party reservation systems to
achieve centralized control of its major business operations. These applications
include: (i) a yield management system that is designed to increase profit by
controlling vehicle availability by length of rental and providing decision
support for rate changes, (ii) a competitive rate information system that
monitors industry rate changes by market on a daily basis at different vehicle
rental locations and (iii) a business mix model that analyzes potential profit
contribution data by segment based upon business mix and fleet optimization
recommendations.

The Company is the successor to the car rental operations previously owned
by the Franchisor and its subsidiaries (collectively referred to as the
"Predecessor Companies"). On September 24, 1997, the Company completed the
initial public offering (the "IPO") of its Common Stock at a price of $17 per
share. Cendant was formed through the merger of HFS Incorporated ("HFS") and CUC
International Inc. ("CUC") in December 1997. Following the offering (assuming
the over-allotment option is not exercised) Cendant will own approximately 23.7%
of the outstanding shares of Common Stock of the Company. Cendant is a global
provider of consumer and business services and operates in three principal
segments: Membership, Travel and Real Estate Services. In Membership Services,
Cendant provides access to travel, shopping, auto, dining and other services
through more than 66.5 million memberships worldwide. In Travel Services,
Cendant is the leading franchisor of hotels and rental car agencies worldwide,
the premier provider of vacation exchange services and the second largest fleet
management company. In Real Estate Services, Cendant is the world's premier
franchisor of residential real estate brokerage offices, a major provider of
mortgage services to consumers and a global leader in corporate employee
relocation. Cendant

4
<PAGE>
is also a major online commerce facilitator, with more than $1 billion in yearly
sales through its netMarket-Registered Trademark- and other interactive
services.

THE HAYES TRANSACTION

Hayes is the second largest Avis System franchisee in North America with a
fleet averaging 8,000 vehicles in 1997, serving six locations in the state of
Texas, including Dallas/Fort Worth Airport San Antonio Airport, and Austin
Municipal Airport. Business travelers account for a substantial portion of
Hayes' rentals. In 1997, Hayes completed approximately 640,000 transactions and
recorded $77 million in revenues, representing approximately 3.7% of the Avis
System's domestic revenues for the year. The Company estimates that Hayes'
overall share of the airport markets it serves was approximately 25% for the
first eleven months of 1997. Management believes that the Hayes Transaction will
be accretive to the Company's earnings per share in 1998.

STRATEGY

The Company's objective is to improve its profitability through a strategy
that consists of the following key elements:

CAPITALIZING ON CHANGING INDUSTRY DYNAMICS. The domestic car rental
industry is emerging from a period during which rental rates did not keep pace
with rising fleet and operating costs. Management believes that the recent
restructuring of ownership of the Company's major competitors is leading to an
increased focus on profitability and shareholder return, rather than upon
transaction volume and market share, and to more rational pricing behavior.
During 1997, average domestic vehicle rental rates for the Company increased by
6.1%. Management intends to use the proprietary software applications of the
Avis System, including its sophisticated yield management, rate information and
business mix modeling systems, to capitalize upon the improving pricing and
profit outlook in the industry.

IMPROVING BUSINESS MIX AND FLEET UTILIZATION. Historically, the Company has
capitalized on its strong network of airport rental locations by focusing its
sales and marketing resources principally toward business travelers. While this
has enabled the Company to leverage its overhead costs by capturing a large
share of transaction volume at relatively few locations, fleet utilization
historically has been characterized by peak business travel demand during the
middle of the week and reduced demand during and immediately before and after
the weekend. Management believes that the Company's substantial presence at the
nation's leading airports provides it with the opportunity, without significant
incremental cost, to capitalize on increased air travel by leisure travelers,
who tend to initiate air travel during or close to the weekend. Accordingly,
while continuing to concentrate on its core presence in the business travel
market, the Company has begun to increase its marketing efforts toward the
leisure market in order to improve fleet utilization and extend the average
length of rental. The Company's acquisition of First Gray Line has better
positioned the Company to improve its fleet management, primarily in the United
States. In addition, the Company believes that it can further enhance the
utilization of its fleet during non-peak periods by selectively expanding its
presence in non-airport markets through both internal growth and, if appropriate
opportunities arise, acquisitions of other car rental operations including,
where feasible, other Avis System franchises.

5
<PAGE>
INCREASING BRAND LOYALTY THROUGH TARGET MARKETING. Management believes that
the domestic car rental industry is becoming increasingly focused on such
factors as customer service and loyalty. The customer base of the major domestic
car rental companies, including the Company, has become increasingly diverse.
Management plans to utilize the Avis System's proprietary software applications
to analyze the Company's extensive customer database to identify distinguishing
characteristics and preferences of those customers who have been historically
associated with its most profitable rental transactions and to focus its sales
and marketing efforts and service features to attract additional customers with
similar characteristics and preferences. Management believes that this analysis
will enhance the quality of the car rental experience of such customers and
increase their loyalty to the Avis brand.

CAPITALIZING ON CROSS-MARKETING AND OTHER SYNERGISTIC ARRANGEMENTS WITH
CENDANT. The Company has initiated and is expanding cross-marketing
relationships with Cendant's corporate relocation and resort timeshare exchange
businesses, its lodging franchise systems, which include the Days
Inn-Registered Trademark-, Howard Johnson-Registered Trademark- and
Ramada-Registered Trademark- brands, its real estate brokerage franchise
systems, including the CENTURY 21-Registered Trademark- and Coldwell
Banker-Registered Trademark- brands and its membership-based consumer services.
The Company has begun to reduce its costs of purchasing media and other
non-fleet goods and services through arrangements with Cendant.

6
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock to be sold by the
Company......................... 5,000,000 shares

Common Stock to be outstanding
after the offering.............. 35,925,000 shares(a)

Use of proceeds................... The net proceeds to the Company from the offering made
hereby is estimated to be approximately $ million,
after deducting underwriting discounts and estimated
expenses related to the offering. The Company expects
that approximately $85 million of such proceeds will be
used to finance the Hayes Transaction and certain
associated expenses. The balance will be used for
working capital and general corporate purposes,
including the repayment of certain indebtedness. SEE
"CAPITALIZATION." In addition, if appropriate
opportunities arise, the Company may pursue the
acquisition of other car rental operations including,
where feasible, other Avis System franchises, and any
available proceeds could be used in connection with any
such acquisition.

NYSE.............................. AVI
</TABLE>

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

(a) Excludes 4,620,977 shares of Common Stock reserved for issuance under the
Company's stock option plan (the "Stock Option Plan"), of which options to
purchase 3,885,700 shares are outstanding at December 31, 1997. SEE
"MANAGEMENT--STOCK OPTION PLAN."

RISK FACTORS

See "Risk Factors" for a discussion of certain risks that should be
considered in connection with an investment in the Common Stock offered hereby.

7
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The summary pro forma financial data are derived from the Unaudited Pro
Forma Consolidated Statement of Operations and the related notes thereto
included elsewhere in this Prospectus. The summary pro forma financial data give
effect, as of January 1, 1997, to (i) the acquisition of First Gray Line and
adjustments to reflect a 4% royalty fee pursuant to the Master License Agreement
and (ii) the repayment of debt with the net proceeds from the IPO. The pro forma
adjustments are based upon available information and certain assumptions that
management of the Company believes are reasonable. The pro forma financial data
do not purport to represent the results of operations of the Company which
actually would have occurred had such events been consummated on the aforesaid
date. All of the pro forma financial data presented below should be read in
conjunction with (i) the Company's Audited Consolidated Financial Statements and
related notes thereto, (ii) the Unaudited Pro Forma Consolidated Statement of
Operations and related notes thereto, and (iii) "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," in each case included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Revenue........................................................................................ $ 2,175,897
Costs and expenses:
Direct operating, net........................................................................ 920,283
Vehicle depreciation and lease charges, net.................................................. 559,433
Selling, general and administrative.......................................................... 422,053
Interest, net................................................................................ 192,598
Amortization of cost in excess of net assets acquired........................................ 9,743
-----------------
Income before provision for income taxes....................................................... 71,787
Provision for income taxes..................................................................... 32,355
-----------------
Net income..................................................................................... $ 39,432
-----------------
-----------------
Earnings per share:
Basic........................................................................................ $ 1.28
-----------------
-----------------
Diluted...................................................................................... $ 1.26
-----------------
-----------------
</TABLE>

8
<PAGE>
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND AVERAGE REVENUE PER RENTAL
TRANSACTION)

All of the financial data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Company's Audited Consolidated Financial Statements and
related notes thereto, and the Unaudited Pro Forma Consolidated Statement of
Operations and related notes thereto, in each case included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES(A)
--------------------------------------------------- OCTOBER 17, 1996
JANUARY 1, 1996 (DATE OF
YEARS ENDED DECEMBER 31, TO ACQUISITION)
---------------------------------- OCTOBER 16, TO
1993 1994 1995 1996 DECEMBER 31, 1996
---------- ---------- ---------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue............................... $1,333,477 $1,412,400 $1,615,951 $ 1,504,673 $ 362,844
Costs and expenses:
Direct operating, net............... 646,821 664,993 724,759 650,750 167,682
Vehicle depreciation and lease
charges, net...................... 257,723 309,415 411,102 376,185 89,448
Selling, general and
administrative(c)................. 222,629 252,024 269,434 283,180 68,215
Interest, net....................... 114,036 128,898 145,199 120,977 34,212
Amortization of cost in excess of
net assets acquired............... 4,439 4,754 4,757 3,782 1,026
---------- ---------- ---------- --------------- ----------
Income before provision for income
taxes............................... 87,829 52,316 60,700 69,799 2,261
Provision for income taxes............ 34,375 30,213 34,635 31,198 1,040
---------- ---------- ---------- --------------- ----------
Net income............................ $ 53,454 $ 22,103 $ 26,065 $ 38,601 $ 1,221
---------- ---------- ---------- --------------- ----------
---------- ---------- ---------- --------------- ----------
Earnings Per Share:
Basic............................... $ 1.73 $ .72 $ .84 $ 1.25 $ .04
Diluted............................. $ 1.73 $ .72 $ .84 $ 1.25 $ .04
Pro Forma:(d)
Net income..........................
Basic earnings per share(e).........
Diluted earnings per share(e).......
SELECTED OPERATING DATA:
Number of vehicle rental locations at
period end.......................... 656 576 541 550 546
Peak number of vehicles during
period.............................. 151,964 150,966 167,511 196,077 177,839
Average number of vehicles during
period.............................. 134,926 137,715 150,853 174,813 172,461
Number of rental transactions during
period (in thousands)............... 10,003 10,577 11,544 10,272 2,534
Average revenue per rental transaction
during period....................... $ 133 $ 134 $ 140 $ 146 $ 143

<CAPTION>
COMBINED YEAR ENDED YEAR ENDED
DECEMBER 31, 1996(B) DECEMBER 31, 1997
-------------------- -----------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue............................... $1,867,517 $ 2,046,154
Costs and expenses:
Direct operating, net............... 818,432 863,839
Vehicle depreciation and lease
charges, net...................... 465,633 542,090
Selling, general and
administrative(c)................. 351,395 415,728
Interest, net....................... 155,189 167,314
Amortization of cost in excess of
net assets acquired............... 4,808 6,860
----------- -----------------
Income before provision for income
taxes............................... 72,060 50,323
Provision for income taxes............ 32,238 22,850
----------- -----------------
Net income............................ $ 39,822 $ 27,473
----------- -----------------
----------- -----------------
Earnings Per Share:
Basic............................... -- $ .89
Diluted............................. -- $ .88
Pro Forma:(d)
Net income.......................... $ 39,432
-----------------
-----------------
Basic earnings per share(e)......... $ 1.28
-----------------
-----------------
Diluted earnings per share(e)....... $ 1.26
-----------------
-----------------
SELECTED OPERATING DATA:
Number of vehicle rental locations at
period end.......................... 546 612
Peak number of vehicles during
period.............................. 196,077 212,104
Average number of vehicles during
period.............................. 174,226 186,317
Number of rental transactions during
period (in thousands)............... 12,806 13,667
Average revenue per rental transaction
during period....................... $ 146 $ 150
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
STATEMENT OF FINANCIAL POSITION DATA:
Vehicles, net............................................... $3,018,856
Total assets................................................ 4,278,956
Debt........................................................ 2,826,422
Stockholders' equity........................................ 450,021
Total liabilities and stockholders' equity.................. 4,278,956
</TABLE>

- ------------------------------
(a) See Note 1 to the Audited Consolidated Financial Statements of the Company.
The 1993 amounts are unaudited.
(b) Presented on a combined twelve-month basis and includes the results of the
Predecessor Companies for the period January 1, 1996 to October 16, 1996 and
the results of the Company for the period October 17, 1996 (Date of
Acquisition) to December 31, 1996.
(c) The amounts for the periods October 17, 1996 (Date of Acquisition) to
December 31, 1996 and the twelve months ended December 31, 1997 include
charges from Cendant. See Note 4 to the Audited Consolidated Financial
Statements.
(d) See Unaudited Pro Forma Consolidated Statement of Operations.
(e) Basic and diluted earnings per share and pro forma basic earnings per share
are computed on the basis of 30,925,000 shares of Common Stock, the number
of shares of Common Stock outstanding before this offering, for all periods
presented, except for diluted and pro forma diluted earnings per share for
1997. Diluted and pro forma diluted earnings per share for 1997 are computed
based on 31,181,134 shares of Common Stock which includes the diluted effect
of the assumed exercise of outstanding stock options.

9
<PAGE>
RISK FACTORS

PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY ALL OF THE INFORMATION IN
THIS PROSPECTUS AND, IN PARTICULAR, SHOULD EVALUATE THE FOLLOWING RISKS IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK BEING OFFERED HEREBY.

FRANCHISEE STATUS; ROYALTY PAYMENTS; DEPENDENCE ON AVIS SYSTEM

As an Avis System franchisee, the Company must coordinate significant
matters relating to the Company's growth and operational strategies with the
Franchisor. Effective January 1, 1997, the Company was required to pay royalties
to the Franchisor based upon the Company's revenue, not its profits, which could
result in increasing royalty payments during a period of declining profits. On
an unaudited pro forma basis, if the royalties had been charged to the Company
beginning on October 17, 1996, net income for the period October 17, 1996 to
December 31, 1996 would have been reduced by $4.3 million, resulting in a pro
forma net loss of $3.1 million. The royalties resulted in a charge to the
Company for the twelve months ended December 31, 1997 of $81.8 million and
resulted in a reduction in net income of approximately $44.7 million. The
Company is required to maintain certain standards and meet certain guidelines
relating to its operations. The Franchisor has the right to terminate the
Company's franchise for certain violations of its franchise agreement,
including, among others, certain bankruptcy or insolvency events, if the Company
purports to transfer any rights or obligations thereunder without compliance
with its terms, or if the Company fails, refuses or neglects to promptly pay
monies owing to the Franchisor, WizCom or Cendant on three or more occasions and
upon the occurrence of a Change of Control Event. A Change of Control Event (as
more fully defined herein) refers to any transaction pursuant to which (a) a
party other than Cendant or its affiliates acquires control of specified
percentages of the voting stock of the Company, (b) another corporation merges
into the Company or the Company merges into or consolidates with another
corporation, (c) the Company sells or otherwise conveys substantially all of its
assets or (d) a majority of the Board of Directors leaves office during any two
year period. Any such termination would have a material adverse effect on the
Company. SEE "RELATIONSHIP WITH CENDANT--MASTER LICENSE AGREEMENT."

LEVERAGE; LIMITATIONS UPON LIQUIDITY; CAPITAL RAISING; INTEREST RATE RISK

LEVERAGE

At December 31, 1997, the Company had approximately $2.8 billion of
indebtedness outstanding, which was incurred primarily for fleet financing and
is secured by vehicles. At December 31, 1997, the Company had approximately $828
million of additional credit availability under its domestic fleet financing
facilities and $115.5 million available under the Credit Facility (as defined).
This high level of indebtedness could have important consequences to the
Company's operations, including: (i) the potential limitation on the Company's
ability to obtain additional financing for certain purposes, (ii) the commitment
of a substantial portion of the Company's cash flow from operations to debt
service and (iii) the limitation of the Company's ability to react to changes in
the vehicle rental industry and general economic conditions.

RESTRICTIONS IMPOSED BY INDEBTEDNESS

The agreements with the Company's lenders include a number of significant
covenants that, among other things, restrict its ability to dispose of non-fleet
assets, incur additional indebtedness, create liens, pay dividends, enter into
certain investments or acquisitions, repurchase or redeem capital stock, engage
in mergers or consolidations or engage in certain transactions with affiliates
and otherwise restrict corporate activities. Certain of these agreements also
require the Company to maintain specified financial ratios. A breach of any of
these covenants or the inability of the Company to maintain the required
financial ratios could result in a default in respect of the related
indebtedness. In the event of a default, the lenders could elect, among other
options, to declare the indebtedness, together with accrued interest and other
fees, to be immediately due and payable, failing which the lenders could proceed
against the collateral securing that indebtedness. SEE "--DIVIDENDS."

10
<PAGE>
AVAILABILITY OF FINANCING; REQUIREMENTS FOR CAPITAL

The Company depends upon third-party financing to purchase its fleet
vehicles. Continued availability of such financing upon favorable terms is
critical to the Company's operations. Since a substantial portion of such
financing is obtained in connection with Repurchase Programs (as defined), a
significant change in the financial condition of the vehicle manufacturers,
particularly General Motors Corporation ("GM") and Chrysler Corporation
("Chrysler"), would significantly affect the Company's ability to obtain such
financing on favorable terms. In addition, under the terms of certain of the
Company's credit facilities, including the Company's fleet financing
arrangements, the failure of a repurchase party (such as GM or Chrysler) to
maintain an investment grade rating for its own senior debt or the bankruptcy of
a repurchase party or any other event that has a material adverse effect on the
repurchase party's ability to perform, or upon a material default of a
repurchase party under a Repurchase Program, may result in termination of the
Company's credit lines for the purchase of vehicles from such repurchase party,
a requirement to repay a portion of the indebtedness that is secured by vehicles
purchased from that repurchase party and removal of those vehicles from the
applicable collateral pool for such facilities. The inability of the Company to
obtain fleet financing on favorable terms would have a material adverse effect
on the Company's financial condition and results of operations.

INTEREST RATE RISK

The Company has developed an interest rate management policy, including a
target mix of fixed rate and floating rate indebtedness on a consolidated basis.
However, an increase in interest rates may have a material adverse impact on the
Company's profitability. Approximately 42% of the Company's outstanding debt at
December 31, 1997 was interest rate sensitive and had a weighted average
interest rate at such date of 5.9%. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-- LIQUIDITY AND CAPITAL RESOURCES"
AND "DESCRIPTION OF CERTAIN INDEBTEDNESS."

FAILURE TO CONSUMMATE HAYES TRANSACTION

The Company intends to utilize approximately $85 million of the net proceeds
from this offering to acquire the franchise rights and certain non-fleet assets
of Hayes. In addition, the Company intends to acquire Hayes' rental fleet and
refinance indebtedness secured by Hayes' rental fleet. The closing of the Hayes
Transaction is subject to the satisfaction or waiver of certain conditions,
including, but not limited to, the expiration or termination of any waiting
periods required pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended; the obtaining of all necessary approvals of any governmental
entities and third parties (including certain airport municipalities); and there
having not been any changes in the vehicle rental business which would, in the
aggregate, have a material adverse effect on Hayes' business. If the Hayes
Transaction is not consummated, the Company will find an alternative use for the
$85 million in net proceeds, which could consist of the repayment of outstanding
commercial paper. If the Company applied these proceeds to repay a portion of
its outstanding commercial paper, this could dilute earnings per share. See
"Hayes Transaction"

IMPORTANCE OF MANUFACTURERS' REPURCHASE PROGRAMS

At December 31, 1997, approximately 94% of the vehicles in the Company's
rental fleet were covered by vehicle manufacturers' repurchase programs (the
"Repurchase Programs"). Under a Repurchase Program, a buyer, such as the
Company, agrees to purchase a specified minimum number of vehicles directly from
franchised dealers of the manufacturer at a specified price and the manufacturer
agrees to buy those vehicles back from the buyer at a future date at a price
that is based upon the capitalized cost of the vehicles less an agreed-upon
depreciation factor and, in certain cases, an adjustment for damage and/or
excess mileage. The Repurchase Programs limit the Company's risk of a decline in
the residual value of its fleet and enable the Company to fix its depreciation
expense in advance. Vehicle depreciation is the largest cost factor in the
Company's operations. The Company could be adversely affected if automobile
manufacturers reduce the availability of Repurchase Programs or related
incentives. SEE "--DEPENDENCE ON GM" AND "BUSINESS--FLEET ACQUISITION AND
MANAGEMENT."

11
<PAGE>
The Company could be at a competitive disadvantage if U.S. automobile
manufacturers selectively restrict eligibility to participate in their
Repurchase Programs. Any effort by GM to reduce the scope of the Company's GM
Repurchase Program could adversely affect the Company's ability to compete with
those of its competitors whose access to similar programs is not reduced or that
have well established alternative vehicle disposition facilities.

INCREASING PRICE OF VEHICLES

In recent years, the average price of new cars has increased. From time to
time, automobile manufacturers sponsor sales incentive programs that tend to
lower the average cost of vehicles for fleet purchasers such as the Company. The
Company anticipates that new vehicle prices will continue to increase, and there
can be no assurance that sales incentive programs will remain available, that
the Company will be able to effectively control the average cost of its fleet by
purchasing a mix of less expensive vehicles or that, because of competitive
pressures, the Company will be able to pass on the increased cost of vehicles to
its rental customers.

DEPENDENCE ON GM

GM, through its franchised dealers, has been the Company's principal
supplier of vehicles for nearly twenty years. From January 25, 1989 until
October 16, 1996, GM was a minority shareholder of the Company. The number of
vehicles purchased by the Company varies from year to year. In model year 1997,
approximately 69% of the Company's vehicle fleet purchases in the United States
consisted of GM vehicles. In model year 1998, approximately 77% of the Company's
vehicle fleet purchases in the United States are expected to consist of GM
vehicles. During the term of the GM agreement, at least 51% of the Company's
domestic fleet must consist of GM vehicles. Shifting significant portions of
fleet purchases to other manufacturers would require lead time. As a result,
GM's inability to supply the Company with the planned number and type of
vehicles could have a material adverse effect on the Company's financial
condition and results of operations. In addition, if GM is not able to offer
competitive terms and conditions and the Company is not able to purchase
sufficient quantities of vehicles from other automobile manufacturers on
competitive terms and conditions, then the Company may be forced to purchase
vehicles at higher prices or on otherwise less favorable terms. Such a situation
could adversely affect the Company's results of operations through increased
vehicle acquisition and depreciation costs if it is unable to pass these costs
on to its customers through increases in rental rates. SEE "BUSINESS--FLEET
ACQUISITION AND MANAGEMENT."

AVAILABILITY AND PRICE OF FUEL

The Company's operations could be adversely affected by limitations on fuel
supplies, the imposition of mandatory allocations or rationing of fuel or
significant increases in fuel prices. A severe and protracted disruption of fuel
supplies or significant increases in fuel prices could materially adversely
affect the Company's operating results.

DEPENDENCE ON AIR TRAVEL INDUSTRY

In 1997, approximately 86% of the Company's revenue from its domestic
operations was generated at its airport rental locations. A sustained material
decrease in airline passenger traffic in the United States could have a material
adverse effect on the Company's results of operations. Events that could reduce
airline passenger traffic include, in addition to a general economic downturn
(discussed below), labor unrest, airline bankruptcies and consolidations,
substantially higher air fares, the outbreak of war, high-profile crimes against
tourists and incidents of terrorism.

RISK OF ECONOMIC DOWNTURN

The Company's results of operations are affected by certain economic
factors, including the level of economic activity in the markets in which it
operates. A decline in economic activity either in the United States or in
international markets may adversely affect the Company. In the vehicle rental
business, a

12
<PAGE>
decline in economic activity typically results in a decline in both business and
leisure travel, and accordingly a decline in the volume of vehicle rental
transactions. In the case of a decline in vehicle rental activity, the Company
may reduce rental rates to meet competitive pressures, which could adversely
affect the Company's results of operations. A decline in economic activity may
also have an adverse effect on residual values realized on the disposition of
those of the Company's vehicles that are not covered by Repurchase Programs. At
December 31, 1997, the Company was subject to residual risk with respect to 6%
of the vehicles in its fleet.

SEASONALITY

The Company's third quarter, which covers the peak summer travel months, has
historically been its strongest, accounting in 1997 for approximately 28% and
46% of the Company's revenue and pre-tax income, respectively. Any occurrence
that disrupts travel patterns during the summer period could have a material
adverse effect on the Company's annual operating results. The Company's fourth
quarter is generally its weakest with respect to pretax income because of
reduced leisure travel and the greater potential for adverse weather conditions.
Many of the Company's operating expenses, such as rent, insurance and personnel,
are fixed and cannot be reduced during periods of decreased rental demand. As a
result, there can be no assurance that the Company would have sufficient
liquidity under all conditions. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--SEASONALITY."

COMPETITION

The vehicle rental industry is characterized by intense competition,
particularly with respect to price and service. In addition, recent changes in
ownership of a number of the major domestic vehicle rental companies could
further intensify competition. SEE "BUSINESS--INDUSTRY OVERVIEW" AND "BUSINESS
- -- COMPETITION." In any geographic market, the Company may encounter competition
from national, regional and local vehicle rental companies. The Company's main
competitors for vehicle rentals are Hertz, Budget Rent A Car Corporation
("Budget"), Alamo Rent-a-Car Inc. ("Alamo") and National Car Rental System, Inc.
("National").

From time to time, either because of overcapacity or reduced demand, the
major vehicle rental companies have been subject to industry-wide price
pressures, and the Company has, on such occasions, adjusted its rental rates in
response to such pressures. The Company has taken steps to address its fixed
cost structure to improve its overall competitive position and industry
overcapacity has declined. However, a recurrence of oversupply or a marked
reduction in overall demand could adversely affect the Company's ability to
maintain or increase its rental rates.

REGULATION OF LOSS DAMAGE WAIVERS

A significant source of profits for the vehicle rental industry has been the
sale of loss damage waivers, by which rental companies agree to relieve a
customer from financial responsibility arising from vehicle damage incurred
during the rental period. Approximately 3.4% of the Company's total revenue
during 1997 was generated by the sale of loss damage waivers. The U.S. House of
Representatives has from time to time considered legislation that would regulate
the conditions under which loss damage waivers may be sold by vehicle rental
companies. House Bill H.R. 175, introduced in January 1995, seeks to prohibit
the imposition of liability on renters for loss of, or damage to, rented
vehicles, except in certain circumstances, and would prohibit the sale of loss
damage waivers. To date, no action has been taken on this bill. In addition,
approximately 40 states have considered legislation affecting loss damage
waivers. To date, 24 states have enacted legislation regulating the sale of loss
damage waivers, most of which requires disclosure to each customer at the time
of rental that damage to the rented vehicle may be covered by the customer's
personal automobile insurance and that loss damage waivers may not be necessary.
In addition, the state of New York enacted legislation which eliminated the
Company's right to offer loss damage waivers for sale and limited potential
customer liability to $100. In Illinois, the Company is permitted to sell loss
damage waivers at fixed rates. In the event the customer elects not to purchase
the loss damage waiver, the customer's liability is limited to $6,000 unless the
customer violates the prohibited use terms of the rental

13
<PAGE>

agreement, in which case the customer is liable for the fair market value of the
vehicle or the cost of the repairs, whichever is less. Adoption of national or
additional state legislation affecting or limiting the sale of loss damage
waivers could result in the loss of this revenue source and additional
limitations on potential customers' liability could increase the Company's
costs.

ENVIRONMENTAL RISKS INHERENT IN ON-SITE PETROLEUM STORAGE

Approximately 239 of the Company's domestic and international facilities
contain tanks for the storage of petroleum products, such as gasoline, diesel
fuel and waste oils. At approximately 203 of the Company's locations, one or
more of these tanks are located underground. The Company maintains an
environmental compliance program that includes the replacement of steel tanks
and the implementation of required technical and operational procedures designed
to minimize the potential for leaks and spills, maintenance of records and the
regular testing of mechanical line leak detectors. However, there can be no
assurance that these tank systems will at all times remain free from leaks or
that the use of these tanks will not result in spills. In addition, historical
operations at certain of the Company's properties, including activities relating
to automobile and bus maintenance, may have resulted in leaks or spills to soil
or groundwater. Any such leak or spill, depending on such factors as the
material involved, quantity and environmental setting, could result in
interruptions to the Company's operations and expenditures that could have a
material adverse effect on the Company's financial condition. At certain
facilities, the Company presently is remediating soil and groundwater
contamination. Based on currently available information, the Company does not
believe that the related expenditures will be material. In the United States,
Canada and Puerto Rico, the Company carries environmental impairment liability
coverage with annual limits of $4.0 million per site and $4.0 million in the
aggregate per site and a deductible generally of $250,000 against liability to
third parties and clean-up costs, but does not cover business interruption in
the Company's own operations.

UNINSURED LIABILITY RISK

The Company's business exposes it to claims for personal injury, death and
property damage resulting from the use of the vehicles rented by the Company.
The Company either self-insures or maintains coverage for such risk up to $1.0
million per occurrence in its countries of operation and maintains insurance
with unaffiliated carriers in excess of such level up to $200.0 million per
occurrence. There can be no assurance that the Company will not be exposed to
uninsured liability at levels in excess of historical levels resulting from
multiple payouts or otherwise, that liabilities in respect of existing or future
claims will not exceed the level of the Company's insurance, that the Company
will have sufficient capital available to pay any uninsured claims or that
insurance with unaffiliated carriers will continue to be available to the
Company on economically reasonable terms. SEE "BUSINESS--INSURANCE" AND "--LEGAL
PROCEEDINGS."

FUTURE SALES OF COMMON STOCK BY CENDANT

Subject to applicable federal securities laws and the restrictions set forth
below, Cendant may sell any or all of the shares of Common Stock beneficially
owned by it or distribute any or all of such shares of Common Stock to its
stockholders. Sales or distributions by Cendant of substantial amounts of Common
Stock in the public market or to its stockholders, or the perception that such
sales or distributions could occur, could adversely affect prevailing market
prices for the Common Stock. Cendant has advised the Company that its current
intent is to continue to hold all of the Common Stock beneficially owned by it.
However, Cendant is not subject to any contractual obligation to retain its
interest, except that each of the Company and Cendant has agreed, subject to
certain exceptions, not to sell or otherwise dispose of any shares of Common
Stock (except in the event that the Underwriters' over-allotment option is
exercised) until , 1998 without the prior written consent of Bear,
Stearns & Co. Inc. As a result, there can be no assurance concerning the period
of time during which Cendant will maintain its beneficial ownership of Common
Stock owned by it following the offering. Cendant has registration rights with
respect to the shares of Common Stock owned by it which would facilitate any
future disposition. SEE "RELATIONSHIP WITH CENDANT--REGISTRATION RIGHTS
AGREEMENT" AND "SHARES ELIGIBLE FOR FUTURE SALE."

14
<PAGE>
CERTAIN ANTI-TAKEOVER PROVISIONS

Certain provisions of Delaware law, the Company's Amended and Restated
Certificate of Incorporation and the Company's Amended and Restated By-laws
could delay or impede the removal of incumbent directors and could make it more
difficult for a third party to acquire, or could discourage a third party from
attempting to acquire, control of the Company. Such provisions could limit the
price that certain investors might be willing to pay in the future for shares of
the Common Stock. In addition, shares of preferred stock may be issued by the
Board of Directors of the Company without stockholder approval on such terms and
conditions, and having such rights, privileges and preferences, as the Board of
Directors may determine. The rights of the holders of the Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The Company has no current
plans to issue any shares of preferred stock. SEE "DESCRIPTION OF CAPITAL
STOCK--PREFERRED STOCK" AND "DESCRIPTIONS OF CAPITAL STOCK--SECTION 203." The
Franchisor has the right to terminate the Company's franchise upon a Change of
Control Event which would discourage a third party from acquiring control of the
Company. SEE "RELATIONSHIP WITH CENDANT--MASTER LICENSE AGREEMENT."

RELATIONSHIP WITH CENDANT; POTENTIAL CONFLICTS OF INTEREST

Cendant's continuing beneficial ownership of the Company's Common Stock, and
the ownership of Cendant common stock by directors or officers of the Company or
their service as directors or officers of both the Company and Cendant, could
create conflicts of interest when those directors and officers are faced with
decisions that could have different implications for the Company and Cendant,
including potential acquisitions of businesses, the issuance of additional
securities, the election of new or additional directors, the payment of
dividends by the Company and other matters. The Company has not instituted any
formal plan or arrangement to address potential conflicts of interest that may
arise among the Company, Cendant and their affiliates. However, under Delaware
corporate law, officers and directors of the Company owe fiduciary duties to the
Company and its stockholders. SEE "RELATIONSHIP WITH CENDANT."

The Company is party to various agreements with Cendant and its subsidiaries
that were entered into when Cendant beneficially owned all of the outstanding
Common Stock of the Company. While these agreements, including the Company's
franchise agreement with the Franchisor, were not negotiated on an arms' length
basis, these agreements, taken together, are generally consistent with other
agreements Cendant has negotiated with third parties. In addition, the Company
is required to pay the Franchisor royalties based on a percentage of the
Company's revenue, not its profits. As a result, the Company's strategy to
increase profitability may conflict with the Franchisor's interest in increasing
revenue. SEE "RELATIONSHIP WITH CENDANT--MASTER LICENSE AGREEMENT."

DIVIDENDS

The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The Credit Facility prohibits the payment of
cash dividends until the fiscal year ending December 31, 1998 and, thereafter,
permits the payment of dividends only if the Company meets a minimum leverage
ratio, the amount of such dividend does not exceed a designated percentage of
the Company's cash flow and no default exists under the Credit Facility. SEE
"DIVIDEND POLICY."

15
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained herein under "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "The Hayes Transaction" and "Business" including,
without limitation, those concerning (i) the Company's strategy, (ii) the
Company's expansion plans, (iii) the Company's capital expenditures, (iv) the
percentage of vehicles expected to be acquired from GM in the future, (v) the
terms upon which vehicles will be acquired, (vi) the development of the
Company's strategic information system, (vii) the closing of the Hayes
Transaction and (viii) the cross-marketing opportunities with Cendant, contain
certain forward-looking statements concerning the Company's operations, economic
performance and financial condition. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause such
differences include, but are not limited to, those discussed under "Risk
Factors."

16
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the offering made hereby is estimated
to be approximately $ million, after deducting underwriting discounts and
estimated expenses related to the offering. The Company expects that
approximately $85 million of such proceeds will be used to finance the Hayes
Transaction and certain associated expenses. The balance will be used for
working capital and general corporate purposes, including the repayment of
certain indebtedness. SEE "CAPITALIZATION." In addition, if appropriate
opportunities arise, the Company may pursue the acquisition of other car rental
operations including, where feasible, other Avis System franchises, and any
available proceeds could be used in connection with any such acquisition.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is listed on the NYSE. The following table sets
forth for the periods indicated the high and low sales price per share of the
Common Stock on the NYSE Composite Tape since the date of the IPO at a price of
$17 per share.

<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
1997
Fourth Quarter (from September 24).............................. 36 9/16 21 1/2

1998
First Quarter (through February 27)............................. 38 1/4 27
</TABLE>

On February 27, 1998, the last reported sale price per share of the Common
Stock on the NYSE Composite Tape was $28.63.

DIVIDEND POLICY

The Company anticipates that for the foreseeable future all earnings will be
retained for use in its business and does not anticipate paying cash dividends.
Any future declaration and payment of dividends will be subject to the
discretion of the Board of Directors of the Company and subject to certain
limitations under the General Corporation Law of the State of Delaware. The
timing, amount and form of dividends, if any, will depend, among other things,
on the Company's results of operations, financial condition, cash requirements
and other factors deemed relevant by the Board of Directors of the Company. The
Company, as a holding company, will be dependent on the earnings and cash flow
of, and dividends and distributions from, ARACS to pay any cash dividends or
distributions on the Common Stock. In addition, the Company's ability to pay
cash dividends is restricted under various of its debt instruments. SEE "RISK
FACTORS--DIVIDENDS," "BUSINESS--REGULATORY MATTERS," AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--LIQUIDITY AND CAPITAL RESOURCES."

Prior to the acquisition by Cendant of the parent of the Company's
Predecessor Company in October 1996, the Company's Predecessor Company paid
dividends to its parent of $8.7 million and $1.4 million during 1995 and 1996,
respectively, which are not indicative of those that may be paid by the Company
in the future.

17
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1997 (a) on an actual basis and (b) as adjusted to give effect to
the issuance of the New MTNs (as defined in Management's Discussion and Analysis
of Financial Condition and Results of Operations-Liquidity and Capital
Resources), the sale of the shares of Common Stock offered hereby and
application of the estimated net proceeds therefrom as described under "Use of
Proceeds". This table should be read in conjunction with the Company's Audited
Consolidated Financial Statements and related notes thereto of the Company
included elsewhere in this Prospectus. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--LIQUIDITY AND CAPITAL
RESOURCES."

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1997
--------------------
AS
ACTUAL(A) ADJUSTED
--------- ---------
(THOUSANDS)
<S> <C> <C>
Debt:

Vehicle Financing--Commercial Paper Notes............................ $1,091,800 $
Vehicle Financing--Medium Term Notes................................. 1,650,000
Debt of foreign subsidiaries......................................... 81,708
Other debt........................................................... 2,914
--------- ---------
Total debt........................................................... $2,826,422 $
--------- ---------

Stockholders' equity:

Preferred Stock, $.01 par value, 20,000,000 shares authorized; none
issued............................................................. -- --
Common Stock, $.01 par value, 100,000,000 shares authorized;
30,925,000 shares issued and outstanding, actual; 35,925,000 shares
issued, as adjusted(a)............................................. 309
Additional paid-in capital........................................... 430,507
Retained earnings.................................................... 28,294
Foreign currency translation adjustment.............................. (9,089)
--------- ---------
Total stockholders' equity........................................... 450,021
--------- ---------
Total capitalization............................................... $3,276,443 $
--------- ---------
--------- ---------
</TABLE>

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

(a) Excludes 4,620,977 shares of Common Stock reserved for issuance under the
Stock Option Plan, of which options to purchase 3,885,700 shares are
outstanding. SEE "MANAGEMENT--STOCK OPTION PLAN."

18
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND AVERAGE REVENUE PER RENTAL
TRANSACTION)

The selected financial data for the year ended December 31, 1993 are derived
from the Unaudited Consolidated Financial Statements of the Company. The
financial data for the years ended December 31, 1994 and 1995, the periods ended
October 16, 1996 and December 31, 1996 and the year ended December 31, 1997 are
derived from the Company's Audited Consolidated Financial Statements of the
Company. The financial data for the year ended December 31, 1993 are unaudited
but, in the opinion of management, have been prepared on the same basis as the
Audited Consolidated Financial Statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for fair presentation
of the financial position and results of operations for the periods presented.
All of the financial data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Company's Audited Consolidated Financial Statements and
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES(A)
------------------------------------------------------ OCTOBER 17, 1996
JANUARY 1, 1996 (DATE OF
YEARS ENDED DECEMBER 31, TO ACQUISITION)
------------------------------------- OCTOBER 16, TO
1993 1994 1995 1996 DECEMBER 31, 1996(D)
----------- ----------- ----------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue........................... $ 1,333,477 $ 1,412,400 $ 1,615,951 $ 1,504,673 $ 362,844
Costs and expenses:
Direct operating, net............. 646,821 664,993 724,759 650,750 167,682
Vehicle depreciation and lease
charges, net.................... 257,723 309,415 411,102 376,185 89,448
Selling, general and
administrative(c)(d)............ 222,629 252,024 269,434 283,180 68,215
Interest, net..................... 114,036 128,898 145,199 120,977 34,212
Amortization of cost in excess of
net assets acquired............. 4,439 4,754 4,757 3,782 1,026
----------- ----------- ----------- --------------- -----------
Income before provision for
income taxes.................... 87,829 52,316 60,700 69,799 2,261
Provision for income taxes........ 34,375 30,213 34,635 31,198 1,040
----------- ----------- ----------- --------------- -----------
Net income........................ $ 53,454 $ 22,103 $ 26,065 $ 38,601 $ 1,221
----------- ----------- ----------- --------------- -----------
----------- ----------- ----------- --------------- -----------
Earnings per share:(e)
Basic........................... $ 1.73 $ .72 $ .84 $ 1.25 $ .04
Diluted......................... $ 1.73 $ .72 $ .84 $ 1.25 $ .04

STATEMENTS OF FINANCIAL POSITION
DATA:
Vehicles, net..................... $ 1,716,518 $ 1,873,158 $ 2,167,167 $ 2,404,275 $ 2,243,492
Total assets...................... $ 2,419,684 $ 2,603,113 $ 2,824,898 $ 3,187,697 $ 3,131,357
Debt.............................. $ 842,541 $ 1,060,123 $ 1,109,747 $ 1,355,595 $ 2,295,474
Vehicle financing notes--due to
affiliates...................... $ 1,010,000 $ 1,050,000 $ 1,180,000 $ 1,289,500 $ 247,500
Stockholders' equity.............. $ 628,256 $ 658,351 $ 688,360 $ 741,307 $ 76,540
Total liabilities and
stockholders' equity............ $ 2,419,684 $ 2,603,113 $ 2,824,898 $ 3,187,697 $ 3,131,357

SELECTED OPERATING DATA:
Number of vehicle rental locations
at period end................... 656 576 541 550 546
Peak number of vehicles during
period.......................... 151,964 150,966 167,511 196,077 177,839
Average number of vehicles during
period.......................... 134,926 137,715 150,853 174,813 172,461
Number of rental transactions
during period (in thousands).... 10,003 10,577 11,544 10,272 2,534
Average revenue per rental
transaction during period....... $ 133 $ 134 $ 140 $ 146 $ 143

<CAPTION>
COMBINED YEAR ENDED
YEAR ENDED DECEMBER 31,
DECEMBER 31, 1996(B) 1997
-------------------- ------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue........................... $ 1,867,517 $2,046,154
Costs and expenses:
Direct operating, net............. 818,432 863,839
Vehicle depreciation and lease
charges, net.................... 465,633 542,090
Selling, general and
administrative(c)(d)............ 351,395 415,728
Interest, net..................... 155,189 167,314
Amortization of cost in excess of
net assets acquired............. 4,808 6,860
----------- ------------
Income before provision for
income taxes.................... 72,060 50,323
Provision for income taxes........ 32,238 22,850
----------- ------------
Net income........................ $ 39,822 $ 27,473
----------- ------------
----------- ------------
Earnings per share:(e)
Basic........................... -- $ .89
Diluted......................... -- $ .88
STATEMENTS OF FINANCIAL POSITION
DATA:
Vehicles, net..................... $ 2,243,492 $3,018,856
Total assets...................... $ 3,131,357 $4,278,956
Debt.............................. $ 2,295,474 $2,826,422
Vehicle financing notes--due to
affiliates...................... $ 247,500 $ --
Stockholders' equity.............. $ 76,540 $ 450,021
Total liabilities and
stockholders' equity............ $ 3,131,357 $4,278,956
SELECTED OPERATING DATA:
Number of vehicle rental locations
at period end................... 546 612
Peak number of vehicles during
period.......................... 196,077 212,104
Average number of vehicles during
period.......................... 174,226 186,317
Number of rental transactions
during period (in thousands).... 12,806 13,667
Average revenue per rental
transaction during period....... $ 146 $ 150
</TABLE>

- ------------------------
(a) See Note 1 to the Audited Consolidated Financial Statements of the Company.
The 1993 amounts are unaudited.

