-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E+3PNibx/YlQYEaVc3CmYP+xV+G2xLr3ZvhIaShmXCNgOfRmtr8DPiX/BjPESXeO R8JQuIggO4kK1jZ24jVf7Q== 0001005477-99-001457.txt : 19990330 0001005477-99-001457.hdr.sgml : 19990330 ACCESSION NUMBER: 0001005477-99-001457 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIS RENT A CAR INC CENTRAL INDEX KEY: 0001040445 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTO RENTAL & LEASING (NO DRIVERS) [7510] IRS NUMBER: 113347585 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13315 FILM NUMBER: 99576532 BUSINESS ADDRESS: STREET 1: 900 OLD COUNTRY ROAD CITY: GARDEN CITY STATE: NY ZIP: 11530 BUSINESS PHONE: 516-222-3000 MAIL ADDRESS: STREET 1: 900 OLD COUNTRY RD CITY: GARDEN CITY STATE: NY ZIP: 11530 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1998 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ____________ to Commission file number: 1-13315 AVIS RENT A CAR, INC. (Exact Name Of Registrant As Specified In Its Charter) DELAWARE 11-3347585 (State of Incorporation) (I.R.S. Employer Identification No.) 900 Old Country Road Garden City, New York 11530 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (516) 222-3000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered ------------------- ----------------------------------------- Common Stock, par New York Stock Exchange value $.01 per share Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| As of March 22, 1999, the registrant had 31,327,725 shares of Common Stock outstanding and, at such date, the aggregate market value of the shares of Common Stock held by non-affiliates of the registrant was approximately $816,478,833 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended December 31, 1998 are incorporated by reference in Items 5-8 of Part II and certain portions of the Registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held June 2, 1999 are incorporated by reference in Items 10-13 of Part III of this Annual Report on Form 10-K. INDEX TO FORM 10-K Page Number ----------- Part I Item 1. Business........................................................ 2 Item 2. Properties...................................................... 12 Item 3. Legal Matters................................................... 13 Item 4. Submission of Matters to a Vote of Security Holders............. 13 Part II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters........................................... 13 Item 6. Selected Financial Data......................................... 13 Item 7 Management's Discussion and Analysis of Financial Condition and Results Of Operations........................... 14 Item 7a. Quantitative and Qualitative Disclosure about Market Risk................................................... 14 Item 8. Financial Statements and Supplementary Data..................... 14 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.......................................... 14 Part III Item 10. Directors and Executive Officers of the Registrant.............. 14 Item 11. Executive Compensation.......................................... 14 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................... 14 Item 13. Certain Relationships and Related Transactions.................. 14 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................................... 15 1 PART I Item 1. BUSINESS Unless the context otherwise requires, each reference in this Annual Report to (i) the "Company" refers to Avis Rent A Car, Inc. and its operating subsidiaries and predecessors, (ii) "ARACS" refers to Avis Rent A Car System, Inc., a wholly-owned subsidiary of the Company, (iii) "Cendant" refers to Cendant Corporation and its subsidiaries, and (iv) the "Franchisor" refers to Cendant Car Rental, Inc., a wholly-owned subsidiary of Cendant. Statistical information contained herein with respect to the domestic car rental industry has been derived from publicly available sources, including trade publications, which the Company has not independently verified but believes to be reliable. Cendant owns all of the outstanding equity of the Franchisor which, in turn, owns the Avis worldwide vehicle rental system (the "Avis System"). In 1997, the Franchisor entered into a 50 year franchise agreement with the Company granting the Company the right to operate as a franchisee under the Avis System (the "Master License Agreement"). Cendant, who is the owner of the data processing and information system (the "Wizard System") used in connection with the Company's vehicle rental business and which forms a part of the Avis System, also entered into a 50 year computer services agreement with the Company with respect to the use of the Wizard System. The Company is a holding company which, through its operating subsidiary, ARACS, operates the second largest general use car rental business in the world, based on total revenue and volume of rental transactions. The Company rents vehicles to business and leisure travelers through approximately 660 rental locations in both airport and non-airport (downtown and suburban) markets in the United States, Canada, Puerto Rico, the U.S. Virgin Islands, Argentina, Australia and New Zealand. On May 1, 1998, ARACS acquired the assets of the car rental business of Hayes Leasing Company Inc., ("Hayes"), the then largest (exclusive of the Company) Avis System franchisee in North America. During 1998, including Hayes from May 1, 1998, the Company completed over 15 million rental transactions with a fleet that averaged approximately 206,000 vehicles and generated total revenue of approximately $2.3 billion, of which approximately 90% was derived from its operations in the United States. On March 19, 1999, ARACS purchased Rent-A-Car Company, Incorporated ("Car Co."), the third largest (exclusive of the Company) Avis System franchisee in North America. See Note 21 to the Audited Consolidated Financial Statements. The Avis brand name is owned by the Franchisor and is licensed for use by its franchisees, including the Company, which is the largest Avis System franchisee in the world. As an Avis System franchisee, the Company has entered into certain arrangements with the Franchisor and its affiliates that require the Company to make payments to the Franchisor and its affiliates, including monthly payments under the Master License Agreement consisting of a monthly base royalty of 3.0% of the Company's gross revenue and a supplemental royalty of 1.0% of gross revenue payable quarterly in arrears (which will increase 0.1% per year commencing July 30, 1999 and in each of the following four years thereafter to a maximum of 1.5%). Until July 30, 2002, the supplemental royalty or a portion thereof may be deferred if the Company does not attain certain financial targets. The Avis System is comprised of approximately 4,200 rental locations, including locations at the largest airports and cities in the United States and approximately 160 other countries and territories, and a fleet of approximately 404,000 vehicles during the peak season, all of which are operated by franchisees. During 1998, the Company's 510 U.S. rental locations (including the former Hayes locations), produced approximately 90% of the Avis System's revenue in the United States, with the balance derived from 370 locations operated by 67 other Avis System franchisees, of which five accounted for approximately 4% of the Avis System's U.S. revenue. The Company is the sole franchisee of the Avis System in the international markets in which it operates. The Avis System in Europe, Africa, part of Asia and the Middle East is operated under franchise by Avis Europe plc, which is not affiliated with the Company. Management believes that the strong recognition of the Avis brand name, the breadth of the Avis System and the sophistication of the Wizard System enable the Company and other Avis System franchisees to provide consistent quality, pricing and service to business and leisure customers worldwide. 