HFS INC, 424B3, 1996-12-04

HFS INC
424B3, 1996-12-04
PATENT OWNERS & LESSORS

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Filed Pursuant to Rule 424(b)(3)
Registration File No.: 333-11029

PROSPECTUS SUPPLEMENT
(To Prospectus dated August 29, 1996 and
Prospectus Supplement dated October 17, 1996)

4,295,843 SHARES
HFS INCORPORATED
COMMON STOCK

This Prospectus Supplement relates to up to 4,295,843 shares (the
"Shares") of common stock, $.01 par value per share (the "Common Stock"), of
HFS Incorporated, a Delaware Corporation ("HFS" or the "Company"), to be
offered from time to time by (i) The Avis, Inc. Employee Stock Ownership Trust
(the "Avis ESOP"), (ii) General Motors Corporation ("GM") and (iii) certain
persons (together with GM and the Avis ESOP, the "Selling Stockholders") named
in the Prospectus Supplement dated October 17, 1996. See "Selling
Stockholders" in the Prospectus Supplement dated October 17, 1996 and "Selling
Stockholders" and "Plan of Distribution" in the Prospectus. The Company will
not receive any of the proceeds from the sale of the Shares offered hereby.

The Shares have been registered pursuant to (i) the Agreement and Plan of
Merger (the "Merger Agreement"), dated as of August 23, 1996, as amended, by
and among HFS, Avis Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of HFS ("Avis Acquisition"), U.S. Trust Company of
California, N.A., as Trustee of the Avis ESOP and Avis, Inc. ("Avis") and (ii)
the Stock Purchase Agreement (the "Stock Purchase Agreement"), dated as of
August 28, 1996, by and between HFS and GM. The Merger Agreement provides for
the acquisition of Avis and its subsidiaries by HFS pursuant to a merger of
Avis Acquisition with and into Avis (the "Merger"). The Stock Purchase
Agreement provided for the acquisition by HFS of all of the participating
convertible preferred stock of Avis owned by GM simultaneously with the Merger
(the "Stock Purchase").

The distribution and sale of the shares of Common Stock offered hereby is
subject, with respect to the shares to be sold by GM, to the provisions of the
Stock Purchase Agreement and, with respect to the shares to be sold by the
Avis ESOP, to the provisions of the Merger Agreement. The Merger Agreement and
the Stock Purchase Agreement set forth certain transfer requirements and
restrictions with respect to the transfer of shares of Common Stock offered
hereby, including a restriction on the sale of shares for designated periods
after the closing of the Merger and requirements of prior notice of any
proposed transfer of the shares in certain designated periods. Subject to the
Merger Agreement and the Stock Purchase Agreement, the Selling Stockholders
may sell all or portions of the Common Stock through agents or broker-dealers
on terms to be determined at the time of sale. Subject to the Merger Agreement
and the Stock Purchase Agreement, the Selling Stockholders may sell the Common
Stock offered hereby from time to time on the New York Stock Exchange or such
other national securities exchange, automated interdealer quotation system on
which the shares of Common Stock are then listed, through negotiated
transactions or otherwise at market prices prevailing at the time of the sale
or at negotiated prices. The number of such shares proposed to be so offered
and the terms of such offering, and the number of such shares owned prior to
and after the completion of any such offering shall be set forth in an
accompanying Prospectus Supplement, to the extent necessary. Subject to the
terms of the Merger Agreement and the Stock Purchase Agreement, the aggregate
proceeds to the Selling Stockholders from the sale of any Shares will be the
purchase price of such Shares less the aggregate agents' or brokerdealers'
commission, if any, and other expenses of distribution not borne by the
Company. See "Selling Stockholders" and "Plan of Distribution" in the
Prospectus.

The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "HFS." On December 3, 1996, the last reported sale price of the
Common Stock on the New York Stock Exchange was $57 5/8 per share.

FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" ON PAGE 5 IN THE PROSPECTUS.

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.

The date of this Prospectus Supplement is December 4, 1996

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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH
THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER, DEALER OR AGENT INVOLVED IN THE OFFERING DESCRIBED
HEREIN. THIS PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY
OFFERED HEREBY OR OF ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT PROSPECTUS

Page Page
---- ----

Recent Developments.................S-3 The Company.................4
The RCI Acquisition.................S-5 Risk Factors................5
The PHH Acquisition................ S-9 The Avis Acquisition........9
Selling Stockholders...............S-14 Selling Stockholders.......11
Use Of Proceeds............20
PROSPECTUS SUPPLEMENT Plan of Distribution.......20
(dated October 17, 1996) Description of Capital
Stock....................20
Recent Developments................SS-3 Legal Opinion..............22
Selling Stockholders...............SS-4 Experts....................22

IN CONNECTION WITH ANY UNDERWRITTEN OFFERING OF THE SECURITIES, THE
UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN
THE MARKET PRICES OF SUCH SECURITIES OR OTHER SECURITIES OF THE COMPANY AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

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RECENT DEVELOPMENTS

RESORT CONDOMINIUMS INTERNATIONAL, INC. ACQUISITION. On November 12,
1996, the Company completed the acquisition of all the outstanding capital
stock of Resort Condominiums International, Inc. ("RCI") and its affiliates
for approximately $625 million, comprised of $550 million in cash and $75
million in Common Stock of the Company, plus future contingent payments of up
to $200 million over the next five years.

RCI, based in Indianapolis, Indiana and incorporated as an Indiana
corporation in 1974, is the world's largest provider of time share exchange
programs for approximately two million timeshare owners and approximately
3,000 resorts around the world (the "RCI Network"). The RCI Network enables a
member who owns a time share interest in a resort property that is affiliated
with the RCI Network to exchange such time share interest for a time share
interest of equivalent value in another affiliated resort. RCI also is engaged
in publishing related to the timeshare industry and provides other
travel-related services, integrated software systems and resort management and
consulting services. Exchange and travel-related revenue of RCI was $158.6
million and $278.1 million for the six months ended June 30, 1996 and the year
ended December 31, 1995, respectively. See "The RCI Acquisition."

The Company expects that the acquisition of RCI will provide increased
marketing opportunities between RCI and the Company's lodging, car rental and
real estate brokerage franchises as well as further opportunities to expand
the Company's preferred vendor program. The Company also expects that RCI will
benefit from certain economies of scale and other synergies resulting from
RCI's affiliation with the Company's lodging, car rental and real estate
brokerage franchisor operations.

THE PHH CORPORATION ACQUISITION. On November 10, 1996, the Company
entered into an Agreement and Plan of Merger (the "PHH Merger Agreement") by
and among the Company, PHH Corporation ("PHH") and Mercury Acquisition Corp.,
a wholly owned subsidiary of the Company. Pursuant to the PHH Merger
Agreement, the Company has agreed to acquire all the outstanding capital stock
of PHH for approximately $1.7 billion, or approximately $49.50 per PHH share
(the "PHH Merger") for consideration consisting of shares of Common Stock.
Pursuant to the terms of the PHH Merger Agreement, the maximum number of
shares to be issued would be 28.7 million and the minimum number of shares to
be issued would be 21.3 million, based upon an average share price of Common
Stock of $60 to $81 for the twenty trading days ending five days before the
PHH shareholder vote to approve the PHH Merger. Consummation of the
transaction is subject to the satisfaction of various conditions, including
regulatory approvals and stockholder approval. This transaction will be
accounted for as a pooling of interests and is anticipated to be tax free for
PHH shareholders. While completion of the transaction is not assured, the
Company expects the transaction will be completed on or about March 17, 1997.

PHH, based in Hunt Valley, Maryland and incorporated as a Maryland
Corporation, provides a broad range of integrated management services, expense
management programs and mortgage banking services to more than 3,000 major
clients, including many of the world's largest corporations, as well as
government agencies and affinity groups. Its primary business service segments
consist of vehicle management, real estate and mortgage banking. For the
twelve month period ended April 30, 1996, PHH net revenues totaled
approximately $600 million with net revenue of approximately $82 million. See
"The PHH Acquisition."

AMRE. On November 26, 1996, Amre Inc. ("Amre") reached an agreement in
principle with the Company to defer $9.6 million of Amre's 1996 royalty
obligation to the Company and modify the $11 million 1997 royalty payment to
the Company so that such royalty is based on the cash flow of Amre. The
Company and Amre also agreed to restructure the terms of future royalty
payments.

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The Company will record an allowance in the fourth quarter of 1996 on
the $9.6 million receivable from Amre. The allowance will be offset in large
part by a $9.5 million fee from Chartwell Leisure Inc. ("Chartwell") related
to a termination of a services contract by Chartwell.

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THE RCI ACQUISITION

GENERAL

On November 12, 1996, the Company completed the acquisition of all the
outstanding capital stock of RCI and its affiliates for approximately $625
million, comprised of $550 million in cash and $75 million in Common Stock of
the Company, plus future contingent payments of up to $200 million over the
next five years.

RCI, based in Indianapolis, Indiana and incorporated as an Indiana
corporation in 1974, is the world's largest provider of timeshare exchange
programs for approximately two million timeshare owners and approximately
3,000 resorts around the world. The RCI Network enables a member who owns a
timeshare interest in a resort property that is affiliated with the RCI
Network to exchange such timeshare interest for a timeshare interest of
equivalent value in another affiliated resort. RCI also is engaged in
publishing related to the timeshare industry and provides other travel-related
services, integrated software systems and resort management and consulting
services. Exchange and travel-related revenue of RCI was $158.6 million and
$278.1 million for the six months ended June 30, 1996 and the year ended
December 31, 1995, respectively.

The Company expects that the acquisition of RCI will provide increased
marketing opportunities between RCI and the Company's lodging, car rental and
real estate brokerage products as well as further opportunities to expand the
Company's preferred vendor program. The Company also expects that RCI will
benefit from certain economies of scale and other synergies resulting from
RCI's affiliation with the Company's lodging, car rental and real estate
brokerage franchisor operations.

TIMESHARE EXCHANGE INDUSTRY OVERVIEW

Timesharing for the resort industry is the shared ownership and/or
periodic use of property by a number of users or owners for a defined period
of years or in perpetuity. An example of a simple form of timeshare is a
condominium unit that is owned by fifty-two persons, with each person having
the right to use the unit for one week of every year. In the United States,
industry sources estimate that the average price of such a timeshare is about
$7,500 to $10,000, plus a yearly maintenance fee of approximately $350. In
1995, sales of timeshares exceeded $5 billion worldwide. Approximately 52% of
all timeshare owners reside in the United States, while approximately 21%
reside in Europe. Industry sources have estimated that the total number of
owners of timeshare interests is approximately 3.5 million, while the total
number of timeshare resorts worldwide has been estimated to be approximately
4,500.

A timeshare exchange provides an owner of a timeshare interest in a
particular resort property with the ability to exchange such interest for a
timeshare interest of equivalent value in another resort. Timeshare exchange
accounts for approximately two-fifths of the timeshare holidays taken
worldwide each year. Two principal segments make up the timeshare exchange
industry: owners of timeshare interests and resort properties. The timeshare
exchange industry derives revenue from annual membership fees paid by owners
of timeshare interests, affiliation fees paid by timeshare resort properties,
and exchange fees paid by such owners for each exchange that is arranged by a
timeshare exchange company.

The global timeshare exchange industry consists of two major companies,
RCI and Interval International ("Interval"), a wholly-owned subsidiary of CUC
International, as well as a small number of smaller firms. Approximately 95%
of the 4,500 timeshare resorts in the world are affiliated with either RCI or
with Interval. In addition, RCI has approximately 2.1 million timeshare owners
who are members while Interval has almost 700,000 timeshare owners who are
members.

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The timeshare industry has experienced significant growth over the past
decade. The Company believes that the factors driving this industry growth
include the demographic trend toward older, more affluent Americans who travel
more frequently, the entrance of major hospitality and entertainment companies
into timeshare development, a worldwide acceptance of the concept, an
increasing focus on leisure activities, family health and a desire for value,
variety and flexibility in a vacation experience. The Company believes that
future growth of the timeshare exchange industry will be determined by general
economic conditions both in the U.S. and worldwide, the public image of the
industry, improving approaches to providing marketing and sales, a greater
variety of products and broadening the timeshare market and a variety of other
factors. Accordingly, the Company cannot predict whether such growth will
continue and, if so, whether it will continue at rates comparable to those of
the recent past. See "Risk Factors--Risks Related to RCI's Operations."

RCI TIMESHARE EXCHANGE OPERATIONS

MEMBERSHIP

The RCI Network provides a network for approximately 2.1 million members
who own timeshare interests in a resort that is affiliated with the RCI
Network which enables such members to exchange their timeshare interest for a
timeshare interest of equivalent value in another affiliated resort.
Approximately 1,100,000 members of the RCI Network reside outside of the
United States, which account for 52% of the total members of the RCI Network.
RCI's membership volume has grown at a compound annual rate for the last five
years of approximately 10%, while exchange volumes have grown at a compound
annual rate of approximately 12% for the same time period.

RCI provides members of the RCI Network with access to both domestic and
international timeshare resorts, publications regarding timeshare exchange
opportunities, and other travel-related services, including discounted
purchasing programs. See "--Publications" and "--Other Services Provided by
RCI." In the United States members pay an average annual membership fee of $67
as well as an average exchange fee of $100 for every exchange arranged by
RCI. In 1995, membership and exchange fees amounted to approximately $230
million. RCI arranged approximately 1.6 million exchanges in 1995.

Developers of resorts affiliated with the RCI Network typically pay the
first year membership fee for new members upon the sale of the timeshare
interest. See "--Affiliated Timeshare Resorts and Developers." In the United
States more than 75% of such owners renew their membership in their second
year and more than 90% renew each year thereafter.

OTHER SERVICES PROVIDED BY RCI

Travel Services. RCI provides travel services to U.S. members of the RCI
Network through its affiliate, RCI Travel, Inc. ("RCIT"). On a global basis,
RCI provides travel services through entities operating in local jurisdictions
(hereinafter, RCIT and local entities referred to as "Travel Agencies").
Travel Agencies provide airline reservations and airline ticket sales services
to members in conjunction with the arrangement of their timeshare exchanges,
as well as providing other types of travel services including hotel
accommodations, car rentals, cruises and tours. Travel Agencies also from time
to time offer travel packages utilizing resort developers' unsold inventory to
provide both revenue and prospective timeshare purchasers to the resort.

Advertising. RCI provides its affiliated resorts with advertising
opportunities in its member and developer focused publications, as well as
through its site on the Internet Worldwide Web at http:\\www.rci.com.

Sales and Marketing Supporting. RCI provides a wide variety of sales and
marketing materials to assist its affiliated resorts in their timeshare sales
process. These include a video explaining the concept of vacation ownership
and exchange, posters, wall tours customized for the resort, a wide variety of
promotional brochures and

S-6

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the Endless Vacation Special Resort Edition Directory. Interactive multi-media
sales tools are also under development. In addition, RCI uses state-of-the-art
database marketing techniques to identify highly qualified sales prospects for
its resort affiliates.

Timeshare Consulting. RCI provides worldwide timeshare consulting
services through its affiliate, RCI Consulting, Inc. These services include
comprehensive market research, site selection, strategic planning, community
economic impact studies, resort concept evaluation, financial feasibility
assessments, on-site studies of existing resort developments, and tailored
sales and marketing plans.

Resort Management Software. RCI provides computer software systems to
timeshare resorts and developers through its affiliate, Resort Computer
Corporation ("RCC"). RCC provides software that integrates resort functions
such as sales, accounting, inventory, maintenance, dues and reservations.

Property Management. RCI provides resort property management services
through its affiliate, RCI Management, Inc. ("RCIM"). RCIM is a single source
for any and all resort management services, and offers a menu including
hospitality services, a centralized reservations service center, advanced
reservations technology, human resources expertise and owner's association
administration.

