AVIS RENT A CAR INC, 424B4, 1998-03-19

AVIS RENT A CAR INC
424B4, 1998-03-19
AUTO RENTAL & LEASING (NO DRIVERS)

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<PAGE>
Filed Pursuant to Rule 424(b)(4)
Registration Nos. 333-46737 and 333-48151
PROSPECTUS

6,000,000 SHARES

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

Of the 6,000,000 shares of Common Stock offered hereby, 5,000,000 shares
will be sold by Avis Rent A Car, Inc. (the "Company") and 1,000,000 shares will
be sold by Cendant Corporation, a Delaware corporation (the "Selling
Stockholder"). SEE "SELLING STOCKHOLDER." The Company will not receive any of
the proceeds from the sale of shares of Common Stock by the Selling Stockholder.

The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "AVI." On March 17, 1998, the last reported sales price of the Common
Stock on the NYSE was $35.44 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 PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)(3) SELLING STOCKHOLDER
<S> <C> <C> <C> <C>
Per Share............... $34.00 $1.615 $32.385 $32.385
Total (3)............... $204,000,000 $9,690,000 $161,925,000 $32,385,000
</TABLE>

(1) See "UNDERWRITING" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses payable by the Company (including expenses of the
Selling Stockholder) estimated at $375,000.
(3) The Company has granted the Underwriters a 30-day option to purchase in the
aggregate up to 900,000 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, Proceeds to Company, and
Proceeds to Selling Stockholder will be $234,600,000, $11,143,500,
$191,071,500, and $32,385,000, 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 March
23, 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 March 17, 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. Cendant is selling 1,000,000 shares
of Common Stock in the offering. Following the offering (assuming the
over-allotment option is not exercised) Cendant will own approximately 20.9% 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

4
<PAGE>
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.

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 which totaled approximately $117 million at January
31, 1998 (the "Hayes Transaction"). It is anticipated that, subject to the
satisfaction or waiver of certain conditions, the Hayes Transaction will close
in the second quarter of 1998. The net proceeds received by the Company 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 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:

Offered by the Company.......... 5,000,000 shares

Offered by the Selling
Stockholder..................... 1,000,000 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 sale of the
5,000,000 shares of Common Stock offered by the Company
are estimated to be approximately $161.6 million ($190.7
million if the Underwriters' over-allotment option is
exercised in full), 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. The Company will not receive
any of the proceeds from the sale of shares of Common
Stock by the Selling Stockholder.

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. Cendant is selling 1,000,000 shares of Common Stock in the
offering. 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
remaining interest, except that each of the Company and Cendant has agreed,
subject to certain exceptions, not to sell or otherwise dispose of any
additional shares of Common Stock until June 15, 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."

YEAR 2000 RISK

The Company has implemented a Year 2000 date conversion program to ensure
that the Company's computer systems and applications will function properly
beyond 1999. The Company believes that it has allocated adequate resources for
this purpose and expects its Year 2000 date conversion program to be
successfully completed on a timely basis. However, there can be no assurance
that this will be the case. 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 ability of third parties with whom the
Company transacts business to adequately address their Year 2000 issues is
outside the Company's control. There can be no assurance that the failure of the
Company or such third parties to adequately address their respective Year 2000
issues will not have an adverse effect on the Company's business, financial
condition and results of operations.

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 sale of the 5,000,000 shares of
Common Stock offered by the Company are estimated to be approximately $161.6
million ($190.7 million if the Underwriters' over-allotment option is exercised
in full), 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. The Company will not receive any of the proceeds from the
sale of shares of Common Stock by the Selling Stockholder.

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 March 17)................................ 38 1/4 27
</TABLE>

On March 17, 1998, the last reported sale price per share of the Common
Stock on the NYSE Composite Tape was $35.44.