2 The Company has historically targeted its marketing efforts toward business travelers, who accounted for approximately 64% of the Company's domestic revenue in 1998. The Company believes that business travelers, many of whom rent the Company's vehicles pursuant to agreements between the Company and their employers, have represented an important factor in the growth and stability of its business. While the Company continues to focus on business travelers, it intends to leverage its strong airport presence by expanding its marketing efforts toward the leisure travel market in order to increase its fleet utilization during non-peak business periods and extend the average length of its rentals. During 1998, leisure travelers accounted for approximately 36% of the Company's domestic revenue. The Company utilizes the Wizard System, which it believes is one of the most sophisticated information management systems in the car rental industry. Key functions of the Wizard System include: (i) global reservations processing, (ii) rental agreement generation and administration and (iii) fleet accounting and control. The Company has also developed software applications that utilize the data gathered by the Wizard System and third party reservation systems to achieve centralized control of its major business operations. These applications include: (i) a yield management system that is designed to increase profit by controlling vehicle availability by length of rental and providing decision support for rate changes, (ii) a competitive rate information system that monitors industry rate changes by market on a daily basis at different vehicle rental locations and (iii) a business mix model that analyzes potential profit contribution data by segment based upon business mix and fleet optimization recommendations. On October 17, 1996 the Franchisor (formerly Avis, Inc.) and its subsidiaries were purchased by Cendant (formerly HFS Incorporated) for approximately $806.5 million. The purchase price was comprised of approximately $367.2 million in cash, $100.9 million in indebtedness and $338.4 million of common stock (the "Acquisition"). The Company is the successor to the car rental operations previously owned by the Franchisor and its subsidiaries (collectively referred to as the "Predecessor Companies"). On September 24, 1997, the Company completed an initial public offering (the "IPO") of its Common Stock at a price of $17 per share and received proceeds of approximately $359 million. On March 23, 1998, the Company sold 5,000,000 shares of its common stock through a public offering (the "Offering") and received proceeds of approximately $162 million. In addition, in the same offering, Cendant reduced its ownership in the Company by selling 1,000,000 shares of the Company's common stock and retained the proceeds. Prior to the Offering, Cendant beneficially owned 8,500,000 shares of Common Stock. Following the Offering, Cendant beneficially owned 7,500,000 shares of Common Stock representing approximately 20.9% of the then outstanding shares of the Company. Pursuant to an approved stock repurchase program approved by the Board of Directors on September 1, 1998 and amended on September 23, 1998 authorizing the repurchase of up to 5,000,000 shares of the Company's Common Stock, the Company has purchased 4,685,800 shares through March 10, 1999, including 1,300,000 shares repurchased from Cendant on January 15, 1999. As a result of these re-purchases, Cendant's beneficial ownership of Common Stock was reduced to 6,200,000 shares or approximately 20%. Cendant is one of the world's foremost providers of consumer and business services. Cendant operates in four principal divisions: Travel Services, Real Estate Services, Alliance Marketing and Other Consumer and Business Services. In Travel Services, Cendant is the leading franchisor of hotels and rental car agencies worldwide; the largest provider of vacation exchange services; a leading fleet management company; the UK's largest private car park operator; and a leading motorist assistance group in the UK. In Real Estate Services, Cendant is the world's largest franchisor of residential real estate brokerage offices, a major provider of mortgage services to consumers and a global leader in corporate employee relocation. In Alliance Marketing, Cendant provides access to insurance, travel, shopping, auto, and other services, primarily through direct marketing to customers of its affinity partners. Cendant's Other Consumer and Business Services include the tax preparation services franchise, information technology services, car park and vehicle emergency support and rescue services in the United Kingdom, Cendant information services, financial products and other consumer related services. The Company is the successor to the car rental operations previously owned by the Predecessor Companies. Prior to the Acquisition, the principal shareholder of the Franchisor and the Predecessor Companies was an Employee Stock Ownership Plan and the minority shareholder was General Motors ("GM"). The Company was incorporated in Delaware on October 17, 1996 in connection with the Acquisition. ARACS was incorporated in Delaware on September 18, 1956. The principal executive offices of the Company are located at 900 Old Country Road, Garden City, New York 11530, and its telephone number at that location is (516) 222-3000. 3 The First Gray Line Merger On August 20, 1997, ARACS purchased all of the outstanding capital stock of The First Gray Line Corporation ("First Gray Line"), the then largest (exclusive of the Company) Avis System franchisee in North America with 70 locations in Southern California, Nevada and Arizona, including Los Angeles International Airport, McCarran International Airport (Las Vegas) and San Diego International Airport. On July 31, 1998, First Gray Line was merged into ARACS. The Hayes Transaction On May 1, 1998, ARACS acquired the assets of the car rental business of Hayes, including the Avis System franchises for the cities of Austin, Fort Worth and San Antonio, and the counties of Dallas and Tarrant, Texas, for approximately $86 million in cash, plus the refinancing of fleet related indebtedness which totaled approximately $136 million for a total purchase price of approximately $222 million (the "Hayes Transaction"). At that time, Hayes was the largest (exclusive of the Company) Avis System franchisee in North America, serving six locations in the state of Texas, including the Dallas/Fort Worth Airport ("DFW"), San Antonio Airport and Austin Municipal Airport. Other Asset Acquisitions During 1998, ARACS purchased the assets of various former licensees for approximately $15 million as outlined in the following table:
Date Former Licensee Location ---- --------------- -------- 04/03/98 Amelco Leasing Ltd. Halifax, Nova Scotia and the Provinces of New Brunswick and Prince Edward Island 05/12/98 Hazqu Car Inc. and Hamilton, Ontario The Champ Car, Inc. 08/31/98 Rent-All-Mart, Inc. Lima, Ohio 09/14/98 Economy Leasing Corp. White Plains, New York 10/30/98 One Bar, Inc. Butte, Great Falls, Helena, and Glacier Park, Montana 11/18/98 Northern Rent A Car, Inc. Burlington, South Burlington, and Montpelier, Vermont