AFFILIATED TIMESHARE RESORTS AND DEVELOPERS

Approximately 3,000 timeshare resorts are affiliated with the RCI
Network, of which approximately 1,250 resorts are located in the United States
and Canada; 1,100 are in Europe and Africa, 400 are in Mexico and Latin
America, and 250 are in the Asia-Pacific region. The terms of RCI's
affiliation agreement with its resorts generally require that the developer
enroll each new timeshare purchaser at the resort as a member of RCI, license
the affiliated resort to use the RCI name and marks, set forth the materials
and services RCI will provide to the affiliate and generally describe RCI's
expectations of the resort's management, representation of the exchange
program, minimum enrollment requirements and treatment of exchange guests.
Affiliation agreements are typically for a term of five or six years and
automatically renew for like terms thereafter unless either party takes
affirmative action to terminate the relationship. RCI makes available a wide
variety of goods and services to its affiliated developers, including
publications, advertising, sales and marketing materials, timeshare consulting
services, resort management software, travel packaging and property management
services. See "--Other Services Provided by RCI."

Developers of affiliated resorts typically pay the first year membership
fee for new members upon the sale of the timeshare interest. Vistana
Development, Orange Lake Country Club and Fairfield Communities have provided
the greatest number of members currently enrolled in the RCI Network.

PUBLICATIONS

RCI publishes numerous magazines and periodicals, often in several
languages, relating to the vacation and timeshare industry. The Endless
Vacation Special Resort Edition, and its counterpart in various countries, is
RCI's premier publication and contains full color, photo listings of RCI
resorts. Endless Vacation, Holiday, and Vacacciones Sin Fin are magazines
directed at subscribing members in North America and Singapore, Europe and
Africa, and Latin America, respectively. Perspective, Review, Timeshare
Business Quarterly and Intercambio are magazines or newsletters directed at
resort affiliates, developers, homeowners associations and industry personnel
in North America, Europe, Asia-Pacific and Latin America, respectively. RCI's
approximately 2.1 million members are subscribers to its magazines. Developer
periodicals are made available to resorts and others in the industry at no
charge.

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REGULATORY AND ENVIRONMENT MATTERS

RCI is subject to federal, state and local laws and regulations including
those relating to taxing, consumer credit, environmental protection and labor
matters. In addition, RCI is subject to state statutes in those states
regulating timeshare exchange services, and must prepare and file annually
with regulators in states which require it, the RCI Disclosure Guide to
Vacation Exchange. RCI is not subject to those state statutes governing the
development of timeshare condominium units and the sale of timeshare
interests, but such statutes directly affect the members and resorts that
participate in the RCI Network and therefor the statutes indirectly impact
RCI.

The Company believes that RCI is in substantial compliance with all of
the regulatory requirements of the various jurisdictions in which RCI
operates.

LEGAL MATTERS

From time to time, RCI is subject to routine litigation incidental to its
business. RCI maintains insurance policies that cover most of the actions
brought against RCI. See "--Insurance." RCI is not involved in any legal
proceeding which it believes would have a material adverse effect upon its
financial condition or operations.

EMPLOYEES

RCI has approximately 4,200 employees worldwide. Of these, approximately
1,500 are employed in executive, financial and administrative capacities,
approximately 1,800 are engaged in marketing or sales capacities,
approximately 325 are involved in the travel services business, approximately
70 are involved in the resort software business, and approximately 500 are
involved in the resort-management business. None of RCI's employees are
represented by unions or collective bargaining agreements. RCI believes that
its relationships with its employees are good.

PROPERTIES

RCI leases space at 19 locations in the United States and 38 locations
outside of the United States for all of its operations. Additionally, one
location in the United States is owned and one location outside of the United
States is owned. RCI has offices in 33 countries.

RCI's principal offices are in a 108,000 square foot complex known as the
Woodview Trace building, located in Indianapolis, Indiana. RCI leases the land
and building from a limited liability company controlled by the Selling
Stockholder. The lease provides for an initial five year term expiring
December 31, 2001 and contains ten renewal options each for a term of five
additional years. The rent is approximately $1,600,000 per year for the
original term of the lease, and is subject to adjustment to reflect changes in
the cost of living upon the exercise of each renewal option.

THE PHH ACQUISITION

GENERAL

PHH, based in Hunt Valley, Maryland and incorporated as a Maryland
Corporation, provides a broad range of integrated management services, expense
management programs and mortgage banking services to more than 3,000 major
clients, including many of the world's largest corporations, as well as
government agencies and affinity groups. Its primary business service segments
consist of vehicle management, real estate and mortgage banking. In reviewing
the financial and statistical data herein relating to PHH, please note that
PHH has a fiscal year end at April 30.

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VEHICLE MANAGEMENT SERVICES

Vehicle management services consist primarily of the management,
purchase, leasing and resale of vehicles for corporate clients and government
agencies, including fuel and expense management programs and other fee-based
services for clients' vehicle fleets.

Fleet Management Services. PHH provides fully integrated vehicle
management and leasing programs through PHH Vehicle Management Services. These
programs were developed to meet the specific needs of companies using large
and small numbers of cars and trucks and consist of managerial, leasing and
advisory services, aimed at reducing and controlling the cost of operating
corporate fleets.

PHH's advisory services for automobile fleet management programs include
recommendations on the makes and models of cars and accessories best suited to
the client's use, the determination of persons eligible for company cars, the
method of reimbursing field representatives for actual car expenses, the care
and maintenance of cars and the personal use of company cars.

Managerial services for automobile fleet programs include purchasing
automobiles, arranging for their delivery through new car dealers located
throughout the United States, Canada, the United Kingdom and the Republic of
Ireland, as well as capabilities in Mexico and throughout Europe, complying
with various local registration, title, tax and insurance requirements,
pursuing warranty claims with automobile manufacturers and selling used cars
at replacement time.

PHH offers similar programs and services for vans and light and
heavy-duty truck fleets. Advisory services offered include the determination
of the vehicle specifications, makes, models and equipment best suited to
perform the functions required by the client. Managerial services include
purchasing new vans, light and heavy-duty trucks, trailers, truck bodies and
equipment from manufacturers and franchised dealers, the performance of title,
registration, tax and insurance functions, arranging for them to be titled,
licensed and delivered to locations designated by clients, verifying invoices
and selling used vehicles at replacement time.

PHH offers various leasing plans for its vehicle leasing programs. Under
these plans, PHH provides for the financing primarily through the issuance of
commercial paper and medium-term notes and through unsecured borrowings under
revolving credit agreements and bank lines of credit.

PHH leases vehicles for minimum lease terms of twelve months or more
under either direct financing or operating lease agreements. PHH's experience
indicates that the full term of the leases may vary considerably due to
extensions beyond the minimum lease term. Under the direct financing lease
agreements, resale of the vehicles upon termination of the lease is generally
for the account of the lessee. PHH has two distinct types of operating leases.
Under one type, the open-end operating lease, resale of the vehicle upon
termination of the lease is for the account of the lessee except for a minimum
residual value which PHH has guaranteed. PHH's experience has Ibeen that
vehicles under this type of lease agreement have consistently been sold for
amounts exceeding residual value guarantees. Under the other type of operating
lease, the closed-end operating lease, resale of the vehicle on termination of
the lease is for the account of PHH.

PHH's fleet management services may be the same whether the client owns
or leases the vehicles. In either case, the client generally operates the
vehicles on a net basis, paying all the actual costs incidental to their
operations, including gasoline, oil, repairs, tires, depreciation, vehicle
licenses, insurance and taxes. The fee charged by PHH for its services is based
upon either a percentage of the original cost of the vehicle or a stated
management fee and, in the case of a leasing client, includes the interest cost
incurred in financing the vehicle.

Fuel and Expense Management Programs. PHH offers fuel and expense
management programs to corporations and government agencies for the control of
automotive business travel expenses in each of the United States, Canada,
United Kingdom, Republic of Ireland and Germany, with capabilities in Mexico
and throughout

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Europe. Through a service card and billing service, a client's traveling
representatives are able to purchase various products and services such as
gasoline, tires, batteries, glass and maintenance services at numerous
outlets. PHH also provides a series of safety and accident management related
programs, statistical control reports detailing expenses related to the
general operation of vehicles, and a program which monitors and controls the
type and cost of vehicle maintenance for individual automobiles.

PHH also provides a fuel and expense management program and a centralized
billing service for companies operating truck fleets in the United Kingdom, as
well as in the United States, Republic of Ireland and Germany. Drivers of the
clients' trucks are furnished with courtesy cards together with a directory
listing the names of strategically located truck stops and service stations
which participate in this program. Service fees are earned for billing,
collection and record keeping services and for assuming credit risk. These
fees are paid by the truck stop or service stations and/or the fleet operator
and are based upon the total dollar amount of fuel purchased or the number of
transactions processed.

Competitive Conditions. The principal methods of competition within
vehicle management services are service quality and price.

In the United States and Canada, an estimated 30% of the market for
vehicle management services is served by third-party providers. There are five
major providers of such services in North America, as well as an estimated
several hundred local and regional competitors. PHH is the second largest
provider of comprehensive vehicle management services in North America.

In the United Kingdom, the portion of the fuel card services and vehicle
management services markets served by third-party providers is an estimated
37% and 45%, respectively. PHH is the market leader among the four major
nationwide providers of fuel card services, and the six major nationwide
providers of vehicle management services. Numerous local and regional
competitors serve each such market element.

The following sets forth certain statistics concerning automobiles, vans,
light, medium and heavy-duty trucks for which PHH provides managerial, leasing
and/or advisory services primarily in the United States, Canada, the United
Kingdom, the Republic of Ireland and Germany at the end of the fiscal years
shown:

1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Ending number of vehicles under 482,600 463,200 450,400 454,300 467,000
management:

Average cost of vehicles $ 19,639 $ 19,167 $ 18,016 $ 17,203 $ 16,072

Number of vehicles purchased 117,700 112,400 108,000 115,800 117,900

Number of fuel and service card 56,000 51,400 47,300 45,600 44,100
transactions (in thousands)

Gallons of fuel processed (in 1,069,000 1,136,000 1,073,000 1,039,000 1,076,000
thousands)
</TABLE>

REAL ESTATE SERVICES

PHH provides real estate services principally to large international
corporations, government agencies and financial institutions, and to members
of affinity groups in the United States, Canada, the United Kingdom and the
Republic of Ireland through PHH Real Estate Services. PHH also has
capabilities in Mexico and throughout Europe. Principal services consist of
counseling transferred employees of clients and the purchase, management and
resale of their homes. PHH's real estate services offer clients the
opportunity to reduce employee relocation costs and facilitate employee
relocation.

S-10

<PAGE>

PHH pays a transferring employee his/her equity in a home based upon a
value determined by independent appraisals or based on a contract to sell
which has been agreed with the employee. The employee's mortgage is generally
retired concurrently with the purchase of the equity; otherwise PHH normally
accepts the administrative responsibility for making payments on any
mortgages. Following payment to the employee, the corporate client normally
pays PHH an advance billing to cover costs to be incurred during the period
the home is held for resale, including debt service on any existing mortgage.
These costs are paid by PHH and, after ultimate resale, a settlement is made
with the corporate client reconciling the advance billing and expense
payments. Under the terms of the client contracts, PHH is generally protected
against losses from changes in market conditions.

Funds to finance the purchase of homes are provided primarily through the
issuance of commercial paper and medium-term notes through unsecured
borrowings under revolving credit agreements and bank lines of credit, or may
be provided by the client. Interest costs are billed directly to PHH's
clients.

PHH's real estate services subsidiaries also offer programs which provide
the planning and implementation for group moves of corporate clients, home
marketing assistance, property management, movement of household goods,
destination services and asset management for financial institutions.

Competitive Conditions. The principal methods of competition within real
estate services are service quality and price. In the United States, Canada
and the United Kingdom, an estimated 22% of the market for real estate
services is served by third-party providers.

In each of the United States, Canada and the United Kingdom, there are
four major national providers of such services. There are an estimated several
dozen local and regional competitors in each country. PHH is the market leader
in the United States and Canada, and third in the United Kingdom.

The following sets forth certain statistics concerning PHH's real estate
services in the United States, Canada and the United Kingdom for the fiscal
years shown:

1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Asset-based services:
Home purchase authorizations 32,400 31,000 31,800 31,800 30,400
Transferee homes sold 27,900 25,300 28,900 28,400 28,100
Average value of US transferee $177,000 $171,000 $165,000 $156,000 $156,600
Fee-based services transactions:
Home finding 25,890 24,020 23,180 15,620 10,540
Household goods moves 17,310 14,700 13,720 8,730 7,170
Property dispositions 8,580 7,250 4,180 3,610 2,690
-------- -------- -------- -------- --------
51,780 45,970 41,080 27,960 20,400
</TABLE>

(1) Revenues for real estate services in the United States are significantly
determined based on the value of homes sold, while revenues for the
United Kingdom and Canadian segments are not related to the value of
homes sold; therefore, this table only includes the average value of U.S.
homes sold.

MORTGAGE BANKING SERVICES

PHH provides U.S. residential mortgage banking services through PHH
Mortgage Services. These services consist of the origination, sale and
servicing of residential first mortgage loans. A variety of first mortgage
products are marketed to consumers through relationships with corporations,
affinity groups, financial institutions, real estate brokerage firms and other
mortgage banks.

PHH Mortgage Services is a centralized mortgage lender conducting
business in all 50 states. It utilizes its computer system and an extensive
telemarketing operation to allow the consumer to complete the entire
application process over the telephone. Utilizing local appraisers, title
companies and closing attorneys, PHH can effectively administer its products
and services anywhere in the nation.

S-11

<PAGE>

The mortgage unit customarily sells all mortgages it originates to
investors (which include a variety of institutional investors) either as
individual loans, as mortgage-backed securities or as participation
certificates issued or guaranteed by the Federal National Mortgage Association
(FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), or the Government
National Mortgage Association (GNMA) while generally retaining mortgage
servicing rights. The guarantees provided by FNMA and FHLMC are on a
non-recourse basis to PHH. Guarantees provided by GNMA are to the extent
recoverable from certain government insurance programs.

Mortgage servicing consists of collecting loan payments, remitting
principal and interest payments to investors, holding escrow funds for payment
of mortgage-related expenses such as taxes and insurance, and otherwise
administering PHH's mortgage loan servicing portfolio.

Competitive Conditions. The principle methods of competition in mortgage
banking services are service quality and price. There are an estimated 20,000
national, regional or local providers of mortgage banking services across the
United States. PHH ranked 15th among loan originators for calendar year 1995.

The following sets forth certain statistics concerning mortgage banking
services for the fiscal years shown:

1996 1995 1994 1993 1992
---- ---- ---- ---- ----

<S> <C> <C> <C> <C> <C>
Mortgage loan closing
(in millions) $ 7,853 $ 3,432 $ 8,074 $ 5,618 $ 3,797

Mortgage servicing portfolio
at April 30 (in millions) $21,676 $16,017 $16,645 $11,047 $ 7,517

Delinquency rate 1.4% 1.3% 1.2% 1.1% 1.8%
</TABLE>

EMPLOYEES

As of September 30, 1996, PHH and its subsidiaries had approximately
5,700 employees.

PROPERTIES

The corporate offices of PHH are located at 11333 McCormick Road, Hunt
Valley, Maryland, in an eight-story building which is owned by PHH and
contains approximately 163,000 square feet of office space.