(b) Presented on a combined twelve-month basis and includes the results of the
Predecessor Companies for the period January 1, 1996 to October 16, 1996 and
the results of the Company for the period October 17, 1996 (Date of
Acquisition) to December 31, 1996.

(d) The amounts for the periods October 17, 1996 (Date of Acquisition) to
December 31, 1996 include charges from Cendant. See Note 4 to the Audited
Consolidated Financial Statements.

(e) Basic and diluted earnings per share are computed based on 30,925,000 shares
of Common Stock, the number of shares of Common Stock outstanding before
this offering for all periods presented, except for diluted earnings per
share for 1997. Diluted earnings per share is calculated based on 31,181,134
shares of Common Stock which includes the dilutive effect of the assumed
exercise of outstanding stock options.

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL OVERVIEW

On October 17, 1996, Cendant acquired the Franchisor and its subsidiaries,
which included the operations presently conducted by the Company (the
"Acquisition"). The Acquisition was accounted for as a purchase.

On August 20, 1997, the Company purchased First Gray Line. First Gray Line
was the then second largest Avis System franchisee in North America with
locations in Southern California, Nevada and Arizona.

On September 24, 1997, the Company issued and sold 22,425,000 shares of its
common stock in an initial public offering ("IPO") and received net proceeds of
$359.3 million. The net proceeds were used to repay amounts outstanding under a
credit facility established to complete the First Gray Line acquisition, pay
certain acquisition expenses incurred to complete the First Gray Line
acquisition and to prepay outstanding indebtedness. The Franchisor has entered
into the Master License Agreement with the Company granting the Company the
right to operate as a franchisee under the Avis System. As an Avis System
franchisee, the Company is required to make payments consisting of a base
royalty of 3.0% of the Company's revenue payable monthly and a supplemental
royalty of 1.0% of revenue payable quarterly in arrears (which will increase
0.1% per year commencing in 1999, and in each of the following four years
thereafter to a maximum of 1.5%). Until July 30, 2002, the supplemental royalty
or a portion thereof may be deferred if the Company does not attain certain
financial targets.

The Company conducts vehicle rental operations through wholly-owned
subsidiaries in the United States, Canada, Puerto Rico, the U.S. Virgin Islands,
Argentina, Australia and New Zealand. Revenue is derived principally from time
and mileage charges for vehicle rentals and, to a lesser extent, fees for loss
damage waivers, liability insurance and other products and services.

The Company's expenses consist primarily of:

- Direct operating expenses (primarily wages and related benefits,
concessions and commissions paid to airport authorities, vehicle
insurance premiums and other costs relating to the operation of the
rental fleet).

- Depreciation and lease charges relating to the rental fleet (including
net gains or losses upon the disposition of vehicles).

- Selling, general and administrative expenses (including royalties,
advertising, reservations and marketing costs, and commissions paid to
airlines and travel agencies).

- Interest expense relating primarily to financing of the rental fleet.

The Company's profitability is primarily a function of the volume and
pricing of its rental transactions and the utilization of its rental fleet.
Significant changes in the Company's net cost of vehicles or in interest rates
can also have a material effect on the Company's profitability, depending on its
ability to adjust its rental rates. In addition, because the Company is required
to pay royalties based on its revenue, not its profits, royalty payments could
increase during a period of declining profits. The Company's royalty fee
obligations and its significant expenditures for vehicles and facilities impose
a significant need for liquidity. SEE "RELATIONSHIP WITH CENDANT--MASTER LICENSE
AGREEMENT."

Management believes that a more meaningful comparison of the results of
operations for the years ended December 31, 1997 and 1996 is obtained by
presenting results on a pro forma basis to give effect to the following
transactions as if they had occurred on January 1 of each period presented: the
acquisition of the Company by Cendant and the establishment of a
franchisor/franchisee relationship; the acquisition of

20
<PAGE>
First Gray Line and the repayment of debt with net proceeds (after the
acquisition of First Gray Line) from the IPO.

The following discussion and analysis provides information that management
believes to be relevant to understanding the Company's consolidated financial
position and results of operations. For comparative purposes, results for 1996
are presented on a combined twelve-month basis and include the results of the
Predecessor Companies for the period January 1, 1996 to October 16, 1996 and the
results of the Company for the period October 17, 1996 (Date of Acquisition) to
December 31, 1996. As a result of the Acquisition, the Consolidated Financial
Statements for the period subsequent to the Acquisition are presented on a
different basis of accounting than those for the period prior to the Acquisition
and, therefore, are not directly comparable. A separate discussion of the
results of operations for the Company has been presented for the period October
17, 1996 through December 31, 1996 compared to October 17, 1995 through December
31, 1995 in light of the reporting of separate results from October 17, 1996
(Date of Acquisition) and the different basis of accounting for the period prior
to the Acquisition. This discussion should be read in conjunction with the
Audited Consolidated Financial Statements and related notes thereto and the
unaudited Pro Forma Consolidated Statement of Operations and related notes
thereto included elsewhere in this Prospectus.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain items in
the Company's consolidated statements of operations (dollars in thousands):

<TABLE>
<CAPTION>
HISTORICAL UNAUDITED PRO FORMA(C)
---------------------------------------------- ----------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OF COMBINED OF OF OF
1995(A) REVENUE 1996(B) REVENUE 1996 REVENUE 1997 REVENUE
--------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue..................... $1,615,951 100.0 $1,867,517 100.0 $2,055,519 100.0 $2,175,897 100.0
--------- ----------- --------- ----------- --------- ----------- --------- -----------
Costs and Expenses:
Direct operating, net..... 724,759 44.9 818,432 43.8 905,534 44.0 920,283 42.3
Vehicle depreciation,
and lease charges,
net..................... 411,102 25.4 465,633 25.0 493,306 24.0 559,433 25.7
Selling, general and
administrative.......... 269,434 16.7 351,395 18.8 439,674 21.4 422,053 19.4
Interest, net............. 145,199 9.0 155,189 8.3 183,115 8.9 192,598 8.9
Amortization of cost in
excess of net assets
acquired................ 4,757 0.3 4,808 0.3 9,295 0.5 9,743 0.4
--------- ----------- --------- ----------- --------- ----------- --------- -----------
1,555,251 96.3 1,795,457 96.2 2,030,924 98.8 2,104,110 96.7
--------- ----------- --------- ----------- --------- ----------- --------- -----------
Income before provision for
income taxes.............. 60,700 3.7 72,060 3.8 24,595 1.2 71,787 3.3
Provision for income
taxes..................... 34,635 2.1 32,238 1.7 16,028 0.8 32,355 1.5
--------- ----------- --------- ----------- --------- ----------- --------- -----------
Net income.................. $ 26,065 1.6 $ 39,822 2.1 $ 8,567 0.4 $ 39,432 1.8
--------- ----------- --------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- ----------- --------- -----------
</TABLE>

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

(a) Represents the results of operations of the Predecessor Companies. See Note
1 to the Audited Consolidated Financial Statements.

(b) For comparative purposes, results for 1996 are presented on a combined
twelve-month basis and include the results of the Predecessor Companies for
the period January 1, 1996 to October 16, 1996 and the results of the
Company for the period October 17, 1996 (Date of Acquisition) to December
31, 1996. See Note 1 to the Audited Consolidated Financial Statements. A
separate discussion has been presented below for the period October 17, 1996
to December 31, 1996 compared to the period October 17, 1995 to December 31,
1995.

(c) Includes the effects of the following transactions as if they had occurred
on January 1 of each period presented: (i) the acquisition of the Company by
Cendant and the establishment of a franchisor/franchisee relationship, (ii)
the acquisition of First Gray Line and (iii) the repayment of debt with the
net proceeds (after the purchase of First Gray Line) from the IPO.

21
<PAGE>
PRO FORMA YEAR ENDED DECEMBER 31, 1997 COMPARED TO PRO FORMA YEAR ENDED DECEMBER
31, 1996

REVENUE

Revenue for the year ended December 31, 1997 increased 5.9%, from $2,055.5
million to $2,175.9 million, over 1996, primarily reflecting a 3.5% increase in
the number of rental transactions and a 2.3% increase in revenue per rental
transaction. The revenue increase resulted from greater overall market demand.

COSTS AND EXPENSES

Total costs and expenses for 1997 increased 3.6%, from $2,030.9 million to
$2,104.1 million, over 1996. Direct operating expenses for 1997 increased 1.6%,
from $905.5 million to $920.3 million, over 1996. As a percentage of revenue,
direct operating expenses for 1997 declined to 42.3% from 44.0% for 1996.
Operating efficiencies were derived primarily from lower vehicle damage costs
(0.3% of revenue), lower facility costs (0.3% of revenue), lower vehicle
insurance costs (0.2% of revenue), lower vehicle registration costs (0.6% of
revenue) and a decline in wages and benefits as a percentage of revenue (0.2% of
revenue).

Vehicle depreciation and lease charges for 1997 increased 13.4%, from $493.3
million to $559.4 million, over 1996. As a percentage of revenue, vehicle
depreciation and lease charges for 1997 was 25.7% of revenue, as compared to
24.0% of revenue for 1996. The change reflected a 3.2% increase in the average
rental fleet required to service higher rental day activity. In addition, due to
favorable market conditions for the sale of certain model vehicles, the net
proceeds received in excess of book value upon the disposition of used vehicles
was $30.0 million higher in 1996 as compared to 1997. This resulted in a 1.7%
reduction in vehicle depreciation and lease charges as a percentage of revenue
in 1996.

Selling, general and administrative expenses for 1997 decreased 4.0%, from
$439.7 million to $422.1 million, over 1996. As a percentage of revenue,
selling, general and administrative expenses for 1997 decreased to 19.4% from
21.4% for 1996. This decrease was the result of lower reservation costs due to
operating efficiencies and reduced marketing costs as a result of the
elimination of certain marketing programs in place during the first half of
1996, partially offset by higher royalty fees due to increased revenue.

Interest expense, net, for 1997 increased 5.2%, from $183.1 million to
$192.6 million, over 1996, due primarily to (i) higher borrowings required to
finance the growth of the rental fleet, partially offset by lower average
interest rates.

The provision for income taxes for 1997 increased 101.9%, from $16.0 million
to $32.4 million, over 1996. The effective tax rate for 1997 was 45.1% as
compared to 65.2% for 1996. The increase in the tax provision and the decrease
in the effective tax rate were primarily due to higher domestic income before
provision for income taxes. The effective tax rate includes differences between
the foreign income tax rates and the statutory income tax rate, tax on the
repatriation of foreign earnings, and foreign withholding taxes on dividends
paid to the Company.

Net income for 1997 increased 360.3%, from $8.6 million to $39.4 million,
over 1996. The increase reflects higher revenue and decreased operating costs
and expenses as a percentage of revenue in 1997 as explained above.

22
<PAGE>
PERIOD FROM OCTOBER 17, 1996 TO DECEMBER 31, 1996 COMPARED TO PERIOD FROM
OCTOBER 17, 1995 TO DECEMBER 31, 1995 (DOLLARS IN THOUSANDS):
<TABLE>
<CAPTION>
OCTOBER 17, 1996
OCTOBER 17, 1995 (DATE OF
TO ACQUISITION)
DECEMBER 31, 1995 PERCENTAGE TO DECEMBER 31, PERCENTAGE
PREDECESSOR COMPANIES OF REVENUE 1996 OF REVENUE
--------------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)

<CAPTION>
<S> <C> <C> <C> <C>
Revenue....................................... $ 333,503 100.0 $ 362,844 100.0
Costs and expenses:
Direct operating, net....................... 154,141 46.2 167,682 46.2
Vehicle depreciation, net and lease
charges................................... 87,862 26.3 89,448 24.7
Selling, general and administrative......... 62,774 18.8 68,215 18.8
Interest, net............................... 31,222 9.4 34,212 9.4
Amortization of cost in excess of net assets
acquired.................................. 987 0.3 1,026 0.3
---------- ----- -------- -----
336,986 101.0 360,583 99.4
---------- ----- -------- -----
Income (loss) before provision (benefit) for
income taxes................................ (3,483) (1.0) 2,261 0.6
Provision (benefit) for income taxes.......... (1,989) (0.6) 1,040 0.3
---------- ----- -------- -----
Net income (loss)............................. $ (1,494) (0.4) $ 1,221 0.3
---------- ----- -------- -----
---------- ----- -------- -----
</TABLE>

REVENUE

Revenue for the period October 17, 1996 to December 31, 1996 (the "1996
Period") increased 8.8%, from $333.5 million to $362.8 million, over the
corresponding period in 1995 (the "1995 Period"), reflecting a 7.0% increase in
the number of rental transactions and a 1.7% increase in revenue per rental
transaction. The revenue increase resulted from greater overall market demand.

COSTS AND EXPENSES

Total costs and expenses for the 1996 Period increased 7.0%, from $337.0
million to $360.6 million, over the 1995 Period. Direct operating expenses for
the 1996 Period increased 8.8%, from $154.1 million to $167.7 million, over the
1995 Period. For both the 1996 and 1995 Periods, direct operating expenses were
46.2% of revenue. The 1996 Period reflected lower manpower (0.8% of revenue), as
well as lower facility costs (1.2% of revenue), offset by higher maintenance and
damage costs (2.0% of revenue).

Vehicle depreciation and lease charges for the 1996 Period increased 1.8%,
from $87.9 million to $89.4 million, over the 1995 Period. As a percentage of
revenue, vehicle depreciation and lease charges for the 1996 Period decreased to
24.7% of revenue as compared to 26.3% of revenue for the 1995 Period. The change
reflected a 10.8% increase in the average rental fleet required to service
higher rental day activity and a 7.5% decrease in the average monthly cost per
vehicle. In addition, the net proceeds received in excess of book value upon the
disposition of used vehicles improved by $1.7 million or 0.4% of revenue in the
1996 Period over the 1995 Period. This was primarily due to favorable market
conditions for the sale of certain model vehicles.

Selling, general and administrative expenses for the 1996 Period increased
8.7%, from $62.8 million to $68.2 million, over the 1995 Period. The increase
was due primarily to fees of $6.5 million payable to Cendant for the 1996
Period.

23
<PAGE>
Interest expense, net, for the 1996 Period increased 9.6%, from $31.2
million to $34.2 million, over the 1995 Period, primarily due to higher
borrowings required to finance the increased cost and size of the rental fleet.

The provision for income taxes for the 1996 Period increased to $1.0 million
from a benefit for income taxes of $2.0 million for the 1995 Period. The
increase in the tax provision was primarily due to having income before taxes
for the 1996 Period as compared to a loss before taxes for the 1995 Period. The
effective tax rate for the 1996 Period was 46.0% as compared to 57.1% for the
1995 Period. The decrease in the effective tax rate was primarily due to a
reduction in the tax effect of foreign operations. The tax effect of foreign
operations includes differences between the foreign income tax rates and the
statutory U.S. income tax rate, tax on the repatriation of foreign earnings, and
foreign withholding taxes on dividends paid to the Company.

COMBINED YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

REVENUE

Revenue for the year ended December 31, 1996 increased 15.6%, from $1,616.0
million to $1,867.5 million, over 1995, reflecting a 10.9% increase in the
number of rental transactions and a 4.3% increase in revenue per rental
transaction. The revenue increase resulted from greater overall market demand as
well as the benefits of specific marketing initiatives implemented by the
Company.

COSTS AND EXPENSES

Total costs and expenses for 1996 increased 15.4%, from $1,555.3 million to
$1,795.5 million, over 1995. Direct operating expenses for 1996 increased 12.9%,
from $724.8 million to $818.4 million, over 1995. As a percentage of revenue,
direct operating expenses for 1996 decreased to 43.8% of revenue as compared to
44.9% of revenue for 1995. The improvement was primarily attributable to lower
vehicle insurance costs (0.4% of revenue) resulting from improved claims
experience, as well as lower facility costs (0.6% of revenue), offset in part by
higher maintenance and damage costs (0.8% of revenue). In addition, 1995
expenses included environmental remediation costs and organizational
restructuring charges which approximated 0.6% of revenue.

Vehicle depreciation and lease charges for 1996 increased 13.3%, from $411.1
million to $465.6 million, over 1995. As a percent of revenue, vehicle
depreciation and lease charges for 1996 were 24.9% of revenue in 1996, as
compared to 25.4% of revenue in 1995. The change reflected a 15.5% increase in
the average rental fleet required to service higher rental day activity, and a
1.0% increase in the average monthly cost per vehicle. In addition, the net
proceeds received in excess of book value upon the disposition of used vehicles
improved by $17.0 million or 0.7% of revenue in 1996 over 1995. This was
primarily due to favorable market conditions for the sale of certain model
vehicles.

Selling, general and administrative expenses for 1996 increased 30.4%, from
$269.4 million to $351.4 million, over 1995. The increase was primarily due to
higher advertising and marketing expenditures. In addition, the increase
reflected fees of $6.5 million payable to Cendant for the period October 17,
1996 to December 31, 1996.

Interest expense, net, for 1996 increased 6.9%, from $145.2 million to
$155.2 million, over 1995, due to higher borrowings required to finance the
growth of the rental fleet, partially offset by lower average interest rates.

The provision for income taxes for 1996 decreased 6.9%, from $34.6 million
to $32.2 million, over 1995. The effective tax rate for 1996 was 44.7% as
compared to 57.1% for 1995. The decrease in both the tax provision and the
effective tax rate were primarily due to a reduction in the tax effect of
foreign operations. The tax effect of foreign operations includes differences
between the foreign income tax rates

24
<PAGE>
and the statutory U.S. income tax rate, tax on the repatriation of foreign
earnings, and foreign withholding taxes on dividends paid to the Company.

LIQUIDITY AND CAPITAL RESOURCES

The Company's domestic and foreign operations are funded by cash provided by
operating activities and by financing arrangements maintained by the Company in
the United States, Canada, Puerto Rico, Argentina, Australia and New Zealand.
The Company's primary use of funds is for the acquisition of new vehicles. In
1997, the Company's expenditures for new vehicles were approximately $4.4
billion and its proceeds from the disposition of used vehicles were
approximately $3.4 billion. The increase in vehicles was due to the inclusion of
vehicles previously financed under operating leases, the acquisition of First
Gray Line and an increase in domestic fleet levels. For 1998, the Company
expects its expenditures for new vehicles (net of proceeds from the disposition
of used vehicles) to be higher than in 1997. New vehicles are generally
purchased by the Company in accordance with the terms of Repurchase Programs.
The financing requirements for vehicles typically reaches an annual peak during
the second and third calendar quarters, as fleet levels build up in response to
increased rental demand during that period. The typical low point for cash
requirements occurs during the end of the fourth quarter and the beginning of
the first quarter, coinciding with lower levels of fleet and rental demand. The
Company has established methods for disposition of its used vehicles that are
not covered by Repurchase Programs.

The Company expects that cash flows from operations and funds from available
credit facilities will be sufficient to enable the Company to meet its
anticipated cash requirements for operating purposes for the next twelve months.

The Company also makes capital investments for property improvements and
non-revenue earning equipment. Capital investments for property improvements and
non-revenue earning equipment were $24.7 million in 1997, and management
estimates such expenditures will approximate $35 million in 1998. The Company's
customer receivables also provide liquidity with approximately 12 days of daily
sales outstanding.

The Company has a consolidated fleet financing program that provides for up
to $3.55 billion in financing for vehicles covered by Repurchase Programs, with
up to 25% of the facility available for vehicles not covered by Repurchase
Programs. The fleet program provides for the issuance of up to $1.9 billion of
asset backed variable funding notes (the "Commercial Paper Notes") and $1.65
billion of asset-backed medium term notes (the "Medium Term Notes"). The
Commercial Paper Notes and the Medium Term Notes are backed by, among other
things, a first priority security interest in the Company's vehicle fleet. The
Commercial Paper Notes are rated A-1 by Standard & Poor's Ratings Group
("Standard & Poor's") and P-1 by Moody's Investors Services, Inc. ("Moody's").
The Medium Term Notes are supported by a Surety Bond issued by MBIA and rated
AAA by Standard & Poor's and Aaa by Moody's. At December 31, 1997, the Company
had approximately $2.8 billion of debt outstanding under its fleet financing
facilities. In addition, at December 31, 1997, the Company had approximately
$828 million of additional credit available for vehicle purchases.

On February 26, 1998 the Company issued an additional $600 million of
asset-backed medium term notes (the "New MTNs"), the proceeds of which will be
used to repay borrowings under its Commercial Paper Notes. The New MTNs will
rank equal in right of payment with the Medium Term Notes and the Commerical
Paper Notes and will be supported by a Surety Bond issued by CapMAC and rated
AAA by Standard and Poor's and Aaa by Moody's.

ARACS is party to a $350.0 million secured credit agreement (the "Credit
Agreement") that provides for (i) a revolving credit facility in the amount of
up to $125.0 million which is available on a revolving basis until December 31,
2000 (the "Final Maturity Date") in order to finance the general corporate needs
of ARACS in the ordinary course of business (with up to $75.0 million of such
amount available for the issuance of standby letters of credit to support
worker's compensation and other insurance and bonding

25
<PAGE>
requirements of ARACS, the Company and their subsidiaries in the ordinary course
of business), and (ii) a standby letter of credit facility of up to $225.0
million available on a revolving basis to fund (a) any shortfall in certain
payments owing pursuant to fleet lease agreements and (b) maturing Commercial
Paper Notes if such Commercial Paper Notes cannot be repaid through the issuance
of additional Commercial Paper Notes or draws under the liquidity facility
supporting the Commercial Paper Notes (the "Liquidity Facility"). Borrowings
under the Credit Agreement are secured by substantially all of the tangible and
intangible assets of the Company, including its intellectual property and its
rights under the Master License Agreement, except for those assets which are
subject to a negative pledge. At December 31, 1997, the Company had issued
letters of credit under the Credit Facility of $34.5 million to support its
worker's compensation insurance requirements and $200 million to support its
Commercial Paper Notes.

Approximately 42% of the Company's outstanding debt at December 31, 1997 was
interest rate sensitive and had a weighted average interest rate at such date of
5.9%. The Company has developed an interest rate management policy, including a
target mix for average fixed rate and floating rate indebtedness on a
consolidated basis. However, an increase in interest rates may have a material
adverse impact on the Company's profitability.

Borrowings for the Company's international operations consist mainly of
loans obtained from local and international banks. All borrowings for
international operations are in the local currencies of the countries in which
those operations are conducted and are unsecured. The Company guarantees only
the borrowings of its subsidiaries in Australia and Puerto Rico. At December 31,
1997, the total debt for the Company's international operations was $81.7
million, of which $18.0 million was short-term (with original maturity of one
year or less) and $63.7 million was long-term. The impact on liquidity and
financial condition due to exchange rate fluctuations regarding the Company's
foreign operations is not material.

RESTRICTIONS IMPOSED BY INDEBTEDNESS

INFLATION

The increased acquisition cost of vehicles is the primary inflationary
factor affecting the Company's operations. Many of the Company's other operating
expenses are inflation sensitive, with increases in inflation generally
resulting in increased costs of operations. The effect of inflation-driven cost
increases on the Company's overall operating costs is not expected to be greater
for the Company than for its competitors.

SEASONALITY

The Company's third quarter, which covers the peak summer travel months, has
historically been its strongest quarter, accounting for 28% and 46% of the
Company's revenue and pre-tax income, respectively, in 1997. Any occurrence that
disrupts travel patterns during the summer period could have a material adverse
effect on the Company's annual operating results. The Company's fourth quarter
is

26
<PAGE>
generally its weakest, when there is limited leisure travel and a greater
potential for adverse weather conditions. Many of the Company's operating
expenses, such as rent, insurance and personnel, are fixed and cannot be reduced
during periods of decreased rental demand. As a result, there can be no
assurance that the Company would have sufficient liquidity under all conditions.

RECENT PRONOUNCEMENT OF THE FINANCIAL ACCOUNTING STANDARDS BOARD

Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130") is a recent pronouncement of the
Financial Accounting Standards Board, which is not required to be adopted at
this date. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 is effective for fiscal year ending December
31, 1998. The adoption of this statement will not have a material effect on the
Company's consolidated financial statements.

YEAR 2000

The Company has evaluated the effect on its information systems, primarily
computer software programs, to properly recognize and process date-sensitive
information related to the Year 2000. A preliminary assessment indicates that
ensuring the Company is Year 2000 compliant will involve a mix of purchasing new
systems, modifying existing systems and confirming vendor compliance. The
Company currently anticipates that incremental capital expenditures associated
with the Year 2000 will not have a material impact on the Company's operations.
The Company currently believes that its information systems will be Year 2000
compliant by first quarter 1999.

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BUSINESS

INDUSTRY OVERVIEW

The car rental industry is composed of two principal markets: general use
(mainly airport) and local/ replacement (mainly downtown and suburban
locations). Through November 30, 1997, general use car rental companies, which
includes the Company, accounted for approximately 66% of vehicle rental revenue
in the United States. General use rental companies rent primarily to business
and leisure travelers. Local/replacement rental companies typically rent
vehicles to individuals who have lost the use of their vehicles through
accident, theft or breakdown. In addition to revenue from vehicle rentals, the
industry derives revenue from the sale of rental related products such as
liability insurance, refueling services and loss damage waivers.

The domestic general use car rental market includes five major companies:
Alamo, Avis, Budget, Hertz and National. The following table sets forth the
airport market share of each of the major vehicle rental companies at 163
airports in the United States where the Company operates that report
concessionable revenues (i.e., revenues on which airport authorities assess fees
from vehicle rental companies) for the periods indicated:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------- ELEVEN MONTHS ENDED
1994 1995 1996 NOVEMBER 30, 1997
----- ----- ----- -------------------------
<S> <C> <C> <C> <C>
The Company......................... 22% 23% 24% 24%
Hertz............................... 30 30 29 29
National............................ 14 15 16 17
Budget.............................. 14 13 11 11
Alamo............................... 11 11 10 10
</TABLE>

The domestic vehicle rental industry has experienced significant growth over
the past five years. According to information provided by major U.S. airports,
vehicle rental industry revenues have increased at a compound annual rate of
approximately 10% since 1992. Management believes that factors such as increases
in airline passenger traffic, increased business travel and demographic trends,
among others, continue to expand the demand for rental vehicles. The Company's
network of airport rental locations, which it believes is among the nation's
largest, accounted for approximately 86% of its domestic revenue in 1997.

Customers of general use vehicle rental companies generally are (i) business
travelers renting under negotiated contractual arrangements between their
employers and the rental company, (ii) business and leisure travelers who may
receive discounts through travel, professional or other organizations, (iii)
small corporate accounts that are provided with a rate and benefits package that
does not require a contractual commitment and (iv) leisure travelers with no
organizational or corporate affiliation programs. Travelers who do not have the
benefits of negotiated contractual arrangements generally are influenced by
price, advertising, reputation for reliability and service.

Since the late 1980's, vehicle rental companies have acquired vehicles
primarily pursuant to Repurchase Programs. Repurchase prices under the
Repurchase Programs are based on either (i) a specified percentage of original
vehicle cost determined in the month the vehicle is returned or (ii) the
original capitalization cost less a set daily depreciation amount. These
Repurchase Programs limit a vehicle rental company's residual risk with respect
to vehicles purchased under the programs. This enables vehicle rental companies
to determine depreciation expense in advance. The Company believes that most
vehicles in the fleets of U.S. vehicle rental companies are these "non-risk"
vehicles. SEE "RISK FACTORS--IMPORTANCE OF MANUFACTURERS' REPURCHASE PROGRAMS."

At present, the domestic vehicle rental industry is recovering from a period
that was characterized by substantial increases in fleet costs and significant
rental rate pressure. In the early 1990's, the then

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prevailing economic recession in the United States led to decreased new vehicle
demand and subsequent overcapacity among automotive manufacturers. In response,
manufacturers offered significant incentives to car rental companies, which
allowed them to significantly expand the size of their fleets and eventually
resulted in excess capacity, intensified competition and depressed rental rates.
As general economic conditions in the United States improved during the years
1992 through 1994, manufacturers increased their new vehicle prices and
substantially reduced incentives to fleet purchasers, but continued competitive
pressure within the rental industry inhibited corresponding increases in average
daily rental rates. Recently, the domestic car rental industry has experienced
greater profitability as average daily rental rates have increased and
oversupply conditions have been reduced.

Significant changes in the ownership of participants in the domestic vehicle
rental industry occurred in 1997. Republic Industries, Inc. acquired Alamo and
National, Team Rental Group, Inc. acquired control of Budget from Ford and Ford
sold approximately 20% of the equity of Hertz in an initial public offering. The
Company believes that these companies will increasingly focus on profitability,
resulting in a trend toward increasing vehicle rental rates in the United
States.

COMPANY OVERVIEW

The Company is a holding company which, through its operating subsidiary,
ARACS, operates the second largest general use car rental business in the world,
based on total revenue and volume of rental transactions. The Company rents
vehicles to business and leisure travelers through approximately 612 rental
locations in both airport and non-airport (downtown and suburban) markets in the
United States, Canada, Puerto Rico, the U.S. Virgin Islands, Argentina,
Australia and New Zealand. On August 20, 1997, ARACS purchased First Gray Line,
the then second largest Avis System franchisee in North America. During 1997,
including First Gray Line on a pro forma basis from January 1, 1997, the Company
completed over 14.5 million rental transactions with a fleet that averaged
approximately 200,000 vehicles and generated total revenue of approximately $2.2
billion, of which approximately 89% was derived from its operations in the
United States. On February 20, 1998, ARACS signed an agreement with Hayes, the
second largest Avis System franchisee in North America with six locations in the
state of Texas, including DFW Airport, San Antonio Airport and Austin Municipal
Airport, to acquire the assets of its car rental business for approximately $85
million in cash, plus the refinancing of fleet-related indebtedness. See Note 15
to the Audited Consolidated Financial Statements for financial information
presented based upon the Company's major geographic areas.

The Avis brand name is owned by the Franchisor and is licensed for use by
its franchisees, including the Company, which is the largest Avis System
franchisee in the world. As an Avis System franchisee, the Company has entered
into certain arrangements with the Franchisor and its affiliates that require
the Company to make payments to the Franchisor and its affiliates, including
monthly payments under the Master License Agreement consisting of a monthly base
royalty of 3.0% of the Company's gross revenue and a supplemental royalty of
1.0% of gross revenue payable quarterly in arrears (which will increase 0.1% per
year commencing in 1999 and in each of the following four years thereafter to a
maximum of 1.5%). Until July 30, 2002, the supplemental royalty or a portion
thereof may be deferred if the Company does not attain certain financial
targets. SEE "RELATIONSHIP WITH CENDANT." The Avis System is comprised of
approximately 4,200 rental locations, including locations at the largest
airports and cities in the United States and approximately 160 other countries
and territories, and a fleet of approximately 378,000 vehicles during the peak
season, all of which are operated by franchisees. During 1997, the Company's 485
domestic rental locations (including First Gray Line) produced approximately 87%
of the Avis System's revenue in the United States, with the balance derived from
391 locations operated by 71 other Avis System franchisees, of which five
(including Hayes) accounted for approximately 7% of the Avis System's U.S.
revenue. The Company is the sole franchisee of the Avis System in the
international markets in which it operates. The Avis System in Europe, Africa,
part of Asia and the Middle East is operated under franchise by Avis Europe,
which is not affiliated with the Company. Management believes that the strong

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<PAGE>
recognition of the Avis brand name, the breadth of the Avis System and the
sophistication of the Wizard System enable the Company and other Avis System
franchisees to provide consistent quality, pricing and service to business and
leisure customers worldwide.

The Company utilizes the Wizard System, which it believes is one of the most
sophisticated information management systems in the car rental industry. Key
functions of the Wizard System include: (i) global reservations processing, (ii)
rental agreement generation and administration and (iii) fleet accounting and
control. The Company has also developed software applications that utilize the
data gathered by the Wizard System and third party reservation systems to
achieve centralized control of its major business operations. These applications
include: (i) a yield management system that is designed to increase profit by
controlling vehicle availability by length of rental and providing decision
support for rate changes, (ii) a competitive rate information system that
monitors industry rate changes by market on a daily basis at different vehicle
locations and (iii) a business mix model that analyzes potential profit
contribution data by segment based upon business mix and fleet optimization
recommendations.

The Company is the successor to the car rental operations previously owned
by the Predecessor Companies. Prior to the Acquisition, the principal
shareholder of the Franchisor and the Predecessor Companies was an Employee
Stock Ownership Plan and the minority shareholder was GM. The Company was
incorporated in Delaware on October 17, 1996 in connection with the Acquisition.
ARACS was incorporated in Delaware on September 18, 1956. The principal
executive offices of the Company are located at 900 Old Country Road, Garden
City, New York 11530, and its telephone number at that location is (516)
222-3000.

THE FIRST GRAY LINE ACQUISITION

On August 20, 1997, ARACS purchased all of the outstanding capital stock of
First Gray Line for approximately $195 million in cash, plus expenses. At that
time, First Gray Line was the second largest Avis System franchisee in North
America with 70 locations in Southern California, Nevada and Arizona. Its
operations represented approximately 9.0% of the Avis System's domestic revenue
in 1997.

The Company, through First Gray Line, operates 12 airport vehicle rental
locations, including LAX, McCarran International Airport (Las Vegas) and San
Diego International Airport. The Company estimates that First Gray Line's share
of the overall airport markets which it serves was approximately 20% for the
first eleven months of 1997. First Gray Line also operates 58 other locations
throughout Southern California and in Las Vegas, Nevada, and Yuma, Arizona.

First Gray Line's principal operation is located at LAX, one of the world's
largest airport rental vehicle markets based on vehicle rental revenues. First
Gray Line's operation at LAX is well-integrated with most of its other Southern
California operations, which operate largely in contiguous geographical areas.
First Gray Line's Las Vegas and San Diego operations have experienced
substantial growth in recent years, reflecting the continued high growth of
these areas as destination resorts and convention sites.

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<PAGE>
THE HAYES TRANSACTION

On February 20, 1998, ARACS signed an agreement with Hayes to purchase the
assets of its car rental business, including the Avis System franchises for the
cities of Austin, Fort Worth and San Antonio, and the counties of Dallas and
Tarrant, Texas, for approximately $85 million in cash, plus the refinancing of
fleet related indebtedness. It is anticipated that the Hayes Transaction will
close in the second quarter of 1998, subject to the satisfaction or waiver of
certain conditions, including, but not limited to, the expiration or termination
of any waiting periods required pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended; the obtaining of all necessary approvals
of any governmental entities and third parties; and there having not been any
changes in the vehicle rental business which would, in the aggregate, have a
material adverse effect. The net proceeds from this offering will be used, among
other things, to finance the Hayes Transaction. SEE "USE OF PROCEEDS."

Hayes is the second largest Avis System franchisee in North America with a
fleet averaging 8,000 vehicles in 1997, serving six locations in the state of
Texas, including DFW Airport, San Antonio Airport and Austin Municipal Airport.
Business travelers account for a substantial portion of Hayes' rentals. In 1997,
Hayes completed approximately 640,000 transactions and recorded $77 million in
revenues, representing approximately 3.7% of the Avis System's domestic revenues
for the year. The Company estimates that Hayes' overall share of the airport
markets it serves was approximately 25% for the first eleven months of 1997.
Hayes' principal operating location is at DFW Airport, one of the nation's
largest airport rental vehicle markets based on vehicle rental revenues.
Management believes that the Hayes Transaction will be accretive to the
Company's earnings per share in 1998.

STRATEGY

The Company's objective is to improve its profitability through a strategy
that consists of the following key elements:

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INCREASING BRAND LOYALTY THROUGH TARGET MARKETING. Management believes that
the domestic car rental industry is becoming increasingly focused on such
factors as customer service and loyalty. The customer base of the major domestic
car rental companies, including the Company, has become increasingly diverse.
Management plans to utilize the Avis System's proprietary software applications
to analyze the Company's extensive customer database to identify distinguishing
characteristics and preferences of those customers who have been historically
associated with its most profitable rental transactions and to focus its sales
and marketing efforts and service features to attract additional customers with
similar characteristics and preferences. Management believes that this analysis
will enhance the quality of the car rental experience of such customers and
increase their loyalty to the Avis brand.

CAPITALIZING ON CROSS-MARKETING AND OTHER SYNERGISTIC ARRANGEMENTS WITH
CENDANT. The Company has initiated and is expanding cross-marketing
relationships with Cendant's corporate relocation and resort timeshare exchange
businesses, its lodging franchise systems, which include the Days
Inn-Registered Trademark-, Howard Johnson-Registered Trademark- and
Ramada-Registered Trademark- brands, its real estate brokerage franchise
systems, including the CENTURY 21-Registered Trademark- and Coldwell
Banker-Registered Trademark- brands and its membership-based consumer services.
The Company also has begun to reduce its costs of purchasing media and other
non-fleet goods and services through arrangements with Cendant.

RENTAL OPERATIONS

GENERAL. The Company's fleet includes various categories of automobiles,
most of which are of the current and immediately preceding model years. Rentals
are generally made on a daily, weekend, weekly or monthly basis. Rental charges
in the United States usually are computed on the basis of the duration of the
rental and may include a mileage charge and vary based upon vehicle category,
the day on which the rental begins and local competitive and cost factors.
Additional charges are made for optional refueling services, loss damage waivers
(a waiver of the Company's right to make a renter pay for damage to the
vehicle), personal accident insurance, personal effects protection, optional
products such as cellular phones, child seats and ski racks and, in some
instances, additional liability insurance. Most rentals are made utilizing rate
plans under which the customer is responsible for gasoline used during the
rental. The Company also generally offers its customers the convenience of
leaving a rented vehicle at an Avis location in a city other than the one in
which it was rented under Avis's "Rent it Here--Leave it There" program,
although, consistent with industry practices, a drop-off charge or special
intercity rate may be imposed.

UNITED STATES OPERATIONS. At December 31, 1997, the Company operated 485
vehicle rental facilities at airport, near-airport and downtown locations
throughout the United States. During 1997, approximately 86% of the Company's
United States revenue was generated at 183 airports in the United States with
the balance generated at the Company's 302 non-airport locations. The Company's
emphasis on airport traffic has resulted in a particularly strong market
position in the major domestic rental revenue airports.

At most airports, the Company is one of five to seven vehicle rental
concessionaires. In general, concession fees for airport locations are based on
a percentage of total concessionable revenues (as determined by each airport
location), subject to a minimum guaranteed amount. Concessions are typically
awarded by airport authorities every three to five years based upon competitive
bids. As a result of airport authority requirements as to the size of the
minimum guaranteed fee, smaller vehicle rental companies generally are not
located at airports. The Company's concession arrangements with the various
airport authorities generally include minimum requirements for vehicle age,
operating hours and employee conduct, and provide for relocation in the event of
future construction and abatement of fees in the event of extended low passenger
volume.