The Rent-A-Car Company, Incorporated Acquisition On March 19, 1999, ARACS purchased all of the outstanding capital stock of Car Co. for approximately $10.2 million. Car Co. was the third largest (exclusive of the Company) Avis System franchisee in North America with locations in Delaware, Maryland and Virginia, including Richmond International Airport. Strategy The Company's objective is to improve its profitability through a strategy that consists of the following key elements: Capitalizing on Changing Industry Dynamics. The domestic car rental industry is emerging from a period during which rental rates did not keep pace with rising fleet and operating costs. Management believes that the recent restructuring of ownership of the Company's major competitors is leading to an increased focus on profitability and shareholder return, rather than upon transaction volume and market share, and to more rational pricing behavior. During 1998, the domestic rental car industry has benefited from what appears to be the first sustainable and significant price increases the industry has seen in many years. Management intends to use the proprietary software applications of the Avis System, including its 4 sophisticated yield management, rate information and business mix modeling systems, to capitalize upon the improving pricing and profit outlook in the industry. Improving Business Mix and Fleet Utilization. Historically, the Company has capitalized on its strong network of airport rental locations by focusing its sales and marketing resources principally toward business travelers. While this has enabled the Company to leverage its overhead costs by capturing a large share of transaction volume at relatively few locations, fleet utilization historically has been characterized by peak business travel demand during the middle of the week and reduced demand during and immediately before and after the weekend. Management believes that the Company's substantial presence at the nation's leading airports provides it with the opportunity, without significant incremental cost, to capitalize on increased air travel by leisure travelers, who tend to initiate air travel during or close to the weekend. Accordingly, while continuing to concentrate on its core presence in the business travel market, the Company has begun to increase its marketing efforts toward the leisure market in order to improve fleet utilization and extend the average length of rental. The Company's acquisition of First Gray Line, the Hayes Transaction and other franchisees have better positioned the Company to improve its fleet management, primarily in the United States. In addition, the Company believes that it can further enhance the utilization of its fleet during non-peak periods by selectively expanding its presence in non-airport markets through both internal growth and, if appropriate opportunities arise, acquisitions of other car rental operations including, where feasible, other Avis System franchises. Increasing Brand Loyalty Through Target Marketing. Management believes that the domestic car rental industry is becoming increasingly focused on such factors as customer service and loyalty. The customer base of the major domestic car rental companies, including the Company, has become increasingly diverse. Management plans to utilize the Avis System's proprietary software applications to analyze the Company's extensive customer database to identify distinguishing characteristics and preferences of those customers who have been historically associated with its most profitable rental transactions and to focus its sales and marketing efforts and service features to attract additional customers with similar characteristics and preferences. Management believes that this analysis will enhance the quality of the car rental experience of such customers and increase their loyalty to the Avis brand. Capitalizing on Cross-Marketing and Other Synergistic Opportunities with Cendant. The Company has initiated and is expanding cross-marketing relationships with Cendant's corporate relocation and resort timeshare exchange businesses, its lodging franchise systems, which include the Days Inn(R), Howard Johnson(R) and Ramada(R) brands, its real estate brokerage franchise systems, including the CENTURY 21(R) and Coldwell Banker(R) brands and its membership-based consumer services. The Company also has begun to reduce its costs of purchasing media and other non-fleet goods and services through arrangements with Cendant. Rental Operations General. The Company's fleet includes various categories of automobiles, most of which are of the current and immediately preceding model years. Rentals are generally made on a daily, weekend, weekly or monthly basis. Rental charges in the United States usually are computed on the basis of the duration of the rental and may include a mileage charge and vary based upon vehicle category, the day on which the rental begins and local competitive and cost factors. Additional charges are made for optional refueling services, loss damage waivers (a waiver of the Company's right to make a renter pay for damage to the vehicle), concession fee recovery, personal accident insurance, personal effects protection, optional products such as cellular phones, child seats and ski racks and, in some instances, additional liability insurance. Most rentals are made utilizing rate plans under which the customer is responsible for gasoline used during the rental. The Company also generally offers its customers the convenience of leaving a rented vehicle at an Avis location in a city other than the one in which it was rented under Avis's "Rent it Here-Leave it There" program, although, consistent with industry practices, a drop-off charge or special intercity rate may be imposed. United States Operations. At December 31, 1998, the Company operated 510 vehicle rental facilities at airport, near-airport and downtown locations throughout the United States. During 1998, approximately 85% of the Company's United States revenue was generated at 197 airports in the United States with the balance generated at the Company's 313 non-airport locations. The Company's emphasis on airport traffic has resulted in a particularly strong rental revenue market position at the major U.S. airports. 5 At most airports, the Company is one of five to seven vehicle rental concessionaires. In general, concession fees for airport locations are based on a percentage of total concessionable revenues (as determined by each airport location), subject to a minimum guaranteed amount. Concessions are typically awarded by airport authorities every three to five years based upon competitive bids. As a result of airport authority requirements as to the size of the minimum guaranteed fee, smaller vehicle rental companies generally are not located at airports. The Company's concession arrangements with the various airport authorities generally include minimum requirements for vehicle age, operating hours and employee conduct, and provide for relocation in the event of future construction and abatement of fees in the event of extended low passenger volume. International Operations. The Company operates in Canada, Puerto Rico, the U.S. Virgin Islands, Argentina, Australia and New Zealand. Its operations in Canada and Australia were the principal contributors of revenue, accounting for 80% of international revenue in 1998. Revenue from international operations in 1998 was approximately $236 million. The Company holds a solid market position in each of the countries in which it operates. In terms of revenue, the operations in Australia and New Zealand are acknowledged as the largest in their respective markets. Avis System and Wizard System Services As a participant in the Avis System, the Company has the benefits of a variety of services, including (i) comprehensive safety initiatives, including the "Avis Cares" Safe Driving Program, which offers vehicle safety information, directional assistance such as satellite guidance, regional maps, weather reports and specialized equipment for travelers with disabilities; (ii) standardized system-identity for rental location presentation and uniforms; (iii) training program and business policies, quality of service standards and data designed to monitor service commitment levels; (iv) marketing/advertising/public relations support for national consumer promotions including Frequent Flyer/Frequent Stay programs and the Avis on-line internet website; and (v) brand awareness of the Avis System through the familiar "We try harder" service announcements. Under a long-term computer services agreement, the Company, like other Avis System franchisees, is provided with access to the Wizard System, a reservations, data processing and information management system for the vehicle rental business. The Wizard System is linked to all major travel networks on six continents through telephone lines and satellite communications. Direct access with other computerized reservations systems allows real-time processing for travel agents and corporate travel departments. Among the principal features of the Wizard System are: o an advanced graphical interface reservation