The offices of PHH Vehicle Management Services North American operations
are located throughout the U.S. and Canada. Primary office facilities are
located in a six-story, 200,000 square foot office building in Hunt Valley,
Maryland, leased until September 2003; and offices in Mississauga, Canada,
having 59,400 square feet, leased until February 2003. Other facilities
include office space totaling 10,400 square feet in five cities leased as
full-service branch offices for fleet management activities for various terms
to April 2003; two dealerships, one located in Williamsburg, Virginia, having
101,000 square feet, leased until March 1998 and the other in Edenton, North
Carolina, having 337,100 square feet, leased until December 1998; and regional
offices located in Montreal, Calgary, Vancouver, Mississauga & Quebec, Canada,
having a total of 43,100 square feet, leased for various terms to December
2002.

The offices of PHH Real Estate Services North American operations are
located throughout the U.S. and Canada. Primary office facilities are located
in offices located in Danbury, Connecticut, having 92,600 square feet, leased
until January 2000 and offices in Danbury, Connecticut, having 30,000 square
feet, leased until November 1998. Other facilities include office space
totaling 59,200 square feet in Oak Brook, Illinois leased until April 2003;
23,350 square feet in Concord, California leased until October 1998; 47,800
square feet in Irving, Texas leased until November 1998; 29,300 square feet in
eight other cities for various terms to June 2002; and office space totaling
43,320 square feet in Toronto, Calgary, Montreal, Vancouver, Ottawa and Nova
Scotia, leased

S-12

<PAGE>

for various terms to May 2004.

The offices of PHH Mortgage Services are located primarily in a 127,000
square foot building in Mount Laurel, New Jersey, which is owned by PHH; and
offices in Mount Laurel, New Jersey, having 88,000 square feet, leased until
April 2002 and in Englewood, Colorado, having 27,900 square feet, leased until
June 1997.

The offices of Vehicle Management Services and Real Estate Services
operations located in the United Kingdom and Europe are as follows: a 129,000
square foot building which is owned by PHH located in Swindon, United Kingdom;
and field offices having 35,400 square feet located in Swindon and Manchester,
United Kingdom; Munich, Germany; and Dublin, Ireland, are leased for various
terms to February 2016.

PHH considers that its properties are generally in good condition and
well maintained and are generally suitable and adequate to carry on PHH's
business.

LEGAL PROCEEDINGS

PHH is party to various litigation arising in the ordinary course of
business and is plaintiff in several collection matters which are not
considered material either individually or in the aggregate.

S-13

<PAGE>

SELLING STOCKHOLDERS

The following table sets forth certain supplemental information, as of
December 3, 1996, with respect to the number of Shares of Common Stock owned
by the Avis ESOP and GM and the number of Shares sold in the Offering. Because
the Selling Stockholders may sell all or a portion of the Shares at any time
and from time to time after the date hereof, subject to the Merger Agreement
and the Stock Purchase Agreement in the case of the Avis ESOP and GM,
respectively, no estimate can be made of the number of shares of Common Stock
that each Selling Stockholder may retain upon completion of the Offering. See
"Selling Stockholders" - The Merger Agreement" and "-- The Stock Purchase
Agreement" in the Prospectus. To the knowledge of the Company, none of the
Selling Stockholders has any material relationships with the Company except as
set forth in the footnote to the following table. See "Selling Stockholders"
in the Prospectus.

Number Of Shares Number Of Shares
Beneficially Owned Beneficially Owned
Selling Stockholder Prior to the Offering as of December 3, 1996
------------------- --------------------- ----------------------

<S> <C> <C>
Avis ESOP(1) 3,187,421 2,913,921

GM(2) 1,340,898 1,340,898
</TABLE>

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

(1) As of June 30, 1996, the Avis ESOP was the beneficial and record owner
of approximately 23,603,524 shares of common stock of Avis representing 70.68%
of the total equity of Avis prior to the acquisition of Avis by the Company on
October 17, 1996.

(2) As of June 30, 1996, GM was the beneficial and record owner of
9,788,623 shares of participating convertible preferred stock, par value $.01
per shares, of Avis representing 29.30% of the total equity of Avis prior to
the acquisition of Avis by the Company on October 17, 1996.

EXPERTS

The consolidated financial statements of Avis, Inc. as of February 29,
1996 and February 28, 1995 and for each of the three years then ended, included
in the HFS Incorporated Current Report on Form 8-K/A dated December 4, 1996,
have been so incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

The consolidated financial statements of PHH Corporation and
subsidiaries as of April 30, 1996 and 1995, for each of the years in the three
year period ended April 30, 1996, which appear in the Form 8-K/A dated December
4, 1996 of HFS Incorporated, have been incorporated by reference herein in
reliance upon the report of KPMG Peat Marwick LLP, Independent Accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.

S-14

<PAGE>

Filed Pursuant to Rule 424(b)(3)
Registration File No.: 333-11029

PROSPECTUS SUPPLEMENT
(To Prospectus dated August 29, 1996)

4,569,343 SHARES
HFS INCORPORATED
COMMON STOCK

This Prospectus Supplement relates to up to 4,569,343 shares (the
"Shares") of common stock, $.01 par value per share (the "Common Stock"), of
HFS Incorporated, a Delaware Corporation ("HFS" or the "Company"), to be
offered from time to time by (i) The Avis, Inc. Employee Stock Ownership Trust
(the "Avis ESOP"), (ii) General Motors Corporation ("GM") and (iii) certain
persons (together with GM and the Avis ESOP, the "Selling Stockholders") named
in this Prospectus Supplement. See "Selling Stockholders" in this Prospectus
Supplement and "Selling Stockholders" and "Plan of Distribution" in the
Prospectus. The Company will not receive any of the proceeds from the sale of
the Shares offered hereby.

The Shares are being registered pursuant to (i) the Agreement and Plan
of Merger (the "Merger Agreement"), dated as of August 23, 1996, as amended, by
and among HFS, Avis Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of HFS ("Avis Acquisition"), U.S. Trust Company of California,
N.A., as Trustee of the Avis ESOP and Avis, Inc. ("Avis") and (ii) the Stock
Purchase Agreement (the "Stock Purchase Agreement"), dated as of August 28,
1996, by and between HFS and GM. The Merger Agreement provides for the
acquisition of Avis and its subsidiaries by HFS pursuant to a merger of Avis
Acquisition with and into Avis (the "Merger"). The Stock Purchase Agreement
provides for the acquisition by HFS of all of the participating convertible
preferred stock of Avis owned by GM simultaneously with the Merger (the "Stock
Purchase").

The distribution and sale of the shares of Common Stock offered hereby
is subject, with respect to the shares to be sold by GM, to the provisions of
the Stock Purchase Agreement and, with respect to the shares to be sold by the
Avis ESOP, to the provisions of the Merger Agreement. The Merger Agreement and
the Stock Purchase Agreement set forth certain transfer requirements and
restrictions with respect to the transfer of shares of Common Stock offered
hereby, including a restriction on the sale of shares for designated periods
after the closing of the Merger and requirements of prior notice of any
proposed transfer of the shares in certain designated periods. Subject to the
Merger Agreement and the Stock Purchase Agreement, the Selling Stockholders may
sell all or portions of the Common Stock through agents or broker-dealers on
terms to be determined at the time of sale. Subject to the Merger Agreement and
the Stock Purchase Agreement, the Selling Stockholders may sell the Common
Stock offered hereby from time to time on the New York Stock Exchange or such
other national securities exchange, automated interdealer quotation system on
which the shares of Common Stock are then listed, through negotiated
transactions or otherwise at market prices prevailing at the time of the sale
or at negotiated prices. The number of such shares proposed to be so offered
and the terms of such offering, and the number of such shares owned prior to
and after the completion of any such offering shall be set forth in an
accompanying Prospectus Supplement, to the extent necessary. Subject to the
terms of the Merger Agreement and the Stock Purchase Agreement, the aggregate
proceeds to the Selling Stockholders from the sale of any Shares will be the
purchase price of such Shares less the aggregate agents' or broker- dealers'
commission, if any, and other expenses of distribution not borne by the
Company. See "Selling Stockholders" and "Plan of Distribution" in the
Prospectus.

The Company's Common Stock is listed on the New York Stock Exchange
under the symbol "HFS." On October 16, 1996, the last reported sale price of
the Common Stock on the New York Stock Exchange was $76 3/4 per share.

FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" ON PAGE 5 IN THE PROSPECTUS.

<PAGE>

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH
THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER, DEALER OR AGENT INVOLVED IN THE OFFERING DESCRIBED
HEREIN. THIS PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY
OFFERED HEREBY OR OF ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT PROSPECTUS

Page Page
---- ----

Recent Developments............SS-3 The Company........................4
Selling Stockholders ..........SS-4 Risk Factors.......................5
The Avis Acquisition...............9
Selling Stockholders...............11
Use of Proceeds....................20
Plan of Distribution...............20
Description of Capital Stock ......20
Legal Opinion......................22
Experts ..........................22

SS-2

<PAGE>

RECENT DEVELOPMENTS

THE AVIS ACQUISITION. On October 17, 1996, the Company completed the
acquisition of all of the outstanding capital stock of Avis, including payments
under certain employee stock plans of Avis and the redemption of certain series
of preferred stock of Avis for approximately $800 million. Avis, together with
its subsidiaries, licensees and affiliates, operates the Avis System, which the
Company believes to be the second largest car rental system in the world. See
"The Avis Acquisition" in the Prospectus.

The Company currently intends to dispose of a majority interest in the
corporation which owns all company owned Avis car rental locations (the
"Operating Company") through an initial public offering of the common stock of
the Operating Company during 1997. It is expected that the Operating Company
would operate under a license from Avis pursuant to which the Operating Company
would pay Avis a royalty based upon the revenue of the Operating Company. The
Company expects that the acquisition of Avis will also provide further
opportunities to expand the Company's preferred vendor program.

RESORT CONDOMINIUMS INTERNATIONAL, INC. ACQUISITION. On October 6,
1996, the Company entered into the Stock Purchase Agreement (the "RCI Stock
Purchase Agreement") by and among the Company, Resort Condominiums
International, Inc. ("RCI") and Christel DeHaan, RCI's sole stockholder.
Pursuant to the RCI Stock Purchase Agreement, the Company has agreed to acquire
RCI and its affiliates for approximately $625 million, comprised of $550
million in cash and $75 million in Common Stock of the Company, plus future
contingent payments of up to $200 million over the next five years.
Consummation of the transaction is subject to the satisfaction of various
conditions, including regulatory approvals. While completion of the transaction
is not assured, the Company expects the transaction will be completed prior to
December 31, 1996.

RCI, based in Indianapolis, Indiana and incorporated as an Indiana
corporation in 1974, is the world's largest provider of time share exchange
programs for approximately two million timeshare owners and approximately 3,000
resorts around the world (the "RCI Network"). The RCI Network enables a member
who owns a time share interest in a resort property that is affiliated with the
RCI Network to exchange such time share interest for a time share interest of
equivalent value in another affiliated resort. RCI also is engaged in
publishing related to the timeshare industry and provides other travel-related
services, integrated software systems and resort management and consulting
services. Revenue of RCI was $158.6 million and $278.1 million for the six
months ended June 30, 1996 and the year ended December 31, 1995, respectively.

Following the acquisition of RCI, the Company expects to continue
operating RCI and RCI's subsidiaries as they have previously been operated. The
Company expects that the acquisition of RCI will provide increased marketing
opportunities between RCI and the Company's lodging, car rental and real estate
brokerage franchises as well as further opportunities to expand the Company's
preferred vendor program. The Company also expects that RCI will benefit from
certain economies of scale and other synergies resulting from RCI's affiliation
with the Company's lodging, car rental and real estate brokerage franchisor
operations.

INCREASED CREDIT FACILITIES. On October 3, 1996, the Company closed on
$1 billion in syndicated credit facilities which consist of a $500 million
five-year revolving credit facility and a $500 million 364-day revolving credit
facility (the "364 Day Revolving Credit Facility"). The Company is entitled to
request a 364 day extension of the 364 Day Revolving Credit Facility annually.
The Company intends to use the revolving credit facilities for general
corporate purposes, including acquisitions. The revolving credit facilities
replaced an existing credit facility and increased maximum borrowings from $300
million to $1 billion.

SS-3

<PAGE>

SELLING STOCKHOLDERS

The following table sets forth certain supplemental information, as of
October 17, 1996, with respect to the number of Shares of Common Stock owned by
the Selling Stockholders. Because the Selling Stockholders may sell all or a
portion of the Shares at any time and from time to time after the date hereof,
subject to the Merger Agreement and the Stock Purchase Agreement in the case of
the Avis ESOP and GM, respectively, no estimate can be made of the number of
shares of Common Stock that each Selling Stockholder may retain upon completion
of the Offering. See "Selling Stockholders - The Merger Agreement" and "-- The
Stock Purchase Agreement" in the Prospectus. To the knowledge of the Company,
none of the Selling Stockholders has any material relationships with the
Company except as set forth in the footnotes to the following table.
See "Selling Stockholders" in the Prospectus.

Number of Number of
Shares Shares
Selling Stockholders(1) Beneficially Owned Selling Stockholders(1) Beneficially Owned
------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C>

Avis ESOP(2) 3,187,421 William L. Lanier 606

GM(3) 1,340,898 Phillip W. Lommen 617

Steven R. Adams 597 Vincent F. Manago 703

Charles F. Bell 608 Gerard E. McCormack 709

Charles A. Bovino 1,370 David P. McNicholas 1,613

Thomas J. Byrnes 736 Robert H. Meagher 491

Marcellano Calvo 535 Oliver Milton 143

Robert D. Cardillo 893 Kerry L. Morris 572

James E. Collins 1,590 Jan Nyquist 346

Michael P. Collins 874 Lis-Beth Nyquist 158

Peter F. del Sol 514 Ronald W. Robertson 232

Martin R. Elkin 109 Janice Robertson 97

Lawrence Ferezy 1,436 Dennis Roth 692

Joseph E. Fineo 538 Stanley Roth 735

Thomas S. Finn 509 Gerald L. Rourke 794

James R. Fitzsimmons 684 F. Robert Salerno 1,203

John H. Forsythe 887 Joseph F. Scalabrino 512

Edward C. Gitlitz 563 Stanley J. Schwarz 680

Steven L. Greenberger 864 Karen C. Sclafani 567

Edwin D. Hale 794 Timothy M. Shanley 603

Theodore P. Heller, Jr. 505 Augustus J. Siragusa 162

SS-4

<PAGE>

Russell L. James 764 Gerald R. Skurky 132

Seth F. Kaminsky 755 Stuart E. Soule 416

John P. Kennedy 593 Dorothy A. Teubner 710

Gerard J. Kennell 433 Daryl R. Thrasher 605

Marilyn Kennell 350 Sallyann B. Tine 287

Don M. Kolodz 55 Peter R. Tittler 639

Donald L. Korn 1,512 Thomas J. Tobias 646

James D. Krapf 482 Joseph V. Vittoria(4) 4,801

Albert T. LaFrance 448 Richard R. Zaia 555

Total 4,569,343

</TABLE>

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

(1) Each person named in the table, other than the Avis ESOP, GM, Marilyn
Kennell, Lis-Beth Nyquist, Janice Robertson, Martin R. Elkin,
John P. Kennedy, Don Kolodz, Oliver Milton, Ronald W. Robertson,
Augustus J. Siragusa and Gerald R. Skurky, served as officers of
Avis prior to the acquisition of Avis by the Company on October
17, 1996, and continue to serve as officers thereof.

(2) As of June 30, 1996, the Avis ESOP was the beneficial and record owner
of approximately 23,603,524 shares of common stock of Avis
representing 70.68% of the total equity of Avis prior to the
acquisition of Avis by the Company on October 17, 1996.

(3) As of June 30, 1996, GM was the beneficial and record owner of
9,788,623 shares of participating convertible preferred stock, par
value $.01 per shares, of Avis representing 29.30% of the total equity
of Avis prior to the acquisition of Avis by the Company on October 17,
1996.