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INTERNATIONAL OPERATIONS. The Company operates in Canada, Puerto Rico, the
U.S. Virgin Islands, Argentina, Australia and New Zealand. Its operations in
Canada and Australia were the principal contributors of revenue, accounting for
35% and 44%, respectively, of international revenue in 1997. Revenue from
international operations in 1997 were approximately $242 million.

The Company holds a solid market position in each of the countries in which
it operates internationally. The operations in Australia and New Zealand are
acknowledged as the largest in their respective markets in terms of revenue.

AVIS SYSTEM AND WIZARD SYSTEM SERVICES

As a participant in the Avis System, the Company has the benefits of a
variety of services, including (i) comprehensive safety initiatives, including
the "Avis Cares" Safe Driving Program, which offers vehicle safety information,
directional assistance such as satellite guidance, regional maps, weather
reports and specialized equipment for travelers with disabilities; (ii)
standardized system-identity for rental location presentation and uniforms;
(iii) training program and business policies, quality of service standards and
data designed to monitor service commitment levels; (iv)
marketing/advertising/public relations support for national consumer promotions
including Frequent Flyer/Frequent Stay programs and the Avis System internet
website; and (v) brand awareness of the Avis System through the familiar "We try
harder" service announcements.

Under a long-term computer services agreement, the Company, like other Avis
System franchisees, is provided with access to the Wizard System, a
reservations, data processing and information management system for the vehicle
rental business. SEE "RELATIONSHIP WITH CENDANT--COMPUTER SERVICES AGREEMENT."
The Wizard System is linked to all major travel networks on six continents
through telephone lines and satellite communications. Direct access with other
computerized reservations systems allows real-time processing for travel agents
and corporate travel departments. Among the principal features of the Wizard
System are:

- an advanced graphical interface reservation system;

- "Rapid Return," which permits customers who are returning vehicles to
obtain completed charge records from radio-connected "Roving Rapid Return"
agents who complete and deliver the charge record at the vehicle as it is
being returned;

- "Preferred Service," an expedited rental service that provides customers
with a preferred service rental record printed prior to arrival, a
pre-assigned vehicle and fast, convenient check-out;

- "Wizard on Wheels," which enables the Avis System locations to assign
vehicles and complete rental agreements while customers are being
transported to the vehicle;

- a flight arrival notification system that alerts the Company's rental
location when flights have arrived so that vehicles can be assigned and
paperwork prepared automatically;

- "Flight Check," a system that provides flight arrival and departure times
and the next three available flights to the Roving Rapid Return terminals
and Wizard System terminals;

- "Avis Link," which automatically identifies the fact that a user of a
major credit card is entitled to special rental rates and conditions, and
therefore sharply reduces the number of instances in which the Company
inadvertently fails to give renters the benefits of negotiated rate
arrangements to which they are entitled;

- interactive interfaces through third-party computerized reservation
systems described under "-- "MARKETING"; and

- sophisticated automated ready-line programs that, among other things,
enable rental agents to ensure that a customer who rents a particular type
of vehicle will receive the available vehicle of that type which has the
lowest mileage.

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In 1997, the Wizard System enabled the Company to process approximately 30.8
million incoming customer calls, during which customers inquired about
locations, rates and availability and placed or modified reservations. In
addition, millions of inquiries and reservations come to the Company through
travel agents and travel industry partners, such as airlines. Regardless of
where in the world a customer may be located, the Wizard System is designed to
ensure that availability of vehicles, rates and personal profile information is
accurately delivered at the proper time to the customer's rental destination.

MANAGEMENT INFORMATION SYSTEMS

The Company also uses data supplied from the Wizard System and third-party
reservation systems in certain management information systems proprietary to the
Avis System to maintain centralized control of major business processes such as
fleet acquisition and logistics, sales to corporate accounts and determination
of rental rates. The principal components of the systems employed by the Company
include:

- FLEET PLANNING MODEL. The Company has created a comprehensive decision
tool to develop fleet plans and schedules for the acquisition and
disposition of its fleet, along with fleet age, mix, mileage and cost
reports based upon such plans and schedules. This tool allows management
to monitor and change fleet volume and composition on a daily basis and to
develop the lowest cost fleet alternative based on business levels and
available Repurchase Programs.

- YIELD MANAGEMENT. The Company has also created a yield management system
which is designed to optimize profit by providing greater control of
vehicle availability and rate availability changes at its rental
locations. The system monitors and forecasts supply and demand to insure
that the Company is able to capture the combination of rentals that will
produce the highest return over time at each location. Integrated into
this yield management system is a fleet distribution module that takes
into consideration the costs as well as the potential benefits associated
with distributing vehicles to various rental locations within a geographic
area to accommodate rental demand at these locations. The fleet
distribution module makes specific recommendations for movement of
vehicles between the locations.

- PRICING DECISION SUPPORT SYSTEM. Pricing in the vehicle rental industry is
highly competitive and complex. To ensure its ability to respond to rental
rate changes in the marketplace, the Company has developed sophisticated
systems to gather and report competitive industry rental rate changes each
day. The system, using data from third-party reservation systems as its
source of information, automatically scans rate movements and reports
significant changes to a staff of pricing analysts for evaluation. The
system greatly enhances the Company's ability to gather and respond to
rate changes in its markets.

- BUSINESS MIX MODEL. The Company has also developed a strategic planning
model to evaluate the discrete segments of its business relative to each
other. The model considers revenues and costs to determine the potential
margin contribution of each discrete segment. Using data from the
Company's financial systems, the Wizard System and the fleet and revenue
management systems, along with management objectives and targets, the
model develops business mix and fleet optimization recommendations.

- PROFITABILITY MODEL. The Company has developed a sophisticated model that
blends a corporate customer's individual rental into a pattern that
determines fleet costs by developing a profile of such corporate
customer's utilization. The model also combines local operations costs
with division overhead expenses with a resulting benchmark profitability
which is used to determine the financial merit of individual corporate
accounts.

- SALES AND MARKETING SYSTEM. The Company has also developed a sophisticated
system of on-line data screens which enables its sales force to analyze
key account information of its corporate customers including historical
and current rental activity, revenue and booking sources, top renting
locations, rate usage categories and customer satisfaction data. This
information, which is updated weekly and

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captured on a country-by-country basis, is utilized by management to
determine opportunities for revenue growth, profitability and improvement.

FLEET ACQUISITION AND MANAGEMENT

FLEET PURCHASING

The Company participates in a variety of vehicle purchase programs with
major domestic and foreign manufacturers, principally GM, although actual
purchases are made directly through franchised dealers. The average price for
automobiles purchased by the Company in 1997 for its U.S. rental fleet was
approximately $17,340. For the 1997 model year, approximately 69% of new vehicle
purchases were comprised of GM vehicles, 14% of Chrysler vehicles and 17% of
Toyota, Nissan, Subaru, Hyundai, Ford and Land Rover vehicles. In model year
1998, approximately 77% of the Company's fleet in the United States will consist
of GM vehicles, approximately 10% will be Chrysler vehicles and the balance will
be provided by other manufacturers. Manufacturers' vehicle purchase programs
sometimes provide the Company with sales incentives for the purchase of certain
models, and most of these programs allow the Company to serve as a drop-ship
location for vehicles, thus enabling the Company to receive a fee from the
manufacturers for preparing newly purchased vehicles for use. There can be no
assurance that the Company will continue to benefit from sales incentives in the
future. For its international operations, vehicles are acquired by way of
negotiated arrangements with local manufacturers and/or dealers using operating
leases or Repurchase Programs.

Under the terms of the Company's agreement with GM, which expires at the end
of GM's model year 2000, the Company is required to purchase at least 150,150 GM
vehicles for model year 1998 and maintain at least 51% GM vehicles in the
Company's domestic fleet at all times. The GM Repurchase Program is available
for all vehicles purchased pursuant to the agreement.

IMPACT OF SEASONALITY

The Company's business is subject to seasonal variations in customer demand,
with the summer vacation period representing the peak season for vehicle
rentals. This general seasonal variation in demand, along with more localized
changes in demand at each of the Company's operations, causes the Company to
vary its fleet size over the course of the year. In 1997, the Company's average
monthly fleet size ranged from a low of 186,000 vehicles in January to a high of
217,000 vehicles in August. Fleet utilization, which is based on the number of
hours vehicles are rented compared to the total number of hours vehicles are
available for rental, ranged from 64% in December to 82% in August and averaged
74% for all of 1997.

VEHICLE DISPOSITION

The Company's current operating strategy is to hold vehicles for not more
than 12 months with the average fleet age being less than six months.
Approximately 91% of the vehicles purchased for its domestic fleet under the
model year 1997, including most GM vehicles, were eligible for Repurchase
Programs. These programs impose certain return conditions, including those
related to mileage and repair condition over specified allowances. Less than
3.5% of the Repurchase Program vehicles purchased by the Company and returned in
1997 were ineligible for return. Upon return of a Repurchase Program vehicle,
the Company receives a price guaranteed at the time of purchase and is thus
protected from a decrease in prevailing used car prices in the wholesale market.
The Company also disposes of its used vehicles that are not covered by
Repurchase Programs to dealers in the United States through informal
arrangements or at auctions. The future percentage of Repurchase Program
vehicles in the Company's fleet will depend on the availability of Repurchase
Programs, over which the Company has no control. SEE "RISK FACTORS-- IMPORTANCE
OF MANUFACTURERS' REPURCHASE PROGRAMS."

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MAINTENANCE

The Company places a strong emphasis on vehicle maintenance since quick and
proper repairs are critical to fleet utilization. To accomplish this task the
Company employs two full-time National Institute for Automotive Service
Excellence ("ASE") fully certified technician instructors at its headquarters
who have developed a unique training program for the Company's 250 technicians
who operate at 75 repair centers. The technicians also maintain a strong
relationship with General Motors Service Technology Group ("STG"). The Company
uses "state of the art" diagnostic equipment including GM's "Techline" and "Tech
2" diagnostic computers, and is the only vehicle rental fleet to utilize GM's
"Pulsat Satellite Training Network." The Company's technician training
department also prepares their own technical service bulletins that can be
retrieved electronically at all of the Company's repair locations. Approximately
70% of the Company's technicians are ASE certified versus the national average
of 44%.

MARKETING

UNITED STATES

In the United States, approximately 77% of the Company's 1997 rental
transactions were generated by travelers who used the Avis System under
contracts between the Company and their employers or organizations of which they
were members. The Company's corporate sales organization is the principal source
of contracts with corporate accounts. Unaffiliated business travelers are
solicited by direct mail, telesales and advertising campaigns. The Company's
telesales department consists of a centralized staff that handles small
corporate accounts, travel agencies, meetings and conventions, tour operators
and associations. Working with a state-of-the-art system in Tulsa, Oklahoma, the
telesales operation produced revenue for the Avis System that exceeded $275
million in 1997.

The Company solicits contractual arrangements with corporate accounts by
emphasizing the Wizard System's customer service, rental rates, a worldwide
rental network, advanced technology and centralized account servicing. The
Wizard System plays a significant part in securing business of this type because
the Wizard System enables the Company to offer a wide variety of rental rate
combinations, special reports and tracking techniques tailored to the particular
needs of each account, and to assure adherence to agreed-upon rates.

The Company's presence in the leisure market is substantially less than its
presence in the business market. Leisure rental activity is important in
enabling the Company to balance the use of its fleet. Typically, business
renters use vehicles from Monday through Thursday, while in most areas of the
United States leisure renters use vehicles primarily over weekends. The
Company's concentration on serving business travelers has led to excess capacity
from Friday through Sunday of most weeks. The Company intends to increase its
leisure market penetration by capitalizing on its strength at airports and by
increased focusing of its marketing efforts toward leisure travelers. An
important part of the Company's leisure marketing strategy is to develop and
maintain contractual arrangements with associations that provide member benefits
to their constituents. In addition to developing arrangements with traditional
organizations, the Company has created innovative programs such as the Affinity
Link Program that cross references bankcard numbers with Avis Worldwide
identification numbers and provides discounts to the cardholders for
participating bankcard programs. The Company also uses coupons in dine-out books
and provides discounts to members of shopping and travel clubs whose members
generated approximately $60 million of leisure business revenue in 1997.
Preferred supplier agreements with select travel agencies and contracts with
tour operators have also succeeded in generating leisure business for the
Company.

Travel agents can make Avis System reservations through all four major U.S.
based global distribution systems and several international based systems. Users
of the U.S. based global distribution systems can obtain access through these
systems to the Company's rental locations, vehicle availability and applicable
rate structures. An automated link between these systems and the Wizard System
gives them the ability to reserve and confirm rentals directly through these
systems. The Company also maintains strong links to the hotel industry. The
Company has arrangements with the Hilton Corporation, the Hyatt Corporation and

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Best Western frequent traveler programs, which provide various incentives to all
program participants. The Company also has an arrangement with Cendant whereby
lodging customers who are making reservations by telephone will be transferred
to the Company if they desire to rent a vehicle.

INTERNATIONAL

The Company utilizes a multi-faceted approach to sales and marketing
throughout its global network. In its principal international operations, the
Company employs teams of trained and qualified account executives to negotiate
contracts with major corporate accounts and leisure and travel industry
partners. In addition, the Company utilizes centralized telemarketing and direct
mail initiatives to continuously broaden its customer base. Sales efforts are
designed to secure customer commitment and support customer requirements for
both domestic and international car rental needs.

International sales and marketing activities promote the Company's
reputation for delivering a high quality of service, contract rates, competitive
pricing and customer benefits from special services such as Preferred Service,
Roving Rapid Return and other benefits of the Wizard System.

The Company's international operations maintain close relationships with the
travel industry including participation in airline frequent flyer programs
operated by Air Canada and Ansett Airlines (Australia).

COMPETITION

The vehicle rental industry is characterized by intense price and service
competition. In any given location, the Company may encounter competition from
national, regional and local companies, many of which, particularly those owned
by the major automobile manufacturers, have greater financial resources than the
Company. The Company's principal competitors for commercial accounts in the
United States are Hertz and National. Its principal competitors for unaffiliated
business and leisure travelers in the United States are Budget, Hertz and
National, and, particularly with regard to leisure travelers, Alamo and Dollar.
In addition, the Company competes with a variety of smaller vehicle rental
companies throughout the country.

Competition in the U.S. vehicle rental business is based primarily upon
price, reliability, ease of rental and return and other elements of customer
service. In addition, competition is influenced strongly by advertising and
marketing. The Company believes it is capable of competing for virtually all
aspects of the vehicle rental business, except the insurance replacement vehicle
business (in which the Company has agreed not to engage in certain markets until
June 13, 2000 pursuant to an agreement relating to the sale of its replacement
vehicle rental business). In part because of the Wizard System, the Company has
been particularly successful in competing for commercial accounts. There have
been many occasions during the history of the vehicle rental industry in which
all of the major vehicle rental companies have been adversely affected by severe
industry-wide rental rate cutting, and the Company has, on such occasions,
lowered its rates in response to such rate cutting. However, during the past two
years, industry-wide rates have increased, reflecting, in part, both increased
costs of owning and maintaining vehicles and the need to generate returns on
invested capital.

INSURANCE

The Company generally assumes the risk of liability to third parties arising
from vehicle rental services in the United States, Canada, Puerto Rico and the
U.S. Virgin Islands, for up to $1.0 million per occurrence, through a
combination of certificates of self-insurance, insurance coverage provided by
its wholly owned domestic subsidiary, Pathfinder Insurance Company
("Pathfinder"), and insurance coverage secured from an unaffiliated domestic
insurance carrier. The Company maintains additional insurance with unaffiliated
carriers in excess of such level up to $200.0 million per occurrence.

Currently, the Company provides primary automobile insurance for a majority
of its fleet through Pathfinder or through self-insurance. In addition, the
Company provides claims management services from

37
<PAGE>
its headquarters in New York to all of its locations in the United States,
Canada, Puerto Rico and the U.S. Virgin Islands.

The Company insures the risk of liability to third parties in Argentina,
Australia and New Zealand through a combination of unaffiliated carriers and
Global Excess & Reinsurance, Ltd., a wholly-owned subsidiary established under
the laws of Bermuda ("Global Excess"). These carriers provide coverage
supplemental to minimum local requirements.

To further control its insurance costs, the Company reinsures some of its
risks through its wholly owned subsidiary, Constellation Reinsurance Company
Limited ("Constellation"), an insurance company established under the laws of
Barbados.

Under its standard rental contract, the Company provides its renters
liability coverage up to the minimum financial responsibility limits required by
applicable law. Higher limits are provided to some United States national
corporate accounts and the Company makes available to renters, for an additional
daily charge, participation in a group policy of "Additional Liability
Insurance" underwritten by CNA (Continental Group), which increases renters'
liability coverage up to $1.0 million. The Company also offers renters, for
additional daily charges, "Personal Accident Insurance," which pays medical
expenses and accidental death benefits for accidents during the rental period,
and "Personal Effects Protection," which insures against loss or damage to the
renters' personal belongings during the rental period. Coverages are
underwritten by Gulf Insurance Company.

REGULATORY MATTERS

The Company is subject to federal, state and local laws and regulations
including those relating to taxing and licensing of vehicles, franchising,
consumer credit, environmental protection, retail vehicle sales and labor
matters. The principal environmental regulatory requirements applicable to the
Company's operations relate to the ownership or use of tanks for the storage of
petroleum products, such as gasoline, diesel fuel and waste oils; the treatment
or discharge of waste waters; and the generation, storage, transportation and
off-site treatment or disposal of solid or liquid wastes. The Company operates
239 locations at which petroleum products are stored in underground or
aboveground tanks. The Company has instituted an environmental compliance
program designed to ensure that these tanks are in compliance with applicable
technical and operational requirements, including the replacement of underground
steel tanks and periodic testing of underground storage tanks. The Company
believes that the locations where it currently operates are in compliance, in
all material respects, with such regulatory requirements.

The Company may also be subject to requirements related to the remediation
of, or the liability for remediation of, substances that have been released to
the environment at properties owned or operated by the Company or at properties
to which the Company sends substances for treatment or disposal. Such
remediation requirements may be imposed without regard to fault and liability
for environmental remediation can be substantial. SEE "RISK
FACTORS--ENVIRONMENTAL RISKS INHERENT IN ON-SITE PETROLEUM STORAGE."

The Company may be eligible for reimbursement or payment of remediation
costs associated with future releases from its regulated underground storage
tanks. Certain of the states in which the Company maintains underground storage
tanks have established funds to assist in the payment of remediation costs for
releases from certain registered underground tanks. Subject to certain
deductibles, the availability of funds, compliance status of the tanks and the
nature of the release, these tank funds may be available to the Company for use
in remediating future releases from its tank systems.

A traditional revenue source for the vehicle rental industry has been the
sale of loss damage waivers, by which rental companies agree to relieve a
customer from financial responsibility arising from vehicle damage incurred
during the rental period. Approximately 3.4% of the Company's revenue during
1997 was generated by the sale of loss damage waivers. The U.S. House of
Representatives has from time to time considered legislation that would regulate
the conditions under which loss damage waivers may be sold by vehicle rental
companies. House Bill H.R. 175, introduced in January 1995, seeks to prohibit
the imposition of liability on renters for loss of, or damage to, rented
vehicles, except in certain circumstances,

38
<PAGE>
and would prohibit the sale of loss damage waivers. To date, no action has been
taken on this bill. In addition, approximately 40 states have considered
legislation affecting the loss damage waivers. To date, 24 states have enacted
legislation which requires disclosure to each customer at the time of rental
that damage to the rented vehicle may be covered by the customer's personal
automobile insurance and that loss damage waivers may not be necessary. In
addition, in the late 1980's, New York enacted legislation which eliminated the
Company's right to offer loss damage waivers for sale and limited potential
customer liability to $100. Moreover, California and Nevada have capped rates
that may be charged for loss damage waivers to $9.00 and $10.00 per day,
respectively. Texas requires that the rate charged for loss damage waivers be
reasonably related to the direct cost of the repairs. Adoption of national or
additional state legislation affecting or limiting the sale of loss damage
waivers could result in the loss of this revenue source and additional
limitations on potential customers liability could increase the Company's costs.

The Company is also subject to regulation under the insurance statutes,
including insurance holding company statutes, of the jurisdictions in which its
insurance company subsidiaries are domiciled. These regulations vary from state
to state, but generally require insurance holding companies and insurers that
are subsidiaries of insurance holding companies to register and file certain
reports including information concerning their capital structure, ownership,
financial condition and general business operations with the state regulatory
authority, and require prior regulatory agency approval of changes in control of
an insurer and intercorporate transfers of assets within the holding company
structure.

Pathfinder, as a licensed stock insurance company in the State of Colorado,
is subject to the applicable rules and regulations of the Colorado Insurance
Department. The Colorado Insurance Law provides that no person may acquire
control of the Company, and thus indirect control of Pathfinder, unless it has
obtained prior approval of the Colorado Insurance Commissioner for such
acquisition. "Control" is generally presumed to exist through the ownership of
10% or more of the voting securities of a Colorado domestic insurance company or
of any company which controls a Colorado domestic insurance company. Any
purchaser of 10% or more of the outstanding Common Stock would be presumed to
have acquired control of the Company, unless such presumption is rebutted by a
showing that such control does not in fact exist. Accordingly, any purchase of
shares of Common Stock representing 10% or more of the voting power of the
Company would require prior approval by the Colorado Insurance Department.

Global Excess is subject to Bermuda Insurance Laws, which require Global
Excess to file at least a Bermuda statutory financial return in the form
prescribed by Bermuda Insurance Laws. Furthermore, any transfer of shares of
Global Excess by the Company will require the approval of the Bermuda Monetary
Authority, Foreign Exchange Control. In addition, Constellation is required to
file an annual financial return in accordance with Barbados Insurance
Regulations.

The payment of dividends to the Company by its insurance company
subsidiaries, Pathfinder, Global Excess and Constellation, will be restricted by
government regulations in Colorado, Bermuda and Barbados affecting insurance
companies domiciled in those jurisdictions.

EMPLOYEES

The Company has more than 18,000 employees worldwide, of whom approximately
17,000 serve in various capacities at the Company's rental locations and the
balance are engaged in executive, financial, sales and marketing, and
administrative capacities. Approximately 33% of the Company's employees are
represented by various unions under contracts expiring at various dates. No
local union represents more than 2.5% of the Company's employees. The Company
believes its relationships with its employees are good.

PROPERTIES

The Company leases or has concessions relating to space at 402 locations in
the United States and 127 locations outside the United States. Of those
locations, 182 in the United States and 59 outside the United States are at
airports. Typically, an airport receives a percentage of vehicle rental
revenues, with a

39
<PAGE>
guaranteed minimum. Because there is a limit to the number of vehicle rental
locations in an airport, vehicle rental companies frequently bid for the
available locations, usually on the basis of the size of the guaranteed
minimums. The Company and other vehicle rental firms also rent parking space at
or near airports and at their other vehicle rental locations.

The Company leases all of its vehicle rental facilities. The airport
facilities are located on airport property owned by airport authorities or
located near the airport in locations convenient for bus transport of customers
to and from the airport. The Company's airport locations serve as the
administrative headquarters for the Company's non-airport locations nearest to
those airport locations and, as a general rule, each airport location includes
vehicle storage areas, a vehicle maintenance facility, a car wash, a refueling
station and rental and return facilities. The Company's non-airport facilities
generally consist of a limited parking facility and a rental and return desk and
are generally subject to long-term leases with renewal options. Certain of these
leases also have purchase options at the end of their terms.

The Company's principal offices are in Garden City, New York where the
Company leases approximately 250,000 square feet under a sublease agreement with
WizCom which, by exercising renewal options, can be extended through the year
2015. The Avis reservation system is operated by Cendant from leased space in
Tulsa and Drumright, Oklahoma where the Company subleases approximately 26,000
square feet from WizCom pursuant to a sublease agreement for certain marketing
activities. The Company maintains terminal network facilities which it uses in
connection with the Wizard System in Garden City and Tulsa. The Company also
leases 61,000 square feet in a building owned by WizCom in Virginia Beach,
Virginia that serves as a satellite administrative and reservation facility. SEE
"RELATIONSHIP WITH CENDANT--LEASE AGREEMENTS."

LEGAL MATTERS

From time to time, the Company is subject to routine litigation incidental
to its business. The Company maintains insurance policies that cover most of the
actions brought against the Company. SEE "--INSURANCE," "RELATIONSHIP WITH
CENDANT--SEPARATION AGREEMENT". The Company is not currently involved in any
legal proceeding which it believes would have a material adverse effect upon its
financial condition or operations. However the Company is involved in the
following litigation:

In the case of LINDA A. PUGH, ET AL., V. AVIS RENT A CAR SYSTEMS, INC. AND
NEW HANOVER RENT-A-CAR, INC., 7-96-CV-91-F(2), (E.D.N.C.), a suit in federal
court in North Carolina alleging race discrimination, the Company and the
plaintiffs have entered into a Settlement Agreement, subject to court approval,
providing for payment of $1.875 million plus approximately $1.4 million in
attorneys fees, administration costs and costs of notice to potential class
members, to settle and dismiss all plaintiffs' claims against the Company. In
the case of DAVID RUTSTEIN V. AVIS RENT A CAR SYSTEMS, INC., 97-0807
CIV-G(S.D.FL.), a suit brought as a purported class action suit in federal court
in Florida alleging discrimination based upon religion, the Company has filed a
motion to dismiss the action, which is pending before the court. Following the
commencement of the PUGH and RUTSTEIN suits described above, certain
governmental agencies initiated inquiries and made requests for information in
connection with allegations of discrimination involving the Company and certain
of its licensees. The Company has been cooperating with all such governmental
requests. To date, an administrative proceeding has been commenced at the
Commonwealth of Pennsylvania Human Rights Commission. In that proceeding, the
Attorney General of the Commonwealth of Pennsylvania has filed an administrative
complaint alleging that the Company is vicariously liable for race
discrimination allegedly committed by a licensee. The Company has not yet been
appraised of the specifics underlying these allegations but the Company believes
that the claims are without merit. The Company does not believe that the outcome
of those inquiries or the administrative proceeding will have a material adverse
effect on its financial condition or results of operations.

In connection with the IPO, the Company and Cendant entered into an
agreement whereby Cendant agreed to indemnify the Company for the costs and
expenses of defending all such claims described above, any other claims of
illegal discrimination related to customers and alleged to have occurred prior
to the IPO and from any liability arising therefrom. SEE "RELATIONSHIP WITH
CENDANT--SEPARATION AGREEMENT."

40
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers, directors and significant employees of the Company
are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
R. Craig Hoenshell........................... 53 Chairman of the Board, Chief Executive Officer and Director
F. Robert Salerno............................ 46 President, Chief Operating Officer and Director
Kevin M. Sheehan............................. 44 Executive Vice President and Chief Financial Officer
John H. Carley............................... 56 Executive Vice President and General Counsel
Kevin P. Carey............................... 49 Senior Vice President--Human Resources
Patricia D. Yoder............................ 56 Senior Vice President--Corporate Communications
Thomas J. Byrnes............................. 53 Senior Vice President--Sales
Maria M. Miller.............................. 41 Senior Vice President--Marketing
Gerard J. Kennell............................ 53 Vice President and Treasurer
Timothy M. Shanley........................... 49 Vice President and Controller
John Forsythe................................ 52 Vice President--Operations U.S. Rent A Car
Michael P. Collins........................... 50 Vice President--International
Stephen P. Holmes............................ 41 Director
Michael P. Monaco............................ 50 Director
W. Alun Cathcart............................. 54 Director
Leonard S. Coleman, Jr....................... 49 Director
Martin L. Edelman............................ 56 Director
Deborah L. Harmon............................ 38 Director
Michael J. Kennedy........................... 60 Director
Michael L. Tarnopol.......................... 61 Director
</TABLE>

All directors are elected annually to serve until the next annual meeting of
stockholders and until their successors have been elected and qualified.

The Company's Board of Directors has appointed Messrs. Hoenshell, Edelman
and Holmes to the executive committee of the Board of Directors (the "Executive
Committee"), Ms. Harmon and Mr. Kennedy to the compensation committee of the
Board of Directors (the "Compensation Committee"), Messrs. Edelman and Tarnopol
to the audit committee of the Board of Directors (the "Audit Committee") and Mr.
Coleman and Ms. Harmon to the policy committee of the Board of Directors (the
"Policy Committee"). The Executive Committee will exercise selected powers of
the Company's Board of Directors when the Board is not in session. The
Compensation Committee will establish remuneration levels for certain officers
of the Company and perform such functions as may be delegated to it under the
Company's employee benefit programs and executive compensation programs. The
Audit Committee will select and engage, on behalf of the Company, the
independent public accountants to audit the Company's annual financial
statements. The Audit Committee also will review and approve the planned scope
of the annual audit. The Policy Committee will establish and implement corporate
policies with respect to the business operations of the Company, including its
code of conduct.

The Board of Directors may, from time to time, establish certain other
committees to facilitate the management of the Company.

Officers are elected at the organizational meeting of the Board of Directors
held each year for a term of one year, and they are elected to serve until the
next annual meeting.

MR. HOENSHELL has been Chairman, Chief Executive Officer and a Director of
the Company and ARACS since March 1997. From 1995 to March 1997, Mr. Hoenshell
was the principal in his own

41
<PAGE>
consulting firm which focused on future payment technologies. From 1993 to 1995,
Mr. Hoenshell was president of American Express International. From 1990 to
1993, Mr. Hoenshell was the President of American Express Travelers Cheques and
from 1986 to 1990 he was President of American Express Centurion Bank. Prior to
1986, Mr. Hoenshell spent ten years as a principal and senior executive of First
Data Resources, Inc., which provides back-office data processing services to
financial institutions that issue debit and credit cards.

MR. SALERNO has been President and Chief Operating Officer of the Company
and ARACS since November 1996 and has been a director of the Company since May
29, 1997. From September, 1995 to November 1996, Mr. Salerno was Executive Vice
President of Operations of the Franchisor and ARACS. From July 1990 to
September, 1995, Mr. Salerno was Senior Vice President and General Manager Rent
A Car of the Franchisor and ARACS.

MR. SHEEHAN has been Executive Vice President and Chief Financial Officer of
the Company and ARACS since December 1996. From September 1996 to September
1997, Mr. Sheehan was a Senior Vice President of HFS, the predecessor of
Cendant. From December 1994 to September 1996, Mr. Sheehan was the Chief
Financial Officer for STT Video Partners, a joint venture between Time Warner,
Telecommunications, Inc., Sega of America and HBO. Prior thereto, he was with
Reliance Group Holdings, Inc., an insurance holding company, and some of its
affiliated companies for ten years and was involved with the formation of the
Spanish language television network, Telemundo Group, Inc. and from 1991 through
1994 was Senior Vice President-- Finance and Controller.

MR. CARLEY has been Executive Vice President and General Counsel of the
Company and ARACS since January 1997. From January 1995 to December 1996, Mr.
Carley served as Deputy Attorney General for Public Advocacy for New York State.
From December 1987 to March 1994, Mr. Carley was a partner at the New York City
law firm of Donovan, Leisure, Newton & Irvine. Previous positions include
General Counsel to the Reagan Administration's Office of Management and Budget,
and General Counsel to the Federal Trade Commission.

MR. CAREY has been Senior Vice President--Human Resources of the Company and
ARACS since April 1997. From 1987 to 1996, Mr. Carey was a Senior Vice
President--Human Resources for American Express International. From June 1982 to
September 1985, Mr. Carey was Vice President--Human Resources and Administration
for Warner Leisure Inc. (a division of Time Warner).

MS. YODER has been Senior Vice President--Corporate Communications of the
Company since August 1997. From 1995 through 1996, Ms. Yoder was Corporate Vice
President, Public Affairs and Communications for GTE Corporation, where she was
a member of the Executive Leadership Committee. From 1991 through 1995, Ms.
Yoder held the position of Vice President, Corporate Public Relations and
Advertising and was a member of the Corporate Executive Council for GE Capital,
the financial services arm of the General Electric Company.

MR. BYRNES has been Senior Vice President--Sales of the Company and ARACS
since February 1998 and Vice President--Sales North America and ARACS since
1987.

MS. MILLER has been Senior Vice President--Marketing of the Company since
February 1998. From January 1997 to February 1998, Ms. Miller was the principal
in her own consulting firm, which provided marketing consulting services to
small and mid-sized businesses and nonprofit organizations. From 1987 to 1995,
Ms. Miller held various positions with American Express Company including Vice
President, Platinum Card Operations from September 1993 to October 1995 and Vice
President, Small Business Services Marketing from December 1990 to August 1993.

MR. KENNELL has been Vice President and Treasurer of the Company and ARACS
since February 1987.

42
<PAGE>
MR. SHANLEY has been Vice President and Controller of the Company and ARACS
since November 1996. From November 1989 to November 1996, Mr. Shanley was Vice
President--Planning and Analysis of the Franchisor and ARACS.

MR. FORSYTHE has been Vice President--Operations U.S. Rent A Car for ARACS
since 1990. From 1982 until 1990, Mr. Forsythe was Vice President--Fleet and
Vehicle Sales of ARACS.

MR. COLLINS has been Vice President--International for ARACS and General
Manager of its international operations since 1987.

MR. HOLMES has been a Director of the Company since October 1996. Mr. Holmes
was appointed Vice Chairman of Cendant in December 1997 and has served as a
director of Cendant since December 1997. From September 1996 through December
1997 Mr. Holmes served as Vice Chairman of HFS. From July 1990 through September
1996, Mr. Holmes served as Executive Vice President, Treasurer and Chief
Financial Officer of HFS. Mr. Holmes also serves as a director and officer of
several subsidiaries of Cendant. Mr. Holmes also serves as a Director and, from
November 1994 to February 1996, was the Executive Vice President and Chief
Financial Officer, of Chartwell. Mr. Holmes also serves as a director of Avis
Europe.

MR. MONACO has been a Director of the Company since May 1997. Mr. Monaco has
been Vice Chairman and Chief Financial Officer of Cendant since December 1997
and has been a Director of Cendant since December 1997. From October 1996 to
December 1997, Mr. Monaco served as Vice Chairman and Chief Financial Officer of
HFS. Mr. Monaco also serves as a director and officer of several subsidiaries of
Cendant. Mr. Monaco served as Executive Vice President and Chief Financial
Officer of the American Express Company from September 1990 to June 1996.

MR. CATHCART has been a Director of the Company since September 1997. Mr.
Cathcart has been the Chairman and Chief Executive of Avis Europe plc since
February 1988.

MR. COLEMAN has been President of the National League of Professional
Baseball Clubs since March 1994. From 1992 to March 1994, Mr. Coleman served as
Executive Director--Market Development of Major League Baseball. Mr. Coleman
also serves on the Board of Directors of Cendant, Beneficial Corporation,
Omnicom Group, the Advisory Board of the Martin Luther King, Jr. Center for
Non-Violent Social Change, The Metropolitan Opera, The Newark Museum, the
Schuman Fund, the Clark Foundation, the Children's Defense Fund and Seton Hall
University.

MR. EDELMAN has been a Director of the Company since September 1997. Mr.
Edelman has been a Director of Cendant since December 1997. Mr. Edelman also
serves as President and a Director of Chartwell Leisure Inc. He was a partner
with Battle Fowler, a New York City law firm, from 1972 through 1993 and since
January 1, 1994 has been Of Counsel to that firm. Mr. Edelman is also a partner
of Chartwell Hotels Associates, Chartwell Leisure Associates L.P., Chartwell
Leisure Associates L.P. II, and of certain of their respective affiliates.

MS. HARMON has been a Director of the Company since September 1997. Ms.
Harmon has been a Principal in the Office of the President at JER Real Estate
Partners, L.P., an institutional, private equity fund for investment in real
estate assets since 1991. Prior to joining JER, Ms. Harmon served as Managing
Director of the Real Estate Finance Group at Banker's Trust Company.

MR. KENNEDY has been a Director of the Company since September 1997. Mr.
Kennedy has been an attorney with his own law firm since 1976. Mr. Kennedy also
serves as a Director of Chartwell Leisure Inc.

MR. TARNOPOL has been a Director of the Company since September 1997. Mr.
Tarnopol has been Vice Chairman of The Bear Stearns Companies Inc. since July
1996 and has been a Director of The Bear Stearns Companies Inc. since 1985. Mr.
Tarnopol has been a Senior Managing Director of Bear, Stearns & Co. Inc. since
1985 and has been the Chairman of the Investment Banking Division of Bear,
Stearns & Co. Inc. since 1987. Mr. Tarnopol also serves as a director of Planet
Hollywood International Inc. and NRT, Inc.

43
<PAGE>

SUMMARY COMPENSATION TABLE

The following table sets forth a summary of the compensation earned by the
Chief Executive Officer and certain other executive officers of the Company for
the years ended December 31, 1996 and 1997.

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
--------------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
-------------------------------------------------- OPTIONS(2)
OTHER ANNUAL(1) -------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AVIS CENDANT COMPENSATION(3)
- ------------------------------------ --------- --------- --------- ----------------- --------- --------- ----------------

<S> <C> <C> <C> <C> <C> <C> <C>
R. Craig Hoenshell.................. 1997 $ 468,462 $ 568,800 -- 1,066,400 720,930 $ 18,536
Chairman & Chief Executive Officer

F. Robert Salerno................... 1996 244,288 103,825 $ 7,750 -- 480,620 7,298
President and Chief Operating 1997 335,000 351,750 -- 533,200 -- 6,197
Officer

Kevin M. Sheehan.................... 1997 263,721 289,330 -- 355,500 -- 4,155
Executive Vice President & Chief
Financial Officer

John H. Carley...................... 1997 236,058 245,000 -- 177,700 240,310 14,435
Executive Vice President & General
Counsel

John Forsythe....................... 1996 170,154 56,430 7,750 -- 144,186 5,225
Vice President--Operations U.S. Rent 1997 178,692 135,420 -- 80,000 24,031 4,972
A Car

Joseph V. Vittoria(4)............... 1996 550,000 251,646 23,000 -- -- 44,370
Chairman & Chief Executive Officer 1997 42,308 -- -- -- -- 6,432,194(4)
</TABLE>

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

(1) Includes the value of management preferential lease arrangement and
insurance associated with leased cars.

(2) Amounts listed represent options to acquire the Company's Common Stock and
the common stock of Cendant.

(3) Includes the value of group term life insurance and the Company matching
contribution to 401(k) and Deferred Compensation Plans, unless otherwise
indicated.

(4) Mr. Vittoria's employment with the Company was terminated on January 21,
1997. All Other Compensation contains Mr. Vittoria's contractual payment.

44
<PAGE>
OPTION GRANTS DURING FISCAL 1997

The following table describes the options to acquire shares of Common Stock
of the Company granted to the Chief Executive Officer and certain other
executive officers of the Company in the last fiscal year:

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR GRANT DATE
OPTIONS TO EMPLOYEES IN BASE PRICE PER EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR SHARE DATE VALUE $(1)
- -------------------------------------- ---------- ------------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
R. Craig Hoenshell.................... 1,066,400 26.9% 17.00 9/23/2007 $ 10,450,720
F. Robert Salerno..................... 533,200 13.5% 17.00 9/23/2007 5,225,360
Kevin M. Sheehan...................... 355,500 9.0% 17.00 9/23/2007 3,483,900
John H. Carley........................ 177,700 4.5% 17.00 9/23/2007 1,741,460
John Forsythe......................... 80,000 2.0% 17.00 9/23/2007 784,000
Joseph V. Vittoria(3)................. -- -- -- --
</TABLE>

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

(1) The amount shown in this column represents the Grant Date Present Value
using the "Black-Scholes" valuation method.

(2) Figures represent the percentage of all options to acquire Common Stock of
the Company granted within the last fiscal year.

(3) Mr. Vittoria ceased to serve as an employee of the Company prior to the
adoption of the Company's Stock Option Plan.

The following table describes the options to acquire shares of common stock
of Cendant granted to the Chief Executive Officer and certain other officers of
the Company in the last fiscal year:

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR GRANT DATE
OPTIONS TO EMPLOYEES IN BASE PRICE PER EXPIRATION PRESENT VALUE
NAME GRANTED FISCAL YEAR SHARE DATE $(1)
- -------------------------------------- ----------- --------------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
R. Craig Hoenshell.................... 720,930 1% $ 27.10 3/17/2007 $ 9,845,381
F. Robert Salerno..................... -- -- -- -- --
Kevin M. Sheehan...................... -- -- -- -- --
John H. Carley........................ 240,310 --(2) 24.40 1/02/2007 2,954,828
John Forsythe......................... 24,031 --(2) 23.88 4/30/2007 289,184
Joseph V. Vittoria(3)................. -- -- -- -- --
</TABLE>

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

(1) The amount shown in this column represents the Grant Date Present Value
using the "Black-Scholes" valuation method.

(2) Represents less than 1% of all options to acquire Cendant common stock
granted within the last fiscal year.

(3) Options granted to Mr. Vittoria were cancelled in connection with his
termination of employment in January 1997.

45
<PAGE>
VALUE OF OPTIONS AT YEAR END

The following table describes the value of unexercised in-the-money options
to acquire Common Stock of the Company held by the Chief Executive Officer and
certain other executive officers of the Company at December 31, 1997:

<TABLE>
<CAPTION>
FY-END OPTION VALUES(1)
-------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT FY-END
NAME OPTIONS AT FY-END (#) ($)
- -------------------------------------------------------------------- --------------------- --------------------
<S> <C> <C>
R. Craig Hoenshell.................................................. 1,066,400 $ 15,932,016
F. Robert Salerno................................................... 533,200 7,966,008
Kevin M. Sheehan.................................................... 355,500 5,311,170
John H. Carley...................................................... 177,700 2,654,838
John Forsythe....................................................... 80,000 1,195,200
Joseph V. Vittoria(2)............................................... -- --
</TABLE>

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

(1) None of the options shown in the table were exercisable at December 31,
1997.