system; o "Roving Rapid Return," which permits customers who are returning vehicles to obtain completed charge records from radio-connected "Roving Rapid Return" agents who complete and deliver the charge record at the vehicle as it is being returned; o "Preferred Service," an expedited rental service that provides customers with a Preferred Service rental record printed in their pre-assigned vehicle and a fast convenient check-out; 6 o "Wizard on Wheels," which enables the Avis System locations to assign vehicles and complete rental agreements while customers are being transported to the vehicle; o "Flight Arrival Notification," a flight arrival notification system that alerts the Company's rental location when flights have arrived so that vehicles can be assigned and paperwork prepared automatically; o "Avis Link," which automatically identifies the fact that a user of a major credit card is entitled to special rental rates and conditions, and therefore sharply reduces the number of instances in which the Company inadvertently fails to give renters the benefits of negotiated rate arrangements to which they are entitled; o interactive interfaces through third-party computerized reservation systems described under "Marketing". o sophisticated automated ready-line programs that, among other things, enable rental agents to ensure that a customer who rents a particular type of vehicle will receive the available vehicle of that type which has the lowest mileage. In 1998, the Wizard System enabled the Company to process approximately 30.8 million incoming customer calls, during which customers inquired about locations, rates and availability and placed or modified reservations. In addition, millions of inquiries and reservations come to the Company through travel agents and travel industry partners, such as airlines. Regardless of where in the world a customer may be located, the Wizard System is designed to ensure that availability of vehicles, rates and personal profile information is accurately delivered at the proper time to the customer's rental destination. Management Information Systems The Company also uses data supplied from the Wizard System and third-party reservation systems in certain management information systems proprietary to the Avis System to maintain centralized control of major business processes such as fleet acquisition and logistics, sales to corporate accounts and determination of rental rates. The principal components of the systems employed by the Company include: o Fleet Planning Model. The Company has created a comprehensive decision tool to develop fleet plans and schedules for the acquisition and disposition of its fleet, along with fleet age, mix, mileage and cost reports based upon such plans and schedules. This tool allows management to monitor and change fleet volume and composition on a daily basis and to develop the lowest cost fleet alternative based on business levels and available Repurchase Programs. o Yield Management. The Company has also created a yield management system which is designed to optimize profit by providing greater control of vehicle availability and rate availability changes at its rental locations. The system monitors and forecasts supply and demand to insure that the Company is able to capture the combination of rentals that will produce the highest return over time at each location. Integrated into this yield management system is a fleet distribution module that takes into consideration the costs as well as the potential benefits associated with distributing vehicles to various rental locations within a geographic area to accommodate rental demand at these locations. The fleet distribution module makes specific recommendations for movement of vehicles between the locations. o Pricing Decision Support System. Pricing in the vehicle rental industry is highly competitive and complex. To ensure its ability to respond to rental rate changes in the marketplace, the Company has developed sophisticated systems to gather and report competitive industry rental rate changes each day. The system, using data from third-party reservation systems as its source of information, automatically scans rate movements and reports significant changes to a staff of pricing analysts for evaluation. The system greatly enhances the Company's ability to gather and respond to rate changes in its markets. 7 o Business Mix Model. The Company has also developed a strategic planning model to evaluate the discrete segments of its business relative to each other. The model considers revenues and costs to determine the potential margin contribution of each discrete segment. Using data from the Company's financial systems, the Wizard System and the fleet and revenue management systems, along with management objectives and targets, the model develops business mix and fleet optimization recommendations. o Profitability Model. The Company has developed a sophisticated model that blends a corporate customer's rentals into a pattern that determines fleet costs by developing a profile of such corporate customer's utilization. The model also combines local operations costs with division overhead expenses with a resulting benchmark profitability which is used to determine the financial merit of individual corporate accounts. o Sales and Marketing System. The Company has also developed a sophisticated system of on-line data screens which enables its sales force to analyze key account information of its corporate customers including historical and current rental activity, revenue and booking sources, top renting locations, rate usage categories and customer satisfaction data. This information, which is updated weekly and captured on a country-by-country basis, is utilized by management to determine opportunities for revenue growth, profitability and improvement. Fleet Acquisition and Management Fleet Purchasing The Company participates in a variety of vehicle purchase programs with major domestic and foreign manufacturers, principally GM, although actual purchases are made directly through franchised dealers. The average price for automobiles purchased by the Company in 1998 for its U.S. rental fleet was approximately $17,895. For the 1998 model year, approximately 80% of new vehicle purchases were GM vehicles, 9% Chrysler vehicles and 11% Toyota, Nissan, Subaru, Ford, Mazda and Suzuki vehicles. In model year 1999, approximately 87% of the Company's fleet in the United States will consist of GM vehicles, approximately 6% will be Chrysler vehicles and the balance will be provided by other manufacturers. Manufacturers' vehicle purchase programs sometimes provide the Company with sales incentives for the purchase of certain models, and most of these programs allow the Company to serve as a drop-ship location for vehicles, thus enabling the Company to receive a fee from the manufacturers for preparing newly purchased vehicles for use. There can be no assurance that the Company will continue to benefit from sales incentives in the future. For its international operations, vehicles are acquired by way of negotiated arrangements with local manufacturers and dealers using operating leases or Repurchase Programs. Under the terms of the Company's agreement with GM, which expires at the end of GM's model year 2002, the Company is required to purchase at least 188,000 GM vehicles for model year 1999 and maintain at least 51% GM vehicles in the Company's U.S. fleet at all times. The GM Repurchase Program is available for all vehicles purchased pursuant to the agreement. Impact of Seasonality The Company's business is subject to seasonal variations in customer demand, with the summer vacation period representing the peak season for vehicle rentals. This general seasonal variation in demand, along with more localized changes in demand at each of the Company's operations, causes the Company to vary its fleet size over the course of the year. In 1998, the Company's average monthly fleet size ranged from a low of 187,000 vehicles in January to a high of 231,000 vehicles in July. Fleet utilization, which is based on the number of hours vehicles