HERTZ CORP, 424B4, 1997-04-28

HERTZ CORP
424B4, 1997-04-28
AUTO RENTAL & LEASING (NO DRIVERS)

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<PAGE> 1
Pursuant to Rule 424(b)(4)
Registration No. 333-22517
PROSPECTUS

20,010,000 Shares

[HERTZ LOGO]
THE HERTZ CORPORATION
Class A Common Stock
(par value $0.01 per share)

All of the Class A Common Stock offered hereby is being offered by The Hertz
Corporation (the "Company"), which is a wholly-owned subsidiary of Ford Motor
Company ("Ford"). Upon completion of the Offerings, Ford will beneficially own
49.4% of the outstanding Class A Common Stock and 100% of the outstanding shares
of Class B Common Stock of the Company (which has five votes per share), a class
of common stock separate from the Class A Common Stock (which has one vote per
share). Following the Offerings, the outstanding shares of Class A Common Stock
will represent 5.5% of the combined voting power of all classes of voting stock
and 19.1% of the economic interest (or rights of holders of common equity to
participate in distributions in respect of the common equity) in the Company.
The remainder of the voting power and economic interest in the Company will be
beneficially held by Ford. See "Risk Factors -- Control by and Relationship with
Ford" and "Description of Capital Stock".

Of the 20,010,000 shares of Class A Common Stock offered hereby, 18,270,000
shares are being offered initially in the United States and Canada by the U.S.
Underwriters (the "U.S. Underwriters") and 1,740,000 shares are being offered
initially outside the United States and Canada in a concurrent offering by the
International Managers (the "International Managers" and, together with the U.S.
Underwriters, the "Underwriters"). See "Underwriting".

Prior to the Offerings, there has been no public market for the Class A Common
Stock. See "Underwriting" for information relating to the factors considered in
determining the initial public offering price of the Class A Common Stock. The
Class A Common Stock has been approved for listing on the New York Stock
Exchange, upon notice of issuance, under the symbol "HRZ".

Shares of Class A Common Stock are being reserved for sale to certain employees
of the Company and its affiliates at the initial public offering price. See
"Underwriting". Such employees are expected to purchase, in the aggregate, not
more than 10% of the Class A Common Stock offered in the Offerings.

SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.

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>
- --------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $24.00 $1.26 $22.74
- --------------------------------------------------------------------------------------------------------------------
Total (3) $480,240,000 $25,212,600 $455,027,400
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company and Ford have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting".
(2) Before deducting expenses of the Offerings payable by the Company estimated
at $1,059,280, net of expenses of $1,440,720 to be reimbursed by the
Underwriters.
(3) Includes 2,610,000 shares of Class A Common Stock purchased by the
Underwriters pursuant to over-allotment options granted by the Company. See
"Underwriting".

GLOBAL COORDINATOR

J.P. MORGAN & CO.

The shares of Class A Common Stock being offered by this Prospectus are being
offered by the U.S. Underwriters, subject to prior sale, when, as and if
delivered to and accepted by the U.S. Underwriters, and subject to approval of
certain legal matters by Shearman & Sterling, counsel for the Underwriters. It
is expected that delivery of the shares of Class A Common Stock will be made
against payment therefor on or about April 30, 1997 at the offices of J.P.
Morgan Securities Inc., 60 Wall Street, New York, New York.

J.P. MORGAN & CO. GOLDMAN, SACHS & CO.
LEHMAN BROTHERS SALOMON BROTHERS INC SMITH BARNEY INC.

April 24, 1997
<PAGE> 2

CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERINGS,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE CLASS A COMMON STOCK IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".

No person has been authorized to give any information or make any
representations not contained in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any Underwriter. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Class A Common Stock in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation.

No action has been or will be taken in any jurisdiction by the Company or any
Underwriter that would permit a public offering of the Class A Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by the Company and the
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the Class A Common Stock and the distribution of this
Prospectus.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 4
Recent Developments................. 12
Risk Factors........................ 13
Special Note Regarding
Forward-Looking Statements........ 19
The Company......................... 20
Use of Proceeds..................... 22
Dividend Policy..................... 22
Capitalization...................... 23
Selected Consolidated Financial Data
of the Company.................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 26
</TABLE>

<TABLE>
<CAPTION>
Page
<S> <C>
Business............................ 34
Relationship with Ford.............. 58
Management.......................... 63
Ownership of Common Stock........... 74
Description of Capital Stock........ 74
Shares Available for Future Sale.... 79
Description of Certain
Indebtedness...................... 81
Certain United States Tax
Consequences to Non-United States
Holders........................... 83
Underwriting........................ 85
Legal Matters....................... 89
Experts............................. 89
Available Information............... 89
Index to Financial Statements....... F-1
</TABLE>

"Hertz", Hertz Logo, "HERC", "The Source", "H.I.R.E.", "Hertz #1 Club Gold",
"The Hertz #1 Club", and "Hertz NeverLost" are trademarks or service marks of
the Company. All other trademarks, service marks or brand names appearing in
this Prospectus are the property of their respective holders.

The Company intends to furnish its stockholders with annual reports containing
consolidated financial statements certified by an independent public accounting
firm.

3
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless the context otherwise requires,
(i) the "Company" means The Hertz Corporation and its consolidated subsidiaries,
(ii) "Ford" means Ford Motor Company and its consolidated subsidiaries (other
than the Company) and (iii) "cars" mean cars and light trucks. Unless otherwise
defined herein, capitalized terms used in this summary have the respective
meanings ascribed to them elsewhere in this Prospectus.

THE COMPANY

The Company and its affiliates and independent licensees operate what the
Company believes is the largest car rental business in the world based upon
revenues and volume of rental transactions and the largest industrial and
construction equipment rental business in the United States based upon revenues.
The Company's "Hertz" brand name is recognized worldwide as a leader in quality
rental and leasing services and products. The Company, together with its
affiliates and independent licensees, rents and leases cars, rents industrial
and construction equipment and operates its other businesses from approximately
5,500 locations throughout the United States and in approximately 140 foreign
countries and jurisdictions. For the year ended December 31, 1996, the Company
generated record revenues, income before taxes and net income of $3.7 billion,
$256.5 million and $158.6 million, respectively. The Company and its
predecessors have been profitable in every year since 1952, when one of the
Company's predecessors first became a public company.

Car Rental

The Company believes it maintains the largest network of company-owned,
on-airport car rental locations both in the United States and worldwide,
enabling the Company to provide consistent quality, pricing and service
worldwide. The Company derives approximately 77% of its car rental revenues from
on-airport locations. According to information disclosed by the largest 153 U.S.
airports, the Company maintained the leading on-airport car rental market share
at such airports during 1996 of over 30% in terms of revenues and has maintained
market share at approximately this level during each of the last five years.
This market has grown at a compounded annual rate of approximately 11% since
1992 to over $6 billion in revenues in 1996, based on information provided by
such airports. The Company also believes it maintained the leading on-airport
car rental market share in Europe during 1996 of approximately 30% in terms of
revenues. The Company has recently begun to provide replacement car rental
services from off-airport locations under the H.I.R.E. brand name ("Hertz
Insurance Replacement Entity"). The Company estimates that total 1996 revenues
for the car rental industry in the United States were in excess of $14 billion,
and that total 1995 revenues for the car rental industry in Europe were in
excess of $5 billion.

During 1996, approximately 51% of the Company's worldwide car rental revenues
were generated from business travelers and approximately 49% from leisure
travelers. The Company has a worldwide marketing and sales organization of over
800 people focused on both commercial accounts/group sales and the travel
industry, including travel agents, as well as a comprehensive program of retail
and trade advertising, direct mail and other targeted marketing. At December 31,
1996, the Company's business customers included 357 of the Fortune 500
companies. The Company was named a primary supplier to 149 of the 347 Fortune
500 companies who named a primary/secondary supplier. The Company has received
numerous awards and designations around the world for its car rental business
from independent third parties.

The Company's Hertz #1 Club Gold service provides an expedited rental service to
members at approximately 650 locations worldwide. At December 31, 1996, there
were approximately two million active Hertz #1 Club Gold members who accounted
for approximately 35% of the Company's U.S. car rental transactions in 1996.
Through its many travel industry relationships with airlines and hotels, the
Company has targeted the most frequent travelers to become Hertz #1 Club Gold
members.
4
<PAGE> 4

The Company's worldwide car rental operations and certain other activities
generated $3.3 billion in revenue and $165.5 million in income before taxes
during 1996.

Industrial and Construction Equipment Rental

The Company, through its wholly-owned subsidiary, Hertz Equipment Rental
Corporation ("HERC"), believes that it maintains the leading market share in the
U.S. industrial and construction equipment rental market. HERC rents a broad
range of earth moving equipment, materials handling equipment, aerial and
electrical equipment, air compressors, compaction equipment and
construction-related trucks through a network of 120 branch locations. The
Company estimates that 1995 annual revenues for the U.S. equipment rental market
were $15 billion. This market is fragmented with over 7,000 participants and
12,000 locations. According to the Rental Equipment Register, an industry
publication, only 23 of the top 100 equipment rental companies in the United
States had rental revenues in excess of $25 million in 1995.

HERC maintains an established national accounts program with over 1,700
customers who generated 43% of HERC's revenues in 1996. The Company believes
that HERC's fleet is the largest and most modern of its kind in the United
States. As of December 31, 1996, HERC maintained a fleet with an original
investment cost of approximately $908 million and a weighted average age of 19.7
months. HERC generated $392.3 million in revenue and $91.0 million in income
before taxes during 1996.

Strategic Information Systems

Centralized control of major business processes, achieved through the use of the
Company's strategic systems technology, provides the disciplined environment
which enables the Company to deliver consistent quality services at its car
rental and equipment rental operations. The Company maintains real-time
communications with its many locations by means of what it believes is the
largest private data network in the industry. Key components of the Company's
strategic systems include: (i) a global reservations system, which operates
through real-time, on-line centers on five continents, (ii) a yield management
system, which is designed to optimize revenue through controlling,
simultaneously, the availability of various rates as well as the availability of
cars, (iii) a competitive rate detection system, which monitors rate changes and
provides "scouting" routines to identify future rates and (iv) a cost allocation
model, which provides contribution data by location, business segment, car and
equipment category and customer account.

Other

Other activities of the Company include self-insurance operations for both its
car rental and industrial and construction equipment rental businesses, car
leasing operations in certain international markets, the sales of its used cars
and equipment, third party claim management services and telecommunications
services in the United States.
5
<PAGE> 5

BUSINESS STRATEGY

The Company believes that it is well positioned to capitalize upon the growth
opportunities available in both the global car rental and industrial and
construction equipment rental markets. The Company's strategy for continued
growth is to:

Capitalize on the opportunities presented by the changing ownership in the
domestic car rental industry

For the past several years, the car rental industry has experienced an
environment characterized by low price increases that have not kept pace with
rising fleet costs, resulting in significant operating losses for many
competitors in the industry. Management believes that there will be an increase
in industry profitability, in part as a consequence of the recent change in
ownership of many domestic car rental companies. Management intends to
capitalize on this favorable industry environment by selectively increasing
prices and continuing to improve its low cost structure relative to its
competitors.

Leverage the "Hertz" brand name, recognized worldwide, in existing and new
business ventures

The Company believes that the "Hertz" brand name provides an ideal platform to
expand into new ventures. For example, the Company has re-entered the retail
used car sales market. Once the largest retailer of used cars in the United
States, the Company intends to use its recognized brand name and reputation to
offer quality used cars. Key elements of the Company's retail used car sales
strategy include free initial warranty, no-haggle pricing and providing a
complete maintenance history for each car. The Company has 41 used car sales
locations from coast to coast, substantially all of which were profitable in
1996, with a substantial expansion underway for 1997. In 1997, the Company will
pilot a new retail used car sales concept under the "Hertz" brand name offering
a larger selection of used cars.

The Company has also entered the estimated $3.5 billion replacement/local car
rental segment in the United States under the H.I.R.E. brand name and in Europe
under the "Hertz" brand name. The H.I.R.E. business unit currently operates at
50 locations in six states with expansion underway. The Company expects that
H.I.R.E. generally will hold its cars for 18 to 24 months, compared with 5 to 12
months for the Company's domestic car rental business, resulting in lower
monthly holding costs. In Europe, the Company currently operates in the
replacement/local car rental market through its existing suburban car rental
locations. In addition, the Company intends to expand its operations in the
local truck rental market and car leasing business.

Improve operating efficiency and enhance customer service through the continued
use and refinement of strategic information systems

The Company has invested over $600 million during the past five years in
strategic systems and intends to continue to invest in advanced technology. The
Company estimates that this investment has resulted in a reduction in cost
(excluding depreciation of rental cars and related interest expense) per car
rental transaction of approximately 11.3% since 1991. The Company's centralized
reservations system is integrated with its fleet management information systems,
resulting in improved vehicle utilization. This system is being upgraded to a
state of the art, client-server based reservations system. In addition, the
Company's yield management system employs techniques to optimize,
simultaneously, rental rates and car availability. The Company is in the process
of consolidating various European reservations centers into a single facility in
Ireland, resulting in anticipated cost savings while providing uniformly high
quality service. In its industrial and construction equipment rental business,
the use of its strategic information systems enables the Company to monitor
carefully the utilization of equipment by specific operation. Through continued
investments in these systems, the Company believes it will expand its market
share, increase its profitability and sustain its leadership position with
respect to the quality and breadth of services provided to its customers.
6
<PAGE> 6

Maintain consistent quality, pricing and service worldwide through continued
ownership of locations

The Company believes it maintains the largest network of company-owned car
rental locations both in the United States and in Europe. Because of its
extensive ownership base, the Company is capable of capitalizing worldwide on
business from global tourist and travel organizations and multinational
corporations. The Company believes that its extensive worldwide ownership of its
operations contributes to the consistency of its high-quality service, strict
cost control, fleet utilization, yield management, competitive pricing and
ability to offer one-way rentals through its Rent It Here-Leave It There
program. Under appropriate circumstances, the Company also intends to expand
through joint ventures in emerging markets.

Expand the industrial and construction equipment rental business both in the
United States and abroad

The Company believes that HERC, as the largest nationwide provider of industrial
and construction equipment rental services in the United States, is well
positioned to expand through continued growth of its fleet and the opening and
acquisition of new locations. HERC intends to continue to emphasize profitable
expansion through: (i) continuing to focus on low equipment costs through its
status as one of the largest purchasers of new equipment in the United States,
(ii) improving productivity through use of the Company's strategic information
systems, (iii) expanding its used equipment sales operations available for
buyers seeking to purchase well-maintained, late model equipment at competitive
prices, (iv) diversifying its customer base across industry sectors and (v)
capitalizing on the trend of equipment users toward outsourcing to a single
nationwide provider. In addition, HERC intends to expand in international
markets over the long term by applying its successful U.S. operating philosophy.

Achieve superior performance by direct linkage of management compensation to
operating unit performance

All worldwide car rental and equipment rental operating units are managed under
an individual "profit center" philosophy, whereby profit and loss statements are
generated monthly by city. Management incentives are based primarily upon the
financial results of the specific operation managed. Additional consideration is
given for total operating unit and consolidated corporate financial performance.
This "profit center" management is supported and monitored by division and
corporate level management equipped with sophisticated management information
systems which allow detailed review of each operation and business discipline.
7
<PAGE> 7

THE OFFERINGS

<TABLE>
<S> <C>
CLASS A COMMON STOCK OFFERED:
United States Offering.................................... 18,270,000 shares
International Offering.................................... 1,740,000 shares
Total Offerings........................................ 20,010,000 shares
COMMON STOCK OUTSTANDING AFTER THE OFFERINGS(1):
Class A Common Stock...................................... 40,956,858 shares
Class B Common Stock...................................... 67,310,167 shares
Total Common Stock Outstanding......................... 108,267,025 shares
</TABLE>

USE OF PROCEEDS................. The proceeds to the Company from the offering
of the Class A Common Stock in the United
States and Canada (the "U.S. Offering") and
the concurrent offering outside the United
States and Canada (the "International
Offering" and, together with the U.S.
Offering, the "Offerings"), after the
deduction of underwriting discounts and
expenses payable by the Company, are
estimated to be $454 million, substantially
all of which is expected to be used to reduce
short-term indebtedness of the Company. See
"Use of Proceeds".

DIVIDENDS; VOTING RIGHTS;
CONVERSION...................... The holders of Class A Common Stock and Class
B Common Stock (collectively, "Common Stock")
share ratably on a per share basis in all
dividends and other distributions declared by
the Board of Directors; however, the holders
of Class A Common Stock are entitled to one
vote per share and the holders of Class B
Common Stock are entitled to five votes per
share. See "Description of Capital Stock --
Common Stock -- Voting Rights". Under certain
circumstances, shares of Class B Common Stock
convert or are convertible into an equivalent
number of shares of Class A Common Stock. See
"Relationship with Ford" and "Description of
Capital Stock -- Common Stock -- Conversion".

Certain debt instruments to which the Company
is a party restrict the Company's ability to
pay dividends. See "Dividend Policy".

CONTROLLING STOCKHOLDER......... For information regarding the Company's
controlling stockholder, see "Relationship
with Ford" below.

RISK FACTORS.................... For a discussion of certain considerations
relevant to an investment in the Class A
Common Stock, see "Risk Factors".

NYSE SYMBOL FOR CLASS A COMMON
STOCK......................... HRZ
- -------------------------
(1) Includes 701,025 shares of Class A Common Stock issued pursuant to an
employee benefit plan. See "Management -- Long-Term Equity Compensation Plan".
8
<PAGE> 8

DIVIDEND POLICY

The Company's Board of Directors currently intends to declare quarterly
dividends on both the Class A Common Stock and Class B Common Stock. It is
expected that the first quarterly dividend payment will be $0.05 per share (a
rate of $0.20 annually), with the initial dividend to be declared and paid in
the third quarter of 1997. The declaration and payment of dividends by the
Company are subject to the discretion of its Board of Directors. Any
determination as to the payment of dividends will depend upon, among other
things, general business conditions, the Company's financial results,
contractual, legal and regulatory restrictions regarding the payment of
dividends by the Company's subsidiaries, the credit ratings of the Company and
such other factors as the Board of Directors may consider to be relevant.
Certain debt instruments to which the Company is a party restrict the Company's
ability to pay dividends. See "Dividend Policy".

The Company paid no cash dividends to Ford during 1994 and 1996 and paid a cash
dividend on its common stock to Ford of $25 million in 1995. On February 27,
1997, the Company paid a dividend of $460 million on its common stock to Ford in
the form of an intercompany note, which was fully repaid by March 10, 1997. The
dividends historically paid by the Company are not indicative of its future
dividend policy.

RELATIONSHIP WITH FORD

Immediately prior to the Offerings, Ford and a Ford subsidiary will be the only
stockholders of the Company. Upon completion of the Offerings, Ford will
beneficially own 49.4% of the outstanding Class A Common Stock and 100% of the
outstanding Class B Common Stock of the Company (which Class B Common Stock is
entitled to five votes per share on any matter submitted to a vote of the
Company's stockholders). Upon completion of the Offerings, the common stock
beneficially owned by Ford will represent in the aggregate 94.5% of the combined
voting power of all of the Company's outstanding common stock. Accordingly, Ford
will be able to direct the election of all of the members of the Company's Board
of Directors and exercise a controlling influence over the business and affairs
of the Company. Ford has advised the Company that its current intent is to
continue to hold all of the Common Stock beneficially owned by it following the
Offerings. However, Ford is not subject to any contractual obligation to retain
its controlling interest, except that the Company and Ford have agreed, subject
to certain exceptions, not to sell or otherwise dispose of any shares of Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of J.P. Morgan Securities Inc. See "Risk Factors --
Control by and Relationship with Ford", "-- Possible Future Sales of Common
Stock by Ford", "Relationship with Ford" and "Underwriting". From time to time
the Company and Ford have entered into, and can be expected to continue to enter
into, certain agreements and business transactions in the ordinary course of
their respective businesses, and the Company's Restated Certificate of
Incorporation includes certain provisions relating to the Company's relationship
with Ford. See "Relationship with Ford" and "Description of Capital Stock --
Certain Certificate of Incorporation and By-law Provisions -- Corporate
Opportunities".
9
<PAGE> 9

SUMMARY CONSOLIDATED FINANCIAL DATA OF THE COMPANY

The summary consolidated income statement data for each of the years in the
three-year period ended December 31, 1996, and consolidated balance sheet data
as of December 31, 1996 and 1995 presented below were derived from the audited
consolidated financial statements of the Company and the related notes thereto
included in this Prospectus. The summary consolidated income statement data for
each of the years in the two-year period ended December 31, 1993 and
consolidated balance sheet data as of December 31, 1994, 1993 and 1992 presented
below were derived from audited consolidated financial statements of the Company
and the related notes thereto not included in this Prospectus. The financial
data presented below and the related notes thereto should be read in conjunction
with the consolidated financial statements of the Company and the related notes
thereto included in this Prospectus.

<TABLE>
<CAPTION>
----------------------------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Dollars in millions, except per share data
INCOME STATEMENT DATA
Revenues
Car rental.................................................. $3,161.6 $2,911.7 $2,581.2 $2,177.5 $2,124.1
Industrial and construction equipment rental................ 392.3 332.3 263.1 215.8 208.8
Car leasing................................................. 35.4 35.6 231.4 209.3 241.0
Other (a)................................................... 79.0 121.0 218.7 252.2 242.3
-------- -------- -------- -------- --------
Total revenues.......................................... 3,668.3 3,400.6 3,294.4 2,854.8 2,816.2
-------- -------- -------- -------- --------
Expenses
Direct operating............................................ 1,795.1 1,724.8 1,766.2 1,647.1 1,627.5
Depreciation of revenue earning equipment (b)............... 892.7 803.9 702.7 523.9 496.8
Selling, general and administrative......................... 425.2 392.5 385.5 336.0 353.3
Interest, net of interest income of $10.4, $16.8, $7.2,
$11.3 and $3.6............................................ 298.8 307.1 277.2 245.4 306.9
-------- -------- -------- -------- --------
Total expenses.......................................... 3,411.8 3,228.3 3,131.6 2,752.4 2,784.5
-------- -------- -------- -------- --------
Income before income taxes.................................. 256.5 172.3 162.8 102.4 31.7
Provision for taxes on income (c)........................... 97.9 67.1 71.7 49.0 21.7
-------- -------- -------- -------- --------
Income before cumulative effect of change in accounting
principle................................................. 158.6 105.2 91.1 53.4 10.0
Cumulative effect on prior years of change in method of
accounting for postretirement benefits (d)................ -- -- -- -- (4.3)
-------- -------- -------- -------- --------
Net income.................................................. $ 158.6 $ 105.2 $ 91.1 $ 53.4 $ 5.7
======== ======== ======== ======== ========
Pro forma net income per share (e).......................... $ 1.47
========
</TABLE>

<TABLE>
<CAPTION>
----------------------------------------------------
AT DECEMBER 31
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Dollars in millions
BALANCE SHEET DATA
Revenue earning equipment
Cars.................................................. $4,318.3 $3,627.2 $3,854.4 $2,417.0 $1,871.2
Other equipment....................................... 717.4 543.0 406.0 285.5 251.4
Total assets............................................ 7,649.2 6,656.6 6,520.8 4,688.5 4,222.0
Total debt.............................................. 5,091.8 4,297.5 4,413.9 2,940.5 2,549.9
Stockholders' equity.................................... 989.4 836.3 735.9 616.7 579.5
</TABLE>

<TABLE>
<CAPTION>
----------------------------------------------------
YEARS ENDED OR AT DECEMBER 31
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Car rental and other operations:
Number of owned and licensee locations................ 5,435 5,480 5,498 5,594 5,687
Number of owned locations............................. 2,208 2,171 2,254 2,369 2,487
Peak number of owned and licensee cars operated during
period.............................................. 389,000 376,800 378,700 332,500 323,700
Average number of owned cars operated during period... 283,900 263,600 276,100 236,500 230,300
Number of transactions of owned car rental operations
during period (in thousands)........................ 20,110 18,799 17,811 15,623 14,887
Average revenue per transaction of owned car rental
operations during period (in whole dollars)......... $ 157 $ 155 $ 145 $ 139 $ 143
Equipment rental operations:
Number of locations................................... 120 104 95 85 89
Average cost of rental equipment operated during
period (in millions)................................ $ 822.9 $ 650.4 $ 504.1 $ 428.3 $ 423.2
</TABLE>

10
<PAGE> 10

- -------------------------
(a) Includes fees from licensees (other than expense reimbursement from
licensees), revenue from claim management and telecommunications services and,
prior to 1995, revenues from a car dealership operation in Europe.

(b) For 1996, 1995, 1994, 1993 and 1992 includes net credits of $23.2 million,
$6.4 million, $23.0 million, $28.1 million and $16.9 million, respectively,
primarily from net proceeds received in excess of book value on the disposal of
revenue earning equipment. Effective July 1, 1994, certain estimated useful
lives being used to compute the provision for depreciation of revenue earning
equipment used in the industrial and construction equipment rental business were
increased to reflect changes in the estimated residual values to be realized
upon disposal of the equipment. As a result of this change, depreciation of
revenue earning equipment for the year 1995 and the year 1994 decreased by $12.0
million and $9.6 million, respectively.

(c) Includes credits of $13.9 million, $2.0 million and $9.8 million for the
years 1996, 1993 and 1992, respectively, resulting from adjustments made to tax
accruals in connection with tax audit evaluations and the effects of prior
years' tax-sharing arrangements between the Company and its former parent
companies, UAL Corporation ("UAL") and RCA Corporation ("RCA"). For the year
1995, includes $6.5 million of credits relating to foreign taxes which were
offset against U.S. income tax liabilities. For the year 1993, includes a $1.1
million charge relating to the increase in net deferred tax liabilities as of
January 1, 1993 due to changes in the tax laws enacted in August 1993.

(d) Effective January 1, 1992, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other than Pensions, which requires that postretirement
health care and other non-pension benefits be accrued during the years the
employee renders the necessary service.

(e) Based on 108,267,025 shares outstanding after the Offerings. Due to the
changes in the Company's capital structure, historical share and per share data
will not be comparable to, or meaningful in the context of, future periods. See
"Capitalization".
11
<PAGE> 11

RECENT DEVELOPMENTS

Set forth below are unaudited selected consolidated income statement data of the
Company for the three months ended March 31, 1997 and 1996. This information
should be read in conjunction with the consolidated financial statements of the
Company and the related notes thereto included in this Prospectus. This data is
not necessarily indicative of operating results that may be expected for the
full year.

<TABLE>
<CAPTION>
------------------
Three Months Ended
March 31
1997 1996
Dollars in millions, except per share data ------- -------
<S> <C> <C>
INCOME STATEMENT DATA
REVENUES
Car rental.................................................. $758.5 $690.7
Industrial and construction equipment rental................ 90.4 77.1
Car leasing................................................. 11.7 8.7
Other(a).................................................... 17.8 26.6
------ ------
Total revenues......................................... $878.4 $803.1
====== ======
INCOME BEFORE INCOME TAXES.................................. $ 33.9 $ 15.2
====== ======
NET INCOME.................................................. $ 19.7 $ 8.8
====== ======
PRO FORMA NET INCOME PER SHARE(B)........................... $ .18
======
</TABLE>

- -------------------------
(a) Includes fees from licensees (other than expense reimbursement from
licensees) and revenue from claim management and telecommunications services.

(b) Based on 108,267,025 shares outstanding after the Offerings. Due to the
changes in the Company's capital structure, historical share and per share data
will not be comparable to, or meaningful in the context of, future periods. See
"Capitalization".

The Company achieved record revenues of $878.4 million in the first quarter of
1997, which increased by 9.4% from $803.1 million in the first quarter of 1996.

Revenues from car rental operations of $758.5 million in the first quarter of
1997 increased by 9.8% from $690.7 million in the first quarter of 1996. This
increase resulted primarily from an increase in the number of transactions and
revenue per transaction principally in the United States.

Revenues from industrial and construction equipment rental of $90.4 million in
the first quarter of 1997 increased by 17.3% from $77.1 million in the first
quarter of 1996, primarily due to an increase in volume resulting from the
opening of new locations and increased activity in industrial related markets.

Revenues from all other sources of $29.5 million in the first quarter of 1997
decreased by 16.4% from $35.3 million in the first quarter of 1996, primarily
due to lower revenues in claim administration service operations, a large part
of which was sold as of February 29, 1996. This decrease was partly offset by
increased revenues from car leasing operations, primarily due to an acquisition
made in June 1996 of a foreign licensee operation.

The Company achieved record net income of $19.7 million in the first quarter of
1997 representing an increase of 123.9% from $8.8 million in the first quarter
of 1996. This increase was primarily due to higher revenues in the U.S. car
rental operations and a $1.5 million ($0.014 per share) decrease in depreciation
expense, net of taxes, for the industrial and construction equipment rental
business for changes made effective January 1, 1997 to the estimated useful
lives being used to compute depreciation of revenue earning equipment (see Note
7 to the Notes to the Company's consolidated financial statements included in
this Prospectus). This increase in net income was partly offset by (i) a charge
of $0.8 million ($0.008 per share) for the interest expense incurred, net of
taxes, relating to funding the $460 million dividend paid by the Company on its
common stock to Ford in the first quarter of 1997 and other items relating to
the Offerings, (ii) increased costs in the industrial and construction equipment
rental business relating to the additional depreciation for equipment purchased
and other expenses incurred to service new industrial customers and (iii) losses
incurred in a foreign car rental and leasing operation which was acquired from a
licensee in June 1996.

12
<PAGE> 12

RISK FACTORS

The following factors should be carefully considered, together with the
information provided elsewhere in this Prospectus, in evaluating an investment
in the Class A Common Stock offered hereby.

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 the Company
operates. A decline in economic activity either in the United States or in
international markets may adversely affect the Company. In the car rental
business, a decline in economic activity typically results in a decline in both
business and leisure travel, and accordingly a decline in the volume of car
rental transactions. In the equipment rental business, a decline in economic
activity typically results in a decline in activity in construction and other
businesses in which the Company's rental equipment customers operate, and
accordingly a decline in the volume of equipment rental transactions. In the
case of a decline in car and equipment 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 also may have an
adverse effect on residual values realized on the disposition of the Company's
inventory of cars and equipment. At December 31, 1996, the Company was subject
to residual risk with respect to 17% of all cars in its worldwide car rental and
leasing operations and 100% of the equipment in its industrial and construction
equipment rental operations. In the United States, the Company expects the
percentage of its cars which will be subject to residual risk to increase. See
"Business -- Worldwide Car Rental -- Car Acquisition" and "-- Risks Related to
Decreased Acquisition or Disposition of Cars Through Repurchase Programs".

COMPETITION

The markets in which the Company operates are highly competitive. In addition,
recent changes in ownership of a number of domestic car rental companies could
further intensify competition. The Company believes that price is one of the
primary competitive factors in the car and industrial and construction equipment
rental markets. Although the Company believes that the recent ownership changes
in the industry could improve profitability, competitors of the Company, many of
which have access to substantial capital, may seek to compete aggressively on
the basis of pricing. To the extent that the Company matches competitors'
downward pricing, it could have an adverse impact on the Company's results of
operations. To the extent that the Company is not willing to match competitors'
pricing, it could also have an adverse impact on the Company's results of
operations as the Company may lose market share and major corporate accounts.

DEPENDENCE ON AIR TRAVEL INDUSTRY

The Company estimates that approximately 77% of its worldwide car rental
revenues in 1996 were generated at its airport facilities. Significant airfare
increases (e.g., due to an increase in fuel costs) could result in reduced air
travel and have a material adverse effect on the Company's results of
operations. In addition, any event that disrupts or reduces air travel patterns
for a continued period of time could have an adverse effect on the Company's
results of operations. These events could include work stoppages, airline
bankruptcies, military conflicts or terrorist incidents.

LIMITATIONS UPON LIQUIDITY, CAPITAL RAISING AND DIVIDENDS; INTEREST RATE RISK

Potential Restraints upon Liquidity

The Company satisfies its funding requirements principally through sales of
commercial paper, other short-term borrowings primarily from banks, and the
issuance of long-term debt. At December 31, 1996, commercial paper borrowings
and other short-term indebtedness were $2.5 billion. On February 5, 1997,
Standard & Poor's Ratings Group ("S&P") affirmed the Company's short-term

13
<PAGE> 13

credit rating at A-1 and reduced its long-term credit rating from A to A-. On
February 28, 1997, Moody's Investors Service ("Moody's") confirmed the Company's
short-term and long-term credit ratings at P1 and A3, respectively. A further
downgrade of the Company's credit ratings would likely result in an increase in
the Company's funding costs and could, under certain circumstances, have an
adverse impact on the Company's access to the commercial paper and other debt
markets. In the event that the Company is unable to access the commercial paper
markets or otherwise finance its borrowing needs in the public or private
markets upon acceptable terms, it would seek to satisfy its liquidity
requirements through borrowings under its credit facilities or through financing
secured by the Company's revenue earning equipment. At all times during 1996,
the Company had committed credit facilities representing credit support for 100%
of the Company's commercial paper outstanding. At December 31, 1996, the Company
had the capacity to borrow $2.4 billion under these facilities. The Company
intends to continue to maintain committed credit facilities in an amount equal
to 100% of its anticipated commercial paper outstanding from time to time.
However, there can be no assurance that these committed lines would provide
sufficient liquidity to the Company under all conditions. In such circumstances,
the Company may seek to issue equity securities, although, as discussed below,
the Company may be constrained in its ability to do so.

Impact of Relationship with Ford on Capital Raising

Because Ford may choose to maintain its ownership percentage of the Company, the
Company may be constrained in its ability to raise common or preferred equity
capital in the future. In addition, Ford may not be willing to make capital
contributions to the Company in the future. See "Relationship with Ford".

In addition, there can be no assurance that any future downgrading of Ford's
credit ratings would not have an adverse impact on the Company's credit ratings.
Therefore, for so long as Ford maintains a significant interest in the Company,
a deterioration in the financial condition of Ford could have the effect of
increasing the Company's borrowing costs and/or impairing its access to the
capital markets. To the extent the Company does not pass on its increased
borrowing costs to its customers, the Company's profitability, and potentially
its ability to raise capital, could be adversely affected. Also, while no such
agreements or policies are presently contemplated, Ford will have the ability in
the future to enter into agreements or adopt policies which limit the Company's
ability to incur debt. See "Relationship with Ford".

Limitations on Dividends and Other Activities

Certain debt instruments to which the Company is a party restrict the Company's
ability to pay dividends and engage in certain other activities. See "Dividend
Policy" and "Description of Certain Indebtedness".

Interest Rate Risk

While 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, an increase in interest rates may have an adverse impact on
the Company's profitability. In addition, an increase in interest rates may
result in a decline in activity in construction and other businesses in which
the Company's equipment rental customers operate, and accordingly a decline in
the volume of industrial and construction equipment rental transactions. The
Company's total outstanding debt of $5.1 billion at December 31, 1996 included
interest rate sensitive debt of $2.1 billion, which had a weighted average
interest rate of 5.34%, and non-interest rate sensitive debt of $3.0 billion
(either by its original terms or through the use of interest rate derivatives)
which had a weighted average fixed interest rate of 7.35%. During the Company's
seasonal borrowing peak in 1996, outstanding interest rate sensitive debt
totalled $2.6 billion, with a weighted average interest rate of 5.21%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".

14
<PAGE> 14

INCREASED COST OF CARS

In recent years, the average price of new cars has increased. From time to time,
the automobile manufacturers have sponsored sales incentive programs which have
tended to lower the average cost of cars for fleet purchasers such as the
Company. The Company anticipates that new car 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 cars or, that because of
competitive pressures, the Company will be able to pass on the increased cost of
cars to its rental customers.

RISK OF LIMITED SUPPLY OF COMPETITIVELY PRICED CARS

The Company historically has purchased most of its cars used in its car rental
operations from Ford, and expects to continue to do so in the future. Under a
ten-year car supply agreement, commencing September 1, 1997, Ford is obligated
to strive to offer car fleet programs to the Company on terms and conditions
that are competitive with terms and conditions for the supply of cars then being
offered by other automobile manufacturers to the Company and other daily car
rental companies. See "Relationship with Ford -- Car Supply Agreement". If,
however, Ford is not able to offer competitive terms and conditions and the
Company is not able to purchase sufficient quantities of cars from other
automobile manufacturers on competitive terms and conditions, then the Company
may be forced to purchase cars at higher prices or on otherwise less competitive
terms, compared with cars purchased by its competitors. Such a situation could
adversely affect the Company's results of operations through increased car
acquisition and depreciation costs if it is unable to pass on these costs to its
customers through higher pricing.

RISK OF LOSS OF FORD ADVERTISING REIMBURSEMENT

If the Company does not purchase a fixed minimum percentage of its U.S. car
rental fleet from Ford, the Company would not be entitled to reimbursement by
Ford of certain of its advertising costs under an advertising agreement with
Ford. The level of these payments by Ford is substantial, and the loss or
interruption of these payments could adversely affect the Company's results of
operations. See "Business -- Worldwide Car Rental -- Marketing, Sales and
Advertising" and "Relationship with Ford -- Joint Advertising Agreement".

RISKS RELATED TO DECREASED ACQUISITION OR DISPOSITION OF CARS THROUGH REPURCHASE
PROGRAMS

At December 31, 1996, 83% of the cars in the Company's car rental fleet were
subject to repurchase by automobile manufacturers under guaranteed repurchase
programs. Under these programs, automobile manufacturers agree to repurchase
cars at a specified price during established repurchase periods, subject to
certain car condition and mileage requirements. These repurchase programs limit
the risk to the Company that the market value of a car at the time of its
disposition will be less than its estimated residual value at such time
("residual risk"). For this reason, cars purchased by car rental companies under
repurchase programs are sometimes referred to by industry participants as
"non-risk" cars. Conversely, those cars not purchased under repurchase programs
for which the car rental company is exposed to residual risk are sometimes
referred to as "at risk" cars. Repurchase programs enable the Company to
determine its depreciation expense in advance. Depreciation is a significant
cost factor in the Company's operations. The Company expects the percentage of
its car rental fleet subject to repurchase programs to decrease due primarily to
anticipated changes in the terms to be offered by automobile manufacturers under
repurchase programs. The Company believes such terms will encourage the Company
to purchase a larger proportion of cars not subject to repurchase programs.
Accordingly, the Company expects to bear increased risk relating to the residual
market value of its car rental fleet and car depreciation. In addition,
repurchase programs generally provide the Company with flexibility to reduce the
size of its fleet by returning cars sooner and without loss in the event of an
economic downturn. This flexibility will be reduced to the extent the percentage
of non-risk cars in the

15
<PAGE> 15

Company's car rental fleet decreases. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- General" and "Business --
Worldwide Car Rental -- Car Acquisition".

Automobile manufacturers also could modify or eliminate their repurchase
programs or change their return policies (which include condition and mileage
requirements for returned cars) to make it disadvantageous to return certain
cars. Any such modification or elimination would expose the Company to the risks
described in the preceding paragraph.