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 5,000,000 shares of Common Stock offered hereby by the
Company and application of the estimated net proceeds therefrom as described
under "Use of Proceeds" and the refinancing of fleet related indebtedness in
connection with the Hayes Transaction. 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 $ 556,250
Vehicle Financing--Medium Term Notes................................. 1,650,000 2,250,000
Debt of foreign subsidiaries......................................... 81,708 81,708
Other debt........................................................... 2,914 2,914
--------- ---------
Total debt........................................................... $2,826,422 $2,890,872
--------- ---------

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)............................................. 309 359
Additional paid-in capital........................................... 430,507 592,007
Retained earnings.................................................... 28,294 28,294
Foreign currency translation adjustment.............................. (9,089) (9,089)
--------- ---------
Total stockholders' equity........................................... 450,021 611,571
--------- ---------
Total capitalization............................................... $3,276,443 $3,502,443
--------- ---------
--------- ---------
</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 has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 issue. There can be no guarantee that the systems of other
companies on which the Company's systems rely will be converted timely and would
not have an adverse effect on the Company's systems.

The Company will utilize both internal and external resources to reprogram
or replace, and test the software for Year 2000 modifications. The Company
currently believes that its information systems will be Year 2000 compliant by
first quarter 1999.

27
<PAGE>
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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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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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 received by Company 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

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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 and Chief Executive Officer of the Company
and ARACS since March 1997. From 1995 to March 1997, Mr. Hoenshell was the
principal in his own consulting firm which

41
<PAGE>
focused on future payment technologies. From 1993 to 1995, Mr. Hoenshell was
President of American Express International. From 1990 to 1993, Mr. Hoenshell
was 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 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 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 of the Company 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.

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.

42
<PAGE>
MR. FORSYTHE has been Vice President--Operations U.S. Rent A Car for the
Company and ARACS since 1990. From 1982 until 1990, Mr. Forsythe was Vice
President--Fleet and Vehicle Sales of the Company and ARACS.

MR. COLLINS has been Vice President--International for the Company and 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 and as a director of Avis Europe plc. 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 Leisure, Inc.
Mr. Holmes was a director of AMRE, Inc. within two years prior to Janury 20,
1997 when AMRE, Inc. filed a bankruptcy petition.

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 Chairman and Chief Executive Officer of Avis Europe plc since
February 1988.

MR. COLEMAN has been a Director of the Company since September 1997. 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, New Jersey
Resources, Omnicom Group, Owens-Corning, 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. and a director of
Capital Trust. 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. Ms. Harmon
also serves as a director of North East Insurance Co.

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 Vice Chairman of Bear, Stearns & Co. Inc. since 1997, Chairman
of the Investment Banking Division of Bear, Stearns & Co. Inc. since 1987 and
Senior Managing Director of Bear, Stearns & Co. Inc. since 1985. 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 & Chief Operating Officer 1997 335,000 351,750 -- 533,200 -- 6,197

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(2)................. -- -- -- --
</TABLE>

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

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

(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 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(1)
-------------------------------------------
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.

46
<PAGE>
Pursuant to the terms of an offer letter from Cendant, Mr. Hoenshell is
entitled to an annual base salary of $600,000 and a target bonus of 60%. The
letter does not contain a specified term of employment. However, 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.

Pursuant to the terms of an offer letter from Cendant, Mr. Carley is
entitled to an annual base salary of $250,000 and a target bonus of between 30%
and 40%. The letter does not contain a specified term of employment. However, if
Mr. Carley's employment is terminated other than as a result of death, permanent
disability, voluntary termination, retirement or for cause, Mr. Carley is
entitled to receive a payment equal to the greater of one year's base salary or
the amount to which he is entitled under the then effective severance policy of
the Company.

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

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<PAGE>
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.

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

49
<PAGE>
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.

50
<PAGE>
SELLING STOCKHOLDER

The following table sets forth certain information concerning the beneficial
ownership of Common Stock by the Selling Stockholder as of March 17, 1998 and as
adjusted to reflect the sale in the offering of 1,000,000 shares of Common Stock
offered by the Selling Stockholder. The table does not reflect the possible sale
of additional shares by the Company if the Underwriters' over-allotment option
is exercised in full.