are rented compared to the total number of hours vehicles are available for rental, ranged from 66% in December to 83% in August and averaged 75% for all of 1998. Vehicle Disposition The Company's current operating strategy is to hold vehicles for not more than 12 months with the average fleet age 8 being less than six months. Approximately 99% of the vehicles purchased for its domestic fleet under the model year 1998, including most GM vehicles, were eligible for Repurchase Programs. These programs impose certain return conditions, including those related to mileage and repair condition over specified allowances. Less than 3.4% of the Repurchase Program vehicles purchased by the Company and returned in 1998 were ineligible for return. Upon return of a Repurchase Program vehicle, the Company receives a price guaranteed at the time of purchase and is thus protected from a decrease in prevailing used car prices in the wholesale market. The Company also disposes of its used vehicles that are not covered by Repurchase Programs to dealers in the United States through informal arrangements or at auctions. The future percentage of Repurchase Program vehicles in the Company's fleet will depend on the availability of Repurchase Programs, over which the Company has no control. Maintenance The Company places a strong emphasis on vehicle maintenance since quick and proper repairs are critical to fleet utilization. To accomplish this task the Company employs two full-time National Institute for Automotive Service Excellence ("ASE") fully certified technician instructors at its headquarters who have developed a unique training program for the Company's 325 technicians who operate at 81 repair centers. The technicians also maintain a strong relationship with General Motors Service Technology Group ("STG"). The Company uses "state of the art" diagnostic equipment including GM's "Techline" and "Tech 2" diagnostic computers, and is the only vehicle rental fleet to utilize GM's "Pulsat Satellite Training Network." The Company's technician training department also prepares their own technical service bulletins that can be retrieved electronically at all of the Company's repair locations. Approximately 80% of the Company's technicians are ASE certified versus the national average of 45%. Marketing United States In the United States, approximately 77% of the Company's 1998 rental transactions were generated by travelers who used the Avis System under contracts between the Company and their employers or organizations of which they were members. The Company's corporate sales organization is the principal source of contracts with corporate accounts. Unaffiliated business travelers are solicited by direct mail, telesales and advertising campaigns. The Company's telesales department consists of a centralized staff that handles small corporate accounts, travel agencies, meetings and conventions, tour operators and associations. Working with a state-of-the-art system in Tulsa, Oklahoma, the telesales operation produced revenue for the Avis System that exceeded $325 million in 1998. The Company solicits contractual arrangements with corporate accounts by emphasizing the advantages of the Wizard System. It plays a significant part in securing business of this type because the Wizard System enables the Company to offer a wide variety of rental rate combinations, special reports and tracking techniques tailored to the particular needs of each account, access to a worldwide rental network and assurance of adherence to agreed-upon rates. The Company's presence in the leisure market is substantially less than its presence in the business market. Leisure rental activity is important in enabling the Company to balance the use of its fleet. Typically, business renters use vehicles from Monday through Thursday, while in most areas of the United States leisure renters use vehicles primarily over weekends. The Company's concentration on serving business travelers has led to excess capacity from Friday through Sunday of most weeks. The Company intends to increase its leisure market penetration by capitalizing on its strength at airports and by increased focusing of its marketing efforts toward leisure travelers. An important part of the Company's leisure marketing strategy is to develop and maintain contractual arrangements with associations that provide member benefits to their constituents. In addition to developing arrangements with traditional organizations, the Company has created innovative programs such as the Affinity Link Program that cross references bankcard numbers with Avis Worldwide identification numbers and provides discounts to the cardholders for participating bankcard programs. The Company also uses coupons in dine-out books and provides discounts to members of shopping and travel clubs whose members generated approximately $61 million of leisure business revenue in 1998. Preferred supplier agreements with select travel agencies and contracts with tour operators have also succeeded in generating leisure business for the Company. 9 Travel agents can make Avis System reservations through all four major U.S. based global distribution systems and several international based systems. Users of the U.S. based global distribution systems can obtain access through these systems to the Company's rental locations, vehicle availability and applicable rate structures. An automated link between these systems and the Wizard System gives them the ability to reserve and confirm rentals directly through these systems. The Company also maintains strong links to the travel industry. The Company has arrangements with frequent traveler programs of airlines such as Delta, American, Continental, United and TWA, and of hotels including the Hilton Corporation, Hyatt Corporation, Best Western, and Starwood Hotels and Resorts. These arrangements provide various incentives to all program participants and cooperative marketing opportunities for Avis and the partner. The Company also has an arrangement with Cendant whereby lodging customers who are making reservations by telephone will be transferred to the Company if they desire to rent a vehicle. International The Company utilizes a multi-faceted approach to sales and marketing throughout its global network. In its principal international operations, the Company employs teams of trained and qualified account executives to negotiate contracts with major corporate accounts and leisure and travel industry partners. In addition, the Company utilizes centralized telemarketing and direct mail initiatives to continuously broaden its customer base. Sales efforts are designed to secure customer commitment and support customer requirements for both domestic and international car rental needs. International sales and marketing activities promote the Company's reputation for delivering a high quality of service, contract rates, competitive pricing and customer benefits from special services such as Preferred Service, Roving Rapid Return and other benefits of the Wizard System. The Company's international operations maintain close relationships with the travel industry including participation in several airline frequent flyer programs, such as those operated by Air Canada, British Airways, Lufthansa, Ansett Airlines (Australia), and Varig Brazilian Airlines. Competition The vehicle rental industry is characterized by intense price and service competition. In any given location, the Company may encounter competition from national, regional and local companies, many of which, particularly those owned by the major automobile manufacturers, have greater financial resources than the Company. The Company's principal competitors for commercial accounts in the United States are The Hertz Corporation ("Hertz") and National Car Rental System, Inc. ("National"). Its principal competitors for unaffiliated business and leisure travelers in the United States are Budget Rent A Car Corporation, Hertz and National, and, particularly with regard to leisure travelers, Alamo and Dollar. In addition, the Company competes with a variety of smaller vehicle rental