CONTROL BY AND RELATIONSHIP WITH FORD

Ford is currently the beneficial owner of all of the common stock and preferred
stock of the Company. Upon completion of the Offerings, Ford will beneficially
own 49.4% of the outstanding Class A Common Stock and 100% of the outstanding
Class B Common Stock which will, in the aggregate, represent approximately 94.5%
of the combined voting power of all the outstanding Common Stock. For as long as
Ford continues to beneficially own shares of Common Stock representing more than
50% of the combined voting power of the Common Stock, Ford will be able to
direct the election of all of the members of the Company's Board of Directors
and exercise a controlling influence over the business and affairs of the
Company, including any determinations with respect to mergers or other business
combinations involving the Company, the acquisition or disposition of assets by
the Company, the incurrence of indebtedness by the Company, the issuance of any
additional Common Stock or other equity securities of the Company, the
repurchase or redemption of common stock or preferred stock of the Company and
the payment of dividends with respect to the Common Stock. See "-- Limitations
Upon Liquidity and Capital Raising -- Potential Restraints Upon Liquidity".
Similarly, Ford will have the power to determine matters submitted to a vote of
the Company's stockholders without the consent of the Company's other
stockholders, will have the power to prevent or cause a change in control of the
Company and could take other actions that might be favorable to Ford. In the
foregoing situations or otherwise, various conflicts of interest between the
Company and Ford could arise. Ownership interests of directors or officers of
the Company in common stock of Ford, if any, or service as a director or officer
of both the Company and Ford could create or appear to create potential
conflicts of interest when directors and officers are faced with decisions that
could have different implications for the Company and Ford. The Company's
Restated Certificate of Incorporation will include certain provisions relating
to the allocation of business opportunities that may be suitable for both the
Company and Ford. In addition, under Delaware corporate law, officers and
directors of the Company have fiduciary duties to the Company's stockholders.
See "Relationship with Ford" and "Description of Capital Stock -- Certain
Certificate of Incorporation and By-law Provisions -- Corporate Opportunities".

Beneficial ownership of at least 80% of the total voting power and value of the
outstanding Common Stock is required in order for Ford to continue to include
the Company in its consolidated group for federal income tax purposes, and
beneficial ownership of at least 80% of the total voting power and 80% of each
class of nonvoting capital stock is required in order for Ford to effect a
tax-free spin-off (as defined under "Description of Capital Stock -- Common
Stock -- Conversion") of the Company or certain other tax-free transactions.
Each member of a consolidated group for federal income tax purposes is jointly
and severally liable for the federal income tax liability of each other member
of the consolidated group. Each member of the Ford controlled group, which
includes Ford, the Company and Ford's other subsidiaries, is also jointly and
severally liable for pension and benefit funding and termination liabilities of
other group members, as well as certain benefit plan taxes. Accordingly, the
Company could be liable under such provisions in the event any such liability is
incurred, and not discharged, by any other member of the Ford consolidated or
controlled group. If the Company were no longer to be included in Ford's
consolidated group for federal tax purposes, there is no assurance that the
Company's tax position would not be less favorable than it is at present. See
"Relationship with Ford".

16
<PAGE> 16

In addition, by virtue of its controlling beneficial ownership and the terms of
a tax-sharing agreement between the Company and Ford, Ford effectively controls
all of the Company's tax decisions. Under the tax-sharing agreement, Ford has
sole authority to respond to and conduct all tax proceedings (including tax
audits) relating to the Company's federal and combined state returns, to file
all such returns on behalf of the Company and to determine the amount of the
Company's liability to (or entitlement to payment from) Ford under the
tax-sharing agreement. See "Relationship with Ford -- Tax-Sharing Agreement".
This arrangement may result in conflicts of interests between the Company and
Ford. For example, under the tax-sharing agreement, Ford may choose to contest,
compromise or settle any adjustment or deficiency proposed by the relevant
taxing authority in a manner that may be beneficial to Ford and detrimental to
the Company.

Certain of the Company's airport concession agreements require the consent of
the airport authority in connection with transfers of various percentages of the
Company's common stock. Those consents which are required in connection with the
Offerings have been obtained, other than certain consents the lack of which the
Company does not believe will have a material adverse effect on the Company's
consolidated financial position or results of operations. In the event that Ford
seeks to sell any of its Common Stock following the Offerings, additional
consents will be required.

Certain intercompany agreements and arrangements exist between the Company and
Ford. See "Relationship with Ford". There can be no assurance that the products,
services and other benefits Ford provides to or purchases from the Company under
such agreements will continue to be provided or purchased, and if not, whether,
or on what terms, such products, services or other benefits provided to the
Company could be replicated and sales thereof to Ford replaced. See "-- Risk of
Limited Supply of Competitively Priced Cars" and "-- Risk of Loss of Ford
Advertising Reimbursement".

LIABILITY AND INSURANCE

The Company's businesses expose it to claims for personal injury, death and
property damage resulting from the use of the cars and equipment rented or sold
by the Company and for workers' compensation claims and other employment-related
claims by the Company's employees. The Company generally self-insures up to $5
million per occurrence in the United States, up to $1.5 million per occurrence
in Europe and lower amounts in certain other foreign countries, and maintains
insurance with unaffiliated carriers in excess of such levels up to $450 million
per occurrence or, in the case of Europe, without limits. 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 -- Self Insurance" and "-- Legal Proceedings".

SEASONALITY

In the Company's businesses, the second and third quarters of the year have
historically been the strongest quarters of the year. In 1996, these quarters
accounted for approximately 53.7% of overall revenue and 80.9% of income before
income taxes. As a result, any occurrence that disrupts rental activity during
the second or third quarters could have an adverse effect on the Company's
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources".

ENVIRONMENTAL RISKS

The Company is regulated by federal, state, local and foreign environmental laws
and regulations in connection with its operations, including, among other
things, with respect to the ownership and operation of tanks for the storage of
petroleum products, such as gasoline, diesel fuel and motor and waste oils. A
significant percentage of these tanks are located underground. The Company has

17
<PAGE> 17

established a compliance program for its tanks to ensure that (i) the tanks are
properly registered with the state in which the tanks are located; and (ii) the
tanks have been either upgraded or replaced to meet federal and state leak
detection and spill, overfill and corrosion protection requirements. 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.

The Company has made, and will continue to make, expenditures to comply with
environmental laws and regulations, including, among others, expenditures for
the cleanup of contamination at its owned and leased properties, as well as
contamination at other locations at which the Company's wastes have reportedly
been identified. There can be no assurance that compliance with existing or
future environmental legislation and regulations will not require material
expenditures by the Company or otherwise have an adverse effect on the Company's
operations. See "Business -- Governmental Regulation and Environmental Matters".

FUEL SHORTAGE

The Company's operations, as well as those of its competitors, could be affected
by any limitation in the fuel supply or by any imposition of mandatory
allocation or rationing regulations. In the event of a severe disruption of fuel
supplies resulting from OPEC supply changes, political unrest, war or otherwise,
the operations of all car and equipment rental and leasing companies could be
adversely affected.

POSSIBLE FUTURE SALES OF COMMON STOCK BY FORD

Subject to applicable federal securities laws and the restrictions set forth
below, after completion of the Offerings, Ford may sell any or all of the shares
of the Common Stock beneficially owned by it or distribute any or all of such
shares of Common Stock to its stockholders. Sales or distributions by Ford of
substantial amounts of Common Stock in the public market or to its stockholders,
or the perception that such sales or distribution could occur, could adversely
affect prevailing market prices for the Class A Common Stock. Ford has advised
the Company that its current intent is to continue to hold all of the Common
Stock beneficially owned by it following the Offerings. However, Ford is not
subject to any contractual obligation to retain its controlling interest, except
that Ford and the Company have agreed, subject to certain exceptions, not to
sell or otherwise dispose of any shares of Common Stock for a period of 180 days
after the date of this Prospectus without the prior written consent of J.P.
Morgan Securities Inc. See "Underwriting". As a result, there can be no
assurance concerning the period of time during which Ford will maintain its
beneficial ownership of Common Stock owned by it following the Offerings. Ford
will have registration rights with respect to the shares of the Common Stock
owned by it following the Offerings, which would facilitate any future
disposition. See "-- Control by and Relationship with Ford" above, "Relationship
with Ford -- Corporate Agreement" and "Shares Available for Future Sale".

ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Restated Certificate of Incorporation and
By-laws may render more difficult, or have the effect of discouraging,
unsolicited takeover bids from third parties or the removal of incumbent
management of the Company. See "Description of Capital Stock -- Certain
Certificate of Incorporation and By-law Provisions". Although such provisions do
not have a substantial practical significance to investors while Ford controls
the Company, such provisions could have the effect of depriving stockholders of
an opportunity to sell their shares at a premium over prevailing market prices
should Ford's combined voting power decrease to less than 50%.

18
<PAGE> 18

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" and "Business" including, without limitation, those concerning (i)
the Company's strategy, (ii) the Company's expansion plans for its various
businesses, (iii) the Company's liquidity and capital expenditures, (iv) the
percentage of cars expected to be acquired from Ford in the future, (v) the
terms upon which cars will be acquired, (vi) the development of the Company's
strategic information systems and (vii) the effects on the Company of certain
legal proceedings, 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".

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<PAGE> 19

THE COMPANY

GENERAL

Car Rental

The Company believes it maintains the largest network of company-owned,
on-airport car rental locations both in the United States and worldwide,
enabling the Company to provide consistent quality, pricing and service
worldwide. The Company derives approximately 77% of its car rental revenues from
on-airport locations. According to information disclosed by the largest 153 U.S.
airports, the Company maintained the leading on-airport car rental market share
at such airports during 1996 of over 30% in terms of revenues and has maintained
market share at approximately this level during each of the last five years.
This market has grown at a compounded annual rate of approximately 11% since
1992 to over $6 billion in revenues in 1996, based on information provided by
such airports. The Company also believes it maintained the leading on-airport
car rental market share in Europe during 1996 of approximately 30% in terms of
revenues. The Company has recently begun to provide replacement car rental
services from off-airport locations under the H.I.R.E. brand name. The Company
estimates that total 1996 revenues for the car rental industry in the United
States were in excess of $14 billion, and that total 1995 revenues for the car
rental industry in Europe were in excess of $5 billion.

The Company's worldwide car rental operations and certain other activities
generated $3.3 billion in revenue and $165.5 million in income before taxes
during 1996.

Industrial and Construction Equipment Rental

The Company, through its wholly-owned subsidiary, HERC, believes that it
maintains the leading market share in the U.S. industrial and construction
equipment rental market. HERC rents a broad range of earth moving equipment,
materials handling equipment, aerial and electrical equipment, air

20
<PAGE> 20

compressors, compaction equipment and construction-related trucks through a
network of 120 branch locations. The Company estimates that 1995 annual revenues
for the U.S. equipment rental market were $15 billion. This market is fragmented
with over 7,000 participants and 12,000 locations. According to the Rental
Equipment Register, an industry publication, only 23 of the top 100 equipment
rental companies in the United States had rental revenues in excess of $25
million in 1995.

Strategic Information Systems

Other

The Company, which was incorporated in Delaware in 1967, is a successor to
corporations that have been engaged in the automobile and truck leasing and
rental business since 1918. As a result of a series of transactions in 1993 and
1994, the Company became a wholly-owned subsidiary of Ford. Prior to that time
and until 1987, when Ford first acquired an ownership interest in the Company,
the Company had been a subsidiary of UAL Corporation (formerly Allegis
Corporation) ("UAL"), which had acquired the Company's outstanding capital stock
from RCA Corporation ("RCA") in 1985. See Notes 1, 5 and 7 of the Notes to the
Company's consolidated financial statements included in this Prospectus.

The Company's principal executive offices are located at 225 Brae Boulevard,
Park Ridge, New Jersey 07656, and its telephone number is (201) 307-2000.

21
<PAGE> 21

USE OF PROCEEDS

The proceeds to the Company from the Offerings, after the deduction of
underwriting discounts and expenses payable by the Company, are estimated to be
$454 million, substantially all of which is expected to be used to reduce
short-term indebtedness (commercial paper) of the Company. Such indebtedness
will mature on April 30, 1997 and will have an estimated average interest rate
no greater than 5.50%. The Company increased its outstanding amount of
commercial paper to repay an intercompany note issued by the Company to Ford in
the amount of $460 million. See "Dividend Policy".

DIVIDEND POLICY

Certain debt instruments under which the Company has issued debt securities
restrict the Company's ability to pay dividends. Such restrictions generally
provide that the Company may not pay dividends, invest in its own shares or
permit investments by certain subsidiaries of the Company ("Restricted
Subsidiaries") in the Company's shares subsequent to a specified date if,
together with total investments by the Company and its Restricted Subsidiaries
in subsidiaries that are not Restricted Subsidiaries made subsequent to such
specified date, the aggregate of any such dividends or investments exceeds the
sum of (i) a specified dollar amount, (ii) the aggregate net income of the
Company and its Restricted Subsidiaries earned subsequent to such specified date
and (iii) net proceeds received from capital stock issued subsequent to such
specified date. Immediately following the Offerings, the Company will be
permitted to pay $349 million in dividends under the most restrictive of such
covenants. See "Use of Proceeds" and "Capitalization". The last to mature of the
outstanding securities of the Company containing restrictions on the Company's
ability to pay dividends has a final maturity of November 1, 2009.

22
<PAGE> 22

CAPITALIZATION

The following table sets forth the capitalization of the Company as of December
31, 1996 (i) on an actual basis (first column), (ii) as adjusted (second column)
to give effect to (a) the payment by the Company of a dividend of $460 million
on its common stock to Ford in the form of an intercompany note, (b) the
borrowing of $460 million to repay the intercompany note to Ford and (c) the
issuance to Ford on February 29, 1997 of 1,290 shares of the Company's 5.11%
Cumulative Series C Preferred Stock, $.01 par value per share, for $129 million
and (iii) as adjusted (third column) to give effect to the items set forth in
clause (ii) above and (a) the reclassification of 741 shares of common stock,
par value $1.00 per share, owned by Ford into 67,310,167 shares of Class B
Common Stock, (b) the issuance and sale by the Company of 20,010,000 shares of
Class A Common Stock in the Offerings, (c) the issuance of 701,025 shares of
Class A Common Stock pursuant to an employee benefit plan, (d) the
reclassification of all of the Company's outstanding Preferred Stock, Series A
and Preferred Stock, Series B beneficially owned by Ford into 20,245,833 shares
of Class A Common Stock, (e) the receipt of net proceeds of $454 million from
the sale by the Company of 20,010,000 shares of Class A Common Stock in the
Offerings and the application of such proceeds as set forth under "Use of
Proceeds" and (f) the redemption by the Company of 1,290 shares of its 5.11%
Cumulative Series C Preferred Stock for $129 million. This table should be read
in conjunction with the financial statements and the related notes thereto
contained in the Company's consolidated financial statements included in this
Prospectus.

<TABLE>
<CAPTION>
---------------------------------------------
AS OF DECEMBER 31, 1996
AS ADJUSTED AS ADJUSTED
ACTUAL PRE-OFFERINGS POST-OFFERINGS
---------- ------------- --------------
<S> <C> <C> <C>
Dollars in thousands

The Company's Debt:
Promissory notes, debentures, etc. ................. $3,517,254 $3,977,254 $3,523,286
Subordinated promissory notes
Senior........................................... 149,828 149,828 149,828
Junior........................................... 399,756 399,756 399,756
Debt of the Company's subsidiaries.................... 1,025,006 1,025,006 1,025,006
---------- ---------- ----------
Total debt.......................................... 5,091,844 5,551,844 5,097,876
---------- ---------- ----------
Stockholders' Equity:
Common Stock, par value $1.00 per share, shares
issued -- 200 Class A, 51 Class B and 490 Class
C................................................ 1 1 --
Common Stock, par value $0.01 per share, shares
issued -- 40,956,858 Class A and 67,310,167 Class
B................................................ -- -- 1,083
Preferred Stock --
Series A, 10% cumulative......................... 236,000 236,000 --
Series B, various rates cumulative............... 249,900 249,900 --
Series C, 5.11% cumulative....................... -- (a) --
Additional capital paid-in.......................... 59,008 163,360 973,146
Retained earnings................................... 435,352 -- --
Translation adjustment.............................. 9,129 9,129 9,129
Unrealized holding losses for available-for-sale
securities....................................... (25) (25) (25)
---------- ---------- ----------
Total stockholders' equity.......................... 989,365 658,365 983,333
---------- ---------- ----------
Total capitalization................................ $6,081,209 $6,210,209 $6,081,209
========== ========== ==========
</TABLE>

- -------------------------
(a) Less than $100.

23
<PAGE> 23

SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY

The selected consolidated income statement data for each of the years in the
three-year period ended December 31, 1996, and consolidated balance sheet data
as of December 31, 1996 and 1995 presented below were derived from the audited
consolidated financial statements of the Company and the related notes thereto
included in this Prospectus. The selected consolidated income statement data for
each of the years in the two-year period ended December 31, 1993, and
consolidated balance sheet data as of December 31, 1994, 1993 and 1992 presented
below were derived from audited consolidated financial statements of the Company
and the related notes thereto not included in this Prospectus. The financial
data presented below and the related notes thereto should be read in conjunction
with the consolidated financial statements of the Company and the related notes
thereto included in this Prospectus.

<TABLE>
<CAPTION>
----------------------------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Dollars in millions, except per share data
INCOME STATEMENT DATA
Revenues
Car rental.................................................. $3,161.6 $2,911.7 $2,581.2 $2,177.5 $2,124.1
Industrial and construction equipment rental................ 392.3 332.3 263.1 215.8 208.8
Car leasing................................................. 35.4 35.6 231.4 209.3 241.0
Other (a)................................................... 79.0 121.0 218.7 252.2 242.3
-------- -------- -------- -------- --------
Total revenues.......................................... 3,668.3 3,400.6 3,294.4 2,854.8 2,816.2
-------- -------- -------- -------- --------
Expenses
Direct operating............................................ 1,795.1 1,724.8 1,766.2 1,647.1 1,627.5
Depreciation of revenue earning equipment (b)............... 892.7 803.9 702.7 523.9 496.8
Selling, general and administrative......................... 425.2 392.5 385.5 336.0 353.3
Interest, net of interest income of $10.4, $16.8, $7.2,
$11.3
and $3.6.................................................. 298.8 307.1 277.2 245.4 306.9
-------- -------- -------- -------- --------
Total expenses.......................................... 3,411.8 3,228.3 3,131.6 2,752.4 2,784.5
-------- -------- -------- -------- --------
Income before income taxes.................................. 256.5 172.3 162.8 102.4 31.7
Provision for taxes on income (c)........................... 97.9 67.1 71.7 49.0 21.7
-------- -------- -------- -------- --------
Income before cumulative effect of change in accounting
principle................................................. 158.6 105.2 91.1 53.4 10.0
Cumulative effect on prior years of change in method of
accounting for postretirement benefits (d)................ -- -- -- -- (4.3)
-------- -------- -------- -------- --------
Net income.................................................. $ 158.6 $ 105.2 $ 91.1 $ 53.4 $ 5.7
======== ======== ======== ======== ========
Pro forma net income per share (e).......................... $ 1.47
========
</TABLE>

<TABLE>
<CAPTION>
----------------------------------------------------
YEARS ENDED OR AT DECEMBER 31
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Car rental and other operations:
Number of owned and licensee locations.................... 5,435 5,480 5,498 5,594 5,687
Number of owned locations................................. 2,208 2,171 2,254 2,369 2,487
Peak number of owned and licensee cars operated during
period.................................................. 389,000 376,800 378,700 332,500 323,700
Average number of owned cars operated during period....... 283,900 263,600 276,100 236,500 230,300
Number of transactions of owned car rental operations
during period (in thousands)............................ 20,110 18,799 17,811 15,623 14,887
Average revenue per transaction of owned car rental
operations during period (in whole dollars)............. $ 157 $ 155 $ 145 $ 139 $ 143
Equipment rental operations:
Number of locations....................................... 120 104 95 85 89
Average cost of rental equipment operated during period
(in millions)........................................... $ 822.9 $ 650.4 $ 504.1 $ 428.3 $ 423.2
</TABLE>

24
<PAGE> 24

25
<PAGE> 25

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company is engaged principally in the business of renting and leasing cars
and renting industrial and construction equipment. The Company's revenues
principally are derived from rental and related charges. Revenues consist of:

- Car rental revenues (revenues from all owned car operations,
including loss or collision damage waivers, liability insurance and
other products)

- Industrial and construction equipment rental revenues

- Car leasing revenues

- Other revenues (fees from the Company's licensees, revenues from the
Company's claim management and telecommunications services and,
prior to 1995, a car dealership operation in Europe)

The Company's expenses consist of:

- Direct operating expenses (primarily wages and related benefits;
concessions and commissions paid to airport authorities, travel
agents and others; and other costs relating to the operation and
rental of the revenue earning equipment, such as maintenance and
reservations)

- Depreciation expense relating to revenue earning equipment
(including net gains or losses on the disposal of such equipment).
Revenue earning equipment includes cars and industrial and
construction equipment.

- Selling, general and administrative expenses (including advertising)

- Interest expense relating primarily to the funding of the
acquisition of revenue earning equipment

The Company's profitability is primarily a function of the volume and pricing of
rental transactions and the utilization of cars and equipment. Significant
changes in the purchase price of cars and equipment or interest rates can also
have a significant effect on the Company's profitability, depending on the
ability of the Company to adjust pricing for these changes. The Company's
business requires significant expenditures for cars and equipment, and the
Company consequently requires substantial liquidity to finance such
expenditures.

At December 31, 1996, 83% of the cars in the Company's car rental fleet were
subject to repurchase by automobile manufacturers under guaranteed repurchase
programs pursuant to which automobile manufacturers agree to repurchase cars,
subject to certain car conditions and mileage requirements, at a specified price
after a minimum period of service. In the United States, the Company expects the
percentage of its car rental fleet subject to repurchase programs to decrease.
See "Risk Factors -- Risk of Economic Downturn" and "-- Risks Related to
Decreased Acquisition of Cars Through Repurchase Programs" and "Business --
Worldwide Car Rental -- Car Acquisition". The Company's industrial and
construction equipment rental fleet is not subject to such guaranteed repurchase
programs.

The following discussion and analysis provides information that management
believes to be relevant to understanding the Company's consolidated financial
condition and results of operations. This discussion should be read in
conjunction with the financial statements and the related notes thereto
contained in the Company's consolidated financial statements included in this
Prospectus.

26
<PAGE> 26

RESULTS OF OPERATIONS

The following table sets forth, for each of the years indicated, the percentage
of operating revenues represented by certain items in the Company's consolidated
statement of income:

<TABLE>
<CAPTION>
---------------------------
PERCENTAGE OF REVENUES
YEARS ENDED DECEMBER 31
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Revenues:
Car rental................................................ 86.2% 85.6% 78.4%
Industrial and construction equipment rental.............. 10.7 9.8 8.0
Car leasing............................................... .9 1.0 7.0
Other..................................................... 2.2 3.6 6.6
----- ----- -----
100.0 100.0 100.0
----- ----- -----
Expenses:
Direct operating.......................................... 48.9 50.7 53.6
Depreciation of revenue earning equipment................. 24.3 23.6 21.3
Selling, general and administrative....................... 11.6 11.6 11.7
Interest, net of interest income.......................... 8.2 9.0 8.4
----- ----- -----
93.0 94.9 95.0
----- ----- -----
Income before income taxes.................................. 7.0 5.1 5.0
Provision for taxes on income............................... 2.7 2.0 2.2
----- ----- -----
Net income.................................................. 4.3% 3.1% 2.8%
===== ===== =====
</TABLE>

YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995

Revenues

The Company achieved record revenues of $3,668.3 million in 1996, which
increased by 7.9% from $3,400.6 million in 1995.

Revenues from car rental operations of $3,161.6 million in 1996 increased by
8.6% from $2,911.7 million in 1995. Of this $249.9 million increase,
approximately $210 million resulted from an increase in the number of
transactions both in the United States and international operations and
approximately $40 million resulted from an increase in revenue per transaction
primarily in the United States (revenue per transaction remained substantially
unchanged for the Company's international operations). These increases are net
of a decrease in revenues due to changes in foreign exchange rates.

Revenues from industrial and construction equipment rental of $392.3 million in
1996 increased by 18.1% from $332.3 million in 1995. Of this $60.0 million
increase, approximately $34 million was due to an increase in volume resulting
from the opening of new locations and an acquisition in 1996 and approximately
$26 million was due to increased activity in industrial related markets, both
from new and existing customers.

Revenues from all other sources of $114.4 million in 1996 decreased by 26.9%
from $156.6 million in 1995, primarily due to lower revenues in the Company's
claim administration service operations, a large part of which was sold as of
February 29, 1996.

Expenses

Total expenses of $3,411.8 million in 1996 increased by 5.7% from $3,228.3
million in 1995, although total expenses as a percentage of revenues decreased
to 93.0% in 1996 from 94.9% in 1995.

Direct operating expenses of $1,795.1 million in 1996 increased by 4.1% from
$1,724.8 million in 1995, but were lower in 1996 as a percentage of revenues due
to more efficient fixed cost coverage. Wages and related benefits and
concessions and commissions decreased as a percentage of revenues,

27
<PAGE> 27

partly offset by increased expenses related to the development of the Company's
global reservations and strategic information systems.

Depreciation of revenue earning equipment for the car rental and car leasing
operations of $814.8 million in 1996 increased by 9.2% from $745.9 million in
1995, primarily due to an increase in the number of cars operated and an
increase in the cost of cars acquired in both the United States and
international operations. These increases were partly offset by an improvement
in the net proceeds received in 1996 in excess of book value on the disposal of
the cars (which resulted in a gain of $2.5 million in 1996 as compared to a loss
of $7.5 million in 1995) due to improved market conditions for the sale of used
vehicles.

Depreciation of revenue earning equipment for the industrial and construction
equipment rental operations of $77.9 million in 1996 increased by 34.3% from
$58.0 million in 1995, primarily due to an increase in both the volume and cost
of equipment operated. This increase was partly offset by an improvement in the
net proceeds received in 1996 in excess of book value on the disposal of the
equipment to $20.7 million in 1996 from $13.8 million in 1995 due to an increase
in the volume of equipment sold and improved market conditions for the sale of
used equipment.

In view of the favorable market environment in 1996 and 1995 for the sale of
used equipment in the industrial and construction equipment rental business,
effective January 1, 1997, certain estimated useful lives being used to compute
the provision for depreciation will be increased to reflect the anticipated
changes in the estimated residual values to be realized when the equipment is
sold. This should result in lower annual depreciation charges and lower gains on
the disposal of the used equipment than has been the case in 1996 and 1995.

Selling, general and administrative expenses of $425.2 million in 1996 increased
by 8.3% from $392.5 million in 1995, but remained at 11.6% of revenue. The
increase in 1996 resulted from increases in advertising costs, sales expenses
and general and administrative costs.

Interest expense of $298.8 million in 1996 decreased 2.7% from $307.1 million in
1995, primarily due to lower interest rates in 1996, partially offset by higher
debt levels (which were required to finance growth and increases in the cost of
cars and industrial and construction equipment), and lower interest income
received in 1996 as compared to 1995. See Note 2 to the Notes to the Company's
consolidated financial statements included in this Prospectus.

The tax provision of $97.9 million in 1996 increased 45.9% from $67.1 million in
1995. The effective tax rate in 1996 was 38.2% as compared to 38.9% in 1995.
This change was primarily due to the higher income before income taxes in 1996,
partly offset by a one-time credit of $13.9 million included in 1996. This
credit resulted from adjustments made to tax accruals in connection with tax
audit evaluations and the effects of prior years' tax sharing arrangements
between the Company and its former parent companies. The tax provision in 1995
included $6.5 million of credits relating to foreign taxes paid which were
offset against U.S. income tax liabilities. Reported tax provisions for each of
the years 1996 and 1995 also include a required tax provision of $5.8 million
resulting from the amortization of intangible assets that is not deductible for
tax purposes. See Notes 1, 8 and 12 of the Notes to the Company's consolidated
financial statements included in this Prospectus.

Net Income

The Company achieved record net income of $158.6 million in 1996 representing an
increase of 50.8% from $105.2 million in 1995. This increase was primarily due
to higher revenues in the U.S. car and industrial and construction equipment
rental operations, the tax credit of $13.9 million included in 1996 referred to
above, decreased expenditures in 1996 as a percentage of revenues particularly
in the U.S. car rental operations, partly offset by increased expenditures in
1996 as a percentage of revenues in the international car rental operations.

28
<PAGE> 28

YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994

Revenues

The Company achieved record revenues of $3,400.6 million in 1995, which
increased by 3.2% from $3,294.4 million in 1994.

Revenues from car rental operations of $2,911.7 million in 1995 increased by
12.8% from $2,581.2 million in 1994. Of this $330.5 million increase,
approximately $142 million resulted from an increase in the volume of
transactions and $188 million resulted from an increase in revenue per
transaction, both amounts reflecting favorable changes in foreign exchange
rates.

Revenues from industrial and construction equipment rental of $332.3 million in
1995 increased by 26.3% from $263.1 million in 1994. Of this $69.2 million
increase, approximately $22 million was due to an increase in volume resulting
from the opening of new locations and approximately $47 million was due to
increased activity in industrial related markets both from new and existing
customers.

Revenues from all other sources of $156.6 million in 1995 decreased by 65.2%
from $450.1 million in 1994, primarily due to the sale of the Company's car
leasing and car dealership operations in Europe effective January 1, 1995. See
Note 5 to the Notes to the Company's consolidated financial statements included
in this Prospectus.

Expenses

Total expenses of $3,228.3 million in 1995 increased by 3.1% from $3,131.6
million in 1994. As a percent of revenues total expenses remained substantially
unchanged in 1995 as compared to 1994.

Direct operating expenses of $1,724.8 million in 1995 decreased by 2.3% from
$1,766.2 million in 1994, and as a percentage of revenues to 50.7% in 1995 from
53.6% in 1994. This improvement was principally due to the sale of the Company's
European car leasing and car dealership operations in 1995 and lower costs in
the U.S. car rental operations for public liability and property damage claims,
partly offset by an increase in all other operating costs resulting from the
increase in the volume of business.

Depreciation of revenue earning equipment for the car rental and car leasing
operations of $745.9 million in 1995 increased by 12.5% from $662.9 million in
1994, primarily due to an increase in the cost of cars and lower net proceeds
received in 1995 in excess of book value on the disposal of the cars (which
resulted in a loss of $7.5 million in 1995 as compared to a gain of $9.8 million
in 1994) due to a weak U.S. market for the sale of used cars in 1995. These
increases were partly offset by lower depreciation due to the sale of the
European car leasing operation in 1995.

Depreciation of revenue earning equipment for the industrial and construction
equipment rental operations of $58.0 million in 1995 increased by 45.7% from
$39.8 million in 1994, primarily due to increases in the volume of equipment
operated and the cost of equipment. These increases were partly offset by a
reduction in depreciation of $12.0 million in 1995 due to changes made effective
July 1, 1994 increasing certain useful lives being used to compute the provision
for depreciation to reflect changes in the estimated residual values to be
realized upon disposal of equipment. Gains on the sale of equipment of $13.8
million in 1995 were substantially unchanged from 1994.

Selling, general and administrative expenses of $392.5 million in 1995 increased
by 1.8% from $385.5 million in 1994, remaining substantially the same as a
percentage of revenues. The increase in 1995 resulted from increases in sales
expense, general and administrative costs and advertising expense. These
increases were also partly caused by changes in foreign exchange rates.

Interest expense of $307.1 million in 1995 increased by 10.8% from $277.2
million in 1994, primarily due to higher interest rates and debt levels which
were required to finance growth and increases in the cost of cars and industrial
and construction equipment, partly offset by higher interest income in 1995

29
<PAGE> 29

compared to 1994. See Note 2 to the Notes to the Company's consolidated
financial statements included in this Prospectus.

The tax provision of $67.1 million in 1995 decreased by 6.4% from $71.7 million
in 1994. The effective tax rate in 1995 was 38.9% as compared to 44.0% in 1994.
These decreases were primarily due to $6.5 million of credits in 1995 relating
to foreign taxes paid which were offset against U.S. income tax liabilities,
partly offset by the provision required in 1995 due to higher income before
income taxes. Reported tax provisions for each of the years 1995 and 1994 also
include a required tax provision of $5.8 million resulting from the amortization
of intangible assets that is not deductible for tax purposes. See Notes 1, 8 and
12 of the Notes to the Company's consolidated financial statements included in
this Prospectus.

Net Income

The Company achieved record net income of $105.2 million in 1995 representing an
increase of 15.5% from $91.1 million in 1994. This increase was primarily due to
lower expenses in 1995 as a percentage of revenues in the international car
rental operations principally as a result of the sale of the Company's European
car leasing and car dealership operations in 1995, and higher revenues in the
U.S. industrial and construction equipment rental operations.

LIQUIDITY AND CAPITAL RESOURCES

The Company's domestic and foreign operations are funded by cash provided by
operating activities, and by extensive financing arrangements maintained by the
Company in the United States, Europe, Australia, New Zealand, Canada and Brazil.
The Company's investment grade credit ratings provide it with access to global
capital markets to meet its borrowing needs. On February 5, 1997, S&P affirmed
the Company's short-term credit rating at A-1 and reduced its long-term credit
rating from A to A-. S&P reported that its reduction of the Company's long-term
credit rating reflected the January 1997 announcement by Ford that it was
reviewing strategic options for its investment in the Company, including a
potential partial sale. The Company does not believe that the reduced rating
will have a material adverse effect on the Company's liquidity or consolidated
financial position. On February 28, 1997, Moody's confirmed the Company's
short-term and long-term credit ratings at P1 and A3, respectively. The
Company's primary use of funds is for the acquisition of revenue earning
equipment which consists mainly of cars and industrial and construction
equipment. For the year ended December 31, 1996, the Company's expenditures for
revenue earning equipment were $8,204 million (partially offset by proceeds from
the sale of such equipment of $6,445 million). For 1997, the Company expects its
expenditures for revenue earning equipment (net of proceeds from the sale of
such equipment) to be higher than they were in 1996. These assets are purchased
by the Company in accordance with the terms of programs negotiated with
automobile and equipment manufacturers. Particularly for rental cars, financing
requirements are highly seasonal, typically reaching 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 needs
occurs during the fourth quarter, coinciding with lower levels of fleet and
rental demand. There are well developed methods of disposing of the Company's
used cars and equipment which are capable of accommodating the Company's short
fleet rotation requirements. See "Business -- Worldwide Car Rental -- Used Car
Sales" and "-- Car Acquisition". The Company also makes capital investments for
property and non-revenue earning equipment, although the amount of these
expenditures ($180 million in 1996, and an estimate of up to $250 million in
1997) are substantially lower than the expenditures for revenue earning
equipment. The Company's customer receivables are also liquid with approximately
30 days of total annual sales outstanding.

To finance its domestic requirements, the Company maintains an active commercial
paper program. In July 1996, the seasonal borrowing peak in the 1996 business
cycle, the Company had outstanding $1.9

30
<PAGE> 30

billion of commercial paper. In January 1996, the seasonal borrowing trough, the
outstanding amount was approximately $900 million.

The Company is active in the U.S. domestic medium-term and long-term debt
markets. In recent years, the Company has issued approximately $300 million to
$400 million annually in investment grade medium-term and long-term debt with
various maturities. The proceeds are used for general corporate purposes and to
reduce short-term borrowings. From time to time, the Company files with the
Securities and Exchange Commission shelf registration statements relating to
debt securities to allow for the issuance of unsecured senior, senior
subordinated and junior subordinated debt securities on terms to be determined
at the time the securities are offered for sale. At December 31, 1996, the
Company had available $400 million for issuance under an effective registration
statement. The total amount of medium-term and long-term debt outstanding as of
December 31, 1996 was $2.6 billion with maturities ranging from 1997 to 2009.
This includes $269 million in term loans from Ford, of which $250 million
matures on November 15, 1999 and $19 million matures on July 1, 1997. See Note 2
to the Notes to the Company's consolidated financial statements included in this
Prospectus.

Borrowing for the Company's international operations consists mainly of loans
obtained from local and international banks. All borrowings by international
operations either are in the international operation's local currency or, if in
non-local currency, are fully hedged to minimize foreign exchange exposure. The
Company guarantees only the borrowings of its subsidiaries in Australia and
Canada, which consist principally of commercial paper denominated in local
currency. At December 31, 1996, the total debt for the foreign operations was
$1,025 million, of which $981 million was short-term (original maturity of less
than one year) and $44 million was long-term. At December 31, 1996, the total
amounts outstanding (in millions of U.S. dollars) under the Australian and
Canadian commercial paper programs were $123 and $19, respectively.

At December 31, 1996, the Company had committed bank credit facilities totaling
$2.3 billion. Of this amount, $2.1 billion are represented by a combination of
5-year and 364-day global committed credit facilities provided by 31
relationship banks. In addition to direct borrowings by the Company, these
agreements allow any subsidiary of the Company to borrow under the facilities on
the basis of a guarantee by the Company. The 5-year agreements, totalling $1,185
million, currently expire on June 30, 2001, and the 364-day agreements,
totalling $895 million, expire on June 25, 1997. The 5-year agreements have an
evergreen feature which provides for the automatic extension of the expiration
date one year forward unless timely notice is provided by the bank. The 364-day
agreements permit the Company to convert any amount outstanding prior to
expiration into a two-year term loan. The Company's committed bank credit
facilities provide that if Ford ceases to own, directly or indirectly, capital
stock of the Company having at least 51% of the total voting power of all
capital stock of the Company outstanding, then: (i) certain borrowing rates and,
in respect of certain of the credit facilities, the facility fees will be
determined by a pricing matrix based on the Company's credit ratings, (ii) if
the Company's long-term credit rating declines below A- by S&P and A3 by
Moody's, then the Company will be required to maintain a minimum consolidated
net worth of $500 million and (iii) if the Company's credit rating declines
below BBB+ by S&P and Baa1 by Moody's, then the Company cannot allow its
consolidated senior debt-to-equity ratio to exceed 8.5 to 1.

In addition to these bank credit facilities, in February 1997 Ford extended to
the Company a line of credit of $500 million, expiring June 30, 1999, and the
revolving loan agreement between the Company and Ford dated June 8, 1994 was
terminated. This line of credit has an evergreen feature that provides on an
annual basis for automatic one-year extensions of the expiration date, unless
timely notice is provided by Ford at least one year prior to the then scheduled
expiration date. Following the Offerings, Ford may not be willing to extend
additional credit to the Company, may change or terminate existing credit
facilities it provides to the Company in accordance with their terms or may
limit the ability of the Company to raise additional equity capital. See "Risk
Factors -- Limitations Upon Liquidity, Capital Raising and Dividends; Interest
Rate Risk -- Impact of Relationship with Ford on Capital Raising".

31
<PAGE> 31

The Company intends to continue to maintain committed credit facilities in an
amount equal to 100% of its anticipated commercial paper outstanding from time
to time.

The Company has developed an interest rate risk management policy to protect
itself from fluctuations in interest rates on its short-term debt portfolio and
on its leasing portfolios. The policy is specific as to transaction purpose,
acceptable hedging instruments, approval levels required, counterparty
eligibility and exposure, effectiveness monitoring and documentation standards.
In the United States and Canada, derivatives are used to provide interest rate
protection while accessing short-term funding in the commercial paper markets.
In Australia and New Zealand, where the Company also has leasing businesses,
derivatives are used to effectively match-fund car leases, which have terms from
one to five years, with funding of the same term. As the value of the car on
lease depreciates, the funding supporting the car also decreases. See "Risk
Factors -- Limitations upon Liquidity, Capital Raising and Dividends; Interest
Rate Risk -- Interest Rate Risk".

Interest rate hedges provide the Company with an effective means of minimizing
interest rate risk. The Company has entered into arrangements to manage its
exposure to fluctuations in interest rates. These arrangements consist of
interest-rate swap agreements ("swaps") and forward rate agreements ("FRAs").
The differential paid or received on these agreements is recognized as an
adjustment to interest expense. The purpose and effect of these agreements are
to make the Company less susceptible to changes in interest rates by effectively
converting certain variable rate debt to fixed rate debt. Because of the
relationship of current market rates to historical fixed rates, the effect at
December 31, 1996 of the swap and FRA agreements is to give the Company an
overall effective weighted-average rate on debt of 6.53%, with 41% of debt
effectively subject to variable interest rates, compared to a weighted-average
interest rate on debt of 6.48%, with 49% of debt subject to variable interest
rates when not considering the swap and FRA agreements.