(4) Mr. Vittoria will become a director of the Company and of certain
subsidiaries of the Company, including Avis, upon the closing of the
acquisition of Avis.

SS-5

<PAGE>
PROSPECTUS
HFS INCORPORATED
COMMON STOCK

This Prospectus relates to the offering from time to time by (i) The
Trust forming a part of the Avis, Inc. Employee Stock Ownership Plan (the "Avis
ESOP") of such number of shares (the "Shares") of common stock, $.01 par value
per share (the "Common Stock"), of HFS Incorporated, a Delaware corporation
("HFS" or the "Company"), to be determined on the date of issuance by dividing
up to $236,070,000 by the average of the closing prices of the Common Stock on
the New York Stock Exchange for the ten consecutive trading days immediately
preceding the third trading day prior to the date of the closing of the
acquisition pursuant to the Merger Agreement described below, (ii) General
Motors Corporation ("GM") of such number of Shares of Common Stock of the
Company, to be determined on the issue date by dividing up to $105,777,500 by
the average of the closing prices of the Common Stock on the New York Stock
Exchange for the ten consecutive trading days immediately preceding the third
trading day prior to the date of the closing of the acquisition pursuant to the
Merger Agreement described below and (iii) certain persons (together with GM and
the Avis ESOP, the "Selling Stockholders") who will receive Shares of Common
Stock pursuant to the Merger Agreement in exchange for their outstanding
"equivalent shares" under the Avis, Inc. Nonqualified Employee Stock Ownership
Equivalent Plan to be determined by multiplying the number of outstanding
"equivalent shares" immediately prior to the effective time of the Merger (as
defined) by $5.00, divided by the average per share closing prices of the Common
Stock on the New York Stock Exchange for the ten consecutive trading days prior
to the effective time of the Merger but not to exceed $22.5 million in Common
Stock at such time. See "Selling Stockholders" and "Plan of Distribution"
herein. The Company will not receive any of the proceeds from the sale of the
Shares offered hereby.

The Shares are being registered pursuant to (i) the Agreement and Plan
of Merger (the "Merger Agreement"), dated as of August 23, 1996, by and among
HFS, Avis Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of HFS ("Avis Acquisition"), U.S. Trust Company of California,
N.A., as Trustee of the Avis ESOP and Avis, Inc. ("Avis") and (ii) the Stock
Purchase Agreement (the "Stock Purchase Agreement"), dated as of August 28,
1996, by and between HFS and GM. The Merger Agreement provides for the
acquisition of Avis and its subsidiaries by HFS pursuant to a merger of Avis
Acquisition into Avis (the "Merger"). The Stock Purchase Agreement provides
for the acquisition by HFS of all of the participating convertible preferred
stock of Avis owned by GM simultaneously with the Merger (the "Stock
Purchase").

The distribution and sale of the shares of Common Stock offered hereby
is subject, with respect to the shares to be sold by GM, to the provisions of
the Stock Purchase Agreement and, with respect to the shares to be sold by the
Avis ESOP, to the provisions of the Merger Agreement. The Merger Agreement and
the Stock Purchase Agreement set forth certain transfer requirements and
restrictions with respect to the transfer of shares of Common Stock offered
hereby, including a restriction on the sale of shares for designated periods
after the closing of the Merger and requirements of prior notice of any
proposed transfer of the shares in certain designated periods. Subject to the
Merger Agreement and the Stock Purchase Agreement, the Selling Stockholders
may sell all or portions of the Common Stock through agents or broker-dealers
on terms to be determined at the time of sale. Subject to the Merger Agreement
and the Stock Purchase Agreement, the Selling Stockholders may sell the Common
Stock offered hereby from time to time on the New York Stock Exchange or such
other national securities exchange, automated interdealer quotation system on
which the shares of Common Stock are then listed, through negotiated
transactions or otherwise at market prices prevailing at the time of the sale
or at negotiated prices. The number of such shares proposed to be so offered
and the terms of such offering, and the number of such shares owned prior to
and after the completion of any such offering shall be set forth in an
accompanying Prospectus Supplement, to the extent necessary. Subject to the
terms of the Merger Agreement and the Stock Purchase Agreement, the aggregate
proceeds to the Selling Stockholders from the sale of any Shares will be the
purchase price of such Shares less the aggregate agents' or broker-dealers'
commission, if any, and other expenses of distribution not borne by the
Company. See "Selling Stockholders" and "Plan of Distribution."

The Company's Common Stock is listed on the New York Stock Exchange
under the symbol "HFS". On August 28, 1996, the last reported sale price of
the Common Stock on the New York Stock Exchange was $61-3/8 per share.

FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" ON PAGE 5.

<PAGE>

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER, DEALER OR AGENT INVOLVED IN THE OFFERING DESCRIBED HEREIN. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR OF ANY
SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information can be inspected and
copied at prescribed rates at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. The Commission also maintains a website that contains reports, proxy
and information statements and other information. The website address is
http://www.sec.gov. In addition, such material can be inspected at the offices
of the New York Stock Exchange (the "NYSE"), 20 Broad Street, New York, New
York 10005.

The Company has filed a registration statement (the "Registration
Statement") on Form S-3 with respect to the Common Stock offered hereby with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain items of which are contained in schedules and exhibits to
the Registration Statement as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
agreement, instrument or other document referred to herein are not necessarily
complete. With respect to each such agreement, instrument or other document
filed as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matter involved, and each such
statement is qualified in its entirety by reference to such agreement,
instrument or document.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company's (i) Annual Report on Form 10-K for the year ended
December 31, 1995; (ii) description of the Company's Capital Stock which is
contained in its Registration Statement on Form 8-A dated September 16, 1992,
including the amendment on Form 8-A/A dated September 1, 1995, including any
amendment or report filed for the purpose of updating such description; (iii)
Quarterly Report on Form 10-Q for the quarter ending March 31, 1996; (iv)
Quarterly Report on Form 10-Q for the quarter ending June 30, 1996 as amended
by the Form 10-Q/A filed on August 19, 1996; (v) Current Reports on Form 8-K
dated February 16, 1996, March 8, 1996, April 5, 1996, May 8, 1996, May 21,
1996 and August 29, 1996; and (vi) Current Report on Form 8-K/A, dated August
18, 1995, all of which have previously been filed by the Company with the
Commission, are incorporated herein by reference.

All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities shall be deemed to
be incorporated herein by reference and to be a part hereof from the date of
filing of such documents. Any statement contained in this Prospectus or in a
document incorporated or deemed to be incorporated herein by reference shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated herein by reference or
in any Prospectus Supplement modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.

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The Company will provide without charge to each person to whom a copy
of this Prospectus has been delivered, upon the written or oral request of
such person, a copy of any or all of the documents referred to above which
have been or may be incorporated herein by reference (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
in such documents). Requests for such copies should be directed to James E.
Buckman, Esq., Executive Vice President and General Counsel, 6 Sylvan,
Parsippany, New Jersey 07054, (201) 428-9700.

<PAGE>

THE COMPANY

GENERAL

HFS Incorporated ("HFS" or the "Company"), formerly named Hospitality
Franchise Systems, Inc., is the world's largest franchisor of hotels
and residential real estate brokerage offices. The Company operates nine
national hotel franchise systems: Days Inn(R), Ramada(R) (in the United States),
Howard Johnson's(R), Super 8(R), Travelodge(R) (in North America), Park Inn
International(R) (in the United States and Canada), Villager(SM) Lodge, Knights
Inn(R) and Wingate Inn(SM). In aggregate, these franchise systems consist of
approximately 5,300 properties and 490,000 hotel rooms worldwide. The Company
operates the CENTURY 21(R), Coldwell Banker(R) and Electronic Realty
Associates or ERA(R) (collectively "ERA") real estate brokerage franchise
systems which it acquired on August 1, 1995, May 30, 1996 and February 12,
1996, respectively. Century 21, Coldwell Banker and ERA are the world's
largest, second largest and fourth largest franchisors, respectively, of
residential real estate brokerage offices, with an aggregate of more than
11,200 independently owned and operated franchised offices located worldwide.

As a franchisor of hotels and residential real estate brokerage
offices, the Company licenses the owners and operators of independent
businesses, principally hotels and real estate brokerage offices, to use the
Company's brand names. The Company does not own or operate hotels or real
estate brokerage offices. Instead, the Company provides its customers with
services designed to increase their revenue and profitability. These services
allow customers to retain independence and local control while benefiting from
the economies of scale of widely promoted brand names and standards of
service, national and regional direct marketing and co-marketing arrangements
and global procurement. The most important of these services for hotel owners
are access to a national reservation system, national advertising and
promotional campaigns, co-marketing programs and volume purchasing discounts.
The most significant services to real estate brokerages are national
advertising and promotion, referrals and training. The Company believes
significant opportunities exist to expand the co-marketing and volume
purchasing benefits that it currently provides to its hotel franchisees and to
its real estate brokerage franchisees.

The Company also operates the Coldwell Banker corporate employee
relocation business, which the Company estimates is the second largest
provider of corporate relocation services in the United States based on the
number of transferred employees assisted. The Coldwell Banker corporate
employee relocation business offers its relocation clients a variety of
services in connection with the transfer of its clients' employees. These
services include the selling of a transferee's home, appraisals, inspections,
assistance in finding a new home, property marketing advice, rental
assistance, equity advances, purchasing a transferee's home at the appraised
value when no higher bid is obtained, educational and school placement
counseling, career counseling, spouse/partner employment assistance and group
move services.

The Company continually explores and conducts discussions with regard
to acquisitions and other strategic corporate transactions in its industries
and in other franchise or franchisable businesses. Historically, the Company
has been involved in numerous transactions of various magnitudes for
consideration which included cash or securities (including Common Stock) or
combinations thereof. The Company is continuing to evaluate and to pursue
appropriate acquisition and combination opportunities as they arise in the
expansion of its operations. No assurance can be given with respect to the
timing, likelihood or financial or business effect of any possible
transaction. In the past, acquisitions by the Company have involved both
relatively small acquisitions and acquisitions which have been significant,
including the pending acquisition of Avis in the Merger and Stock Purchase for
approximately $800 million. See "The Avis Acquisition."

<PAGE>

As part of its regular on-going evaluation of acquisition
opportunities, the Company is currently engaged in a number of separate and
unrelated preliminary discussions concerning possible acquisitions. The
Company is in the early stages of such discussions and has not entered into
any agreement in principle with respect to any of these possible acquisitions.
The purchase price for the possible acquisitions may be paid in cash, through
the issuance of Common Stock (which would increase the number of shares of
Common Stock outstanding) or other securities of the Company, borrowings, or a
combination thereof. Prior to consummating any such possible acquisitions, the
Company, among other things, will have to initiate and satisfactorily complete
its due diligence investigation; negotiate the financial and other terms
(including price) and conditions of such acquisitions; obtain appropriate
Board of Directors', regulatory and other necessary consents and approvals; and
secure financing. The Company cannot predict whether any such acquisitions
will be consummated or, if consummated, will result in a financial or other
benefit to the Company.

The Company's principal executive offices are located at 6 Sylvan Way,
Parsippany, New Jersey 07054 (telephone number: (201) 428-9700).

THE AVIS ACQUISITION

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Company has agreed to pay approximately $800 million for all of the
outstanding capital stock of Avis, including payments under certain employee
stock plans of Avis and the redemption of certain series of preferred stock of
Avis (the "Preferred Stock"). While completion of this transaction is not
assured, the Company expects that the transaction will be completed on or
about October 1, 1996.

Avis, together with its subsidiaries, licensees and affiliates,
operates the Avis System, which the Company believes to be the second largest
car rental system in the world. The Avis System consists of approximately
4,139 worldwide locations, including locations at most major airports as well
as downtown locations in major cities in the United States and in
approximately 149 countries and territories. Approximately 84% of the Avis
System rental revenues in the United States are received from locations
operated by Avis directly or under agency arrangements, with the remainder
being received from locations operated by independent licensees. Avis's
international business is conducted by a network of several, wholly owned
subsidiaries and joint ventures along with a number of licensees and
sublicensees. The Avis System in Europe, Africa and the Middle East is
operated by Avis Europe Limited, a United Kingdom based company ("Avis
Europe") which is approximately 9% owned by Avis. The Avis System in Canada,
Latin America, the Caribbean and Asia Pacific, comprising some 65 countries or
territories, is operated by Avis subsidiaries, joint ventures and licensees.
See "The Avis Acquisition."

Following the acquisition of Avis, the Company currently intends to
dispose of a majority interest in the corporation which owns all company owned
Avis car rental locations (the "Operating Company") through an initial public
offering of the common stock of the Operating Company during 1997. It is
expected that the Operating Company would operate under a license from Avis
pursuant to which the Operating Company would pay Avis a royalty based upon
the revenue of the Operating Company. The Company expects that the acquisition
of Avis will also provide further opportunities to expand the Company's
preferred vendor program.

RISK FACTORS

Prior to making an investment decision with respect to the Shares of
Common Stock offered hereby, prospective investors should carefully consider
the specific factors set forth below, together with all of the other
information appearing herein, in light of their particular investment
objectives and financial circumstances.

RISKS RELATED TO HFS'S OPERATIONS

COMPETITION FOR NEW FRANCHISE PROPERTIES AND GENERAL RISKS OF THE LODGING AND
RESIDENTIAL REAL ESTATE BROKERAGE INDUSTRIES

As a franchisor, the Company's products are its brand names and the
support services it provides to its franchisees. Competition among national
brand franchisors in the lodging and residential real estate brokerage
industries to grow their franchise systems is intense. In addition, smaller
chains pose some degree of competitive pressure in selected markets. The
Company believes that competition for the sale of franchises in such
industries is based principally upon the perceived value and quality of the
brand and services as well as the nature of those services offered to
franchisees. The Company believes that prospective franchisees value a
franchise based upon their view of the relationship of conversion costs and
future charges to the potential for increased revenue and profitability.

The Company's revenue varies directly with franchisees' gross revenue,
but is not directly dependent upon franchisees' profitability. However, the
Company believes that the perceived value of its brand names to prospective
franchisees is in part a function of the success of its existing franchisees.
The ability of the Company's franchisees to compete in the lodging and
residential real estate brokerage industries is important to the Company's
prospects because franchise fees are based on franchisees' gross revenue. The
Company's franchisees are generally in intense competition with franchisees of
other systems, independent properties and realtors, and owner-operated chains.
Competition in the lodging business for hotel guests and in the residential
real estate brokerage business for house sales is based upon many factors,
each of which may be more or less important in a given market and location. A
franchisee's success may also be affected by general, regional and local
economic conditions.

REGULATION

The sale of franchises is regulated by various state laws as well as
by the Federal Trade Commission (the "FTC"). The FTC requires that franchisors
make extensive disclosure to prospective franchisees but does not require
registration. A number of states require registration or disclosure in
connection with franchise offers and sales. In addition, several states have
"franchise relationship laws" or "business opportunity laws" that limit the
ability of franchisors to terminate franchise

<PAGE>

agreements or to withhold consent to the renewal or transfer of these
agreements. While the Company's franchising operations are not materially
adversely affected by such existing regulations, the Company cannot predict
the effect any future legislation or regulation may have on its business
operations or financial condition. The Company's casino marketing business is
also subject to extensive government regulation and licensing requirements.
The Federal Real Estate Settlement Procedures Act and state real estate
brokerage laws restrict payments which real estate brokers may receive in
connection with the sale of residences. Such laws may to some extent restrict
preferred vendor arrangements involving the Company's real estate brokerage
franchisees.