companies throughout the country. Competition in the U.S. vehicle rental business is based primarily upon price, reliability, ease of rental and return and other elements of customer service. In addition, competition is influenced strongly by advertising and marketing. The Company believes it is capable of competing for virtually all aspects of the vehicle rental business, except the insurance replacement vehicle business (in which the Company has agreed not to engage in certain markets until June 13, 2000 pursuant to an agreement relating to the sale of its replacement vehicle rental business). In part because of the Wizard System, the Company has been particularly successful in competing for commercial accounts. There have been many occasions during the history of the vehicle rental industry in which all of the major vehicle rental companies have been adversely affected by severe industry-wide rental rate cutting, and the Company has, on such occasions, lowered its rates in response to such rate cutting. However, during the past two years, industry-wide rates have increased, reflecting, in part, both increased costs of owning and maintaining vehicles and the need to generate returns on invested capital. Insurance The Company generally assumes the risk of liability to third parties arising from vehicle rental services in the United States, Canada, Puerto Rico and the U.S. Virgin Islands, for up to $1.0 million per occurrence, through a combination of certificates of self-insurance, insurance coverage provided by its wholly-owned domestic subsidiary, Pathfinder Insurance 10 Company ("Pathfinder"), and insurance coverage secured from an unaffiliated domestic insurance carrier. The Company maintains additional insurance with unaffiliated carriers in excess of such level up to $200.0 million per occurrence. Currently, the Company provides primary automobile insurance for a majority of its fleet through Pathfinder or through self-insurance. In addition, the Company provides claims management services from its headquarters in New York to all of its locations in the United States, Canada, Puerto Rico and the U.S. Virgin Islands. The Company insures the risk of liability to third parties in Argentina, Australia and New Zealand through a combination of unaffiliated carriers and Global Excess & Reinsurance, Ltd., a wholly-owned subsidiary established under the laws of Bermuda ("Global Excess"). These carriers provide coverage supplemental to minimum local requirements. To further control its insurance costs, the Company reinsures some of its risks through its wholly-owned subsidiary, Constellation Reinsurance Company Limited ("Constellation"), an insurance company established under the laws of Barbados. Under its standard rental contract, the Company provides its renters primary automobile liability coverage in most states up to the minimum financial responsibility limits required by applicable law. In many, the renters' insurance is primary and in the states of California and Texas Avis does not provide automobile liability coverage for the renter. Higher limits are provided to some United States national corporate accounts and the Company makes available to renters, for an additional daily charge, participation in a group policy of "Additional Liability Insurance" underwritten by CNA (Continental Group), which increases renters' liability coverage up to $1.0 million. The Company also offers renters, for additional daily charges, "Personal Accident Insurance," which pays medical expenses and accidental death benefits for accidents during the rental period, and "Personal Effects Protection," which insures against loss or damage to the renters' personal belongings during the rental period. Coverages are underwritten by Gulf Insurance Company. Regulatory Matters The Company is subject to federal, state and local laws and regulations including those relating to taxing and licensing of vehicles, franchising, consumer credit, environmental protection, retail vehicle sales and labor matters. The principal environmental regulatory requirements applicable to the Company's operations relate to the ownership or use of tanks for the storage of petroleum products, such as gasoline, diesel fuel and waste oils; the treatment or discharge of waste waters; and the generation, storage, transportation and off-site treatment or disposal of solid or liquid wastes. The Company operates 242 locations at which petroleum products are stored in underground or aboveground tanks. The Company has instituted an environmental compliance program designed to ensure that these tanks are in compliance with applicable technical and operational requirements, including the replacement of underground steel tanks and periodic testing of underground storage tanks. The Company believes that the locations where it currently operates are in compliance, in all material respects, with such regulatory requirements. The Company may also be subject to requirements related to the remediation of, or the liability for remediation of, substances that have been released to the environment at properties owned or operated by the Company or at properties to which the Company sends substances for treatment or disposal. Such remediation requirements may be imposed without regard to fault and liability for environmental remediation can be substantial. The Company may be eligible for reimbursement or payment of remediation costs associated with future releases from its regulated underground storage tanks. Certain of the states in which the Company maintains underground storage tanks have established funds to assist in the payment of remediation costs for releases from certain registered underground tanks. Subject to certain deductibles, the availability of funds, compliance status of the tanks and the nature of the release, these tank funds may be available to the Company for use in remediating future releases from its tank systems. A traditional revenue source for the vehicle rental industry has been the sale of loss damage waivers, by which rental companies agree to relieve a customer from financial responsibility arising from vehicle damage incurred during the rental period. Approximately 3.3% of the Company's revenue during 1998 was generated by the sale of loss damage waivers. The U.S. House of Representatives has from time to time considered legislation that would regulate the conditions under which loss damage waivers may be sold by vehicle rental companies. Approximately 40 states have considered legislation affecting 11 the loss damage waivers. To date, 24 states have enacted legislation which requires disclosure to each customer at the time of rental that damage to the rented vehicle may be covered by the customer's personal automobile insurance and that loss damage waivers may not be necessary. In addition, in the late 1980's, New York enacted legislation which eliminated the Company's right to offer loss damage waivers for sale and limited potential customer liability to $100. Moreover, California and Nevada have capped rates that may be charged for loss damage waivers to $9.00 and $10.00 per day, respectively. Texas requires that the rate charged for loss damage waivers be reasonably related to the direct cost of the repairs. Adoption of national or additional state legislation affecting or limiting the sale of loss damage waivers could result in the loss of this revenue source and additional limitations on potential customers liability could increase the Company's costs. The Company is also subject to regulation under the insurance statutes, including insurance holding company statutes, of the jurisdictions in which its insurance company subsidiaries are domiciled. These regulations vary from state to state, but generally require insurance holding companies and insurers that are subsidiaries of insurance holding companies to register and file certain reports including information concerning their capital structure, ownership, financial condition and general business operations with the state regulatory authority, and require prior regulatory agency approval of changes in control of an