At December 31, 1996, the notional amount of these agreements aggregated $368.4
million of swaps. These notional amounts, however, are not reflective of the
Company's obligations under these agreements because the Company is only
obligated to pay the net amount of the interest rate differential between the
fixed and variable rates specified in the contracts. The Company's exposure to
any credit loss in the event of non-performance by the counterparties is further
mitigated by the fact that all of these financial instruments are with financial
institutions that are rated "A" or better by the major credit rating agencies.
Exposure to individual counterparties is monitored to ensure diversification of
risk. At December 31, 1996, the fair value of all outstanding contracts, which
is representative of the Company's obligations under these contracts, assuming
the contracts were terminated at that date, was approximately a net payable of
$4.0 million. The $368.4 million notional principal matures as follows (in
millions): 1997, $240.7; 1998, $73.3; 1999, $43.4; 2000, $10.7; 2001, $0.2; and
2002, $0.1.

The Company and its subsidiaries have entered into arrangements to manage
exposure to fluctuations in foreign exchange rates for certain foreign currency
loans and selected marketing programs. These arrangements consist of foreign
exchange forward contracts and the purchase of foreign exchange options where
the Company has no risk. At December 31, 1996 the total notional amount of these
instruments was $23.5 million and the fair value of all outstanding contracts,
which is representative of the Company's obligations under these contracts,
assuming the contracts were terminated at that date, was approximately a net
payable of $.1 million.

The Company's decision to withdraw earnings or investments from foreign
countries is, in some cases, influenced by exchange controls and the utilization
of foreign tax credits and may also be affected by fluctuations in exchange
rates for foreign currencies and by revaluation of such currencies in relation
to the U.S. dollar by the governments involved. Foreign operations have been
financed to a substantial extent through loans from local lending sources in the
currency of the countries in which such operations are conducted. Car rental
operations in foreign countries are, from time to time, subject to governmental
regulations imposing varying degrees of currency restrictions. Currency
restrictions and other regulations historically have not had a material impact
on the Company's operations as a whole.

32
<PAGE> 32

In 1997, the Company will commence implementing in all of its strategic
information systems a year 2000 date conversion project to address all necessary
code changes, testing and implementation. Project completion is planned for the
middle of 1999 at an estimated total cost of approximately $15 million.

Car rental is a seasonal business, with decreased travel in both the business
and leisure segments in the winter months and heightened activity during the
spring and summer. To accommodate increased demand, the Company increases its
available fleet and staff during the second and third quarters. As business
demand declines, fleet and staff are decreased as well. However, certain
operating expenses, including rent, insurance, and administrative overhead,
remain fixed and cannot be adjusted for seasonal demand. In certain geographic
markets, the impact of seasonality has been reduced by emphasizing leisure or
business travel in the off-seasons.

The table below shows capital expenditures (net of proceeds received from the
sale of revenue earning equipment) and financial results by quarter for 1996 and
1995.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------
CAPITAL OPERATING
EXPENDITURES INCOME INCOME (LOSS)
(NET OF SALE (PRE-TAX INCOME BEFORE NET
PROCEEDS BEFORE NET INCOME INCOME
RECEIVED) REVENUES INTEREST EXPENSE) TAXES (LOSS)
------------ -------- ----------------- ------------- ------
<S> <C> <C> <C> <C> <C>
Dollars in millions
1996
First Quarter.................. $1,028.1 $ 803.1 $ 82.5 $ 15.2 $ 8.8
Second Quarter................. 1,000.1 911.4 144.3 69.3 39.5
Third Quarter.................. 67.1 1,060.0 219.9 138.2 74.2
Fourth Quarter................. (201.6) 893.8 108.7 33.9 36.1
-------- -------- -------- ------ ------
Total Year................ $1,893.7 $3,668.3 $555.4 $256.6 $158.6
======== ======== ======== ====== ======
1995
First Quarter.................. $ 819.1 $ 735.7 $ 69.7 $ (.7) $ (.3)
Second Quarter................. 1,083.1 858.5 115.1 34.5 19.6
Third Quarter.................. (261.1) 989.8 194.1 109.6 65.1
Fourth Quarter................. (405.2) 816.6 100.5 28.9 20.8
-------- -------- -------- ------ ------
Total Year................ $1,235.9 $3,400.6 $479.4 $172.3 $105.2
======== ======== ======== ====== ======
</TABLE>

NEW ACCOUNTING STANDARD

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("FAS 128"), "Earnings Per Share", which
specifies changes in computing and reporting earnings per share. The adoption of
FAS 128 by the Company in 1997 will not affect the Company's 1996 pro forma net
income per share.

33
<PAGE> 33

BUSINESS

GENERAL

Car Rental

The Company believes it maintains the largest network of company-owned,
on-airport car rental locations both in the United States and worldwide,
enabling the Company to provide consistent quality, pricing and service
worldwide. The Company derives approximately 77% of its car rental revenues from
on-airport locations. According to information disclosed by the largest 153 U.S.
airports, the Company maintained the leading on-airport car rental market share
at such airports during 1996 of over 30% in terms of revenues and has maintained
market share at approximately this level during each of the last five years.
This market has grown at a compounded annual rate of approximately 11% since
1992 to over $6 billion in revenues in 1996, based on information provided by
such airports. The Company also believes it maintained the leading on-airport
car rental market share in Europe during 1996 of approximately 30% in terms of
revenues. The Company has recently begun to provide replacement car rental
services from off-airport locations under the H.I.R.E. brand name. The Company
estimates that total 1996 revenues for the car rental industry in the United
States were in excess of $14 billion, and that total 1995 revenues for the car
rental industry in Europe were in excess of $5 billion.

The Company's worldwide car rental operations and certain other activities
generated $3.3 billion in revenue and $165.5 million in income before taxes
during 1996.

Industrial and Construction Equipment Rental

34
<PAGE> 34

locations. The Company estimates that 1995 annual revenues for the U.S.
equipment rental market were $15 billion. This market is fragmented with over
7,000 participants and 12,000 locations. According to the Rental Equipment
Register, an industry publication, only 23 of the top 100 equipment rental
companies in the United States had rental revenues in excess of $25 million in
1995.

Strategic Information Systems

Other

BUSINESS STRATEGY

Capitalize on the opportunities presented by the changing ownership in the
domestic car rental industry

35
<PAGE> 35

Leverage the "Hertz" brand name, recognized worldwide, in existing and new
business ventures

The Company believes that the "Hertz" brand name provides an ideal platform to
expand into new ventures. For example, the Company has re-entered the retail
used car sales market. Once the largest retailer of used cars in the United
States, the Company intends to use its recognized brand name and reputation to
offer quality used cars. Key elements of the Company's retail used car sales
strategy include free initial warranty, no-haggle pricing and providing a
complete maintenance history for each car. The Company has 41 used car sales
locations from coast to coast, substantially all of which were profitable in
1996 with a substantial expansion underway for 1997. In 1997, the Company will
pilot a new retail used car sales concept under the "Hertz" brand name offering
a larger selection of used cars.

Improve operating efficiency and enhance customer service through the continued
use and refinement of strategic information systems

Maintain consistent quality, pricing and service worldwide through continued
ownership of locations

36
<PAGE> 36

Expand the industrial and construction equipment rental business both in the
United States and abroad

Achieve superior performance by direct linkage of management compensation to
operating unit performance

BUSINESS SEGMENTS

The Company's business consists of two significant segments, car rental and
certain other activities, and the rental of industrial and construction
equipment. Set forth below is certain information with respect to these segments
for the year ended December 31, 1996.

<TABLE>
<CAPTION>
------------------------------------------
YEAR ENDED DECEMBER 31, 1996

INDUSTRIAL
AND
CONSTRUCTION
CAR RENTAL AND EQUIPMENT
OTHER(A) RENTAL
--------------- ------------
AMOUNT % AMOUNT % TOTAL
------ - ------ - -----
<S> <C> <C> <C> <C> <C>
Dollars in millions

Revenues........................................... $ 3,276 89% $ 392 11% $ 3,668
Amortization of intangibles........................ 18 100 -- -- 18
Operating income (pre-tax income before
interest)........................................ 421 76 134 24 555
Income before income taxes......................... 166 65 91 35 257
Revenue earning equipment, net, at end of year..... 4,318 86 718 14 5,036
</TABLE>

- -------------------------
(a) Includes interest and goodwill relating to the acquisition of the Company by
UAL and Park Ridge Corporation.

37
<PAGE> 37

The Company, together with its affiliates and independent licensees, operates in
approximately 5,500 locations throughout the United States and in approximately
140 foreign countries and jurisdictions. Set forth below is certain information
with respect to the Company's U.S. and foreign operations for the year ended
December 31, 1996 (substantially all of the Company's foreign operations consist
of car rental and leasing operations).

<TABLE>
<CAPTION>
----------------------------------------
YEAR ENDED DECEMBER 31, 1996
U.S.(A) FOREIGN
------------- -------------
AMOUNT % AMOUNT % TOTAL
------ - ------ - -----
<S> <C> <C> <C> <C> <C>
Dollars in millions

Revenue............................................. $ 2,723 74% $ 945 26% $3,668
Amortization of intangibles......................... 17 94 1 6 18
Operating income (pre-tax income before interest)... 451 81 104 19 555
Income before income taxes.......................... 196 76 61 24 257
Revenue earning equipment, net, at end of year...... 3,997 79 1,039 21 5,036
</TABLE>

- -------------------------
(a) Includes interest and goodwill relating to the acquisition of the Company by
UAL and Park Ridge Corporation.

38
<PAGE> 38

WORLDWIDE CAR RENTAL

Industry Overview

The car rental industry provides car rentals to business and individual
customers worldwide. The car rental industry has been significantly influenced
by general economic conditions as well as developments in the travel industry,
particularly air carrier passenger traffic. Historically, the car rental
industry has been highly seasonal. A significant proportion of the industry's
annual profitability has come during the second and third quarters when leisure
and business travel are at their peak. The industry derives the majority of its
revenues from car rentals and ancillary products such as insurance, refueling
charges, inter-city drop-off charges and loss-damage waivers. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources".

United States. The Company believes that total annual U.S. revenues for the car
rental industry were in excess of $14 billion for 1996. The U.S. market includes
five major car rental companies serving primarily airport and near airport
locations (the Company, Avis, Inc. ("Avis"), Budget Rent a Car Corporation
("Budget"), National Car Rental System Inc. ("National") and Alamo Rent-A-Car,
Inc. ("Alamo")), one major company serving non-airport locations (Enterprise
Rent-A-Car Company ("Enterprise")) and numerous smaller companies that operate
predominantly in non-airport locations. The major companies operate to varying
degrees through wholly-owned operations, and most have some franchised
operations.

Set forth below are the on-airport market shares of the major car rental
companies at the largest 153 airports in the United States that report
concessionable revenues (i.e., revenues on which airport authorities assess fees
from car rental companies) for the periods indicated:

<TABLE>
<CAPTION>
------------------------------------------
ELEVEN
MONTHS
ENDED
NOVEMBER 30 YEAR ENDED DECEMBER 31
1996 1995 1994 1993
----------- ----- ----- -----
<S> <C> <C> <C> <C>
Hertz................................... 30.2% 30.4% 30.6% 29.1%
Avis.................................... 23.7 22.6 21.9 23.6
National................................ 16.2 15.3 13.8 13.5
Budget.................................. 11.2 12.6 13.9 14.3
Alamo................................... 10.8 11.1 11.0 9.3
Others.................................. 7.9 8.0 8.8 10.2
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>

The Company believes that car rentals at airports account for the largest
portion of car rentals in the United States. According to information disclosed
by major U.S. airports, the U.S. on-airport car rental market for the largest
153 airports has grown at a compounded annual rate of approximately 11% since
1992 to over $6 billion in revenues in 1996. The Company believes that, while
rental patterns vary among individual airports, car renters at major U.S.
airports taken as a whole are generally evenly divided between business
travelers and leisure travelers seeking cars for ground travel to vacation
destinations and for weekend use. In addition, the Company believes that car
renters at non-airport locations are generally local residents requiring a
temporary replacement car for their own car while it is being repaired and, to a
lesser extent, local residents seeking the use of a car for leisure or other
purposes.

Since the late 1980s, car rental companies have acquired cars pursuant to
various fleet repurchase programs established by automobile manufacturers under
which the automobile manufacturers agree to repurchase cars at a specific price
during established repurchase periods, subject to certain vehicle condition and
mileage requirements. Repurchase prices under the repurchase programs are based
on either (i) a predetermined percentage of original car cost and the month in
which the car is returned or (ii) the original capitalization cost less a set
daily depreciation amount. These repurchase programs limit a car rental
company's residual risk with respect to cars purchased under the programs. This
enables car rental companies to determine depreciation expense in advance. The
Company believes that most

39
<PAGE> 39

cars in the fleets of U.S. car rental companies are these "non-risk" cars. See
"Risk Factors -- Risks Related to Decreased Acquisition or Disposition of Cars
Through Repurchase Programs".

The U.S. car rental industry is recovering from a difficult period, which has
been characterized by substantially rising fleet costs and significant pricing
pressure. In the early 1990s, car rental companies benefited from incentives to
purchase cars provided by automobile manufacturers that desired an additional
distribution outlet for their products. Automobile manufacturers pursued this
outlet as a result of overcapacity and decreased new car demand that prevailed
at the time. These incentives allowed car rental companies to expand
significantly the size of their fleets at relatively low cost and with high cash
incentives. However, an oversupply condition was created within the car rental
industry as a result of these increased fleet sizes. This acted to intensify
competition and depress industry-wide pricing. As general economic conditions in
the United States improved during the years 1992 through 1994, fleet costs
significantly increased. Continued competition inhibited corresponding increases
in average daily rental rates, which had an adverse effect on industry-wide
profitability.

The Company believes that, recently, the U.S. car rental industry has
experienced increases in profitability. Average daily rental rates have
increased as oversupply conditions have been reduced.

Significant changes in the ownership of participants in the domestic car rental
industry have occurred over the past year. HFS, Inc. purchased Avis, Republic
Industries acquired Alamo and National and Team Rental Group, Inc. has reached
an agreement to acquire Budget. The Company believes that these companies will
be increasingly focused on profitability, resulting in increased prices in the
United States.

International. The European market represents the majority of the car rental
industry's revenues outside the United States. The three largest European
markets are France, Germany and the United Kingdom. The Company estimates that
the total 1995 revenues for the car rental industry in Europe were in excess of
$5 billion. The European market consists of a number of worldwide and European
participants, including owned and franchised locations of some of the major U.S.
car rental companies and a number of European companies, including Sixt AG
(Budget), Europcar and EuroDollar. Similar to the U.S. market, the European car
rental industry is characterized by intense competition. Pricing pressure
continues to inhibit increases in average daily rental rates. The industry has
experienced significant growth in the leisure sector due to developing airline
deregulation in the Pan-European market. The Company believes that the leisure
market currently represents approximately 45% of the European market based on
revenues. European car rental companies purchase their fleets from a larger
number of automobile manufacturers than in the United States. These
manufacturers have substantial production capacity, resulting in intense
competition and favorable pricing of cars for car rental companies in recent
years.

Other significant international car rental markets in which the Company competes
include Australia, Canada, New Zealand, Puerto Rico and Brazil.

U.S. Operations

Car Rental. The Company provides car rental services throughout the United
States in or around all major U.S. cities and operates a nationwide, toll-free
reservations system. Car rental facilities are operated at all major airports
and in the central business districts and key suburban commercial centers in
major U.S. cities. The Company estimates that airport revenues accounted for
approximately 84% of its car rental revenues in the United States in 1996. The
Company also maintains arrangements with selected hotels and railroad terminals
to facilitate car rentals at such locations.

The Company uses a wide variety of makes and models of cars for daily rental
purposes, nearly all of which are current year or the previous year's models.
The Company rents cars on a daily, weekend, weekly or monthly basis, with rental
charges computed on a limited or unlimited mileage rate, or on a time rate plus
a mileage charge. The Company's rates vary at different locations depending on
local market, competitive and cost factors, and virtually all rentals are made
utilizing rate plans under which the customer is responsible for gasoline used
during the rental. In addition to car rentals and licensee

40
<PAGE> 40

fees, the Company generates revenues from providing customers with ancillary
products and services such as Hertz #1 Club Gold, the Company's Rent It
Here-Leave It There program, supplemental equipment (child seats, ski racks and
portable cellular phones), loss or collision damage waiver, liability insurance
and personal effects coverage, Hertz NeverLost and gasoline payment options.

For the year ended December 31, 1996, the Company conducted operations through
approximately 700 owned locations. Company-owned locations are those locations
through which the Company rents cars which it owns, as compared to licensee
locations through which licensees rent cars that they own. The Company believes
that its extensive worldwide ownership of its operations contributes to the
consistency of its high-quality service, strict cost control, fleet utilization,
yield management, competitive pricing and the Company's ability to offer one-way
rentals through its Rent It Here-Leave It There program. However, in certain
smaller domestic markets, the Company has found it more efficient to operate
through licensees. Domestic licensee locations numbered approximately 400 at
December 31, 1996. Together with its licensees, the Company operated a peak
domestic fleet of more than 242,000 cars in 1996. At December 31, 1996, the
Company owned 94% of all the cars in the combined company-owned and licensee
fleet.

The Company has concession agreements at over 200 airports in the United States.
These agreements are entered into with airport authorities, either through
negotiation or a bidding process, for a fixed number of car rental counter
positions. The agreements typically provide for concession payments based upon a
specified percentage of revenue generated at the airport, subject to a minimum
annual fee, and sometimes include fixed rent for terminal counters or other
leased properties and facilities.

The Company maintains automobile maintenance centers at certain airports and in
certain urban and suburban areas, providing maintenance facilities for the
Company's rental fleet. Many of these facilities, which include sophisticated
car diagnostic and repair equipment, are accepted by automobile manufacturers as
eligible to perform and receive reimbursement for warranty work. Collision
damage and major repairs are generally performed by independent contractors.

The Company believes its U.S. operations are supported by competitively superior
information systems and product delivery. The Company's global reservations
system operates through real-time, on-line centers on five continents. Among
other advantages, this advanced reservations system allows customers throughout
the world to book reservations for rentals at any location worldwide. See "--
Strategic Information Systems". An example of the Company's differentiated
product delivery is its Hertz #1 Club Gold canopied service operated at 38
airports in the United States. This service permits members to bypass the rental
counter and proceed directly to a weather-protected canopied area. In addition,
there are over 200 locations with expedited Gold counter service. See "--
Services Provided -- Hertz #1 Club Gold".

H.I.R.E. -- Insurance Replacement. The Company, under the H.I.R.E. brand name,
provides replacement car rental services primarily to local customers in the
United States whose automobiles are out of service, generally due to an
accident, theft or mechanical problem. A high percentage of these rentals are
referrals from insurance companies, which generally pay for all or a significant
portion of the cost of such rentals.

The Company believes that the insurance replacement business, particularly
because of its lower cost base (resulting from the longer average vehicle
holding periods and other factors) and longer average rental transaction
lengths, represents a significant opportunity for the Company without diluting
penetration in its traditional customer base. By leveraging the Company's brand
name and systems, H.I.R.E. is well positioned for expansion. H.I.R.E. commenced
rental operations in July 1995 and currently operates 50 rental locations in six
states, utilizing a total fleet of approximately 2,600 cars. By December 31,
1997, the Company expects that H.I.R.E. will operate through more than 80
locations with approximately 6,000 cars. The Company intends to capitalize on
agreements with major insurance carriers which are in the process of being
negotiated, and its own sales, technology and marketing expertise to increase
its market share.

41
<PAGE> 41

H.I.R.E. rents cars on a daily, weekend, weekly or monthly basis and derives
additional revenues from the sale of loss or collision damage waivers and
gasoline payment options. Rates vary at different locations depending on local
market conditions and competitive factors. H.I.R.E.'s operations are subject to
seasonal fluctuation, with greater activity occurring during the summer months
because of heavier driving activity and the winter months because of hazardous
driving conditions. H.I.R.E. generally will hold its cars for 18 to 24 months,
compared with 5 to 12 months for the Company's domestic car rental business,
resulting in lower monthly holding costs. H.I.R.E. operates a fleet of
predominantly "at risk" cars and disposes of these cars through the Company's
retail sales operations and auctions. See "-- Used Car Sales".

International Operations

At December 31, 1996 the Company, together with its affiliates and licensees,
operated in approximately 140 foreign countries and jurisdictions. Outside the
United States, and primarily in Europe, the Company operates through
approximately 1,450 locations owned by the Company and 2,410 licensee locations,
and during 1996, operated a combined peak fleet of approximately 147,000 cars.
In general, international operations are conducted similarly to those of the
Company in the United States. Although the Company has found it more efficient
to conduct a greater proportion of its international operations through
licensees as compared to the Company's U.S. operations, it continues to conduct
its operations primarily through Company-owned locations in the major European
markets. The international car rental operations of the Company that generated
the highest volumes of business in 1996 were those conducted in France, Germany,
the United Kingdom, Italy, Canada, Spain, Australia and Switzerland. In
addition, the Company owns operations in Puerto Rico, St. Thomas, New Zealand,
Brazil, Belgium, Denmark, Luxembourg, The Netherlands, Norway and Portugal. The
Company believes that, as in the United States, it maintains the leading airport
car rental market share in Europe with a 1996 market share of approximately 30%
in terms of revenues.

As in the United States, the Company offers Hertz #1 Club Gold service at most
major airport locations within Europe, Canada, Australia and New Zealand. The
Company's global reservations system allows customers worldwide to book
reservations in any of the Company's worldwide markets. Additionally, a local or
toll-free telephone number is offered in all major foreign countries which
provides access to the Company's global reservations system.

Services Provided

The Company offers a wide array of services to its customers, subject to varying
conditions, that provide added value to its core service of renting cars. These
services include:

Hertz #1 Club Gold. The Company provides an expedited rental service that
permits members of this service to bypass the rental counter, board the
Company's bus and proceed directly to a weather-protected Hertz #1 Club Gold
canopied area at 38 U.S. airports and Heathrow International Airport in the
United Kingdom. Once at the canopied area the member's name appears in lights on
an electronic sign board which directs the member to his or her car. At over 600
additional locations, expedited Gold counter service is available where canopied
service is not. Since its introduction, Hertz #1 Club Gold has grown to
approximately 650 locations in North America, Europe, Australia and New Zealand.
As a significant source of business, Hertz #1 Club Gold service provides product
differentiation and complements the Company's many other services. The Company
has spent approximately $175 million in developing its Hertz #1 Club Gold
Service. At December 31, 1996, there were approximately two million active Hertz
#1 Club Gold members who accounted for approximately 35% of the Company's U.S.
car rental transactions in 1996. Through its many travel industry relationships
with airlines and hotels, the Company has targeted the most frequent travelers
to become Hertz #1 Club Gold members.

The Hertz #1 Club. As a complimentary service, the Company maintains a
computerized profile of customer car rental preferences for its members. By
providing their personal Hertz #1 Club

42
<PAGE> 42

identification numbers at the time of reservation, customers can save valuable
time at the rental counter.

Global Reservations System. An advanced reservations system allows customers
throughout the world to book reservations worldwide where the Company, its
affiliates or its licensees maintain operations. In the United States and
certain foreign countries, this service is provided toll-free or as a local
call. This system permits travel agents and certain airline reservation agents
to book reservations directly through their systems. The Company's Internet
Website has recently become fully interactive allowing customers to book
reservations electronically on their own.

Instant Return. At over 110 of its airport locations in the United States,
Europe and Australia, the Company offers customers instant return service. At
the point where the car is returned, a Company representative meets the customer
at the car, and provides the customer with a final receipt from a hand-held
computer terminal.

Rent It Here-Leave It There. The Company and its licensees offer customers in
most parts of the world the convenience of leaving a rented car at a Company or
licensee location other than the one from which it was rented. Depending upon
rental location and distance driven, a drop-off charge or a special inter-city
rate may be imposed if the car is not returned to the same location from which
it was rented.

Supplemental Equipment. For an additional charge, the Company offers
supplemental equipment to complement the rental car. Available equipment
includes such items as child seats, ski racks and portable cellular phones. In
addition, the Company offers hand control-equipped cars for the physically
challenged at no extra charge.

Optional Services. At the time of rental, subject to applicable local law, the
Company offers renters the opportunity to purchase optional services such as
Loss Damage Waiver (LDW), Collision Damage Waiver (CDW), Liability Insurance
Supplement (LIS) and combined Personal Accident Insurance and Personal Effects
Coverage (PAI and PEC). These optional services, available for an additional
daily fee, provide additional financial protection for renters and their
passengers. LDW and CDW waive the renter's responsibility to the Company for
loss of or damage to the car while on rental. LIS provides primary liability
coverage from an insurance carrier for protection against third party claims, in
most cases, up to a $1 million combined single limit. PAI and PEC provide
coverage from an insurance carrier for loss of or damage to covered personal
effects as well as accidental injury or death benefits to covered persons.

Computerized Driving Directions. At many locations in North America and Europe,
state of the art counter terminals offer computerized driving directions to
hundreds of area destinations. The unit provides written directions in multiple
languages, and also provides a full color map display of the destination area
that includes local streets and address information. Currently, a point-to-point
enhancement is underway.

Hertz NeverLost. For an additional daily charge at select locations in the
United States, the Company offers a state of the art, in-car satellite
navigation system, known as "Hertz NeverLost". This on-board computer provides
real-time turn-by-turn route guidance that displays the exact location of the
car at all times and can calculate the best route to reach any of the thousands
of destinations within its database. Easy to read icons along with voice
instructions direct customers to their destination. Approximately 7,000 cars are
currently equipped with the system.

Emergency Roadside Assistance. The Company maintains a U.S.-based toll-free,
24-hour centralized emergency roadside assistance number staffed with trained
professionals whose primary goal is to get the customer back on the road with as
little inconvenience as possible. Similar services are offered in selected
foreign countries.

Charge Card. In the United States, the Company's charge cards are issued
predominantly to business accounts. The Company provides customers with
individual invoices for each rental or, if preferred, a monthly statement,
providing for payment on receipt. In Europe, the Company's charge cards are
issued

43
<PAGE> 43

to individuals and business accounts. Depending on the country, the Company's
cards may be in the form of a debit, credit or charge card, providing for
payment on receipt or upon extended terms at set interest rates. Currently,
there are over 3.7 million charge cards issued worldwide, charges on which
accounted for approximately 7% of 1996 sales.

Revenue Management

The Company uses a point-of-sale revenue management program through which
counter sales representatives sell car upgrades, supplemental equipment and
optional services. This program of identifying and satisfying additional
customer requirements enhances the Company's revenues and transaction yields.
The Company's counter agents receive additional compensation for sales of these
services and products.

Customers

To focus its marketing, sales and pricing functions, the Company divides its
customers into two groups, business and leisure. Business customers include
large commercial accounts, small business accounts and government authorities.
In 1996, business customers generated approximately 51% of the Company's U.S.
car rental revenue on 58% of the Company's U.S. car rental transactions. At
December 31, 1996, the Company's business customers included 357 of the Fortune
500 companies. The Company was designated as the exclusive supplier of rental
cars by 18 of the 40 Fortune 500 companies (or 45%) that named sole suppliers
and the primary supplier of rental cars by 149 of the 347 Fortune 500 companies
(or 43%) that named a primary/secondary supplier.

Leisure customers, including wholesale tour customers, represent the balance of
the Company's U.S. car rental revenues and transactions, or approximately 49% of
the Company's U.S. car rental revenue on 42% of the Company's U.S. car rental
transactions. Revenue per transaction is higher for leisure rentals as compared
to business rentals because leisure rentals are generally for longer periods.
The Company's success in the leisure market is the product of its quality of
service and the Company's competitive pricing. A significant number of leisure
customers are the same customers who rent from the Company on business. Over the
last several years, the relative proportion of the Company's revenues from
business and leisure customers has remained stable.

In 1996, the Company's business customers generated approximately 52% of the
Company's international car rental revenues on 60% of the Company's
international car rental transactions. In 1996, the Company's international
leisure customers generated approximately 48% of the Company's international car
rental revenues on 40% of the Company's international car rental transactions.

Marketing, Sales and Advertising

The Company has a worldwide marketing and sales organization of over 800 people
focused on both commercial accounts/group sales and the travel industry,
including travel agents as well as a comprehensive program of retail and trade
advertising, direct mail and other targeted marketing (such as special rental
packages for skiers, golfers, etc.).

The Company's commercial and group sales force has a staff of over 200
throughout the United States to support larger commercial accounts, smaller
corporate affiliations, government and group relationships (such as the American
Automobile Association, the American Association of Retired Persons, the
American Bar Association, the American Medical Association, etc.). In order to
provide targeted sales to the travel industry community, the Company has over 60
sales employees and over 100 independent contractors throughout the United
States, all of whom service travel agents, airlines, tour wholesalers and
related sources of rentals. As a result, the Company has relationships with more
than 35 domestic and international airlines and in excess of 500 tour operators.
In addition, the Company maintains a comprehensive commission program for travel
agents worldwide.

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<PAGE> 44

In the United States, the Company markets to leisure customers predominantly
through television and radio media advertising and through newspaper and
magazine print advertising. Print advertising is primarily rate-related,
highlighting leisure destination rates for weekly and weekend rentals.

The Company conducts an active national and international advertising program,
the cost of which is supported in part by contributions from the Company's
independent licensees. The Company is also a party to a cooperative advertising
agreement with Ford pursuant to which Ford shares some of the cost of certain of
the Company's advertising programs in the United States and abroad that feature
the Ford name or products. See "Relationship with Ford -- Joint Advertising
Agreement". The advertising programs also involve cooperative advertising
arrangements with airlines, hotels and others in the travel industry.

During the five-year period ended December 31, 1996, the Company's total
advertising and related expenditures (almost all of which were related to car
rental operations) and the sources contributing thereto were approximately as
follows:

<TABLE>
<CAPTION>
--------------------------------------------------------
Dollars In thousands 1996 1995 1994 1993 1992
PAID BY -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
The Company and Subsidiaries.......... $148,034 $134,487 $133,600 $101,281 $104,757
Ford.................................. 45,459 44,112 41,994 40,259 35,692
Licensees............................. 8,454 8,740 8,800 8,154 7,285
-------- -------- -------- -------- --------
Total............................ $201,947 $187,339 $184,394 $149,694 $147,734
======== ======== ======== ======== ========
</TABLE>

In addition, licensees spend additional amounts for local advertising and sales
promotions that feature the "Hertz" name.

Quality Assurance

The Company believes that quality of service is of critical importance to
customer satisfaction and brand loyalty. Accordingly, the Company places a high
priority on monitoring and evaluating customer satisfaction through a series of
rating systems and management reporting. Customer feedback received through
comment cards, customer letters and telephone calls is reported, coded,
tabulated and evaluated. These reports highlight repetitive problem areas and
help to identify the underlying causes that ultimately result in corrective
actions being taken.

The Company's locations receive periodic, unannounced inspections by an internal
team of experienced service quality auditors. The results of these extensive
examinations are tabulated and quality ratings are assigned. These reports
receive significant management attention.

The Company screens and evaluates telephone calls at each of the Company's
toll-free numbers to monitor the quality of customer service. This information
is utilized to improve the quality at the Company's global reservations centers.
Periodic focus groups are also utilized to determine and track customer
perceptions toward the Company's services and pricing compared with its
competition.

The Company's procedures call for each rental car to undergo a quality control
check prior to each rental. These procedures ensure that customers receive
clean, quality cars that meet the Company's high safety and quality standards.

In independent research conducted for the Company, among U.S. car rental
customers over the last three years, the Company has been ranked best overall
car rental company by a significant margin. In addition, the Company has
received numerous awards and designations from independent third parties. Among
others, the Company received the following awards in each of the last three
years: Conde Nast Traveler -- "Readers' Choice Award"; TTG World Travel Awards
- -- "World's Leading Car Rental Company"; Business Traveler Award -- "Best Car
Rental Company"; TTG Europa Travel Award (International) -- "Top Car Rental
Company"; and Asia Pacific Award (awarded by TTG Asia and PTN Asia Pacific) --
"Best Car Rental Company in Asia Pacific".

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<PAGE> 45

Car Acquisition

The Company believes it is the largest single private purchaser of new cars in
the world, acquiring approximately 300,000 cars in the United States and a total
of 500,000 cars worldwide during the 1996 model year. Consequently, the
acquisition and disposition of cars are important activities for the Company and
have a significant impact on profitability. The Company acquires, subject to
availability, a majority of its cars pursuant to various fleet repurchase
programs established by automobile manufacturers. Under these programs,
automobile manufacturers agree to repurchase cars at a specified price during
established repurchase periods, subject to certain car condition and mileage
requirements. Repurchase prices under the repurchase programs are based on
either (i) a predetermined percentage of original car cost and the month in
which the car is returned or (ii) the original capitalization cost less a set
daily depreciation amount. These repurchase programs limit the Company's
residual risk with respect to cars purchased under the programs. For this
reason, cars purchased by car rental companies under repurchase programs are
sometimes referred to by industry participants as "non-risk" cars. Conversely,
those cars not purchased under repurchase programs for which the car rental
company is exposed to residual risk are sometimes referred to as "at risk" cars.
During 1996, non-risk cars as a percentage of all cars operated by the Company's
U.S. and international operations were approximately 91% and 85%, respectively.
The Company expects the percentage of "non-risk" cars in its rental fleet to
decrease due primarily to anticipated changes in the terms to be offered by
automobile manufacturers under repurchase programs. The Company believes such
terms will encourage the Company to purchase a larger proportion of "at risk"
cars. For a discussion of the risks associated with this trend, see "Risk
Factors -- Risks Related to Decreased Acquisition or Disposition of Cars Through
Repurchase Programs".

The holding period for the Company's rental cars ranges from 5 to 12 months. The
Company's flexibility to adjust the holding period for cars, particularly under
repurchase programs with automobile manufacturers, enables the Company to adjust
its fleet size up or down relatively quickly in response to changing market
conditions. At December 31, 1996, the average age of rental cars in the
Company's fleet was 7 months.

Over the five years ended December 31, 1996, on a weighted average basis,
approximately 68% of the cars acquired by the Company for its U.S. car rental
fleet, and approximately 34% of the cars acquired by the Company for its
international fleet, were manufactured by Ford. During 1996, approximately 64%
of the cars acquired by the Company domestically were manufactured by Ford, 5%
were manufactured by General Motors Corporation, 5% were manufactured by
Chrysler Corporation and the remainder were manufactured by various Japanese,
Korean and European manufacturers. The percentage of Ford cars acquired by the
Company for its U.S. car rental fleet is expected to remain at these or higher
levels in the future. See Note 7 to the Notes to the Company's consolidated
financial statements included in this Prospectus. In its foreign operations, the
Company utilizes cars manufactured abroad by subsidiaries of Ford and by other
manufacturers. In 1996, approximately 28% of the cars acquired by the Company
for its international fleet were manufactured by Ford, which represented the
largest percentage of any automobile manufacturer in that year. Negotiations
with automobile manufacturers include determination of the initial purchase
price of the car and establishment of the payment terms. New car repurchase
programs or residual value guarantees, approval for using the Company's
facilities for warranty repairs, as well as the establishment of cooperative
advertising and promotion programs also are negotiated with the manufacturers.
See "Relationship with Ford -- Car Supply Agreement".

Purchases of cars are financed through funds provided from operations and by
active and ongoing global borrowing programs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".

46
<PAGE> 46

Used Car Sales

The Company disposes of "at risk" cars as well as those "non-risk" cars that are
not returned to the manufacturer through auctions, 41 domestic retail car sales
locations and, in Europe, through wholesale operations. Upon the sale of a car,
the difference between the net proceeds from sale and the remaining book value
is recorded as an adjustment to depreciation in the period when sold. See Note 7
of the Notes to the Company's consolidated financial statements included in this
Prospectus.

In connection with its expectation that the percentage of "at risk" cars in its
rental fleet will increase, the Company expects to expand its domestic retail
network by approximately 44% (or 18 locations) during 1997. The Company also
plans to open up to three large-scale retail sales locations in the fourth
quarter of 1997, at each of which the Company expects to sell 2,500 to 3,500
units annually, compared with the current average individual location volume of
over 400 units per year.

In expanding its retail used car sales operations, the Company intends to
leverage the "Hertz" brand name and its reputation for innovation, customer
service and vehicle maintenance. Key elements of the Company's retail expansion
plan, which the Company has successfully employed in the past, include no-haggle
pricing and providing a complete maintenance history for each car. Specifically
tailored strategic information systems provide for timely and highly centralized
control of car inventories and pricing. Generally, cars sold by the Company
continue to be covered by the manufacturer's warranty. The Company provides a 12
month/12,000 mile powertrain warranty from time of sale for no additional charge
and various comprehensive warranties covering all major components for
additional charges.

Licensees

While the Company believes that its extensive worldwide ownership of its
operations provides an important competitive advantage, the Company has found it
more efficient to operate through licensees in certain markets. As of December
31, 1996, the Company's licensees operated from approximately 3,200 locations
worldwide. The Company believes that its licensee arrangements are important to
the Company's business because they enable the Company to offer expanded
national and international service and a broader Rent It Here-Leave It There
program. The Company's wholly-owned subsidiaries, Hertz System, Inc. ("System")
and Hertz International, Ltd. ("International"), issue licenses under franchise
arrangements to independent licensees and affiliates who are engaged in the car
renting business in the United States and in many foreign countries and
jurisdictions.

Licensees generally pay fees based on the number of cars they operate and/or on
revenues. The operations of all licensees, including the purchase and ownership
of vehicles, are financed independently by the licensee with the Company having
no investment interest in the licensee (except for two foreign licensees) or in
the licensee's fleet. Licensees also share in the cost of the Company's
advertising program, reservations system, sales force and certain other
services. In return, licensees are provided with the use of the "Hertz" brand
name, management and administrative assistance, training, the availability of
the Company's charge cards, The Hertz #1 Club, reservations service, the Rent It
Here-Leave It There program and other services. System, which owns the Company's
service marks and trademarks and certain proprietary know-how used by licensees,
establishes the uniform standards and procedures under which all such licensees
operate.

System licenses ordinarily are limited as to transferability without the
Company's consent and are terminable by the Company only for cause or after a
fixed term. Licensees may generally terminate for any reason on 90 days notice
to System. Initial license fees or the price for the sale to a licensee of a
corporate location may be payable over a term of several years. New licenses
continue to be issued, and, from time to time, licensee businesses are purchased
by the Company.

In 1988, the Company sold its 50% interest in Hertz Penske Truck Leasing, Inc.,
which has been succeeded by Penske Truck Leasing Co., L.P., ("Penske"), and
entered into a license agreement under which Penske has the right, as a licensee
of the Company, to conduct a one-way truck rental business

47
<PAGE> 47

(including trailers) using the "Hertz" name for a 10 year period ending in 1998.
With certain exclusions the license agreement covers the entire United States.

Car Leasing

Hertz owns 100% of its car leasing operations in Australia, New Zealand and
Brazil. Leases are generally closed-end where the Company is subject to risk
with respect to the market value of cars at the time of disposition.

Effective January 1, 1995, the Company sold its European car leasing and car
dealership operations to Hertz Leasing International, Inc., an indirect,
wholly-owned subsidiary of Ford ("HLI"), at an amount equal to its book value of
approximately $61 million. As part of the transaction and for additional
consideration payable over five years, Ford received the worldwide rights
(subject to certain existing license rights and excluding Australia, New Zealand
and Brazil) to use and sublicense others to use the Hertz name in the conduct of
car leasing businesses (i.e., rentals having terms of one year or longer). Prior
to completion of the Offerings, Ford will transfer back to the Company, subject
to a transition period of not less than one year, the right to use the "Hertz"
name in the conduct of the car leasing business, but will continue to make
payments in respect of its previous obligation. See Note 5 to the Notes to the
Company's consolidated financial statements included in this Prospectus.
Following such transfer, the Company intends to expand its car leasing business.