DEPENDENCE ON RAMADA LICENSE AGREEMENT

The Company franchises the Ramada brand names to lodging facility
owners in the United States pursuant to a license agreement from an indirect
subsidiary of New World Development Co., Ltd., a Hong Kong company ("New
World"). The license terminates in 2024, but the Company has the right to
renew the license for up to an additional 45 years. In addition, the license
may be terminated by New World for the failure on the part of the Company to
satisfy certain conditions. Termination of this license would result in the
loss of the income stream from franchising the Ramada brand names and, if such
termination occurred prior to its scheduled termination date, would result in
the payment by the Company of liquidated damages equal to three years of
license fees. The license termination provisions are such that the Company
does not believe that it will have any difficulty complying with all of the
material terms of the license agreement; however, termination of such license,
if it occurred, would have a material adverse effect on the Company's business
and financial condition and would constitute an event of default under the
Company's Credit Agreement, dated as of December 16, 1993, among the Company,
Chemical Bank, as agent, and the banks signatories thereto (the "Credit
Agreement").

CERTAIN ANTI-TAKEOVER EFFECTS; DIVESTITURE AND LOSS OF VOTING RIGHTS

Certain provisions of the Company's Amended and Restated Certificate
of Incorporation may have the effect of requiring a stockholder of the Company
to divest its shares of Common Stock or forfeit its voting rights in certain
circumstances where such stockholder's ownership of Common Stock would
adversely affect the Company's ability to secure requisite gaming related
approvals or comply with certain governmental requirements (the "Gaming
Provisions"). The Gaming Provisions may be deemed to have anti-takeover
effects and may delay, defer or prevent a takeover attempt that a stockholder
might consider in its best interest.

In addition, the Company's Board of Directors has the ability to
establish by resolution one or more series of preferred stock having such
number of shares, designation, relative voting rights, dividend rate,
liquidation and other rights, preferences and limitations as may be fixed by
the Company's Board of Directors, without any further stockholder approval.
The issuance of a new series of preferred stock could have the effect of
making it more difficult for a third party to acquire, or discouraging a third
party from acquiring, a majority of the outstanding voting stock of the
Company. See "Description of Capital Stock -- Disqualified Stockholders."

ENTRY INTO CAR RENTAL INDUSTRY

By acquiring Avis, the Company is entering the car rental industry in
which it has not previously participated. While the Company believes that its
experience as a franchisor and service provider in the hotel and residential
real estate brokerage industries will enable it to succeed in the car rental
industry, there can be no assurance that the Company will be able to compete
successfully as a car rental business operator and franchisor.

RISKS RELATED TO AVIS'S OPERATIONS

LEVERAGE; AVAILABILITY OF FINANCING; REQUIREMENTS FOR CAPITAL

Avis maintains a substantial amount of secured indebtedness to finance
its fleet purchases. At June 30, 1996, Avis and its subsidiaries had
approximately $2.467 billion of indebtedness outstanding, approximately $2.139
billion of

<PAGE>

which represented secured indebtedness for the purchase of vehicles. Of the
remaining indebtedness, approximately $170.5 million represents debt of Avis's
foreign subsidiaries and is unsecured. At June 30, 1996, Avis had subordinated
indebtedness of approximately $249.9 million, of which approximately $97.4
million is secured but subordinated to the fleet debt and approximately $152.5
million is unsecured and structurally subordinated to the fleet debt. At June
30, 1996, Avis had approximately $734 million of additional availability under
these vehicle financing facilities to finance the purchase of additional fleet
vehicles.

The level of Avis's indebtedness could have important consequences to
Avis's operation, including: (i) the potential limitation of Avis's ability to
obtain additional financing for certain purposes; (ii) the commitment of a
substantial portion of Avis's cash flow from operations for debt service; and
(iii) the limitation of Avis's ability to react to changes in the car rental
industry and general economic conditions.

Avis depends upon third-party financing to purchase its fleet
vehicles. Continued availability of such financing upon favorable terms is
critical to Avis's operations. Since a substantial portion of such
indebtedness is incurred in connection with major vehicle manufacturers'
repurchase programs ("Repurchase Programs"), a significant change in the
financial condition of the vehicle manufacturers, particularly GM, would
significantly affect Avis's ability to obtain such financing on favorable
terms. In addition, under the terms of certain of Avis's credit facilities,
including the Prime Vehicles Trust, if the senior indebtedness of a repurchase
party (such as GM) fails to maintain certain rating standards or upon the
bankruptcy of a repurchase party or upon the occurrence of certain other
events, certain adverse consequences may result. These adverse consequences
include a prohibition on borrowing additional amounts under such facilities
for the purchase of vehicles from such repurchase party, a requirement to
repay a lender, and a requirement to increase the overall level of
subordinated debt as additional asset support for such facilities. The
inability of Avis to obtain vehicle financing on favorable terms would have a
material adverse effect on Avis's financial condition and results of
operations. See "The Avis Acquisition - Rental Vehicle Purchases."

POTENTIAL CHANGES IN MANUFACTURERS' REPURCHASE PROGRAMS

At August 1, 1996, approximately 94% of the vehicles in Avis's rental
car fleet were subject to the terms of manufacturers' Repurchase Programs
("Program Vehicles"). Repurchase Programs are methods of purchasing vehicles
whereby a buyer, such as Avis, purchases vehicles from the manufacturer at a
specified and stipulated price and, under the program, the manufacturer agrees
to buy the same vehicles back from the purchaser at a future date at a price
based on a pre-determined formula. The formula typically consists of the
capitalized cost less a depreciation factor minus damage and excess mileage.
The availability of Program Vehicles limits Avis's risk of a decline in
residual value at the time of disposition of the vehicles and enables Avis to
fix its depreciation expense in advance. Vehicle depreciation is the largest
cost factor in Avis's car rental operations. Avis could be adversely affected
if automobile manufacturers reduce the availability of Repurchase Programs or
related incentives. See "The Avis Acquisition - Rental Vehicle Disposition."

Avis could be at a competitive disadvantage if U.S. automobile
manufacturers selectively restrict eligibility to participate in their
Repurchase Programs. Over the past decade, U.S. automobile manufacturers have
acquired direct or indirect equity stakes in most of the major car rental
systems. At August 1, 1996, GM had an equity interest in Avis which will be
sold to the Company pursuant to the Stock Purchase Agreement; Ford Motor
Company ("Ford") owned The Hertz Corporation ("Hertz") and had an equity
interest in Budget Rent a Car Corporation ("Budget") and announced its
intention to purchase the remaining outstanding equity of Budget; and Chrysler
Corporation ("Chrysler") had equity interests in Dollar Rent a Car Systems,
Inc. ("Dollar") and Thrifty Rent-A-Car Systems, Inc. ("Thrifty"), although
Chrysler has been reducing its rental car investments. For the 1996 model year,
Avis purchased a significant number of its vehicles pursuant to Repurchase
Programs sponsored by GM. Any effort by GM to restrict eligibility to
participate in Repurchase Programs to car rental systems could adversely affect
Avis's ability to compete with those of its competitors that have continued
access to such programs.

COMPETITION

The car rental industry is characterized by intense competition,
particularly with respect to price and service. In any geographic market, Avis
may encounter competition from national, regional and local car rental
companies. Avis's largest competitors for car rentals include Alamo
Rent-A-Car, Inc. ("Alamo"), Budget, Dollar, Enterprise Rent a Car
("Enterprise"), Hertz, National Car Rental System, Inc. ("National") and
Thrifty.

<PAGE>

There have been occasions during the history of the car rental
industry in which the major car rental companies have been adversely affected
by industry-wide price pressures, and Avis has, on such occasions, priced its
product in response to such pressures. Moreover, at times when the car rental
industry has experienced vehicle oversupply, there has been intensified
competitive pressure. This oversupply has had a negative impact on the
industry's ability to raise rental rates. Avis has taken steps to address its
fixed cost structure to improve its overall competitive position; however,
future oversupply or other factors affecting competition could still adversely
affect Avis's financial condition and results of operations.

SEASONALITY

Based on the Avis fiscal year which begins on March 1 and ends on
February 28, Avis's second quarter, which covers the peak summer travel
months, has historically been the strongest quarter of the year. Avis's second
quarter accounted for over 26% and 71% of Avis's combined total revenue and
pre-tax profit, respectively, in fiscal years 1995 and 1996. As a result, any
occurrence that disrupts travel patterns during the summer period could have a
material adverse effect on Avis's annual performance. Avis's fourth quarter is
generally its weakest, when there is limited leisure travel and a greater
potential for adverse weather conditions. Many of Avis's operating expenses
such as rent, general insurance and administrative personnel are fixed and
cannot be reduced during periods of decreased rental demand.

REGULATION OF LOSS DAMAGE WAIVERS

A traditional revenue source for the car rental industry has been the
sale of loss damage waivers, by which rental companies agree to relieve a
customer from financial responsibility arising from vehicle damage to a rented
vehicle incurred during the rental period. Approximately 3% of Avis's rental
revenue during fiscal 1996 was generated by the sale of loss damage waivers.
The U.S. House of Representatives has from time to time considered legislation
that would regulate the conditions under which loss damage waivers may be sold
by car rental companies. House Bill H.R. 175, introduced in January 1995,
seeks to prohibit the imposition of liability on renters for loss of, or
damage to, rented vehicles, except in certain circumstances, and to prohibit
the sale of loss damage waivers. To date, no action has been taken on this
bill. In addition, approximately 40 states have considered legislation
affecting the sale of loss damage waivers. To date, 24 states have enacted
legislation regulating the sale of loss damage waivers, most of which require
disclosure to each customer at the time of rental that damage to the rented
vehicle may be covered by the customer's personal automobile insurance and
that loss damage waivers may not be necessary. In addition, in the late
1980's, New York and Illinois enacted legislation which eliminated Avis's
right to offer loss damage waivers for sale and limited potential customer
liability to $100 and $200, respectively. In 1996, the New York Legislature
approved legislation to increase this amount to $300. The bill is awaiting the
Governor's action. Moreover, California, Nevada and Indiana have capped rates
that may be charged for collision damage waivers to $9.00, $10.00 and $5.00
per day, respectively. Texas requires that the rate charged for loss damage
waivers be reasonably related to the direct cost of repairs. Adoption of
national or additional state legislation eliminating or limiting the sale of
loss damage waivers could result in the loss or reduction of this revenue
source and additional limitations on potential customers liability could
increase Avis's costs.

ENVIRONMENTAL RISKS INHERENT IN ON-SITE PETROLEUM STORAGE

232 of Avis's domestic and international facilities contain underground
or aboveground tanks for the storage of petroleum products, such as gasoline,
diesel fuel and waste oils. At 211 of Avis's operating locations, one or more of
these tanks are located underground. Avis maintains an environmental compliance
program that includes the replacement of steel tanks and the implementation of
required technical and operational procedures designed to minimize the potential
for leaks and spills, maintenance of records and the regular testing of tank
systems for tightness. 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. Any leak or spill, depending on such factors
as the material involved, quantity and environmental setting, could result in
interruptions to Avis's operations and expenditures that could have a material
adverse effect on Avis's results of operations and financial condition. Avis
carries environmental impairment liability coverage with limits of $4 million
per site and $4 million in the aggregate and a deductible generally of
$250,000. This policy covers against liability to third parties and

<PAGE>

clean-up costs, but not business interruption in Avis's own operations. See "The
Avis Acquisition - Regulatory and Environmental Matters."

RISK OF NON-RENEWAL OF AIRPORT CONCESSIONS

Avis conducts rental operations at 229 airports domestically and
internationally, with each of these operations conducted pursuant to a
concession agreement granted by the local airport authority. In general, these
concession agreements are subject to competitive bidding at the time of
renewal. The terms of Avis's airport concession agreements are varied and
include month-to-month terms at certain locations and fixed terms of various
durations at other locations. Avis is at risk of losing its ability to operate
at an airport if it is not a successful bidder at the time its concession
agreement is subject to renewal. The loss of one or more airport operations
may have an adverse effect on Avis.

DEPENDENCE ON AIR TRAVEL INDUSTRY AND FUEL SUPPLY

A significant amount of Avis's North American revenue is generated at
its on-airport or near-airport facilities. A decrease in air travel or any
event that disrupts air travel patterns at such facilities for a continued
period of time could have a material adverse effect on Avis's financial
condition and results of operations. Such events could include labor unrest,
airline bankruptcies or consolidations, substantially higher air fares, a
downturn in the economy, the outbreak of war, high-profile crimes against
tourists, terrorist incidents and natural occurrences, such as earthquakes,
floods and hurricanes.

Avis's operations, as well as those of its competitors, could be
affected by any limitations in fuel supplies or by any imposition of mandatory
allocations or rationing regulations or significant increases in fuel prices.
In the event of a severe disruption of fuel supplies or significant increases
in fuel prices, the operations of Avis and other car rental companies would be
adversely affected.

DEPENDENCE ON PRINCIPAL SUPPLIER

Since approximately 1978, GM has been Avis's principal supplier of
vehicles. The number of vehicles purchased from GM varies from year to year.
In model year 1995, Avis made approximately 82% of its vehicle purchases in
North America from GM. In model year 1996, Avis made approximately 81% of its
vehicle fleet purchases in North America from GM. Under the terms of the GM
Repurchase Program, Avis must purchase at least 100,000 vehicles and maintain
a minimum of 51% GM share penetration of its domestic vehicles during model
years 1996 through 2000. Given the volume of vehicles purchased from GM by
Avis, shifting significant portions of the fleet purchases to other
manufacturers would require lead time. As a result, if GM were unable to
supply Avis with the planned number and types of vehicles, it could have a
material adverse effect on Avis's financial condition and results of
operations.

THE AVIS ACQUISITION

GENERAL

On August 23, 1996, the Company entered into the Merger Agreement and,
on August 28, 1996, the Company entered into the Stock Purchase Agreement.
Pursuant to the Merger Agreement and the Stock Purchase Agreement, the Company
has agreed to pay approximately $800 million for all of the outstanding
capital stock of Avis, including payments under certain employee stock plans
of Avis and the redemption of certain series of Preferred Stock of Avis. While
completion of this transaction is not assured, the Company expects that the
transaction will be completed on or about October 1, 1996.

<PAGE>

in approximately 149 countries and territories. Approximately 84% of the Avis
System rental revenues in the United States are received from locations
operated by Avis directly or under agency arrangements, with the remainder
being received from locations operated by independent licensees. Avis's
international business is conducted by a network of several wholly owned
subsidiaries and joint ventures along with a number of licensees and
sublicensees. The Avis System in Europe, Africa and the Middle East is
operated by Avis Europe, which is approximately 9% owned by Avis. The Avis
System in Canada, Latin America, the Caribbean and Asia Pacific, comprising
some 65 countries and territories, is operated by Avis subsidiaries, joint
ventures and licensees. During the peak summer season, the Avis System fleet
worldwide consists of more than approximately 386,548 vehicles representing
the following allocations of vehicles throughout the system: (i) 189,616 in
the Avis U.S. Corporate fleet; (ii) 44,000 vehicles in the Avis International
fleet; (iii) 50,932 in the Avis U.S. Licensee fleet; and (iv) 102,000 in the
Avis Europe fleet.

In the United States, Avis's principal rental base is business
travelers who use the Avis System under contractual arrangements between Avis
and their employers. Because business travel normally is heaviest between
Monday and Thursday of each week, Avis's concentration on serving business
travelers has led to excess fleet capacity from Friday through Sunday of most
weeks.

Following the acquisition of Avis, the Company currently intends to
dispose of a majority interest in the Operating Company through an initial
public offering of the common stock of the Operating Company during 1997. It
is expected that the Operating Company would operate under a license from Avis
pursuant to which the Operating Company would pay Avis a royalty based upon
the revenue of the Operating Company. The Company expects that the acquisition
of Avis will also provide further opportunities to expand the Company's
preferred vendor program.