insurer and intercorporate transfers of assets within the holding company structure. Pathfinder, as a licensed stock insurance company in the State of Colorado, is subject to the applicable rules and regulations of the Colorado Insurance Department. The Colorado Insurance Law provides that no person may acquire control of the Company, and thus indirect control of Pathfinder, unless it has obtained prior approval of the Colorado Insurance Commissioner for such acquisition. "Control" is generally presumed to exist through the ownership of 10% or more of the voting securities of a Colorado domestic insurance company or of any company which controls a Colorado domestic insurance company. Any purchaser of 10% or more of the outstanding Common Stock would be presumed to have acquired control of the Company, unless such presumption is rebutted by a showing that such control does not in fact exist. Accordingly, any purchase of shares of Common Stock representing 10% or more of the voting power of the Company would require prior approval by the Colorado Insurance Department. Global Excess is subject to Bermuda Insurance Laws, which require Global Excess to file at least a Bermuda statutory financial return in the form prescribed by Bermuda Insurance Laws. Furthermore, any transfer of shares of Global Excess by the Company will require the approval of the Bermuda Monetary Authority, Foreign Exchange Control. In addition, Constellation is required to file an annual financial return in accordance with Barbados Insurance Regulations. The payment of dividends to the Company by its insurance company subsidiaries, Pathfinder, Global Excess and Constellation, will be restricted by government regulations in Colorado, Bermuda and Barbados affecting insurance companies domiciled in those jurisdictions. Employees The Company has approximately 19,000 employees worldwide, of whom approximately 18,000 serve in various capacities at the Company's rental locations and the balance are engaged in executive, financial, sales and marketing, and administrative capacities. Approximately 33% of the Company's employees are represented by various unions under contracts expiring at various dates. No local union represents more than 3.5% of the Company's employees. The Company believes its relationships with its employees are good. Item 2. Properties The Company leases or has concessions relating to space at 466 locations in the United States and 162 locations outside the United States. Of those locations, 197 in the United States and 64 outside the United States are at airports. Typically, an airport receives a percentage of vehicle rental revenues, with a guaranteed minimum. Because there is a limit to the number of vehicle rental locations in an airport, vehicle rental companies frequently bid for the available locations, usually on the basis of the size of the guaranteed minimums. The Company and other vehicle lease firms also lease parking space at or near airports and at their other vehicle rental locations. 12 The Company leases almost all of its vehicle rental facilities. The airport facilities are located on airport property owned by airport authorities or located near the airport in locations convenient for bus transport of customers to and from the airport. The Company's airport locations serve as the administrative headquarters for the Company's non-airport locations nearest to those airport locations and, as a general rule, each airport location includes vehicle storage areas, a vehicle maintenance facility, a car wash, a refueling station and rental and return facilities. The Company's non-airport facilities generally consist of a limited parking facility and a rental and return counter and are generally subject to long-term leases with renewal options. Certain of these leases also have purchase options at the end of their terms. The Company's principal offices are in Garden City, New York where the Company leases approximately 250,000 square feet under a sublease agreement with WizCom which, by exercising renewal options, can be extended through the year 2015. The Avis reservation system is operated by Cendant from leased space in Tulsa and Drumright, Oklahoma where the Company subleases approximately 26,000 square feet from Cendant pursuant to a sublease agreement for certain marketing activities. The Company maintains terminal network facilities which it uses in connection with the Wizard System in Garden City and Tulsa. The Company also leases approximately 58,000 square feet in a building owned by Cendant in Virginia Beach, Virginia that serves as a satellite administrative and reservation facility. Item 3. Legal Matters From time to time, the Company is subject to routine litigation incidental to its business. The Company maintains insurance policies that cover most of the actions brought against the Company. The Company is not currently involved in any legal proceeding which it believes would have a material adverse effect upon its financial condition or results of operations. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the stockholders of the Company during the fourth quarter of the fiscal year ended December 31, 1998. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Reference is made to Page 14("Market Information") of the Registrant's 1998 Annual Report to Shareholders filed as Exhibit 13 hereto, which information is incorporated herein by reference. Item 6. Selected Financial Data Reference is made to Page 5 of the Registrant's 1998 Annual Report to shareholders filed as Exhibit 13 hereto, which information is incorporated herein by reference. 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations of the Registrant's 1998 Annual Report to Shareholders filed as Exhibit 13 hereto, which information is incorporated herein by reference. Item 7a. Quantitative and Qualitative Disclosures about Market Risk Reference is made to page 11 of the Registrants' 1998 Annual Report to Shareholders filed as Exhibit 13, hereto, which information is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The following Consolidated Financial Statements and Notes to the Consolidated Financial Statements (which includes the Supplementary Data) are incorporated herein by reference to the Registrant's Annual Report to Shareholders for the year ended December 31, 1998 filed as Exhibit 13 hereto: Avis Rent A Car, Inc. Consolidated Financial Statements: Independent Auditors' Report Consolidated Statements of Financial Position at December 31, 1997 and 1998 Consolidated Statements of Operations for the periods January 1, 1996 to October 16, 1996 and October 17, 1996 (Date of Acquisition) to December 31, 1996 and for the years ended December 31, 1997 and 1998. Consolidated Statements of Stockholders' Equity for the periods January 1, 1996 to October 16, 1996 and October 17, 1996 (Date of Acquisition) to December 31, 1996 and for the years ended December 31, 1997 and 1998. Consolidated Statements of Cash Flows for the periods January 1, 1996 to October 16, 1996 and October 17, 1996 (Date of Acquisition) to December 31, 1996 and for the years ended December 31, 1997 and 1998. Notes to the Consolidated Financial Statements Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure None PART III The information required by Items 10, 11, 12 and 13 of Part III of Form 10-K will be set forth in the Proxy Statement of the Company relating to the 1999 Annual Meeting of Stockholders, which information is incorporated herein by reference. 14 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) (1) Index to Financial Statements-see Consolidated Financial Statements and Notes to the Consolidated Financial Statements of the Company listed in Item 8 and set forth in the Registrant's 1998 Annual Report to Shareholders included as Exhibit 13 hereto. (2) Index to Financial Statement Schedules-Valuation and Qualifying Accounts. (3) Exhibits-(See Index to Exhibits included elsewhere herein). All Schedules, except those set forth above have been omitted since the information required to be submitted has been included in the Consolidated Financial Statements or notes thereto or has been omitted as not applicable or not required. (b) The Registrant filed a report on form 8-K on December 23, 1998 which disclosed in Item 5 that R. Craig Hoenshell, former Chairman and Chief Executive Officer of the Registrant, would step down from these offices on December 31, 1998 and that Martin L. Edelman, a director of the Registrant, would act as Chariman until a successor was appointed by the Board of Directors. 