INDUSTRIAL AND CONSTRUCTION EQUIPMENT RENTAL OPERATIONS

Industry Overview

Through its wholly-owned subsidiary, HERC, the Company operates what it believes
to be the largest industrial and construction equipment rental business in the
United States. The equipment rental industry serves a wide variety of
industrial, construction and homeowner customers. The Company estimates that
1995 annual revenues for the U.S. equipment rental industry were $15 billion.

The equipment rental industry is highly fragmented and consists of a large
number of small, independent businesses serving local markets. The Company
believes that there are over 7,000 equipment rental operators in the United
States with approximately 12,000 locations. According to the Rental Equipment
Register, only 23 of the top 100 equipment rental firms in the United States had
rental revenues in excess of $25 million in 1995. Management believes the
equipment rental industry in the United States offers substantial consolidation
opportunities for large, well-capitalized companies such as HERC. Relative to
small regional competitors, large multi-regional operators such as the Company
benefit from several competitive advantages, including access to capital, the
ability to offer a broad range of modern equipment, purchasing power with
equipment suppliers, sophisticated management information systems, national
brand identity and the ability to service national accounts. In addition,
multi-regional operators are less sensitive to local economic downturns.

Renting has become a more attractive alternative for companies to meet their
equipment needs. Customers are replacing fixed costs inherent in purchasing
equipment with variable costs by renting and achieving greater operating
flexibility and improved productivity of capital. Because of the significant
capital investments required to purchase heavy equipment, the shift to renting
has been particularly pronounced in the heavy equipment categories in which HERC
specializes. Changes under the Tax Reform Act of 1986, such as repeal of the
investment tax credit and the requirement for longer depreciable lives for tax
purposes, have also made renting more attractive to customers.

Products and Services Offered

Industrial and construction equipment rental represents HERC's principal service
offered. HERC rents over 150 types of equipment, major categories of which
include earth moving equipment, materials handling equipment, aerial and
electrical equipment, air compressors, compaction equipment and
construction-related trucks. Earth moving, materials handling and aerial
equipment accounted for 72%

48
<PAGE> 48

of HERC's net fleet investment at December 31, 1996. HERC's more than 33,000
pieces of rental equipment have a weighted average age of 19.7 months and an
original investment cost of approximately $908 million at December 31, 1996. The
Company believes that HERC's fleet is the largest, youngest and best maintained
in the industry.

HERC is one of the largest sellers of used industrial and construction equipment
in the United States. It has developed an extensive used equipment sales program
that disposed of equipment having an original cost of over $140 million in 1996.
HERC has a dedicated used equipment sales force and, in addition, has developed
an export market through its overseas contacts. Additionally, HERC has in the
past and may, from time to time in the future, employ a broker network in the
United States to dispose of its used equipment.

HERC's comprehensive line of equipment enables HERC to be a single source for
its customers' equipment needs. Certain customers are beginning, however, to
require a single source not only for equipment rental but also for supplies and
maintenance operations. In response to this trend, HERC anticipates entering the
market for supplies and maintenance operations in 1997 through selected
acquisitions or otherwise.

The Company believes that HERC's superior customer service differentiates it
from its competitors. HERC also offers the following additional services:

- National network of branches to meet local demand and timely
delivery

- Customer driven performance system to monitor customer service

- Customized management information system reports

- 24 hour service for industrial accounts

- Customer safety training programs

- In-house and field maintenance by factory trained mechanics

Facilities

HERC currently operates 120 equipment rental branches ("branches"), 115 of which
are located in the United States across 31 states, and five of which are located
in France and Spain.

The following table shows the number of HERC branches over the five years ended
December 31, 1996:

<TABLE>
<CAPTION>
------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning locations......................................... 104 95 85 89 93
New openings................................................ 17 9 11 -- 2
Locations closed............................................ (1) -- (1) (4) (6)
--- --- -- -- --
Ending locations............................................ 120 104 95 85 89
=== === == == ==
</TABLE>

HERC's rental locations are generally situated in industrial or commercial
zones. The average location is two acres in size and includes a customer service
center, an equipment service area and storage facilities for equipment. The
branches are built or conformed to the specifications of the HERC prototype
branch which stresses efficiency, safety and environmental compliance. Each
branch has stand-alone maintenance and fueling facilities and showrooms. Of the
120 present locations, 89 are leased from third parties and 31 are owned.

Customers

HERC's customers consist predominantly of commercial accounts and represent a
wide variety of industries, such as railroad, automobile manufacturing,
petrochemicals, movie production, ship building and construction. Serving a
number of different industries enables HERC to reduce its dependence on a single
or limited number of customers in the same business. HERC has over 58,000
customers, and in

49
<PAGE> 49

1996 no single customer of HERC accounted for more than 3% of its revenues. HERC
primarily targets large customers in medium to large metropolitan markets.

HERC has sought over the past several years to diversify and stabilize its
revenue mix by reducing the portion of its revenues which are derived from
customers which operate in the more cyclical construction industry. The
following table shows the percentage of HERC revenues derived from different
types of customers in 1996 and 1990:

<TABLE>
<CAPTION>
------------
1996 1990
---- ----
<S> <C> <C>
Construction................................................ 46% 57%
Industrial.................................................. 34 27
Government.................................................. 4 5
Other....................................................... 16 11
--- ---
Total.................................................. 100% 100%
=== ===
</TABLE>

HERC operations in the United States are organized and managed in eight
geographic regions. During each of the five years ended December 31, 1996, no
single geographic region accounted for more than 20% of HERC's revenues. This
geographic diversification means HERC is better positioned to withstand a
regional recession than its local or regional competitors who, the Company
believes, are highly dependent on the economic condition of a single region.

The table below sets forth the percentage of HERC's revenues derived from each
of HERC's operating regions for the year ended December 31, 1996.

<TABLE>
<CAPTION>
----------
PERCENTAGE
REGION ----------
<S> <C>
Southeast................................................... 20%
Western..................................................... 14
Northeast................................................... 13
Northwest................................................... 13
Florida..................................................... 12
Southwest................................................... 12
Midwest..................................................... 11
Northcentral................................................ 5
---
Total..................................................... 100%
===
</TABLE>

Sales and Marketing

HERC focuses its major sales and marketing strategy on large local and
multi-regional users of industrial and construction equipment. The strategy is
led by a national accounts sales organization consisting of 15 people and is
backed by a field sales force of 340 highly trained sales professionals. Each
branch has its own dedicated sales force.

HERC's national account program began in 1983 and has over 1,700 national
account agreements with major regional and national companies. Revenues from
national accounts have grown at a 25.6% compound annual rate from $11 million in
1984, the first full year of the national accounts program, to $170 million in
1996, representing 43% of HERC's 1996 revenues.

HERC's national sales force effectively emphasizes HERC's strengths such as its
geographically diverse system of branches and the size, consistency and quality
of HERC's fleet. HERC reaches its smaller accounts through a local sales force.
The Company believes that the combination of HERC's professional sales force,
high quality fleet and the ability to transfer equipment from various locations
to satisfy local demands provides a competitive advantage.

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<PAGE> 50

Information Systems

The Company believes that HERC uses the most sophisticated information systems
in the equipment rental industry and that HERC has benefitted substantially from
the Company's investment in strategic information systems used by the car rental
business.

Using techniques substantially the same as those employed in the Company's car
rental operations, HERC uses its information systems, which link its various
rental locations, to enhance profitability by allowing centralized management
control of each piece of equipment in the rental fleet, monitoring demand by
location to assist in maintaining high utilization and managing the acquisition
and disposition of equipment.

Equipment Maintenance

Each HERC facility performs its own preventive maintenance. Centralized computer
programs link all HERC facilities to monitor on-time preventive maintenance as
well as annual American National Standard Institute and Department of
Transportation inspections. This process is designed to ensure peak equipment
performance and availability, and reduces the need for major repairs, resulting
in approximately 99% of HERC's fleet being rented or available for rental at any
time. Other automated programs track mandatory safety and service modifications
and equipment deadlines. HERC has developed comprehensive in-house warranty
programs to repair equipment on behalf of manufacturers and is eligible to
receive reimbursement for such work.

Equipment Acquisition

Equipment purchasing is centralized to leverage and maintain what the Company
believes is the lowest average fleet costs within the equipment rental industry.
The Company believes that HERC is the largest single buyer of industrial and
construction equipment within the equipment rental industry. During 1996, HERC
made $378.4 million of rental equipment acquisitions and other capital
expenditures.

HERC selectively buys its equipment from vendors with reputations for high
product quality, reliability and significant market share. Some of HERC's
leading suppliers include Case Corporation, Lull Industries, Inc, the Gradall
Co., Deere & Company (John Deere equipment), Ingersoll-Rand Company, JLG
Industries, Inc. and Ford.

Centralized purchasing has allowed HERC to standardize its fleet specifications
by model and geographic needs, allowing for economies of scale. HERC has
developed a fully automated fleet planning and purchasing process that
streamlines and expedites fleet orders.

The Company believes that HERC's fleet age is a major competitive advantage and
assures customer satisfaction with equipment as well as lower maintenance costs.
Through aggressive used equipment sales, the Company has been able to maintain
an average fleet age of 19.7 months.

The Company is generally "at risk" with respect to all the equipment used in its
industrial and construction equipment rental operations.

Fleet Disposal

The Company believes that HERC is the largest distributor of used industrial and
construction equipment in the United States and has established itself as a
highly reliable supplier of used equipment. In 1996, HERC disposed of equipment
having an original cost of over $140 million. All used equipment is sold
directly from branch locations.

Pricing for used HERC equipment has been centralized. Relationships with major
equipment brokers and wholesalers allow HERC to trim fleet levels and mix to
improve utilization. HERC publishes The Source magazine two to three times per
year and distributes it nationally to over 40,000 customers and

51
<PAGE> 51

prospects. This full color publication advertises price, model, year and
location of used equipment for sale. The Company also prints a Spanish version.

This overall used equipment strategy has allowed HERC to maintain what it
believes to be the youngest fleet in the industry by selling off assets that are
between 24 and 60 months old on average. With a younger fleet, HERC has
significantly reduced its maintenance and repair costs which are largely covered
by manufacturer warranties. The Company has been able to exploit its significant
presence in the U.S. market for sales of used industrial and construction
equipment, to actively manage its fleet size and, in particular, to reduce fleet
levels during typical seasonal downturns.

STRATEGIC INFORMATION SYSTEMS

Centralized control, achieved through the use of the Company's strategic systems
technology, of major business processes such as reservations, rate structures
and fleet control provides the disciplined environment in which the Company can
deliver consistent quality service at its car rental and equipment rental
operations. The Company has over 3,900 MIPS (millions of instructions per
second) of computing power and over four Terabytes (trillion characters) of
online data storage to run its global reservations, point-of-sale,
administrative and financial systems. The Company maintains real-time
communications with its many locations by means of what it believes is the
largest private data network in the industry.

In 1991, the Company began centralizing its worldwide information technology
resources in Oklahoma City, Oklahoma. This project, which is expected to be
completed by 1999, is expected to allow the Company to gain efficiencies in
support and development and to continue improving productivity and cost
effectiveness.

Global Reservations System

The Company's global reservations system operates through real-time, on-line
centers on five continents. Direct access with other computerized reservations
systems allows real-time processing for travel agents and corporate travel
departments. Company rental locations worldwide depend upon the global
reservations system to provide information critical to fleet and personnel
planning, rate management and the timely computerized delivery of reservations.
Customer information captured and made available in the reservations process
support such premium services as Hertz #1 Club Gold.

The Company's reservations system annually handles approximately 40 million
incoming calls, during which customers inquire about locations, rates and
availability, and place or modify reservations. In addition, millions of
inquiries and reservations come to the Company through travel agents and travel
industry partners. The Company maintains and continually monitors quality
standards for accuracy and consistency in the reservations process. Regardless
of where in the world the customer may be, the Company's reservations system is
designed to ensure that availability of cars, rates and personal profile
information is reliably applied and that correct information is delivered at the
proper time to the customer's rental destination.

The Company expects to complete its transition to a state of the art,
client-server based reservations system at its Oklahoma City reservations center
in the second quarter of 1997. This new system is expected to allow for greater
accuracy and speed in processing reservations, thereby improving customer
service. The client-server architecture minimizes the need for additional
computer equipment as the demands of the business grow. Additionally, the design
of the new system is expected to be more flexible, facilitating rapid response
to changing market demands.

The Company also is in the process of consolidating individual European
reservations centers into a single facility in Ireland. As a result, the Company
expects to realize substantial cost savings, while providing uniformly high
service levels. Currently, the European and domestic reservations systems are
linked, providing for global reservation capabilities.

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<PAGE> 52

Yield Management System

Yield management affords the opportunity to achieve greater returns from a fixed
number of assets. The Company's yield management system is designed to optimize
revenue through controlling, simultaneously, the availability of various rates
as well as the availability of cars. The system monitors the flow of demand over
time on a location by location basis, in order to supply a sufficient number of
cars at those times when available rates are high.

Enhancements to the yield management system are produced on an ongoing basis.
The Company is currently developing a car distribution optimization program,
which is expected to be fully integrated with the yield management system, and
anticipates that this program will be made available throughout the Company's
major locations in the United States by 1998. This enhancement is expected to
facilitate the distribution of cars among rental locations within a regional
area to take maximum advantage of demand and price opportunities over a period
of time.

In the Company's European operations, the yield management system is expected to
be introduced with modifications appropriate to those markets.

Competitive Rate Detection

The Company recognizes that it is essential to respond promptly to pricing
changes in the marketplace. The ability to respond rests on the ability to
detect pricing changes when they occur. The Company believes it has the most
sophisticated competitive price detection software in the industry. Developed
internally and using global distribution systems (such as United Airlines'
Apollo system and American Airlines' Sabre system) for its source of
information, competitors' rates are electronically canvassed nightly. "Scouting"
routines are used to identify future rates in the marketplace. If rate changes
are detected, they result in more in-depth canvassing, as appropriate. The
benefit of this system is to provide enhanced awareness of competitive rate
changes far more frequently, and for a greater number of locations and time
periods, than would otherwise be available.

Internationally, canvassing is generally done manually, due to the limited
information available concerning competitors in the global distribution systems.
However, the Company's European operations have in place a reporting system
which, while dependent on manual input, parallels the information available in
the United States.

Cost Allocation Model

The Company's cost allocation model supports the Company's objective that all
segments of its businesses must provide contributions above a strategically set
threshold. Contribution per rental day is determined by location, business
segment and car and equipment category by using data from the financial
management system, the fleet accounting system, the marketing database and the
yield management process. Additional models, based on this core cost allocation
model, allow the sales department to determine the profitability of customer
accounts by rental location.

To support the Company's European operations, a comparable cost allocation model
is used to reflect the individual operating environments of the respective
countries and to manage profitability.

Disaster Recovery; Year 2000 Date Conversion

The Company's systems disaster recovery planning is a comprehensive, ongoing
process which is updated as products are developed, tested and modified.
Disaster recovery for reservations, financial and other strategic systems is
provided at alternative locations serviced by third parties or at Company
maintained facilities.

In 1997, the Company will commence, for all of its systems, a year 2000 date
conversion project to address all necessary code changes, testing and
implementation. Project completion is planned for the middle of 1999 at an
estimated total cost of approximately $15 million. The Company expects its year

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2000 date conversion project to be completed on a timely basis. However, there
can be no assurance that the systems of other companies on which the Company's
systems rely also will be timely converted or that any such failure to convert
by another company would not have an adverse effect on the Company's systems.

OTHER OPERATIONS OF THE COMPANY

Claim Management

The Company's wholly-owned subsidiary, Hertz Claim Management Corporation,
provides claim administration services to the Company and to numerous customers.
These services include investigating, evaluating, negotiating and disposing of a
wide variety of claims, including third-party, first-party, bodily injury,
property damage, general liability and product liability, but not the
underwriting of risks. Prior to March 1, 1996, the Company, through a
subsidiary, also administered for the Company's operations and others, workers'
compensation and medical, dental and other employee health benefit claims. That
subsidiary, renamed HCM Claim Management Corporation, was sold at a profit to an
investor group during 1996. However, Hertz Claim Management Corporation
continues to administer liability claims for the Company and for outside
clients.

Telecommunications

In 1991, the Company began purchasing and reselling telecommunications services
through its subsidiary, Hertz Technologies, Inc. ("HTI"). HTI takes advantage of
the Company's negotiated rates with its telecommunications carriers to market
custom designed rate packages and services to small and medium size businesses
throughout the United States. Available services include call detail and
management reports, inbound/outbound call packages and travel calling card
services that include voice mail and fax options.

The knowledge of competitive telecommunications services gained from developing
a leading management information system for the Company's car rental operations
has resulted in significant savings to the Company. Due to the nature of the
telecommunications business, there is very little overhead or capital investment
required. Services are sold through independent sales agents and other groups.
HTI provides its services from Oklahoma City, Oklahoma.

SELF INSURANCE

For its domestic operations, the Company is, where permitted by applicable local
law, a qualified self insurer against liability resulting from accidents under
certificates of self insurance for financial responsibility in all states where
its cars are registered. The Company also self insures general public liability
and property damage for all domestic operations. Since July 1, 1987, all claims
have been retained and borne by the Company up to a limit of $5 million for each
occurrence, and the Company has maintained insurance with unaffiliated carriers
in excess of $5 million up to $450 million per occurrence. Hertz Claim
Management Corporation, a wholly-owned subsidiary of the Company, administers
this public liability and property damage program through a network of eight
regional offices throughout the United States.

For its international operations, the Company purchases insurance to comply with
local legal requirements. From January 1, 1993 through December 31, 1996,
vehicle liability insurance purchased locally from unaffiliated carriers by
Company-owned operations in Europe was reinsured by Hertz International RE
Limited, a wholly-owned subsidiary of the Company operating as a reinsurer in
Dublin, Ireland. Hertz International RE Limited is responsible for the first
$1.5 million of motor vehicle liability for each accident during this period,
with excess liability insurance coverage maintained by the Company with
unaffiliated carriers. Effective January 1, 1997, the Company replaced the
unaffiliated carrier that was the fronted insurer for claims up to $1.5 million
by establishing a wholly-owned subsidiary, Probus Insurance Company Europe
Limited ("Probus"), a direct writer domiciled in Dublin, Ireland. Probus now
underwrites the Company's Pan-European motor vehicle liability program (except

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in Switzerland and Denmark) up to $1.5 million per occurrence. Excess coverage
for claims that exceed $1.5 million per occurrence continue to be maintained
with unaffiliated carriers. In the Company's international operations other than
Europe, the Company is self-insured at various amounts up to $100,000 per
occurrence, and maintains excess liability insurance coverage up to $450 million
per occurrence with unaffiliated carriers.

Provisions for public liability and property damage on self-insured domestic
claims and reinsured foreign claims are made by charges to expense based upon
evaluations of estimated ultimate liabilities on reported and unreported claims.
At December 31, 1996, this liability was estimated at $321 million for combined
domestic and foreign operations.

Ordinarily, collision damage costs and the costs of stolen or unaccounted for
cars are carried on a self-insured basis, with such costs being charged to
expense as incurred.

HERC generally requires its customers to provide their own liability insurance
on rented equipment with HERC held harmless under various agreements.

Other types of insurance usually carried by business organizations, such as
workers' compensation, (i.e., on a fronted basis up to $5 million per
occurrence) property (including boiler and machinery and business interruption),
commercial crime and fidelity, performance bonds and director's and officer's
liability insurance, are purchased from various insurance companies in amounts
deemed adequate by the Company for the respective hazards. The Company and its
directors and officers participate as additional insureds in certain insurance
policies maintained by Ford. See "Relationship with Ford".

COMPETITION

The markets in which the Company operates are highly competitive. In any given
location, the Company may encounter competition from national, regional and
local companies. In the United States, the Company's principal competitors in
the business car rental market are Avis and National, and in the leisure market,
the Company's principal competitor is Alamo. In Europe, the Company's principal
competitors in the car rental market are Avis Europe plc, Europcar and,
operating principally through licensees, Budget. The Company competes primarily
on the basis of customer service and price. In addition, the Company believes
extensive worldwide ownership of its operations and its access to the global
capital markets provide it with an advantage over its competitors.

The Company, through H.I.R.E., intends to expand its presence in the insurance
replacement market in the United States where Enterprise is currently the
dominant participant.

The Company believes that HERC is the largest equipment rental company in the
United States. HERC's competitors range from large national companies such as
U.S. Rentals, BET Plant Services and Prime Equipment to small regional
businesses. HERC's competitive success is, in part, due to its state of the art
systems for monitoring, controlling and developing its branch network, its
capacity to maintain a comprehensive rental fleet and its established national
accounts program.

The Company believes that price is one of the primary competitive factors in the
car and industrial and construction equipment rental markets. Competitors of the
Company, many of which have access to substantial capital, may seek to compete
aggressively on the basis of pricing. To the extent that the Company matches
downward competitor pricing, it could have an adverse impact on the Company's
results of operations. To the extent that the Company is not willing to match
competitor pricing, it could also have an adverse impact on the Company's
results of operations as the Company may lose market share.

EMPLOYEES

On December 31, 1996, the Company employed approximately 21,000 persons in its
domestic and foreign operations. Labor contracts covering the terms of
employment of approximately 5,400 employees in the United States are presently
in effect under 167 active contracts with local unions,

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affiliated primarily with the International Brotherhood of Teamsters and the
International Association of Machinists (AFL-CIO). Labor contracts which cover
approximately 1,500 of these employees will expire during 1997. Employee
benefits in effect include group life insurance, hospitalization and surgical
insurance, pension plans, and an income savings plan. Overseas employees are
covered by a wide variety of union contracts and governmental regulations
affecting, among other things, compensation, job retention rights and pensions.
The Company has had no material work stoppage as a result of labor problems
during the last 10 years. The Company believes its labor relations to be good.

In addition to the employees referred to above, the Company employs a
substantial number of temporary workers, and engages outside services, as is
customary in the industry principally for the non-revenue movement of the rental
fleet between locations.

LEGAL PROCEEDINGS

In July 1996, the Company was sued in Harris County, Texas District Court in a
purported class action in which the plaintiff alleges that the Company's
practice of providing certain insurance products violates the Texas Insurance
Code because the Company did not obtain approval to sell insurance or obtain
regulatory approval of the premiums it charges. The complaint seeks restitution
of excessive premiums, equitable rescission of all insurance contracts entered
into by the class members, a declaratory judgment that the Company is selling
insurance illegally in Texas and injunctive relief. Currently the action is in
its preliminary stages and the class has not been certified. While it is
possible that the action could result in significant liability to the Company,
the Company does not expect the action to have a material adverse effect on the
Company's consolidated financial position or results of operations. For a
discussion of a related inquiry by the Texas Department of Insurance, see "--
Governmental Regulation and Environmental Matters".

The Company is involved in a legal proceeding through which the Company is
challenging the legality of a New York City ordinance that would prohibit the
Company's practice of assessing higher rental rates for renters who reside in
certain New York City boroughs. See "-- Government Regulation and Environmental
Matters".

In addition to the foregoing, various legal actions, claims and governmental
inquiries and proceedings are pending or may be instituted or asserted in the
future against the Company and its subsidiaries. Litigation is subject to many
uncertainties, and the outcome of the individual litigated matters is not
predictable with assurance. It is possible that certain of the actions, claims,
inquiries or proceedings, including those discussed above, could be decided
unfavorably to the Company or the subsidiary involved. Although the amount of
liability with respect to these matters cannot be ascertained, potential
liability in excess of related accruals is not expected to materially affect the
consolidated financial position or results of operations of the Company.

GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS

Throughout the world, the Company is subject to numerous types of governmental
controls, including those relating to price regulation and advertising, currency
controls, labor matters, charge card operations, environmental protection, used
car sales and franchising.

The Company's operations, as well as those of its competitors, could be affected
by any limitation in the fuel supply or by any imposition of mandatory
allocation or rationing regulations. In the event of a severe disruption of fuel
supplies, the operations of all car and industrial and construction equipment
renting and leasing companies could be adversely affected. Historically, there
has been no disruption of operations resulting from lack of fuel availability.

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pricing practice. The Company filed suit against The City of New York claiming
that such ordinance was in violation of federal anti-trust laws. The Company's
claim was rejected in U.S. District Court, and the Company appealed to the U.S.
Court of Appeals for the Second Circuit. That Court remanded the proceeding to
the U.S. District Court for trial. Pending the outcome of the action in the U.S.
District Court, the Court has stayed the ordinance, permitting the Company to
continue its pricing practice. If the Company is ultimately unsuccessful in
challenging the ordinance, the Company believes it could take actions to
mitigate the higher costs that would be experienced from such rentals.
Accordingly, the Company believes that an adverse outcome would not have a
material adverse effect on the Company's consolidated financial position or
results of operations.

The Texas Department of Insurance (the "TDI") is currently reviewing the
Company's practice of offering certain insurance products underwritten by
unaffiliated third parties to car rental customers in Texas. Among other things,
the TDI is considering whether the Company's counter sales representatives in
Texas should be licensed to sell insurance. While the Company does not believe
that the enrollment of customers in such policies requires that representatives
be licensed to sell insurance, the Company is unable to predict what
determination the TDI will make or what action, if any, it will take. The
Company does not believe, however, that the outcome of this matter will have a
material adverse effect on the Company's consolidated financial position or
results of operations.

The environmental legal and regulatory requirements applicable to the Company's
operations pertain to (i) the operation of automobiles, trucks and other
vehicles such as heavy equipment and buses; (ii) the ownership and operation of
tanks for the storage of petroleum products, including gasoline, diesel fuel and
used oil; and (iii) the generation, storage, transportation and disposal of
waste materials, including used oil, car wash sludge and waste water. The
Company has made, and will continue to make, expenditures to comply with
environmental laws and regulations.

The use of automobiles and other vehicles is subject to various governmental
requirements designed to limit environmental damage, including that caused by
emissions and noise. Generally, these requirements are met by the manufacturer
except, on occasion, equipment failure requiring repair by the Company. Measures
are being taken at certain locations in states that require the installation of
Stage II Vapor Recovery equipment to reduce the loss of vapor during the fueling
process.

The Company operates approximately 500 underground tanks nationwide to store
petroleum products, and the Company believes its tanks are maintained in
material compliance with environmental regulations, including federal and state
financial responsibility requirements for corrective action and third party
claims due to releases. The Company has established a compliance program for its
tanks to ensure that (i) the tanks are properly registered with the state in
which the tanks are located; and (ii) the tanks have been either upgraded or
replaced to meet federal and state leak detection and spill, overfill and
corrosion protection requirements. The Company anticipates spending
approximately $2.9 million in 1997 and approximately $1 million in 1998 to
complete the registration and upgrade or replacement of such tanks.

The Company is also incurring and providing for expenses for the cleanup of
contamination from fuel discharges at its owned and leased properties, as well
as contamination at other locations at which the Company's wastes have
reportedly been identified. With respect to cleanup expenditures for fuel
discharges at the Company's owned or leased properties, the Company has received
reimbursement, in whole or in part, from certain states that maintain
underground storage tank petroleum cleanup funds. Such funds have been
established to assist tank owners in the payment of cleanup costs associated
with releases from registered tanks. The Company expects to continue to receive
reimbursement for cleanup costs incurred due to releases from certain of its
tanks. With respect to off-site locations at which the Company's wastes have
reportedly been identified, the Company has been and continues to be required to
contribute to cleanup costs due to strict joint and several cleanup liability
under federal and state statutes for companies that send wastes to such off-site
locations for disposal. The Company has recovered a substantial amount of such
costs incurred through settlements with its insurance carriers.

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Environmental legislation and regulations and related administrative policies
have changed rapidly in recent years. There is a risk that governmental
environmental requirements, or enforcement thereof, may become more stringent in
the future and that the Company may be subject to legal proceedings brought by
government agencies or private parties with respect to environmental matters. In
addition, with respect to cleanup of contamination, additional locations at
which wastes generated by the Company may have been released or disposed, and of
which the Company is currently unaware, may in the future become the subject of
cleanup for which the Company may be liable, in whole or part. Accordingly,
while the Company believes that it is in substantial compliance with applicable
requirements of environmental laws, there can be no assurance that the Company's
future environmental liabilities will not be material to the Company's
consolidated financial position or results of operations.

PROPERTIES

As of December 31, 1996, the Company's owned operations were carried on at 2,328
locations worldwide, including rental and sales offices, car sales locations and
service facilities located on or near airports and in central business districts
in major U.S. cities and suburban areas. Most of such premises are leased,
except for 115 that are owned in fee. The Company has various concession
agreements with governmental authorities charged with the operation of airports
under arrangements generally providing for payment of rents and a percentage of
revenues with a guaranteed annual minimum fee. See Note 9 of the Notes to the
Company's consolidated financial statements included in this Prospectus.

The Company has three major facilities in the vicinity of Oklahoma City,
Oklahoma (one of which is operated under a capital lease and two of which are
owned) at which reservations for its worldwide car rental operations are
processed, global strategic information systems are serviced and major domestic
and international accounting functions are performed. The Company owns its
executive offices in Park Ridge, New Jersey.

RELATIONSHIP WITH FORD

Immediately prior to the Offerings, Ford and a Ford subsidiary will be the only
stockholders of the Company. Upon completion of the Offerings, Ford will
beneficially own 49.4% of the outstanding Class A Common Stock and 100% of the
outstanding Class B Common Stock of the Company (which Class B Common Stock is
entitled to five votes per share on any matter submitted to a vote of the
Company's stockholders). Upon completion of the Offerings, the common stock
beneficially owned by Ford will represent in the aggregate 94.5% of the combined
voting power of all of the Company's outstanding common stock. For as long as
Ford continues to beneficially own shares of common stock representing more than
50% of the combined voting power of the Company's common stock, Ford will be
able to direct the election of all of the members of the Company's Board of
Directors and exercise a controlling influence over the business and affairs of
the Company, including any determinations with respect to mergers or other
business combinations involving the Company, the acquisition or disposition of
assets by the Company, the incurrence of indebtedness by the Company, the
issuance of any additional common stock or other equity securities, the
repurchase or redemption of common stock or preferred stock and the payment of
dividends. Similarly, Ford will have the power to determine matters submitted to
a vote of the Company's stockholders without the consent of the Company's other
stockholders, will have the power to prevent a change in control of the Company
and could take other actions that might be favorable to Ford. See "Management".

Ford has advised the Company that its current intent is to continue to hold all
of the common stock beneficially owned by it following the Offerings. However,
Ford is not subject to any contractual obligation to retain its controlling
interest, except that each of the Company and Ford has agreed, subject to
certain exceptions, not to sell or otherwise dispose of any shares of Class A
Common Stock or Class B Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of J.P. Morgan Securities Inc.
As a result, there can be no assurance concerning the

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period of time during which Ford will maintain its beneficial ownership of
common stock of the Company owned by it following the Offerings. See
"Underwriting".

Beneficial ownership of at least 80% of the total voting power and value of the
outstanding Common Stock is required in order for Ford to include the Company in
its consolidated group for federal income tax purposes, and beneficial ownership
of at least 80% of the total voting power and 80% of each class of nonvoting
capital stock is required in order for Ford to be able to effect a tax-free
spin-off or certain other tax-free transactions.

In addition, by virtue of its controlling beneficial ownership and the terms of
a tax-sharing agreement between the Company and Ford, Ford will effectively
control all of the Company's tax decisions, and conflicts of interest regarding
tax matters between the Company and Ford may arise. See "-- Tax-Sharing
Agreement".

Certain of the Company's airport concession agreements require the consent of
the airport authority in connection with changes in ownership of the Company.
Those consents which are required in connection with the Offerings have been
obtained, other than certain consents the lack of which the Company does not
believe will have a material adverse effect on the Company's consolidated
financial position or results of operations. In the event that Ford seeks to
sell any of its Common Stock following the Offerings, additional consents will
be required.

For a description of certain provisions of the Company's Restated Certificate of
Incorporation concerning the allocation of business opportunities that may be
suitable for both the Company and Ford, See "Description of Capital Stock --
Certain Certificate of Incorporation and By-law Provisions -- Corporate
Opportunities".

Set forth below are descriptions of certain agreements, relationships and
transactions between the Company and Ford.

CAR SUPPLY AGREEMENT

The Company and Ford have entered into a car supply agreement (the "Car Supply
Agreement") having a term of ten years, commencing September 1, 1997 and ending
August 31, 2007. Under the Car Supply Agreement, Ford and the Company have
agreed to negotiate in good faith on an annual basis with respect to the supply
of cars. Ford has agreed to supply to the Company and the Company has agreed to
purchase from Ford, for each car model year during the term of the agreement
(i.e., the 1998 model year through the 2007 model year), (a) the lesser of
150,000 cars or 55% of the Company's fleet requirements for its car rental
business conducted in the United States; (b) 35% of the Company's fleet
requirements for its car rental business conducted in Europe; and (c) 55% of the
Company's fleet requirements for its car rental business conducted other than in
the United States and Europe. For each model year, at least 50% of the cars
supplied by Ford are required to be non-risk cars. The Car Supply Agreement also
provides that, for each model year, Ford must strive to offer car fleet programs
to the Company on terms and conditions that are competitive with terms and
conditions for the supply of cars then being offered by other automobile
manufacturers to the Company and other daily car rental companies. In addition,
for each model year, Ford must supply cars to the Company on terms and
conditions that are no less favorable than those offered by Ford to other daily
car rental companies, excluding franchised Ford vehicle dealers who rent cars.
See "Business -- Worldwide Car Rental -- Car Acquisition".

JOINT ADVERTISING AGREEMENT

The Company and Ford have entered into a joint advertising agreement (the "Joint
Advertising Agreement") having a term of ten years, commencing September 1, 1997
and ending August 31, 2007. Under the Joint Advertising Agreement, Ford has
agreed to pay to the Company one-half of the Company's advertising costs, up to
a limit of $39 million for the first year and, for each year thereafter, a limit
equal to the prior year's limit adjusted for inflation, subject to a ceiling. In
addition, if for any year, one-half of the Company's advertising costs exceed
such limit and the Company has purchased

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from Ford a percentage of its car fleet requirements for its car rental business
conducted in the United States for the corresponding model year (the "Ford
Vehicle Share") equal to 58% or more, then Ford will pay to the Company
additional amounts for such excess advertising costs. To be eligible for cost
reimbursement under the Joint Advertising Agreement, the advertising must meet
certain conditions, including the condition that it indicates that the Company
features Ford vehicles in a manner and with a prominence that is reasonably
satisfactory to Ford.

The Joint Advertising Agreement further provides that if the Ford Vehicle Share
for any model year is less than 55%, Ford will not be obligated to pay the
Company any amount for its advertising costs for that year, except to the extent
that the Company's failure to achieve a 55% Ford Vehicle Share is attributable
to (a) Ford's failure to supply a sufficient quantity of cars for the Company to
achieve a 55% Ford Vehicle Share or (b) the fact that the terms and conditions
of Ford's car fleet programs offered to the Company were not competitive with
the terms and conditions for the supply of cars offered by other automobile
manufacturers to the Company and other daily car rental companies. In no event,
however, will Ford be required to pay any amount for the Company's advertising
costs for any year if the Ford Vehicle Share for the corresponding model year is
less than 40%.

For information regarding amounts paid by Ford to the Company for its
advertising costs in past years under a similar agreement, see "Business --
Worldwide Car Rental -- Marketing, Sales and Advertising".

CORPORATE AGREEMENT

The Company and Ford intend to enter into a corporate agreement (the "Corporate
Agreement") under which the Company will grant to Ford a continuing option,
assignable to any of its subsidiaries, to purchase, under certain circumstances,
additional shares of Class B Common Stock or shares of nonvoting capital stock
of the Company (the "Stock Option"). The Stock Option may be exercised
simultaneously with the issuance of any equity security of the Company (other
than in the Offerings or upon the exercise of the Underwriters' over-allotment
options), with respect to Class B Common Stock, only to the extent necessary to
maintain its then-existing percentage of the total voting power and value of the
Company and, with respect to shares of nonvoting capital stock, to the extent
necessary to own 80% of each outstanding class of such stock. The purchase price
of the shares of Class B Common Stock purchased upon any exercise of the Stock
Option, subject to certain exceptions, will be based on the market price of the
Class A Common Stock, and the purchase price of nonvoting capital stock will be
the price at which such stock may be purchased by third parties. The Stock
Option expires in the event that Ford reduces its beneficial ownership of Common
Stock in the Company to Common Stock representing less than 20% of the
outstanding shares of Common Stock.

The Corporate Agreement will further provide that, upon the request of Ford, the
Company will use its best efforts to effect the registration under the
applicable federal and state securities laws of any of the shares of Common
Stock and nonvoting capital stock (and any other securities issued in respect of
or in exchange for either) beneficially owned by Ford for sale in accordance
with Ford's intended method of disposition thereof, and will take such other
actions as may be necessary to permit the sale thereof in other jurisdictions,
subject to certain specified limitations. Ford will also have the right which,
subject to certain limitations, it may exercise at any time and from time to
time, to include the shares of Common Stock and nonvoting capital stock (and any
other securities issued in respect of or in exchange for either) beneficially
owned by it in certain other registrations of common equity securities of the
Company initiated by the Company on its own behalf or on behalf of its other
stockholders. The Company will agree to pay all out-of-pocket costs and expenses
in connection with each such registration that Ford requests or in which Ford
participates. Subject to certain limitations specified in the Corporate
Agreement, such registration rights will be assignable by Ford and its assigns.
The Corporate Agreement will contain indemnification and contribution
provisions: (i) by Ford and its permitted assigns for the benefit of the Company
and related persons; and (ii) by the Company for the benefit of Ford and the
other persons entitled to effect registrations of Common Stock (and other
securities) pursuant to its terms and related persons.

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The Corporate Agreement will also provide that for so long as Ford maintains
beneficial ownership of a majority of the number of outstanding shares of Common
Stock, the Company may not take any action or enter into any commitment or
agreement which may reasonably be anticipated to result, with or without notice
and with or without lapse of time, or otherwise, in a contravention (or an event
of default) by Ford of: (i) any provision of applicable law or regulation,
including but not limited to provisions pertaining to the Internal Revenue Code
of 1986, as amended, or the Employee Retirement Income Security Act of 1974, as
amended; (ii) any provision of Ford's certificate of incorporation or by-laws;
(iii) any credit agreement or other material instrument binding upon Ford or its
assets or (iv) any judgment, order or decree of any governmental body, agency or
court having jurisdiction over Ford or its assets.

The Corporate Agreement will provide that the Company will enter into a similar
agreement for the benefit of the Class B Transferee (as defined below), if any.

TAX-SHARING AGREEMENT

The Company is, and after the Offerings will continue to be, included in Ford's
federal consolidated income tax group, and the Company's federal income tax
liability will be included in the consolidated federal income tax liability of
Ford and its subsidiaries. In certain circumstances, certain of the Company's
subsidiaries will also be included with certain Ford subsidiaries in combined,
consolidated or unitary income tax groups for state and local tax purposes. The
Company and Ford entered into a tax-sharing agreement (the "Tax-Sharing
Agreement"). Pursuant to the Tax-Sharing Agreement, the Company and Ford will
make payments between them such that, with respect to any period, the amount of
taxes to be paid by the Company, subject to certain adjustments, will be
determined as though the Company were to file separate federal, state and local
income tax returns (including, except as provided below, any amounts determined
to be due as a result of a redetermination of the tax liability of Ford arising
from an audit or otherwise) as the common parent of an affiliated group of
corporations filing combined, consolidated or unitary (as applicable) federal,
state and local returns rather than a consolidated subsidiary of Ford with
respect to federal, state and local income taxes. With respect to foreign tax
credits, the Company's right to reimbursement will be determined based on the
usage of such foreign tax credits by the consolidated group.