(2) Mr. Vittoria ceased to serve as an employee of the Company prior to the
adoption of the Company's Stock Option Plan.

The following table describes the value of unexercised in-the-money options
to acquire common stock of Cendant held by the Chief Executive Officer and
certain other executive officers of the Company at December 31, 1997:

<TABLE>
<CAPTION>
FY-END OPTION VALUES
-------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT FY-END
OPTIONS AT FY-END (#) ($)
NAME EXERCISABLE EXERCISABLE
- -------------------------------------------------------------------- --------------------- --------------------
<S> <C> <C>
R. Craig Hoenshell.................................................. 720,930 $ 5,248,370
F. Robert Salerno................................................... 480,620 2,148,372
Kevin M. Sheehan.................................................... 300,388 3,270,625
John H. Carley...................................................... 240,310 2,398,294
John Forsythe....................................................... 168,217 604,140
Joseph V. Vittoria(2)............................................... -- --
</TABLE>

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

(1) None of the Cendant options held by the Chief Executive Officer and other
executive officers above were exercised in 1997.

(2) Options granted to Mr. Vittoria were cancelled in connection with his
termination of employment in January 1997.

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<PAGE>
Under the terms of the offer letter, if Mr. Hoenshell's employment is
involuntarily terminated for reasons other than willful misconduct, Mr.
Hoenshell is entitled to receive a payment equal to one year's base salary or
such greater payment as the Board may determine.

Mr. Salerno and Mr. Forsythe have employment agreements with a predecessor
company of the Company which terminate on February 8, 2001. Mr. Salerno and Mr.
Forsythe receive an annual base salary of not less than $335,000 and $183,000,
respectively, which salary may be increased by the Board of Directors during the
term of the agreement. If the employment of either of these executives is
terminated by the Company for reasons other than "just cause" or if either of
these executives terminates his employment for "good reason" (as each term is
defined in the agreement), he is entitled to receive his remaining salary and
full bonus and certain perquisites through the term of the agreement.

DEFINED BENEFIT PLAN

The Company maintains a defined benefit pension plan for employees who met
the eligibility requirements as of December 31, 1983. The eligibility
requirements were non-union full time employees hired prior to December 31, 1983
who were age 25 or above on January 1, 1985. The plan provides that the benefit
for each participant, payable monthly, be equal to 1-1/2% of his or her final
average compensation (average compensation being the average of the highest five
consecutive years of compensation in the last ten years of employment) for each
year of service, not to exceed 35, minus 1 3/7% of the estimated Social Security
benefit for each year of service.

In general, the effect is to provide a participant who has worked for the
company for 35 years prior to retirement, with a pension, including Social
Security, equal to at least 52% of the average compensation (including bonus,
overtime and commissions) earned during the highest five consecutive years of
his or her employment.

To the extent that applicable federal laws limit a participant's pension
plan benefit to an amount less than the amount otherwise provided by the plan's
formula, the company has adopted a Retirement Equalization Benefit Plan to
compensate the participant for the reductions in the retirement benefit.

The following table shows the estimated annual pension benefit payable under
the plans under normal retirement in 1998 after selected periods of service
(assuming such employees and their spouses elect a straight life annuity rather
than a form of joint and survivor or other form of annuity, in which case the
benefits would generally be lower than shown in the following table.) The
estimated maximum benefits for employees who retire in years other than 1998
will be different from the amount shown in the table because pension benefits
will be offset by different Social Security benefits, however, the benefit shown
in the table will not be reduced by the amount of Social Security benefits
actually paid.

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<PAGE>

PENSION PLAN TABLE

ESTIMATED ANNUAL PENSION BENEFIT(A)
YEARS OF SERVICE

<TABLE>
<CAPTION>
ANNUAL PAY 15 20 25 30 35
- ----------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$200,000 $ 39,778 $ 53,036 $ 66,296 $ 79,555 $ 92,814
250,000 50,465 67,286 84,109 100,930 117,752
300,000 61,153 81,536 101,921 122,305 142,689
350,000 71,840 95,786 119,734 143,680 167,627
400,000 82,528 110,036 137,546 165,055 192,564
450,000 93,215 124,286 155,359 186,430 217,502
500,000 103,903 138,536 173,171 207,805 242,439
</TABLE>

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

(a) A portion of the benefit will be paid by the Company under its Retirement
Equalization Benefit Plan, if the benefit exceeds the maximum pension
payable from the tax qualified retirement plan under federal law.

As of December 31, 1997 (or as of the date the executive's employment with
the Company terminated, if earlier), the named executives had the following
years of service under the defined benefit plan: Mr. Salerno, fifteen years,
seven months; Mr. Forsythe, fifteen years, eight months.

STOCK OPTION PLAN

INTRODUCTION

On September 23, 1997, the Board of Directors of the Company adopted the
Avis Rent A Car, Inc. 1997 Stock Option Plan (the "Stock Option Plan") and
granted options to purchase 3,963,900 shares of Common Stock out of 4,620,977
shares reserved for issuance upon the exercise of options granted to officers,
key employees, independent contractors and non-employee Directors of the Company
and its designated subsidiaries pursuant to the Stock Option Plan. The primary
purpose of the Stock Option Plan is to provide additional incentive to officers,
key employees, independent contractors and non-employee Directors of the Company
and to strengthen their commitment to the Company and its subsidiaries. The
Stock Option Plan is intended to qualify for the performance-based exclusion
from the deduction limitation of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code").

GENERAL

The Compensation Committee of the Board of Directors of the Company is
responsible for administering the Stock Option Plan. The Compensation Committee
generally will select the recipients of options under the Stock Option Plan, the
exercise price of such options and other terms and conditions of the option
grant. Options granted under the Stock Option Plan may be "incentive stock
options" ("ISOs") (within the meaning of Section 422 of the Code) or options not
subject to Section 422 of the Code ("NSOs"). Each such option (ISO or NSO), when
it becomes exercisable, entitles the holder thereof to purchase a share of
Common Stock for an amount equal to the exercise price of the option, payable in
cash. The Company may also provide for payment of the exercise price of the
option in shares of Common Stock with an aggregate value equal to the exercise
price of the option, or pursuant to a cashless exercise procedure.

Non-employee Directors of the Company received an initial automatic grant of
an option to purchase 50,000 shares of Common Stock under the Stock Option Plan.
Subsequently elected non-employee

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<PAGE>
Directors will receive a like grant under the Stock Option Plan upon election or
appointment to the Board of Directors.

The exercise price of each option under the Stock Option Plan may not be
less than the fair market value of a share of Common Stock on the date the
option is granted. Options held by an optionee will generally become exercisable
as to 20% of the shares covered by such options on the first anniversary of the
date of grant and with respect to an additional 20% of the shares covered by
such options on each of the four succeeding anniversaries of the date of grant
(if the optionee continues to be employed [or retained as an independent
contractor] by the Company on each such date). All options held by an optionee
will become fully exercisable (to the extent not already exercisable) if a
"change of control transaction" (as defined in the Stock Option Plan) occurs.
Shares of Common Stock acquired upon the exercise of options may be subject to
restrictions on transfer which will be set forth in the agreement evidencing the
grant of the option. All options granted under the Stock Option Plan, to the
extent not exercised, expire on the earliest of (i) the tenth anniversary of the
date of grant, (ii) two years following the optionee's termination of employment
on account of death, retirement, disability or (iii) one year following the
optionee's termination of employment for any other reason. Grants of options
under the Stock Option Plan are subject to an annual per-participant maximum
grant of shares of Common Stock.

Generally, the Board of Directors of the Company may from time to time amend
or terminate the Stock Option Plan, provided that (i) no such amendment or
termination may adversely affect the rights of any participant without the
consent of such participant and (ii) to the extent required by any law,
regulation or stock exchange rule, no amendment shall be effective without the
approval of the Company's stockholders.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following discussion is a brief summary of the principal federal income
tax consequences under current federal income tax laws relating to awards under
the Stock Option Plan. This summary is not intended to be exhaustive and, among
other things, does not describe state, local or foreign income and other tax
consequences.

NONSTATUTORY STOCK OPTIONS. An optionee generally will not be taxed upon
the grant of an NSO. Rather, at the time of exercise of such NSO (and in the
case of an untimely exercise of an ISO), the optionee will recognize ordinary
income for federal income tax purposes in an amount equal to the excess of the
fair market value of the shares purchased over the option price. The Company
will generally be entitled to a tax deduction at such time and in the same
amount that the optionee recognizes ordinary income.

If shares acquired upon exercise of an NSO (or upon untimely exercise of an
ISO) are later sold or exchanged, then the difference between the sales price
and the fair market value of such stock on the date that ordinary income was
recognized with respect thereto will generally be taxable as long-term or short-
term capital gain or loss (if the stock is a capital asset of the optionee)
depending upon whether the stock has been held for more than one year after such
date.

INCENTIVE STOCK OPTIONS. An optionee will not be in receipt of taxable
income upon the grant of an ISO. Exercise of an ISO will be timely if made
during its term and if the optionee remains an employee of the Company or a
subsidiary at all times during the period beginning on the date of grant of the
ISO and ending on the date three months before the date of exercise (or one year
before the date of exercise in the case of a disabled optionee). Exercise of an
ISO will also be timely if made by the legal representative of an optionee who
dies (i) while in the employ of the Company or a subsidiary or (ii) within three
months after termination of employment. The tax consequences of an untimely
exercise of an ISO will be determined in accordance with the rules applicable to
NSOs.

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<PAGE>
If stock acquired pursuant to the timely exercise of an ISO is later
disposed of, the optionee will, except as noted below, recognize long-term
capital gain or loss (if the stock is a capital asset of the optionee) equal to
the difference between the amount realized upon such sale and the option price.
The Company, under these circumstances, will not be entitled to any federal
income tax deduction in connection with either the exercise of the ISO or the
sale of such stock by the optionee.

If however, stock acquired pursuant to the exercise of an ISO is disposed of
by the optionee prior to the expiration of two years from the date of grant of
the ISO or within one year from the date such stock is transferred to him upon
exercise (a "disqualifying disposition"), any gain realized by the optionee
generally will be taxable at the time of such disqualifying disposition as
follows: (i) at ordinary income rates to the extent of the difference between
the option price and the lesser of the fair market value of the stock on the
date the ISO is exercised or the amount realized on such disqualifying
disposition and (ii) if the stock is a capital asset of the optionee, as
short-term or long-term capital gain to the extent of any excess of the amount
realized on such disqualifying disposition over the fair market value of the
stock on the date which governs the determination of his ordinary income. In
such case, the Company may claim a federal income tax deduction at the time of
such disqualifying disposition for the amount taxable to the optionee as
ordinary income. Any capital gain recognized by the optionee will be long-term
capital gain if the optionee's holding period for the stock at the time of
disposition is more than one year; otherwise it will be short-term.

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<PAGE>
RELATIONSHIP WITH CENDANT

Prior to the offering, Cendant beneficially owned 8,500,000 shares of Common
Stock, of which 750,000 shares are subject to the over-allotment option granted
to the Underwriters. Following the offering, Cendant will beneficially own
7,750,000 shares of Common Stock representing approximately 21.6% of the
outstanding shares of Common Stock if the Underwriters' over-allotment is
exercised. If the Underwriters' over-allotment is not exercised, Cendant will
beneficially own 8,500,000 shares of Common Stock, representing approximately
23.7% of the outstanding shares. Cendant has advised the Company that its
current intent is to continue to hold all of the Common Stock beneficially owned
by it following the offering. However, Cendant is not subject to any contractual
obligation to retain its interest, except that each of the Company and Cendant
has agreed, subject to certain exceptions, not to sell or otherwise dispose of
any shares of Common Stock prior to without the prior written consent
of Bear, Stearns & Co. Inc. As a result, there can be no assurance concerning
the period of time during which Cendant will maintain its beneficial ownership
of Common Stock owned by it following the offering. SEE "UNDERWRITING."

Cendant was formed through the merger of HFS and CUC in December 1997.
Cendant is a global provider of consumer and business services and operates in
three principal segments: Membership, Travel and Real Estate Services. In
Membership Services, Cendant provides access to travel, shopping, auto, dining
and other services through more than 66.5 million memberships worldwide. In
Travel Services, Cendant is the leading franchisor of hotels and rental car
agencies worldwide, the premier provider of vacation exchange services and the
second largest fleet management company. In Real Estate Services, Cendant is the
world's premier franchisor of residential real estate brokerage offices, a major
provider of mortgage services to consumers and a global leader in corporate
employee relocation. Cendant is also a major online commerce facilitator, with
more than $1 billion in yearly sales through its netMarket-Registered Trademark-
and other interactive services.

Cendant, the Franchisor, WizCom and the Company have entered or will enter
into various agreements setting forth the on-going responsibilities regarding
various matters outlined below. The agreements summarized below are included as
exhibits to the Company's Registration Statement of which this Prospectus is a
part. The following summaries are qualified in their entirety by reference to
such exhibits.

SEPARATION AGREEMENT

In connection with the IPO, the Company and the Franchisor entered into a
Separation Agreement which provides for, among other things, the assumption by
the Company of all liabilities relating to the vehicle rental business, other
than liabilities related to alleged acts of illegal discrimination against
customers in the rental of vehicles which are alleged to have occurred prior to
the IPO, and the allocation between the Company and the Franchisor of certain
other liabilities and certain indemnification obligations of the Company and the
Franchisor.

CROSS-INDEMNIFICATION. Subject to certain exceptions, the Company has
agreed to indemnify the Franchisor and its subsidiaries against any loss,
liability or expense incurred or suffered by the Franchisor or its subsidiaries
arising out of or related to the failure by the Company to perform or otherwise
discharge liabilities allocated to and assumed by the Company under the
Separation Agreement, and the Franchisor has agreed to indemnify the Company and
its subsidiaries against any loss, liability or expense incurred or suffered by
the Company or its subsidiaries arising out of or related to the failure by the
Franchisor to perform or otherwise discharge the liabilities retained by the
Franchisor under the Separation Agreement, including any liabilities arising out
of alleged acts of illegal discrimination against customers in the rental of
vehicles which are alleged to have occurred prior to the IPO. The Separation
Agreement also includes procedures for notice and payment of indemnification
claims and provides that the indemnifying party may assume the defense of a
claim or suit brought by a third party.

51
<PAGE>
MASTER LICENSE AGREEMENT

The Company's status as an Avis System franchisee is governed by an
agreement among the Company, the Franchisor and Wizard Co. (the "Master License
Agreement") which grants to the Company the non-exclusive right to operate the
Avis vehicle rental business in the territories specified therein and the
exclusive right to operate the Avis vehicle rental business in certain specified
territories for a period of 50 years, through 2047.

Pursuant to the Master License Agreement, the Company has agreed to pay the
Franchisor a monthly base royalty of 3.0% of the Company's gross revenue. In
addition, the Company has agreed to pay a supplemental royalty of 1.0% of gross
revenue payable quarterly in arrears which will increase 0.1% per year
commencing in 1999 and in each of the following four years thereafter to a
maximum of 1.5% (the "Supplemental Fee"). These fees have been paid by the
Company since January 1, 1997. Until July 30, 2002 the Supplemental Fee or a
portion thereof may be deferred if the Company does not attain certain financial
targets. Any Supplemental Fees that are deferred shall bear interest at a market
rate until paid and shall be expressly subordinated to indebtedness of the
Company. On an unaudited pro forma basis, if the royalties had been charged to
the Company beginning on October 17, 1996, net income for the period October 17,
1996 to December 31, 1996 would have been reduced by $4.3 million resulting in a
pro forma net loss of $3.1 million. The royalties charged to the Company for the
twelve months ended December 31, 1997 amounted to $81.8 million and resulted in
a reduction in net income of approximately $44.7 million.

The Company has the exclusive right to open Avis franchises in 28 selected
standard metropolitan statistical areas in the United States, in territories
outside the United States that are not currently licensed to other Avis System
franchisees and in territories that the Company purchases from existing
franchisees that have exclusivity. The Company has the non-exclusive right to
open new franchises in any other market not currently served by another Avis
System franchisee. In the markets where the Company has a non-exclusive right to
open new franchises, the Company will have a right of first refusal to develop
such area prior to the Franchisor's granting a license to a third party. In the
event Cendant acquires another car rental company, the Company has a right of
first refusal to negotiate a grant of a license to operate the rental locations
for such car rental company within any territory in which the Company operates.

The Master License Agreement provides the Franchisor with significant rights
regarding the business and operations of the Company. The Company is required to
operate each of its Avis franchises in accordance with certain standards
contained in the Avis operating manual (the "Operating Manual"). Pursuant to the
Master License Agreement, the Franchisor may impose certain guidelines relating
to the Avis System, the vehicle rental operations and the amount of advertising
and promotion expenditures. In general, the Master License Agreement provides
that the Company shall not (i) engage in any other vehicle rental business or
(ii) disclose the terms of the Operating Manual or any other confidential
information relating to the Avis System to any third party. In addition, the
Company agrees not to use any of the licensed trademarks other than in its
vehicle rental business without the Franchisor's consent.

The Master License Agreement shall terminate without offering the Company an
opportunity to cure its default, if (i) certain bankruptcy and insolvency events
occur, (ii) the Company purports to transfer any rights and obligations under
the Master License Agreement without compliance with the terms of the Master
License Agreement, (iii) the Company competes with the Franchisor in violation
of the Master License Agreement, (iv) the Company discloses the confidential
information of the Franchisor in violation of the Master License Agreement, (v)
the Company challenges Wizard Co.'s rights to the licensed proprietary marks,
(vi) upon a Change of Control Event (as defined) or (vii) the Company receives
three or more notices of termination for Curable Defaults (as defined) which are
cured or not cured (collectively, the "Non-Curable Defaults"); PROVIDED THAT,
except for (i) above, the Franchisor shall give the Company 30 days notice of
such Non-Curable Default. The Franchisor may also terminate the Master License
Agreement if the Company (i) fails, refuses or neglects to promptly pay monies
owing to the Franchisor, WizCom or Cendant under certain specified agreements,
(ii) misuses or makes any unauthorized use of the licensed proprietary marks or
otherwise materially impairs the goodwill associated with such marks, (iii)
engages in any business or markets any service or product under a name or mark
which, in

52
<PAGE>
the Franchisor's opinion, is similar to the licensed proprietary marks, (iv)
fails to maintain material compliance with the standards prescribed by the
Franchisor in the Master License Agreement, in the Operating Manual or otherwise
in writing or (v) with respect to any facility, fails to maintain compliance
with the standards or procedures prescribed by the Franchisor at such facility
(collectively, the "Curable Defaults"), provided, however, that the Company
shall have 30 days (10 days in the case of (i) above) after its receipt from the
Franchisor of written notice of such default to remedy such default and,
PROVIDED FURTHER, that other than with respect to (i) above, in the event such
default is not cured within 30 days but the Company has commenced to cure such
default within 30 days and is diligently prosecuting such cure to completion,
the Company shall have up to an additional 60 days to cure such default. In the
event of a termination of the agreement, Cendant has the option to acquire the
Company's rental locations, leases and fleet for fair value.

Change of Control Event means a transaction or series of related
transactions by which (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) other than Cendant or an affiliate
or successor to Cendant, is or becomes after the date hereof the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act as in effect
on the date hereof), of more than 25% of the total voting power of all voting
stock of the Company then outstanding when Cendant controls 25% or more of such
voting power and otherwise 20% of the total voting power (the "Relevant
Percentage"); (b)(1) another corporation merges into the Company or the Company
consolidates with or merges into any other corporation or (2) the Company
conveys, transfers or leases all or substantially all its assets to any person
or group, in one transaction or a series of related transactions other than any
conveyance, transfer or lease between the Company and a wholly owned subsidiary
of the Company, with the effect that a person or group, other than a person or
group which is the beneficial owner of more than the Relevant Percentage of the
total voting power of all voting stock of the Company immediately prior to such
transaction becomes the beneficial owner of more than the Relevant Percentage of
the total voting power of all voting stock of the surviving or transferee
corporation of such transaction or series; or (c) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Company's Board of Directors (together with any new directors whose election
by the Company's Board of Directors, or whose nomination for election by the
Company's shareholders, was approved by a vote of a majority of the Directors
then still in office who were either Directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Directors then in office.

REGISTRATION RIGHTS AGREEMENT

In connection with IPO, the Company entered into the Registration Rights
Agreement, pursuant to which Cendant and certain transferees of Common Stock
held by the Franchisor (the "Holders") have the right to require the Company to
register all or part of the Common Stock owned by such Holders under the
Securities Act (a "Demand Registration"); provided that the Company (i) will not
be obligated to effect a Demand Registration prior to unless Bear,
Stearns & Co. Inc. has given its consent and (ii) must postpone giving effect to
a Demand Registration up to a period of 30 days if the Company believes such
registration might have a material adverse effect on any plan or proposal by the
Company with respect to any financing, acquisition, recapitalization,
reorganization or other material transaction, or the Company is in possession of
material non-public information that, if publicly disclosed, could result in a
material disruption of a major corporate development or transaction then pending
or in progress or in other material adverse consequences to the Company. Cendant
has advised the Company that it does not have any present intention to request
any such registration. In addition, the Holders have the right to participate in
registrations by the Company of its Common Stock (a "Piggyback Registration").
The Holders will pay all out-of-pocket expenses incurred in connection with any
Demand Registration. The Company will pay any expenses incurred in connection
with a Piggyback Registration (including this registration), except for
underwriting discounts, commissions and expenses attributable to the shares of
Common Stock sold by such Holders.

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COMPUTER SERVICES AGREEMENT

The Wizard reservation and rental processing system, with the associated
back office and accounting systems, are owned and operated by WizCom at a
computer center in Garden City, New York. The Company purchases use of the
Wizard System for the purpose of processing reservation and rental transactions,
and for accounting purposes, under the terms of a Computer Services Agreement
entered into with WizCom in connection with the offering. The Computer Services
Agreement provides the Company with access to all functions of the Wizard
System. The Company participates in the funding of the development costs for any
new features which it agrees with other relevant users to be desirable. Once
developed, any such additional features also become available to the Company.
WizCom will charge the Company the full cost of providing computer services each
month. The method of calculating costs chargeable to the Company will vary
depending on the service being provided. The Computer Services Agreement is
coterminous with the Master License Agreement.

Under the Computer Services Agreement, WizCom may, from time to time,
provide the Company with software or system development services. The Company
has the exclusive right to use any such software or systems from the date of
implementation thereof.

Pursuant to a Termination Services Agreement, WizCom has agreed to provide
services to ARACS for a period of up to six months in the event the Computer
Services Agreement is terminated in accordance with certain provisions thereof.

RESERVATION SERVICES AGREEMENT

In connection with the IPO, the Company entered into a Reservation Services
Agreement with Cendant, pursuant to which Cendant agreed to operate and maintain
(directly or by subcontracting with affiliates or one or more third parties)
reservation center services consistent with the services historically provided
to the Company. The Company is obligated to obtain and maintain at its vehicle
rental locations the computer equipment and communication equipment and service
required to participate in the reservation system. The Company agreed to pay
Cendant (i) a per call charge for each call received in the call centers
operated by Cendant for the Avis System, (ii) for manually entered transactions,
a per booking charge for every booking made through direct electronic interface
with the global distribution systems utilized by the airlines and (iii) a per
booking charge for every booking made through an internet connection for the
Avis System. Such fees are subject to adjustment annually to reflect the cost of
providing such service. The Reservation Services Agreement shall terminate upon
the termination of the Master License Agreement, unless earlier terminated in
accordance with the terms thereof.

PURCHASING SERVICES AGREEMENT

In connection with the IPO, Cendant and ARACS entered into a Purchasing
Services Agreement pursuant to which Cendant agreed with the assistance of
ARACS, to identify vendors and programs which would benefit ARACS and pursue
establishing a preferred alliance program with such vendors for the benefit of
ARACS. Any commissions, related access fees or other amounts paid by preferred
alliance partners in connection with an agreement relating to sales to ARACS
shall be shared by the parties.

CALL TRANSFER AGREEMENT

ARACS and Cendant are parties to a Call Transfer Agreement, dated March 4,
1997 (the "Call Agreement"). Pursuant to the Call Agreement, Cendant has agreed
to transfer telephone calls from its lodging customers if such customers wish to
rent vehicles. Pursuant to the Call Agreement, ARACS has agreed to pay to
Cendant a fee of $1.75 per call transferred to ARACS by Cendant. Further, ARACS
has agreed to pay to Cendant a fee of $8.00 for each car rental that results
from a call transferred by Cendant. ARACS has guaranteed that it will pay
Cendant no less than $2.25 million in recurring fees during each of the five
years of the contract term which expires on March 4, 2002. The Company incurred
$2.9 million in fees payable to Cendant for the fiscal year ended December 31,
1997.

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LOANS BETWEEN THE COMPANY AND CENDANT

INTERCOMPANY NOTE

In connection with the Acquisition, the Franchisor assigned to ARACS a note,
dated October 1996, made by Wizard Co., Inc. and originally payable to the
Franchisor in the principal amount of $194,100,000 (the "Wizard Note"). ARACS
subsequently assigned the Wizard Note to Reserve Claims Management Co., a
subsidiary of the Company. In connection with the IPO, the Company assumed
Wizard Co., Inc.'s obligations under the Wizard Note pursuant to an Assignment,
Assumption and Release Agreement dated July 30, 1997 among ARACS, Wizard Co.,
Inc. and Reserve Claims Management Co. in exchange for payment by Wizard Co.,
Inc. to the Company of the amount due under the Wizard Note. The Wizard Note was
repaid in 1997.

VEHICLE FINANCING NOTES

At December 31, 1996, the Company had loans outstanding from the Franchisor
of $247.5 million, which provided subordinated vehicle financing. The Vehicle
Financing Notes were repaid in 1997. See Note 4 to the Audited Consolidated
Financial Statements.

OTHER

The Company had a net receivable from Cendant and its affiliated companies
at December 31, 1996 of $61.8 million. At December 31, 1997, the Company had a
net payable to Cendant and it affiliated companies of $44.5 million. These
amounts primarily represent the transfer of assets from the Company in
connection with the Acquisition, as well as intercompany transactions relating
to management, service and administrative fees since the Acquisition. See Note 4
to the Audited Consolidated Financial Statements.

TAX DISAFFILIATION AGREEMENT

In connection with the IPO, Cendant and the Company entered into a tax
disaffiliation agreement (the "Tax Disaffiliation Agreement") that sets forth
each party's rights and obligations with respect to payments and refunds, if
any, for taxes relating to taxable periods before and after the IPO and related
matters such as the filing of tax returns and the conduct of audits and other
proceedings involving claims made by taxing authorities.

On or prior to October 17, 1996 (the "Acquisition Date"), Franchisor was the
common parent of an affiliated group of corporations within the meaning of
Section 1504(a) of the Internal Revenue Code of 1986, as amended, whose members
included the Franchisor, the Company and certain of their respective
subsidiaries (the "Old Avis Group"). Generally, under the Tax Disaffiliation
Agreement, the Company will agree to indemnify Cendant for (i) taxes of or
attributable to the Old Avis Group, any member of the Old Avis Group and any
nonconsolidated subsidiary of the Franchisor for any period or portion thereof
ending on or before the Acquisition Date, (ii) taxes incurred pursuant to
Section 1.1502-6 of the U.S. Treasury regulations (or similar provisions under
state, local or foreign law imposing several liability upon members of a
consolidated, combined, affiliated or unitary group) as a result of any member
of the Old Avis Group having been a member of another affiliated group, (iii)
taxes of or attributable to the Company and its subsidiaries for periods or
portions thereof beginning the day after the Acquisition Date and (iv) transfer
taxes incurred as a result of the transactions contemplated by the IPO.

LEASE AGREEMENTS

The Company and WizCom currently share three facilities, which are located
in (i) Virginia Beach, Virginia, (ii) Tulsa, Oklahoma and (iii) Garden City, New
York (which houses the Company's principal executive offices). The Virginia
Beach property is owned by WizCom. The Garden City property (which houses the
Company's principal executive offices) and the Tulsa property are each owned by
third parties unrelated to the Company or WizCom and are leased by WizCom.

In connection with the IPO, the Company and WizCom entered into a lease or a
sublease agreement with respect to each property, as applicable. WizCom leases
space at its Virginia Beach property to the

55
<PAGE>
Company pursuant to a lease agreement. The lease agreement has a term of 18
years and requires the Company to pay WizCom its proportionate share, based on
allocated space, of the cost of operating such facility. In addition, WizCom
subleases space at its Tulsa and Garden City properties to the Company pursuant
to sublease agreements for each respective property. The sublease agreements
have a term coterminous with the terms under WizCom's existing lease agreements
and require the Company to reimburse WizCom for its proportionate share, based
on allocated space, of the rent and other charges required under WizCom's
existing leases relating to such properties, together with its proportionate
share, based on allocated space, of the cost of operating such facilities.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, the Company will have 35,925,000 shares of
Common Stock issued and outstanding. All of the shares of Common Stock to be
sold in the offering will be freely tradable without restrictions or further
registration under the Securities Act, unless purchased by an "affiliate" of the
Company (as that term is defined in Rule 144 adopted under the Securities Act
("Rule 144")), in which case such shares would be subject to the resale
limitations of Rule 144. All of the outstanding shares of Common Stock
beneficially owned by Cendant have not been registered under the Securities Act
and may not be sold in the absence of an effective registration statement under
the Securities Act other than in accordance with Rule 144 or another exemption
from registration. Cendant has certain rights to require the Company to effect
registration of shares of Common Stock owned by Cendant, which rights may be
assigned. SEE "RELATIONSHIP WITH CENDANT-- REGISTRATION RIGHTS AGREEMENT."

In general, under Rule 144, a person (or persons whose shares are required
to be aggregated) who has beneficially owned shares of Common Stock for at least
one year, including a person who may be deemed an "affiliate", is entitled to
sell, within any three-month period, a number of shares that does not exceed the
greater of one percent of the total number of shares of the class of stock sold
or the average weekly reported trading volume of the class of stock being sold
or the average weekly reported trading volume of the class of stock being sold
during the four calendar weeks preceding such sale. A person who is not deemed
an "affiliate" of the Company at any time during the three months preceding a
sale and who has beneficially owned shares for at least two years is entitled to
sell such shares under Rule 144 without regard to the volume limitations
described above. As defined in Rule 144, an "affiliate" of an issuer is a person
that directly or indirectly through the use of one or more intermediaries
controls, is controlled by, or is under common control with, such issuer. Rule
144A adopted under the Securities Act ("Rule 144A") provides a non-exclusive
safe harbor exemption from the registration requirements of the Securities Act
for specified resales of restricted securities to certain institutional
investors. In general, Rule 144A allows unregistered resales of restricted
securities to a "qualified institutional buyer", which generally includes an
entity, acting for its own account or for the account of other qualified
institutional buyers, that in the aggregate owns or invests at least $100
million in securities of unaffiliated issuers. Rule 144A does not extend an
exemption to the offer or sale of securities that, when issued, were of the same
class as securities listed on a national securities exchange or quoted on an
automated quotation system. The shares of Common Stock outstanding as of the
date of this Prospectus would be eligible for resale under Rule 144A because
such shares, when issued, were not of the same class as any listed or quoted
securities. The foregoing summary of Rule 144 and Rule 144A is not intended to
be a complete description thereof.

No prediction can be made as to the effect, if any, that market sales of
outstanding shares of Common Stock by Cendant, or the availability of such
shares for sale, will have on the market price of the Common Stock prevailing
from time to time. Nevertheless, sales of substantial amounts of Common Stock
beneficially owned by Cendant in the public market, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Common Stock offered in the offering.

Although Cendant in the future may effect or direct sales or other
dispositions of Common Stock that would reduce its beneficial ownership interest
in the Company, Cendant has advised the Company that its current intent is to
continue to hold all of the Common Stock beneficially owned by it following the
offering. However, Cendant is not subject to any contractual obligation to
retain its controlling interest

56
<PAGE>
except that Cendant and the Company have agreed, prior to certain limited
exceptions, not to sell or otherwise dispose of any shares of Common Stock until
, 1998 without the prior written consent of Bear, Stearns & Co. Inc. As a
result, there can be no assurance concerning the period of time during which
Cendant will maintain its beneficial ownership of Common Stock owned by it
following the offering. SEE "UNDERWRITING."

DESCRIPTION OF CAPITAL STOCK

The following summary description of the capital stock of the Company is
qualified in its entirety by reference to the Amended and Restated Certificate
of Incorporation of the Company (the "Amended Certificate") and the Amended and
Restated By-Laws of the Company, a copy of each of which is filed as an exhibit
to the Registration Statement of which this Prospectus forms a part.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters on which stockholders are entitled and
permitted to vote. Such holders are not entitled to vote cumulatively for the
election of directors. Holders of Common Stock have no redemption, conversion,
preemptive or other subscription rights. There are no sinking fund provisions
relating to the Common Stock. In the event of the liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share ratably
in all of the assets of the Company remaining, if any, after satisfaction of the
debts and liabilities of the Company. The outstanding shares of Common Stock
are, and the shares of Common Stock offered hereby will be, upon payment
therefor as contemplated herein, validly issued, fully paid and nonassessable.

Holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors of the Company out of funds legally available
therefor. The Company does not anticipate paying cash dividends in the
foreseeable future. SEE "DIVIDEND POLICY."

PREFERRED STOCK

The Amended Certificate provides that shares of Preferred Stock may be
issued from time to time in one or more series. The Board of Directors of the
Company is authorized to fix the voting rights, if any, designations, powers,
preferences and the relative participation, optional or other rights, if any,
and the qualifications, limitations or restrictions thereof, of any unissued
series of Preferred Stock, to fix the number of shares constituting such series,
and to increase or decrease the number of shares of any such series (but not
below the number of shares of such series then outstanding). Upon consummation
of the offering, no shares of Preferred Stock will be issued and outstanding.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

Section 203 ("Section 203") of the General Corporation Law of the State of
Delaware (the "DGCL") provides, in general, that a stockholder acquiring more
than 15% of the outstanding voting stock of a corporation subject to the statute
(an "Interested Stockholder") but less than 85% of such stock may not engage in
certain Business Combinations (as defined in Section 203) with the corporation
for a period of three years subsequent to the date on which the stockholder
became an Interested Stockholder unless (i) prior to such date the corporation's
board of directors approved either the Business Combination or the transaction
in which the stockholder became an Interested Stockholder or (ii) the Business
Combination is approved by the corporation's board of directors and authorized
by a vote of at least 66 2/3% of the outstanding voting stock of the corporation
not owned by the Interested Stockholder. The Amended Certificate contains a
provision electing not to be governed by Section 203.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank.

57
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS

The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of Common Stock by a Non-United States Holder. For purposes of this discussion,
a "Non-United States Holder" is any holder other than (i) a citizen or an
individual considered under the United States tax laws to be a resident of the
United States, (ii) a corporation or partnership created or organized in the
United States or under the laws of the United States or of any political
subdivision thereof, (iii) an estate whose income is includible in gross income
for United States federal tax purposes regardless of its source or (iv) a trust
for which a court within the United States is able to exercise primary
jurisdiction over the administration of the trust, and for which one or more
United States fiduciaries has the authority to control all substantial decisions
of the trust. This discussion does not address all aspects of United States
federal tax that may be relevant to Non-United States Holders in light of their
specific circumstances. Prospective investors are urged to consult their tax
advisors with respect to the particular tax consequences to them of acquiring,
holding and disposing of Common Stock, as well as any tax consequences which may
arise under the laws of any foreign, state, local or other taxing jurisdiction.
This discussion is based upon the United States federal income and estate tax
law now in effect, which is subject to change, possibly retroactively, and is
for general information only.

DIVIDENDS

Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States federal income tax at the rate of 30% of the gross
amount of such dividends (or at such lower rate as may be specified by an
applicable income tax treaty) unless such dividends are effectively connected
with the conduct of a trade or business within the United States by the
Non-United States Holder ("effectively connected"), in which case the dividends
will be subject to the United States federal income tax on net income on the
same basis that it applies to United States persons. In the case of a Non-United
States Holder which is a corporation, such dividends might also be subject to
the United States branch profits tax (which is generally imposed on a foreign
corporation on the repatriation from the United States of effectively connected
earnings and profits at a 30% rate). An applicable income tax treaty may,
however, change these rules. A Non-United States Holder may be required to
satisfy certain certification requirements in order to claim treaty benefits or
otherwise obtain any reduction of or exemption from withholding under the
foregoing rules.

SALE OR OTHER DISPOSITION OF COMMON STOCK

A Non-United States Holder will generally not be subject to United States
federal income tax on gain recognized on a sale or other disposition of Common
Stock unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-United States Holder (or by a
partnership, trust or estate in which the Non-United States Holder is a partner
or beneficiary), (ii) in the case of a Non-United States Holder who is a
nonresident alien individual and holds Common Stock as a capital asset, such
holder is present in the United States for 183 days or more in the taxable year
of disposition and (x) has a "tax home" in the United States (as specifically
defined under the United States federal income tax laws) or (y) maintain as an
office or other fixed place of business in the United States to which the gain
from the sale of the stock is attributable, (iii) the Non-United States Holder
is subject to tax, pursuant to the provisions of United States tax law
applicable to certain United States expatriates whose loss of United States
citizenship had as one of its principal purposes the avoidance of United States
taxes, or (iv)(A) the Company is or becomes a "United States real property
holding corporation" for United States federal income tax purposes and (B)
assuming the Common Stock continues to be "regularly traded on an established
securities market" for tax purposes, the Non-United States Holder held, directly
or indirectly, at any time during the five year period ending on the date of
disposition, more than 5% of the outstanding Common Stock. The Company believes
that it is not currently, and is not likely to become, a

58
<PAGE>
United States real property holding corporation. Any such gain that is (or is
treated as being) effectively connected will not be subject to withholding, but
will be subject to United States federal income tax (and, in the case of
corporate holders, possibly the United States branch profits tax). Non-United
States Holders should consult applicable treaties, which may provide for
different rules (including possibly the exemption of certain capital gains from
tax).

BACKUP WITHHOLDING AND REPORTING REQUIREMENTS

DIVIDENDS

United States backup withholding tax will generally not apply to dividends
paid on Common Stock to a Non-United States Holder at an address outside the
United States. The Company must report annually to the Internal Revenue Service
and to each Non-United States Holder the amount of dividends paid to, and the
tax withheld with respect to, such holder, regardless of whether any tax was
actually withheld. This information may also be made available to the tax
authorities in the Non-United States Holder's country of residence.

SALE OR OTHER DISPOSITION OF COMMON STOCK

Upon the sale or other taxable disposition of Common Stock by a Non-United
States Holder to or through a United States office of a broker, the broker must
backup withhold at a rate of 31% and report the sale to the Internal Revenue
Service, unless the holder certifies its Non-United States Holder status under
penalties of perjury or otherwise establishes an exemption. Upon the sale or
other taxable disposition of Common Stock by a Non-United States Holder to or
through the foreign office of a United States broker, or a foreign broker with
certain types of relationships to the United States, the broker must report the
sale to the Internal Revenue Service (but not backup withhold) unless the broker
has documentary evidence in its files that the seller is a Non-United States
Holder and/or certain other conditions are met, or the holder otherwise
establishes an exemption.

BACKUP WITHHOLDING IS NOT AN ADDITIONAL TAX

Amounts withheld under the backup withholding rules are generally allowable
as a refund or credit against such Non-United States Holder's United States
federal income tax liability, if any, provided that the required information is
furnished to the Internal Revenue Service.

PROPOSED REGULATIONS

On April 22, 1996, the Internal Revenue Service issued proposed regulations
relating to withholding, backup withholding and information reporting that, if
adopted in their current form, would, among other things, unify current
certification procedures and forms and clarify reliance standards. The proposed
regulations would, among other things, eliminate the general current law
presumption that dividends paid to an address in a foreign country are paid to a
resident of that country and would impose certain certification and
documentation requirements on Non-United States Holders claiming the benefit of
a reduced withholding rate with respect to dividends under a tax treaty. These
regulations generally are proposed to be effective with respect to payments made
after December 31, 1997, although in certain cases they are proposed to be
effective only with respect to payments made after December 31, 1999. Proposed
regulations are subject to change, however, prior to their adoption in final
form.

FEDERAL ESTATES TAXES

Common Stock owned or treated as owned by an individual who is neither a
citizen nor a resident (as defined for United States federal estate tax
purposes) of the United States at the date of death will be included in such
individual's estate for United States federal estate tax purposes and subject to
such tax, except to the extent that an applicable estate tax treaty provides
otherwise.

59
<PAGE>
UNDERWRITING

The underwriters of the offering named below (the "Underwriters"), for whom
Bear, Stearns & Co. Inc., Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and NationsBanc Montgomery Securities LLC are acting as
representatives, have severally agreed with the Company, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company the
aggregate number of shares of Common Stock set forth opposite their respective
names below:

<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Bear, Stearns & Co. Inc..............................................................................
Lehman Brothers Inc..................................................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................................................................
NationsBanc Montgomery Securities LLC................................................................
----------
Total............................................................................................ 5,000,000
----------
</TABLE>

The obligations of the Underwriters are subject to various conditions,
including the approval of certain matters by counsel. The Company and Cendant
have agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act, and, where such indemnification is
unavailable, to contribute to payments that the Underwriters may be required to
make in respect of such liabilities.