CAR RENTAL INDUSTRY OVERVIEW

The car rental industry provides car and truck rentals to business and
individual customers worldwide. The industry has been composed of two
principal segments: general use (mainly at airport and downtown locations) and
local/replacement (mainly at downtown and suburban locations). The car rental
industry rents primarily from on-airport, near-airport, downtown and suburban
locations to business and leisure travelers and to individuals who have lost
the use of their vehicles through accident, theft or breakdown. In addition to
revenue from vehicle rentals, the industry derives significant revenue from
the sale of rental related products such as insurance, refueling services and
collision damage waivers.

The domestic car rental industry includes eight major companies,
Alamo, Avis, Budget, Dollar, Enterprise, Hertz, National, and Thrifty, and a
large number of smaller and regional or local firms, serving on-airport,
near-airport and other locations. Most of Avis's major competitors operate
through a combination of wholly owned and franchised operations. Other smaller
car rental companies operate primarily through franchises.

The domestic car rental industry has experienced significant growth
over the last decade. The total annual U.S. revenue for the car rental
industry has been estimated by industry sources at $13.5 billion in 1995, an
11.8% compound annual growth rate from $4.4 billion in 1985, and the total
number of rental vehicles in service in the United States has been estimated
by industry sources at 1.5 million in 1995, a 7% compound annual growth rate
from 760,000 in 1985. The Company believes that the factors driving this
industry growth include increases in airline passenger traffic due to lower
airfares, overcapacity in the hotel industry, the trend toward shorter, more
frequent vacations resulting from the growth of the number of households with
two wage earners, the demographic trend toward older, more affluent Americans
who travel more frequently, and increased business travel. The Company
believes that future growth of the car rental industry will be determined by
general economic conditions, developments in the travel industry, and a
variety of other factors, including the car rental industry's relationship
with major vehicle manufacturers. Accordingly, the Company cannot predict
whether such growth will continue and, if so, whether it will continue at
rates comparable to those of the recent past.

Car renters generally are (i) business travelers renting under
negotiated contractual arrangements between specified rental companies and the
travelers' employers, (ii) business travelers who do not rent under negotiated
contractual arrangements (but who may receive discounts through travel,
professional or other organizations), and (iii) leisure travelers, including
renters who have lost the use of their own vehicles through accident, theft or
breakdown. Contractual arrangements normally are the result of negotiations
between rental companies and large corporations, based

<PAGE>

upon rates, billing and service arrangements, and influenced by reliability
and renter convenience. Business travelers who are not parties to negotiated
contractual arrangements and leisure travelers generally are influenced by
advertising, renter convenience and access to special rates because of
membership in travel, professional and other organizations.

Many of Avis's major competitors are owned by, or are affiliated with,
the major automobile manufacturers, and each of the major domestic car rental
companies maintains a close relationship with one or more United States
automobile manufacturers. At August 1, 1996, Ford owned Hertz and had an
equity interest in Budget and announced its intention to purchase the
remaining outstanding equity of Budget; and Chrysler had equity interests in
Dollar and Thrifty, although Chrysler has been reducing its rental car
investments. Automobile manufacturers often provide financing for the
purchase of vehicles and provide payments to car rental companies in
consideration of advertising and promotional programs that benefit the
manufacturers. In addition, manufacturers provide fleet assistance programs,
including Repurchase Programs and similar arrangements, which protect rental
companies against loss on disposition of vehicles and enable rental companies
to adjust their fleet size to take account of seasonal variations in demand.

AVIS CAR RENTAL OPERATIONS

THE AVIS SYSTEM

System-Wide Services. Avis provides the Avis System with: (i) national
promotion, advertising and public relations services; (ii) reservations and
information systems; (iii) data processing support; (iv) marketing programs
with hotels and airlines; (v) a sales staff for marketing to corporate
customers and the travel community; (vi) credit card services for commercial
customers; (vii) training in local marketing techniques; and (viii) operation
and training support. Avis's on-line real-time data processing and information
system, known as the Wizard System, connects more than 2,000 Avis locations in
the United States, Canada, Europe and a number of other countries.

The Wizard System. The Wizard System is a telecommunications and
computer processing system which is used in the Avis System for reservations,
rental agreement processing, accounting, fleet control and a variety of other
purposes. It is operated by WizCom International, Ltd. ("WizCom"), a wholly
owned subsidiary of Avis. In 1995, Budget entered into a computer services
agreement with WizCom that provides Budget with certain reservation system
computer services that are substantially similar to computer services provided
to the Avis System. WizCom has also entered in agreements with hotel and other
rental car companies to provide travel related reservation and distribution
system services. Avis uses the Wizard System as a marketing tool and benefits
from the operating efficiencies obtained through the Wizard System.

The Wizard System is operated by Avis, and is linked to more than
12,000 terminals in more than 2,000 rental locations through telephone lines
and satellite communications. Among the features of the Wizard System which
are not available on most competitors' systems are (a) an advanced graphical
interface reservation system; (b) "Rapid Return," which permits customers who
are returning cars to obtain completed charge records from radio-connected
"Roving Rapid Return" agents who complete and deliver the charge record at the
car as it is being returned; (c) "Wizard on Wheels," which enables Avis
locations to assign cars and complete rental agreements while customers are
being transported to the car; (d) "Avis Link," which automatically identifies
a customer using American Express or other major credit card who is entitled
to special rental rates and conditions, and therefore sharply reduces the
number of instances in which Avis inadvertently fails to honor the benefits of
negotiated rate arrangements to which they are entitled; (e) interactive
interfaces through the airline computerized reservation systems described
under "Marketing"; (f) sophisticated fleet control and revenue management
programs which, among other things, enable rental agents to ensure that a
customer who rents a particular type of vehicle will receive the available
vehicle of that type which has the lowest mileage (benefitting the customer
and Avis by more evenly dispersing utilization among cars of a particular
type); and (g) a comprehensive control and reporting system that enables Avis
to adapt quickly to changes in customer requirements. Avis also benefits from
the low cost and speed of billing available as a result of broad use of the
Wizard System and believes that the Wizard System keeps its clerical and
communications costs below those of its competitors.

RENTAL OPERATIONS

Avis rents a wide variety of automobiles and minivans, most of which
consist of the current and immediately preceding model years. Car rentals are
generally made on a daily, weekly or monthly basis. Rental charges in the
United States usually are computed on the basis of the length of the rental or
on the length of the rental plus a mileage charge.

<PAGE>

Additional charges are made for refueling service, loss damage waivers (a
waiver of Avis's right to make a renter pay for damage to the rented car),
personal accident insurance, personal effects protection and, in some
instances, additional liability insurance. Rates vary at different locations
depending on the type of vehicle, the local market and competitive and cost
factors. Most rentals are made utilizing rate plans under which the customer
is responsible for gasoline used during the rental. Avis also generally offers
its customers the convenience of leaving a rented car at an Avis location in a
city other than the one in which it was rented under its "Rent it Here --
Leave it There" program, although, consistent with industry practices, a
drop-off charge or special intercity rate may be imposed.

North American Operations. Approximately 88% of Avis's United States
rental revenue is generated at 174 of the busiest airports in the United
States. Avis's rental revenue as a percentage of total rental revenues at
those airports for the five-year period ended February 29, 1996 approximated
26%; 23.7%; 24.1%; 22.3% and 23.8%, respectively.

At August 1, 1996, Avis owned and operated approximately 406 corporate
car rental facilities at airport, near-airport and downtown locations
throughout the United States and approximately 36 corporate car rental
facilities in Canada. Of these facilities, approximately 191 primarily serve
airport business and approximately 251 are non-airport locations. By focusing
on travelers at the major airports, Avis has been able to operate more
vehicles from significantly fewer rental sites than its competitors, yielding
significant economies of scale. Avis's emphasis on airport traffic has
resulted in a strong competitive position at the major domestic rental-revenue
airports.

Avis has 77 independent licensees which operate locations in the
United States. The two largest licensees operate the Avis System in the Los
Angeles and Dallas area and account for approximately half of all United
States licensees' rentals. Certain licensees in the United States pay Avis a
fee equal to 5% of their total time and mileage charges, less all customer
discounts, of which Avis is required to pay 40% for corporate licensee-related
programs, while six licensees pay 8% of their gross revenue. Licensees outside
the United States normally pay higher fees. Most of Avis's United States
licensees currently pay 50 cents per rental agreement for use of the Wizard
System, and they are charged for use of other aspects of the Wizard System.

Avis is in many cases one of five to seven vehicle concessionaires at
the airports at which it operates. In general, concession fees for airport
locations are based on a percentage of total commissionable revenues (as
determined by each airport authority), subject to a minimum guaranteed amount.
Concessions are typically awarded by airport authorities every three to five
years based upon competitive bids. Avis's concession arrangements with the
various airport authorities generally include minimum requirements for vehicle
age, operating hours and employee conduct, and provide for relocation in the
event of future construction and abatement of fees in the event of extended
low passenger volume.

International Operations. In addition to countries served by Avis
Europe and its affiliates and licensees, Avis's subsidiaries, joint ventures
and licensees operate the Avis System internationally in approximately 65
countries and territories, with wholly owned subsidiaries in Canada,
Argentina, Australia, New Zealand, Puerto Rico and the United States Virgin
Islands, and joint ventures in Jamaica, Singapore and Malaysia. The principal
business of Avis's foreign subsidiaries is car rentals.

Avis's international system (not including Avis Europe) operates a
combined peak rental and leasing fleet of approximately 44,000 vehicles, of
which approximately 23,000 are operated by subsidiaries, and the balance by
joint ventures and licensees. Revenues of the foreign subsidiaries in the
fiscal year ended February 29, 1996, totaled approximately $212 million,
without taking account of revenues of joint ventures or licensees.

MARKETING

In the United States, approximately 70% of Avis's fiscal 1996 rentals
were generated by travelers who used the Avis System under contractual
arrangements negotiated by Avis with either the travelers' corporate employers
or organizations such as American Association of Retired Persons in which the
travelers have memberships. The remainder of the rental activity is from
business travelers who are not affiliated with corporations or organizations
with which Avis has contractual arrangements, and from leisure renters. Avis's
corporate sales organization is the principal source of contractual
arrangements with corporate accounts. Unaffiliated business travelers are
solicited by direct mail, telemarketing and advertising campaigns.

Avis solicits contractual arrangements with corporate accounts by
emphasizing the Wizard System's advanced

<PAGE>

technology, customer service, pricing and a worldwide rental network. The
Wizard System plays a significant part in securing business of this type
because the Wizard System enables Avis to offer a wide variety of pricing
combinations, special reports and tracking techniques tailored to the
particular needs of each account, and to assure adherence to agreed-upon
rates.

Avis's presence in the United States leisure and incidental business
segment is substantially less significant than its presence in the United
States commercial account segment. Leisure rental activity is important in
enabling Avis to balance the use of its fleet. Typically, business renters use
cars from Monday through Thursday, while in most areas of the United States
leisure renters use cars primarily over weekends.

Avis maintains strong links to the air travel industry. It has
arrangements with American Airlines, American West Airlines, Continental
Airlines, Delta Airlines, Trans World Airlines, United Airlines, USAir and
Northwest Airlines (collectively, the "Airlines") under which participants in
the Airlines' frequent flier programs can earn mileage credits subject to
certain limitations. Frequent flier programs (under which travelers can earn
reduced fares or free flights based upon miles flown on particular airlines)
are a significant sales incentive to United States travelers, and the Company
believes Avis benefits significantly from its frequent flier arrangements with
the Airlines. All the other major car rental companies also participate in one
or more airline frequent flier programs.

Car renters can make Avis reservations through all four major United
States based global distribution systems and several international based
systems. Users of the United States based global distribution systems can
obtain access through these systems to the Avis reservation system concerning
among other things, rental locations, vehicle availability, applicable rate
structures and gives them the ability to reserve and confirm Avis vehicles
directly through these systems.

Avis also maintains strong links to the hotel industry. Avis has
arrangements with Hilton Corporation, the Hyatt Corporation and the Sheraton
Marketing Corporation frequent traveler programs, which provide various
incentives to all program participants.

RENTAL VEHICLE PURCHASES

Avis participates in a variety of vehicle purchase programs with major
domestic and foreign manufacturers, although actual purchases are made
directly through local car dealers. The average price for automobiles
purchased by Avis in 1996 for its rental fleet was approximately $16,250.00.
On average during model year 1996, 82% of the purchases were comprised of GM
vehicles, 13% of Chrysler vehicles and 5% of Nissan, Subaru, Hyundai, Ford,
Toyota and Land Rover vehicles. These percentages vary among Avis's operations
and will most likely change from year to year. The vehicle purchase programs
sponsored by manufacturers sometimes provide Avis with sales incentives for
the purchase of certain models, and most of these programs allow Avis to serve
as a drop-ship location for vehicles, thus enabling Avis to receive a fee from
the manufacturers for preparing newly purchased vehicles for use. There can be
no assurance that Avis will continue to be able to benefit from sales
incentives in the future.

Most of Avis's cars in the United States are purchased, owned and sold
by Prime Vehicles Trust, a trust created by Avis of which Avis is the sole
beneficiary, or by corporate nominees of Prime Vehicles Trust. All decisions
regarding Prime Vehicles Trust purchases and sales of cars are made by Avis,
and Prime Vehicles Trust is combined with Avis for both financial and tax
accounting. The existence of Prime Vehicles Trust has no effect on Avis's
control of the cars in its fleet. However, Avis believes the existence of
Prime Vehicles Trust has been useful in obtaining financing secured by its
cars. Avis expects to continue to take advantage of Prime Vehicles Trust to
finance future fleet purchases.

FLEET UTILIZATION AND SEASONALITY

Avis's business is subject to seasonal variations in customer demand,
with the summer vacation period representing the peak season for vehicle
rentals. This general seasonal variation in demand, along with more localized
changes in demand at each of Avis's operations, causes Avis to vary its fleet
size over the course of the year. In fiscal year 1996, Avis's average monthly
fleet size ranged from a low of 127,000 vehicles in January to a high of
149,000 vehicles in August. Fleet utilization, which is based on the average
number of days vehicles are rented compared to the total number of days
vehicles are available for rental, ranged from 65% in December to 82% in
August and averaged 74% for all of fiscal year 1996.

<PAGE>

RENTAL VEHICLE DISPOSITION

Avis's current operating strategy is to maintain its fleet at an
average age of 12 months or less. Approximately 90% of the vehicles purchased
by Avis in model year 1996 were eligible for participation in manufacturers'
Repurchase Programs. These programs currently require that Avis maintain
Program Vehicles in its fleet for a minimum of six months and impose numerous
return conditions, including those related to mileage and repair condition.
Less than 2.5% of the Program Vehicles purchased by Avis and scheduled to be
returned in 1995 were ineligible for return. At the time of return to the
manufacturer, Avis receives the price guaranteed at the time of purchase and
is thus protected from fluctuations in the prices of previously-owned vehicles
in the wholesale market at the time of disposition. The future percentage of
Program Vehicles in Avis's fleet will be dependent on the availability and
attractiveness of the manufacturers' Repurchase Programs, over which Avis has
no control. See "Risk Factors -- Potential Changes in Manufacturers'
Repurchase Programs."

In addition, Avis sells cars wholesale to dealers in the United States
either through informal arrangements or at auction through standard
consignment agreements.

AVIS CAR RENTAL FACILITIES

Avis leases almost all of its airport and non-airport car rental
facilities and currently operates from 406 corporate rental locations. The
airport facilities are located on airport property owned by airport
authorities or located near the airport on locations convenient for bus
transport of customers to the airport. One of Avis's airport facilities in
each Avis region serves as the administrative headquarters for the region and,
as a general rule, each airport facility includes vehicle storage areas, a
vehicle maintenance facility, a car wash, a refueling station and rental and
return facilities. In all airport locations, the facility leases are not
co-terminus with the local airport concession agreement. See "Risk
Factors--Risk of Non-Renewal of Airport Concessions." Avis's non-airport
facilities generally consist of a limited parking facility and a rental and
return desk and are generally subject to long-term leases with renewal
options. Certain of these leases also have purchase options at the end of
their terms.