In determining the amount of tax-sharing payments under the Tax-Sharing
Agreement, Ford will prepare or cause to be prepared pro forma returns with
respect to federal and applicable state and local income taxes that reflect the
same positions and elections used by Ford in preparing the returns for Ford's
consolidated group and other applicable groups. Ford will continue to have all
the rights of a parent of a consolidated group (and similar rights provided for
by applicable state and local law with respect to a parent of a combined,
consolidated or unitary group), will be the sole and exclusive agent for the
Company in any and all matters relating to the income, franchise and similar
liabilities of the Company, will have sole and exclusive responsibility for the
preparation and filing of consolidated federal and consolidated or combined
state and local income tax returns (or amended returns), and will have the
power, in its sole discretion, to contest or compromise any asserted tax
adjustment or deficiency and to file, litigate or compromise any claim for
refund on behalf of the Company related to such return.

In general, the Company will be included in Ford's consolidated group for
federal income tax purposes for so long as Ford beneficially owns at least 80%
of the total voting power and value of the outstanding common stock. Each member
of a consolidated group is jointly and severally liable for the federal income
tax liability of each other member of the consolidated group. Accordingly,
although the Tax-Sharing Agreement allocates tax liabilities between the Company
and Ford, during the period in which the Company is included in Ford's
consolidated group, the Company could be liable in the event that any federal
tax liability is incurred, but not discharged, by any other member of Ford's
consolidated group. See "Risk Factors -- Control by and Relationship with Ford".

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COMMERCIAL PAPER DEALER AGREEMENTS

The Company maintains a Sales Agency Agreement with Ford Financial Services,
Inc., an NASD registered broker-dealer and an indirect, wholly-owned subsidiary
of Ford ("FFS"), whereby FFS acts as a dealer for the Company's domestic
commercial paper program. The Company pays fees to FFS which range from .035% to
.05% per annum of commercial paper placed depending upon the monthly average
dollar value of the notes outstanding in the portfolio. In 1996, the Company
paid FFS $556,754 of such fees. FFS is under no obligation to purchase any of
the notes for its own account. FFS has acted as the sole commercial paper dealer
for the Company since October 1994. The Company, through its subsidiary Hertz
Australia Pty. Limited ("Hertz Australia"), has a similar agreement with Ford
Credit Australia Limited, also an indirect, wholly-owned subsidiary of Ford.

CREDIT FACILITY AND LOANS

As discussed under "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources", Ford has extended
to the Company a $500 million committed credit facility under which the Company
may borrow, repay and reborrow amounts from time to time at rates of interest
based on London Interbank Offered Rates. The Company will pay Ford an annual
commitment fee on the undrawn amounts equal to (i) for the period from the date
of the agreement to and including June 30, 1997, the rate of .09% and (ii) for
the period from July 1, 1997 to and including the expiration date of the
facility, a rate to be agreed upon. The credit agreement expires on June 30,
1999, but is automatically extended annually for an additional year unless Ford
gives notice of termination. No amounts are currently outstanding under this
facility.

Ford also has lent to the Company an aggregate of $269 million, of which $250
million matures on November 15, 1999 and $19 million matures on July 1, 1997.

OTHER RELATIONSHIPS AND TRANSACTIONS

The Company and Ford also engage in other transactions in the ordinary course of
their respective businesses. These include HERC providing equipment rental
services to Ford, the Company providing insurance claim management services to
Ford and the Company providing car rental services to Ford. In addition, an
affiliate of Ford provides equipment resale financing to HERC's customers and
relocation services to employees of the Company.

The Company is named as an additional insured under certain of Ford's insurance
policies for which the Company pays its allocated portion of the premiums.

62
<PAGE> 62

MANAGEMENT

The following table sets forth certain information with respect to the executive
officers and directors of the Company, and their ages as of February 3, 1997:

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
NAME AGE POSITION AND OFFICE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Frank A. Olson 64 Chairman of the Board, Chief Executive Officer and Director
Craig R. Koch 50 President, Chief Operating Officer and Director
Daniel I. Kaplan 54 Executive Vice President
Brian J. Kennedy 55 Executive Vice President, Marketing and Sales
Joseph R. Nothwang 50 Executive Vice President and General Manager,
U.S. Car Rental Division
William Sider 63 Executive Vice President and Chief Financial Officer and
Director
Robert J. Bailey 62 Senior Vice President
Donald F. Steele 58 Senior Vice President, Employee Relations
Paul M. Tschirhart 56 Senior Vice President and General Counsel
Antoine E. Cau 49 Vice President
Leo A. Massad, Jr. 65 Controller
Robert H. Rillings 56 Treasurer
John M. Devine 52 Director
Peter J. Pestillo 58 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. Upon
completion of the Offerings, the Company will have a Board of Directors
consisting of the five current members of the Company's Board of Directors
identified above. After completion of the Offerings, the Company anticipates
that the size and composition of the Board of Directors will be changed and will
include three directors who will be officers of the Company, three directors who
will be officers of Ford and two directors who will be persons not associated
with the Company or Ford. Ford will have the ability to change the size and
composition of the Company's Board of Directors and committees of the Board of
Directors. See "Relationship with Ford".

The Company's Board of Directors is expected to appoint directors who are not
affiliated with the Company or Ford to a compensation committee of the Board of
Directors (the "Compensation Committee") and an audit committee of the Board of
Directors (the "Audit Committee") after such directors are elected. Both such
committees will be comprised solely of independent directors. 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 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. OLSON has been Chairman of the Board of Directors since June 1980, and a
director of the Company since November 1974. From June 9, 1987 to December 12,
1987 he was Chairman of the Board, President and Chief Executive Officer of UAL
Corporation, Elk Grove, Illinois (the Company's former parent). He is also a
director of Becton, Dickinson and Co., Franklin Lakes, New Jersey; Cooper

63
<PAGE> 63

Industries, Inc., Houston, Texas; Unicom Corporation, Chicago, Illinois; and
Fund American Holdings, Inc., Lebanon, New Hampshire.

MR. KOCH was elected President and Chief Operating Officer of the Company on
September 1, 1993. From February 1988 through August 1993 he served as Executive
Vice President and President of North America Car Rental operations of the
Company. He served as President and Chief Operating Officer of the Company from
May 1987 to February 1988. In October 1983 he became Executive Vice President
and General Manager of the Company's Car Rental Division after having served as
Vice President and General Manager since March 1980. He has been a director of
the Company since June 27, 1994 and previously served as a director of the
Company from May 1987 to July 1993 and from October 1983 to September 1985.

MR. KAPLAN was elected Executive Vice President of the Company in May 1987.
Previously, he was Vice President, Materials and Support Services from July 1982
to September 1982 and continued as a Vice President until May 1987. In September
1982, he was elected a director and President of Hertz Equipment Rental
Corporation, a subsidiary of the Company.

MR. KENNEDY was elected Executive Vice President, Marketing and Sales of the
Company in February 1988. From May 1987 through January 1988, he served as
Executive Vice President and General Manager of the Car Rental Division of the
Company, prior to which, from October 1983, he served as Senior Vice President,
Marketing.

MR. NOTHWANG was elected Executive Vice President of the Company and General
Manager
U.S. Car Rental in August 1995. He served as Vice President and General Manager
U.S. Car Rental from September 1993 to August 1995. Previously he served as
Division Vice President, Region Operations since 1985. He has served in various
operating positions since 1976.

MR. SIDER was elected Executive Vice President and Chief Financial Officer of
the Company in February 1988. From June 25, 1987 to December 31, 1987, he served
as Chief Financial Officer of UAL Corporation, Elk Grove, Illinois. From October
1983 to February 1988, he served as Senior Vice President, Finance of the
Company. In April 1981, he was elected Vice President, Finance, and in 1980
served as Vice President and Controller of the Company. He has been a director
of the Company since October 1983.

MR. BAILEY was elected Senior Vice President of the Company in May 1990.
Previously, he served in various functions with the Company since 1956, except
for the years 1966 and 1981.

MR. STEELE was elected Senior Vice President, Employee Relations of the Company
in July 1984. Previously, he served in various functions with the Company since
1972.

MR. TSCHIRHART was elected Senior Vice President and General Counsel of the
Company in October 1986, and also served as Secretary from February 1988 to
November 1992. Previously, he served as Senior Counsel for United Airlines,
Inc., Elk Grove, Illinois, since 1982.

MR. CAU was elected Vice President of the Company and President of Hertz
International, Ltd., a subsidiary of the Company, in April 1990. Previously, he
served in various functions with Hertz International, Ltd. foreign operations
since 1973.

MR. MASSAD was elected Controller of the Company in July 1986. Previously, he
served in various positions with the Company since 1965.

MR. RILLINGS was elected Treasurer of the Company in November 1986. Previously,
he served in various positions with the Company since 1961.

MR. DEVINE was elected a director of the Company and became a member of the
Compensation Committee in August 1996. Mr. Devine was elected Executive Vice
President of Ford in November 1996, and also is Chief Financial Officer of Ford,
a position which he assumed in October 1994. Mr. Devine also is a director of
Associates First Capital Corporation, an affiliate of the Company. From April
1991 until May 1994 he served as Chairman and Chief Executive Officer of First
Nationwide

64
<PAGE> 64

Bank, a wholly-owned subsidiary of Ford. Previously, Mr. Devine served in
various positions with Ford since 1967.

MR. PESTILLO was elected a director of the Company in July 1993, and has also
served as Chairman of the Compensation Committee since August 1989. He is
Executive Vice President, Corporate Relations of Ford. He was Vice President,
Corporate Relations and Diversified Businesses of Ford from April 1990 to
January 1993. From January 1986 to April 1990 he was Vice President, Employee
and External Affairs for Ford. He is also a director of Rouge Steel Company.

EXECUTIVE COMPENSATION

The following table sets forth the compensation earned and/or paid to the
Company's five most highly compensated executive officers for services rendered
in all capacities to the Company for the fiscal years ended December 31, 1996,
1995 and 1994. Compensation of the executive officers is reviewed and approved
by the Company's Compensation Committee and is determined in part by the
operating performance and the contributions made to the consolidated results of
the Company.

Summary Compensation Table (5)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------
ANNUAL COMPENSATION
--------------------------------------
OTHER LONG-TERM
ANNUAL COMPENSATION ALL OTHER
YEAR SALARY(1) BONUS(2) COMPENSATION(3) PAYOUTS(2) COMPENSATION(4)
---- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Dollars in thousands
Frank A. Olson................. 1996 $731 $900 $ -- $668 $5
Chairman of the Board and 1995 694 500 -- 645 5
Chief Executive Officer 1994 650 728 -- 680 5
Craig R. Koch.................. 1996 439 475 -- 334 5
President and Chief 1995 424 258 -- 323 5
Operating Officer 1994 400 318 -- 340 5
William Sider.................. 1996 337 280 -- 200 5
Executive Vice President 1995 325 163 -- 194 5
and Chief Financial Officer 1994 305 244 204 5
Antoine E. Cau................. 1996 303 154 80 320 --
Vice President 1995 296 185 82 310 --
1994 255 208 78 326 --
Joseph R. Nothwang............. 1996 241 209 -- 200 5
Executive Vice President 1995 231 106 -- 129 5
1994 215 121 -- 68 5
</TABLE>

- -------------------------
(1) Amounts included consist of salary payments for the respective year and
amounts deferred pursuant to section 401(k) of the Internal Revenue Code of
1986, as amended.

(2) Includes executive and long-term incentive bonuses earned and paid for the
respective year.

(3) Includes the following for the years 1996, 1995 and 1994 (in thousands):
$42, $42 and $41 housing allowance; $11, $12 and $11 automobile use; and $27,
$28 and $26 tax equalization payments, respectively.

(4) Represents the amounts contributed by the Company to the Income Savings Plan
for the respective year.

(5) The Company did not grant or issue any stock options or stock appreciation
rights during the years covered by this table.

65
<PAGE> 65

INCENTIVE COMPENSATION PLANS

The Company has an Executive Incentive Compensation Plan for key employees and
certain officers of the Company and its subsidiaries. The grant of awards and
the size thereof depends upon the degree to which each operation's financial
targets (pre-tax income and return on total average equity, each as defined in
the plan) approved by senior officers of the Company and members of the
Company's Compensation Committee, are reached or exceeded. Performance is
measured annually, and the awards are paid in full in the following year, or may
be deferred pursuant to a prior election by a participant, to a period selected
by the participant.

In 1991, the Company established a Long-Term Incentive Plan for certain officers
and other key employees of the Company and its subsidiaries. The grant of awards
and the size thereof will be determined by the achievement of certain
qualitative and quantitative performance targets. A new four year performance
cycle begins on each January 1. Performance generally is measured in four year
periods and awards will be made in cash at the end of each performance period.
The performance factors used include net income of the Company relative to the
net income average for the Dow 30 Industrials, market share and customer
satisfaction. To phase in this plan, transitional grants were made as of January
1, 1991, covering one-year, two-year and three-year performance periods. Target
and maximum award grants in place for 1996 to the Company's five most highly
compensated executive officers are set forth in the table below.

Long-Term Incentive Plans -- Awards in Last Fiscal Year

<TABLE>
<CAPTION>
-----------------------------------------------
PERFORMANCE
OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
DOLLARS IN THOUSANDS PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
MATURATION OR ------------------------------
PAYOUT THRESHOLD TARGET MAXIMUM
NAME ------------- --------- ------ -------
<S> <C> <C> <C> <C>
Frank A. Olson....................................... (1) $0 $500 $1,000
Craig R. Koch........................................ (1) 0 250 500
William Sider........................................ (1) 0 150 300
Antoine E. Cau....................................... (1) 0 240 480
Joseph R. Nothwang................................... (1) 0 150 300
</TABLE>

- -------------------------
(1) Awards for 1996 are included in the Summary Compensation Table.

Target award grants have also been made for the performance years 1997, 1998 and
1999 versus performance for the previous four years. The amount of the payments
for the performance years subsequent to 1996 can range from zero to twice the
amount of the target. Such target award grants made for the performance years
1997, 1998 and 1999, respectively, to the Company's five most highly compensated
officers are as follows (in thousands): Mr. Olson $500, $500 and $600; Mr. Koch
$300, $300 and $350; Mr. Sider $150, $150 and $180, Mr. Cau $240, $240 and $240;
Mr. Nothwang $200, $200 and $200.

The Company also maintains Field Incentive Compensation Plans for certain
employees of the Company and its subsidiaries. Awards are made and paid annually
based on the achievement of revenue and pre-tax income objectives. Each award is
determined and approved by the Company's Compensation Committee.

INCOME SAVINGS PLAN

The Income Savings Plan of the Company was established effective August 30,
1985. Prior thereto, qualified employees of the Company participated in the RCA
Income Savings Plan ("RCA Plan"). The assets and liabilities maintained under
the RCA Plan attributable to participating employees of the Company were
transferred as of September 1, 1985 to the Company's Income Savings Plan (the
"Plan"). Under the Plan, the Company continued substantially the same provisions
as provided under

66
<PAGE> 66

the RCA Plan, except for the following: (1) the RCA Stock Fund as an investment
option was discontinued and fund assets were reinvested in other investment
funds as elected by the participants, and (2) the eligibility requirement for
qualified employees hired on or after September 30, 1985 was changed to two
years of service in lieu of the one year of service previously required.
Effective January 1, 1989, the eligibility requirement was again reduced to one
year of service.

The Plan is a defined contribution plan available, as specified in the Plan, to
certain full-time and part-time employees of the Company who have been credited
with the Company for at least 1,000 hours of service during any twelve
consecutive months commencing on the day he/she is credited with his/her first
hour of service (or any anniversary thereof). Employees covered by a collective
bargaining agreement are not eligible unless their collective bargaining
agreement makes the Plan applicable to them.

Prior to July 1, 1987, the Company contributed a fixed percentage (4%) of
eligible employees' base salary to the Plan. Employees could also make their own
before-tax and after-tax contributions of their base salary, subject to
percentage and monetary limitations. Effective July 1, 1987, the Plan was
amended whereby the Company contributes only 66.7% of the first 6% of the
employee's contribution for a maximum match contribution by the Company of 4% of
the employee's base salary. Employee after-tax contributions were eliminated.
Effective January 1, 1988, the Plan was further amended to change the Company's
contribution from 66.7% to 50% of the first 6% of the employee's contribution
for a maximum match contribution by the Company of 3% of the employee's base
salary. Effective July 1, 1991, the Company's contribution was suspended and was
resumed on January 1, 1992.

Employees hired prior to January 1, 1987 become fully vested when contributions
are made. Employees hired on or after January 1, 1987 are immediately fully
vested in the contributions the employee made and become fully vested in the
amount contributed by the Company after the employee completes five years of
service. Each Plan member determines the fund distribution to which
contributions will be applied. The funds include the General Common Stock Fund,
a commingled index fund investing in common stock (shares in medium to
large-size companies chosen for the purpose of approximating the rate of growth
for the S&P 500 Composite Stock Index); the Fixed Income Fund invested in a
managed commingled fund with high quality fixed rate securities, including
guaranteed investment contracts, as well as with insurance companies that
guarantee interest rates at agreed upon levels and a Balanced Fund consisting of
a mix of stocks or bonds ranging from 30% to 70% (stocks are in medium to large-
size companies and bonds are in U.S. Treasury and Agency and highly-rated
corporate issues). The performance of the Balanced Fund is measured against an
index consisting of a 50% weighing of the S&P 500 and a 50% weighing of the
Salomon Broad Bond Investment Grade Bond Index. Plan funds may be invested in
interim investments prior to investments in the General Common Stock Fund, Fixed
Income Fund and the Balanced Fund. Distributions and withdrawals are based on
the unit value of the employee's account as of a specified month end valuation
date and are subject to conditions stated in the Plan.

PENSION PLAN

Effective August 30, 1985, the Company established the Retirement Plan for the
Employees of the Company ("Hertz Plan"). Prior thereto, the Company participated
in the Retirement Plan for the Employees of RCA Corporation and Subsidiary
Companies ("RCA Plan"). The assets and liabilities associated with benefits
accrued by participating employees of the Company as of August 30, 1985 were
retained under the RCA Plan. Benefits accrued by the Company's employees through
August 30, 1985 will be paid under the RCA Plan. The RCA Plan was replaced by a
restated Hertz Plan which continued the RCA Plan for the Company's employees
without interruption.

The Hertz Plan is qualified under the Internal Revenue Code of 1986, as amended,
and is a defined benefit plan for which contributions were made by the employees
up to June 30, 1987 and by the employer.

67
<PAGE> 67

Effective July 1, 1987, the Hertz Plan was revised to an "Account Balance
Pension Plan" under which the Company pays the entire cost and employees are no
longer required to contribute. Employees are eligible for participation in the
Hertz Plan on the first day of the month coinciding with or following the date
on which they complete one year of continuous service, as defined by the
Employee Retirement Income Security Act of 1974 ("ERISA"). Employees covered by
a collective bargaining agreement are not eligible unless their union contract
makes the Hertz Plan applicable to them. Effective July 1, 1987, a qualified
employee's cash balance account was credited with an annual cash balance credit
equal to 3% of their pensionable earnings. For each plan year beginning January
1, 1996 and thereafter, a qualified employee's cash balance account shall be
credited with an annual cash balance credit equal to: (a) 3% of his/her
pensionable earnings for that plan year in the case of a qualified employee who
is credited with less than 60 continuous months of service from his/her most
recent date of hire, or (b) 4% of his/her pensionable earnings for that plan
year in the case of a qualified employee who is credited with 60 or more
continuous months of service from his/her most recent date of hire. In the case
of a qualified employee who is first credited with 60 continuous months of
service after January 1 of a plan year, the percentage of his/her pensionable
earnings utilized in determining his/her annual cash balance credit for that
plan year shall be increased to 4% effective as of the first day of the month
coincident with or next following his/her completion of 60 continuous months of
service from his/her most recent date of hire. This benefit is credited with
guaranteed interest rates compounded annually based on rates issued by the
Pension Benefit Guaranty Corporation in effect for the preceding December. In
addition, all qualified employees age 50 or over with 10 or more years of
credited service as of July 1, 1987, will have an additional amount of their
pensionable earnings credited to their cash balance account as follows: 1% for
ages 50 through age 54 as of July 1, 1987, 2% for ages 55 through 59 as of July
1, 1987 and 3% for ages 60 and over as of July 1, 1987.

Officers of the Company and its subsidiaries participate in the Hertz Plan. The
amount of the normal retirement benefit under this plan is determined as a
percentage of final average compensation (highest five consecutive of last ten
years of covered compensation), and based upon years of credited service up to
July 1, 1987 plus the value of their cash balance account accrued after July 1,
1987. The benefits are not offset by Social Security. Compensation covered by
the Hertz Plan means all salary and wages, including overtime and premium pay,
sales commissions and amounts paid under executive and field compensation plans,
but excluding the compensation paid under the Long-Term Incentive Plan. The
Company has instituted non-qualified unfunded pension plans for certain of its
executives to pay those benefits which are excess to those provided under the
qualified plans which include (1) the Benefit Equalization Plan that provides
equalization benefits that cannot be provided under the Hertz Plan due to
limitations imposed by the Internal Revenue Code of 1986, as amended, and (2)
the Supplemental Retirement and Savings Plan that, when combined with the Hertz
Plan, provides a benefit as if the pre-July 1, 1987 benefit formula had remained
in effect until the participants' normal retirement date. Set forth on the next
page is a table indicating annual pension benefits payable under both the Hertz
Plan and the non-qualified Supplemental Retirement and Savings Plan. The table
indicates benefits applicable for participants in specified remuneration and
years of service classifications, based on retirement at age 65, and for life
annuity (other annuity options are available, which would influence the amounts
shown on the following page).

68
<PAGE> 68

Pension Plan Table

<TABLE>
<CAPTION>
FINAL --------------------------------------------------------
AVERAGE YEARS OF PARTICIPATION IN PLAN
PENSIONABLE 15 20 25 30 35
COMPENSATION -------- -------- -------- ---------- ----------
<C> <C> <C> <C> <C> <C>
$ 175,000 $ 41,026 $ 54,701 $ 68,376 $ 82,051 $ 95,726
225,000 52,996 70,661 88,326 105,991 123,656
275,000 64,966 86,621 108,276 129,931 151,586
325,000 76,936 102,581 128,226 153,871 179,516
375,000 88,906 118,541 148,176 177,811 207,446
425,000 100,876 134,501 168,126 201,751 235,376
475,000 112,846 150,461 188,076 225,691 263,306
525,000 124,816 166,421 208,026 249,631 291,236
575,000 136,786 182,380 227,976 273,571 319,167
625,000 148,756 198,341 247,927 297,511 347,096
675,000 160,726 214,301 267,876 321,452 375,026
725,000 172,696 230,261 287,826 345,391 402,956
775,000 184,666 246,221 307,776 369,331 430,886
825,000 196,636 262,181 327,726 393,271 458,816
1,000,000 238,531 318,041 397,551 477,061 556,571
1,500,000 358,231 477,641 597,051 716,461 835,871
2,000,000 477,931 637,241 796,551 955,861 1,115,171
2,500,000 597,631 796,841 996,051 1,195,261 1,394,471
</TABLE>

Total credited service with the Company and its subsidiaries for persons named
in the cash compensation table is as follows: Mr. Olson -- 30 years; Mr. Koch --
25 years; Mr. Sider -- 30 years; and Mr. Nothwang -- 20 years. Mr. Cau does not
participate in the Hertz Plan or the RCA Plan.

In addition to the above, the Company maintains a non-qualified plan to provide
a Special Supplemental Executive Pension Benefit (the "SEP Benefit") for Messrs.
Olson and Sider. The SEP is intended to provide any necessary excess benefit to
ensure the designated participants receive an aggregate pension benefit (from
all qualified and non-qualified plans) equal to 50% of the participant's final
average earnings as defined under the Hertz Plan. The projected annual life
annuity SEP Benefit payable at age 65 to Mr. Olson is $137,000 and to Mr. Sider
is $31,000.

COMPENSATION OF DIRECTORS

It is anticipated that directors who do not receive compensation as officers or
employees of the Company or any of its affiliates will be paid an annual board
membership fee of $25,000, and an attendance fee of $1,000 for each meeting of
the Board of Directors and committees thereof. The Company does not pay any
additional compensation to directors who receive compensation as officers or
employees of the Company or any of its affiliates.

EMPLOYMENT AGREEMENTS

Messrs. Olson, Koch and Sider serve the Company under employment agreements
which currently expire on January 31, 2000, April 30, 2002 and June 30, 1997,
respectively. Mr. Cau serves a subsidiary of the Company under an employment
agreement dated April 9, 1993, that is terminable by either party under certain
circumstances stated therein. The employment agreements do not provide for any
compensatory plan or arrangement upon termination of employment or change in
control, except for the compensation of Mr. Cau. The employment agreement of Mr.
Koch is automatically extended one (1) additional year on May 1 of each year
unless not later than December 31st of the preceding year, the Company or Mr.
Koch shall have given notice not to extend the agreement.

69
<PAGE> 69

LONG-TERM EQUITY COMPENSATION PLAN

The Company will sponsor a stock-based incentive plan (the "ECP") covering the
Company's five most highly compensated executive officers (the "Named Executive
Officers") and other executives of the Company. The Company adopted the ECP in
1997 prior to the Offerings. Awards granted under the ECP are based on shares of
Class A Common Stock.

The ECP is administered by a committee appointed by the Company's Board of
Directors. After the completion of the Offerings, the ECP will be administered
by the Compensation Committee. The ECP provides for the grant of incentive and
nonqualified stock options, stock appreciation rights, restricted stock,
performance shares and performance units (individually, an "Award" or
collectively, "Awards"). Only officers or certain salaried employees of the
Company with potential to contribute to the future success of the Company or its
subsidiaries will be eligible to receive Awards under the ECP (initially
approximately 600 employees). The administrator of the ECP has the discretion to
select the employees to whom Awards will be granted, to determine the type, size
and terms and conditions applicable to each Award and the authority to
interpret, construe and implement the provisions of the ECP. The administrator's
decisions will be binding.

The total number of shares of Class A Common Stock that may be subject to Awards
under the ECP is 7.5% of all outstanding Common Stock as of the tenth business
day following the closing date of the Offerings, or approximately 8,120,026
shares, including Awards granted prior to the Offerings and subject to
adjustment as provided in the ECP. No more than 500,000 shares of Class A Common
Stock may be subject to stock options, with or without any related stock
appreciation rights, or stand-alone stock appreciation rights, awarded to any
individual participant under the ECP in any one calendar year. Class A Common
Stock issued under the ECP may be either authorized but unissued shares (subject
to a maximum limit of 701,025 shares), treasury shares or any combination
thereof. No more than 300,000 shares of Class A Common Stock may be granted
under the ECP as Awards of performance-based "Restricted Stock" (as herein
defined) to any individual participant in any one calendar year and which are
intended to qualify as performance-based compensation under Section 162(m) of
the Internal Revenue Code of 1986, as amended. The maximum aggregate payout
(determined as of the end of the applicable performance period) with respect to
Awards of "Performance Shares" or "Performance Units" (as such terms are
hereinafter defined) that may be granted under the ECP to any individual
participant in any one calendar year and which are intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
of 1986, as amended, shall be equal to the closing trading price on the New York
Stock Exchange of 300,000 shares of Class A Common Stock. Any shares of Class A
Common Stock in addition to 701,025 shares to be issued as Awards under the ECP
or pursuant to Awards granted under the ECP will be obtained by the Company
either through forfeitures of shares of Restricted Stock (to the extent that
such shares are made available again for issuance under the ECP) or from
treasury shares (to the extent that the Company is permitted by applicable law
to acquire its own shares). Any shares of Class A Common Stock subject to an
Award which lapses, expires or is otherwise terminated without the issuance of
such shares may become available for new Awards.

The Company intends to grant Awards to the Named Executive Officers and other
selected participants which will be contingent on the successful completion of
the Offerings. The terms of the Awards will be

70
<PAGE> 70

set forth in award agreements ("Award Agreements"). These Awards are summarized
in the following table and are described below:

ECP Table

<TABLE>
<CAPTION>
------------------------------------
NO. OF
NO. OF SHARES OF NONQUALIFIED
RESTRICTED STOCK STOCK OPTIONS(1)
MAME AND POSITION ---------------- ----------------
<S> <C> <C>
Frank A. Olson.............................................. 215,260 149,460
Chairman of the Board and
Chief Executive Officer
Craig R. Koch............................................... 157,015 105,210
President and Chief
Operating Officer
William Sider............................................... 29,930 59,980
Executive Vice President
and Chief Financial Officer
Antoine E. Cau.............................................. 29,930 59,980
Vice President
Joseph R. Nothwang.......................................... 59,865 119,960
Executive Vice President
All Executive Officers as a Group (including those listed
above).................................................... 701,025 913,470
Non-Employee Directors...................................... 0 0
All Other Employees as a Group.............................. 0 510,000
</TABLE>

- -------------------------
(1) The Company intends to grant these options with an exercise price equal to
the initial public offering price set forth on the cover page of this
Prospectus.

The principal terms of the Award Agreements are as follows:

(i) An Award will be granted to the Chairman and Chief Executive Officer,
which will consist of shares of Restricted Stock that will vest on the
third anniversary of the date of grant,

(ii) An Award will be granted to each Named Executive Officer other than
the Chairman and Chief Executive Officer and to approximately seven other
officers, which will consist of shares of Restricted Stock that will vest
33% on the third anniversary of the date of grant, an additional 33% on the
fourth anniversary of the date of grant, and in full on the fifth
anniversary of the date of grant,

(iii) An Award will be granted to each Named Executive Officer and to a
significantly larger group of eligible employees, which will consist of
Options that will vest 33% on the first anniversary of the date of grant,
an additional 33% on the second anniversary of the date of grant and in
full on the third anniversary of the date of grant.

Set forth below is a brief description of the Awards that may be granted under
the ECP:

Stock Options. Options (each an "Option") to purchase shares of Class A Common
Stock, which may be incentive or nonqualified stock options, may be granted
under the ECP at an exercise price (the "Option Price") determined by the
administrator of the ECP in its discretion, provided that the Option Price may
be no less than the closing trading price of the Class A Common Stock on the New
York Stock Exchange on the date of grant, except the initial grants described
above will be granted with an exercise price equal to the initial public
offering price set forth on the cover page of this Prospectus. Each Option
represents the right to purchase one share of Class A Common Stock at the
specified Option Price.

Options will expire not later than 10 years after the date on which they are
granted and will become exercisable at such times and in such installments as
determined by the administrator of the ECP. Payment of the Option Price must be
made in full at the time of exercise in cash, certified or bank check. As
determined by the administrator of the ECP, payment in full or in part may also
be made by

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tendering to the Company shares of Class A Common Stock having a fair market
value equal to the Option Price (or such portion thereof). The Committee may
also allow a cashless exercise of such options.

Stock Appreciation Rights. An Award of a stock appreciation right ("SAR") may be
granted under the ECP. Generally, one SAR is granted with respect to one share
of Class A Common Stock. The SAR entitles the participant, upon the exercise of
the SAR, to receive an amount equal to the appreciation in the underlying share
of Class A Common Stock. The appreciation is equal to the difference between (i)
the "base value" of the SAR (which is determined with reference to the closing
trading price of the Class A Common Stock on the New York Stock Exchange on the
date the SAR is granted), and (ii) the closing trading price of the Class A
Common Stock on the New York Stock Exchange on the date the SAR is exercised.
Upon the exercise of a vested SAR, the exercising participant will be entitled
to receive the appreciation in the value of one share of Class A Common Stock as
so determined, payable at the discretion of the participant in cash, shares of
Class A Common Stock, or some combination thereof, subject to the availability
of shares of Class A Common Stock to the Company.

SARs will expire not later than 10 years after the date on which they are
granted. SARs become exercisable at such times and in such installments as
determined by the administrator of the ECP.

Tandem Option/SARs. An Option and a SAR may be granted "in tandem" with each
other (a "Tandem Option/SAR"). An Option and a SAR are considered to be in
tandem with each other because the exercise of the Option aspect of the tandem
unit automatically cancels the right to exercise the SAR aspect of the tandem
unit, and vice versa. The Option may be an incentive stock option or a
nonqualified stock option, and the Option may be coupled with one SAR, more than
one SAR or a fractional SAR in any proportionate relationship selected by the
Compensation Committee. Descriptions of the terms of the Option and the SAR
aspects of a Tandem Option/SAR are provided above.

Restricted Stock. An Award of restricted stock ("Restricted Stock") is an Award
of Class A Common Stock that is subject to such restrictions as the
administrator of the ECP deems appropriate, including forfeiture conditions and
restrictions against transfer for a period specified by the administrator of the
ECP. Restricted Stock Awards may be granted under the ECP for services and/or
payment of cash. Restrictions on Restricted Stock may lapse in installments
based on factors selected by the administrator of the ECP. Prior to the
expiration of the restricted period, except as and only if provided by the
administrator of the ECP, a grantee who has received a Restricted Stock Award
generally has the rights of a stockholder of the Company, including the right to
vote and to receive cash dividends on the shares subject to the Award. Stock
dividends issued with respect to a Restricted Stock Award may be treated as
additional shares under such Award and may be subject to the same restrictions
and other terms and conditions that apply to the shares with respect to which
such dividends are issued.

Performance Shares and Performance Units. A performance share Award (a
"Performance Share") and/or a performance unit Award (a "Performance Unit") may
be granted under the ECP. Each Performance Unit will have an initial value that
is established by the administrator of the ECP at the time of grant. Each
Performance Share will have an initial value equal to the closing trading price
of one share of Class A Common Stock on the New York Stock Exchange on the date
of grant. Such Awards may be earned based upon satisfaction of certain specified
performance criteria, subject to such other terms and conditions as the
administrator of the ECP deems appropriate. Performance objectives will be
established before, or as soon as practicable after, the commencement of the
performance period during which performance will be measured (the "Performance
Period") and may be based on net earnings, operating earnings or income, net
income, absolute and/or relative return on equity, capital invested or assets,
earnings per share, cash flow, profits, earnings growth, revenue growth,
comparisons to peer companies, share price, total shareholder return, economic
value added, expense reduction, customer satisfaction, any combination of the
foregoing and/or such other measures, including individual measures of
performance, as the administrator of the ECP deems appropriate. Prior to the end
of a Performance Period, the administrator of the ECP, in its discretion, may
adjust the performance objectives to reflect an event that may materially affect
the performance of the Company,

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including, but not limited to, market conditions or a significant acquisition or
disposition of assets or other property by the Company. The extent to which a
grantee is entitled to payment in settlement of such an Award at the end of the
Performance Period will be determined by the administrator of the ECP, in its
discretion, based on whether the performance criteria have been met and payment
will be made in cash or in shares of Class A Common Stock in accordance with the
terms of the applicable Award Agreements.

Additional Information. Under the ECP, if there is any change in the
capitalization of the Company, a corporate transaction, a reorganization or a
partial liquidation of the Company, such proportionate adjustments as may be
necessary (in the form determined by the administrator of the ECP) to reflect
such change will be made to prevent dilution or enlargement of the rights with
respect to the aggregate number of shares of Class A Common Stock for which
Awards in respect thereof may be granted under the ECP, the number of shares of
Class A Common Stock covered by each outstanding Award and the price per share
in respect thereof. Unless otherwise provided in an Award Agreement, an
individual's rights under the ECP may not be assigned or transferred (except in
the event of death). An individual's rights under the ECP are subject to
forfeiture for competitive activity or activity that is inimical to the best
interest of the Company.

The ECP will remain in effect until terminated by the board of directors and
thereafter until all Awards granted thereunder are satisfied by the issuance of
shares of Class A Common Stock and/or the payment of cash or the ECP is
otherwise terminated pursuant to the terms of the ECP or under any Award
Agreements. Notwithstanding the foregoing, no Awards may be granted under the
ECP after the tenth anniversary of the effective date of the ECP. The board of
directors may at any time terminate, modify or amend the ECP; provided, however,
that no such amendment, modification or termination may materially adversely
affect an optionee's or grantee's rights under any Award theretofore granted
under the ECP, except with the consent of such optionee or grantee.

Certain Federal Income Tax Consequences of Awards. Certain of the federal income
tax consequences to ECP participants and the Company of Awards granted under the
ECP are generally set forth in the following summary.

An employee to whom an Option which is an incentive stock option ("ISO") that
qualifies under Section 422 of the Internal Revenue Code of 1986, as amended, is
granted will not recognize income at the time of grant or exercise of such
Option. No federal income tax deduction will be allowable to the Company upon
the grant or exercise of such ISO. However, upon the exercise of an ISO, any
excess in the fair market price of the Class A Common Stock over the Option
Price constitutes a tax preference item that may have alternative minimum tax
consequences for the employee. When the employee sells such shares more than one
year after the date of transfer of such shares and more than two years after the
date of grant of such ISO, the employee will normally recognize a long-term
capital gain or loss equal to the difference, if any, between the sales price of
such shares and the aggregate Option Price and the Company will not be entitled
to a federal income tax deduction with respect to the exercise of the ISO or the
sale of such shares. If the employee does not hold such shares for the required
period, when the employee sells such shares, the employee will recognize
ordinary compensation income and possibly capital gains or losses in such
amounts as are prescribed by the Internal Revenue Code of 1986, as amended, and
the regulations thereunder and the Company will generally be entitled to a
federal income tax deduction in the amount of such ordinary compensation income.

An employee to whom an Option which is a nonqualified stock option ("NSO") is
granted will not recognize income at the time of grant of such Option. When the
employee exercises such NSO, the employee will recognize ordinary compensation
income equal to the difference, if any, between the Option Price paid and the
fair market value, as of the date of Option exercise, of the shares of Class A
Common Stock the employee receives. The tax basis of such shares to such
employee will be equal to the Option Price paid plus the amount includible in
the employee's gross income, and the employee's holding period for such shares
will commence on the date of exercise. Subject to the applicable provisions of
the Internal Revenue Code of 1986, as amended, and regulations thereunder, the

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Company will generally be entitled to a federal income tax deduction in respect
of an NSO in an amount equal to the ordinary compensation income recognized by
the employee upon the exercise of the NSO.

OWNERSHIP OF COMMON STOCK

Ford owns 100% of the common stock of the Company outstanding prior to the
Offerings. Upon completion of the Offerings, Ford will beneficially own 49.4% of
the outstanding Class A Common Stock and 100% of the outstanding Class B Common
Stock and, accordingly, will own Common Stock representing approximately 80.9%
of the economic interest in the Company and representing approximately 94.5% of
the combined voting power of the Company's outstanding common stock. See
"Relationship with Ford".

The principal executive offices of Ford are located at The American Road,
Dearborn, Michigan 48121.

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of the Company will consist of (i) 440,000,000
shares of Class A Common Stock and 140,000,000 shares of Class B Common Stock
and (ii) 40,000,000 shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock"). Of the 440,000,000 shares of Class A Common Stock,
20,010,000 shares are being offered in the Offerings, 20,245,833 shares will be
outstanding and beneficially owned by Ford as of the closing date of the
Offerings, 140,000,000 shares will be reserved for issuance upon conversion of
Class B Common Stock into Class A Common Stock and 701,025 shares have been
issued pursuant to an employee benefit plan. See "Management -- Long-Term Equity
Compensation Plan". Of the 140,000,000 shares of Class B Common Stock,
67,310,167 shares will be outstanding and beneficially owned by Ford as of the
closing date of the Offerings. As of the closing date of the Offerings, there
will be no preferred stock outstanding. A description of the material terms and
provisions of the Company's Restated Certificate of Incorporation affecting the
relative rights of the Class A Common Stock, the Class B Common Stock and the
Preferred Stock is set forth below. The following description of the capital
stock of the Company is intended as a summary only and is qualified in its
entirety by reference to the form of the Company's Restated Certificate of
Incorporation filed with the Registration Statement of which this Prospectus
forms a part and to Delaware corporate law.