The Company and Cendant have been advised that the Underwriters propose to
offer the shares of Common Stock initially at the public offering price set
forth on the cover page of this Prospectus and to certain selected dealers at
such price less a concession not to exceed $ per share; that the Underwriters
may allow, and such selected dealers may reallow, a concession to certain other
dealers not to exceed $ per share; and that after the commencement of the
offering, the public offering price and the concessions may be changed.

Cendant has granted the Underwriters an option to purchase in the aggregate
up to 750,000 additional shares of Common Stock solely to cover over-allotments,
if any. The option may be exercised in whole or in part at any time within 30
days after the date of this Prospectus. To the extent the option is exercised,
the Underwriters will be severally committed, subject to certain conditions,
including the approval of certain matters by counsel, to purchase the additional
shares of Common Stock in proportion to their respective purchase commitments as
indicated in the preceding table.

The Company and Cendant have agreed that, subject to certain limited
exceptions, for a period of 90 days after the date of this Prospectus, without
the prior written consent of Bear, Stearns & Co. Inc., they will not, directly
or indirectly, offer or agree to sell, sell or otherwise dispose of any shares
of Common Stock (or securities convertible into, exchangeable for or evidencing
the right to purchase shares of Common Stock).

In order to facilitate the offering, certain persons participating in the
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Common Stock during and after the offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in the Common
Stock for their own account by selling more shares than have been sold to them
by the Company. The Underwriters may elect to cover any such short position by
purchasing shares in the open market or by exercising the over-allotment option
granted to the Underwriters. In addition, such persons may stabilize or maintain
the price of the Common Stock by bidding for or purchasing shares in the open
market and may impose penalty bids, under which selling concessions allowed to
syndicate members or other broker-dealers participating in the offering are
reclaimed if shares previously distributed in the offering are

60
<PAGE>
repurchased in connection with stabilization transactions or otherwise. The
effect of these transactions may be to stabilize or maintain the market price of
the Common Stock at a level above that which might otherwise prevail in the open
market. The imposition of a penalty bid may also affect the price of the Common
Stock to the extent that it discourages resales thereof. No representation is
made as to the magnitude or effect of any such stabilization or other
transactions. Such transactions may be effected on the NYSE or otherwise and, if
commenced, may be discontinued at any time.

Certain of the Underwriters and their affiliates have from time to time
provided, and may continue to provide, investment banking services and general
financing and banking transactions to the Company and certain of its affiliates
for which such Underwriters, or affiliates have received and will receive fees
and commissions.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and Cendant by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York. Certain legal matters in connection with the offering will
be passed upon for the Underwriters by Weil, Gotshal & Manges LLP, New York, New
York.

EXPERTS

The consolidated financial statements as to the Company as of December 31,
1997 and 1996 and for the year ended of December 31, 1997 and the period October
17, 1996 (Date of Acquisition) to December 31, 1996 and as to the Predecessor
Companies for the period January 1, 1996 to October 16, 1996 and for the year
ended December 31, 1995 included in this Prospectus and the related financial
statement schedule included elsewhere in the Registration Statement of which
this Prospectus is a part have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the Registration Statement, and are included in reliance upon the reports of
such firm given their authority as experts in accounting and auditing.

The consolidated financial statements of First Gray Line as of September 30,
1996 and 1995 and for each of the two years in the period ended September 30,
1996 included elsewhere in the Registration Statement of which this Prospectus
is a part have been audited by Ernst & Young LLP, independent auditors, as
stated in their report appearing herein and elsewhere in the Registration
Statement, and are included in reliance upon the report of such firm given their
authority as experts in accounting and auditing.

61
<PAGE>
AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington D.C. a Registration Statement on Form S-1 (as
amended, the "Registration Statement") of which this Prospectus is a part under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto, to which reference is hereby
made. Statements made in this Prospectus as to the contents of any contract,
agreement or other document are summaries of the material terms of such
contract, agreement or other document. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved. The Registration Statement (including the exhibits and schedule
thereto) filed by the Company with the Commission may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be
available for inspection and copying at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661.
Copies of such material may also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a website that contains reports,
proxy and information statements and other information. The website address is
http://www.sec.gov.

The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy and information statements
and other information with the Commission. Such reports, proxy and information
statements and other information can be inspected and copied at the addresses
set forth above. The Company reports its financial statements on a year ended
December 31. The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by its independent
certified public accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first three quarters
of each fiscal year.

62
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE #
-----------
<S> <C>
AVIS RENT A CAR, INC.
Consolidated Financial Statements:
Independent Auditors' Report.......................................................................... F-2
Consolidated Statements of Financial Position at December 31, 1996 and 1997........................... F-3
Consolidated Statements of Operations for the year ended December 31, 1995,
and for the periods January 1, 1996 to October 16, 1996 and October 17, 1996
(Date of Acquisition) to December 31, 1996 and for the year ended December 31, 1997................. F-4
Consolidated Statements of Stockholders' Equity for the year ended December 31, 1995, and for the
periods January 1, 1996 to October 16, 1996 and October 17, 1996 (Date of Acquisition) to December
31, 1996 and for the year ended December 31, 1997................................................... F-5
Consolidated Statements of Cash Flows for the year ended December 31, 1995, and for the periods
January 1, 1996 to October 16, 1996 and October 17, 1996 (Date of Acquisition) to December 31, 1996
and for the year ended December 31, 1997............................................................ F-6
Notes to the Consolidated Financial Statements........................................................ F-7
THE FIRST GRAY LINE CORPORATION
Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Income for the nine months ended June 30, 1997 and 1996.......... F-30
Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 1997 and 1996...... F-31
Notes to the Unaudited Condensed Consolidated Financial Statements.................................... F-32
Audited Consolidated Financial Statements:
Report of Independent Auditors........................................................................ F-33
Consolidated Balance Sheets at September 30, 1996 and 1995............................................ F-34
Consolidated Statements of Income for the years ended September 30, 1996 and 1995..................... F-35
Consolidated Statements of Changes In Stockholders' Equity for the years ended September 30, 1996 and
1995................................................................................................ F-36
Consolidated Statements of Cash Flows for the years ended September 30, 1996 and 1995................. F-37
Notes to Consolidated Financial Statements............................................................ F-38
AVIS RENT A CAR, INC.
Unaudited Pro Forma Consolidated Statement of Operations:
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 1997......... P-2
Notes to the Unaudited Pro Forma Consolidated Statement of Operations................................. P-3
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of
Avis Rent A Car, Inc.
Garden City, New York

We have audited the accompanying consolidated statements of financial
position of Avis Rent A Car, Inc. and subsidiaries (successor to Rental Car
System Holdings, Inc. and subsidiaries, Avis International, Ltd. and
subsidiaries, Avis Enterprises, Inc. and subsidiaries, Pathfinder Insurance
Company and Global Excess & Reinsurance, Ltd., all previously wholly-owned by
Avis, Inc., collectively the "Predecessor Companies") (collectively referred to
as "Avis Rent A Car, Inc." or the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the year ended December 31, 1997 and for the period October 17,
1996 (Date of Acquisition) to December 31, 1996 and as to the Predecessor
Companies the related consolidated statements of operations, stockholders'
equity and cash flows for the period January 1, 1996 to October 16, 1996 and for
the year ended December 31, 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the year ended December 31, 1997 and for the period October 17, 1996 to
December 31, 1996 (period after the change in control referred to in Note 1 to
the consolidated financial statements), and with respect to the Predecessor
Companies for the period January 1, 1996 to October 16, 1996 (period up to the
change in control referred to in Note 1 to the consolidated financial
statements) and for the year ended December 31, 1995 in conformity with
generally accepted accounting principles.

As more fully discussed in Note 1 to the consolidated financial statements,
the Predecessor Companies were acquired in a business combination accounted for
as a purchase. As a result of the acquisition, the consolidated financial
statements for the period subsequent to the acquisition are presented on a
different basis of accounting than those for the periods prior to the
acquisition and, therefore, are not directly comparable.

Deloitte & Touche LLP
New York, New York
January 29, 1998
(February 20, 1998 as to Note 19)

F-2
<PAGE>
AVIS RENT A CAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
--------------- ---------------
<S> <C> <C>

<CAPTION>
ASSETS
<S> <C> <C>
Cash and cash equivalents...................................................... $ 50,886 $ 76,663
Accounts receivable, net....................................................... 311,179 359,463
Due from affiliates, net....................................................... 61,807
Prepaid expenses............................................................... 40,155 47,360
Vehicles, net.................................................................. 2,243,492 3,018,856
Property and equipment, net.................................................... 98,887 122,860
Other assets................................................................... 14,526 115,689
Deferred income tax assets..................................................... 113,660 142,025
Cost in excess of net assets acquired, net..................................... 196,765 396,040
--------------- ---------------
Total assets................................................................... $ 3,131,357 $ 4,278,956
--------------- ---------------
--------------- ---------------
<CAPTION>

LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Accounts payable............................................................... $ 175,535 $ 329,706
Accrued liabilities............................................................ 329,245 328,411
Due to affiliates, net......................................................... 44,512
Current income tax liabilities................................................. 4,790 9,749
Deferred income tax liabilities................................................ 35,988 34,106
Public liability, property damage and other insurance liabilities, net......... 213,785 256,029
Debt........................................................................... 2,295,474 2,826,422
--------------- ---------------
Total liabilities.......................................................... 3,054,817 3,828,935
--------------- ---------------

Commitments and contingencies

Stockholders' equity:
Preferred stock ($.01 par value 20,000,000 shares authorized; none issued).....
Common stock ($.01 par value, 100,000,000 shares authorized; 30,925,000 shares
outstanding at December 31, 1997; 8,500,000 shares outstanding at December
31, 1996 after restatement for a 85,000 to 1 stock split on September 24,
1997)........................................................................ 85 309
Additional paid-in capital..................................................... 74,915 430,507
Retained earnings.............................................................. 1,184 28,294
Foreign currency translation adjustment........................................ 356 (9,089)
--------------- ---------------
Total stockholders' equity................................................. 76,540 450,021
--------------- ---------------
Total liabilities and stockholders' equity..................................... $ 3,131,357 $ 4,278,956
--------------- ---------------
--------------- ---------------
</TABLE>

See accompanying notes to the consolidated financial statements.

F-3
<PAGE>
AVIS RENT A CAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PREDECESSOR COMPANIES OCTOBER 17,
------------------------- 1996
JANUARY 1, (DATE OF
1996 ACQUISITION)
YEAR ENDED TO TO YEAR ENDED
DECEMBER OCTOBER 16, DECEMBER 31, DECEMBER
31, 1995 1996 1996 31, 1997
----------- ------------ --------------- -----------
<S> <C> <C> <C> <C>
Revenue............................ $1,615,951 $1,504,673 $ 362,844 $2,046,154
----------- ------------ --------------- -----------
Costs and expenses:
Direct operating, net............ 724,759 650,750 167,682 863,839
Vehicle depreciation, net........ 324,186 275,867 66,790 460,629
Vehicle lease charges............ 86,916 100,318 22,658 81,461
Selling, general and
administrative................. 269,434 283,180 68,215 415,728
Interest, net.................... 145,199 120,977 34,212 167,314
Amortization of cost in excess of
net assets acquired............ 4,757 3,782 1,026 6,860
----------- ------------ --------------- -----------
1,555,251 1,434,874 360,583 1,995,831
----------- ------------ --------------- -----------
Income before provision for income
taxes............................ 60,700 69,799 2,261 50,323
Provision for income taxes......... 34,635 31,198 1,040 22,850
----------- ------------ --------------- -----------
Net income......................... $ 26,065 $ 38,601 $ 1,221 $ 27,473
----------- ------------ --------------- -----------
----------- ------------ --------------- -----------
Earnings per share:
Basic.............................. $ .84 $ 1.25 $ .04 $ .89
----------- ------------ --------------- -----------
----------- ------------ --------------- -----------
Diluted............................ $ .84 $ 1.25 $ .04 $ .88
----------- ------------ --------------- -----------
----------- ------------ --------------- -----------
</TABLE>

See accompanying notes to the consolidated financial statements.

F-4
<PAGE>
AVIS RENT A CAR, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TRANSLATION
STOCK CAPITAL EARNINGS ADJUSTMENT TOTAL
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995........................................ $ 2,977 $ 331,229 $ 323,277 $ 868 $ 658,351
Net income for the year ended December 31, 1995................. 26,065 26,065
Tax benefit of ESOP income tax deductions....................... 13,302 13,302
Foreign currency translation adjustment......................... (612) (612)
Cash dividends.................................................. (8,746) (8,746)
----------- ----------- ----------- ----------- ---------
Balance, December 31, 1995...................................... 2,977 344,531 340,596 256 688,360
Net income for the period ended October 16, 1996................ 38,601 38,601
Tax benefit of ESOP income tax deductions....................... 12,939 12,939
Foreign currency translation adjustment......................... 2,805 2,805
Cash dividends.................................................. (1,398) (1,398)
----------- ----------- ----------- ----------- ---------
Balance, October 16, 1996....................................... $ 2,977 $ 357,470 $ 377,799 $ 3,061 $ 741,307
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------

Avis Rent A Car, Inc. ($.01 par value, 100,000,000 shares of
Common Stock authorized; 8,500,000 shares of Common Stock
outstanding at October 17, 1996 (Date of Acquisition) after
restatement for a 85,000 to 1 stock split on September 24,
1997)......................................................... $ 85 $ 74,915 $ 75,000
Net income for the period from October 17, 1996 to December 31,
1996.......................................................... $ 1,221 1,221
Foreign currency translation adjustment for the period October
17, 1996 to December 31, 1996................................. $ 356 356
Additional minimum pension liability for the period October 17,
1996 to December 31, 1996..................................... (37) (37)
----------- ----------- ----------- ----------- ---------
Balance, December 31, 1996...................................... 85 74,915 1,184 356 76,540
Net income for the year ended December 31, 1997................. 27,473 27,473
Sale of Class A common shares of Common Stock ($.01 par value)
through an initial public offering of 22,425,000 shares of
Common Stock on September 24, 1997............................ 224 355,592 355,816
Foreign currency translation adjustment......................... (9,445) (9,445)
Additional minimum pension liability............................ (363) (363)
----------- ----------- ----------- ----------- ---------
Balance, December 31, 1997...................................... $ 309 $ 430,507 $ 28,294 $ (9,089) $ 450,021
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
</TABLE>

See accompanying notes to the consolidated financial statements.

F-5
<PAGE>
AVIS RENT A CAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
PREDECESSOR COMPANIES
----------------------------- OCTOBER 17, 1996
JANUARY 1, 1996 (DATE OF
YEAR ENDED TO ACQUISITION) YEAR ENDED
DECEMBER 31, OCTOBER 16, TO DECEMBER 31,
1995 1996 DECEMBER 31, 1996 1997
------------ --------------- ----------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 26,065 $ 38,601 $ 1,221 $ 27,473
Adjustments to reconcile net income to net cash provided by
operating activities:
Vehicle depreciation........................................... 342,048 306,159 71,343 466,799
Depreciation and amortization of property and equipment........ 13,387 12,333 2,212 11,791
Amortization of cost in excess of net assets acquired.......... 4,757 3,782 1,026 6,860
Amortization of debt issuance costs............................ 2,660 2,423 3,653
Amortization of capitalized computer software costs............ 718
Deferred income tax provision.................................. 25,852 22,342 33 9,161
Undistributed (earnings) losses of associated companies........ (376) (232) 146
Provision for (benefit from) losses on accounts receivable..... (48) 1,238 227 3,208
Provision for public liability, property damage and other
insurance liabilities, net................................... 10,641 17,745 1,340 25,574
Changes in operating assets and liabilities:
Accounts receivable.......................................... (22,644) (204,137) 10,327 (15,201)
Prepaid expenses............................................. (863) (2,125) (2,664) 3,914
Other assets................................................. 1,988 3,266 (3,459) (74,915)
Accounts payable............................................. (5,733) 82,354 (18,712) 152,777
Accrued liabilities.......................................... 42,176 101,069 (24,718) (84,150)
------------ --------------- ----------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................... 439,910 384,818 38,176 537,808
------------ --------------- ----------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for vehicle additions................................... (2,553,324) (2,325,460) (561,117) (4,406,183)
Vehicle deletions................................................ 2,028,474 1,795,562 565,896 3,382,177
Payments for additions to property and equipment................. (36,939) (25,953) (3,484) (24,733)
Retirements of property and equipment............................ 3,715 1,849 361 3,971
Payments for purchase of Licensees............................... (3,134) (199,381)
------------ --------------- ----------------- ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES............ (558,074) (557,136) 1,656 (1,244,149)
------------ --------------- ----------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net....................... 359,316
Changes in debt:
Proceeds....................................................... 320,940 519,167 63,903 3,381,173
Repayments..................................................... (287,271) (267,317) (133,457) (3,031,885)
------------ --------------- ----------------- ------------
Net increase (decrease) in debt................................ 33,669 251,850 (69,554) 349,288
Payments for debt issuance costs................................. (5,515) (2,604) (29,302)
Proceeds (payments on) from intercompany loans................... 104,209 (27,696) (6,661) 53,761
Cash dividends................................................... (8,746) (1,398)
------------ --------------- ----------------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............ 123,617 220,152 (76,215) 733,063
------------ --------------- ----------------- ------------
Effect of exchange rate changes on cash.......................... (197) 260 94 (945)
------------ --------------- ----------------- ------------
Net increase (decrease) in cash and cash equivalents............. 5,256 48,094 (36,289) 25,777
Cash and cash equivalents at beginning of period................. 33,825 39,081 87,175 50,886
------------ --------------- ----------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................... $ 39,081 $ 87,175 $ 50,886 $ 76,663
------------ --------------- ----------------- ------------
------------ --------------- ----------------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest....................................................... $ 149,885 $ 135,733 $ 28,170 $ 189,086
------------ --------------- ----------------- ------------
------------ --------------- ----------------- ------------
Income taxes................................................... $ 8,688 $ 6,220 $ 827 $ 8,899
------------ --------------- ----------------- ------------
------------ --------------- ----------------- ------------
</TABLE>

See accompanying notes to the consolidated financial statements.

F-6
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements include Avis Rent A Car,
Inc. (name changed from and formerly known as Rental Car System Holdings, Inc.
which was incorporated on October 17, 1996) and subsidiaries (including the
carved out corporate operations of HFS Car Rental, Inc. (name changed from and
formerly known as, and hereinafter referred to as, Avis, Inc.), which is the
holding company of Rental Car System Holdings, Inc., and Prime Vehicles Trust
(the "Vehicle Trust")), Avis International, Ltd. and subsidiaries, Avis
Enterprises, Inc. and subsidiaries, Pathfinder Insurance Company and Global
Excess & Reinsurance, Ltd. (collectively referred to as "Avis Rent A Car,
Inc."). All of the foregoing companies are ultimately wholly-owned subsidiaries
of Avis, Inc., which was acquired by Cendant Corporation (formerly HFS
Incorporated ("Cendant")) on October 17, 1996 (the "Date of Acquisition") for
approximately $806.5 million. The purchase price was comprised of approximately
$367.2 million in cash, $100.9 million of indebtedness and $338.4 million of
common stock. Prior to October 17, 1996, the above-named entities were
wholly-owned by Avis, Inc. and are referred to collectively as the "Predecessor
Companies". Avis Rent A Car, Inc. and the Predecessor Companies are referred to
throughout the notes as the "Company". The major shareholder of Avis, Inc. was
an Employee Stock Ownership Plan ("ESOP") and the minority shareholder was
General Motors Corporation ("General Motors"). The Company purchases a
significant portion of its vehicles, and receives certain financial incentives
and allowances from General Motors (see Notes 3, 5, 8, and 17). As a result of
the acquisition, the consolidated financial statements for the period subsequent
to the acquisition are presented on a different basis of accounting than those
for the periods prior to the acquisition and, therefore, are not directly
comparable. On January 1, 1997, Avis, Inc. contributed the net assets of its
corporate operations and all of its common stock ownership in Avis
International, Ltd. and subsidiaries, Avis Enterprises, Inc. and subsidiaries,
Pathfinder Insurance Company and Global Excess & Reinsurance, Ltd. to the
Company. After the transfer, the remaining operations of Avis, Inc. consist of
an investment in a wholly-owned subsidiary which owns the Avis trade names and
trademarks. Pursuant to a plan developed by Cendant prior to the Date of
Acquisition, Cendant caused the Company to undertake an initial public offering
("IPO"), which reduced Cendant's equity interest in the Company to approximately
27.5%. On September 24, 1997, the Company issued and sold 22,425,000 shares of
its common stock through such IPO and received net proceeds of $359.3 million.
The net proceeds were used to repay amounts outstanding under the acquisition
credit facility utilized to complete the acquisition of The First Gray Line
Corporation (see Note 2), pay certain acquisition expenses incurred to complete
The First Gray Line Corporation acquisition and to prepay outstanding
indebtedness. A Cendant subsidiary owns and operates the reservation system as
well as the telecommunications and computer processing systems which service the
rental car operations for reservations, rental agreement processing, accounting
and vehicle control. Cendant is reimbursed for such services at cost (see Note
4). In addition, a Cendant subsidiary charges the Company a royalty fee for the
use of the Avis trade name (see Note 4).

The acquisition of the Company was accounted for under the purchase method
and includes the operations of the Company subsequent to the Date of
Acquisition. A portion of the purchase price has been allocated to the fair
value of the Company. This fair value was calculated on the basis that the
Company is an independent franchisee of Avis, Inc. and is required to pay
certain fees for use of the Avis trade name, reservation services and other
franchise related services. The fair value of the Company has been allocated to
individual assets and liabilities based on their fair value at the Date of
Acquisition.

F-7
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The purchase cost allocation at the Date of Acquisition has been allocated
to the Company as follows (in thousands):

<TABLE>
<S> <C>
Allocated purchase cost......................................... $ 75,000
---------
Fair value of:
Liabilities assumed........................................... 3,215,677
Assets acquired............................................... 3,059,186
---------
Net liabilities................................................. 156,491
---------
Cost in excess of net assets acquired........................... $ 231,491
---------
---------
</TABLE>

PRINCIPLES OF CONSOLIDATION

All material intercompany accounts and transactions have been eliminated.

ACCOUNTING ESTIMATES

Generally accepted accounting principles require the use of estimates, which
are subject to change, in the preparation of financial statements. Significant
accounting estimates used include estimates for determining public liability,
property damage and other insurance liabilities, and the realization of deferred
income tax assets. However, actual results may differ.

REVENUE RECOGNITION

Revenue is recognized over the period the vehicle is rented.

CASH AND CASH EQUIVALENTS

The Company considers deposits and short-term investments with an original
maturity date of three months or less to be cash equivalents.

VEHICLES, NET

Vehicles are stated at cost net of accumulated depreciation, incentives and
allowances. In accordance with industry practice, when vehicles are sold, gains
or losses are reflected as an adjustment to depreciation. Vehicles are generally
depreciated at rates ranging from 10% to 25% per annum. Manufacturers provide
the Company with incentives and allowances (such as rebates and volume
discounts) which are amortized to income over the holding period of the
vehicles.

PROPERTY AND EQUIPMENT, NET

Property and equipment is stated at cost net of accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method over the
estimated useful life of the assets. Estimated useful lives range from five to
ten years for furniture, fixtures and equipment, to thirty years for buildings.
Leasehold improvements are amortized over the shorter of twenty years or the
remaining life of the lease. Maintenance and repairs are expensed; renewals and
improvements are capitalized. When depreciable

F-8
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assets are retired or sold, the cost and related accumulated depreciation are
removed from the accounts with any resulting gain or loss reflected in the
consolidated statement of operations.

COST IN EXCESS OF NET ASSETS ACQUIRED, NET

Cost in excess of net assets acquired is amortized over a 40 year period and
is shown net of accumulated amortization of $1.0 million and $7.9 million at
December 31, 1996 and 1997, respectively.

IMPAIRMENT ACCOUNTING

The Company reviews the recoverability of its long-lived assets, including
cost in excess of net assets acquired, when events or changes in circumstances
occur that indicate that the carrying value of the assets may not be
recoverable. The measurement of possible impairment is based on the Company's
ability to recover the carrying value of the asset from the expected future
pre-tax undiscounted cash flows generated. The measurement of impairment
requires management to use estimates of expected future cash flows. If an
impairment loss existed, the amount of the loss would be recorded under the
caption Costs and expenses in the consolidated statements of operations. It is
at least reasonably possible that future events or circumstances could cause
these estimates to change.

PUBLIC LIABILITY, PROPERTY DAMAGE AND OTHER INSURANCE LIABILITIES, NET

Insurance liabilities on the accompanying consolidated statements of
financial position include additional liability insurance, personal effects
protection insurance, public liability and property damage ("PLPD") and personal
accident insurance claims for which the Company is self-insured. The Company is
self-insured up to $1 million per claim under its automobile liability insurance
program for PLPD and additional liability insurance. Costs in excess of $1
million per claim are insured under various contracts with commercial insurance
carriers. The liability for claims up to $1 million is estimated based on the
Company's historical loss and loss adjustment expense experience, which is
adjusted for current trends.

The insurance liabilities include a provision for both claims reported to
the Company as well as claims incurred but not yet reported to the Company. This
method is an actuarially accepted loss reserve method. Adjustments to this
estimate and differences between estimates and the amounts subsequently paid are
reflected in operations as they occur.

FOREIGN CURRENCY TRANSLATION

The assets and liabilities of foreign companies are translated at year-end
exchange rates. The resultant translation adjustment is included as a component
of consolidated stockholders' equity. Results of operations are translated at
the average rates of exchange in effect during the year.

INCOME TAXES

Effective September 30, 1997, the Company files a U.S. consolidated federal
income tax return. The Company has adopted the calendar year as its fiscal year.
The Company files separate income tax returns in states where a consolidated
return is not permitted. The Company was included in the consolidated federal
income tax return of Cendant through September 29, 1997. Pursuant to the
regulations under the Internal Revenue Code, the Company's pro rata share of the
consolidated federal income tax liability of Cendant is allocated to the Company
on a separate return basis. The Predecessor Companies were

F-9
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
included in the consolidated federal income tax return of Avis, Inc. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes" ("SFAS 109"), deferred income tax assets and
liabilities are measured based upon the difference between the financial
accounting and tax basis of assets and liabilities.

PENSIONS

Costs of the defined benefit plans are actuarially determined under the
projected unit credit cost method and include amounts for current service and
interest on projected benefit obligations and plan assets. The Company's policy
is to fund at least the minimum contribution amount required by the Employee
Retirement Income Security Act of 1974.

ADVERTISING

Advertising costs are expensed as incurred. Advertising costs were $48.4
million, $66.1 million, $10.3 million and $65.6 million for the periods ended
December 31, 1995, October 16, 1996, December 31, 1996, and December 31, 1997,
respectively.

ENVIRONMENTAL COSTS

The Company's operations include the storage and dispensing of gasoline. The
Company accrues losses associated with the remediation of accidental fuel
discharges when such losses are probable and reasonably estimable. Accruals for
estimated losses from environmental remediation obligations generally are
recognized no later than completion of the remedial feasibility study. Such
accruals are adjusted as further information develops or circumstances change.
Costs of future expenditures for environmental remediation obligations are not
discounted to their present value. Recoveries from insurance companies and other
reimbursements are generally not significant. In 1997, the Company adopted the
Accounting Standards Executive Committee of the American Institute of Certified
Public Accountants Statement of Position 96-1 "Environmental Remediation
Liabilities" ("SOP 96-1"). SOP 96-1 provides guidance on the timing and
measurement of liabilities associated with environmental remediation. The
adoption of this statement did not have a material effect on the results of
operations or financial position of the Company.

RECENT PRONOUNCEMENT OF THE FINANCIAL ACCOUNTING STANDARDS BOARD

A recent pronouncement of the Financial Accounting Standards Board, which is
not required to be adopted at this date, is SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. SFAS No. 130 is effective for fiscal
year ending December 31, 1998. The adoption of SFAS No. 130 is not expected to
have a material effect on the Company's consolidated financial statements. In
1997, the Company has elected early adoption of SFAS No. 131 which did not have
a material effect on the Company's consolidated financial statements (see Note
15).

NOTE 2--ACQUISITIONS

On August 20, 1997, the Company purchased The First Gray Line Corporation.
On September 18, 1997, the Company purchased certain assets and repurchased the
franchise rights of a licensee based in

F-10
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--ACQUISITIONS (CONTINUED)
Albany, New York. These acquisitions had an aggregate purchase cost of $199.4
million. The excess purchase cost over net assets acquired was approximately
$173.0 million.

The following is the preliminary purchase cost allocation for the
acquisitions mentioned above (in thousands):

<TABLE>
<S> <C>
Purchase cost..................................................... $ 199,381
---------
Fair value of:
Assets acquired................................................. 354,637
Liabilities assumed............................................. 328,269
---------
Net assets........................................................ 26,368
---------
Cost in excess of net assets acquired............................. $ 173,013
---------
---------
</TABLE>

The preliminary purchase cost allocations for these acquisitions are subject
to adjustment when additional information concerning asset and liability
valuations are obtained. The final asset and liability fair values may differ
from those set forth in the accompanying statement of financial position at
December 31, 1997. However, the changes are not expected to have a material
effect on the financial position of the Company. These acquisitions have been
accounted for by the purchase method. The financial statements include the
operating results of these acquisitions subsequent to their respective dates of
acquisition.

The acquisition of the franchise rights of the Albany, New York licensee, if
it had occurred on January 1, 1996 would not have had a material impact on the
results of operations of the Company.

The following unaudited pro forma information presents the results of
operations of the Company as if the acquisition of The First Gray Line
Corporation had taken place on January 1, 1996 and 1997 (in thousands, except
earnings per share amounts):

<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Revenue........................................................... $ 2,065,347 $ 2,175,897
------------ ------------
------------ ------------
Net income........................................................ $ 49,999 $ 36,295
------------ ------------
------------ ------------
Basic earnings per share.......................................... $ 1.62 $ 1.17
------------ ------------
------------ ------------
Diluted earnings per share........................................ $ 1.62 $ 1.16
------------ ------------
------------ ------------
</TABLE>

F-11
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--ACCOUNTS RECEIVABLE, NET

Accounts receivable, net at December 31, 1996 and 1997 consist of the
following (in thousands):

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Vehicle rentals....................................................... $ 94,480 $ 83,686
Due from General Motors............................................... 168,546 166,941
Due from other vehicle manufacturers.................................. 14,758 71,461
Damage claims......................................................... 10,697 11,938
Due from licensees.................................................... 3,903 4,361
Other................................................................. 19,022 21,955
---------- ----------
311,406 360,342
Less allowance for doubtful accounts.................................. (227) (879)
---------- ----------
$ 311,179 $ 359,463
---------- ----------
---------- ----------
</TABLE>

Amounts due from vehicle manufacturers include receivables for vehicles sold
under guaranteed repurchase contracts ("Repurchase Programs") and amounts due
for incentives and allowances. Incentives and allowances are based on all of the
following: the volume of vehicles to be purchased for a model year, the
manufacturers' willingness to encourage the Company to retain vehicles rather
than return the vehicles back to the manufacturer and the purchase of particular
models not subject to repurchase under "buyback" arrangements. Incentives and
allowances are amortized to income over the holding period of the vehicles (see
Notes 5 and 17).

NOTE 4--DUE FROM (TO) AFFILIATES, NET

Due from (to) affiliates, net at December 31, 1996 and 1997 consist of the
following balances with Cendant or its consolidated subsidiaries (in thousands):

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Note receivable from Wizard Co., Inc.(a).............................. $ 196,965
Subordinated vehicle financing notes(b)............................... (247,500)
Non-interest bearing advances(c)...................................... 112,342 $ (44,512)
---------- ----------
$ 61,807 $ (44,512)
---------- ----------
---------- ----------
</TABLE>

NOTES:

(a) Consists of a $194.1 million note receivable from Wizard Co., Inc., an
indirect wholly-owned subsidiary of Cendant, plus accrued interest (the
"Wizard Note"). The Wizard Note bears interest at 7.13% and is due on
October 1, 2006 and is guaranteed by Cendant. The Company assumed Wizard
Co., Inc.'s obligations under the Wizard Note pursuant to an Assignment,
Assumption and Release Agreement dated July 30, 1997 among Avis Rent A Car
System, Inc. and subsidiaries ("ARACS"), a wholly-owned subsidiary of the
Company, Wizard Co., Inc. and Reserve Claims Management Inc., a wholly-owned
subsidiary of the Company in exchange for payment by Wizard Co., Inc. to the
Company of the amount due under the Wizard Note.

F-12
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4--DUE FROM (TO) AFFILIATES, NET (CONTINUED)
(b) Represents loans from Avis, Inc. to the Vehicle Trust, as described in Note
8, to provide additional subordinated financing. The amounts provided
reduced, within certain limits, the amount of subordinated financing
required from other lenders. At December 31, 1996, the weighted average
interest rate under these loans was 10.75%. These loans were settled on July
31, 1997 upon the commencement of the domestic integrated fleet leasing
program (see Note 8).

(c) Primarily represents the transfer of assets from the Company to Cendant and
subsidiaries, recorded in connection with the October 17, 1996 acquisition
of Avis, Inc. by Cendant, as well as intercompany transactions relating to
management, service and administrative fees (since the Date of Acquisition)
and a royalty fee (since January 1, 1997). The amounts due from or (to)
Cendant and subsidiaries are interest free.

Expense and (income) items of the Company include the following charges from
(to) Avis, Inc. and subsidiaries prior to the Date of Acquisition for the
periods ended December 31, 1995 and October 16, 1996 (in thousands):

<TABLE>
<CAPTION>
JANUARY 1, 1996
YEAR ENDED TO
DECEMBER 31, OCTOBER 16,
1995 1996
------------ ---------------
<S> <C> <C>
Vehicle related costs......................................... $ (3,954) $ (25,134)
Data processing............................................... 29,833 30,209
Employee benefits allocation.................................. (3,385) (2,776)
Rent.......................................................... (2,188) (2,459)
------------ ---------------
$ 20,306 $ (160)
------------ ---------------
------------ ---------------
</TABLE>

Expense and (income) items of the Company include the following charges from
Cendant and affiliates of Cendant for the period October 17, 1996 (Date of
Acquisition) to December 31, 1996 and for the year ended December 31, 1997 (in
thousands):

<TABLE>
<CAPTION>
OCTOBER 17,
1996
TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
--------------- ------------
<S> <C> <C>
Royalty fee................................................... $ 81,846
Reservations.................................................. $ 10,900 43,240
Data processing............................................... 8,772 38,826
Management, service and administrative fees................... 8,568 11,023
Interest on intercompany debt, net............................ 2,561 (8,073)
Rent.......................................................... 950 4,927
------- ------------
$ 31,751 $ 171,789
------- ------------
------- ------------
</TABLE>

These charges seek to reimburse the affiliated company for the actual costs
incurred. These amounts reflect the effect of various intercompany agreements
and certain allocations which are based upon such factors as square footage,
employee salaries, computer usage time, etc. Included in Management, service and
administrative fees for the year ended December 31, 1997 is a non-recurring
management fee charged until July 1997 which totalled $8,073,000. Effective
January 1, 1997, Cendant charged the Company a royalty fee of 4.0% of revenue
for the use of the Avis trade name. On an unaudited pro forma basis, had the
royalty fee been charged to the Company beginning on October 17, 1996, net
income for the period

F-13
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4--DUE FROM (TO) AFFILIATES, NET (CONTINUED)
October 17, 1996 to December 31, 1996 would have been reduced by $4.3 million
resulting in a pro forma net loss of $3.1 million. The royalty fee of 4.0%
consists of a base royalty of 3.0% of the Company's gross revenue and a
supplemental royalty of 1.0% of gross revenue payable quarterly in arrears
(which will increase 0.1% per year commencing in 1999 and each of the following
four years thereafter to a maximum of 1.5%) until July 30, 2002, the
supplemental royalty or a portion thereof may be deferred if the Company does
not meet certain financial targets.

NOTE 5--VEHICLES, NET

Vehicles at December 31, 1996 and 1997 consist of the following (in
thousands):

<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Vehicles............................................................... $ 2,250,309 $ 3,173,526
Vehicles acquired under long-term capital lease (see Note 8)........... 19,324
Buses and support vehicles............................................. 45,868 55,761
Vehicles held for sale................................................. 36,378 51,645
------------ ------------
2,351,879 3,280,932
Less accumulated depreciation.......................................... (108,387) (262,076)
------------ ------------
$ 2,243,492 $ 3,018,856
------------ ------------
------------ ------------
</TABLE>

Depreciation expense recorded for vehicles was $324.2 million, $275.9
million, $66.8 million and $460.6 million for the periods ended December 31,
1995, October 16, 1996, December 31, 1996 and December 31, 1997, respectively.
Depreciation expense reflects a net gain on the disposal of vehicles of $17.8
million, $30.3 million, $4.5 million and $6.2 million for the periods ended
December 31, 1995, October 16, 1996, December 31, 1996 and December 31, 1997,
respectively. It also reflects the amortization of certain incentives and
allowances from various vehicle manufacturers of approximately $77 million, $61
million, $14 million and $84 million for the periods ended December 31, 1995,
October 16, 1996, December 31, 1996 and, December 31, 1997, respectively.

During the periods ended December 31, 1995 and October 16, 1996, the Company
purchased from General Motors approximately $2.0 billion and $1.8 billion of
vehicles, net of incentives and allowances, respectively (see Notes 1 and 17).

In April 1990 and November 1992, the Company entered into seven year
operating leases under which vehicles were leased, with the ability to exchange
such leased vehicles for newly manufactured vehicles with the same value to the
lessor. The leases were terminated in 1997 and the remaining vehicles under the
leases were purchased at fair market value.

In December 1994, the Company entered into a financing arrangement whereby
it may lease up to $503 million of vehicles. This arrangement was amended on
October 17, 1996 to increase the amount to $650 million. Under this arrangement,
at December 31, 1996, there were $322 million of vehicles under operating
leases. The vehicles leased under this arrangement may be leased for periods of
up to 18 months. The lease cost charged to the Company varies with the number of
vehicles leased and the repurchase agreement offered by the vehicle manufacturer
to the lessor, and includes all expenses including the interest costs of the
financing company. These leases were terminated and refinanced on July 31, 1997
under a domestic integrated fleet financing program (see Note 8).

F-14
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--VEHICLES, NET (CONTINUED)

Rental expense for those vehicles under operating leases as described above
was $106.1 million, $93.0 million, $16.1 million, and $58.4 million for the
periods ended December 31, 1995, October 16, 1996, December 31, 1996 and
December 31, 1997, respectively.

NOTE 6--PROPERTY AND EQUIPMENT, NET

Property and equipment at December 31, 1996 and 1997 consist of the
following (in thousands):

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Land.................................................................. $ 19,523 $ 25,269
Buildings............................................................. 11,862 12,775
Leasehold improvements................................................ 48,898 64,779
Furniture, fixtures and equipment..................................... 10,997 13,456
Construction-in-progress.............................................. 9,946 18,714
---------- ----------
101,226 134,993
Less accumulated depreciation and amortization........................ (2,339) (12,133)
---------- ----------
$ 98,887 $ 122,860
---------- ----------
---------- ----------
</TABLE>

NOTE 7--ACCRUED LIABILITIES

Accrued liabilities at December 31, 1996 and 1997 consist of the following
(in thousands):

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Payroll and related costs............................................. $ 73,142 $ 101,962
Taxes, other than income taxes........................................ 29,522 22,353
Rents and property related............................................ 30,889 35,644
Interest.............................................................. 18,531 7,294
Sales and marketing................................................... 20,395 21,722
Vehicle related....................................................... 18,784 25,475
Other various......................................................... 137,982 113,961
---------- ----------
$ 329,245 $ 328,411
---------- ----------
---------- ----------
</TABLE>

F-15
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--FINANCING AND DEBT

Debt outstanding at December 31, 1996 and 1997 consists of the following (in
thousands):

<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Commercial Paper Notes (at an average rate of 5.9%).................................. $1,091,800
Short-term vehicle trust financing--revolving credit facilities...................... $1,970,000
Short-term notes--foreign at 3.89% to 13.00% in 1996 and 5.77% to 13.5% in 1997...... 65,516 17,996
Current portion of long-term debt.................................................... 49,644
Current portion of 7.5% capital lease................................................ 40,169
Other current debt................................................................... 1,060
------------ ------------
Total current debt............................................................. 2,076,745 1,159,440
------------ ------------

Medium Term Notes due July 2000 at 6.22%............................................. 800,000
Medium Term Notes due July 2002 at 6.40%............................................. 850,000
Vehicle manufacturer's floating rate notes due September 1998
($50,719 senior at 8.50% and $16,281 subordinated at 10.00%)....................... 67,000
Vehicle manufacturer's floating rate notes due October 2001
($63,731 senior at 7.16% and $54,269 subordinated at 8.91%)........................ 118,000
Other domestic debt.................................................................. 2,916 1,777
Debt of foreign subsidiaries:
Floating rate notes due July 2000 at rates from 5.81% to 7.02%................... 15,205
Floating rate notes due February 1998 at 4.75%................................... 2,935
Floating rate notes due August 1998 at 6.94% to 8.65%............................ 27,878
------------ ------------
$2,295,474 $2,826,422
------------ ------------
------------ ------------
</TABLE>

On July 31, 1997, the Company through ARACS entered into a domestic
integrated fleet financing program that provided for up to $3.65 billion in
financing for vehicles covered by Repurchase Programs, with up to 25% of the
facility available for vehicles not covered by Repurchase Programs. As of
December 31, 1997, the availability of the domestic integrated fleet financing
program is $3.55 billion. The domestic integrated fleet financing program
provides for the issuance of up to $1.9 billion of asset backed variable funding
notes (the "Commercial Paper Notes") and $1.65 billion of asset backed medium
term notes (the "Medium Term Notes"). The Commercial Paper Notes and the Medium
Term Notes are backed by a first priority security interest in the Company's
vehicle fleet. Additional credit enhancement was provided for the Medium Term
Notes by establishing an escrow account totalling $66 million which is included
in "Other assets" on the accompanying consolidated statement of financial
position at December 31, 1997. The weighted average interest rate on commercial
paper was 5.6% for the year ended December 31, 1997. Average commercial paper
borrowings during 1997 amounted to $1.3 billion.