AGENCY RENT A CAR SYSTEM, INC.

Agency, a wholly owned subsidiary of Avis, rents used vehicles under a
separate brand name to insurance companies, auto body repair shops and
individual customers to replace vehicles that have either been stolen, damaged
or are undergoing repair. As of August 1, 1996, the Agency business was
comprised of approximately 304 separate locations. See "Legal Matters."

INSURANCE

Avis generally assumes the risk of liability to third parties in the
United States for up to $1 million per occurrence. It has purchased
significant excess insurance coverage against risks which exceed $1 million
per occurrence. One of the benefits of Avis's retaining the risk up to $1
million per occurrence is that Avis maintains its own claims department, which
controls the disposition of most claims. The Company believes that the
maintenance by Avis of its own claims department in recent years has helped
contain Avis's cost of claims paid.

Under its standard car rental contract, Avis provides its renters
liability coverage up to the minimum financial responsibility limits required
by applicable law. Higher limits are provided by separate agreement to some
United States national corporate accounts and Avis makes available to renters,
for an additional daily charge, participation in a group policy underwritten
by a major national insurer which increases renters' coverage to one million
dollars. Avis also offers renters, for additional daily charges, "Personal
Accident Insurance," which pays medical expenses and accidental death benefits
for accidents during the rental period, and "Personal Effects Protection,"
which ensures against loss or damage to the renters' personal belongings
during the rental period. Both these coverages are underwritten by major
national insurers.

REGULATORY AND ENVIRONMENTAL MATTERS

Avis is subject to federal, state and local laws and regulations
including those relating to taxing and licensing of vehicles, franchising,
consumer credit, environmental protection, retail vehicle sales and labor
matters. The principal

<PAGE>

environmental regulatory requirements applicable to Avis's operations relate
to the ownership or use of tanks for the storage of petroleum products, such
as gasoline, diesel fuel and waste oils; the treatment or discharge of waste
waters; and the generation, storage, transportation and off-site treatment or
disposal of solid or liquid wastes. Avis operates 232 domestic and
international facilities at which petroleum products are stored in underground
or aboveground tanks. At 211 of Avis's operating locations, one or more of these
tanks are located underground. Avis has instituted an environmental compliance
program designed to ensure that these tanks are in compliance with applicable
technical and operational requirements, including the replacement of
underground steel tanks and periodic integrity testing of underground storage
tanks. The Company believes that the locations where Avis currently operates
are in compliance, in all material respects, with such regulatory
requirements.

Avis may also be subject to requirements related to the remediation
of, or the liability for remediation of, substances that have been released to
the environment at properties owned or operated by Avis or at properties to
which Avis sends substances for treatment or disposal. Such remediation
requirements may be imposed without regard to fault and liability for
environmental remediation can be substantial. See "Risk Factors --
Environmental Risks Inherent in On-Site Petroleum Storage."

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

A traditional revenue source for the car rental industry has been the
sale of loss damage waivers, by which car rental companies agree to relieve a
customer from financial responsibility arising from vehicle damage to the
rented car incurred during the rental period. Approximately 3% of Avis's
rental revenue during 1995 was generated by the sale of loss damage waivers.
The U.S. House of Representatives has from time to time considered legislation
that would regulate the conditions under which loss damage waivers may be sold
by car rental companies. House Bill H.R. 175, introduced in January 1995,
seeks to prohibit the imposition of liability on renters for loss of, or
damage to, rented vehicles, except in certain circumstances, and would
prohibit the sale of loss damage waivers. To date, no action has been taken on
this bill. In addition, approximately 40 states have considered legislation
affecting the sale of loss damage waivers. To date, 24 states have enacted
legislation which regulates the sale of loss damage waivers, most of which
requires disclosure to each customer at the time of rental that damage to the
rented vehicle may be covered by the customer's personal automobile insurance
and that loss damage waivers may not be necessary. In addition, in the late
1980's, New York and Illinois enacted legislation which eliminated Avis's
right to offer loss damage waivers for sale and limited potential customer
liability to $100 and $200, respectively. In 1996, the New York Legislature
approved to increase this amount to $300. The bill is awaiting the Governor's
action. Moreover, California, Nevada and Indiana have capped rates that may be
charged for collision damage waivers to $9.00, $10.00 and $5.00 per day,
respectively. Texas requires that the rate charged for loss damage waivers be
reasonably related to the direct cost of the repairs. Adoption of national or
additional state legislation eliminating or limiting the sale of loss damage
waivers could result in the loss or reduction of this revenue source and
additional limitations on potential customers liability could increase Avis's
costs.

LEGAL MATTERS

From time to time, Avis is subject to routine litigation incidental to
its business. Avis maintains insurance policies that cover most of the actions
brought against Avis. See "-- Insurance." Other than as discussed below, Avis
is currently not involved in any legal proceeding which it believes would have
a material adverse effect upon its financial condition or operations.

Avis and two of its subsidiaries, Agency and Avis Rent A Car System,
Inc. ("ARACS"), are involved in litigation with certain licensees of ARACS
("Licensees") that have entered into the Standard Form 1955 Exclusive License
Agreement, as amended (the "ELA"). This litigation concerns Avis's right to
operate Agency as a stand-alone insurance replacement car rental business,
under its own brand name and separate from the Avis System. Several Licensees
conduct their own insurance replacement car rental businesses, and the parties
disagree as to whether such businesses can be operated within any licensee
territory granted by the ELA. Agency operates approximately 304 separate
locations, some of which are located within a geographic territory in which a
Licensee does business pursuant to the ELA.

On September 22, 1995, Avis, ARACS and Agency filed a complaint in the
United States District Court for the

<PAGE>

Eastern District of New York (the "E.D.N.Y. Action") against thirteen
Licensees (the "Licensee Defendants"), which sought a declaration that the
Agency business did not violate the ELA and an injunction against the Licensee
Defendants and all those similarly situated from instituting litigation in
other courts concerning the Agency business. The district court issued a
temporary restraining order ("TRO") barring the Licensee Defendants from
instituting any other lawsuits. The court subsequently dismissed the E.D.N.Y.
Action for lack of personal jurisdiction and dissolved the TRO. The parties
appealed this decision to the Court of Appeals for the Second Circuit. Oral
argument was held in mid-July 1996 and no decision has been rendered yet by
the Court of Appeals for the Second Circuit.

Upon dissolution of the TRO, Avis filed suit in both the United States
District Court for the Central District of California and the United States
District Court for the Northern District of Texas. Each action seeks relief
identical to the relief sought in the E.D.N.Y. Action and each could be
dismissed or consolidated if the E.D.N.Y. Action is reinstated. Various
Licensee Defendants also filed two state court actions, in California and in
Texas, respectively, against Avis, ARACS and Agency. Avis subsequently removed
each state court action to its respective federal court, and these state court
actions have now been consolidated with the federal court actions in
California and Texas, respectively.

EMPLOYEES

Avis has more than 20,000 employees worldwide. Of these, approximately
375 are employed in executive, financial and administrative capacities,
approximately 240 are engaged in marketing or sales capacities, approximately
460 are involved in system design and constant upgrading of the Wizard System,
approximately 700 are engaged in clerical activities in connection with the
administration of Avis and the balance are engaged in car rentals and car care
at rental locations. Approximately 20% of Avis's employees are represented by
65 various local unions under contracts expiring on a variety of dates. No
local union represents more than 2.5% of Avis's employees. Avis believes its
relationships with its employees are good.

PROPERTIES

Avis leases or has concessions relating to space at 707 locations in
the United States and 117 locations outside the United States for all of its
operations. Of those locations, 182 in the United States and 47 outside the
United States are at airports. Additionally, 38 locations in the United States
are owned and three locations outside the United States are owned. Typically,
an airport receives a percentage of car rental revenues, with a guaranteed
minimum. Because there is a limit to the number of car rental locations in an
airport, car rental companies frequently bid for the available locations,
usually on the basis of the size of the guaranteed minimums. Avis and other
car rental firms also rent parking space on or near airports and at their
other car rental locations.

Avis's principal offices are in a 405,000 square foot complex in
Garden City, New York, for which Avis currently pays approximately $875,000
per year under a lease which, by exercising renewal options, has been extended
to 2015. The Avis reservation system is run from leased space in Tulsa,
Oklahoma. Avis also maintains terminal network facilities which it uses in
connection with the Wizard System in Garden City, Tulsa, San Francisco,
California and Bracknell, England. Avis also owns a 166,000 square foot
building in Virginia Beach, Virginia which serves as a satellite
administrative and reservation facility.

<PAGE>

SELLING STOCKHOLDERS

GENERAL

The Selling Stockholders are the Avis ESOP, GM and certain persons
named below who received all of their Shares in exchange for their outstanding
"equivalent shares" under the Avis, Inc. Nonqualified Employee Stock Ownership
Equivalent Plan (the "Equivalent Plan"). The Selling Stockholders received all
of their respective Shares of Common Stock offered hereby in conjunction with
the Merger Agreement and, with respect to GM, the Stock Purchase Agreement
described below. See "Plan of Distribution." All of the Shares which may be
offered hereby are for the account of such Selling Stockholders. The number
and percentage of Shares beneficially owned before the offering by the Selling
Stockholders, the number of Shares to be sold and the number of Shares
beneficially owned after the offering will be set forth in an accompanying
Prospectus Supplement, to the extent necessary.

The following summaries of certain provisions of the Stock Purchase
Agreement and the Merger Agreement are brief summaries of certain provisions
thereof, do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, such agreements which are exhibits to the
Registration Statement. Capitalized terms are defined in the respective
agreements unless otherwise defined herein. Whenever any term therein is
referred to, such definition is incorporated herein by reference.

THE STOCK PURCHASE AGREEMENT

The distribution and sale of the Shares of Common Stock offered by GM
hereby is subject to the provisions of the Stock Purchase Agreement. If GM
desires to sell all or a portion of the Shares at any time prior to the close
of business on the thirtieth day after the Closing Date, or if such day is not
a business day, the first business day thereafter (the "Directed Sale Date"),
GM has agreed to deliver to HFS, at any time prior to the twenty-fifth day
after the Closing Date (the "Notice Date"), written notice (the "Notice") of
its desire to sell a specified number of Shares and to have HFS direct the
manner and method of such sale. GM and HFS have agreed that HFS shall make all
decisions in its reasonable business judgment regarding the manner and method
of any such requested sale with the goal of obtaining the maximum sale price
for such Shares; provided that, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co. may
act as broker or investment banker in connection with such sale or sales. Upon
delivery of the Notice by the Notice Date, HFS has agreed to, not later than
the close of business on the second business day after receipt of the Notice
by HFS (the "Direction Date"), direct (the "Direction") the manner and method
in which GM shall dispose of such number of Shares and HFS has agreed to use
its commercially reasonable efforts to assist GM in effecting such sale. GM
has agreed to use commercially reasonable efforts to effect any such sale as
promptly as practicable after receipt of the Direction and in such manner and
method as set forth in such Direction or subsequent instructions and has
agreed to cooperate fully with all reasonable requests of HFS and assist HFS
in connection with such sale.

THE MERGER AGREEMENT

Avis ESOP. The distribution and sale of the Shares offered by the Avis
ESOP hereby is subject to the provisions of the Merger Agreement. Under the
Merger Agreement, the Avis ESOP has agreed not to sell or otherwise transfer
or dispose of the Shares on or prior to the day that is eleven months
following the Closing Date or, if such day is not a business day, the first
business day thereafter (the "Guarantee Termination Date"), except pursuant to
one or more written requests by HFS (an "HFS Request"), which shall not be
received by the Avis ESOP Trustee later than five business days prior to the
Guarantee Termination Date (the "Final Request Date"), to sell all or a
portion of the Shares which request shall include the number of Shares to be
sold pursuant to such HFS Request (the "Specified Shares") and the manner
proposed to effect such sale. Upon a delivery of an HFS Request, HFS and the
Avis ESOP have agreed to use commercially reasonable efforts to effect such
sale in accordance with HFS's direction and to cooperate fully with all
reasonable requests of the other party in effecting such sale. The Avis ESOP
will not be required to take any action in connection with any HFS Request
(other than certain limited representations and indemnities) that could
reasonably be expected to expose it to any liability unless HFS agrees to
indemnify the Avis ESOP against liabilities incurred by it in connection with
any such action. In connection with any sales by the Avis ESOP pursuant to the
Registration Statement of which this Prospectus is a part, HFS has agreed to

<PAGE>

provide the Avis ESOP with the right to indemnification and contribution by
HFS in a manner customarily provided by issuers to underwriters in connection
with an underwritten public offering. In the event that none or less than all
of the Specified Shares are sold in accordance with the HFS Request primarily
due to the fact that the Avis ESOP Trustee failed to act in accordance with
the Merger Agreement in connection with such HFS Request, then the Specified
Shares not so sold shall be deemed to be sold for purposes of calculating the
Post-Closing Consideration under the Merger Agreement (i.e. a "Deemed Sale").
In the event that none or less than all of the Specified Shares are sold in
accordance with an HFS Request for a reason other than that set forth in the
preceding sentence, then, no Sale or Deemed Sale shall have occurred with
respect to the Specified Shares not so sold and such shares shall continue to be
subject to the provisions of the Merger Agreement described above and any
subsequent HFS Request.

If on the first day following the Guarantee Termination Date, the Avis
ESOP Trustee is holding Shares as to which there has not been a Deemed Sale
(such Shares, the "Remaining Shares"), the Avis ESOP may sell the Remaining
Shares at any time following the Guarantee Termination Date through the
thirtieth day thereafter or, if such day is not a business day, the first
business day thereafter (the "Final Sale Date"). If the Avis ESOP desires to
sell the Remaining Shares, the Avis ESOP has agreed to deliver to HFS written
notice to such effect prior to any such sale. The Avis ESOP has agreed that
all sales made after the Guarantee Termination Date shall be made in a
commercially reasonable manner for a sale of its type in light of the
circumstances in which it is made. HFS and the Avis ESOP have agreed to use
commercially reasonable efforts to effect such sale. Notwithstanding the
foregoing, in the event the Avis ESOP is prohibited from effecting any sale of
the Remaining Shares under the Merger Agreement prior to the Final Sale Date as
a result of a requirement of law applicable to the Avis ESOP (other than its
organizational documents as in effect on the date of the Merger Agreement)
(including as a result of any failure by HFS to update or keep effective the
Registration Statement of which this Prospectus is a part), the Avis ESOP has
agreed to sell to HFS, and HFS has agreed to purchase, not later than three
business days after the Final Sale Date, such Remaining Shares from the Avis
ESOP for a price to be agreed upon between HFS and the Avis ESOP which price
shall not be less than "adequate consideration" as defined in Section 3(18)(B)
of the Employee Retirement Income Security Act of 1974, as amended, and
Department of Labor Proposed Regulation Section 2510.3-18(b), but only to the
extent HFS is not prohibited from purchasing such Remaining Shares as a result
of a requirement of law of HFS. If HFS is prohibited from purchasing such
Remaining Shares as a result of a requirement of law applicable to HFS, there
shall be no Sale or Deemed Sale of the Remaining Shares and the Avis ESOP shall
have the right, on the third business day after the Final Sale Date, to draw
down on a letter of credit provided by HFS, which shall include a requirement to
deliver the Remaining Shares to one or more banking institutions issuing the
letter of credit.