COMMON STOCK

Voting Rights

The holders of Class A Common Stock and Class B Common Stock generally have
identical rights except that holders of Class A Common Stock are entitled to one
vote per share. Holders of Class B Common Stock are entitled to five votes per
share on all matters to be voted on by stockholders, subject to the right of
Ford or the Class B Transferee (as defined below), as the case may be, to reduce
from time to time the number of votes per share of Class B Common Stock by
written notice to the Company specifying the reduced number of votes per share.
Holders of shares of Class A Common Stock and Class B Common Stock are not
entitled to cumulate their votes in the election of directors. Generally, all
matters to be voted on by stockholders must be approved by a majority (or, in
the case of election of directors, by a plurality) of the votes entitled to be
cast by all shares of Class A Common Stock and Class B Common Stock present in
person or represented by proxy, voting together as a single class, subject to
any voting rights granted to holders of any Preferred Stock. Except as otherwise
provided by law, and subject to any voting rights granted to holders of any
outstanding Preferred Stock,

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amendments to the Company's Restated Certificate of Incorporation must be
approved by a majority of the combined voting power of all Class A Common Stock
and Class B Common Stock, voting together as a single class. However, amendments
to the Company's Restated Certificate of Incorporation that would alter or
change the powers, preferences or special rights of the Class A Common Stock or
the Class B Common Stock so as to affect them adversely also must be approved by
a majority of the votes entitled to be cast by the holders of the shares
affected by the amendment, voting as a separate class. Notwithstanding the
foregoing, any amendment to the Company's Restated Certificate of Incorporation
to increase or decrease the authorized shares of any class shall be approved
upon the affirmative vote of the holders of a majority of the Common Stock,
voting together as a single class.

Dividends

Holders of Class A Common Stock and Class B Common Stock will share ratably in
any dividend declared by the Board of Directors, subject to any preferential
rights of any outstanding Preferred Stock. Dividends consisting of shares of
Class A Common Stock and Class B Common Stock may be paid only as follows: (i)
shares of Class A Common Stock may be paid only to holders of shares of Class A
Common Stock, and shares of Class B Common Stock may be paid only to holders of
Class B Common Stock; and (ii) shares shall be paid proportionally with respect
to each outstanding share of Class A and Class B Common Stock.

The Company may not subdivide or combine shares of either class of Common Stock
without at the same time proportionally subdividing or combining shares of the
other class.

Conversion

Each share of Class B Common Stock is convertible while held by Ford, any of its
subsidiaries or the Class B Transferee (as defined below), if any, at the option
of the holder thereof into one share of Class A Common Stock. Following the
occurrence of a distribution, if any, of shares of Class B Common Stock to
stockholders of Ford in a transaction intended to be tax-free under section 355
of the Internal Revenue Code of 1986, as amended (a "tax-free spin-off"), shares
of Class B Common Stock shall not be convertible into shares of Class A Common
Stock at the option of the holder thereof.

Except as provided below, any shares of Class B Common Stock transferred to a
person other than Ford or any of its subsidiaries or the Class B Transferee or
any of its subsidiaries shall automatically convert to shares of Class A Common
Stock upon such disposition. Shares of Class B Common Stock representing more
than a 50% economic interest in the Company transferred by Ford or any of its
subsidiaries in a single transaction to one unrelated person (the "Class B
Transferee") shall not automatically convert to shares of Class A Common Stock
upon such disposition. Any shares of Class B Common Stock retained by Ford or
any of its subsidiaries following any such disposition to the Class B Transferee
shall automatically convert to shares of Class A Common Stock upon such
disposition. Shares of Class B Common Stock transferred to stockholders of Ford
or stockholders of the Class B Transferee as a distribution intended to be a
tax-free spin-off shall not convert to shares of Class A Common Stock upon the
occurrence of a tax-free spin-off. Following a tax-free spin-off, shares of
Class B Common Stock shall be transferable as Class B Common Stock, subject to
applicable laws; provided, however, that shares of Class B Common Stock shall
automatically convert into shares of Class A Common Stock on the fifth
anniversary of the tax-free spin-off, unless prior to such tax-free spin-off,
Ford or the Class B Transferee, as the case may be, delivers to the Company an
opinion of counsel reasonably satisfactory to the Company (which, in the case of
Ford, shall include Ford's Chief Tax Officer) to the effect that such conversion
would preclude Ford or the Class B Transferee, as the case may be, from
obtaining a favorable ruling from the Internal Revenue Service that the
distribution would be a tax-free spin-off. If such an opinion is received,
approval of such conversion shall be submitted to a vote of the holders of the
Common Stock as soon as practicable after the fifth anniversary of the tax-free
spin-off unless Ford or the Class B Transferee, as the case may be, delivers to
the Company an opinion of counsel reasonably satisfactory to the Company (which,
in the case of Ford, shall include Ford's Chief Tax Officer) prior to such
anniversary that such vote would adversely

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affect the status of the tax-free spin-off. Approval of such conversion will
require the affirmative vote of the holders of a majority of the shares of both
the Class A Common Stock and Class B Common Stock present and voting, voting
together as a single class, with each share entitled to one vote for such
purpose. No assurance can be given that such conversion would be consummated.
The requirement to submit such conversion to a vote of the holders of Common
Stock is intended to ensure tax treatment of the tax-free spin-off is preserved
should the Internal Revenue Service challenge such automatic conversion as
violating the 80% vote requirement. Ford has no current plans with respect to a
tax-free spin-off of the Company.

All shares of Class B Common Stock shall automatically convert into Class A
Common Stock if a tax-free spin-off has not occurred and the number of
outstanding shares of Class B Common Stock beneficially owned by Ford or the
Class B Transferee, as the case may be, falls below 20% of the aggregate number
of outstanding shares of Common Stock. This will prevent Ford or the Class B
Transferee, as the case may be, from decreasing its economic interest in the
Company to less than 20% while still retaining control of more than 55% of the
Company's voting power. Automatic conversion of the Class B Common Stock into
Class A Common Stock if a tax-free spin-off has not occurred and Ford or the
Class B Transferee, as the case may be, decreases its economic interest in the
Company to less than 20% is intended to ensure that Ford or the Class B
Transferee, as the case may be, retains voting control by virtue of its
ownership of Class B Common Stock only if it has a significant economic interest
in the Company. All conversions will be effected on a share-for-share basis.

Other Rights

In the event of any merger or consolidation of the Company with or into another
company in connection with which shares of Common Stock are converted into or
exchangeable for shares of stock, other securities or property (including cash),
all holders of Common Stock, regardless of class, will be entitled to receive
the same kind and amount of shares of stock and other securities and property
(including cash).

On liquidation, dissolution or winding up of the Company, after payment in full
of the amounts required to be paid to holders of Preferred Stock, if any, all
holders of Common Stock, regardless of class, are entitled to share ratably in
any assets available for distribution to holders of shares of Common Stock.

No shares of either class of Common Stock are subject to redemption or have
preemptive rights to purchase additional shares of Common Stock. However, see
"Relationship with Ford -- Corporate Agreement" with respect to certain rights
of Ford to purchase additional shares of Common Stock.

Upon consummation of the Offerings, all the outstanding shares of Class A Common
Stock and Class B Common Stock will be legally issued, fully paid and
nonassessable.

PREFERRED STOCK

The Preferred Stock is issuable from time to time in one or more series and with
such designations and preferences for each series as shall be stated in the
resolutions providing for the designation and issue of each such series adopted
by the Board of Directors of the Company. The Board of Directors is authorized
by the Company's Restated Certificate of Incorporation to determine, among other
things, the voting, dividend, redemption, conversion and liquidation powers,
rights and preferences and the limitations thereon pertaining to such series.
The Board of Directors, without stockholder approval, may issue Preferred Stock
with voting and other rights that could adversely affect the voting power and
other rights of the holders of the Common Stock and could have certain
anti-takeover effects. The Company has no present plans to issue any shares of
Preferred Stock. The ability of the Board of Directors to issue Preferred Stock
without stockholder approval could have the effect of delaying, deferring or
preventing a change in control of the Company or the removal of existing
management.

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CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS

Corporate Opportunities

The Company's Restated Certificate of Incorporation will provide that: Ford
shall have no duty to refrain from engaging in the same or similar activities or
lines of business as the Company, and neither Ford nor any officer or director
thereof (except as provided below) shall be liable to the Company or its
stockholders for breach of any fiduciary duty by reason of any such activities
of Ford. In the event that Ford acquires knowledge of a potential transaction or
matter which may be a corporate opportunity for both Ford and the Company, Ford
shall have no duty to communicate or offer such corporate opportunity to the
Company and shall not be liable to the Company or its stockholders for breach of
any fiduciary duty as a stockholder of the Company by reason of the fact that
Ford pursues or acquires such corporate opportunity for itself, directs such
corporate opportunity to another person, or does not communicate information
regarding such corporate opportunity to the Company.

In the event that a director or officer of the Company who is also a director or
officer of Ford acquires knowledge of a potential transaction or matter which
may be a corporate opportunity for both the Company and Ford, such director or
officer of the Company shall have fully satisfied and fulfilled the fiduciary
duty of such director or officer of the Company and its stockholders with
respect to such corporate opportunity if such director or officer acts in a
manner consistent with the following policy:

(i) a corporate opportunity offered to any person who is an officer of the
Company, and who is also a director but not an officer of Ford, shall
belong to the Company;

(ii) a corporate opportunity offered to any person who is a director but
not an officer of the Company, and who is also a director or officer of
Ford, shall belong to the Company if such opportunity is expressly offered
to such person in writing solely in his or her capacity as a director of
the Company, and otherwise shall belong to Ford; and

(iii) a corporate opportunity offered to any person who is an officer of
both the Company and Ford shall belong to the Company if such opportunity
is expressly offered to such person in writing solely in his or her
capacity as an officer of the Company, and otherwise shall belong to Ford.

For purposes of the foregoing:

(i) A director of the Company who is Chairman of the Board of Directors of
the Company or of a committee thereof shall not be deemed to be an officer
of the Company by reason of holding such position (without regard to
whether such position is deemed an officer of the Company under the By-laws
of the Company), unless such person is a full-time employee of the Company;
and

(ii) (A) The term "Company" shall mean the Company and all corporations,
partnerships, joint ventures, associations and other entities in which the
Company beneficially owns (directly or indirectly) 50% or more of the
outstanding voting stock, voting power, partnership interests or similar
voting interests, and (B) the term "Ford" shall mean Ford and all
corporations, partnerships, joint ventures, associations and other entities
(other than the Company, defined in accordance with clause (A) of this
section (ii)) in which Ford beneficially owns (directly or indirectly) 50%
or more of the outstanding voting stock, voting power, partnership
interests or similar voting interests.

The foregoing provisions of the Company's Restated Certificate of Incorporation
shall expire on the date that Ford ceases to own beneficially Common Stock
representing at least 20% of the total voting power of all classes of
outstanding Common Stock and no person who is a director or officer of the
Company is also a director or officer of Ford or any of its subsidiaries (other
than the Company).

In addition to any vote of the stockholders required by the Company's Restated
Certificate of Incorporation, until the time that Ford ceases to own
beneficially Common Stock representing at least 20% of the total voting power of
all classes of outstanding Common Stock, the affirmative vote of the holders of
more than 80% of the total voting power of all classes of outstanding Common
Stock shall

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be required to alter, amend or repeal in a manner adverse to the interests of
Ford and its subsidiaries (other than the Company), or adopt any provision
adverse to the interests of Ford and its subsidiaries (other than the Company),
and inconsistent with, the corporate opportunity provisions described above.
Accordingly, so long as Ford beneficially owns Common Stock representing at
least 20% of the total voting power of all classes of outstanding Common Stock,
it can prevent any such alteration, amendment, repeal or adoption.

Any person purchasing or otherwise acquiring Common Stock will be deemed to have
notice of, and to have consented to, the foregoing provisions of the Company's
Restated Certificate of Incorporation.

Provisions That May Have an Anti-Takeover Effect

Certain provisions of the Company's Restated Certificate of Incorporation and
By-laws summarized below may be deemed to have an anti-takeover effect and may
delay, deter or prevent a tender offer or takeover attempt that a stockholder
might consider to be in its best interest, including attempts that might result
in a premium being paid over the market price for the shares held by
stockholders.

The Company's Restated Certificate of Incorporation will provide that, subject
to any rights of holders of Preferred Stock to elect additional directors under
specified circumstances, the number of directors of the Company will be fixed by
the By-laws. The By-laws will provide that, subject to any rights of holders of
Preferred Stock to elect directors under specified circumstances, the number of
directors will be fixed from time to time exclusively by resolution of the Board
of Directors adopted by the vote of directors constituting a majority of the
total number of directors that the Company would have if there were no vacancies
on the Company's Board of Directors, but shall consist of not more than twelve
nor less than three directors. In addition, the Restated Certificate of
Incorporation and By-laws will provide that, subject to any rights of holders of
Preferred Stock, and unless the Company's Board of Directors otherwise
determines, any vacancies will be filled by the affirmative vote of a majority
of the remaining members of the Board of Directors, though less than a quorum,
or by a sole remaining director; except as otherwise provided by law, any such
vacancy may not be filled by the stockholders.

The Company's By-laws will provide for an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors as well as for other stockholder proposals
to be considered at annual meetings of stockholders. In general, notice of
intent to nominate a director or raise matters at such meetings will have to be
received in writing by the Company not less than 60 nor more than 90 days prior
to the anniversary of the previous year's annual meeting of stockholders, and
must contain certain information concerning the person to be nominated or the
matters to be brought before the meeting and concerning the stockholder
submitting the proposal. The Company's Restated Certificate of Incorporation and
By-laws will also provide that special meetings of stockholders may be called
only by certain specified officers of the Company or by any such officer at the
request in writing of the Board of Directors; special meetings of stockholders
cannot be called by stockholders. In addition, the Company's Restated
Certificate of Incorporation will provide that any action required or permitted
to be taken by stockholders may be effected by written consent; provided,
however, that on and after the date on which neither Ford nor the Class B
Transferee continues to beneficially own 50% or more of the total voting power
of all classes of outstanding Common Stock, any action required or permitted to
be taken by stockholders may be effected only at a duly called annual or special
meeting of stockholders and may not be effected by a written consent by
stockholders in lieu of such a meeting.

The Company's Restated Certificate of Incorporation will also provide that the
affirmative vote of the holders of at least 75% of the total voting power of all
classes of outstanding Common Stock, voting together as a single class, is
required to amend, repeal or adopt any provision inconsistent with the foregoing
provisions of the Restated Certificate of Incorporation. The Restated
Certificate of Incorporation and By-laws will further provide that the By-laws
may be altered, amended or repealed by the Company's Board of Directors or by
the affirmative vote of the holders of at least 75% of the total voting power of
all classes of outstanding Common Stock, voting together as a single class.

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In addition to the foregoing, certain of the Company's airport concession
agreements require the consent of the airport authority in connection with
transfers of varying percentages of the Company's common stock. See
"Relationship with Ford".

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

The Company is a Delaware corporation subject to Section 203 of the Delaware
General Corporation Law (the "Delaware Law"). Section 203 provides that, subject
to certain exceptions specified therein, a corporation shall not engage in any
business combination with any "interested stockholder" for a three-year period
following the time that such stockholder becomes an interested stockholder
unless (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares) or (iii) on or subsequent to such time, the business combination
is approved by the board of directors of the corporation and by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. Except as specified in Section 203 of the Delaware
Law, an interested stockholder is defined to include (x) any person that is the
owner of 15% or more of the outstanding voting stock of the corporation, or is
an affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation, at any time within three years
immediately prior to the relevant date and (y) the affiliates and associates of
any such person. Under certain circumstances, Section 203 of the Delaware Law
makes it more difficult for an "interested stockholder" to effect various
business combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. By virtue of its ownership of 15% or more of the outstanding voting
stock of the Company for more than a three-year period, Ford and its
subsidiaries are not themselves restricted from engaging in a business
combination with the Company pursuant to Section 203 of the Delaware Law.

LIMITATIONS ON DIRECTORS' LIABILITY

The Company's Restated Certificate of Incorporation provides that no director of
the Company shall be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases or (iv) for any
transaction from which the director derived an improper personal benefit. The
effect of these provisions will be to eliminate the rights of the Company and
its stockholders (through stockholders' derivative suits on behalf of the
Company) to recover monetary damages against a director for breach of fiduciary
duty as a director (including breaches resulting from grossly negligent
behavior), except in the situations described above.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock will be First Chicago
Trust Company of New York.

SHARES AVAILABLE FOR FUTURE SALE

Upon completion of the Offerings, the Company will have 40,956,858 shares of
Class A Common Stock issued and outstanding and 67,310,167 shares of Class B
Common Stock issued and outstanding. All of the shares of Class A Common Stock
to be sold in the Offerings will be freely tradeable without restrictions or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except for any shares purchased by an "affiliate" of the
Company (as that term is defined in Rule 144

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<PAGE> 79

adopted under the Securities Act ("Rule 144")), which will be subject to the
resale limitations of Rule 144. All of the outstanding shares of Class B Common
Stock are beneficially owned by Ford and 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. Ford has certain rights to require the
Company to effect registration of shares of Common Stock owned by Ford, which
rights may be assigned. See "Relationship with Ford -- Corporate Agreement".

In general, under Rule 144 as in effect as of April 29, 1997, 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 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 Class B
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.

Prior to the Offerings, there has been no market for the Class A Common Stock,
and no prediction can be made as to the effect, if any, that market sales of
outstanding shares of Class B Common Stock, or the availability of such shares
for sale, will have on the market price of the Class A Common Stock prevailing
from time to time. Nevertheless, sales of substantial amounts of Class B Common
Stock beneficially owned by Ford in the public market, or the perception that
such sales could occur, could adversely affect prevailing market prices for the
Class A Common Stock offered in the Offerings.

Although Ford in the future may effect or direct sales or other dispositions of
Common Stock that would reduce its beneficial ownership interest in the Company,
Ford has advised the Company that its current intent is to continue to hold all
of the Common Stock beneficially owned by it following the Offerings. However,
Ford is not subject to any contractual obligation to retain its controlling
interest except that Ford and the Company have agreed, subject to certain
exceptions, not to sell or otherwise dispose of any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of J.P. Morgan Securities Inc. As a result, there can be no assurance
concerning the period of time during which Ford will maintain its beneficial
ownership of Common Stock owned by it following the Offerings. See
"Underwriting". Beneficial ownership of at least 80% of the total voting power
and value of the outstanding Common Stock is required in order for Ford to
continue to include the Company in its consolidated group for federal income tax
purposes, and beneficial ownership of at least 80% of the total voting power and
80% of each class of nonvoting capital stock is required in order for Ford to be
able to effect a tax-free spin-off or certain other tax-free transactions. See
"Relationship with Ford".

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<PAGE> 80

DESCRIPTION OF CERTAIN INDEBTEDNESS

GENERAL

In connection with the funding of its operations, the Company and certain of its
foreign subsidiaries from time to time issue publicly and privately held debt
securities (the "Debt Securities"). At December 31, 1996, the Company and its
subsidiaries had an aggregate of $5.1 billion in Debt Securities outstanding.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".

MATURITIES AND INTEREST RATES

The Debt Securities have maturities ranging from 1997 to 2009 with interest
rates ranging from 2.0% to 12% (excluding immaterial borrowings by the Company's
operation in Brazil, which accrue interest at higher rates due to the high
inflationary environment in that country). Certain Debt Securities issued by the
Company are redeemable at the option of the holders, including $100 million of
Debt Securities due 2009, which are redeemable in 1999, and $150 million of Debt
Securities due 2006, which are redeemable in 2002. If such Debt Securities are
redeemed, the last to mature of the Debt Securities would mature in 2005. See
Note 2 of the Notes to the Company's consolidated financial statements included
in this Prospectus.

COVENANTS

Certain debt instruments under which the Company has issued Debt Securities or
guarantees contain the following restrictive covenants:

Limitations on Mergers

The Company may not, subject to certain exceptions, consolidate with, merge
into, or sell, convey or transfer its properties and assets substantially as an
entirety to another person, if, as a result thereof, any property owned by the
Company or certain subsidiaries of the Company ("Restricted Subsidiaries")
immediately prior thereto would become subject to any security interest, unless
certain publicly held Debt Securities issued by the Company are secured equally
and ratably with (or prior to) the debt secured by such security interest.

Limitations on Certain Loans and Advances

The Company may not, and may not permit any Restricted Subsidiary to, make any
loan or advance to any person owning more than 50% of the outstanding voting
stock of the Company or to any affiliate of such person (other than the Company
or a Restricted Subsidiary) if the aggregate outstanding amount of senior
indebtedness of the Company and its Restricted Subsidiaries exceeds 400% of the
consolidated net worth and subordinated indebtedness of the Company and its
Restricted Subsidiaries.

Limitations on Secured Debt

Subject to certain exceptions, including those set forth below, the Company may
not create, incur, assume or guarantee, and may not cause, suffer or permit a
Restricted Subsidiary to create, incur, assume or guarantee, any secured
indebtedness without making effective provisions whereby certain Debt Securities
then outstanding and any other indebtedness of or guaranteed by the Company or
such Restricted Subsidiary then entitled thereto, subject to applicable
priorities of payment, shall be secured by the security interest securing such
secured indebtedness equally and ratably with any and all other obligations and
indebtedness thereby secured (subject, however, to applicable priorities of
payment) so long as such secured indebtedness remains outstanding; provided,
however, that the foregoing prohibition shall not be applicable to (i) any
security interest in favor of the Company or a Restricted Subsidiary; (ii)
certain pre-existing security interests; (iii) security interests existing on
property at the

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<PAGE> 81

time it is acquired by the Company or a Restricted Subsidiary, provided, such
security interest is limited to all or part of the property so acquired; (iv)(a)
any security interest existing on the property of or on the outstanding shares
or indebtedness of a corporation at the time such corporation shall become a
Restricted Subsidiary or (b) subject to the provisions referred to above under
"-- Limitations on Mergers", any security interest on property of a corporation
existing at the time such corporation is merged into or consolidated with the
Company or a Restricted Subsidiary or at the time of a sale, lease or other
disposition of the properties of a corporation as an entirety or substantially
as an entirety to the Company or a Restricted Subsidiary, provided, in each such
case, that such security interest does not extend to any property owned prior to
such transaction by the Company or any Restricted Subsidiary which was a
Restricted Subsidiary prior to such transaction; and (v) security interests on
certain business equipment.

Notwithstanding the foregoing provisions, the Company and any one or more
Restricted Subsidiaries may issue, assume or guarantee secured indebtedness
which would otherwise be subject to the foregoing restrictions in an aggregate
amount which, together with all other secured indebtedness of the Company and
its Restricted Subsidiaries which would otherwise be subject to the foregoing
restrictions (not including indebtedness permitted to be secured as described
under "-- Limitations on Secured Debt" above), and the aggregate value of the
sale and leaseback transactions in existence at such time (not including sale
and leaseback transactions the proceeds of which have been or will be applied in
accordance with clause (ii) under "-- Limitations on Sale and Leaseback
Transactions" below), do not at the time of incurrence exceed 10% of the
consolidated net worth and subordinated indebtedness of the Company and its
Restricted Subsidiaries.

Limitations on Sale and Leaseback Transactions

The Company may not, and may not permit any Restricted Subsidiary to, engage in
any sale and leaseback transaction unless (i) the Company or such Restricted
Subsidiary would be entitled, without reference to the provisions described
under "-- Limitations on Secured Debt" above, to incur secured indebtedness in
an amount equal to the amount realized or to be realized upon the sale or
transfer involved in such sale and leaseback transaction, secured by a security
interest on the property to be leased without equally and ratably securing
certain outstanding Debt Securities as provided under "-- Limitations on Secured
Debt" or (ii) the Company or a Restricted Subsidiary apply, within 120 days
after such sale or transfer, an amount equal to the fair value of the property
so leased (as determined by the Board of Directors) to the repayment of senior
indebtedness of the Company or of any Restricted Subsidiary (other than senior
indebtedness owed to the Company or any Restricted Subsidiary) then prepayable.

Limitations on Dividends

The Company may not pay dividends, invest in its own shares or permit
investments by its Restricted Subsidiaries in the Company's shares subsequent to
a specified date if, together with total investments by the Company and its
Restricted Subsidiaries in subsidiaries that are not Restricted Subsidiaries
made subsequent to such specified date, the aggregate of any such dividends or
investments exceeds the sum of (i) a specified dollar amount, (ii) the aggregate
net income of the Company and its Restricted Subsidiaries earned subsequent to
such specified date and (iii) net proceeds received from capital stock issued
subsequent to such specified date. Immediately following the Offerings, the
Company will be permitted to pay $349 million in dividends under the most
restrictive of such covenants. See "Use of Proceeds" and "Capitalization".

The last to mature of the outstanding securities of the Company containing any
of the foregoing restrictions listed above have a final maturity of November 1,
2009.

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CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS

The following is a general discussion of certain U.S. federal income and estate
tax consequences of the ownership and disposition of Class A Common Stock by a
Non-U.S. Holder. For this purpose, a "Non-U.S. Holder" is any person who is, for
U.S. federal income tax purposes, a foreign corporation, a non-resident alien
individual, a foreign partnership or a foreign estate or trust. This discussion
does not address all aspects of U.S. federal income and estate taxes and does
not deal with foreign, state and local consequences that may be relevant to such
Non-U.S. Holders in light of their personal circumstances. Furthermore, this
discussion is based on provisions of the Internal Revenue Code of 1986, as
amended, existing and proposed regulations promulgated thereunder and
administrative and judicial interpretations thereof, as of the date hereof, all
of which are subject to change (possibly with retroactive effect). EACH
PROSPECTIVE PURCHASER OF CLASS A COMMON STOCK IS ADVISED TO CONSULT A TAX
ADVISOR WITH RESPECT TO CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF
ACQUIRING, HOLDING AND DISPOSING OF CLASS A COMMON STOCK AS WELL AS ANY TAX
CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY U.S. STATE, MUNICIPALITY OR
OTHER TAXING JURISDICTION.

DIVIDENDS

Dividends paid to a Non-U.S. Holder of Class A Common Stock generally will be
subject to withholding of U.S. federal income tax either at a rate of 30% of the
gross amount of the dividends or at such lower rate as may be specified by an
applicable income tax treaty. However, dividends that are effectively connected
with the conduct of a trade or business by the Non-U.S. Holder within the United
States and, where a tax treaty applies, are attributable to a U.S. permanent
establishment of the Non-U.S. Holder, are not subject to the withholding tax,
but instead are subject to U.S. federal income tax on a net income basis at
applicable graduated individual or corporate rates. Any such effectively
connected dividends received by a foreign corporation may, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.

Under current law, dividends paid to an address outside the United States are
presumed to be paid to a resident of such country (unless the payer has
knowledge to the contrary) for purposes of the withholding discussed above and,
under the current interpretation of United States Treasury regulations, for
purposes of determining the applicability of a tax treaty rate. Under proposed
United States Treasury regulations not currently in effect, however, a Non-U.S.
Holder of Class A Common Stock who wishes to claim the benefit of an applicable
treaty rate (and avoid backup withholding, as discussed below) would be required
to satisfy applicable certification and other requirements. Currently, certain
certification and disclosure requirements must be complied with in order to be
exempt from withholding under the effectively connected income exemption
discussed above.

A Non-U.S. Holder of Class A Common Stock eligible for a reduced rate of U.S.
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service (the "IRS").

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to U.S. federal income tax with
respect to gain recognized on a sale or other disposition of Class A Common
Stock unless (i) the gain is effectively connected with a trade or business of
the Non-U.S. Holder in the United States, and, where a tax treaty applies, is
attributable to a U.S. permanent establishment of the Non-U.S. Holder, (ii) in
the case of a Non-U.S. Holder who is an individual and holds the Class A Common
Stock as a capital asset, such holder is present in the United States for 183 or
more days in the taxable year of the sale or other disposition and certain other
conditions are met, (iii) the Non-U.S. Holder is subject to tax pursuant to
certain provisions of the Code applicable to U.S. expatriates or (iv) the
Company is or has been a "U.S.

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<PAGE> 83

real property holding corporation" for U.S. federal income tax purposes. The
Company believes it is not and does not anticipate becoming a "U.S. real
property holding corporation" for U.S. federal income tax purposes.

An individual Non-U.S. Holder described in clause (i) above, will, unless an
applicable treaty provides otherwise, be taxed on the net gain derived from the
sale under regular graduated U.S. federal income tax rates. An individual
Non-U.S. Holder described in clause (ii) above, will be subject to a flat 30%
tax on the gain derived from the sale, which may be offset by certain U.S.
source capital losses.

If a Non-U.S. Holder that is a foreign corporation falls under clause (i) above,
it will be taxed on its gain under regular graduated U.S. federal income tax
rates and may be subject to an additional branch profits tax at a 30% rate,
unless it qualifies for a lower rate under an applicable income tax treaty.

FEDERAL ESTATE TAX

Class A Common Stock owned or treated as owned by an individual Non-U.S. Holder
at the time of death will be included in such holder's gross estate for U.S.
federal estate tax purposes, unless an applicable estate tax treaty provides
otherwise, and therefore may be subject to U.S. federal estate tax.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the tax withheld with respect to
such dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.

Under current law, backup withholding at the rate of 31% generally will not
apply to dividends paid to a Non-U.S. Holder at an address outside the United
States (unless the payer has knowledge that the payee is a U.S. person). Under
proposed United States Treasury regulations not currently in effect, however, a
Non-U.S. Holder will be subject to backup withholding unless applicable
certification requirements are met.

Payment of the proceeds of a sale of Class A Common Stock by or through a U.S.
office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner provides the payer with its name and
address and certifies under penalties of perjury that it is a Non-U.S. Holder,
or otherwise establishes an exemption. In general, backup withholding and
information reporting will not apply to a payment of the proceeds of a sale of
Class A Common Stock by or through a foreign office of a foreign broker. If,
however, such broker is, for U.S. federal income tax purposes a U.S. person, a
controlled foreign corporation, or a foreign person that derives 50% or more of
its gross income for a certain period from the conduct of a trade or business in
the United States, such payments will be subject to information reporting, but
not backup withholding, unless (1) such broker has documentary evidence in its
records that the beneficial owner is a Non-U.S. Holder and certain other
conditions are met, or (2) the beneficial owner otherwise establishes an
exemption.

Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against such holder's U.S. federal income tax
liability provided the required information is furnished in a timely manner to
the IRS.

The backup withholding and information reporting rules are under review by the
Treasury Department and their application to the Class A Common Stock could be
changed by future regulations. Non-U.S. Holders should consult their tax
advisors regarding the application of these rules to their particular
situations, the availability of an exemption therefrom, the procedure for
obtaining such an exemption, if available, and the possible application of the
proposed United States Treasury regulations addressing the withholding and the
information reporting rules.

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UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "U.S. Underwriting Agreement"),
the U.S. Underwriters named below, for whom J.P. Morgan Securities Inc.,
Goldman, Sachs & Co., Lehman Brothers Inc., Salomon Brothers Inc and Smith
Barney Inc. are acting as representatives (the "U.S. Representatives"), have
severally agreed to purchase, and the Company has agreed to sell to them, the
respective number of shares of Class A Common Stock set forth opposite their
names below. Under the terms and subject to the conditions contained in an
Underwriting Agreement dated the date of this Prospectus (the "International
Underwriting Agreement" and, together with the U.S. Underwriting Agreement, the
"Underwriting Agreements"), the International Managers named below, for whom
J.P. Morgan Securities Ltd., Goldman Sachs International, ABN AMRO Rothschild,
Banque Nationale de Paris, Commerzbank Aktiengesellschaft, Credit Lyonnais,
Lehman Brothers International (Europe), Morgan Grenfell & Co. Limited, Salomon
Brothers International Limited and Smith Barney Inc. are acting as
representatives (the "International Representatives"), have severally agreed to
purchase, and the Company has agreed to sell to them, the respective number of
shares of Class A Common Stock set forth opposite their names below. The closing
of the offering made hereby is a condition to the closing of the International
Offering, and vice versa. Under the terms and conditions of the Underwriting
Agreements, the Underwriters are obligated to take and pay for all such shares
of Class A Common Stock, if any are taken. Under certain circumstances, the
commitments of nondefaulting Underwriters may be increased as set forth in the
Underwriting Agreements.

<TABLE>
<CAPTION>
----------------
NUMBER OF SHARES
U.S. UNDERWRITERS ----------------
<S> <C>
J.P. Morgan Securities Inc. ................................ 3,862,650
Goldman, Sachs & Co. ....................................... 3,862,650
Lehman Brothers Inc. ....................................... 1,716,900
Salomon Brothers Inc........................................ 1,716,900
Smith Barney Inc. .......................................... 1,716,900
ABN AMRO Chicago Corporation................................ 232,000
Bear, Stearns & Co. Inc. ................................... 232,000
Alex. Brown & Sons Incorporated............................. 232,000
Chase Securities, Inc. ..................................... 232,000
Citicorp Securities, Inc. .................................. 232,000
Credit Suisse First Boston Corporation...................... 232,000
Dean Witter Reynolds Inc. .................................. 232,000
Deutsche Morgan Grenfell Inc. .............................. 232,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 232,000
A.G. Edwards & Sons, Inc. .................................. 232,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 232,000
Montgomery Securities....................................... 232,000
Oppenheimer & Co., Inc. .................................... 232,000
PaineWebber Incorporated.................................... 232,000
Prudential Securities Incorporated.......................... 232,000
Sanford C. Bernstein & Co., Inc. ........................... 116,000
William Blair & Company, L.L.C. ............................ 116,000
J.C. Bradford & Co. ........................................ 116,000
Furman Selz LLC............................................. 116,000
Legg Mason Wood Walker, Incorporated........................ 116,000
McDonald & Company Securities Inc. ......................... 116,000
Neuberger & Berman.......................................... 116,000
Piper Jaffray Inc. ......................................... 116,000
The Robinson-Humphrey Company, Inc. ........................ 116,000
Charles Schwab & Co., Inc. ................................. 116,000
Stephens Inc. .............................................. 116,000
Sutro & Co. Incorporated.................................... 116,000
</TABLE>

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<PAGE> 85
<TABLE>
<CAPTION>
----------------
NUMBER OF SHARES
U.S. UNDERWRITERS ----------------
<S> <C>
Blaylock & Partners, L.P. .................................. 58,000
First Of Michigan Corporation............................... 58,000
WR Lazard, Laidlaw Incorporated............................. 58,000
NatCity Investments, Inc. .................................. 58,000
Roney & Co., L.L.C. ........................................ 58,000
Samuel A. Ramirez & Co. Inc. ............................... 58,000
Muriel Siebert & Co., Inc. ................................. 58,000
Stifel, Nicolaus & Company, Incorporated.................... 58,000
Sturdivant & Co., Inc. ..................................... 58,000
----------
Subtotal.................................................. 18,270,000
----------
</TABLE>

<TABLE>
<CAPTION>
----------------
NUMBER OF SHARES
INTERNATIONAL MANAGERS ----------------
<S> <C>
J.P. Morgan Securities Ltd. ................................ 356,900
Goldman Sachs International................................. 356,900
ABN AMRO Rothschild......................................... 100,000
Banque Nationale de Paris................................... 100,000
Commerzbank Aktiengesellschaft.............................. 100,000
Credit Lyonnais Securities.................................. 100,000
Morgan Grenfell & Co. Limited............................... 100,000
Lehman Brothers International (Europe)...................... 100,000
Salomon Brothers International Limited...................... 100,000
Smith Barney Inc. .......................................... 100,000
Barclays De Zoete Wedd Limited.............................. 17,400
Bayerische Vereinsbank Aktiengesellschaft................... 17,400
CIBC Wood Gundy Securities Inc. ............................ 17,400
HSBC Investment Bank plc.................................... 17,400
Kleinwort Benson Limited.................................... 17,400
J. Henry Schroder & Co. Limited............................. 17,400
Nomura International plc.................................... 17,400
RBC Dominion Securities Inc. ............................... 17,400
ScotiaMcLeod Inc. .......................................... 17,400
Societe Generale............................................ 17,400
Sumitomo Finance International plc.......................... 17,400
The Toronto-Dominion Bank................................... 17,400
UBS Limited................................................. 17,400
----------
Subtotal.................................................. 1,740,000
----------
Total.................................................. 20,010,000
----------
</TABLE>

The U.S. Underwriters and the International Managers have entered into an
Agreement Between Syndicates (the "Agreement Between Syndicates") which provides
for the coordination of their activities. Pursuant to the Agreement Between
Syndicates, sales may be made between the U.S. Underwriters and the
International Managers of such number of shares as they may mutually agree. The
price of any shares so sold shall be the offering price, less such amount as may
be mutually agreed upon by the U.S. Representatives and the International
Representatives, but not exceeding the selling concession to dealers applicable
to such shares. To the extent there are sales between the U.S. Underwriters and
the International Managers pursuant to the Agreement Between Syndicates, the
number of shares initially available for sale by the U.S. Underwriters or by the
International Managers may be more or less than the amount appearing on the
cover page of this Prospectus with respect to the Offerings. Neither the U.S.
Underwriters nor the International Managers are obligated to purchase from the
other any unsold shares. The Underwriters have agreed to reimburse the Company
for certain expenses in the amount of $1,440,720.

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<PAGE> 86

Pursuant to the Agreement Between Syndicates, each U.S. Underwriter has
represented and agreed that (i) it is not purchasing any Class A Common Stock
for the account of anyone other than a United States or Canadian Person and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any Class A Common Stock or distribute any prospectus relating to the Offerings
outside the United States or Canada or to anyone other than a United States or
Canadian Person. Pursuant to the Agreement Between Syndicates, each
International Manager has represented and agreed that (i) it is not purchasing
Class A Common Stock for the account of any United States or Canadian Person and
(ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any Class A Common Stock or distribute any prospectus relating to
the Offerings within the United States or Canada or to any United States or
Canadian Person. The foregoing limitations do not apply to certain transactions
specified in the Agreement Between Syndicates, including stabilization
transactions and transactions between the U.S. Underwriters and the
International Managers pursuant to the Agreement Between Syndicates. As used
herein, "United States or Canadian Person" means any individual who is a
national or a resident of the United States or Canada or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or any political subdivision thereof (other than
a branch located outside the United States or Canada), and includes any United
States or Canadian branch of a person who is otherwise not a United States or
Canadian Person.

Pursuant to the Agreement Between Syndicates, each U.S. Underwriter has
represented that it has not offered or sold, and agreed not to offer or sell,
any Class A Common Stock, directly or indirectly, in Canada in contravention of
the securities laws of Canada or any province or territory thereof and has
represented that any offer of Class A Common Stock in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchased from it any
of the Class A Common Stock a notice stating in substance that it has not
offered or sold, and will not offer or sell, directly or indirectly, any Class A
Common Stock in Canada or to, or for the benefit of, any resident of Canada in
contravention of the securities laws of Canada or any province or territory
thereof and that any offer of Class A Common Stock in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer is made, and that such
dealer will deliver to any other dealer to whom it sells any of such Class A
Common Stock a notice containing substantially the same statement as is
contained in this sentence.