As part of the acquisition of The First Gray Line Corporation (see Notes 1
and 2), the Company assumed a $200 million vehicle financing facility between
Grand Rent A Car, Inc. (a subsidiary of The First Gray Line Corporation) and
Atlantic Asset Securitization Corporation, with Credit Lyonnais as Agent, under
a credit agreement originally dated as of September 15, 1995. This agreement
provides for the financing of vehicles used in The First Gray Line Corporation's
rental business, and is scheduled to expire on August 15, 1998. At December 31,
1997 under this credit agreement there was $115 million outstanding and included
in Commercial Paper Notes. The weighted average interest rate and average
borrowing

F-16
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--FINANCING AND DEBT (CONTINUED)
under this credit agreement was 5.7% and $171.1 million respectively for the
period August 20, 1997 to December 31, 1997.

On July 31, 1997, ARACS entered into a $470.0 million secured credit
facility (the "Credit Facility") which is guaranteed by the Company and certain
of ARACS' subsidiaries to replace the Company's prior credit facility. The
following is a summary of the material terms and conditions of the Credit
Facility:

The Credit Facility consists of (i) a revolving credit facility in the
amount of up to $125.0 million and is available on a revolving basis until
December 31, 2000 in order to finance the working capital needs of ARACS in the
ordinary course of business (with up to $75.0 million of such amount available
for the issuance of standby letters of credit to support worker's compensation
and other insurance and bonding requirements of ARACS, the Company and their
subsidiaries in the ordinary course of business), (ii) a standby letter of
credit facility of up to $225.0 million available on a revolving basis to fund
(a) any shortfall in certain payments owing to AESOP Leasing, a subsidiary of
ARACS, pursuant to fleet agreements and (b) maturing Commercial Paper Notes if
such Commercial Paper Notes cannot be repaid through the issuance of additional
Commercial Paper Notes or draws under the liquidity facility supporting the
Commerical Paper Notes, (iii) a term loan facility in the amount of $120.0
million to finance working capital needs in the ordinary course of business,
which was due to be repayable in installments. This term loan facility was paid
in full on December 1, 1997. For the period July 31, 1997 through December 1,
1997 the average outstanding borrowings on the term loan facility were $74.6
million with a weighted average interest rate of 8.0%. As a result of this
repayment, the Credit Facility has been reduced to $350 million. At December 31,
1997, the Company had issued letters of credit of $34.5 million to support its
worker's compensation insurance requirements and $200 million to support its
Commercial Paper Notes under the Credit Facility. At December 31, 1997, no
amounts were outstanding under the Credit Facility.

Interest accrues on borrowings outstanding under the Credit Facility, at a
rate equal to, at the option of ARACS, (A) the sum of (i) the highest of (a) the
rate of interest publicly announced by Chase Securities Inc. as its prime rate
in effect at its principal office in New York City, (b) the secondary market
rate for three-month certificates of deposit (adjusted for statutory reserve
requirements) plus 1% and (c) the federal funds effective rate from time to time
plus 0.5%, and (ii) an applicable margin; or (B) the sum of (i) the rate
(adjusted for statutory reserve requirements) at which eurodollar deposits for
one, two, three or six months (as selected by ARACS) are offered in the
interbank eurodollar market and (ii) an applicable margin.

The Credit Facility is secured by the tangible and intangible assets of
ARACS and the Company (including, without limitation, its intellectual property,
its rights under the Master License Agreement and related agreements, real
property and all of the capital stock or equivalent equity ownership interests
of ARACS and each of its direct and indirect domestic subsidiaries and 65% of
ARACS first-tier foreign subsidiaries), except for those assets which are
subject to a negative pledge or as to which the agents for the Credit Facility
shall determine in their sole discretion that the costs of obtaining such a
security interest are excessive in relation to the value of the security to be
afforded thereby.

The weighted average interest rate of the short-term notes--foreign as of
December 31, 1996 and December 31, 1997 was 6.2% and 8.7%, respectively.

Through July 30, 1997, the primary source of funding for domestic vehicles
was provided by the Vehicle Trust (a grantor trust). Amounts drawn against this
facility were used to purchase vehicles and pay certain expenses of the Vehicle
Trust. The security for the Vehicle Trust financing facility consisted of a lien

F-17
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--FINANCING AND DEBT (CONTINUED)
on the vehicles acquired under the facility, which at December 31, 1996, totaled
approximately $2.1 billion, exclusive of related valuation reserves. The
security for the Vehicle Trust financing facility also consisted of security
interests in certain other assets of the Vehicle Trust. Additionally, the
Vehicle Trust and its security agreement required that there be outstanding, at
all times, subordinated debt in a specified percentage range (10%-25%) of the
net book value of the vehicles owned by the Vehicle Trust. Pursuant to the
agreement, the subordinated debt was to be provided by vehicle manufacturer
finance companies and by Avis, Inc. Consequently, the Vehicle Trust financing
facility consisted of loans from banks, vehicle manufacturer finance companies
and Avis, Inc. short-term notes were issued pursuant to a $2.5 billion revolving
credit facility dated as of October 17, 1996 which matured on October 16, 1997.
On December 31, 1996, the weighted average interest rate of borrowings under
this revolving credit facility was 6.00%. For the period from October 17, 1996
to December 31, 1996, the average outstanding borrowings under this facility was
$2 billion with a weighted average interest rate of 5.98%. This revolving credit
facility required a fee of 1/8 of 1% on the committed amount. Subordinated debt
of $318 million was required under the Vehicle Trust financing. At December 31,
1996, the Company had Vehicle Trust financing outstanding from vehicle
manufacturer finance companies under terms of loan agreements dated October 17,
1996. Under these agreements, the maximum amount of borrowings allowed was $267
million, of which up to $260 million may have been used as subordinated debt. On
December 31, 1996, $185 million was outstanding of which $70.5 million of the
outstanding debt was deemed subordinated. On December 31, 1996, the weighted
average interest rate of borrowings under these loan agreements was 8.5%. For
the period October 17, 1996 to December 31, 1996, the average outstanding
borrowings under these loan agreements was $185 million with a weighted average
interest rate of 8.41%.

In November 1992, the Predecessor Companies entered into a five year capital
lease under which $96.7 million of vehicles were leased. This lease terminated
on September 24, 1997.

Mandatory maturities of long-term obligations, including current maturities,
for each of the next five years ending December 31, and thereafter, are as
follows (in thousands):

<TABLE>
<S> <C>
1998.............................................................. $ 49,644
1999.............................................................. 1,084
2000.............................................................. 815,414
2001.............................................................. 228
2002.............................................................. 850,220
Thereafter........................................................ 36
</TABLE>

OTHER CREDIT FACILITIES

At December 31, 1997, the Company has available letters of credit/working
capital agreements totaling $33.5 million which may be renewed biannually at the
Company's option and the banks' discretion.

F-18
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--FINANCING AND DEBT (CONTINUED)

The collateral for certain of these agreements consists of a lien on property
and equipment and certain receivables. At December 31, 1997, the Company has
outstanding letters of credit totaling $26.8 million.

In addition, for certain of its international operations, the Company has
available at December 31, 1997, unused lines of credit of $203.2 million. The
unused lines of credit agreements require an annual fee of 0.2% to 0.5% of the
unused line.

INTEREST RATE SWAP AGREEMENTS

The Company has entered into interest rate swap agreements to reduce the
impact of changes in interest rates on certain outstanding debt obligations.
These agreements effectively change the Company's interest rate exposure on
$44.0 million and $24.6 million of its outstanding debt from a weighted average
variable interest rate to a fixed rate of 7.1% and 6.3% at December 31, 1996 and
1997, respectively. The variable interest element with respect to these interest
rate swap agreements is reset quarterly and interest is settled on a net basis
for each agreement semi-annually. The interest rate swap agreements will
terminate in July 1998 and November 1998. The differential to be paid or
received is recognized ratably as interest rates change over the life of the
agreements as an adjustment to interest expense.

The net interest differential charged to interest expense for the periods
ended December 31, 1995, October 16, 1996, December 31, 1996 and December 31,
1997 was $146,000, $582,000, $285,000 and $909,000, respectively. The Company is
exposed to credit risk in the event of nonperformance by counterparties to its
interest rate swap agreements. Credit risk is limited by entering into such
agreements with primary dealers only; therefore, the Company does not anticipate
that nonperformance by counterparties will occur. Notwithstanding this, the
Company's treasury department monitors counterparty credit ratings at least
quarterly through reviewing independent credit agency reports. Both current and
potential exposure are evaluated, as necessary, by obtaining replacement cost
information from alternative dealers. Potential loss to the Company from credit
risk on these agreements is limited to amounts receivable, if any.

NOTE 9--FAIR VALUE OF FINANCIAL INSTRUMENTS

The net interest payable and the estimated fair value of the Company's
interest rate swap agreements represent liabilities of approximately $578,000
and $1,400,000 at December 31, 1996, and $193,000 and $366,000 at December 31,
1997, respectively.

For instruments including cash and cash equivalents, accounts receivable and
accounts payable, the carrying amount approximates fair value because of the
short maturity of these instruments. The fair value of floating-rate debt
approximates carrying value because these instruments re-price frequently at
current market prices. At December 31, 1997, the carrying value of the Medium
Term Notes exceeds fair value by approximately $9.9 million.

The Company believes that it is not practicable to estimate the current fair
value of the amounts due from (to) affiliates because of the related party
nature of the instruments.

F-19
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--INCOME TAXES

The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
OCTOBER 17, 1996
JANUARY 1, 1996 (DATE OF
TO ACQUISITION)
YEAR ENDED OCTOBER 16, TO YEAR ENDED
DECEMBER 31, 1995 1996 DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- --------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Current:
State............................. $ 1,422 $ 2,176 $ 719 $ 1,013
Foreign........................... 7,361 6,680 288 12,676
------- ------- ------ -------
8,783 8,856 1,007 13,689
------- ------- ------ -------
Deferred:
Federal........................... 19,057 19,614 (85) 12,463
State............................. 410
Foreign........................... 6,795 2,728 118 (3,712)
------- ------- ------ -------
25,852 22,342 33 9,161
------- ------- ------ -------
Provision for income taxes.......... $ 34,635 $ 31,198 $ 1,040 $ 22,850
------- ------- ------ -------
------- ------- ------ -------
</TABLE>

The effective income tax rate for the periods ended December 31, 1995,
October 16, 1996, December 31, 1996 and December 31, 1997 varies from the
statutory U.S. federal income tax rate due to the following (dollars amounts in
thousands):

<TABLE>
<CAPTION>
JANUARY 1, 1996
YEAR ENDED TO
DECEMBER 31, 1995 OCTOBER 16, 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
Statutory U.S. federal income tax rate............................... $ 21,245 35.0% $ 24,429 35.0%
Tax effect of foreign operations and dividends....................... 8,984 14.8 5,134 7.4
Amortization of cost in excess of net assets acquired and
other intangibles.................................................. 1,633 2.7 1,045 1.5
State income taxes, net of federal tax benefit....................... 924 1.5 1,413 2.0
Other non-deductible business expenses............................... 550 .9 462 .6
Other................................................................ 1,299 2.2 (1,285) (1.8)
--------- --- --------- ---
Effective income tax rate............................................ $ 34,635 57.1% $ 31,198 44.7%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>

<TABLE>
<CAPTION>
OCTOBER 17, 1996
(DATE OF
ACQUISITION)
TO YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
Statutory U.S. federal income tax rate........................... $ 791 35.0% $ 17,613 35.0%
Tax effect of foreign operations and dividends................... (1,073) (47.5) 1,436 2.9
Amortization of cost in excess of net assets acquired and
other intangibles.............................................. 359 15.9 2,369 4.7
State income taxes, net of federal tax benefit................... 469 20.8 924 1.8
Other non-deductible business expenses........................... 494 21.8 508 1.0
--------- --------- --------- ---------
Effective income tax rate........................................ $ 1,040 46.0% $ 22,850 45.4%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

In accordance with SFAS 109, the net deferred income tax assets at December
31, 1996 and 1997, include the following (in thousands):

F-20
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--INCOME TAXES (CONTINUED)

<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
GROSS DEFERRED INCOME TAX ASSETS:
Accrued liabilities...................................................................... $ 157,503 $ 220,180
Net operating loss carryforwards......................................................... 78,172 96,253
Alternative minimum income tax credit carryforwards...................................... 3,025 3,025
---------- -----------
238,700 319,458
---------- -----------

GROSS DEFERRED INCOME TAX LIABILITIES:
Tax depreciation in excess of book depreciation.......................................... (152,346) (197,082)
Prepaids and other....................................................................... (8,682) (14,457)
---------- -----------
(161,028) (211,539)
---------- -----------
Net deferred income tax assets........................................................... $ 77,672 $ 107,919
---------- -----------
---------- -----------
</TABLE>

The Company has alternative minimum tax net operating loss carryforwards of
$184.4 million. The net operating loss carryforward is $275.0 million; the net
operating loss carryforwards expire as follows: 2000, $12.2 million; 2001, $7.1
million; 2004, $93.1 million; 2007, $67.7 million; 2008, $41.1 million; 2009,
$18.3 million; and 2012, $35.5 million.

NOTE 11--RETIREMENT BENEFITS

The Company, through its subsidiary ARACS, sponsors non-contributory defined
benefit plans covering employees who are members of certain collective
bargaining units and non-union full-time employees hired prior to December 31,
1983 who were age 25 or above on January 1, 1985. ARACS also contributes to
union sponsored pension plans.

Through ARACS, the Company sponsors a Voluntary Investment Savings Plan
under a "qualified cash or deferred arrangement" under Section 401(k) of the
Internal Revenue Code. For the periods ended December 31, 1995, October 16,
1996, December 31, 1996 and December 31, 1997, the cost of the plan was $1.7
million, $1.4 million, $352,000 and $1.8 million, respectively. Included in the
Investment Savings Plan, ARACS sponsors a defined contribution plan for
substantially all non-union full-time employees not otherwise covered. Costs for
this plan are determined at 2% of each covered employee's compensation. Employer
contributions and costs of the plan for the periods ended December 31, 1995,
October 16, 1996, December 31, 1996 and December 31, 1997 amounted to $1.8
million, $1.5 million, $394,000 and $2.1 million, respectively.

The defined benefit plans provide benefits based upon years of credited
service, highest average compensation and social security benefits. Annual
retirement benefits, at age 65, are equal to 1 1/2% of the participating
employee's final average compensation (average compensation during the highest
five consecutive years of employment in the ten years prior to retirement) less
1 3/7% of the Social Security benefits for each year of service up to a maximum
of 35 years. In addition, the plan provides for reduced benefits before age 65
and for a joint and survivor annuity option.

The Company also sponsors several foreign pension plans. The most
significant of these is the Canadian pension plan.

F-21
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--RETIREMENT BENEFITS (CONTINUED)
The status of the defined benefit plans at December 31, 1996 and 1997 is as
follows (in thousands):

<TABLE>
<CAPTION>
1996
---------------------------------------
U.S. PLANS
--------------------------
SALARIED AND
HOURLY
EMPLOYEES AS
OF JUNE 30, BARGAINING CANADIAN
1985 PLAN PLAN
------------- ----------- -----------
<S> <C> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested................................................................... $ (43,406) $ (7,147) $ (3,389)
Nonvested................................................................ (4,671) (284)
------------- ----------- -----------
Total.................................................................. $ (48,077) $ (7,431) $ (3,389)
------------- ----------- -----------
------------- ----------- -----------
Actuarial present value of projected benefit obligation.................... $ 66,083 $ 7,431 $ 3,703
Plan assets at fair value.................................................. 60,697 6,623 8,323
------------- ----------- -----------
Projected benefit obligation (in excess of) less than plan assets.......... (5,386) (808) 4,620
Unrecognized net actuarial loss (gain)..................................... 1,440 283 (336)
Prior service cost not yet recognized in net periodic pension cost......... 632
Remaining unrecognized obligation.......................................... (915)
Unrecognized net transition asset.......................................... (2,833)
------------- ----------- -----------
Pension (liability) asset included in the consolidated statement of
financial position....................................................... $ (3,946) $ (808) $ 1,451
------------- ----------- -----------
------------- ----------- -----------
</TABLE>

<TABLE>
<CAPTION>
1997
---------------------------------------
U.S. PLANS
--------------------------
SALARIED AND
HOURLY
EMPLOYEES AS
OF JUNE 30, BARGAINING CANADIAN
1985 PLAN PLAN
------------- ----------- -----------

<S> <C> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested................................................................... $ (55,366) $ (8,810) $ (3,848)
Nonvested................................................................ (5,665) (358)
------------- ----------- -----------
Total.................................................................. $ (61,031) $ (9,168) $ (3,848)
------------- ----------- -----------
------------- ----------- -----------
Actuarial present value of projected benefit obligation.................... $ 80,715 $ 9,168 $ 4,204
Plan assets at fair value.................................................. 71,623 7,309 8,360
------------- ----------- -----------
Projected benefit obligation (in excess of) less than plan assets.......... (9,092) (1,859) 4,156
Unrecognized net actuarial loss (gain)..................................... 6,600 401 (137)
Prior service cost not yet recognized in net periodic pension cost......... 1,228
Remaining unrecognized obligation.......................................... (1,629)
Unrecognized net transition asset.......................................... (2,586)
------------- ----------- -----------
Pension (liability) asset included in the consolidated statement of
financial position....................................................... $ (2,492) $ (1,859) $ 1,433
------------- ----------- -----------
------------- ----------- -----------
</TABLE>

F-22
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--RETIREMENT BENEFITS (CONTINUED)
Net pension costs of the defined benefit plans for the periods ended
December 31, 1995, October 16, 1996, December 31, 1996 and December 31, 1997,
include the following components (in thousands):

<TABLE>
<CAPTION>
JANUARY 1, 1996
YEAR ENDED TO
DECEMBER 31, 1995 OCTOBER 16, 1996
----------------------- ----------------------
U.S. CANADIAN U.S. CANADIAN
PLANS PLAN PLANS PLAN
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Service cost--benefits earned during the period...................... $ 2,566 $ 76 $ 2,401 $ 59
Interest cost on projected benefit obligation........................ 4,069 304 3,679 206
Return on assets--Actual gain on plan assets......................... (10,768) (578) (3,194) (538)
Net amortization of actuarial loss (gain) and prior service cost..... 6,184 (794)
Contributions to union plans and other............................... 2,211 2,029
Amortization of unrecognized net asset at transition................. (130) (106)
---------- ----- --------- -----
Net pension cost (benefit)........................................... $ 4,262 $ (328) $ 4,121 $ (379)
---------- ----- --------- -----
---------- ----- --------- -----
</TABLE>

<TABLE>
<CAPTION>
OCTOBER 17, 1996
(DATE OF ACQUISITION)
TO YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31,1997
---------------------- ----------------------
U.S. CANADIAN U.S. CANADIAN
PLANS PLAN PLANS PLAN
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Service cost--benefits earned during the period....................... $ 302 $ 28 $ 3,197 $ 113
Interest cost on projected benefit obligation......................... 357 54 5,783 269
Return on assets--Actual gain on plan assets.......................... (551) (115) (8,857) (573)
Net amortization of actuarial loss and prior service cost............. 390 3,050
Contributions to union plans and other................................ 733 2,773
Amortization of unrecognized net asset at transition.................. (28) (132)
--------- ----- --------- -----
Net pension cost (benefit)............................................ $ 1,231 $ (61) $ 5,946 $ (323)
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>

At December 31, 1996 and 1997, the measurement of the projected benefit
obligation was based upon the following:

<TABLE>
<CAPTION>
1996 1997
---------------------- ----------------------
U. S. CANADIAN U.S. CANADIAN
PLANS PLAN PLANS PLAN
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Discount rate............................................................. 7.75% 7.00% 7.25% 7.00%
Compensation increase..................................................... 5.00 4.00 4.75 4.00
Long-term return on plan assets........................................... 8.75 7.00 9.00 7.00
</TABLE>

The U.S. plans' assets are invested in corporate bonds, U.S. government
securities and common stock mutual funds. The Canadian plan's assets are
invested in Canadian stocks, bonds, mutual funds, real estate and money market
funds.

The Company also sponsors a non-qualified defined benefit pension plan. The
liability for this unfunded plan was $10.2 million and $11.0 million at December
31, 1996 and 1997, respectively, and is included in accrued liabilities on the
accompanying statement of financial position. The projected benefit obligation
of the plan was $12.1 million and $12.7 million at December 31, 1996 and 1997,
respectively.

F-23
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--EARNINGS PER SHARE ("EPS")

During the fourth quarter of 1997, the Company adopted SFAS No. 128,
"Earnings Per Share". The adoption of this pronouncement did not have a material
impact on the Company. In calculating basic earnings per share, the shares
issued in the initial public offering of 22,425,000 shares together with
8,500,000 shares, resulting from the 85,000 to 1 stock split, were used for all
periods presented. Diluted EPS for the year ended December 31, 1997 was
calculated as follows (in thousands, except share amounts):

<TABLE>
<CAPTION>
1997
-------------
<S> <C>
DILUTED EPS
Income available to common stockholders............................................................ $ 27,473
-------------
Weighted average common shares outstanding......................................................... 30,925,000
Plus: Dilutive effect of the assumed exercise of stock options (i)................................. 256,134
-------------
Adjusted weighted average shares outstanding....................................................... 31,181,134
-------------
-------------
Diluted EPS (i).................................................................................... $ 0.88
-------------
-------------
</TABLE>

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

(i) Prior to September 23, 1997 there were no stock options outstanding.

NOTE 13--STOCK OPTION PLAN

On September 23, 1997, the Avis Rent A Car, Inc. 1997 Stock Option Plan (the
"Stock Option Plan") was adopted by the Board of Directors under which 4,620,977
shares of Common Stock were reserved for issuance upon the exercise of options
granted to officers, key employees, independent contractors and non-employee
Directors of the Company and its designated subsidiaries. On September 23, 1997,
3,963,900 options were granted at $17.00 per share, the fair market value of the
Company's common stock on the date of grant. The primary purpose of the Stock
Option Plan is to provide additional incentive to officers, key employees,
independent contractors and non-employee Directors of the Company and to
strengthen their commitment to the Company and its subsidiaries.

Each non-employee Director of the Company received an initial automatic
grant of an option to purchase 50,000 shares of Common Stock under the Stock
Option Plan. Subsequently elected non-employee Directors will receive a like
grant under the Stock Option Plan upon election or appointment to the Board of
Directors.

The exercise price of each option under the Stock Option Plan may not be
less than the fair market value of a share of Common Stock on the date the
option is granted. Options held by an optionee will generally become exercisable
as to 20% of the shares covered by such options on the first anniversary of the
date of grant and with respect to an additional 20% of the shares covered by
such options on each of the four succeeding anniversaries of the date of grant
if the optionee continues to be employed or retained as an independent
contractor by the Company, on each such date. All options held by an optionee
will become fully exercisable (to the extent not already exercisable) if a
"change of control transaction" (as defined in the Stock Option Plan) occurs.
Shares of Common Stock acquired upon the exercise of the options may be subject
to restrictions on transfer which will be set forth in the agreement evidencing
the grant of the option. All options granted under the Stock Option Plan, to the
extent not exercised, expire on the earliest of (i) the tenth anniversary of the
date of grant, (ii) two years following the optionee's termination of employment
on account of death, retirement, disability or (iii) one year following the

F-24
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13--STOCK OPTION PLAN (CONTINUED)
termination of optionee's employment for any other reason. Grants of options
under the Stock Option Plan are subject to an annual per-participant maximum
grant of shares of Common Stock.

The Company makes no recognition of the options in the financial statements
until they are exercised. The Company applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations in accounting for its plans and does not recognize compensation
expense for its stock-based compensation plans. The Company has adopted only the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123").

The following is a summary of stock option activity for the period September
23, 1997 through December 31, 1997:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Granted September 23, 1997 (inception of the stock option
plan)........................................................ 3,963,900 $ 17.00
Forfeited...................................................... (78,200) $ 17.00
----------
Outstanding at end of year..................................... 3,885,700 $ 17.00
----------
----------
No options were exercisable at December 31, 1997.
</TABLE>

Pro forma disclosures are provided for 1997 as if the Company adopted the
cost recognition requirements under SFAS 123. The fair value of each option
granted is (estimated on the date of grant using the Black-Scholes
option-pricing model) $9.80 using the following assumptions: (1) expected
volatility of 45.0%, (2) risk-free interest rate of 5.7% and (3) expected life
of 7.5 years. The weighted-average remaining contractual life of the stock
options is 9.6 years at December 31, 1997. Had compensation expense been
recognized for the year ended December 31, 1997, grants for stock-based
compensation plans in accordance with provisions of SFAS 123, the Company would
have recorded net income and earnings per share as follows (in thousands, except
per share data):

<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- -----------
<S> <C> <C>
Net income................................................. $ 27,473 $ 26,330
----------- -----------
----------- -----------
Basic earnings per share................................... $ .89 $ .85
----------- -----------
----------- -----------
Diluted earnings per share................................. $ .88 $ .84
----------- -----------
----------- -----------
</TABLE>

F-25
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--LEASES, AIRPORT CONCESSION FEES AND COMMITMENTS

The Company is committed to make rental payments under noncancelable
operating leases relating principally to vehicle rental facilities and
equipment. Under certain leases, the Company is obligated to pay certain
additional costs, such as property taxes, insurance and maintenance. Airport
concession agreements usually require a guaranteed minimum amount plus
contingent fees which are generally based on a percentage of revenues.

Operating lease payments and airport concession fees charged to expense for
the periods ended December 31, 1995, October 16, 1996 , December 31, 1996 and
December 31, 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
OCTOBER 17, 1996
JANUARY 1, 1996 (DATE OF
TO ACQUISITION)
YEAR ENDED OCTOBER 16, TO YEAR ENDED
DECEMBER 31, 1995 1996 DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- --------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Minimum fees........................ $ 108,965 $ 88,787 $ 23,576 $ 122,015
Contingent fees..................... 56,624 61,290 13,220 72,954
----------------- --------------- -------- --------
165,589 150,077 36,796 194,969
Less sublease rentals............... (4,427) (3,843) (1,000) (4,741)
----------------- --------------- -------- --------
$ 161,162 $ 146,234 $ 35,796 $ 190,228
----------------- --------------- -------- --------
----------------- --------------- -------- --------
</TABLE>

Future minimum rental commitments under noncancelable operating leases
amounted to approximately $446.1 million at December 31, 1997. The minimum
rental payments due in each of the next five years ending December 31, and
thereafter, are as follows (in thousands):

<TABLE>
<S> <C>
1998...................................................................... $ 93,110
1999...................................................................... 68,265
2000...................................................................... 55,282
2001...................................................................... 42,249
2002...................................................................... 30,530
Thereafter................................................................ 156,655
</TABLE>

At December 31, 1997, future minimum rental commitments include $81.2
million due to a subsidiary of Cendant.

In addition to the Company's lease commitments, the Company has (i)
outstanding purchase commitments of approximately $1.4 billion at December 31,
1997, which relate principally to vehicle purchases and (ii) employment
agreements with certain executives.

NOTE 15--SEGMENT INFORMATION

The Company operates in one industry segment, the rental car business. The
Company's rental car business rents vehicles to business and leisure travelers,
and is divided into four main geographic areas; the United States, Australia/New
Zealand, Canada, and other Foreign Operations. Revenue generated from the car
rental business is recorded in the country in which the vehicle is rented. The
accounting policies of each geographic area are the same as those described in
the summary of significant accounting policies

F-26
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15--SEGMENT INFORMATION (CONTINUED)
(see Note 1). The operations within major geographic areas for the periods ended
December 31, 1995, October 16, 1996, December 31, 1996, and December 31, 1997
are summarized as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------
OTHER
UNITED AUSTRALIA/ FOREIGN
STATES NEW ZEALAND CANADA OPERATIONS CONSOLIDATED
------------ ----------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue.................................... $ 1,414,380 $ 113,744 $ 67,809 $ 20,018 $1,615,951
------------ -------- --------- ----------- ------------
------------ -------- --------- ----------- ------------
Total assets............................... $ 2,535,621 $ 133,629 $ 97,426 $ 58,222 $2,824,898
------------ -------- --------- ----------- ------------
------------ -------- --------- ----------- ------------
</TABLE>

<TABLE>
<CAPTION>
PERIOD ENDED OCTOBER 16, 1996
----------------------------------------------------------------------
OTHER
UNITED AUSTRALIA/ FOREIGN
STATES NEW ZEALAND CANADA OPERATIONS CONSOLIDATED
------------ ----------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue.................................. $ 1,313,619 $ 105,401 $ 69,814 $ 15,839 $1,504,673
------------ -------- ---------- ----------- ------------
------------ -------- ---------- ----------- ------------
Total assets............................. $ 2,859,202 $ 115,082 $ 147,617 $ 65,796 $3,187,697
------------ -------- ---------- ----------- ------------
------------ -------- ---------- ----------- ------------
</TABLE>

<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
----------------------------------------------------------------------
OTHER
UNITED AUSTRALIA/ FOREIGN
STATES NEW ZEALAND CANADA OPERATIONS CONSOLIDATED
------------ ----------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue.................................. $ 312,194 $ 31,107 $ 13,467 $ 6,076 $ 362,844
------------ -------- ---------- ----------- ------------
------------ -------- ---------- ----------- ------------
Total assets............................. $ 2,839,313 $ 120,216 $ 122,657 $ 49,171 $3,131,357
------------ -------- ---------- ----------- ------------
------------ -------- ---------- ----------- ------------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------
OTHER
UNITED AUSTRALIA/ FOREIGN
STATES NEW ZEALAND CANADA OPERATIONS CONSOLIDATED
------------ ----------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue.................................. $ 1,804,478 $ 131,228 $ 85,021 $ 25,427 $2,046,154
------------ -------- ---------- ----------- ------------
------------ -------- ---------- ----------- ------------
Total assets............................. $ 3,997,485 $ 98,145 $ 131,987 $ 51,339 $4,278,956
------------ -------- ---------- ----------- ------------
------------ -------- ---------- ----------- ------------
</TABLE>

NOTE 16--SELECTED QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>
PREDECESSOR COMPANIES
------------------------------------------------------
THE COMPANY
-------------------
QUARTERS ENDED
OCTOBER 17, 1996
OCTOBER 1, 1996 (DATE OF
TO ACQUISITION)
MARCH 31, JUNE 30, SEPTEMBER 30, OCTOBER 16, TO
1996 1996 1996 1996 DECEMBER 31, 1996
---------- ---------- ------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
Revenue................................... $ 418,118 $ 469,448 $ 531,478 $ 85,629 $ 362,844
Costs and expenses........................ 416,585 441,725 492,742 83,822 360,583
---------- ---------- ------------- --------------- -------------------
Income before provision for income
taxes................................... 1,533 27,723 38,736 1,807 2,261
Provision for income taxes................ 685 12,392 17,315 806 1,040
---------- ---------- ------------- --------------- -------------------
Net income................................ $ 848 $ 15,331 $ 21,421 $ 1,001 $ 1,221
---------- ---------- ------------- --------------- -------------------
---------- ---------- ------------- --------------- -------------------
Earnings per share:
Basic..................................... $ .03 $ .50 $ .69 $ .03 $ .04
---------- ---------- ------------- --------------- -------------------
---------- ---------- ------------- --------------- -------------------
Diluted................................... $ .03 $ .50 $ .69 $ .03 $ .04
---------- ---------- ------------- --------------- -------------------
---------- ---------- ------------- --------------- -------------------
</TABLE>

F-27
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16--SELECTED QUARTERLY FINANCIAL DATA (CONTINUED)

<TABLE>
<CAPTION>
THE COMPANY
QUARTERS ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
---------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenue................................... $ 456,014 $ 489,633 $ 580,049 $ 520,458
Costs and expenses........................ 449,031 472,256 555,096 519,448
---------- ---------- ------------- ---------------
Income before provision for income
taxes................................... 6,983 17,377 24,953 1,010
Provision for income taxes................ 2,778 8,476 11,085 511
---------- ---------- ------------- ---------------
Net income................................ $ 4,205 $ 8,901 $ 13,868 $ 499
---------- ---------- ------------- ---------------
---------- ---------- ------------- ---------------
Earnings per share:
Basic..................................... $ .14 $ .29 $ .45 $ .02
---------- ---------- ------------- ---------------
---------- ---------- ------------- ---------------
Diluted................................... $ .14 $ .29 $ .45 $ .02
---------- ---------- ------------- ---------------
---------- ---------- ------------- ---------------
Shares of Common Stock outstanding:
Basic................................... 30,925,000
---------------
---------------
Diluted................................. 31,949,535
---------------
---------------
</TABLE>

For all periods presented through September 30, 1997, the weighted average
shares of common stock outstanding for both basic and diluted earnings per share
computations are 30,925,000.

NOTE 17--RELATED PARTY TRANSACTIONS

The Company and Avis Europe, plc cooperate jointly in marketing and
promotional activities, the exchange of reservations, the honoring of charge
cards and vouchers, and the transfer of the related billings. Two members of the
Company's board of directors are executive officers of Cendant and also serve on
the board of Avis Europe Limited (formerly Cilva), the parent company of Avis
Europe, plc.

Vehicle manufacturers offer vehicle repurchase programs on an ongoing basis
to assist in the acquisition and disposition of vehicles. These programs
generally allow the Company, at its option, subject to certain provisions, to
sell the vehicles back to the manufacturers at pre-determined prices. Amounts
included under these programs are reflected in "Accounts receivable, net" on the
accompanying consolidated statement of financial position at December 31, 1997
(see Note 3). Under the terms of certain financing agreements with General
Motors, the Company is required to purchase a significant percentage of its
fleet from local dealers of General Motors subject to market conditions. In
addition, the Company participates in an arrangement whereby General Motors
provides payments for purchasing and promoting a specified number and mix of
vehicles (see Note 5). At December 31, 1996, the Company had a $250.0 million
line of credit, respectively, from General Motors which may be used for the
Vehicle Trust financing (see Note 8). Of this facility, $200.0 million was
available for subordinated debt at December 31, 1996. As of December 31, 1996,
the Company utilized $118.0 million of this facility, of which $54.3 million was
subordinated. This facility required a fee of 1/4 of 1% on the unused portion.

At December 31, 1997, the Company is affiliated with Cendant which owns
approximately 27.5% of the Company. For the year ended December 31, 1997, the
Company earned revenues of approximately $2.2 million from Cendant and its
subsidiary companies, of which approximately $76 thousand was outstanding and is
included in Accounts receivable on the accompanying consolidated statement of
financial position at December 31, 1997. The Company purchased approximately
$90.6 million of goods and services from these affiliated companies.

F-28
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 18--LITIGATION

From time to time, the Company is subject to routine litigation incidental
to its business. The Company maintains insurance policies that cover most of the
actions brought against the Company. The Company is not currently involved in
any legal proceeding which it believes would have a material adverse effect upon
its financial condition or results of operations. However, the Company is
involved in the following litigation:

In the case of LINDA A. PUGH, ET AL., V. AVIS RENT A CAR SYSTEMS, INC. AND
NEW HANOVER RENT-A-CAR, INC., 7-96-CV-91-F(2), (E.D.N.C.), a suit in federal
court in North Carolina alleging race discrimination, the Company and the
plaintiffs have entered into a Settlement Agreement, subject to court approval,
providing for payment of $1.875 million plus approximately $1.4 million in
attorneys fees, administration costs and costs of notice to potential class
members, to settle and dismiss all claims against the Company. In the case of
DAVID RUTSTEIN V. AVIS RENT A CAR SYSTEMS, INC., 97-0807 CIV-G (S.D.FL.), a suit
brought as a purported class action suit in federal court in Florida alleging
discrimination based upon religion, the Company has filed a motion to dismiss
the action, which is pending before the court. Following the commencement of the
PUGH and RUTSTEIN suits described above, certain governmental agencies initiated
inquiries and made requests for information in connection with allegations of
discrimination involving the Company and certain of its licensees. The Company
has been cooperating with all such governmental requests. To date, an
administrative proceeding has been commenced at the Commonwealth of Pennsylvania
Human Rights Commission. In that proceeding, the Attorney General of the
Commonwealth of Pennsylvania has filed an administrative complaint alleging that
the Company is vicariously liable for race discrimination allegedly committed by
a licensee. The Company has not yet been appraised of the specifics underlying
these allegations but the Company believes that the claims are without merit.
The Company does not believe that the outcome of those inquiries or the
administrative proceeding will have a material adverse effect on its financial
condition or results of operations.

NOTE 19--SUBSEQUENT EVENTS

On January 7, 1998, the Company closed a transaction refinancing the fleet
debt of its Canadian car rental operation which provided for borrowings up to an
amount of $210.9 million. The vehicles were transferred to a partnership in
which a wholly-owned subsidiary of the Company, Aviscar, Inc., is the general
partner and a financing source is the limited partner. Aviscar, Inc. continues
to operate and service the vehicles in the fleet. The partnership structure
allows Aviscar, Inc. to finance vehicles at a more advantageous interest rate.

On February 20, 1998, the Company signed a purchase agreement with Hayes
Leasing Company, Inc. to acquire the assets of its car rental business for
approximately $85 million in cash, plus the refinancing of fleet-related
indebtedness (approximately $117 million at January 31, 1998). The unaudited
assets, exclusive of cost in excess of the fair value of net assets acquired at
January 31, 1998, are approximately $120 million. The transaction is subject to
customary closing conditions and regulatory approval.

F-29
<PAGE>
THE FIRST GRAY LINE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30,
<S> <C> <C>
1997 1996
---------- ----------
Revenues............................................................................ $ 156,384 $ 143,918
Costs and expenses:
Payroll and fringe benefits....................................................... 26,421 24,712
Vehicle owning and operating costs................................................ 60,081 55,898
Commissions, rents and fees....................................................... 36,236 33,860
Other costs....................................................................... 9,190 7,913
Interest.......................................................................... 11,904 11,095
---------- ----------
143,832 133,478
---------- ----------
Income before taxes based on income................................................. 12,552 10,440
Provision for taxes based on income................................................. 5,010 4,232
---------- ----------
Net income.......................................................................... $ 7,542 $ 6,208
---------- ----------
---------- ----------
</TABLE>

See accompanying notes.

F-30
<PAGE>
THE FIRST GRAY LINE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................................. $ 7,542 $ 6,208
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
OPERATING ACTIVITIES:
Depreciation.......................................................................... 46,885 41,520
ESOP compensation expense............................................................. 1,559 1,500
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable................................................................... (1,234) (1,438)
Prepaid expenses...................................................................... 1,321 710
Accounts payable and accrued liabilities.............................................. 9,737 9,409
Self-insurance liability accrual...................................................... 1,241 1,504
Deferred taxes based on income........................................................ 2,577 2,600
----------- -----------
Net cash provided by operating activities......................................... 69,628 62,013
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to rental cars.............................................................. (251,328) (208,862)
Book value of rental cars sold........................................................ 184,485 127,643
Net additions to property and equipment............................................... (2,343) (1,831)
----------- -----------
Net cash used in investing activities............................................. (69,186) (83,050)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revenue equipment obligations.................................... (1,000) 27,500
Payments of other debt................................................................ (7,527) (7,574)
Purchase of Capital Stock............................................................. (9) (3)
----------- -----------
Net cash provided by (used in) financing activities............................... (8,536) 19,923
----------- -----------
Decrease in cash........................................................................ (8,094) (1,114)
Cash at beginning of period............................................................. 11,679 4,965
----------- -----------
Cash at end of period................................................................... $ 3,585 $ 3,851
----------- -----------
----------- -----------
</TABLE>

See accompanying notes.

F-31
<PAGE>
THE FIRST GRAY LINE CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996

NOTE 1. BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
position at June 30, 1997 and the results of operations and cash flows for the
nine month periods ended June 30, 1997 and 1996. The results of operations for
the interim periods are not indicative of the results for a full year.