<TABLE>
<CAPTION>
OWNERSHIP PRIOR OWNERSHIP
TO THE OFFERING AFTER THE OFFERING
----------------------------- -----------------------------
NO. OF PERCENT OF NO. OF NO. OF PERCENT OF
SHARES OF COMMON SHARES SHARES OF COMMON
NAME OF BENEFICIAL OWNER COMMON STOCK STOCK BEING OFFERED COMMON STOCK STOCK
- ------------------------------------------- -------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Cendant Corporation........................ 8,500,000 27.5% 1,000,000 7,500,000 20.9%
</TABLE>

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
remaining interest, except that each of the Company and Cendant has agreed,
subject to certain exceptions, not to sell or otherwise dispose of any
additional shares of Common Stock prior to June 15, 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."

RELATIONSHIP WITH CENDANT

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 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

51
<PAGE>
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.

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 will bear interest at a market
rate until paid and will 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

52
<PAGE>
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 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, the Franchisor 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 of 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 the 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 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

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<PAGE>
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.

COMPUTER SERVICES AGREEMENT

The Wizard reservation and rental processing system, together 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. However, 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 recorded
$2.9 million in fees payable to Cendant for the fiscal year ended December 31,
1997.

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<PAGE>
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"), the 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 agreed 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. 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, other than those shares registered pursuant to
this Registration Statement, 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.

Cendant is selling 1,000,000 shares of Common Stock 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

56
<PAGE>
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 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 June 15, 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 and the Selling
Stockholder, subject to the terms and conditions of the Underwriting Agreement,
to purchase from the Company and the Selling Stockholder 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.............................................................................. 1,035,000
Lehman Brothers Inc.................................................................................. 1,035,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................................................... 1,035,000
NationsBanc Montgomery Securities LLC................................................................ 1,035,000

ABN AMRO Chicago Corporation......................................................................... 120,000
BancAmerica Robertson Stephens....................................................................... 120,000
Blaylock & Partners, L.P............................................................................. 120,000
BT Alex. Brown Incorporated.......................................................................... 120,000
Credit Suisse First Boston Corporation............................................................... 120,000
Furman Selz LLC...................................................................................... 120,000
Goldman, Sachs & Co.................................................................................. 120,000
J.P. Morgan Securities Inc........................................................................... 120,000
Smith Barney Inc..................................................................................... 120,000

Allen & Company Incorporated......................................................................... 60,000
Hagerty, Stewart & Associates, Inc................................................................... 60,000
Janney Montgomery Scott Inc.......................................................................... 60,000
Josephthal & Co. Inc................................................................................. 60,000
Ladenburg Thalmann & Co. Inc......................................................................... 60,000
Leerink Swann & Company.............................................................................. 60,000
McDonald & Company Securities, Inc................................................................... 60,000
Raymond James & Associates, Inc...................................................................... 60,000
Stanford Group Company............................................................................... 60,000
Suntrust Equitable Securities........................................................................ 60,000
Sutro & Co. Incorporated............................................................................. 60,000
Tucker Anthony Incorporated.......................................................................... 60,000
Wheat, First Securities, Inc......................................................................... 60,000
----------
Total............................................................................................ 6,000,000
----------
----------
</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 $0.975 per share; that the
Underwriters may allow, and such selected dealers may reallow, a concession to
certain other dealers not to exceed

60
<PAGE>
$0.10 per share; and that after the commencement of the offering, the public
offering price and the concessions may be changed.

The Company has granted the Underwriters an option to purchase in the
aggregate up to 900,000 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 and the Selling Stockholder. 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 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, the Selling Stockholder and
certain of their 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

61
<PAGE>
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.

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 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.

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. ("Hayes") 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>
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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
Selling Stockholder............................ 51
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>

6,000,000 SHARES

[LOGO]

COMMON STOCK

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

PROSPECTUS

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

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

MARCH 17, 1998

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