Pursuant to the Agreement Between Syndicates, each International Manager has
also represented and agreed that (i) it has not offered or sold and prior to the
expiration of the period six months from the closing date for the issuance of
the Class A Common Stock, will not offer or sell any Class A Common Stock to
persons in the United Kingdom, except to those persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for purpose of their businesses or otherwise in
circumstances that have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995, (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Class A Common Stock in, from or
otherwise involving the United Kingdom and (iii) it has only issued and passed
on and will only issue and pass on in the United Kingdom any document received
by it in connection with the issue of the Class A Common Stock to a person who
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the
document may otherwise lawfully be issued or passed on.

The Underwriters propose initially to offer the Class A Common Stock directly to
the public at the price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $0.76 per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $0.10 per share to certain other dealers. After the initial
public offering of the Class A Common Stock, the public offering price and such
concession may be changed.

87
<PAGE> 87

The Underwriters have exercised over-allotment options granted to them by the
Company to purchase an additional 2,610,000 shares of Class A Common Stock at
the initial public offering price, less the underwriting discount.

In connection with the Offerings, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A Common
Stock. Specifically, the Underwriters may over-allot in connection with the
Offerings, creating a syndicate short position. In addition, the Underwriters
may bid for, and purchase, shares of Class A Common Stock in the open market to
cover syndicate short positions or to stabilize the price of the Class A Common
Stock. Finally, the underwriting syndicate may reclaim selling concessions
allowed for distributing the Class A Common Stock in the Offerings if the
syndicate repurchases previously distributed Class A Common Stock in syndicate
covering transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Class A Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.

The Company and Ford have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.

The Company and Ford have agreed that during the period beginning from the date
of this Prospectus and continuing to and including the date 180 days after the
date of this Prospectus they will (i) not offer, sell, contract to sell or
otherwise dispose of any securities of the Company which are substantially
similar to the Class A Common Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, Class A Common Stock or any such substantially similar
securities or (ii) enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, the economic consequence of
ownership of Class A Common Stock or any securities substantially similar to the
Class A Common Stock (other than (i) pursuant to employee stock option plans
existing on, or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, the date of this Prospectus and (ii) the issuance
of Common Stock in connection with the transactions described in this
Prospectus), without the prior written consent of J.P. Morgan Securities Inc.

The Underwriters have reserved for sale, at the initial public offering price,
shares of the Class A Common Stock for certain employees of the Company and its
affiliates in the United States and, subject to local laws, internationally, who
have expressed an interest in purchasing such shares of Class A Common Stock in
the Offerings. Such employees are expected to purchase, in the aggregate, not
more than 10% of the Class A Common Stock offered in the Offerings. The number
of shares available for sale to the general public in the Offerings will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares not so purchased will be offered to the general public on the same basis
as other shares offered hereby.

The Class A Common Stock has been approved for listing on the New York Stock
Exchange, upon notice of issuance, under the trading symbol "HRZ". In order to
meet the requirements for listing the Class A Common Stock on the New York Stock
Exchange, the Underwriters have undertaken to sell lots of 100 or more shares of
Class A Common Stock to a minimum of 2,000 beneficial owners.

Prior to the Offerings, there has been no public market for the Class A Common
Stock. The initial public offering price for the shares of Class A Common Stock
offered hereby has been determined by agreement among the Company and the
Underwriters. Among the factors considered in making such determination were the
history of and the prospects for the industry in which the Company competes, an
assessment of the Company's management, the present operations of the Company,
the historical results of operations of the Company and the trend of its
revenues and earnings, the prospects for future earnings of the Company, the
general condition of the securities markets at the time of the Offerings and the
prices of similar securities of generally comparable companies. There can be no
assurance that an active trading market will develop for the Class A Common
Stock or that the Class A Common Stock will trade in the public market at or
above the initial public offering price.

88
<PAGE> 88

The Underwriters have advised the Company that they do not expect that sales to
accounts over which they exercise discretionary authority will exceed 5% of the
shares offered hereby.

From time to time in the ordinary course of their respective businesses, certain
of the Underwriters and their affiliates have engaged in and may in the future
engage in commercial and/or investment banking transactions with the Company and
its affiliates.

LEGAL MATTERS

The validity of the Class A Common Stock offered hereby will be passed upon for
the Company by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York and for the Underwriters by
Shearman & Sterling, New York, New York. Simpson Thacher & Bartlett and Shearman
& Sterling have in the past provided, and may continue to provide, legal
services to Ford and its affiliates.

EXPERTS

The Consolidated Balance Sheet of the Company as of December 31, 1996 and 1995
and the Consolidated Statements of Income and Retained Earnings and Cash Flows
for each of the three years in the period ended December 31, 1996 included in
this Prospectus, have been included herein in reliance on the report of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement"), under the Securities Act and the rules and regulations thereunder,
for the registration of the Class A Common Stock offered hereby. This
Prospectus, which forms a part of the Registration Statement, does not contain
all the information set forth in the Registration Statement, certain parts of
which have been omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Class A
Common Stock offered hereby, reference is made to the Registration Statement.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to herein are not necessarily complete and, where such
contract or other document is an exhibit to the Registration Statement, each
such statement is qualified in all respects by the provisions of such exhibit,
to which reference is hereby made. The Registration Statement can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of all or any portion of the Registration
Statement can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, the Registration Statement is publicly available through the
Commission's site on the Internet's World Wide Web, located at
http://www.sec.gov.

The Class A Common Stock has been approved for listing on the New York Stock
Exchange (the "NYSE"), upon notice of issuance, under the symbol "HRZ". In
addition, certain debt securities of the Company are listed for trading on the
NYSE. Copies of the Registration Statement and reports and other information are
available for inspection and copying at the office of the NYSE at 20 Broad
Street, New York, New York 10005.

The Company is currently subject to abbreviated informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in
accordance with General Instruction J(1)(a) and (b)

89
<PAGE> 89

to Form 10-K and in accordance therewith files reports and other information
with the Commission. Such reports and other information can be inspected and
copied at the offices of the Commission set forth above. Copies of such material
can be obtained from the Public Reference Section of the Commission at the
address set forth above at prescribed rates. In addition, such material is
publicly available through the Commission's site on the Internet located at the
address set forth above. As a result of the Offerings, the Company will become
subject to the full informational requirements of the Exchange Act. The Company
will fulfill its obligations with respect to such requirements by filing
periodic reports and other information with the Commission. The Company intends
to furnish its stockholders with annual reports containing consolidated
financial statements certified by an independent public accounting firm.

90
<PAGE> 90

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
<S> <C>
The Hertz Corporation and Subsidiaries
Report of Independent Accountants......................... F-2
Consolidated Balance Sheet at December 31, 1996 and
1995................................................... F-3
Consolidated Statement of Income for the years ended
December 31, 1996, 1995 and 1994....................... F-4
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994........... F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1996, 1995 and 1994....................... F-6
Notes to Consolidated Financial Statements................ F-8
Schedule II -- Valuation and Qualifying Accounts for the
years ended December 31, 1996, 1995 and 1994........... F-30
</TABLE>

F-1
<PAGE> 91

REPORT OF INDEPENDENT ACCOUNTANTS

To The Hertz Corporation:

We have audited the accompanying consolidated balance sheet of The Hertz
Corporation (a wholly-owned subsidiary of Ford Motor Company) and subsidiaries
as of December 31, 1996 and 1995, and the related consolidated statements of
income, stockholders' equity and cash flows and the financial statement schedule
listed in F-1 for each of the three years ended December 31, 1996. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Hertz
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years ended December 31, 1996, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information required to be included therein.

COOPERS & LYBRAND L.L.P.

Parsippany, New Jersey
January 24, 1997, except for Note 14,
as to which the date is March 13, 1997,
and Note 15, as to which the date
is April 24, 1997

F-2
<PAGE> 92

THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
------------------------
DECEMBER 31
1996 1995
---------- ----------
<S> <C> <C>
Dollars in thousands
ASSETS
Cash and equivalents (Note 13).............................. $ 179,311 $ 137,257
Receivables, less allowance for doubtful accounts of $12,268
(1995 -- $7,985) (Schedule II)............................ 798,686 789,801
Due from affiliates (Notes 5 and 7)......................... 456,025 407,442
Inventories, at lower of cost or market..................... 20,220 17,930
Prepaid expenses and other assets (Note 4).................. 80,530 83,345
Revenue earning equipment, at cost (Note 7):
Cars...................................................... 4,698,656 3,951,351
Less accumulated depreciation.......................... (380,391) (324,193)
Other equipment........................................... 908,106 705,084
Less accumulated depreciation.......................... (190,677) (162,073)
---------- ----------
Total revenue earning equipment...................... 5,035,694 4,170,169
---------- ----------
Property and equipment, at cost:
Land, buildings and leasehold improvements................ 515,063 473,930
Service equipment......................................... 554,134 507,640
---------- ----------
1,069,197 981,570
Less accumulated depreciation.......................... (526,466) (485,680)
---------- ----------
Total property and equipment......................... 542,731 495,890
---------- ----------
Franchises, concessions, contract costs and leaseholds, net
of amortization........................................... 10,117 7,722
Cost in excess of net assets of purchased businesses, net of
amortization (Note 5)..................................... 525,853 547,074
---------- ----------
Total assets......................................... $7,649,167 $6,656,630
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable (Note 7)................................... $ 468,817 $ 585,663
Accrued salaries and other compensation..................... 171,508 142,096
Other accrued liabilities................................... 384,191 330,923
Accrued taxes............................................... 105,524 74,714
Debt (Notes 2 and 13)....................................... 5,091,844 4,297,484
Public liability and property damage (Schedule II).......... 321,118 311,669
Deferred taxes on income (Note 8)........................... 116,800 77,800
Commitments and contingencies (Notes 9, 11 and 13)
Stockholders' equity (Notes 1 and 2):
Preferred stock --
Series A, 10% cumulative............................... 236,000 236,000
Series B, various rates cumulative..................... 249,900 249,900
Common stock, par value $1 per share, shares issued -- 200
Class A, 51 Class B and 490 Class C.................... 1 1
Additional capital paid-in................................ 59,008 59,008
Retained earnings......................................... 435,352 276,733
Translation adjustment.................................... 9,129 14,539
Unrealized holding gains (losses) for available-for-sale
securities (Note 4).................................... (25) 100
---------- ----------
Total stockholders' equity........................... 989,365 836,281
---------- ----------
Total liabilities and stockholders' equity........... $7,649,167 $6,656,630
========== ==========
</TABLE>

The accompanying notes are an integral part of this statement.

F-3
<PAGE> 93

THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
--------------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Dollars in thousands

Revenues:
Car rental.......................................... $3,161,605 $2,911,703 $2,581,157
Industrial and construction equipment rental........ 392,322 332,328 263,154
Car leasing (Note 5)................................ 35,407 35,548 231,372
Other (Note 5)...................................... 79,049 121,009 218,718
---------- ---------- ----------
Total revenues................................... 3,668,383 3,400,588 3,294,401
---------- ---------- ----------
Expenses:
Direct operating.................................... 1,795,157 1,724,791 1,766,228
Depreciation of revenue earning equipment (Note
7)............................................... 892,678 803,862 702,644
Selling, general and administrative................. 425,179 392,518 385,470
Interest, net of interest income of $10,449, $16,798
and $7,210 (Note 2).............................. 298,800 307,073 277,228
---------- ---------- ----------
Total expenses................................... 3,411,814 3,228,244 3,131,570
---------- ---------- ----------
Income before income taxes............................ 256,569 172,344 162,831
Provision for taxes on income (Note 8)................ 97,950 67,138 71,749
---------- ---------- ----------
Net income............................................ $ 158,619 $ 105,206 $ 91,082
========== ========== ==========
Pro forma net income per share (based on 108,267,025
shares outstanding and in whole dollars -- see Note
15)................................................. $ 1.47
==========
</TABLE>

The accompanying notes are an integral part of this statement.

F-4
<PAGE> 94

THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
UNREALIZED
COMMON HOLDING GAINS
AND ADDITIONAL (LOSSES) FOR TOTAL
PREFERRED CAPITAL RETAINED TRANSLATION AVAILABLE-FOR- STOCKHOLDERS'
STOCK PAID-IN EARNINGS ADJUSTMENT SALE SECURITIES EQUITY
--------- ---------- -------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dollars in thousands
Balances at December 31,
1993......................... $ 439,901 $100,099 $105,445 $(28,749) $ -- $ 616,696
Net Income..................... 91,082 91,082
Translation adjustment changes
during the year.............. 23,478 23,478
Redemption of preferred
stock........................ (104,000) (104,000)
Redemption of common and
preferred stock in excess of
par value and related
expenses..................... (41,091) (41,091)
Stock issued in exchange for
subordinated promissory
note......................... 150,000 150,000
Unrealized holding losses for
available-for-sale
securities................... (222) (222)
--------- -------- -------- -------- ----- ---------
Balances at December 31,
1994......................... 485,901 59,008 196,527 (5,271) (222) 735,943
Net Income..................... 105,206 105,206
Cash dividend on common stock
paid to Ford Motor Company... (25,000) (25,000)
Translation adjustment changes
during the year.............. 19,810 19,810
Unrealized holding gains for
available-for-sale securities
during the year.............. 322 322
--------- -------- -------- -------- ----- ---------
Balances at December 31,
1995......................... 485,901 59,008 276,733 14,539 100 836,281
Net Income..................... 158,619 158,619
Translation adjustment changes
during the year.............. (5,410) (5,410)
Unrealized holding losses for
available-for-sale securities
during the year.............. (125) (125)
--------- -------- -------- -------- ----- ---------
Balances at December 31,
1996......................... $ 485,901 $ 59,008 $435,352 $ 9,129 $ (25) $ 989,365
========= ======== ======== ======== ===== =========
</TABLE>

The accompanying notes are an integral part of this statement.

F-5
<PAGE> 95

THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
-----------------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Dollars in thousands
Cash flows from operating activities:
Net income......................................... $ 158,619 $ 105,206 $ 91,082
Non-cash expenses:
Depreciation of revenue earning equipment....... 892,678 803,862 702,644
Depreciation of property and equipment.......... 82,457 79,696 68,646
Amortization of intangibles..................... 18,232 19,978 19,401
Provision for public liability and property
damage........................................ 133,417 134,926 159,049
Provision for losses for doubtful accounts...... 9,912 4,926 6,813
Write-off of interest on Park Ridge Limited
Partnership promissory note................... -- -- 8,586
Deferred income taxes........................... 39,000 28,500 4,700
Other........................................... (3,060) -- --
Revenue earning equipment expenditures............. (8,204,179) (7,255,250) (6,873,281)
Proceeds from sales of revenue earning equipment... 6,445,337 6,163,455 4,747,409
Changes in assets and liabilities, net of effects
from sale in 1996 of certain claim
administration service operations, and in 1995
of the European car leasing and car dealership
operations --
Receivables................................... (20,482) (180,613) (181,439)
Due from affiliates........................... (48,583) (35,843) (43,087)
Inventories and prepaid expenses and other
assets..................................... (1,325) (1,422) 30,463
Accounts payable.............................. (117,767) 311,498 70,001
Accrued liabilities........................... 85,192 9,785 74,633
Accrued taxes................................. 30,316 6,067 6,656
Payments of public liability and property damage
claims and expenses............................. (123,928) (127,814) (118,380)
----------- ----------- -----------
Net cash flows (used for) provided by operating
activities.................................... $ (624,164) $ 66,957 $(1,226,104)
----------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of this statement.

F-6
<PAGE> 96

THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
--------------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
----------- --------- ----------
<S> <C> <C> <C>
Dollars in thousands
Cash flows from investment activities:
Property and equipment expenditures.................. $ (179,802) $(178,279) $ (150,569)
Proceeds from sales of property and equipment........ 44,950 34,148 35,839
Available-for-sale securities --
Purchases......................................... (6,219) (6,375) (8,145)
Sales............................................. 6,422 6,625 5,221
Proceeds from sale in 1996 of certain claim
administration service operations and in 1995 of
the European car leasing and car dealership
operations, net of cash and equivalents........... 15,346 56,560 --
Purchases of various operations (see supplemental
disclosures below)................................ (6,054) -- (2,044)
----------- --------- ----------
Net cash flows used for investing activities.... (125,357) (87,321) (119,698)
----------- --------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt............. 304,604 329,157 719,289
Repayment of long-term debt.......................... (205,276) (340,442) (207,195)
Short-term borrowings:
Proceeds.......................................... 1,379,740 984,870 736,430
Repayments........................................ (1,180,063) (945,283) (614,439)
Ninety day term or less, net...................... 492,526 54,487 864,816
Cash dividend on common stock paid to Ford Motor
Company........................................... -- (25,000) --
Payment for the redemption of common and preferred
stock and related expenses........................ -- -- (145,091)
----------- --------- ----------
Net cash flows provided from financing
activities................................... 791,531 57,789 1,353,810
----------- --------- ----------
Effect of foreign exchange rate changes on cash........ 44 83 3,184
----------- --------- ----------
Net increase in cash and equivalents during the
period............................................... 42,054 37,508 11,192
Cash and equivalents at beginning of year.............. 137,257 99,749 88,557
----------- --------- ----------
Cash and equivalents at end of year.................... $ 179,311 $ 137,257 $ 99,749
=========== ========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for --
Interest (net of amounts capitalized)............. $ 300,120 $ 313,139 $ 257,652
Income taxes...................................... 38,899 33,775 36,341
</TABLE>

In connection with acquisitions made during the years 1996 and 1994,
liabilities assumed were $36 million and $27 million, respectively.

The accompanying notes are an integral part of this statement.

F-7
<PAGE> 97

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Merger, Change in Ownership and Capitalization

The Hertz Corporation (together with its subsidiaries, referred to herein as
"Hertz" or the "Company"), which was incorporated in Delaware in 1967, is a
successor to corporations which were engaged in the automobile and truck leasing
and rental business since 1918. UAL Corporation ("UAL") (formerly Allegis
Corporation) purchased all of the Company's outstanding capital stock from RCA
Corporation ("RCA") on August 30, 1985. Park Ridge Corporation ("Park Ridge"),
which was 80%-owned by Ford Motor Company ("Ford"), purchased all of the
Company's outstanding capital stock from UAL on December 30, 1987. By 1989, Ford
reduced its ownership interest in Park Ridge to 49%. On July 19, 1993, Park
Ridge (which had no material assets other than the Company) was merged with and
into the Company, with the prior stockholders of Park Ridge becoming the
stockholders of the Company. The merger has been recorded as a "pooling of
interests".

In March 1994, Ford acquired the Company's common stock owned by Commerzbank
Aktiengesellschaft. On April 29, 1994, the Company redeemed its preferred and
common stock owned by AB Volvo for $145 million, borrowing the funds from Ford
to pay for the redemption, and Ford purchased all of the common stock of the
Company owned by Park Ridge Limited Partnership ("Partnership"). This resulted
in the Company becoming a wholly-owned subsidiary of Ford. In addition, the $150
million subordinated promissory note of the Company held by Ford Motor Credit
Company, a wholly-owned subsidiary of Ford ("FMCC"), was exchanged for $150
million of the Series B Preferred Stock of the Company, and a promissory note in
the amount of $18.5 million, owed by the Partnership to the Company was assumed
by Ford ("Ford Note"). In connection with these transactions, notes payable were
increased by $145 million, the Series A Preferred Stock was reduced by $104
million, and additional capital paid-in was reduced by $41 million; interest
expense was increased by $8.6 million and provision for taxes was decreased by
$3.0 million; and subordinated promissory notes were reduced by $150 million and
Series B Preferred Stock was increased by $150 million. The Ford Note was repaid
in 1996.

As of December 31, 1996, 100% of the Common Stock of the Company was owned by
Ford and 100% of the outstanding Preferred Stock was owned by FMCC.

F-8
<PAGE> 98

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The capital stock of the Company authorized, issued and outstanding as of
December 31, 1996, 1995 and 1994 is set forth below.

<TABLE>
<CAPTION>
--------------------------------------
PAR VALUE NUMBER OF SHARES
PER ISSUED AND
SHARE AUTHORIZED OUTSTANDING
--------- ---------- -----------
<S> <C> <C> <C>
Series A Preferred Stock:
Balance December 31, 1993................................ $100 4,500,000 3,400,000
Redemption in 1994....................................... -- (1,040,000)
--------- ----------
Balance December 31, 1994, 1995 and 1996................. $100 4,500,000 2,360,000
==== ========= ==========
Series B Preferred Stock
Balance December 31, 1993................................ $100 1,000,000 999,000
Issued in exchange for subordinated promissory note in
1994.................................................. 100 1,500,000 1,500,000
--------- ----------
Balance December 31, 1994, 1995 and 1996................. $100 2,500,000 2,499,000
==== ========= ==========
Class A Common Stock
Balance December 31, 1993, 1994, 1995 and 1996........... $ 1 200 200
==== ========= ==========
Class B Common Stock
Balance December 31, 1993................................ $ 1 800 311
Redemption in 1994....................................... -- (260)
--------- ----------
Balance December 31, 1994, 1995 and 1996................. $ 1 800 51
==== ========= ==========
Class C Common Stock
Balance December 31, 1993, 1994, 1995 and 1996........... $ 1 800 490
==== ========= ==========
</TABLE>

The holders of Series A Preferred Stock and Series B Preferred Stock are
entitled, when, as and if declared by the Board of Directors of the Company, to
cumulative annual dividends, but payable only out of funds legally available
therefor, compounded annually (if in arrears). The annual dividend rate through
December 31, 1998 is 10% for the Series A Preferred Stock and at various rates
which average 4.5% for the Series B Preferred Stock. Commencing January 1, 1999
the annual dividend rates for the Series A Preferred Stock and Series B
Preferred Stock are subject to adjustment and are reset on an annual basis. The
Series A Preferred Stock and the Series B Preferred Stock are redeemable by
their terms at the option of the Company at any time, and do not have any voting
rights, except that the holders of the Series A Preferred Stock shall have the
right to elect two directors in the event of default, and the holders of the
Series B Preferred Stock will be granted voting rights in the event of
significant and continuing net operating losses.

The holders of the Class A Common Stock and Class B Common Stock have one vote
per share and no special preferences. The holders of the Class C Common Stock
have one vote per share and have the right to designate three directors, until
such time as fewer than 40 shares thereof (adjusted for stock splits and the
like) shall be outstanding, provided, however, that the Class C Common Stock
shall in any event have 40% of the general voting power and the right to elect
not less than 40% of the members of such Board of Directors, until such time as
fewer than 40 shares thereof (as so adjusted) shall be outstanding. The Class C
Common Stock is convertible into Class B Common Stock on a share for share basis
at any time at the holder's option. Under certain circumstances, shares of Class
B Common Stock convert or are convertible into an equivalent number of shares of
Class A Common Stock.

F-9
<PAGE> 99

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Principles of Consolidation

The consolidated financial statements include the accounts of The Hertz
Corporation and its domestic and foreign subsidiaries. All significant
intercompany transactions are eliminated.

Consolidated Statement of Cash Flows

For purposes of this statement, the Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents. See Merger, Change of Ownership and Capitalization for noncash
investing and financing activities.

Depreciable Assets

The provisions for depreciation and amortization are computed on a straight-line
basis over the estimated useful lives of the respective assets, as follows:

<TABLE>
<CAPTION>
Revenue Earning Equipment: --------------
<S> <C>
Cars...................................................... 3 to 6 years
Other equipment........................................... 3 to 11 years
Buildings................................................... 20 to 50 years
Leasehold improvements...................................... Term of lease
Service cars and service equipment.......................... 3 to 25 years
Franchises, concessions, contract costs and leaseholds...... 10 to 40 years
Cost in excess of net assets of purchased businesses........ 10 to 40 years
</TABLE>

Hertz follows the practice of charging maintenance and repairs, including the
cost of minor replacements, to maintenance expense accounts. Costs of major
replacements of units of property are charged to property and equipment accounts
and depreciated on the basis indicated above. Gains and losses on dispositions
of property and equipment are included in income as realized. Upon disposal of
revenue earning equipment, depreciation expense is adjusted for the difference
between the net proceeds from sale and the remaining book value.

Environmental Conservation

The use of automobiles and other cars is subject to various governmental
controls designed to limit environmental damage, including that caused by
emissions and noise. Generally, these controls are met by the manufacturer,
except in the case of occasional equipment failure requiring repair by Hertz. To
comply with environmental regulations, measures are being taken at certain
locations to reduce the loss of vapor during the fueling process and to maintain
and replace underground fuel storage tanks. Hertz is also incurring and
providing for expenses for the cleanup of fuel discharges and other alleged
violations of environmental laws arising from the disposition of waste products.
Hertz does not believe that it will be required to make any material capital
expenditures for environmental control facilities or to make any other material
expenditures to meet the requirements of governmental authorities in this area.
Liabilities for these expenditures are recorded when it is probable that
obligations have been incurred and the amounts can be reasonably estimated.

Public Liability and Property Damage

F-10
<PAGE> 100

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
applicable local law, a qualified self-insurer against liability resulting from
accidents under certificates of self-insurance for financial responsibility in
all states wherein its vehicles are registered. The Company also self-insures
general public liability and property damage for all domestic operations. Since
July 1, 1987, all claims have been retained and borne by the Company up to a
limit of $5 million for each occurrence, and the Company has maintained
insurance with unaffiliated carriers in excess of $5 million up to $450 million
per occurrence.

For its foreign operations, the Company purchases insurance to comply with local
legal requirements. From January 1, 1993 through December 31, 1996, vehicle
liability insurance purchased locally from unaffiliated carriers by Company
owned operations in Europe was reinsured by Hertz International RE Limited, a
wholly-owned subsidiary of the Company operating as a reinsurer in Dublin,
Ireland. Hertz International RE Limited effectively responded to the first $1.5
million of motor vehicle liability for each accident during this period, with
excess liability insurance coverage maintained by the Company with unaffiliated
carriers. Effective January 1, 1997, the Company replaced an unaffiliated
carrier that was the fronted insurer for claims up to $1.5 million per
occurrence by establishing a wholly-owned subsidiary, Probus Insurance Company
Europe Limited ("Probus"), a direct writer domiciled in Dublin, Ireland. Probus
now underwrites the Company's European vehicle liability program (except in
Switzerland and Denmark) up to $1.5 million per occurrence. Excess coverage for
claims that exceed $1.5 million continues to be maintained with unaffiliated
carriers. In the Company's foreign operations other than Europe, the Company is
self insured at various amounts up to $100,000 per occurrence, and maintains
excess liability insurance coverage up to $450 million per occurrence with
unaffiliated carriers.

Foreign Currency Translation

Assets and liabilities of foreign subsidiaries are translated at the rate of
exchange in effect on the balance sheet date; income and expenses are translated
at the average rate of exchange prevailing during the year. The related
translation adjustments are reflected in the stockholders' equity section of the
consolidated balance sheet. Foreign currency gains and losses resulting from
transactions are included in earnings.

Income Taxes

Effective April 30, 1994, the Company and its domestic subsidiaries are filing
consolidated Federal income tax returns with Ford. The Company and its domestic
subsidiaries filed consolidated Federal income tax returns after December 31,
1987; prior thereto, from September 1, 1985 to December 31, 1987 they were
included in the consolidated Federal income tax return of UAL, and prior thereto
in the consolidated Federal income tax return of RCA. The Company provides for
current and deferred taxes as if it filed a separate consolidated tax return
with its domestic subsidiaries, except that under a tax sharing arrangement with
Ford, the Company's right to reimbursement for foreign tax credits is determined
based on the usage of such foreign tax credits by the consolidated group. By
virtue of its controlling beneficial ownership of the Company, Ford effectively
controls all of the Company's tax decisions. The Company and its subsidiaries
account for investment tax credits under the flow-through method. As of December
31, 1996, U.S. income taxes have not been provided on $209 million in
undistributed earnings of subsidiaries that have been or are intended to be
permanently reinvested outside the United States or are expected to be remitted
free of taxes.

F-11
<PAGE> 101

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Advertising

Hertz is a party to a cooperative advertising agreement with Ford pursuant to
which Ford participates in some of the cost of certain of Hertz' advertising
programs in the United States and abroad which feature the Ford name or
products. The amounts contributed by Ford for the years ended December 31, 1996,
1995 and 1994 were (in millions) $45.4, $44.1 and $42.0, respectively. This
program is expected to continue in the future. The Company incurred advertising
expense for the years ended December 31, 1996, 1995 and 1994 of (in millions)
$148.0, $134.5 and $133.6, respectively.

Pension and Income Saving Plans

Qualified domestic employees, after completion of specified periods of service,
are eligible to participate in the Retirement Plan for the Employees of The
Hertz Corporation ("Hertz Retirement Plan") and in the Income Savings Plan of
The Hertz Corporation ("Hertz Income Savings Plan"). Payments are made to
pension plans of others pursuant to various collective bargaining agreements.
Under the Hertz Retirement Plan, the Company pays the entire cost and employees
are not required to contribute. For each plan year beginning January 1, 1996 and
thereafter, a qualified employee's cash balance account is credited with an
annual cash balance credit equal to: (a) 3% of his/her pensionable earnings for
that plan year in the case of a qualified employee who is credited with less
than 60 continuous months of service from his/her most recent date of hire, or
(b) 4% of his/her pensionable earnings for that plan year in the case of a
qualified employee who is credited with 60 or more continuous months of service
from his/her most recent date of hire. In the case of a qualified employee who
is first credited with 60 continuous months of service after January 1 of a plan
year, the percentage of his/her pensionable earnings utilized in determining
his/her annual cash balance credit for that plan year shall be increased to 4%
effective as of the first day of the month coincident with or next following
his/her completion of 60 continuous months of service from his/her most recent
date of hire. This benefit is credited with guaranteed interest rates compounded
annually based on rates issued by the Pension Benefit Guaranty Corporation in
effect for the preceding December. In addition, all qualified employees age 50
or over with 10 or more years of credited service as of July 1, 1987, will have
an additional amount of their pensionable earnings credited to their account.
Hertz' funding policy is to contribute at least the minimum amount required by
the Employee Retirement Income Security Act of 1974.

Under the Hertz Income Savings Plan, the Company contributes 50% of the first 6%
of the employee's contribution for a maximum match contribution by the Company
of 3% of the employee's base salary.

Most of the Company's foreign subsidiaries have defined benefit retirement plans
or are required to participate in government plans. These plans are all funded,
except in Germany, where an unfunded liability is recorded. In certain
countries, when the subsidiaries make the required funding payments, they have
no further obligations under such plans.

Impairment of Long-Lived Assets and Certain Identifiable Intangibles

The Company evaluates the carrying value of goodwill for potential impairment on
an ongoing basis. Such evaluations compare operating income before amortization
of goodwill to the amortization recorded for the operations to which the
goodwill relates. The Company also considers projected future operating results,
trends and other circumstances in making such estimates and evaluations. In
addition, the Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable.

F-12
<PAGE> 102

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Use of Estimates and Assumptions

Use of estimates and assumptions as determined by management is required in the
preparation of consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those estimates
and assumptions. Certain amounts for prior periods have been reclassified to
conform with 1996 presentations.

NOTE 2 -- DEBT

Debt of the Company and its subsidiaries (in thousands of dollars) consists of
the following:

<TABLE>
<CAPTION>
-----------------------
DECEMBER 31
1996 1995
---------- ----------
<S> <C> <C>
Notes payable, including commercial paper, average interest
rate: 1996, 5.6%; 1995, 5.8%.............................. $1,498,002 $1,036,413
Promissory notes, average interest rate: 1996, 7.3%; 1995,
7.6% (effective average interest rate: 1996, 7.4%; 1995,
7.7%); net of unamortized discount: 1996, $3,602; 1995,
$3,019; due 1997 to 2005.................................. 1,941,398 1,694,641
Property and equipment lease obligations, average interest
rate: 1996, 7.5%; 1995, 7.9%; due 1997 to 1998............ 2,554 3,602
Medium-term notes, average interest rate: 1996, 9.3%; 1995,
9.4%; due 1997............................................ 75,300 119,175
Senior subordinated promissory notes, average interest rate:
1996, 9.7%; 1995, 9.5% (effective average interest rate:
1996, 9.8%; 1995, 9.6%); net of unamortized discount:
1996, $172; 1995, $313; due 1997 to 1998.................. 149,828 249,687
Junior subordinated promissory notes, average interest rate
6.9%; net of unamortized discount: 1996, $244; 1995, $286;
due 2000 to 2003.......................................... 399,756 399,714
Subsidiaries' debt:
Short-term borrowings --
Banks, average interest rate: 1996, 5.1%; 1995, 6.0%,
in foreign currencies................................. 782,765 684,634
Commercial paper, average interest rate: 1996, 6.2%;
1995, 5.8%, in foreign currencies..................... 141,805 11,357
Others, average interest rate: 1996, 2.7%; 1995, 3.7%,
in foreign currencies................................. 56,518 51,200
Other borrowings, average interest rate: 1996, 7.4%; 1995,
7.0%; in foreign currencies............................ 43,918 47,061
---------- ----------
Total....................................................... $5,091,844 $4,297,484
========== ==========
</TABLE>

The aggregate amounts of maturities of debt, in millions, are as follows: 1997,
$2,718.9 (including $2,478.9 of commercial paper, demand and other short-term
borrowings); 1998, $374.5; 1999, $451.1; 2000, $249.8; 2001, $398.9; after 2001,
$898.6. Included in these maturities at the earliest possible redemption date
are the following promissory notes of the Company which have put options that
can be exercised by the holders of such notes as follows: $5 million at 9.3% due
in 2005, that can be redeemed at the option of the holders in 1997; $25 million
at 9% due in 2000, that can be redeemed at the option of the holders in 1997,
1998 or 1999; $100 million at 9% due 2009, that can be redeemed at the option of
the holders in 1999; and $150 million at 6.3% due 2006, that can be redeemed at
the option of the holders in 2002.

F-13
<PAGE> 103

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- DEBT -- (CONTINUED)
The Company and its subsidiaries have entered into arrangements to manage
exposures to fluctuations in interest rates. See Note 13 -- Financial
Instruments.

During the year ended December 31, 1996, short-term borrowings, in millions,
were as follows: maximum amounts outstanding $2,129.2 commercial paper, $838.1
banks and $137.2 other; monthly average amounts outstanding $1,615.9 commercial
paper (weighted average interest rate 5.6%), $754.2 banks (weighted average
interest rate 5.3%) and $91.1 other (weighted average interest rate 2.5%).

During the year ended December 31, 1995, short-term borrowings, in millions,
were as follows: maximum amounts outstanding $1,853.8 commercial paper, $1,083.5
banks and $193.5 other; monthly average amounts outstanding $1,292.6 commercial
paper (weighted average interest rate 6.1%), $828.2 banks (weighted average
interest rate 6.4%) and $108.6 other (weighted average interest rate 4.3%).

During the year ended December 31, 1994, short-term borrowings, in millions,
were as follows: maximum amounts outstanding $1,021.3 commercial paper, $1,247.6
banks and $194.1 other; monthly average amounts outstanding $659.9 commercial
paper (weighted average interest rate 4.9%), $975.5 banks (weighted average
interest rate 5.8%) and $95.5 other (weighted average interest rate 5.3%).

The net amortized discount charged to interest expense for the years ended
December 31, 1996, 1995 and 1994 relating to debt and other liabilities, in
millions, was $.9, $.9, and $1.3, respectively. In addition, interest expense,
in millions, for the years 1995, and 1994 was reduced by $1.3 and $1.6,
respectively, of interest income, relating to refunds of prior years' state,
local and federal income taxes.

In 1996, the Company renewed the following two committed bank facilities with a
group of thirty-one commercial banks, which will be utilized to support
commercial paper and other short-term borrowings in the aggregate amount of
$2.08 billion: (i) five year credit agreement for $1.185 billion is committed
until June 30, 2001. The termination date is automatically extended for an
additional one-year period each June 30, unless the bank gives notice to the
contrary. A facility fee of .09% per annum is payable on the entire commitment
amount; and (ii) 364-day credit agreement for $895 million, renewed in June
1996, is committed through June 25, 1997. A facility fee of .0625% per annum is
payable on the entire commitment amount.

The Company also entered into a revolving loan agreement with Ford on June 8,
1994 under which the Company could borrow from Ford from time to time up to $250
million outstanding. See Note 14 -- Subsequent Events. Obligations of the
Company under this agreement would rank pari passu with the Company's senior
debt securities. A commitment fee of .09% per annum is payable on the unused
available credit. In addition, at December 31, 1996, the Company and a
subsidiary had $269 million of outstanding loans from Ford.

The Company had consolidated unused committed lines of credit subject to
customary terms and conditions, which include unused amounts under the three
facilities indicated above, of approximately $2.4 billion at December 31, 1996.

The Company maintains a Sales Agency Agreement with Ford Financial Services,
Inc., an NASD registered broker-dealer and an indirect, wholly-owned subsidiary
of Ford ("FFS"), whereby FFS acts as the exclusive dealer for the Company's
domestic commercial paper program. The Company pays fees to FFS which range from
.035% to .05% per annum of commercial paper placed depending upon the monthly
average dollar value of the notes outstanding in the portfolio. In 1996, the
Company paid FFS $556,754 of such fees. FFS is under no obligation to purchase
any of the notes for its own account. FFS has acted as the Company's exclusive
commercial paper dealer since October 1994, and the Sales Agency Agreement may
not be amended or terminated without the written consent of both parties. The

F-14
<PAGE> 104

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- DEBT -- (CONTINUED)
Company, through its subsidiary Hertz Australia Pty. Limited ("Hertz
Australia"), has a similar agreement with Ford Credit Australia Limited, also an
indirect, wholly-owned subsidiary of Ford Motor Company.

Certain debt instruments under which the Company has issued debt securities
restrict the Company's ability to pay dividends. Such restrictions generally
provide that the Company may not pay dividends, invest in its own shares or
permit investments by certain subsidiaries of the Company ("Restricted
Subsidiaries") in the Company's shares subsequent to a specified date if,
together with total investments by the Company and its Restricted Subsidiaries
in subsidiaries that are not Restricted Subsidiaries made subsequent to such
specified date, the aggregate of any such dividends or investments exceeds the
sum of (i) a specified dollar amount, (ii) the aggregate net income of the
Company and its Restricted Subsidiaries earned subsequent to such specified date
and (iii) net proceeds received from capital stock issued subsequent to such
specified date. At December 31, 1996, approximately $331 million of consolidated
stockholders' equity was free of such limitations.

NOTE 3 -- FOREIGN CURRENCY

Foreign currency exchange gains and losses included in net income were net gains
of $3.4 million, $2.0 million and $1.2 million for the years ended December 31,
1996, 1995 and 1994, respectively.

NOTE 4 -- AVAILABLE-FOR-SALE SECURITIES

As of December 31, 1996, Prepaid Expenses and Other Assets in the consolidated
balance sheet include available-for-sale securities at fair value (in thousands)
of $5,405 (cost $5,432). The fair value is calculated using information provided
by outside quotation services. These securities include various governmental and
corporate debt obligations, with the following maturity dates (in thousands):
fair value $113 (cost $116) in 1997; fair value $4,373 (cost $4,376) 1998
through 2002; fair value $899 (cost $929) 2003 through 2012; $20 fair value
(cost $11) after 2012. For the year ended December 31, 1996, proceeds of $6.4
million from the sale of available-for-sale securities were received, and a
gross realized gain of $105,813 and gross realized loss of $134,474 were
included in earnings. Actual cost was used in computing the realized gain and
loss on the sale. For the year ended December 31, 1996, unrealized holding
losses and unrealized holding gains, net of taxes, included in Stockholders'
Equity were $62,000 and $37,000, respectively.