NOTE 2. PRINCIPLES OF CONSOLIDATION

The First Gray Line Corporation, through its operating subsidiary Grand Rent
A Car Corp., d.b.a. Avis Licensee, provides car rental services in Southern
California, Las Vegas, Nevada, and Yuma, Arizona. Grand Rent A Car Corp.
operates independently under exclusive Avis Rent A Car, Inc. licenses.

The accompanying consolidated financial statements include the accounts of
The First Gray Line Corporation and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in the
consolidation.

F-32
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors
The First Gray Line Corporation

We have audited the accompanying consolidated balance sheets of The First Gray
Line Corporation as of September 30, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for the years then
ended. 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.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The First Gray
Line Corporation at September 30, 1996 and 1995, and the consolidated results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

Ernst & Young LLP

Los Angeles, California
November 22, 1996

F-33
<PAGE>
THE FIRST GRAY LINE CORPORATION

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------------
<S> <C> <C>
1996 1995
------------ ------------

<CAPTION>
(IN THOUSANDS, EXCEPT
SHARE INFORMATION)
<S> <C> <C>
ASSETS
Cash................................................................................. $ 11,679 $ 4,965
Accounts receivable, less allowance for doubtful accounts of $207 in 1996 and $195 in
1995............................................................................... 7,791 5,666
Prepaid expenses..................................................................... 4,100 3,499
Rental cars, at cost less accumulated depreciation of $29,807 in 1996 and $23,873 in
1995............................................................................... 278,781 231,625
Property and equipment (including land of $7,140 in 1996 and 1995), at cost less
accumulated depreciation of $15,701 in 1996 and $14,871 in 1995.................... 17,187 15,984
Franchises and other intangibles, at cost............................................ 1,705 1,705
------------ ------------
Total assets......................................................................... $ 321,243 $ 263,444
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities........................................... $ 16,493 $ 12,885
Self-insurance liability accrual................................................... 15,827 13,931
Revenue equipment obligations and other debt....................................... 231,027 196,627
Deferred taxes based on income..................................................... 20,441 14,472
------------ ------------
Total liabilities.................................................................... 283,788 237,915
Commitments..........................................................................
Stockholders' equity:
Capital stock, 1,000,000 shares authorized and 640,000 shares issued in 1996 and
1995, at stated value............................................................ 715 715
Retained earnings.................................................................. 83,692 74,130
Less unearned ESOP shares.......................................................... (46,946) (49,313)
Less treasury stock, at cost....................................................... (6) (3)
------------ ------------
Total stockholders' equity........................................................... 37,455 25,529
------------ ------------
Total liabilities and stockholders' equity........................................... $ 321,243 $ 263,444
------------ ------------
------------ ------------
</TABLE>

See accompanying notes.

F-34
<PAGE>
THE FIRST GRAY LINE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30
----------------------
1996 1995
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Revenues.................................................................................. $ 198,557 $ 172,535
Costs and expenses:
Payroll and fringe benefits............................................................. 33,049 29,296
Vehicle owning and operating costs...................................................... 76,718 66,476
Commissions, rents and fees............................................................. 46,184 39,948
Other costs............................................................................. 11,688 8,659
Interest................................................................................ 15,030 18,799
---------- ----------
182,669 163,178
---------- ----------
Income before taxes based on income....................................................... 15,888 9,357
Provision for taxes based on income....................................................... 6,100 3,671
---------- ----------
Net income................................................................................ $ 9,788 $ 5,686
---------- ----------
---------- ----------
</TABLE>

See accompanying notes.

F-35
<PAGE>
THE FIRST GRAY LINE CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
UNEARNED
ESOP
SHARES OF TOTAL
CAPITAL RETAINED COMMON TREASURY STOCKHOLDERS'
STOCK EARNINGS STOCK STOCK EQUITY
----------- --------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance at September 30, 1994............................ $ 715 $ 68,907 ( $52,142) $ 17,480
Net income............................................. 5,686 5,686
Shares of Common Stock released for allocation, at
cost................................................. 2,829 2,829
Cost of ESOP shares released in excess of
fair value, net of tax............................... (463) (463)
Purchase of capital stock.............................. $ (3) (3)
--
----- --------- ---------- ------------
Balance at September 30, 1995............................ 715 74,130 ( 49,313) (3) 25,529
Net income............................................. 9,788 9,788
Shares of Common Stock released for allocation, at
cost................................................. 2,367 2,367
Cost of ESOP shares released in excess of
fair value, net of tax............................... (226) (226)
Purchase of capital stock.............................. (3) (3)
--
----- --------- ---------- ------------
Balance at September 30, 1996............................ $ 715 $ 83,692 ( $46,946) $ (6) $ 37,455
--
--
----- --------- ---------- ------------
----- --------- ---------- ------------
</TABLE>

See accompanying notes.

F-36
<PAGE>
THE FIRST GRAY LINE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
------------------------
<S> <C> <C>
1996 1995
----------- -----------

<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.............................................................................. $ 9,788 $ 5,686
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation.......................................................................... 56,676 48,652
ESOP compensation expense............................................................. 1,998 2,070
Increase in accounts receivable....................................................... (2,125) (464)
(Increase) decrease in prepaid expenses............................................... (601) 2,009
Increase (decrease) in accounts payable and accrued liabilities....................... 3,608 (1,338)
Increase (decrease) in self-insurance liability accrual............................... 1,896 (799)
Increase in deferred taxes based on income............................................ 6,112 2,854
----------- -----------
Net cash provided by operating activities............................................... 77,352 58,670
----------- -----------
INVESTING ACTIVITIES
Additions to rental cars................................................................ (289,862) (296,760)
Book value of rental cars sold.......................................................... 187,628 260,627
Net additions to property and equipment................................................. (2,801) (2,856)
----------- -----------
Net cash used in investing activities................................................... (105,035) (38,989)
----------- -----------
FINANCING ACTIVITIES
Net borrowings (payments) under revenue equipment obligations........................... 27,000 (30,154)
Borrowings of other debt................................................................ 15,000 20,000
Payments of other debt.................................................................. (7,600) (7,687)
Purchase of capital stock............................................................... (3) (3)
----------- -----------
Net cash provided by (used in) financing activities..................................... 34,397 (17,844)
----------- -----------
Increase in cash........................................................................ 6,714 1,837
Cash at beginning of year............................................................... 4,965 3,128
----------- -----------
Cash at end of year..................................................................... $ 11,679 $ 4,965
----------- -----------
----------- -----------
</TABLE>

See accompanying notes.

F-37
<PAGE>
THE FIRST GRAY LINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and 1995

1. ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND PRESENTATION OF FINANCIAL STATEMENTS

The First Gray Line Corporation, through its operating subsidiary Grand Rent
A Car Corp., d.b.a. Avis Licensee, provides car rental services in Southern
California; Las Vegas, Nevada; and Yuma, Arizona. Grand Rent A Car Corp.
operates independently under exclusive Avis Rent A Car, Inc. licenses.

The accompanying consolidated financial statements include the accounts of
The First Gray Line Corporation and its wholly-owned subsidiaries (the Company).
All significant intercompany transactions and balances have been eliminated in
consolidation.

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

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Included in costs and expenses are selling, general and administrative
expenses of $32,366,000 in 1996 and $25,422,000 in 1995.

DEPRECIATION

The Company depreciates rental cars and property and equipment on the
straight-line method.

RENTAL CARS

The Company recognizes car rental revenue at the time the car is returned.

Included in rental cars are amounts receivable from car manufacturers of
$15,304,000 in 1996 and $10,307,000 in 1995 for cars disposed of under various
repurchase and guaranteed value programs. The majority of rental cars are
acquired from one of the U.S. automobile manufacturers.

SELF INSURANCE

The Company self-insures for automobile liability losses and workers'
compensation losses up to specified limits. Insurance coverage is maintained for
losses in excess of those limits. Accruals have been provided to fully reserve
for the Company's loss responsibility.

CREDIT RISK

The Company has no significant off-balance sheet risks or concentrations of
credit risk.

2. REVENUE EQUIPMENT OBLIGATIONS AND OTHER DEBT

Revenue equipment obligations and other debt at September 30, 1996, include
$151,000,000 due under the credit line and $80,027,000 of other debt.

The Company has a secured bank credit line available for the purchase of
rental cars and other working capital requirements of $175,000,000 and a secured
credit line from a car manufacturer's finance subsidiary of $25,000,000, which
expire at various dates through 1999. The bank credit line provides for

F-38
<PAGE>
THE FIRST GRAY LINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. REVENUE EQUIPMENT OBLIGATIONS AND OTHER DEBT (CONTINUED)
borrowings and the issuance of letters of credit equal to the lesser of the
credit commitment or the eligible vehicle and vehicle receivable collateral. At
September 30, 1996, borrowings of $151,000,000 and letters of credit of
$4,473,000 were outstanding under the bank credit line with $18,000,000
available for borrowings and $1,527,000 available for letters of credit. There
was no outstanding balance with the manufacturer's finance subsidiary at
September 30, 1996. Interest on the bank credit line is based on market-directed
commercial paper rates and at September 30, 1996, the effective interest rate on
the bank credit line was 6.0%. During 1995, the Company wrote off $3,000,000 of
capitalized loan costs, related to a prior year financing, to interest expense.

Other debt consists of the following at September 30 (in thousands):

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Notes payable at various rates ranging from 7.55% to 10.23%, secured by eligible
vehicle and vehicle receivable collateral, due in varying amounts through
2007............................................................................ $ 80,000 $ 72,500
Note payable at 9.25%, secured by assets (net book value of $29 in 1996 and $115
in 1995), due in 1997........................................................... 27 127
--------- ---------
$ 80,027 $ 72,627
--------- ---------
--------- ---------
</TABLE>

The effective interest rates on Other debt at September 30, 1996 and 1995,
were 8.8% and 9.1%, respectively.

The bank credit line and the other debt contain certain covenants
restricting payments of dividends, incurrence of additional long-term debt and
requiring maintenance of certain financial ratios.

The aggregate amount of maturities for other debt for the five years
following September 30, 1996, and beyond are: $7,527,000 in 1997, $7,500,000 in
1998, $10,000,000 in 1999, $9,375,000 in 2000, $9,375,000 in 2001, and
$36,250,000 in 2002 and beyond.

Interest payments were $14,130,000 in 1996 and $15,887,000 in 1995.

F-39
<PAGE>
THE FIRST GRAY LINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. TAXES BASED ON INCOME

Significant components of the Company's deferred tax liabilities and assets
are as follows (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Tax over book depreciation........................................................ $ 29,947 $ 21,658
Prepaid expenses.................................................................. 1,737 1,610
Other............................................................................. 1,848 1,985
--------- ---------
Deferred tax liabilities........................................................ 33,532 25,253
Self insurance liability accrual.................................................. 6,569 5,796
Payroll and payroll related expenses.............................................. 1,695 1,013
Other accrued expenses............................................................ 3,206 2,717
Other............................................................................. 1,621 1,255
Deferred tax assets............................................................. 13,091 10,781
--------- ---------
Net deferred tax liabilities...................................................... $ 20,441 $ 14,472
--------- ---------
--------- ---------
</TABLE>

Deferred tax liabilities relate primarily to the use of accelerated
depreciation for tax purposes, while deferred tax assets relate primarily to
estimated self-insurance expenses on automobile liability and workers'
compensation and other expenses that are accrued for book purposes but are not
deductible currently for income tax purposes.

During 1995, the Company adopted a qualified like-kind exchange program
under which the Company can defer the gain associated with the sale of certain
vehicles in its rental fleet by reducing, for income tax purposes, the basis in
the replacement vehicle.

The provision for taxes based on income is composed of the following (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1996
-------------------------------
FEDERAL STATE TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Current...................................................................... $ 113 $ 20 $ 133
Deferred..................................................................... 5,753 214 5,967
--------- --------- ---------
Total........................................................................ $ 5,866 $ 234 $ 6,100
--------- --------- ---------
--------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1995
-------------------------------
FEDERAL STATE TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Current...................................................................... $ 630 $ 248 $ 878
Deferred..................................................................... 2,316 477 2,793
--------- --------- ---------
Total........................................................................ $ 2,946 $ 725 $ 3,671
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-40
<PAGE>
THE FIRST GRAY LINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. TAXES BASED ON INCOME (CONTINUED)
A reconciliation of income tax expense computed by applying the statutory
federal income tax rate to income before taxes and reported tax expense is
summarized in the following table (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Federal income tax at 34%............................................................ $ 5,402 $ 3,181
State income taxes, net of federal tax benefit....................................... 154 479
Other................................................................................ 544 11
--------- ---------
Income tax expense as reported....................................................... $ 6,100 $ 3,671
--------- ---------
--------- ---------
</TABLE>

Tax payments made during 1996 and 1995 were $1,340,000 and $2,887,000,
respectively. Tax refunds received during 1996 were $549,000.

4. COMMITMENTS

The Company and its subsidiaries are committed under the terms of operating
lease agreements, principally for sales facilities, for aggregate minimum rental
payments of $19,481,000 due as follows: $9,550,000 in 1997; $4,893,000 in 1998;
$3,195,000 in 1999; $1,186,000 in 2000; $539,000 in 2001; and $118,000 in 2002
and beyond. Certain major leases require minimum payments plus a percentage of
revenue. Minimum rent expense amounted to $10,193,000 in 1996 and $10,331,000 in
1995. Additional rent expense based on a percentage of revenue amounted to
$6,191,000 in 1996 and $4,486,000 in 1995.

5. PENSION PLANS

Substantially all car rental employees are covered by a defined contribution
Section 401(k) plan. Certain employees covered by Section 401(k) plan are also
covered by a nonqualified supplemental employee retirement plan. The plans
provide for participant contributions based on salaries.

6. EMPLOYEE STOCK OWNERSHIP PLAN

The Company sponsors a leveraged Employee Stock Ownership Plan (ESOP) that
covers all eligible employees. The Company makes annual contributions to the
ESOP equal to the ESOP's debt service. The ESOP shares initially were pledged as
collateral for its debt. As payments are made for debt and interest, shares are
released from collateral and allocated to active employee accounts, based on the
proportion of debt service paid in the year. The Company accounts for its ESOP
in accordance with Statement of Position 93-6. Accordingly, the shares pledged
as collateral are reported as unearned ESOP shares in the consolidated balance
sheet. As shares are released from collateral, the Company reports compensation
expense equal to the fair value of the shares (based upon the valuation at the
beginning of the period). ESOP compensation expense was $1,998,000 and
$2,070,000 for 1996 and 1995, respectively. As employees

F-41
<PAGE>
THE FIRST GRAY LINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
retire or otherwise terminate their employment, the Company would be obligated
to buy back their ESOP shares at the fair value at the time of repurchase. The
ESOP shares are as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Allocated shares......................................................... 29,214 19,757
Less shares purchased from participants.................................. (32) (16)
Net allocated shares..................................................... 29,182 19,741
Shares of Common Stock released for allocation........................... 3,003 2,990
Unreleased shares........................................................ 187,783 197,253
------------- -------------
Total ESOP shares........................................................ 219,968 219,984
------------- -------------
------------- -------------
Fair value of unreleased shares.......................................... $ 39,622,000 $ 36,097,000
------------- -------------
------------- -------------
</TABLE>

F-42
<PAGE>
AVIS RENT A CAR, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1997 gives effect to the following transactions as if they
had occurred on January 1, 1997: (a) the acquisition of The First Gray Line
Corporation, (b) the repayment of indebtedness with the net proceeds (after the
purchase of The First Gray Line Corporation) from the initial public offering on
September 24, 1997 and (c) adjustments to reflect a 4% royalty fee pursuant to
the Master License Agreement with Cendant.

The Company believes that the accounting used to reflect the above
transactions provides a reasonable basis on which to present those unaudited pro
forma financial data. The pro forma consolidated statement of operations is
unaudited and was derived by adjusting the historical consolidated statement of
operations of the Company. THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE
CONSTRUED TO BE INDICATIVE OF THE COMPANY'S CONSOLIDATED STATEMENT OF OPERATIONS
HAD THE TRANSACTIONS BEEN CONSUMMATED ON THE DATES ASSUMED AND DOES NOT PROJECT
THE COMPANY'S CONSOLIDATED RESULTS OF OPERATIONS FOR ANY FUTURE DATE OR PERIOD.

The unaudited pro forma consolidated statement of operations and
accompanying notes should be read in conjunction with the audited consolidated
financial statements, the unaudited condensed consolidated financial statements
of The First Gray Line Corporation and the financial information pertaining to
the Company, in each case included elsewhere in this Registration Statement.

P-1
<PAGE>
AVIS RENT A CAR, INC.

UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
FIRST GRAY LINE
CORPORATION
HISTORICAL JANUARY 1, 1997
AVIS RENT A TO PRO FORMA PRO FORMA
CAR, INC. AUGUST 19, 1997 ADJUSTMENTS CONSOLIDATED
----------- --------------- ----------- ------------

<S> <C> <C> <C> <C>
Revenue............................................. $2,046,154 $ 129,743 $2,175,897
----------- --------------- ------------
Costs and expenses:
Direct operating.................................. 863,839 57,355 $ (911)(1) 920,283
Vehicle depreciation.............................. 460,629 34,281 43,804(2) 538,714
Vehicle lease charges............................. 81,461 9 (60,751)(2) 20,719
Selling, general and administrative............... 415,728 13,100 (8,073)(3)
1,298(4) 422,053
Interest, net..................................... 167,314 10,235 16,947(2)
8,073(5)
(8,582)(6)
(1,389)(7) 192,598
Amortization of cost in excess of net assets
required........................................ 6,860 2,883(8) 9,743
----------- --------------- ----------- ------------
1,995,831 114,980 (6,701) 2,104,110
----------- --------------- ----------- ------------
Income (loss) before provision for (benefit from)
income taxes...................................... 50,323 14,763 6,701 71,787
Provision for (benefit from) income taxes........... 22,850 5,941 3,564(9) 32,355
----------- --------------- ----------- ------------
Net income (loss)................................... $ 27,473 $ 8,822 $ 3,137 $ 39,432
----------- --------------- ----------- ------------
----------- --------------- ----------- ------------
Earnings per basic share on 30,925,000 shares....... $ 1.28
------------
------------
Earnings per diluted share on 31,181,134 shares..... $ 1.26
------------
------------
</TABLE>

See accompanying notes to the unaudited pro forma consolidated financial
statement of operations.

P-2
<PAGE>
AVIS RENT A CAR, INC.

NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)

(1) Reflects the elimination of ESOP related compensation expense for The First
Gray Line Corporation.

(2) Reflects the reclassification of lease charges to depreciation and interest
on vehicles which were capitalized pursuant to the refinancing at July 30,
1997.

(3) Reflects the elimination of an administration fee from Cendant.

(4) Reflects the elimination of a franchise fee due to the Company from The
First Gray Line Corporation (3% of revenue), and the charge for a royalty
fee calculated at 4% of revenue pursuant to the Master License Agreement
with Cendant.

(5) Reflects the elimination of the interest income relating to the Wizard
Note.

(6) Reflects the reduction in interest expense as a result of prepaying debt
with the proceeds from the initial public offering on September 24, 1997, as
follows:

<TABLE>
<CAPTION>
YEAR ENDED
REDUCTION DECEMBER
OF DEBT 31, 1997
---------- -----------
<S> <C> <C>
Interest expense on a term loan (interest at rate of 7.85%).......... $ 120,000 $ 7,065
Interest expense on commercial paper (interest at rate of 5.42%)..... 37,315 1,517
---------- -----------
$ 157,315 $ 8,582
---------- -----------
---------- -----------
</TABLE>

(7) Reflects the elimination of interest expense on a bridge loan utilized to
purchase The First Gray Line Corporation.

(8) Reflects the amortization of cost in excess of net assets acquired as a
result of the acquisition by the Company of The First Gray Line Corporation
as if it had occurred on January 1, 1997. The unamortized cost in excess of
net assets acquired is being amortized over 40 years.

(9) Reflects the income tax effects of the pro forma adjustments at statutory
income tax rates.

P-3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 10
Special Note Regarding Forward-Looking
Statements................................... 16
Use of Proceeds................................ 17
Price Range of Common Stock.................... 17
Dividend Policy................................ 17
Capitalization................................. 18
Selected Historical Financial Data............. 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Business....................................... 28
Management..................................... 41
Relationship with Cendant...................... 51
Shares Eligible for Future Sale................ 56
Description of Capital Stock................... 57
Certain United States Federal Tax Consequences
to Non-United States Holders................. 58
Underwriting................................... 60
Legal Matters.................................. 61
Experts........................................ 61
Available Information.......................... 62
Index to Financial Statements.................. F-1
</TABLE>

5,000,000 SHARES

[LOGO]

COMMON STOCK

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

PROSPECTUS

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

BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY
SECURITIES LLC

, 1998

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are the estimated expenses in connection with the issuance and
distribution of the securities being registered, all of which will be paid by
the Company:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 55,870
NASD filing fees and expenses.................................... 19,439
Printing and engraving expenses.................................. 150,000
Legal fees and expenses.......................................... 75,000
Accounting fees and expenses..................................... 90,000
Miscellaneous.................................................... 50,000
---------
Total...................................................... $ 440,309
---------
---------
</TABLE>

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

Section 145 of the General Corporation Law of the State of Delaware ("GCL")
provides that a corporation has the power to indemnify any director or officer,
or former director or officer, who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) against expenses, (including attorney's
fees), judgments, fines or amounts paid in settlement actually and reasonably
incurred by them in connection with the defense of any action by reason of being
or having been directors or officers, if such person shall have acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceedings, provided that such person had no reasonable cause to believe his
conduct was unlawful, except that, if such action shall be in the right of the
corporation, no such indemnification shall be provided as to any claim, issue or
matter as to which such person shall have been judged to have been liable to the
corporation unless and to the extent that the Court of Chancery of the State of
Delaware, or any court in which such suit or action was brought, shall determine
upon application that, in view of all of the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as such
court shall deem proper.

As permitted by Section 102(b)(7) of the GCL, the Amended and Restated
Certificate of Incorporation of the Company (filed herewith as Exhibit 3.1) (the
"Restated Certificate of Incorporation") provides that no director shall be
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director other that (i) for breaches of the director's duty
of loyalty to the Company and its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for the unlawful payment of dividends or unlawful stock purchases or
redemptions under Section 174 of the GCL and (iv) for any transaction from which
the director derived an improper personal benefit.

The Company's Amended and Restated Bylaws (filed herewith as Exhibit 3.2)
(the "Bylaws") provide indemnification of the Company's directors and officers,
both past and present, to the fullest extent permitted by the GCL, and allow the
Company to advance or reimburse litigation expenses upon submission by the
director or officer of an undertaking to repay such advances or reimbursements
if it is ultimately determined that indemnification is not available to such
director or officer, pursuant to the Bylaws. The Company's Bylaws will also
authorize the Company to purchase and maintain insurance on behalf of an officer
or director, past or present, against any liability inserted against him in any
such

II-1
<PAGE>
capacity whether or not the Company would have the power to indemnify him
against such liability under the provisions of the Restated Certificate of
Incorporation or Section 145 of the GCL.

The Company has entered into indemnification agreements with each of its
directors and certain of its executive officers. The indemnification agreements
require the Company, among other things, to indemnify such directors and
officers against certain liabilities that may arise by reason of their status or
service as directors of officers (other than liabilities arising from willful
misconduct of a culpable nature), and to advance their expenses incurred as a
result of any preceding against them as to which they could be indemnified.

The Underwriting Agreement (filed herewith as Exhibit 1 provides for the
indemnification by the Underwriters of directors and certain officers of the
Company against certain liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

None.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------
<S> <C>
1 Underwriting Agreement (to be filed on Form 8-K)
3. CERTIFICATE OF INCORPORATION AND BY-LAWS
3.1 Amended and Restated Certificate of Incorporation of the Registrant**
3.2 Amended and Restated By-Laws of the Registrant**
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
4.1 Form of Certificate of Common Stock***
4.2 Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding
II L.L.C., as issuer, and Harris Trust and Savings Bank, as trustee.***
4.3 Series 1997-1 Supplement, dated as of July 30, 1997 between AESOP Funding II L.L.C.
and Harris Trust and Savings Bank, as trustee, to the Amended and Restated Base
Indenture, dated as of July 30, 1997, between AESOP Funding II and the Trustee.***
4.4 Series 1997-2 Supplement, dated as of July 30, 1997 between AESOP Funding II L.L.C.
and Harris Trust and Savings Bank, as trustee, to the Amended and Restated Base
Indenture, dated as of July 30, 1997, between AESOP Funding II and the Trustee.***
4.5 Loan Agreement, dated as of July 30, 1997, between AESOP Leasing L.P., as borrower,
and AESOP Funding II L.L.C., as lender.***
4.6 Loan Agreement, dated as of July 30, 1997, among AESOP Leasing L.P., as borrower, PV
Holding Corp., as a permitted nominee of the borrower, Quartx Fleet Management, Inc.,
as a permitted nominee of the borrower, and AESOP Funding II L.L.C., as lender.***
4.7 Loan Agreement, dated as of July 30, 1997, between AESOP Leasing Corp. II, as
borrower, AESOP Leasing Corp., as permitted nominee of the borrower, and AESOP
Funding II L.L.C., as lender.***
4.8 Master Motor Vehicle Finance Lease Agreement, dated as of July 30, 1997, by and among
AESOP Leasing L.P., as lessor, Avis Rent A Car System, Inc., as lessee, individually
and as the Administrator and Avis Rent A Car, Inc., as guarantor.***
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------
<S> <C>
4.9 Master Motor Vehicle Operating Lease Agreement, dated as of July 30, 1997, by and
among AESOP Leasing L.P., as lessor, Avis Rent A Car System, Inc., individually and
as the Administrator, certain Eligible Rental Car Companies, as lessees, and Avis
Rent A Car, Inc., as guarantor.***
4.10 Master Motor Vehicle Operating Lease Agreement, dated as of July 30, 1997, by and
among AESOP Leasing Corp. II, as lessor, Avis Rent A Car System, Inc., individually
and as the Administrator, certain Eligible Rental Car Companies, as lessees and Avis
Rent A Car, Inc., as guarantor.***
4.11 Credit Agreement, dated as of July 30, 1997, among Avis Rent A Car, Inc., Avis Rent A
Car System, Inc., The Chase Manhattan Bank, as administrative agent, Lehman
Commercial Paper, Inc., as syndication agent and the other lenders party thereto (the
"Credit Agreement").***
4.12 Guarantee, dated as of July 30, 1997, in favor of The Chase Manhattan Bank, as
administrative agent for the lenders from time to time parties to the Credit
Agreement.***
4.13 Security Agreement, dated as of July 30, 1997, in favor of The Chase Manhattan Bank,
as administrative agent for the lenders from time to time parties to the Credit
Agreement.***
4.14 Pledge Agreement, dated as of July 30, 1997, in favor of The Chase Manhattan Bank, as
administrative agent for the lenders from time to time parties to the Credit
Agreement.***
5 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding legality of the Common
Stock.**
10. MATERIAL CONTRACTS
10.1 Form of Registration Rights Agreement***
10.2 Separation Agreement between Cendant Car Rental, Inc. and Avis Rent A Car, Inc.***
10.3 Master License Agreement among Cendant Car Rental, Inc., Avis Rent A Car System, Inc.
and Wizard Co., Inc.***
10.4 Computer Services Agreement between Avis Rent A Car System, Inc. and WizCom
International, Ltd.***
10.5 Reservation Services Agreement between Cendant Incorporated and Avis Rent A Car
System, Inc.***
10.6 Form of Tax Disaffiliation Agreement among Cendant Incorporated, Cendant Car Rental,
Inc. and Avis Rent A Car, Inc.***
10.7 Form of Lease Agreement by and between WizCom International, Ltd., as lessor, and
Avis Rent A Car System, Inc. as lessee (Virginia Beach, Virginia).***
10.8 Form of Sublease Agreement by and between WizCom International, Ltd., as sublessor,
and Avis Rent A Car System, Inc., as sublessee (Tulsa, Oklahoma).***
10.9 Form of Sublease Agreement by and between WizCom International, Ltd., as sublessor,
and Avis Rent A Car System, Inc., as sublessee (Garden City, New York).***
10.10 Wizard Note Assignment, Assumption and Release Agreement, dated as of July 30, 1997
by and between Wizard Co., Inc., Avis Rent A Car System, Inc. and Reserve Claims
Management Co.***
</TABLE>

II-3

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------
<S> <C>
10.11 Termination Services Agreement, among Harris Trust and Savings Bank, AESOP Funding II
L.L.C., Avis Rent A Car System, Inc., and Wizcom International, Ltd.***
10.13 Call Transfer Agreement, dated March 4, 1997, between HFS Incorporated and Avis Rent
A Car System, Inc.***
10.14 Form of Amended and Restated Employment Agreement, dated as of February 9, 1996,
between HFS Car Rental, Inc. and F. Robert Salerno***
10.15 Offer Letter, dated as of February 24, 1997, between Craig Hoenshell and HFS
Incorporated.***
10.16 Amended and Restated Employment Agreement, dated February 9, 1996, between HFS Car
Rental, Inc. and John Forsythe.***
10.17 Employment Agreement, dated September 28, 1987, between Cendant Car Rental, Inc. and
Michael P. Collins.***
10.18 Avis Rent A Car, Inc. 1997 Stock Option Plan***
21 Subsidiaries of the Registrant***
23.1 Consent of Deloitte & Touche LLP, Independent Auditors of the Company.**
23.2 Consent of Ernst & Young LLP, Independent Auditors of The First Gray Line
Corporation.**
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5)***
24 Powers of Attorney (included on signature page)
27 FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule--December 31, 1996 (previously filed)
27.2 Financial Data Schedule--December 31, 1997 (previously filed)
</TABLE>

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

* To be filed by amendment

** Filed herewith

*** Incorporated by reference to the Registrant's Registration Statement on Form
S-1, 333-28609.

(b) Financial Statement Schedule. Schedule II--Valuation and Qualifying
Accounts

All other schedules are omitted because the information is not required
or because the information is included in the combined financial statements
or notes thereto.

II-4
<PAGE>
ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions referred to in Item 14 or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

The Company hereby undertakes that:

1. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

2. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.

II-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on March 2, 1998.

<TABLE>
<S> <C> <C>
AVIS RENT A CAR, INC.
(Registrant)

By: /s/ KEVIN M. SHEEHAN
------------------------------------------
Name: Kevin M. Sheehan
Title: Executive Vice President
and Chief Financial Officer
</TABLE>

II-6
<PAGE>
POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signatures appear
below, constitutes and appoints each of Kevin M. Sheehan, John H. Carley and
Karen Sclafani, or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for such person and in his name, place and stead, in any and all capacities, in
connection with the Registrant's Registration Statement in the name and on
behalf of the Registrant or on behalf of the undersigned as a director or
officer of the Registrant, on Form S-1 under the Securities Act of 1933, as
amended, including, without limiting the generality of the foregoing, to sign
the Registration Statement and any and all amendments (including post-effective
amendments) to the Registration Statement, and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as they might or
could do in person, thereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------------- ------------------------------------------- ----------------
<C> <S> <C>

/s/ R. CRAIG HOENSHELL Chairman of the Board, Chief Executive March 2, 1998
- --------------------------------------- Officer and Director
R. Craig Hoenshell (Principal Executive Officer)

/s/ F. ROBERT SALERNO President, Chief Operating Officer and March 2, 1998
- --------------------------------------- Director
F. Robert Salerno

/s/ KEVIN M. SHEEHAN Executive Vice President and Chief March 2, 1998
- --------------------------------------- Financial Officer
Kevin M. Sheehan (Principal Financial Officer)

/s/ TIMOTHY M. SHANLEY Vice President and Controller March 2, 1998
- --------------------------------------- (Principal Accounting Officer)
Timothy M. Shanley

/s/ STEPHEN P. HOLMES Director March 2, 1998
- ---------------------------------------
Stephen P. Holmes

/s/ MICHAEL P. MONACO Director March 2, 1998
- ---------------------------------------
Michael P. Monaco

/s/ W. ALUN CATHCART Director March 2, 1998
- ---------------------------------------
W. Alun Cathcart
</TABLE>

II-7
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------------- ------------------------------------------- ----------------
<C> <S> <C>

/s/ LEONARD S. COLEMAN, JR. Director March 2, 1998
- ---------------------------------------
Leonard S. Coleman, Jr.

/s/ MICHAEL J. KENNEDY Director March 2, 1998
- ---------------------------------------
Michael J. Kennedy

/s/ MARTIN L. EDELMAN Director March 2, 1998
- ---------------------------------------
Martin L. Edelman

/s/ DEBORAH L. HARMON Director March 2, 1998
- ---------------------------------------
Deborah L. Harmon

/s/ MICHAEL L. TARNOPOL Director March 2, 1998
- ---------------------------------------
Michael L. Tarnopol
</TABLE>

II-8
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders of
Avis Rent A Car, Inc.

We have audited the accompanying consolidated statements of financial
position of Avis Rent A Car, Inc. and subsidiaries (successors to Rental Car
System Holdings, Inc. and subsidiaries, Avis International, Ltd. and
subsidiaries, Avis Enterprises, Inc. and subsidiaries, Pathfinder Insurance
Company and Global Excess & Reinsurance, Ltd., all previously Wholly-Owned by
Avis, Inc., collectively the "Predecessor Companies") (collectively referred to
as "Avis Rent A Car, Inc." or the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the year ended December 31, 1997 and for the period October 17,
1996 (Date of Acquisition) to December 31, 1996 and as to the Predecessor
Companies the related consolidated statements of operations, stockholders'
equity and cash flows for the period January 1, 1996 to October 16, 1996 and for
the year ended December 31, 1995, and have issued our report thereon dated
January 29, 1998 (February 20, 1998 as to Note 19); such report is included
elsewhere in this Registration Statement. Our audits also included the financial
statement schedule of the Company and the Predecessor Companies, listed in Item
16(b). This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

/s/ Deloitte & Touche LLP
New York, New York
January 29, 1998
(February 20, 1998 as to Note 19)

S-1
<PAGE>
AVIS RENT A CAR, INC.

FINANCIAL STATEMENT SCHEDULE

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ADDITIONS, END OF
DESCRIPTION OF PERIOD EXPENSES NET(A) DEDUCTIONS PERIOD
- ---------------------------------------------------------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Allowance for doubtful accounts--accounts receivable...... $ 3,731 $ (48) $ 937 $ 2,746
Accumulated amortization--goodwill........................ $ 32,714 $ 4,757 $ 37,471
Public liability and property damage and other insurance
liabilities............................................. $ 184,002 $ 81,800 $ 71,125 $ 194,677
January 1, 1996 to October 16, 1996:
Allowance for doubtful accounts--accounts receivable...... $ 2,746 $ 1,238 $ 794 $ 3,190
Accumulated amortization--goodwill........................ $ 37,471 $ 3,782 $ 41,253
Public liability and property damage and other insurance
liabilities............................................. $ 194,677 $ 74,109 $ 56,315 $ 212,471

October 17, 1996 (Date of Acquisition) to
December 31, 1996:
Allowance for doubtful accounts--accounts receivable...... $ 227 $ 227
Accumulated amortization--goodwill........................ $ 1,026 $ 1,026
Public liability and property damage and other insurance
liabilities............................................. $ 212,471 $ 17,355 $ 16,041 $ 213,785

Year Ended December 31, 1997:
Allowance for doubtful accounts--accounts receivable...... $ 227 $ 3,208 $ 2,556 $ 879
Accumulated amortization--goodwill........................ $ 1,026 $ 6,860 $ 7,886
Public liability and property damage and other insurance
liabilities............................................. $ 213,785 $ 96,663 $ 16,670 $ 71,089 $ 256,029
</TABLE>

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

a) Includes additions of $16,838 relating to the acquisition of The First
Grayline Corporation on
August 20, 1997.

S-2
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- --------- ---------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
1 Underwriting Agreement (to be filed on Form 8-K)
3. CERTIFICATE OF INCORPORATION AND BY-LAWS
3.1 Amended and Restated Certificate of Incorporation of the Registrant**
3.2 Amended and Restated By-Laws of the Registrant**
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITYHOLDERS, INCLUDING INDENTURES
4.1 Form of Certificate of Common Stock***
4.2 Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II
L.L.C., as issuer, and Harris Trust and Savings Bank, as trustee.***
4.3 Series 1997-1 Supplement, dated as of July 30, 1997 between AESOP Funding II L.L.C. and Harris
Trust and Savings Bank, as trustee, to the Amended and Restated Base Indenture, dated as of
July 30, 1997, between AESOP Funding II and the Trustee.***
4.4 Series 1997-2 Supplement, dated as of July 30, 1997 between AESOP Funding II L.L.C. and Harris
Trust and Savings Bank, as trustee, to the Amended and Restated Base Indenture, dated as of
July 30, 1997, between AESOP Funding II and the Trustee.***
4.5 Loan Agreement, dated as of July 30, 1997, between AESOP Leasing L.P., as borrower, and AESOP
Funding II L.L.C., as lender.***
4.6 Loan Agreement, dated as of July 30, 1997, among AESOP Leasing L.P., as borrower, PV Holding
Corp., as a permitted nominee of the borrower, Quartx Fleet Management, Inc., as a permitted
nominee of the borrower, and AESOP Funding II L.L.C., as lender.***
4.7 Loan Agreement, dated as of July 30, 1997, between AESOP Leasing Corp. II, as borrower, AESOP
Leasing Corp., as permitted nominee of the borrower, and AESOP Funding II L.L.C., as
lender.***
4.8 Master Motor Vehicle Finance Lease Agreement, dated as of July 30, 1997, by and among AESOP
Leasing L.P., as lessor, Avis Rent A Car System, Inc., as lessee, individually and as the
Administrator and Avis Rent A Car, Inc., as guarantor.***
4.9 Master Motor Vehicle Operating Lease Agreement, dated as of July 30, 1997, by and among AESOP
Leasing L.P., as lessor, Avis Rent A Car System, Inc., individually and as the Administrator,
certain Eligible Rental Car Companies, as lessees, and Avis Rent A Car, Inc., as guarantor.***
4.10 Master Motor Vehicle Operating Lease Agreement, dated as of July 30, 1997, by and among AESOP
Leasing Corp. II, as lessor, Avis Rent A Car System, Inc., individually and as the
Administrator, certain Eligible Rental Car Companies, as lessees and Avis Rent A Car, Inc., as
guarantor.***
4.11 Credit Agreement, dated as of July 30, 1997, among Avis Rent A Car, Inc., Avis Rent A Car
System, Inc., The Chase Manhattan Bank, as administrative agent, Lehman Commercial Paper,
Inc., as syndication agent and the other lenders party thereto (the "Credit Agreement").***
4.12 Guarantee, dated as of July 30, 1997, in favor of The Chase Manhattan Bank, as administrative
agent for the lenders from time to time parties to the Credit Agreement.***
4.13 Security Agreement, dated as of July 30, 1997, in favor of The Chase Manhattan Bank, as
administrative agent for the lenders from time to time parties to the Credit Agreement.***
4.14 Pledge Agreement, dated as of July 30, 1997, in favor of The Chase Manhattan Bank, as
administrative agent for the lenders from time to time parties to the Credit Agreement.***
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- --------- ---------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
5 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding legality of the Common Stock.***
10. MATERIAL CONTRACTS
10.1 Form of Registration Rights Agreement***
10.2 Separation Agreement between Cendant Car Rental, Inc. and Avis Rent A Car, Inc.***
10.3 Master License Agreement among Cendant Car Rental, Inc., Avis Rent A Car System, Inc. and
Wizard Co., Inc.***
10.4 Computer Services Agreement between Avis Rent A Car System, Inc. and WizCom International,
Ltd.***
10.5 Reservation Services Agreement between Cendant Incorporated and Avis Rent A Car System,
Inc.***
10.6 Form of Tax Disaffiliation Agreement among Cendant Incorporated, Cendant Car Rental, Inc. and
Avis Rent A Car, Inc.***
10.7 Form of Lease Agreement by and between WizCom International, Ltd., as lessor, and Avis Rent A
Car System, Inc. as lessee (Virginia Beach, Virginia).***
10.8 Form of Sublease Agreement by and between WizCom International, Ltd., as sublessor, and Avis
Rent A Car System, Inc., as sublessee (Tulsa, Oklahoma).***
10.9 Form of Sublease Agreement by and between WizCom International, Ltd., as sublessor, and Avis
Rent A Car System, Inc., as sublessee (Garden City, New York).***
10.10 Wizard Note Assignment, Assumption and Release Agreement, dated as of July 30, 1997 by and
between Wizard Co., Inc., Avis Rent A Car System, Inc. and Reserve Claims Management Co.***
10.11 Termination Services Agreement, among Harris Trust and Savings Bank, AESOP Funding II L.L.C.,
Avis Rent A Car System, Inc., and Wizcom International, Ltd.***
10.13 Call Transfer Agreement, dated March 4, 1997, between HFS Incorporated and Avis Rent A Car
System, Inc.***
10.14 Form of Amended and Restated Employment Agreement, dated as of February 9, 1996, between HFS
Car Rental, Inc. and F. Robert Salerno***
10.15 Offer Letter, dated as of February 24, 1997, between Craig Hoenshell and HFS Incorporated.***
10.16 Amended and Restated Employment Agreement, dated February 9, 1996, between HFS Car Rental,
Inc. and John Forsythe.***
10.17 Employment Agreement, dated September 28, 1987, between Cendant Car Rental, Inc. and Michael
P. Collins.***
10.18 Avis Rent A Car, Inc. 1997 Stock Option Plan***
21 Subsidiaries of the Registrant***
23.1 Consent of Deloitte & Touche LLP, Independent Auditors of the Company.**
23.2 Consent of Ernst & Young LLP, Independent Auditors of The First Gray Line Corporation.**
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5)***
24 Powers of Attorney (included on signature page) (previously filed)
27 FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule--December 31, 1996 (previously filed)
27.2 Financial Data Schedule--December 31, 1997 (previously filed)
</TABLE>

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

* To be filed by amendment

** Filed herewith

*** Incorporated by reference to the Registrant's Registration Statement on Form
S-1, 333-28609.

<PAGE>

Exhibit 3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

AVIS RENT A CAR, INC.