<PAGE>

At any time after the date which is three business days after a Deemed
Sale has occurred with respect to the last of such Shares, or in the case of the
last two sentences of the foregoing paragraph, at any time after the date which
is three days after the Final Sale Date, the Avis ESOP may sell the Shares in
any manner described in this Prospectus. The Company has agreed to cause the
Registration Statement of which this Prospectus is a part to remain effective
until the date that is one year from the Final Sale Date, unless the Shares held
by the Avis ESOP are sold prior to such date.

<PAGE>

Other Selling Stockholders. The following table sets forth certain
information, as of August 28, 1996, with respect to the number of "equivalent
shares" under the Equivalent Plan beneficially owned by certain Selling
Stockholders that will be exchanged for Shares of Common Stock pursuant to the
formula described below:
<TABLE>
<CAPTION>
Number of Number of
"equivalent shares" "equivalent shares"
Selling Stockholders Beneficially Owned (1)(2) Selling Stockholders Beneficially Owned (1)(2)
-------------------- -------------------------- -------------------------- -------------------------
<S> <C> <C> <C>
Steven R. Adams 7,699.35 William L. Lanier 7,797.36
Charles F. Bell 7,812.38 Phillip W. Lommen 7,941.63
Charles A. Bovino 17,583.18 Vincent F. Manago 9,049.54
Thomas J. Byrnes 9,454.10 Gerard E. McCormack 9,107.97
Marceliano Calvo 6,928.88 David P. McNicholas 20,729.14
Robert D. Cardillo 11,448.41 Robert H. Meagher 6,310.49
James E. Collins 20,434.26 Oliver Milton 1,908.66
Michael P. Collins 11,209.22 Kerry L. Morris 7,346.41
Peter F. del Sol 6,614.47 Jan Nyquist 6,482.34
Martin R. Elkin 1,456.66 Ronald W. Robertson 4,393.39
Lawrence Ferezy 18,449.03 Dennis Roth 8,920.64
Joseph E. Fineo 6,922.25 Stanley Roth 9,459.99
Thomas S. Finn 6,557.62 Gerald L. Rourke 10,222.65
James R.B. Fitzsimmons 8,814.47 F. Robert Salerno 15,351.24
John H. Forsythe 11,367.31 Joseph F. Scalabrino 6,597.72
Edward C. Gitlitz 7,193.37 Stanley J. Schwarz 8,700.97
Steven L. Greenberger 11,127.79 Karen C. Sclafani 7,277.10
Edwin D. Hale 10,215.06 Timothy M. Shanley 7,729.14
Theodore P. Heller, Jr. 6,501.33 Augustus J. Siragusa 2,161.67
Russell L. James 9,814.54 Gerald R. Skurky 1,762.04
Seth F. Kaminsky 9,718.02 Stuart E. Soule 5,546.33
John P. Kennedy 7,742.86 Dorothy A. Teubner 9,124.37
Gerard J. Kennell 10,072.28 Daryl R. Thrasher 7,782.44
Don Kolodz 737.38 Sallyann B. Tine 3,705.78
Donald L. Korn 19,441.09 Peter R. Tittler 8,200.17
James D. Krapf 6,208.13 Thomas J. Tobias 8,300.73
Albert T. LaFrance 5,763.20 Joseph V. Vittoria 62,254.54
Richard R. Zaia 7,088.86
Total 528,539.91
</TABLE>
- -------------
(1) The number of whole Shares of Common Stock to be issued in exchange
for the "equivalent shares" shall equal (A)

<PAGE>
the number of "equivalent shares" held by each person immediately
prior to the Effective Time of the Merger, multiplied by $5.00,
divided by (B) the average per share closing prices of the Common
Stock on the NYSE Composite Tape for the 10 consecutive trading days
immediately prior to Effective Time; provided, however, that the
aggregate amount shall not exceed $22.5 million in Common Stock.

(2) The number of "equivalent shares" are subject to increase if, as
expected, additional allocations of "equivalent shares" are made to
Equivalent Plan accounts prior to the closing of the Merger.

USE OF PROCEEDS

The Company will not receive any of the proceeds from the sale of the
Shares offered hereby. All the proceeds will be received by the Selling
Stockholders.

PLAN OF DISTRIBUTION

The distribution and sale of the Shares is subject to the provisions
of the Merger Agreement and the Stock Purchase Agreement described above under
the headings "Selling Stockholders -- The Merger Agreement" and "-- The Stock
Purchase Agreement." Subject to the Selling Stockholders' compliance with the
transfer and other provisions of the Merger Agreement and the Stock Purchase
Agreement, as the case may be, the distribution of the Shares by the Selling
Stockholders may be effected from time to time, in one or more transactions on
the New York Stock Exchange or otherwise, in secondary distributions pursuant
to, and in accordance with, the rules of the New York Stock Exchange, in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Selling
Stockholders may effect such transactions by selling Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form
of underwriting discounts, concessions, or commissions from Selling
Stockholders and/or purchasers of shares for whom they may act as agent (which
compensation may be in excess of customary commissions). Selling Stockholders
and broker-dealers that participate with Selling Stockholders in the
distribution of shares may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act of 1933, and any commissions received
by them and any profit on the resale of shares may be deemed to be
underwriting compensation. The Company will bear the costs relating to the
registration of the Shares.

The Merger Agreement contains various undertakings by the Selling
Stockholders and the Company. The Company has agreed to cause the Registration
Statement of which this Prospectus is a part to remain effective until the date
that is one year from the Final Sale Date, unless the Shares held by the Avis
ESOP are sold prior to such date. Pursuant to the Merger Agreement, the Company
has also agreed to indemnify the Avis ESOP against certain liabilities,
including liabilities under the Securities Act in connection with the sale of
the Shares.

At the time that a particular offering of Shares is made, to the extent
required, a supplemental prospectus will be distributed which will set forth the
aggregate number of Shares offered, the purchase price and aggregate offering
price, the name or names of any agent or underwriter, and any applicable
commissions or discounts.
DESCRIPTION OF CAPITAL STOCK
GENERAL

The authorized capital stock of the Company consists of 300,000,000
shares of Common Stock, par value $.01 per share, and 10,000,000 shares of
Preferred Stock. As of August 26, 1996, 123,445,314 shares of Common Stock
were issued and outstanding and held of record by 411 stockholders. There are
no shares of Preferred Stock outstanding on the date hereof.

The Company's Amended and Restated Certificate of Incorporation and
By-laws provide that directors shall be removed from office only for cause at
any time by the affirmative vote of the holders of a majority of the shares
entitled to vote for the election of directors at any annual or special
meeting of stockholders for that purpose.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held
of record on all matters on which shareholders are entitled to vote. There are
no cumulative voting rights and holders of Common Stock have no preemptive
rights. All issued and outstanding shares of Common Stock are validly issued,
fully paid and non-assessable. Holders of Common Stock are entitled to such
dividends as may be declared from time to time by the Board of Directors out
of funds legally available for that purpose. Upon dissolution, holders of
Common Stock are entitled to share pro rata in the assets of the Company
remaining after payment in full of all its liabilities and obligations,
including payment of the liquidation preference, if any, of any preferred
stock then outstanding.
20

<PAGE>

PREFERRED STOCK

The Board of Directors, without further action by the stockholders, is
authorized to issue Preferred Stock in one or more series and to designate as
to any such series the dividend rate, redemption prices, preferences on
liquidation or dissolution, conversion rights, voting rights and any other
preferences, and relative, participating, optional or other special rights and
qualifications, limitations or restrictions. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future.
Issuance of a new series of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions or other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, a majority of the
outstanding voting stock of the Company. The Company has no present plans to
issue any new series of Preferred Stock.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

Generally, Section 203 of the Delaware General Corporation Law (the
"DGCL") prohibits a publicly held Delaware corporation from engaging in any
"business combination" with an "interested stockholder" for a period of three
years following the time that such stockholder became an interested
stockholder, unless (i) prior to such time either the business combination or
the transaction which resulted in the stockholder becoming an interested
stockholder is approved by the board of directors of the corporation, (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, for purposes of determining the number of
shares outstanding, those shares owned (A) by persons who are both directors
and officers and (B) certain employee stock plans, or (iii) at or after such
time the business combination is approved by the board and authorized at an
annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66-2/3% of the outstanding voting stock which is
not owned by the interested stockholder. A "business combination" includes
certain mergers, consolidations, asset sales, transfers and other transactions
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns
(or within the preceding three years, did own) 15% or more of the
corporation's voting stock.

LIMITATIONS ON CHANGE OF CONTROL

The Company is a party to certain employment agreements, an earnout
agreement, the Credit Agreement and certain indentures, each of which contain
provisions with respect to a change in control of the Company. In addition,
certain provisions of the Company's Amended Restated Certificate of
Incorporation may inhibit changes in control of the Company. See "Description
of Capital Stock--Disqualified Stockholders" and "Risk Factors--Certain
Anti-takeover Effects; Divestiture and Loss of Voting Rights."

DISQUALIFIED STOCKHOLDERS

The Company's Amended and Restated Certificate of Incorporation
provides that no holder of capital stock of the Company who: (1) beneficially
owns five percent or more of the outstanding capital stock of the Company and
who has not fully cooperated with the Company and/or any Gaming Authority (as
defined below) with respect to providing all requested information (including
financial statements) relating to such holder, responding to all inquiries and
questions raised by the Company and/or any Gaming Authority, consenting to
relevant background investigations or complying with any other requests of the
Company and/or any Gaming Authority in connection with any Gaming License (as
defined below); (2) is required by any Gaming Authority to be qualified with
respect to any Gaming License and who has neither been qualified by nor
obtained a waiver of qualification from each Gaming Authority requiring
qualification with respect to any Gaming License in a timely manner; or (3)
has been found to be disqualified or unsuitable with respect to any Gaming
License, which finding has not been reversed, vacated or superseded (each, a
"Disqualified Stockholder"), shall be entitled to vote, directly or
indirectly, any shares of capital stock of the Company beneficially owned by
such holder on any matter, and no shares of capital stock of the Company
beneficially owned by a Disqualified Stockholder shall be considered as
outstanding stock entitled to vote for any purpose.

A Disqualified Stockholder shall, upon the request of the Company,
dispose of such holder's publicly-traded capital stock of the Company within
10 days after receipt of such request. Alternatively, the Company may, at its
option, redeem such Disqualified Stockholder's capital stock of the Company as
provided in the Company's Amended and Restated Certificate of Incorporation at
the Redemption Price (as defined below).

<PAGE>

Holders of capital stock of the Company shall be required to pay any
costs and investigative fees incurred in connection with any background
investigation by, or qualification or suitability application with, any Gaming
Authority. Upon becoming a Disqualified Stockholder, such holder shall have no
further right to exercise, directly or through any trustee or nominee, any
right conferred by its capital stock of the Company and no further right to
receive any distribution with respect to any such capital stock of the
Company.

As used herein, the term "Gaming Authorities" includes all federal,
state, local or foreign government authorities and the National Indian Gaming
Commission or other tribal authorities which issue or grant any license or
approval necessary or appropriate for the lawful operation of gaming and
related businesses now or hereafter engaged in by the Company or its
subsidiaries; the term "Gaming License" means all licenses and other
regulatory approvals necessary for the lawful operation of gaming and related
businesses now or hereafter engaged in by the Company or any subsidiary within
or without the United States from the Gaming Authorities empowered to issue or
grant Gaming Licenses; and the term "Redemption Price" for a share of capital
stock of the Company means the average closing sale price during the 20-day
period immediately preceding the date of the notice of redemption of a share
of such capital stock on the composite tape for New York Stock Exchange Listed
Stocks, or if such stock is not quoted on the composite tape, on the New York
Stock Exchange, or if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the Exchange Act
on which such stock is listed, or if such stock is not listed on any such
exchange, the average last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market with respect
to a share of such capital stock during the 20-day period preceding the date
of the notice of redemption as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or any similar system then
in use, or if no such quotations are available, the fair market value on the
date of the call for redemption of a share of such stock as determined by the
Board of Directors of the Company.

TRANSFER AGENT

Chase Mellon Shareholder Services is the Registrar and Transfer
Agent for the Company's Common Stock.

LEGAL OPINION

The validity of the Shares of Common Stock offered hereby will be
passed on for the Company by Skadden, Arps, Slate, Meagher & Flom, 919 Third
Avenue, New York, New York 10022.

EXPERTS

The consolidated financial statements and the related financial
statement schedules incorporated in this Prospectus by reference from the HFS
Incorporated Annual Report on Form 10-K for the year ended December 31, 1995
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports which are incorporated herein by reference and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.

The balance sheet of Century 21 Real Estate of the Mid-Atlantic
States, Inc. as of December 31, 1995 and the related statements of income,
changes in stockholder's equity and cash flows for the year then ended, which
appear in the Form 8-K dated April 5, 1996 of HFS Incorporated, are
incorporated herein by reference, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report which is incorporated herein
by reference and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.

The consolidated balance sheets of Century 21 Real Estate Corporation
(a wholly-owned subsidiary of MetLife) and its subsidiaries as of December 31,
1994, 1993 and 1992 and the related consolidated statements of income,
stockholder's equity and cash flows for the years then ended, which appear in
the Form 8-K dated August 8, 1995 of HFS Incorporated (formerly Hospitality
Franchise Systems, Inc.), are incorporated herein by reference, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report which is incorporated herein by reference and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.

The financial statements of Century 21 of Southwest, Inc. (an "S"
corporation) as of and for the years ended March 31, 1995 and 1994, which
appear in the Form 8-K dated February 16, 1996 of HFS Incorporated have been
incorporated by

<PAGE>

reference herein in reliance upon the report dated May 15,
1995, of Toback CPAs, P.C., independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.

The financial statements of Century 21 of Eastern Pennsylvania, Inc.
(an "S" corporation) as of and for the years ended April 30, 1995 and 1994,
which appear in the Form 8-K dated February 16, 1996 of HFS Incorporated have
been incorporated by reference herein in reliance upon the report dated June
22, 1995, of Woolard, Krajnik, & Company, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.

The financial statements of Century 21 Real Estate of the Mid-Atlantic
States, Inc. as of and for the years ended December 31, 1994 and 1993, which
appear in the Form 8-K dated February 16, 1996 of HFS Incorporated have been
incorporated by reference herein in reliance upon the report dated May 11,
1995, of Beers & Cutler PLLC, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
expert in accounting and auditing.

The consolidated financial statements of Century 21 Region V, Inc. as
of and for the year ended July 31, 1995, which appear in the Form 8-K dated
February 16, 1996 of HFS Incorporated have been incorporated by reference
herein in reliance upon the report dated January 12, 1995, of White, Nelson &
Co. LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as expert in accounting and
auditing.

The consolidated financial statements of Electronic Realty Associates,
Inc. for the years ended December 31, 1994 and 1993, included in the HFS
Incorporated Current Report on Form 8-K dated February 16, 1996, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.

The consolidated financial statements of Electronic Realty Associates,
L.P. for the years ended December 31, 1995 and 1994, included in the HFS
Incorporated Current Report on Form 8-K dated April 5, 1996, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.

The consolidated balance sheets of Coldwell Banker Corporation and
subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of operations, stockholders' equity (deficiency) and cash flows for
each of the two years in the period ended December 31, 1995, included in the HFS
Incorporated Current Report on Form 8-K dated May 8, 1996, audited by Coopers &
Lybrand LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

The consolidated statements of operations, stockholders' equity and
cash flows for the three months ended December 31, 1993 and the consolidated
statements of operations and cash flows for the nine months ended September
30, 1993 of Coldwell Banker Corporation and subsidiaries (formerly Coldwell
Banker Residential Holding Company and subsidiaries) have been audited by
Deloitte & Touche LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.

The consolidated financial statements of Avis, Inc. as of February 29,
1996 and February 28, 1995 and for each of the three years in the period ended
February 29, 1996, included in the HFS Incorporated Current Report on Form 8-K
dated August 29, 1996, have been so incorporated herein in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.