NOTE 5 -- PURCHASES AND SALES OF OPERATIONS

In June 1996, the Company acquired all of the capital stock of a foreign
licensee car rental and leasing operation and the assets of a domestic car
rental operation. In February 1996, the Company acquired the assets of a
domestic construction equipment rental operation. The costs related to these
acquisitions exceeded the net assets acquired by $6.1 million.

F-15
<PAGE> 105

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- PURCHASES AND SALES OF OPERATIONS -- (CONTINUED)
In May 1996, the Company sold certain of its claim administration service
operations effective February 29, 1996, which included the administration of
workers' compensation claims and other related services, and health related
benefit claims. The net proceeds from the sale approximated $15.3 million, which
exceeded its book value by approximately $3 million. The total assets of these
operations at February 29, 1996 were $15.5 million and revenues for the year
ended December 31, 1995 were $31.0 million, with negligible net income.
Therefore, the Company believes that this transaction will not have a material
effect on its financial position or results of operations.

On July 31, 1994, Axus, S.A., a car leasing company of the Company which
operates in various countries in Europe, acquired an additional interest in
Locaplan S.A., a car leasing operation in France, increasing its ownership from
50% to 100%. The cost relating to this acquisition approximated $2.3 million,
which exceeded the net assets acquired by approximately $2.2 million. Commencing
in August 1994, the accounts of this operation have been included in the
consolidated financial statements of the Company, which did not have a material
effect on the Company's consolidated financial position or results of
operations. These operations were sold by the Company effective January 1, 1995
to Hertz Leasing International, Inc. ("HLI"), at an amount equal to its book
value of approximately $61 million. HLI is an indirect, wholly-owned subsidiary
of Ford. For additional consideration payable over five years, except for
Australia, New Zealand and Brazil, Ford has received the worldwide rights
(subject to certain existing license rights) to use and sublicense others to use
the "Hertz" name in the conduct of car leasing businesses -- $9.3 million was
received in each of the years 1996 and 1995. The unaudited total assets as of
December 31, 1994 and unaudited total revenues and net income for the year ended
December 31, 1994 of the Company's European car leasing and car dealership
operations were (in millions) $482, $295 and $6, respectively. This transaction
did not have a material effect on the Company's financial position or results of
operations.

At December 31, 1996, a foreign subsidiary of the Company had $10.9 million of
loans receivable including related interest from foreign subsidiaries of HLI,
which mature in 1997.

In connection with the acquisition of the Company by Park Ridge in December 1987
and UAL in August 1985, the excess of the purchase price over the consolidated
equity of the Company at the time of these purchases was $658.3 million. These
costs are being amortized by the Company over 40 years. The unamortized amount
of such costs at December 31, 1996 was $501.3 million.

F-16
<PAGE> 106

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- PENSION AND INCOME SAVINGS PLAN AND POSTRETIREMENT BENEFIT PLANS

The following tables set forth the funded status and the net periodic pension
cost of the Hertz Retirement Plan covering its domestic ("U.S.") employees and
the retirement plans for foreign operations ("Non-U.S.") and amounts included in
the consolidated balance sheet and statement of income (in millions of dollars):

<TABLE>
<CAPTION>
-----------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
U.S. NON-U.S. U.S. NON-U.S.
------- -------- ------ --------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit
obligation --
Vested................................................ $ (73.7) $(34.1) $(62.6) $(27.9)
Nonvested............................................. (8.9) (4.8) (8.4) (3.7)
------- ------ ------ ------
Total.............................................. $ (82.6) $(38.9) $(71.0) $(31.6)
======= ====== ====== ======
Actuarial present value of projected benefit
obligation............................................ $(111.4) $(49.3) $(98.9) $(37.3)
Plan assets at fair value............................... 101.1 32.5 90.4 25.5
------- ------ ------ ------
Projected benefit obligation in excess of plan assets... (10.3) (16.8) (8.5) (11.8)
Unrecognized net (gain) loss............................ (20.0) 9.9 (14.2) 5.0
Prior service cost not yet recognized in net periodic
pension cost.......................................... -- -- .2 --
Remaining unrecognized net obligation................... 1.0 -- 1.3 --
------- ------ ------ ------
Pension liability included in the balance sheet......... $ (29.3) $ (6.9) $(21.2) $ (6.8)
======= ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
-------------------------------------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
------------------ ------------------ -----------------
U.S. NON-U.S. U.S. NON-U.S. U.S. NON-U.S.
------ -------- ------ -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Service cost -- benefits earned during
the period............................ $ 8.0 $ 4.0 $ 5.3 $ 2.2 $ 6.4 $ 2.3
Interest cost on projected benefit
obligation............................ 7.0 2.3 6.1 2.1 7.2 1.5
Return on assets:
Actual (gain) loss.................... (14.1) (1.9) (21.3) (1.5) .7 (1.5)
Deferred gain (loss).................. 7.5 -- 15.4 -- (6.1) --
Net amortization and deferral........... .8 -- .2 .1 1.8 .1
------ ----- ------ ----- ----- -----
Net periodic pension cost included in
the income statement.................. $ 9.2 $ 4.4 $ 5.7 $ 2.9 $10.0 $ 2.4
====== ===== ====== ===== ===== =====
</TABLE>

Significant assumptions used for the U.S. plan were as follows: weighted average
discount rate of 7.25% at December 31, 1996, 7.0% during 1996 (8.25% during 1995
and 7% during 1994); 5.5% rate of increase in future compensation levels (5.1%
for 1995 and 5.5% for 1994); and expected long-term rate of return on assets of
9%. Assumptions used for the Non-U.S. plans vary by country and are made in
accordance with local conditions, but do not vary materially from those used in
the U.S. plan. Plan assets consist principally of investments in stocks,
government bonds and other fixed income securities.

The provisions charged to income for the years ended December 31, 1996, 1995 and
1994 for all other pension plans were approximately (in millions) $6.7, $6.1 and
$6.0, respectively.

The provisions charged to income for the years ended December 31, 1996, 1995 and
1994 for the Hertz Income Savings Plan were approximately (in millions) $3.8,
$3.4 and $3.0, respectively.

F-17
<PAGE> 107

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- PENSION AND INCOME SAVINGS PLAN AND POSTRETIREMENT BENEFIT PLANS --
(CONTINUED)
The estimated cost for postretirement health care and life insurance benefits is
accrued on an actuarially determined basis. The following sets forth the plans'
status, reconciled with the amounts included in the consolidated balance sheet
and statement of income (in millions):

<TABLE>
<CAPTION>
------------
DECEMBER 31
ACTUARIAL PRESENT VALUE OF ACCUMULATED BENEFIT OBLIGATION -- 1996 1995
- ------------------------------------------------------------ ---- ----
<S> <C> <C>
Retirees.................................................. $1.8 $1.7
Active employees eligible to retire....................... 2.0 3.0
Other active employees.................................... 4.3 3.5
---- ----
Total accumulated benefit obligation................... 8.1 8.2
Unrecognized net gain....................................... 1.0 .3
---- ----
Accrued liability included in the balance sheet............. $9.1 $8.5
==== ====
</TABLE>

<TABLE>
<CAPTION>
--------------------
YEARS ENDED
DECEMBER 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Benefits attributed to employees' service................... $.3 $ .2 $ .2
Interest on accumulated benefit obligation.................. .5 .5 .4
Amortization of net gain.................................... -- (.1) (.3)
--- ---- ----
Net periodic postretirement benefit cost............... $.8 $ .6 $ .3
=== ==== ====
</TABLE>

The significant assumptions used for the postretirement benefit plans were as
follows: weighted average discount rate of 7.5% at December 31, 1996, 7.25%
during 1996 (8.75% in 1995 and 7.5% in 1994), 5.5% rate of increase in future
compensation levels (5.3% in 1995 and 5.5% in 1994), 7.5% weighted average
health care cost trend rate through 2001 (8.3% in 1995 and 9% in 1994), and 6.7%
weighted average trend rate in ten years (7.5% in 1995 and 8% in 1994). Changing
the assumed health care cost trend rates by one percentage point in each year
would change the accumulated postretirement benefit obligation as of December
31, 1996 by approximately $555,000, and the aggregate service and interest cost
components of net periodic postretirement benefit cost for 1996 by approximately
$90,000.

NOTE 7 -- REVENUE EARNING EQUIPMENT

Revenue earning equipment is used in the rental of cars and industrial and
construction equipment and the leasing of cars under closed-end leases where the
disposition of the cars upon termination of the lease is for the account of
Hertz. Revenue is recorded as earned under the terms of the rental or leasing
contract. Revenue on open contracts is accrued to the balance sheet date based
on the terms in the contracts. Expenses are recorded as incurred. Over the three
years ended December 31, 1996, on a weighted average basis, approximately 66% of
the cars acquired by the Company for its U.S. rental car fleet, and
approximately 33% of the cars acquired by the Company for its international
fleet, were manufactured by Ford. During 1996, approximately 64% of the cars
acquired by the Company domestically were manufactured by Ford. The percentage
of Ford cars acquired by the Company for its U.S. rental car fleet is expected
to remain at these or higher levels in the future. In 1996, approximately 28% of
the cars acquired by the Company for its international fleet were manufactured
by Ford, which represented the largest percentage of any automobile manufacturer
in that year.

Under operating leases, aggregate minimum future rentals for cars leased at
December 31, 1996 are receivable approximately as follows (in millions): $25 in
1997, $15 in 1998, $6 in 1999, and $1 in

F-18
<PAGE> 108

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- REVENUE EARNING EQUIPMENT -- (CONTINUED)
2000. Cars under lease at December 31, 1996 which are owned by Hertz amounted to
$95 million, net of accumulated depreciation of $25 million.

The average holding periods of cars and other revenue earning equipment are as
follows: cars used in the car rental business, 5 to 12 months; cars used in the
car leasing business, 36 months; and equipment used in the industrial and
construction equipment rental business, 24 to 60 months. At December 31, 1996,
the average ages of owned cars and other revenue earning equipment are as
follows: cars used in the car rental business, 7 months; cars used in the car
leasing business, 19 months; and equipment used in the industrial and
construction equipments rental business, 19.7 months. At December 31, 1996, the
Company was subject to residual risk with respect to 17% of all cars in its
worldwide car rental and leasing operations and 100% of the equipment in the
industrial and construction equipment rental business.

Depreciation of revenue earning equipment includes the following (in thousands
of dollars):

<TABLE>
<CAPTION>
--------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Depreciation of revenue earning equipment.................. $904,504 $753,999 $651,413
Adjustment of depreciation upon disposal of the
equipment............................................. (23,221) (6,356) (22,983)
Rents paid for vehicles leased............................. 11,395 56,219 74,214
-------- -------- --------
Total................................................. $892,678 $803,862 $702,644
======== ======== ========
</TABLE>

Effective July 1, 1994, certain lives being used to compute the provision for
depreciation of revenue earning equipment used in the Company's industrial and
construction equipment rental business were increased to reflect changes in the
estimated residual values to be realized when the equipment is sold. As a result
of this change, depreciation of revenue earning equipment for the years 1995 and
1994 were decreased by $12.0 million and $9.6 million, respectively.

The adjustment of depreciation upon disposal of revenue earning equipment for
the years ended December 31, 1996, 1995, and 1994 included (in millions) net
gains of $20.7, $13.8 and $13.2, respectively, on the sale of industrial and
construction equipment, net gains of $2.5, net losses of $7.5 and net gains of
$9.8, respectively, on the sale of cars used in the car rental and car leasing
operations.

In view of the favorable market conditions in 1995 and 1996 for the sale of used
equipment in the industrial and construction equipment rental business,
effective January 1, 1997, certain estimated useful lives being used to compute
the provision for depreciation will be increased by approximately 10% (the new
depreciable lives will range between 3.3 years and 12.1 years) to reflect the
anticipated changes in the estimated residual values to be realized when the
equipment is sold. This should result in lower annual depreciation charges and
lower gains on the disposal of the used equipment than has been the case in 1996
and 1995.

As of December 31, 1996 and 1995, Ford owed the Company and its subsidiaries
$445.1 million and $358.6 million, respectively, in connection with various car
repurchase and warranty programs. As of December 31, 1996 and 1995, the Company
and its subsidiaries owed Ford $26.6 million and $9.4 million, respectively
(which amounts are included in Accounts Payable in the consolidated balance
sheet) in connection with cars purchased. These transactions were made and are
being paid in the ordinary course of business.

During the year ended December 31, 1996, the Company purchased Ford cars at a
cost of approximately $4.3 billion, and sold these cars to Ford or its
affiliates under various repurchase programs for approximately $3.2 billion.

F-19
<PAGE> 109

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- TAXES ON INCOME

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

<TABLE>
<CAPTION>
----------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Current:
Federal................................................... $31,360 $ 10,381 $38,797
Foreign................................................... 18,832 29,422 20,016
State and local........................................... 8,758 (1,165) 8,236
------- -------- -------
Total current........................................ 58,950 38,638 67,049
------- -------- -------
Deferred:
Federal................................................... 23,772 35,577 2,027
Foreign................................................... 6,228 (11,577) (127)
State and local........................................... 9,000 4,500 2,800
------- -------- -------
Total deferred....................................... 39,000 28,500 4,700
------- -------- -------
Total provision...................................... $97,950 $ 67,138 $71,749
======= ======== =======
</TABLE>

The principal items in the deferred tax provision (benefit) are as follows (in
thousands of dollars):

<TABLE>
<S> <C> <C> <C>
Difference between tax and book depreciation................ $ 64,176 $ 34,790 $ 9,234
Accrued and prepaid expense deducted for tax purposes when
paid or incurred.......................................... (39,427) 13,671 (14,517)
Tax operating loss utilized (carryforwards)................. (7,217) 1,507 (2,636)
Federal alternative minimum tax credit utilized
(carryforwards)........................................... 10,217 (10,217) 1,072
Foreign tax credit utilized (carryforwards)................. 11,251 (11,251) --
Investment tax credit utilized.............................. -- -- 11,547
-------- -------- --------
Total deferred provision............................... $ 39,000 $ 28,500 $ 4,700
======== ======== ========
</TABLE>

The principal items in the deferred tax liability at December 31, 1996 and 1995
are as follows (in thousands of dollars):

<TABLE>
<CAPTION>
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Difference between tax and book depreciation................ $ 309,368 $ 245,192
Accrued and prepaid expense deducted for tax purposes when
paid or incurred.......................................... (148,526) (109,099)
Tax operating loss carryforwards............................ (12,626) (5,409)
Foreign tax credit carryforwards............................ -- (11,251)
Federal alternative minimum tax credit carryforwards........ (31,416) (41,633)
--------- ---------
Total.................................................. $ 116,800 $ 77,800
========= =========
</TABLE>

The tax operating loss carryforwards at December 31, 1996 of $12.6 million
relate to certain foreign operations and have the following expiration dates (in
millions): $1.0 in 2001, $.2 in 2002, $.2 in 2006, and $11.2 with no expiration
dates. It is anticipated that such operations will become profitable in the
future and the carryforwards will be fully utilized.

As of December 31, 1996, the alternative minimum tax credit carryforwards of
$31.4 million (which have no expiration date) will be utilized upon reversal of
timing differences and against future taxable income.

F-20
<PAGE> 110

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- TAXES ON INCOME -- (CONTINUED)
The principal items accounting for the difference in taxes on income computed at
the U.S. statutory rate of 35% and as recorded are as follows (in thousands of
dollars):

<TABLE>
<CAPTION>
------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Computed tax at statutory rate.............................. $ 89,799 $60,320 $56,991
State and local income taxes, net of Federal income tax
benefit................................................... 11,543 2,168 7,173
Tax effect on the amortization of the cost in excess of the
Company's net assets acquired by Park Ridge and UAL....... 5,762 5,764 5,760
Adjustments made to tax accruals in connection with tax
audit evaluations and the effects of prior years' tax
sharing arrangements between companies, UAL and RCA....... (13,945) -- (1,511)
Income taxes on foreign earnings at effective rates
different from the U.S. statutory rate, including the
anticipated realization of certain foreign tax benefits
and the effect of subsidiaries' gains and losses and
exchange adjustments with no tax effect................... 5,937 (3,890) 1,987
All other items, net, none of which exceeded 5% of computed
tax....................................................... (1,146) 2,776 1,349
-------- ------- -------
Total provision........................................ $ 97,950 $67,138 $71,749
======== ======= =======
</TABLE>

NOTE 9 -- LEASE AND CONCESSION AGREEMENTS

Hertz has various concession agreements which provide for payment of rents and a
percentage of revenue with a guaranteed minimum and real estate leases under
which the following amounts were expensed (in thousands of dollars):

<TABLE>
<CAPTION>
------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Rents...................................................... $ 47,328 $ 49,903 $ 50,066
Concession fees:
Minimum fixed obligations................................ 123,014 121,632 114,920
Additional amounts, based on revenues.................... 131,904 121,461 107,685
-------- -------- --------
Total................................................. $302,246 $292,996 $272,671
======== ======== ========
</TABLE>

As of December 31, 1996, minimum obligations under existing agreements referred
to above are approximately as follows (in thousands of dollars):

<TABLE>
<CAPTION>
----------------------
RENTS CONCESSIONS
-------- -----------
<S> <C> <C>
Years ended December 31,
1997...................................................... $ 41,492 $90,128
1998...................................................... 36,638 66,049
1999...................................................... 30,726 45,970
2000...................................................... 26,363 29,577
2001...................................................... 23,178 13,187
Years after 2001............................................ 130,531 46,242
</TABLE>

F-21
<PAGE> 111

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9 -- LEASE AND CONCESSION AGREEMENTS -- (CONTINUED)
In addition to the above, Hertz has various leases on cars and office and
computer equipment under which the following amounts were expensed (in thousands
of dollars):

<TABLE>
<CAPTION>
---------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cars........................................................ $11,395 $56,219 $74,214
Office and computer equipment............................... 21,772 23,965 23,679
------- ------- -------
Total.................................................. $33,167 $80,184 $97,893
======= ======= =======
</TABLE>

As of December 31, 1996, minimum obligations under existing agreements referred
to above that have a maturity of more than one year are as follows (in
thousands): office and computer equipment 1997, $8,279; 1998, $4,784; 1999,
$1,514; 2000, $66; 2001, $8.

NOTE 10 -- SEGMENT INFORMATION

The Company's business consists of two significant segments: Rental and leasing
of automobiles and certain other activities ("car rental"); and rental of
industrial, construction and materials handling equipment ("industrial and
construction equipment rental"). The contributions of these segments to other
financial data are summarized as follows (in millions of dollars):

<TABLE>
<CAPTION>
-----------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues
Car rental................................................ $ 3,276 $ 3,068 $ 3,031
Industrial and construction equipment rental.............. 392 333 263
------- ------- -------
Total................................................... $ 3,668 $ 3,401 $ 3,294
======= ======= =======
Depreciation of revenue earning equipment
Car rental................................................ $ 815 $ 746 $ 663
Industrial and construction equipment rental.............. 78 58 40
------- ------- -------
Total................................................... $ 893 $ 804 $ 703
======= ======= =======
Depreciation of property and equipment
Car rental................................................ $ 71 $ 71 $ 61
Industrial and construction equipment rental.............. 11 9 8
------- ------- -------
Total................................................... $ 82 $ 80 $ 69
======= ======= =======
Amortization of intangibles
Car rental................................................ $ 18 $ 20 $ 19
Industrial and construction equipment rental.............. -- -- --
------- ------- -------
Total................................................... $ 18 $ 20 $ 19
======= ======= =======
Operating income (pre-tax income before interest)
Car rental................................................ $ 421 $ 356 $ 353
Industrial and construction equipment rental.............. 134 123 87
------- ------- -------
Total................................................... $ 555 $ 479 $ 440
======= ======= =======
Income before income taxes
Car rental................................................ $ 166 $ 87 $ 107
Industrial and construction equipment rental.............. 91 85 56
------- ------- -------
Total................................................... $ 257 $ 172 $ 163
======= ======= =======
Total assets at end of year
Car rental................................................ $ 6,779 $ 5,993 $ 6,023
Industrial and construction equipment rental.............. 870 664 498
------- ------- -------
Total................................................... $ 7,649 $ 6,657 $ 6,521
======= ======= =======
</TABLE>

F-22
<PAGE> 112

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- SEGMENT INFORMATION -- (CONTINUED)

<TABLE>
<CAPTION>
-----------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenue earning equipment, net, at end of year
Car rental................................................ $ 4,318 $ 3,627 $ 3,854
Industrial and construction equipment rental.............. 718 543 406
------- ------- -------
Total................................................... $ 5,036 $ 4,170 $ 4,260
======= ======= =======
Revenue earning equipment and property and equipment
Car rental
Expenditures............................................ $ 8,006 $ 7,144 $ 6,789
Proceeds from sale...................................... (6,386) (6,122) (4,718)
------- ------- -------
Net expenditures...................................... $ 1,620 $ 1,022 $ 2,071
======= ======= =======
Industrial and construction equipment rental
Expenditures............................................ $ 378 $ 290 $ 235
Proceeds from sale...................................... (104) (76) (65)
------- ------- -------
Net expenditures...................................... $ 274 $ 214 $ 170
======= ======= =======
</TABLE>

The Company operates in the United States and in foreign countries. The
operations within major geographic areas are summarized as follows (in millions
of dollars):

<TABLE>
<CAPTION>
-----------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues
United States............................................. $ 2,723 $ 2,510 $ 2,258
Foreign operations (substantially Europe)................. 945 891 1,036
------- ------- -------
Total................................................... $ 3,668 $ 3,401 $ 3,294
======= ======= =======
Depreciation of revenue earning equipment
United States............................................. $ 789 $ 717 $ 540
Foreign operations (substantially Europe)................. 104 87 163
------- ------- -------
Total................................................... $ 893 $ 804 $ 703
======= ======= =======
Depreciation of property and equipment
United States............................................. $ 63 $ 60 $ 51
Foreign operations (substantially Europe)................. 19 20 18
------- ------- -------
Total................................................... $ 82 $ 80 $ 69
======= ======= =======
Amortization of intangibles
United States............................................. $ 17 $ 19 $ 18
Foreign operations (substantially Europe)................. 1 1 1
------- ------- -------
Total................................................... $ 18 $ 20 $ 19
======= ======= =======
Operating income (pre-tax income before interest)
United States............................................. $ 451 $ 357 $ 315
Foreign operations (substantially Europe)................. 104 122 125
------- ------- -------
Total................................................... $ 555 $ 479 $ 440
======= ======= =======
Income before income taxes
United States............................................. $ 196 $ 98 $ 94
Foreign operations (substantially Europe)................. 61 74 69
------- ------- -------
Total................................................... $ 257 $ 172 $ 163
======= ======= =======
Total assets at end of year
United States............................................. $ 5,805 $ 4,971 $ 4,762
Foreign operations (substantially Europe)................. 1,844 1,686 1,759
------- ------- -------
Total................................................... $ 7,649 $ 6,657 $ 6,521
======= ======= =======
Revenue earning equipment, net, at end of year
United States............................................. $ 3,997 $ 3,240 $ 3,119
Foreign operations (substantially Europe)................. 1,039 930 1,141
------- ------- -------
Total................................................... $ 5,036 $ 4,170 $ 4,260
======= ======= =======
</TABLE>

F-23
<PAGE> 113
NOTE 10 -- SEGMENT INFORMATION -- (CONTINUED)

<TABLE>
<CAPTION>
-----------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenue earning equipment and property and equipment
United States
Expenditures............................................ $ 6,011 $ 5,413 $ 5,226
Proceeds from sale...................................... (4,360) (4,452) (3,405)
------- ------- -------
Net expenditures...................................... $ 1,651 $ 961 $ 1,821
======= ======= =======
Foreign operations (substantially Europe)
Expenditures............................................ $ 2,373 $ 2,021 $ 1,798
Proceeds from sale...................................... (2,130) (1,746) (1,378)
------- ------- -------
Net expenditures...................................... $ 243 $ 275 $ 420
======= ======= =======
</TABLE>

NOTE 11 -- LITIGATION

In July 1996, the Company was sued in Harris County, Texas District Court in a
purported class action in which this plaintiff alleges that the Company's
practice of providing certain insurance products violates the Texas Insurance
Code because the Company did not obtain approval to sell insurance or obtain
regulatory approval of the premiums it charges. The complaint seeks restitution
of excessive premiums, equitable rescission of all insurance contracts entered
into by the class members, a declaratory judgment that the Company is selling
insurance illegally in Texas and injunctive relief. While it is possible that
the action could result in significant liability to the Company, the Company
does not expect the action to have a material adverse effect on the Company's
consolidated financial position or results of operations.

The U.S. Department of Labor has commenced an inquiry into the Company's
classification of certain employees as "exempt" for purposes of federal labor
laws and whether such employees have been improperly denied overtime pay. While
an adverse outcome of the inquiry could have an adverse effect on the Company's
results of operations for the quarter in which it occurs, the Company does not
believe that an adverse outcome would have a material adverse effect on the
Company's results of operations for a full year, or on the Company's
consolidated financial position.

Since 1992, in the Company's New York region (which includes parts of New Jersey
and Connecticut), the Company has been assessing higher rental rates for renters
who reside in the New York City boroughs of the Bronx, Brooklyn or Queens to
offset costs resulting from a higher incidence of accidents involving renters
residing in such boroughs. The City of New York passed an ordinance prohibiting
such pricing practice. The Company filed suit against The City of New York
claiming that such ordinance was in violation of federal anti-trust laws. The
Company's claim was rejected in U.S. District Court, and the Company appealed to
the U.S. Court of Appeals for the Second Circuit. That Court remanded the
proceeding to the U.S. District Court for trial. Pending the outcome of the
action in the U.S. District Court, the Court has stayed the ordinance,
permitting the Company to continue its pricing practice. If the Company is
ultimately unsuccessful in challenging the ordinance, the Company believes it
could take actions to mitigate the higher costs that would be experienced from
such rentals. Accordingly, the Company believes that an adverse outcome would
not have a material adverse effect on the Company's consolidated financial
position or results of operations.

F-24
<PAGE> 114

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- LITIGATION -- (CONTINUED)
liability in excess of related accruals is not expected to materially affect the
consolidated financial position or results of operations of the Company.

NOTE 12 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

A summary of the quarterly operating results during 1996 and 1995 were as
follows (in thousands):

<TABLE>
<CAPTION>
----------------------------------------------------------
OPERATING INCOME INCOME (LOSS)
(PRETAX INCOME BEFORE INCOME NET INCOME
REVENUES BEFORE INTEREST) TAXES (LOSS)
-------- ---------------- ------------- ----------
<S> <C> <C> <C> <C>
1996
First quarter......................... $ 803,142 $ 82,487 $ 15,172 $ 8,788
Second quarter........................ 911,401 144,260 69,284 39,545
Third quarter......................... 1,060,028 219,943 138,249 74,208
Fourth quarter........................ 893,812 108,679 33,864 36,078
---------- -------- -------- --------
Total Year......................... $3,668,383 $555,369 $256,569 $158,619
========== ======== ======== ========
1995
First quarter......................... $ 735,679 $ 69,705 $ (646) $ (365)
Second quarter........................ 858,555 115,089 34,515 19,637
Third quarter......................... 989,756 194,070 109,584 65,092
Fourth quarter........................ 816,598 100,553 28,891 20,842
---------- -------- -------- --------
Total Year......................... $3,400,588 $479,417 $172,344 $105,206
========== ======== ======== ========
</TABLE>

The tax provision in the fourth quarter of 1996 includes credits of $13.9
million resulting from adjustments made to tax accruals in connection with tax
audit evaluations and the effects of prior years' tax sharing arrangements
between the Company and its former parent companies, UAL and RCA.

Effective July 1, 1994, certain lives being used to compute the provision for
depreciation of revenue earning equipment used in the industrial and
construction equipment rental business were increased to reflect changes in the
estimated residual values to be realized when the equipment is sold. As a result
of this change, pre-tax income before interest includes credit adjustments of
$10.8 million in the first quarter of 1995 and $1.2 million in the second
quarter of 1995 as a result of decreasing depreciation of revenue earning
equipment.

The tax provision in the fourth quarter of 1995 includes $6.5 million of credits
relating to foreign taxes paid which were offset against U.S. income tax
liabilities.

NOTE 13 -- FINANCIAL INSTRUMENTS

Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash equivalents and trade receivables. The
Company places its cash equivalents with financial institutions and limits the
amount of credit exposure to any one financial institution. Concentrations of
credit risk with respect to trade receivables are limited due to the large
number of customers comprising the Company's customer base, and their dispersion
across different businesses and geographic areas. All borrowings by foreign
operations are either in the foreign operation's local

F-25
<PAGE> 115

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13 -- FINANCIAL INSTRUMENTS -- (CONTINUED)
currency or, if in non-local currency, on a fully hedged basis to minimize
foreign exchange exposure. As of December 31, 1996, the Company had no
significant concentration of credit risk.

Cash and Equivalents

Fair value approximates cost indicated on the balance sheet at December 31,
1996, because of the short-term maturity of these instruments.

Debt

Fair value is estimated based on quoted market rates as well as borrowing rates
currently available to the Company for loans with similar terms and average
maturities. Carrying value was used as fair value for borrowings with an initial
maturity of 92 days or less. The fair value of all debt at December 31, 1996
approximated $5.12 billion compared to carrying value of $5.09 billion.

Public Liability and Property Damage

Provisions for public liability and property damage on self-insured domestic
claims and reinsured foreign claims are made by charges to expense based upon
evaluations of estimated ultimate liabilities on reported and unreported claims.
These liabilities are anticipated to be paid in the future which range between
one and five years. The fair value of these liabilities at December 31, 1996
approximates $290 million compared to carrying value of $321 million. The fair
value was estimated using a 6.9% interest rate, which represents the long-term
borrowing rate available to the Company at December 31, 1996.

Financial Instruments

The Company and its subsidiaries have entered into arrangements to manage
exposure to fluctuations in interest rates. These arrangements consist of
interest-rate swap agreements ("swaps") and forward rate agreements ("FRAs").
The differential paid or received on these agreements is recognized as an
adjustment to interest expense. These agreements are not entered into for
trading purposes. The effect of these agreements is to make the Company less
susceptible to changes in interest rates by effectively converting certain
variable rate debt to fixed rate debt. Because of the relationship of current
market rates to historical fixed rates, the effect at December 31, 1996 of the
swap and FRA agreements is to give the Company an overall effective
weighted-average rate on debt of 6.53%, with 41% of debt effectively subject to
variable interest rates, compared to a weighted-average interest rate on debt of
6.48%, with 49% of debt subject to variable interest rates when not considering
the swap and FRA agreements. At December 31, 1996, these agreements expressed in
notional amounts aggregated $368.4 million swaps. Notional amounts are not
reflective of the Company's obligations under these agreements because the
Company is only obligated to pay the net amount of interest rate differential
between the fixed and variable rates specified in the contracts. The Company's
exposure to any credit loss in the event of non-performance by the
counterparties is further mitigated by the fact that all of these financial
instruments are with significant financial institutions that are rated "A" or
better by the major credit rating agencies. At December 31, 1996, the fair value
of all outstanding contracts, which is representative of the Company's
obligations under these contracts, assuming the contracts were terminated at
that date, was approximately a net payable of $4.0 million.

F-26
<PAGE> 116

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13 -- FINANCIAL INSTRUMENTS -- (CONTINUED)
options. At December 31, 1996 the total notional amount of these instruments was
$23.5 million and the fair value of all outstanding contracts, which is
representative of the Company's obligations under these contracts, assuming the
contracts were terminated at that date, was approximately a net payable of $.1
million.

The fair value of the interest rate and foreign currency instruments were
estimated using market prices provided by financial institutions. The following
is the estimated fair value and notional amount of the outstanding instruments
at December 31, 1996 and their maturity dates (in millions):

<TABLE>
<CAPTION>
---------------------------------
FAIR NOTIONAL
MATURITY VALUE(A) AMOUNT(B)
-------- -------- ---------
<S> <C> <C> <C>
Interest Rate Instruments
1997 $240.7
- - Assets.................................................... $ --
- - Liabilities............................................... .5
1998 73.3
- - Assets.................................................... --
- - Liabilities............................................... 1.0
1999 43.4
- - Assets.................................................... (.1)
- - Liabilities............................................... 2.2
2000 10.7
- - Assets.................................................... --
- - Liabilities............................................... .2
2001 .2
- - Assets.................................................... --
- - Liabilities............................................... --
2002 .1
- - Assets.................................................... --
- - Liabilities............................................... --
----- ------
Total.................................................. $(4.0) $368.4
===== ======
Foreign Currency Instruments(c)
1997 $ 16.8
- - Assets.................................................... $ --
- - Liabilities............................................... .1
1998 6.7
- - Assets.................................................... --
- - Liabilities............................................... --
----- ------
Total.................................................. $ (.1) $ 23.5
===== ======
</TABLE>

- -------------------------
(a) Fair value is representative of the Company's obligation under the
contracts, assuming the contracts were terminated at December 31, 1996.

(b) The notional amount represents the contract amount and does not represent
the amount at risk.

(c) As of December 31, 1996, no one currency represented the majority of the
outstanding foreign currency instruments, except for the option to sell pound
sterling and buy U.S. dollars in the notional amount of $12.0 million.

F-27
<PAGE> 117

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14 -- SUBSEQUENT EVENTS

In February 1997, Ford extended to the Company a line of credit of $500 million,
expiring June 30, 1999. This line of credit has an evergreen feature that
provides on an annual basis for automatic one-year extensions of the expiration
date, unless timely notice is provided by Ford at least one year prior to the
then scheduled expiration date. At that time, the revolving loan agreement
between the Company and Ford dated June 8, 1994 was terminated.

On February 27, 1997, the Company issued to Ford 1,290 shares of its 5.11%
Cumulative Series C Preferred Stock having an aggregate liquidation preference
of $129 million for a purchase price equal to the aggregate liquidation
preference.

On February 27, 1997, the Company paid a dividend of $460 million on its common
stock to Ford in the form of a 5.475% promissory note, which was fully repaid by
March 10, 1997.

On February 28, 1997, the Company filed a Registration Statement on Form S-1 in
connection with the proposed initial public offering of less than 20% of the
Company's common stock (the "Offering"). Immediately following the Offering,
Ford will continue to own a controlling interest in the Company's common stock.

The Company and Ford have entered into a Car Supply Agreement which will
commence on September 1, 1997 for a period of ten years. Under the Car Supply
Agreement, Ford and the Company have agreed to negotiate in good faith on an
annual basis with respect to the supply of cars. Ford has agreed to supply to
the Company and the Company has agreed to purchase from Ford, for each car model
year during the term of the agreement (i.e., the 1998 model year through the
2007 model year), (a) the lesser of 150,000 cars or 55% of the Company's fleet
requirements for its car rental business conducted in the United States; (b) 35%
of the Company's fleet requirements for its car rental business conducted in
Europe; and (c) 55% of the Company's fleet requirements for its car rental
business conducted other than in the United States and Europe. For each model
year, at least 50% of the cars supplied by Ford are required to be non-risk
cars. The Car Supply Agreement also provides that, for each model year, Ford
must strive to offer car fleet programs to the Company on terms and conditions
that are competitive with terms and conditions for the supply of cars then being
offered by other automobile manufacturers to the Company and other daily car
rental companies. In addition, for each model year, Ford must supply cars to the
Company on terms and conditions that are no less favorable than those offered by
Ford to other daily car rental companies, excluding franchised Ford vehicle
dealers who rent cars.

The Company and Ford have entered into a Joint Advertising Agreement which will
commence on September 1, 1997 for a period of ten years. Under the Joint
Advertising Agreement, Ford has agreed to pay to the Company one-half of the
Company's advertising costs, up to a limit of $39 million for the first year
and, for each year thereafter, a limit equal to the prior year's limit adjusted
for inflation, subject to a ceiling. In addition, if for any year, one-half of
the Company's advertising costs exceed such limit and the Company has purchased
from Ford a percentage of its car fleet requirements for its car rental business
conducted in the United States for the corresponding model year (the "Ford
Vehicle Share") equal to 58% or more, then Ford will pay to the Company
additional amounts for such excess advertising costs. To be eligible for cost
reimbursement under the Joint Advertising Agreement, the advertising must meet
certain conditions, including the condition that it indicates that the Company
features Ford vehicles in a manner and with a prominence that is reasonably
satisfactory to Ford. The Joint Advertising Agreement further provides that if
the Ford Vehicle Share for any model year is less than 55%, Ford will not be
obligated to pay the Company any amount for its advertising costs for that year,
except to the extent that the Company's failure to achieve a 55% Ford Vehicle
Share is attributable to (a) Ford's failure to supply a sufficient quantity of
cars for the Company to achieve a

F-28
<PAGE> 118

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14 -- SUBSEQUENT EVENTS -- (CONTINUED)
55% Ford Vehicle Share or (b) the fact that the terms and conditions of Ford's
car fleet programs offered to the Company were not competitive with the terms
and conditions for the supply of cars offered by other automobile manufacturers
to the Company and other daily car rental companies. In no event, however, will
Ford be required to pay any amount for the Company's advertising costs for any
year if the Ford Vehicle Share for the corresponding model year is less than
40%.

NOTE 15 -- PRO FORMA NET INCOME PER SHARE

The pro forma net income per share is determined by dividing net income for the
year by 108,267,025 shares outstanding after completion of the Offerings, and
after giving effect to the following: (a) the reclassification of 741 shares of
common stock, par value $1.00 per share, owned by Ford into 67,310,167 shares of
Class B Common Stock, (b) the issuance and sale by the Company of 20,010,000
shares of Class A Common Stock in the Offerings, (c) the reclassification of all
of the Company's outstanding Preferred Stock, Series A and Preferred Stock,
Series B into 20,245,833 shares of Class A Common Stock and (d) the issuance of
701,025 shares of Class A Common Stock pursuant to an employee benefit plan.

F-29
<PAGE> 119

SCHEDULE II

THE HERTZ CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
--------------------------------------------------------------------
Additions Deductions
Balance at ---------- ----------------------
Beginning of Charged to Translation Balance at
Year Income Adjustments Other End of Year
Dollars in thousands ------------ ---------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
1996
Allowance for doubtful accounts... $ 7,985 $ 9,912 $ 59 $ 5,570(a) $ 12,268
======== ======== ===== ======== ========
Public liability and property
damage.......................... $311,669 $133,417 $ 40 $123,928(b) $321,118
======== ======== ===== ======== ========
1995
Allowance for doubtful accounts... $ 10,026 $ 4,926 $(319) $ 7,286(a) $ 7,985
======== ======== ===== ======== ========
Public liability and property
damage.......................... $304,328 $134,926 $(229) $127,814(b) $311,669
======== ======== ===== ======== ========
1994
Allowance for doubtful accounts... $ 6,862 $ 6,813 $(521) $ 4,170(a) $ 10,026
======== ======== ===== ======== ========
Public liability and property
damage.......................... $264,158 $159,049 $ 403 $118,476(b) $304,328
======== ======== ===== ======== ========
</TABLE>

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

(a) Amounts written off, net of recoveries. The year 1995 includes $2 million,
which represents the balance at December 31, 1994 relating to the European Car
Leasing and Car Dealership operations sold by the Company effective January 1,
1995.

(b) Payments of claims and expenses.

F-30
<PAGE> 120

HERTZ LOGO
<PAGE> 121

APPENDIX DESCRIBING GRAPHIC MATERIAL
PURSUANT TO RULE 304 OF REGULATION S-T

Inside Front cover

Picture 1.

Picture of Hertz #1 Club Gold canopied area.

Picture 2.

Picture of woman behind rental counter.

Picture 3.

Picture of various pieces of industrial and construction rental
equipment.

Picture 4 (gatefold).

Map of world indicating countries in which the Company operates and
countries in which the Company offers Hertz #1 Club Gold service.

Inside Back Cover

Picture of sign reading "Hertz Rent a Car" with globe in background.