The undersigned, John H. Carley, certifies that he is the Executive
Vice President and General Counsel of Avis Rent A Car, Inc., a corporation
organized and existing under the laws of the State of Delaware (the
"Corporation"), and does hereby further certify as follows:

(1) The name of the Corporation is Avis Rent A Car, Inc.

(2) The name under which the Corporation was originally incorporated
was Rental Car System Holdings, Inc. and the original Certificate of
Incorporation of the Corporation was filed with the Secretary of State of the
State of Delaware on October 17, 1996.

(3) This Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the Corporation (the "Board of Directors")
and by the sole stockholder of the Corporation in accordance with Sections 228,
242 and 245 of the GCL.

(4) This Amended and Restated Certificate of Incorporation restates
and integrates and further amends the certificate of incorporation of the
Corporation, as heretofore amended or supplemented.

<PAGE>

(5) Upon the filing (the "Effective Time") of this Amended and
Restated Certificate of Incorporation pursuant to the GCL, each share of the
Corporation's common stock, $.01 par value per share, issued and outstanding
immediately prior to the Effective Time (the "Old Common Stock") shall be
reclassified as and changed into 85,000 shares of validly issued, fully paid,
and non-assessable Common Stock authorized by subparagraph (a) of Article FOURTH
of this Amended and Restated Certificate of Incorporation (totaling 8,500,000
shares of Common Stock) without any action by the holder thereof (the
"Reclassification"). Each certificate that theretofore represented a share or
shares of Old Common Stock shall thereafter represent that number of shares of
Common Stock into which the share or shares of Old Common Stock represented by
such certificate shall have been reclassified.

(6) The text of the Certificate of Incorporation is amended and
restated in its entirety as follows:

FIRST: The name of the Corporation is Avis Rent A Car, Inc. (the
"Corporation").

2
<PAGE>

SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at that address is The Corporation
Trust Company.

THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware (the "GCL").

FOURTH: (a) Authorized Capital Stock. The total number of shares of stock
which the Corporation shall have authority to issue is 120,000,000 shares of
capital stock, consisting of (i) 100,000,000 shares of common stock, par value
$.01 per share (the "Common Stock") and (ii) 20,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock").

(b) Common Stock. The powers, preferences and rights, and the
qualifications, limitations and restrictions, of the Common Stock are as
follows:

(1) Ranking. Except as otherwise expressly provided in this
Amended and Restated Certificate of Incorporation, the powers, preferences and
rights

3
<PAGE>

of the holders of Common Stock, and the qualifications, limitations and
restrictions thereof, shall be in all respects identical.

(2) Voting. Except as otherwise expressly required by law or
provided in this Amended and Restated Certificate of Incorporation, and subject
to any voting rights provided to holders of Preferred Stock at any time
outstanding, the holders of any outstanding shares of Common Stock shall vote
together as a single class on all matters with respect to which stockholders are
entitled to vote under applicable law, this Amended and Restated Certificate of
Incorporation or the By-Laws of the Corporation, or upon which a vote of
stockholders is otherwise duly called for by the Corporation. At each annual or
special meeting of stockholders, each holder of record of shares of Common Stock
on the relevant record date shall be entitled to cast 1 vote in person or by
proxy for each share of the Common Stock standing in such holder's name on the
stock transfer records of the Corporation.

(3) No Cumulative Voting. The holders of shares of Common Stock
shall not have cumulative voting rights.

4
<PAGE>

(4) Amendments Affecting Stock. So long as any shares of Common
Stock are outstanding, the Corporation shall not, without the affirmative vote
of at least a majority (or such higher percentage, if any, as may then be
required by applicable law) of the outstanding shares of Common Stock voting as
a single class, (A) amend, alter or repeal any provision of Subsections 2
through 9 of this Article FOURTH so as to affect the relative rights,
preferences, qualifications, limitations or restrictions of the Common Stock or
(B) take any other action upon which class voting is required by law.

(5) Dividends; Stock Splits. Subject to the rights of the
holders of Preferred Stock, and subject to any other provisions of this Amended
and Restated Certificate of Incorporation, as it may be amended from time to
time, holders of shares of Common Stock shall be entitled to receive such
dividends and other distributions in cash, stock or property of the Corporation
when, as and if declared thereon by the Board of Directors from time to time out
of assets or funds of the Corporation legally available therefor.

(6) Liquidation, Dissolution, etc. In the event of any
liquidation, dissolution or winding up (either voluntary or involuntary) of the
Corporation, the

5
<PAGE>

holders of shares of Common Stock shall be entitled to receive the assets and
funds of the Corporation available for distribution after payments to
creditors and to the holders of any Preferred Stock of the Corporation that
may at the time be outstanding, in proportion to the number of shares held by
them, respectively, without regard to class.

(7) Merger, etc. In the event of a merger or consolidation of
the Corporation with or into another entity (whether or not the Corporation is
the surviving entity), the holders of each share of Common Stock shall be
entitled to receive the same per share consideration on a per share basis.

(8) No Preemptive or Subscription Rights. No holder of shares
of Common Stock shall be entitled to preemptive or subscription rights.

(9) Power to Sell and Purchase Shares. Subject to the
requirements of applicable law, the Corporation shall have the power to issue
and sell all or any part of any shares of any class of stock herein or hereafter
authorized to such persons, and for such consideration, as the Board of
Directors shall from time to time, in its discretion, determine, whether or not
greater consideration could be received upon the issue or sale of

6
<PAGE>

the same number of shares of another class, and as otherwise permitted by law.
Subject to the requirements of applicable law, the Corporation shall have the
power to purchase any shares of any class of stock herein or hereafter
authorized from such persons, and for such consideration, as the Board of
Directors shall from time to time, in its discretion, determine, whether or not
less consideration could be paid upon the purchase of the same number of shares
of another class, and as otherwise permitted by law.

(c) Preferred Stock. The Board of Directors is hereby expressly
authorized to provide for the issuance of all or any shares of the Preferred
Stock in one or more classes or series, and to fix for each such class or series
such voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such class or series, including, without
limitation, the authority to provide that any such class or series may be (i)
subject to redemption at such time or times and at such price or

7
<PAGE>

prices; (ii) entitled to receive dividends (which may be cumulative or
non-cumulative) at such rates, on such conditions, and at such times, and
payable in preference to, or in such relation to, the dividends payable on any
other class or classes or any other series; (iii) entitled to such rights upon
the dissolution of, or upon any distribution of the assets of, the Corporation;
or (iv) convertible into, or exchangeable for, shares of any other class or
classes of stock, or of any other series of the same or any other class or
classes of stock, of the Corporation at such price or prices or at such rates of
exchange and with such adjustments; all as may be stated in such resolution or
resolutions.

FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:

(a) The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.

(b) The number of directors of the Corporation shall be as from time
to time fixed by, or in the manner

8
<PAGE>

provided in, the By-Laws of the Corporation. Election of directors need not be
by written ballot unless the By-Laws so provide.

(c) A director shall hold office until the annual meeting for the
year in which his or her term expires and until his or her successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.

(d) Subject to the terms of any one or more classes or series of
Preferred Stock, any vacancy on the Board of Directors that results from an
increase in the number of directors may be filled by a majority of the Board of
Directors then in office, provided that a quorum is present, and any other
vacancy occurring on the Board of Directors may be filled by a majority of the
Board of Directors then in office, even if less than a quorum, or by a sole
remaining director. Any director elected to fill a vacancy resulting from an
increase in the number of directors shall hold office for a term that shall
coincide with the remaining term of the directors then in office. Any director
elected to fill a vacancy not resulting from an increase in the number of
directors shall have the same remaining term as that of his predecessor.

9
<PAGE>

Subject to the rights, if any, of the holders of shares of Preferred Stock then
outstanding, any or all of the directors of the Corporation may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of at least a majority of the voting power of the Corporation's then
outstanding capital stock entitled to vote generally in the election of
directors. Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Amended and Restated Certificate of Incorporation applicable
thereto.
(e) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, subject, nevertheless, to the provisions of the GCL,
this Amended and Restated Certificate of Incorporation, and any By-Laws adopted
by the stockholders; provided, however, that no By-Laws

10
<PAGE>

hereafter adopted by the stockholders shall invalidate any prior act of the
directors which would have been valid if such By-Laws had not been adopted.

(f) The Corporation shall not be governed by Section 203 of the GCL.

SIXTH: No director shall be personally liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the GCL as the same exists or may hereafter be
amended. If the GCL is amended hereafter to authorize the further elimination
or limitation of the liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent authorized
by the GCL, as so amended. Any repeal or modification of this Article SIXTH by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification with respect to acts or omissions occurring prior to such repeal
or modification.

11
<PAGE>

SEVENTH: The Corporation shall indemnify its directors and officers to the
fullest extent authorized or permitted by law, as now or hereafter in effect,
and such right to indemnification shall continue as to a person who has ceased
to be a director or officer of the Corporation and shall inure to the benefit of
his or her heirs, executors and personal and legal representatives; provided,
however, that, except for proceedings to enforce rights to indemnification, the
Corporation shall not be obligated to indemnify any director or officer (or his
or her heirs, executors or personal or legal representatives) in connection with
a proceeding (or part thereof) initiated by such person unless such proceeding
(or part thereof) was authorized or consented to by the Board of Directors. The
right to indemnification conferred by this Article SEVENTH shall include the
right to be paid by the Corporation the expenses incurred in defending or
otherwise participating in any proceeding in advance of its final disposition.

The Corporation may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification and to the advancement of
expenses to employees and agents of the Corporation

12
<PAGE>

similar to those conferred in this Article SEVENTH to directors and officers of
the Corporation.

The rights to indemnification and to the advance of expenses conferred
in this Article SEVENTH shall not be exclusive of any other right which any
person may have or hereafter acquire under this Amended and Restated Certificate
of Incorporation, the By-Laws of the Corporation, any statute, agreement, vote
of stockholders or disinterested directors or otherwise.

Any repeal or modification of this Article SEVENTH by the stockholders
of the Corporation shall not adversely affect any rights to indemnification and
to the advancement of expenses of a director or officer of the Corporation
existing at the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.

EIGHTH: Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation, and the ability of the stockholders to
consent in writing to the taking of any action is hereby specifically denied.

13
<PAGE>

NINTH: Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the GCL) outside the State of Delaware at
such place or places as may be designated from time to time by the Board of
Directors or in the By-Laws of the Corporation.

TENTH: In furtherance and not in limitation of the powers conferred upon
it by the laws of the State of Delaware, the Board of Directors shall have the
power to adopt, amend, alter or repeal the Corporation's By-Laws. The
affirmative vote of at least a majority of the entire Board of Directors shall
be required to adopt, amend, alter or repeal the Corporation's By-Laws. The
Corporation's By-Laws also may be adopted, amended, altered or repealed by the
affirmative vote of the holders of at least eighty percent (80%) of the voting
power of the shares entitled to vote at an election of directors.

ELEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation in

14
<PAGE>

the manner now or hereafter prescribed in this Amended and Restated Certificate
of Incorporation, the Corporation's By-Laws or the GCL, and all rights herein
conferred upon stockholders are granted subject to such reservation; provided,
however, that, notwithstanding any other provision of this Amended and Restated
Certificate of Incorporation (and in addition to any other vote that may be
required by law), the affirmative vote of the holders of at least eighty percent
(80%) of the voting power of the shares entitled to vote at an election of
directors shall be required to amend, alter, change or repeal, or to adopt any
provision as part of this Amended and Restated Certificate of Incorporation
inconsistent with the purpose and intent of Articles FIFTH, EIGHTH and TENTH of
this Amended and Restated Certificate of Incorporation or this Article ELEVENTH.

15
<PAGE>

IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be executed and attested to on its
behalf this 24th day of September, 1997.

AVIS RENT A CAR, INC.

By: /s/ John H. Carley
------------------------
Name: John H. Carley
Title: Executive Vice
President and General
Counsel

<PAGE>

Exhibit 3.2

AMENDED AND RESTATED

BY-LAWS

AVIS RENT A CAR, INC.

A Delaware Corporation

Effective September 24, 1997

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I - OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office. . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II - MEETINGS OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Place of Meetings. . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . 2
Section 3. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . 2
Section 4. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 5. Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 6. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 7. Nature of Business at Meetings of Stockholders . . . . . . . . 6
Section 8. List of Stockholders Entitled to Vote. . . . . . . . . . . . . 9
Section 9. Stock Ledger . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 10. Record Date. . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 11. Inspectors of Election . . . . . . . . . . . . . . . . . . . . 12

ARTICLE III - DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1. Number and Election of Directors . . . . . . . . . . . . . . . 13
Section 2. Nomination of Directors. . . . . . . . . . . . . . . . . . . . 13
Section 3. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4. Duties and Powers. . . . . . . . . . . . . . . . . . . . . . . 17
Section 5. Organization . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6. Resignations and Removals of Directors . . . . . . . . . . . . 18
Section 7. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9. Actions of Board . . . . . . . . . . . . . . . . . . . . . . . 20
Section 10. Meetings by Means of Conference Telephone. . . . . . . . . . . 21
Section 11. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 12. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 13. Interested Directors . . . . . . . . . . . . . . . . . . . . . 23

ARTICLE IV - OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 1. General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2. Election . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3. Voting Securities Owned by the Corporation . . . . . . . . . . 25
Section 4. Chairman of the Board of Directors . . . . . . . . . . . . . . 26
</TABLE>

i
<PAGE>

<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 5. President. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6. Vice Presidents. . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7. Secretary. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8. Treasurer. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9. Assistant Secretaries. . . . . . . . . . . . . . . . . . . . . 31
Section 10. Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . 31
Section 11. Other Officers . . . . . . . . . . . . . . . . . . . . . . . . 32

ARTICLE V - STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 1. Form of Certificates . . . . . . . . . . . . . . . . . . . . . 32
Section 2. Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 3. Lost, Destroyed, Stolen or Mutilated Certificates. . . . . . . 33
Section 4. Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5. Transfer and Registry Agents.. . . . . . . . . . . . . . . . . 35
Section 6. Beneficial Owners. . . . . . . . . . . . . . . . . . . . . . . 35

ARTICLE VI - NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 1. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 2. Waivers of Notice. . . . . . . . . . . . . . . . . . . . . . . 36

ARTICLE VII - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 1. Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 2. Disbursements. . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 3. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . 38

ARTICLE VIII - INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 1. Power to Indemnify in Actions, Suits or Proceedings
Other than Those by or in the Right of the Corporation . . . . 38
Section 2. Power to Indemnify in Actions, Suits or Proceedings by
or in the Right of the Corporation . . . . . . . . . . . . . . 40
Section 3. Authorization of Indemnification . . . . . . . . . . . . . . . 41
Section 4. Good Faith Defined . . . . . . . . . . . . . . . . . . . . . . 42
Section 5. Indemnification by a Court . . . . . . . . . . . . . . . . . . 43
Section 6. Expenses Payable in Advance. . . . . . . . . . . . . . . . . . 44
Section 7. Nonexclusivity of Indemnification and Advancement of
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>

ii
<PAGE>

<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 9. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . 46
Section 10. Survival of Indemnification and Advancement of Expenses. . . . 47
Section 11. Limitation on Indemnification. . . . . . . . . . . . . . . . . 47
Section 12. Indemnification of Employees and Agents. . . . . . . . . . . . 48

ARTICLE IX - AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 1. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 2. Entire Board of Directors. . . . . . . . . . . . . . . . . . . 49
</TABLE>

iii
<PAGE>

AMENDED AND RESTATED

BY-LAWS

AVIS RENT A CAR, INC.

(hereinafter called the "Corporation")

ARTICLE I

OFFICES

Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.

Section 2. Other Offices. The Corporation may also have offices at
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall

<PAGE>

be designated from time to time by the Board of Directors and stated in the
notice of the meeting or in a duly executed waiver of notice thereof.

Section 2. Annual Meetings. The annual meetings of stockholders
shall be held on such date and at such time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect directors, and transact such other
business as may properly be brought before the meeting. Written notice of the
annual meeting stating the place, date and hour of the meeting shall be given to
each stockholder entitled to vote at such meeting not less than ten nor more
than sixty days before the date of the meeting.

Section 3. Special Meetings. Unless otherwise prescribed by law or
by the certificate of incorporation of the Corporation, as amended and restated
from time to time (the "Certificate of Incorporation"), special meetings of
stockholders, for any purpose or purposes, may be called by either (i) the
Chairman of the Board of Directors, (ii) the President, or (iii) the Board of
Directors. Such request shall state the purpose or purposes of the proposed
meeting. At a special meeting of the stockholders, only such business shall be
conducted as

2
<PAGE>

shall be specified in the notice of meeting (or any supplement thereto) given by
or at the direction of the Board of Directors. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting.

Section 4. Quorum. Except as otherwise required by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represent-

3
<PAGE>

ed, any business may be transacted which might have been transacted at the
meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder entitled to vote at the meeting not less than ten nor more than
sixty days before the date of the meeting.

Section 5. Proxies. Any stockholder entitled to vote may do so in
person or by his or her proxy appointed by an instrument in writing subscribed
by such stockholder or by his or her attorney thereunto authorized, delivered to
the Secretary of the meeting; provided, however, that no proxy shall be voted or
acted upon after three years from its date, unless said proxy provides for a
longer period. Without limiting the manner in which a stockholder may authorize
another person or persons to act for him or her as proxy, either of the
following shall constitute a valid means by which a stockholder may grant such
authority:

(i) A stockholder may execute a writing authorizing
another person or persons to act for him or her as proxy. Execution may be
accomplished by the stockholder or his or

4
<PAGE>

her authorized officer, director, employee or agent signing such writing or
causing his or her signature to be affixed to such writing by any
reasonable means, including, but not limited to, by facsimile signature.

(ii) A stockholder may authorize another person or persons
to act for him or her as proxy by transmitting or authorizing the
transmission of a telegram or other means of electronic transmission to the
person who will be the holder of the proxy or to a proxy solicitation firm,
proxy support service organization or like agent duly authorized by the
person who will be the holder of the proxy to receive such transmission,
provided that any such telegram or other means of electronic transmission
must either set forth or be submitted with information from which it can be
determined that the telegram or other electronic transmission was
authorized by the stockholder.

Any copy, facsimile telecommunication or other reliable reproduction of the
writing or transmission authorizing another person or persons to act as proxy
for a stock-

5
<PAGE>

holder may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used; provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of
the entire original writing or transmission.

Section 6. Voting. At all meetings of the stockholders at which a
quorum is present, except as otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the affirmative vote of the holders of a
majority of the total number of votes of the capital stock present in person or
represented by proxy and entitled to vote on such question, voting as a single
class. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his or her discretion,
may require that any votes cast at such meeting shall be cast by written ballot.

Section 7. Nature of Business at Meetings of Stockholders. No
business may be transacted at an annual meeting of stockholders, other than
business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the

6
<PAGE>

Board of Directors (or any duly authorized committee thereof), (b) otherwise
properly brought before the annual meeting by or at the direction of the Board
of Directors (or any duly authorized committee thereof) or (c) otherwise
properly brought before the annual meeting by any stockholder of the Company (i)
who is a stockholder of record on the date of the giving of the notice provided
for in this Section 7 and on the record date for the determination of
stockholders entitled to vote at such annual meeting and (ii) who complies with
the notice procedures set forth in this Section 7.

In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Company.

To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Company not less than sixty (60) days nor more than ninety (90) days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such

7
<PAGE>

anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made, whichever
first occurs.

To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Company which are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.

8
<PAGE>

No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 7, provided, however, that, once business
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 7 shall be deemed to preclude discussion by
any stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.

Section 8. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary

9
<PAGE>

business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.

Section 9. Stock Ledger. The stock ledger of the Corporation shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 8 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.

Section 10. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not

10
<PAGE>

precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors and which record date: (1) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall not be more than sixty nor less than ten days before the date of
such meeting; and (2) in the case of any other action, shall not be more than
sixty days prior to such other action. If no record date is fixed: (1) the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; and (2) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.

11
<PAGE>

Section 11. Inspectors of Election. In advance of any meeting of
stockholders, the Board by resolution or the Chairman or President shall appoint
one or more inspectors of election to act at the meeting and make a written
report thereof. One or more other persons may be designated as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is present, ready and willing to act at a meeting of stockholders, the
Chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Unless otherwise required by law, inspectors may be officers,
employees or agents of the Corporation. Each inspector, before entering upon
the discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspector shall have the duties prescribed by
law and shall take charge of the polls and, when the vote is completed, shall
make a certificate of the result of the vote taken and of such other facts as
may be required by law.

12
<PAGE>

ARTICLE III

DIRECTORS

Section 1. Number and Election of Directors. The Board of Directors
shall consist of ten members. Except as provided in Section 3 of this Article
III, directors shall be elected by the stockholders at the annual meetings of
stockholders, and each director so elected shall hold office until such
director's successor is duly elected and qualified, or until such director's
death, or until such director's earlier resignation or removal. Directors need
not be stockholders.

Section 2. Nomination of Directors. Only persons who are nominated
in accordance with the following procedures shall be eligible for election as
directors of the Company, except as may be otherwise provided in the Certificate
of Incorporation with respect to the right of holders of preferred stock of the
Corporation to nominate and elect a specified number of directors in certain
circumstances. Nominations of persons for election to the Board of Directors
may be made at any annual meeting of stockholders, or at any special meeting of
stockholders called for the purpose of electing directors, (a) by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (b) by any stock-

13
<PAGE>

holder of the Company (i) who is a stockholder of record on the date of the
giving of the notice provided for in this Section 2 and on the record date
for the determination of stockholders entitled to vote at such meeting and
(ii) who complies with the notice procedures set forth in this Section 2.

In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Company.

To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Company (a) in the case of an annual meeting, not less than sixty (60) days nor
more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
that the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting

14
<PAGE>

was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was made, whichever first occurs.

To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Company which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or

15
<PAGE>

series and number of shares of capital stock of the Company which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.

No person shall be eligible for election as a director of the Company
unless nominated in accordance with the procedures set forth in this Section 2.
If the Chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination

16
<PAGE>

was defective and such defective nomination shall be disregarded.

Section 3. Vacancies. Subject to the terms of any one or more
classes or series of preferred stock, any vacancy on the Board of Directors that
results from an increase in the number of directors may be filled by a majority
of the directors then in office, provided that a quorum is present, and any
other vacancy occurring on the Board of Directors may be filled by a majority of
the Board of Directors then in office, even if less than a quorum, or by a sole
remaining director. Notwithstanding the foregoing, whenever the holders of any
one or more class or classes or series of preferred stock of the Corporation
shall have the right, voting separately as a class, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
Certificate of Incorporation.

Section 4. Duties and Powers. The business of the Corporation shall
be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certifi-

17
<PAGE>

cate of Incorporation or by these By-Laws required to be exercised or done by
the stockholders.

Section 5. Organization. At each meeting of the Board of Directors,
the Chairman of the Board of Directors, or, in his or her absence, a director
chosen by a majority of the directors present, shall act as Chairman. The
Secretary of the Corporation shall act as Secretary at each meeting of the Board
of Directors. In case the Secretary shall be absent from any meeting of the
Board of Directors, an Assistant Secretary shall perform the duties of Secretary
at such meeting; and in the absence from any such meeting of the Secretary and
all the Assistant Secretaries, the Chairman of the meeting may appoint any
person to act as Secretary of the meeting.

Section 6. Resignations and Removals of Directors. Any director of
the Corporation may resign at any time, by giving written notice to the Chairman
of the Board of Directors, the President or the Secretary of the Corporation.
Such resignation shall take effect at the time therein specified or, if no time
is specified, immediately; and, unless otherwise specified in such notice, the
acceptance of such resignation shall not be necessary to make it effective.
Except as otherwise required by

18
<PAGE>

law and subject to the rights, if any, of the holders of shares of preferred
stock then outstanding, any director or the entire Board of Directors may be
removed from office at any time, but only for cause, and only by the affirmative
vote of the holders of at least a majority in voting power of the issued and
outstanding capital stock of the Corporation entitled to vote in the election of
directors.

Section 7. Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held at such time
and at such place as may from time to time be determined by the Board of
Directors and, unless required by resolution of the Board of Directors, without
notice. Special meetings of the Board of Directors may be called by the
Chairman of the Board of Directors, the Vice Chairman, if there be one, or a
majority of the directors then in office. Notice thereof stating the place,
date and hour of the meeting shall be given to each director either by mail not
less than forty-eight (48) hours before the date of the meeting, by telephone,
facsimile or telegram on twenty-four (24) hours' notice, or on such shorter
notice as the person or persons calling such

19
<PAGE>

meeting may deem necessary or appropriate in the circumstances.

Section 8. Quorum. Except as may be otherwise required by law, the
Certificate of Incorporation or these By-Laws, at all meetings of the Board of
Directors, a majority of the entire Board of Directors shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.

Section 9. Actions of Board. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.

20
<PAGE>

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

Section 11. Committees. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting,

21
<PAGE>

whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any
absent or disqualified member. Any committee, to the extent permitted by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.

Section 12. Compensation. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary, or such other emoluments as the Board of Directors shall from time to
time determine. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.

Section 13. Interested Directors. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and

22
<PAGE>

any other corporation, partnership, association, or other organization in which
one or more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because such person's or their votes are counted for such
purpose if (i) the material facts as to such person's or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (ii) the material facts as to such person's or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Direc-

23
<PAGE>

tors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting
of the Board of Directors or of a committee which authorizes the contract or
transaction.

ARTICLE IV

OFFICERS

Section 1. General. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Certificate of Incorporation or these By-Laws. The officers of the Corporation
need not be stockholders of the Corporation nor, except in the case of the
Chairman of the Board of Directors, need such officers be directors of the
Corporation.

Section 2. Election. The Board of Directors at its first meeting
held after each Annual Meeting of Stockholders shall elect the officers of the
Corporation

24
<PAGE>

who shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board of
Directors; and all officers of the Corporation shall hold office until their
successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.

Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President and any
such officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the

25
<PAGE>

ownership of such securities and which, as the owner thereof, the Corporation
might have exercised and possessed if present. The Board of Directors may, by
resolution, from time to time confer like powers upon any other person or
persons.

Section 4. Chairman of the Board of Directors. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors shall be the Chief Executive Officer of the Corporation, and except
where by law the signature of the President is required, the Chairman of the
Board of Directors shall possess the same power as the President to sign all
contracts, certificates and other instruments of the Corporation which may be
authorized by the Board of Directors. During the absence or disability of the
President, the Chairman of the Board of Directors shall exercise all the powers
and discharge all the duties of the President. The Chairman of the Board of
Directors shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him or her by these By-Laws or by
the Board of Directors.

Section 5. President. The President shall, subject to the control of
the Board of Directors and, if

26
<PAGE>

there be one, the Chairman of the Board of Directors, have general supervision
of the business of the Corporation and shall see that all orders and resolutions
of the Board of Directors are carried into effect. The President shall execute
all bonds, mortgages, contracts and other instruments of the Corporation
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except that the other
officers of the Corporation may sign and execute documents when so authorized by
these By-Laws, the Board of Directors or the President. In the absence or
disability of the Chairman of the Board of Directors, or if there be none, the
President shall preside at all meetings of the stockholders and the Board of
Directors. If there be no Chairman of the Board of Directors, the President
shall be the Chief Executive Officer of the Corporation. The President shall
also perform such other duties and may exercise such other powers as from time
to time may be assigned to him or her by these By-Laws or by the Board of
Directors.

Section 6. Vice Presidents. At the request of the President or in
his or her absence or in the event of his or her inability or refusal to act
(and if there be no Chairman of the Board of Directors), the Vice Presi-

27
<PAGE>

dent or the Vice Presidents if there is more than one (in the order
designated by the Board of Directors) shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. Each Vice President shall perform
such other duties and have such other powers as the Board of Directors from
time to time may prescribe. If there be no Chairman of the Board of
Directors and no Vice President, the Board of Directors shall designate the
officer of the Corporation who, in the absence of the President or in the
event of the inability or refusal of the President to act, shall perform the
duties of the President, and when so acting, shall have all the powers of and
be subject to all the restrictions upon the President.

Section 7. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be

28
<PAGE>

prescribed by the Board of Directors or President, under whose supervision the
Secretary shall be. If the Secretary shall be unable or shall refuse to cause
to be given notice of all meetings of the stockholders and special meetings of
the Board of Directors, and if there be no Assistant Secretary, then either the
Board of Directors or the President may choose another officer to cause such
notice to be given. The Secretary shall have custody of the seal of the
Corporation and the Secretary or any Assistant Secretary, if there be one, shall
have authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his or her signature. The Secretary shall see that
all books, reports, statements, certificates and other documents and records
required by law to be kept or filed are properly kept or filed, as the case may
be.

Section 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and

29
<PAGE>

shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, the Treasurer shall give the Corporation
a bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the office
of Treasurer and for the restoration to the Corporation, in case of the
Treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in the Treasurer's
possession or under control of the Treasurer belonging to the Corporation.

Section 9. Assistant Secretaries. Except as may be otherwise
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned

30
<PAGE>

to them by the Board of Directors, the President, any Vice President, if there
be one, or the Secretary, and in the absence of the Secretary or in the event of
his or her disability or refusal to act, shall perform the duties of the
Secretary, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Secretary.

Section 10. Assistant Treasurers. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of the Treasurer's disability or refusal to act, shall perform the duties
of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of the office of Assistant
Treasurer and for the restoration to the Corporation, in case of the Assistant
Treasurer's death, resignation, retirement or removal from office, of all

31
<PAGE>

books, papers, vouchers, money and other property of whatever kind in the
Assistant Treasurer's possession or under control of the Assistant Treasurer
belonging to the Corporation.

Section 11. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.

ARTICLE V

STOCK

Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation, (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such holder of stock in the Corporation.

Section 2. Signatures. Any or all of the signatures on a certificate
may be a facsimile. In case

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<PAGE>

any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue.

Section 3. Lost, Destroyed, Stolen or Mutilated Certificates. The
Board of Directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or such person's legal
representative, to advertise the same in such manner as the Board of Directors
shall require and/or to give the Corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.

33
<PAGE>

Section 4. Transfers. Stock of the Corporation shall be transferable
in the manner prescribed by law and in these By-Laws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, properly endorsed for transfer
and payment of all necessary transfer taxes; provided, however, that such
surrender and endorsement or payment of taxes shall not be required in any case
in which the officers of the Corporation shall determine to waive such
requirement. Every certificate exchanged, returned or surrendered to the
Corporation shall be marked "Cancelled," with the date of cancellation, by the
Secretary or Assistant Secretary of the Corporation or the transfer agent
thereof. No transfer of stock shall be valid as against the Corporation for any
purpose until it shall have been entered in the stock records of the Corporation
by an entry showing from and to whom transferred.

Section 5. Transfer and Registry Agents. The Corporation may from
time to time maintain one or more transfer offices or agencies and registry
offices or agencies at such place or places as may be determined from time to
time by the Board of Directors.

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<PAGE>

Section 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.

ARTICLE VI

NOTICES

Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, facsimile, telex or cable.

35
<PAGE>

Section 2. Waivers of Notice.

(a) Whenever any notice is required by law, the Certificate of
Incorporation or these By-Laws, to be given to any director, member of a
committee or stockholder, a waiver thereof in writing, signed, by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting, present by person or represented by proxy, shall constitute a waiver of
notice of such meeting, except where the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.

(b) Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice unless
so required by law, the Certificate of Incorporation or these By-Laws.

36
<PAGE>

ARTICLE VII

GENERAL PROVISIONS

Section 1. Dividends. Subject to the requirements of the GCL and the
provisions of the Certificate of Incorporation, dividends upon the capital stock
of the Corporation may be declared by the Board of Directors at any regular or
special meeting of the Board of Directors, and may be paid in cash, in property,
or in shares of the Corporation's capital stock. Before payment of any
dividend, there may be set aside out of any funds of the Corporation available
for dividends such sum or sums as the Board of Directors from time to time, in
its absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for purchasing any of the shares of capital stock, warrants,
rights, options, bonds, debentures, notes, scrip or other securities or
evidences of indebtedness of the Corporation, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for any other
proper purpose, and the Board of Directors may modify or abolish any such
reserve.

Section 2. Disbursements. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person

37
<PAGE>

or persons as the Board of Directors may from time to time designate.

Section 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.

Section 4. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE VIII

INDEMNIFICATION

Section 1. Power to Indemnify in Actions, Suits or Proceedings Other
than Those by or in the Right of the Corporation. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or

38
<PAGE>

was a director or officer of the Corporation serving at the request of the
Corporation as a director or officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe his or her conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that such person did not
act in good faith and in a manner which such person reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.

Section 2. Power to Indemnify in Actions, Suits or Proceedings by or
in the Right of the Corpora-

39
<PAGE>

tion. Subject to Section 3 of this Article VIII, the Corporation shall
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director or officer of the Corporation, or
is or was a director or officer of the Corporation serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation; except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case,

40
<PAGE>

such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.

Section 3. Authorization of Indemnification. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
To the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such

41
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person in connection therewith, without the necessity of authorization in the
specific case.

Section 4. Good Faith Defined. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his or
her conduct was unlawful, if such person's action is based on the records or
books of account of the Corporation or another enterprise, or on information
supplied to such person by the officers of the Corporation or another enterprise
in the course of their duties, or on the advice of legal counsel for the
Corporation or another enterprise or on information or records given or reports
made to the Corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Corporation or another enterprise. The term "another enterprise" as used in
this Section 4 shall mean any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise of which such person
is or was serving at the request of the

42
<PAGE>

Corporation as a director, officer, employee or agent. The provisions of this
Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Section 1 or 2 of this Article VIII, as the
case may be.

Section 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to the Court of Chancery of the State of Delaware or any other
court of competent jurisdiction in the State of Delaware for indemnification to
the extent otherwise permissible under Sections 1 and 2 of this Article VIII.
The basis of such indemnification by a court shall be a determination by such
court that indemnification of the director or officer is proper in the
circumstances because such person has met the applicable standards of conduct
set forth in Section 1 or 2 of this Article VIII, as the case may be. Neither a
contrary determination in the specific case under Section 3 of this Article VIII
nor the absence of any determination thereunder shall be a defense to such
application or create a presumption that the director or officer seeking

43
<PAGE>

indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.

Section 6. Expenses Payable in Advance. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article VIII.

Section 7. Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation or any By-Law, agreement,
con-

44
<PAGE>

tract, vote of stockholders or disinterested directors or pursuant to the
direction (howsoever embodied) of any court of competent jurisdiction or
otherwise, both as to action in such person's official capacity and as to
action in another capacity while holding such office, it being the policy of
the Corporation that indemnification of the persons specified in Section 1
and 2 of this Article VIII shall be made to the fullest extent permitted by
law. The provisions of this Article VIII shall not be deemed to preclude the
indemnification of any person who is not specified in Section 1 or 2 of this
Article VIII but whom the Corporation has the power or obligation to
indemnify under the provisions of the GCL, or otherwise.

Section 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person's status as
such,

45
<PAGE>

whether or not the Corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article VIII.

Section 9. Certain Definitions. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to

46
<PAGE>

"serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the Corporation"
as referred to in this Article VIII.

Section 10. Survival of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.

Section 11. Limitation on Indemnification. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indem-

47
<PAGE>

nify any director or officer (or his or her heirs, executors or personal or
legal representatives) or advance expenses in connection with a proceeding
(or part thereof) initiated by such person unless such proceeding (or part
thereof) was authorized or consented to by the Board of Directors of the
Corporation.

Section 12. Indemnification of Employees and Agents. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.

ARTICLE IX

AMENDMENTS

Section 1. Amendments. These By-Laws may be altered, amended or
repealed, in whole or in part, or new By-Laws may be adopted by the Board of
Directors or by the stockholders as provided in the Certificate of
Incorporation.

Section 2. Entire Board of Directors. As used in this Article IX and
in these By-Laws generally, the term "entire Board of Directors" means the total
number

48
<PAGE>

of directors which the Corporation would have if there were no vacancies.

<PAGE>

EXHIBIT 5

SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
TEL: (212) 735-3000
FAX: (212) 735-2000

March 2, 1998

Avis Rent A Car, Inc.
900 Old Country Road
Garden City, New York 11530

Re: Avis Rent A Car, Inc.
Registration Statement on Form S-1
----------------------------------

Ladies and Gentlemen:

We have acted as special counsel to Avis Rent A Car, Inc., a
Delaware corporation (the "Company"), and to Cendant Corporation, a Delaware
corporation ("Cendant"), in connection with the public offering by the Company
of up to 5,000,000 shares and with the sale by Cendant of up to 750,000
Shares pursuant to an overallotment option granted by Cendant to the
Underwriters identified below (collectively, the "Shares") of the Company's
Common Stock, par value $.01 per share (the "Common Stock").

This opinion is being furnished in accordance with the requirements
of Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as
amended (the "Act").

In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement on Form S-1 (File No. 333-46737) as filed with the
Securities and Exchange Commission (the "Commission") on February 23, 1998;
(ii) Amendment No. 1 to the Registration Statement to be filed with the
Commission on the date hereof

<PAGE>

Avis Rent A Car, Inc.
March 2, 1998
Page 2

(such Registration Statement, as so amended, being hereinafter referred to as
the "Registration Statement"); (iii) the form of Underwriting Agreement (the
"Underwriting Agreement") proposed to be entered into between the Company, as
issuer, Cendant, as the selling stockholder, and Bear, Stearns & Co. Inc.,
Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
NationsBanc Montgomery Securities LLC, as representatives of the several
underwriters named therein (the "Underwriters"); (iv) a specimen certificate
representing the Common Stock; (v) the Amended and Restated Certificate of
Incorporation of the Company; (vi) the Amended and Restated By-Laws of the
Company; and (vii) certain resolutions of the Board of Directors of the
Company relating to the issuance and sale of the Shares and related matters.
We have also examined originals or copies, certified or otherwise identified
to our satisfaction, of such records of the Company and such agreements,
certificates of public officials, certificates of officers or other
representatives of the Company and others, and such other documents,
certificates and re-

<PAGE>

Avis Rent A Car, Inc.
March 2, 1998
Page 3

cords as we have deemed necessary or appropriate as a basis for the opinions
set forth herein.

In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies
and the authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company and Cendant, we have assumed that such parties had or will have the
power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by all requisite
action, corporate or other, and execution and delivery by such parties of
such documents and the validity and binding effect thereof. As to any facts
material to the opinions expressed herein which we have not independently
established or verified, we have relied upon statements and representations
of officers and other representatives of the Company, Cendant and others.

Members of our firm are admitted to the bar in the State of New
York, and we do not express any opinion as to the laws of any other
jurisdiction other than the Delaware General Corporation Law.

Based upon and subject to the foregoing, we are of the opinion that
when (i) the Registration Statement becomes effective; (ii) the Underwriting
Agreement and the transactions contemplated thereby have been duly authorized
and the Underwriting Agreement has been duly executed and delivered; and (iv)
certificates representing the Shares in the form of the specimen certificates
examined by us have been manually signed by an authorized officer of the
transfer agent and registrar for the Common Stock and registered by such
transfer agent and registrar, and delivered to and paid for by the
Underwriters at a price per share not less than the per share

<PAGE>

Avis Rent A Car, Inc.
March 2, 1998
Page 4

par value of the Common Stock as contemplated by the Undewriting Agreement,
the Shares will have been duly authorized, and the Shares will be validly
issued, fully paid and nonassessable.

We hereby consent to the filing of this opinion with the Commission
as Exhibit 5 to the Registration Statement. We also consent to the reference
to our firm under the caption "Legal Matters" in the Registration Statement.
In giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or
the rules and regulations of the Commission.

Very truly yours,

/s/ Skadden, Arps, Slate, Meagher & Flom LLP

<PAGE>
EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 1 to the Registration Statement No.
333-46737 of Avis Rent A Car, Inc. on Form S-1 of our report dated January 29,
1998 (February 20, 1998 as to Note 19), appearing in the Prospectus, which is
part of this Registration Statement and of our report dated January 29, 1998
(February 20, 1998 as to Note 19) relating to the financial statement schedule
appearing elsewhere in this Registration Statement.

We also consent to the reference to us under the heading "Experts" in such
Prospectus.

/s/ Deloitte & Touche LLP
New York, New York
March 2, 1998

<PAGE>
EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated November 22, 1996, with respect to the financial
statements of The First Gray Line Corporation included in the Registration
Statement (Form S-1 No. 333-46737) and related Prospectus of Avis Rent A Car,
Inc. dated March 2, 1998.

/s/ Ernst & Young LLP

Los Angeles, California
February 27, 1998