15 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of Avis Rent A Car, Inc. Garden City, NY We have audited the consolidated statements of financial position of Avis Rent A Car, Inc. and subsidiaries (successors to Rental Car System Holdings, Inc. and subsidiaries, Avis International, Ltd. and subsidiaries, Avis Enterprises, Inc. and subsidiaries, Pathfinder Insurance Company and Global Excess & Reinsurance, Ltd., all previously wholly-owned by Avis, Inc., collectively the "Predecessor Companies") (collectively referred to as "Avis Rent A Car, Inc." or the "Company") as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 1998 and 1997 and for the period October 17, 1996 (Date of Acquisition) to December 31, 1996 and as to the Predecessor Companies the related consolidated statements of operations, stockholders' equity and cash flows for the period January 1, 1996 to October 16, 1996, and have issued our report thereon dated January 25, 1999 (March 19, 1999 as to Note 21); such financial statements and report are included in your 1998 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedule of the Company and the Predecessor Companies, listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP - ------------------------- Deloitte & Touche LLP New York, New York January 25, 1999 (March 19,1999 as to Note 21) 16 AVIS RENT A CAR, INC. FINANCIAL STATEMENT SCHEDULE SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Additions --------------------- Balance at Charged to Other Balance at Beginning Costs and Additions, End of Description of Period Expenses Net(a) Deductions Period - ----------- --------- -------- ------ ---------- ------ January 1, 1996 to October 16, 1996: Allowance for doubtful accounts_accounts receivable ..... $ 2,746 $ 1,238 $ 794 $ 3,190 Accumulated amortization_goodwill .. $ 37,471 $ 3,782 $ 41,253 Public liability and property damage and other insurance liabilities ...................... $194,677 $ 74,109 $ 56,315 $212,471 October 17, 1996 (Date of Acquisition) to December 31, 1996: Allowance for doubtful accounts_accounts receivable ..... $ 227 $ 227 Accumulated amortization_goodwill .. $ 1,026 $ 1,026 Public liability and property damage and other insurance liabilities ...................... $212,471 $ 17,355 $ 16,041 $213,785 Year ended December 31, 1997: Allowance for doubtful accounts_accounts receivable ..... $ 227 $ 3,208 $ 1,149 $ 2,286 Accumulated amortization_goodwill .. $ 1,026 $ 6,860 $ 7,886 Public liability and property damage and other insurance liabilities ...................... $213,785 $ 96,663 $16,670 $ 71,089 $256,029 Year ended December 31, 1998: Allowance for doubtful accounts - accounts receivable .............. $ 2,286 $ 2,961 $ 1,897 $ 3,350 Accumulated amortization-goodwill .. $ 7,886 $ 11,854 $ 19,740 Public liability and property damage and other insurance liabilities ...................... $256,029 $ 93,038 $ 79,858 $269,209
- ----------- a) Includes additions of $16,838 relating to the acquisition of The First Gray Line Corporation on August 20, 1997. 17 SIGNATURES SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on March , 1999. AVIS RENT A CAR, INC. (Registrant) By: /s/ Kevin M. Sheehan ------------------------------------ Name: Kevin M. Sheehan Title: Executive Vice President and Chief Financial Officer 18 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ MARTIN L. EDELMAN - ------------------------------- Martin L. Edelman Interim Chairman of the Board and Director March 22, 1999 (Principal Executive Officer) /s/ F. ROBERT SALERNO - ------------------------------- F. Robert Salerno President, Chief Operating Officer and March 22, 1999 Director /s/ KEVIN M. SHEEHAN - ------------------------------- Kevin M. Sheehan Executive Vice President and Chief March 22, 1999 Financial Officer (Principal Financial Officer) /s/ TIMOTHY M. SHANLEY - ------------------------------- Timothy M. Shanley Vice President and Controller March 22, 1999 (Principal Accounting Officer) /s/ STEPHEN P. HOLMES - ------------------------------- Stephen P. Holmes Director March 22, 1999 /s/ MICHAEL P. MONACO - ------------------------------- Michael P. Monaco Director March 22, 1999 /s/ W. ALUN CATHCART - ------------------------------- W. Alun Cathcart Director March 22, 1999 /s/ LEONARD S. COLEMAN, Jr. - ------------------------------- Leonard S. Coleman, Jr. Director March 22, 1999 /s/ DEBORAH L. HARMON - ------------------------------- Deborah L. Harmon Director March 22, 1999 /s/ R. CRAIG HOENSHELL - ------------------------------- R. Craig Hoenshell Director March 22, 1999 /s/ MICHAEL J. KENNEDY - ------------------------------- Michael J. Kennedy Director March 22, 1999 /s/ MICHAEL L. TARNOPOL - ------------------------------- Michael L. Tarnopol Director March 22, 1999
19 ITEM 14(a)(3) EXHIBIT INDEX Exhibit No. Description --- ----------- 3. Certificate of Incorporation and By-Laws 3.1 Amended and Restated Certificate of Incorporation of the Registrant*** 3.2 Amended and Restated By-Laws of the Registrant*** 4. Instruments defining the rights of securityholders, including indentures 4.1 Form of Certificate of Common Stock** 4.2 Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II L.L.C., as issuer, and Harris Trust and Savings Bank, as trustee.** 4.3 Series 1997-1 Supplement, dated as of July 30, 1997 between AESOP Funding II L.L.C. and Harris Trust and Savings Bank, as trustee, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II and the Trustee.** 4.4 Series 1997-2 Supplement, dated as of July 30, 1997 between AESOP Funding II L.L.C. and Harris Trust and Savings Bank, as trustee, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II and the Trustee.** 4.5 Loan Agreement, dated as of July 30, 1997, between AESOP Leasing L.P., as borrower, and AESOP Funding II L.L.C., as lender.** 4.6 Loan Agreement, dated as of July 30, 1997, among AESOP Leasing L.P., as borrower, PV Holding Corp., as a permitted nominee of the borrower, Quartx Fleet Management, Inc., as a permitted nominee of the borrower, and AESOP Funding II L.L.C., as lender.** 4.7 Loan Agreement, dated as of July 30, 1997, between AESOP Leasing Corp. II, as borrower, AESOP Leasing Corp., as permitted nominee of the borrower, and AESOP Funding II L.L.C., as lender.** 4.8 Master Motor Vehicle Finance Lease Agreement, dated as of July 30, 1997, by and among AESOP Leasing L.P., as lessor, Avis Rent A Car System, Inc., as lessee, individually and as the Administrator and Avis Rent A Car, Inc., as guarantor.** 4.9 Master Motor Vehicle Operating Lease Agreement, dated as of July 30, 1997, by and among AESOP Leasing L.P., as lessor, Avis Rent A Car System, Inc., individually and as the Administrator, certain Eligible Rental Car Companies, as lessees, and Avis Rent A Car, Inc., as guarantor.** 4.10 Master Motor Vehicle Operating Lease Agreement, dated as of July 30, 1997, by and among AESOP Leasing Corp. II, as lessor, Avis Rent A Car System, Inc., individually and as the Administrator, certain Eligible Rental Car Companies, as lessees and Avis Rent A Car, Inc., as guarantor.** 4.11 Credit Agreement, dated as of July 30, 1997, among Avis Rent A Car, Inc., Avis Rent A Car System, Inc., The Chase Manhattan Bank, as administrative agent, Lehman Commercial Paper, Inc., as syndication agent and the other lenders party thereto (the "Credit Agreement").** 4.12 Guarantee, dated as of July 30, 1997, in favor of The Chase Manhattan Bank, as administrative agent for the lenders from time to time parties to the Credit Agreement.** 4.13 Security Agreement, dated as of July 30, 1997, in favor of The Chase Manhattan Bank, as administrative agent for the lenders from time to time parties to the Credit Agreement.** 4.14 Pledge Agreement, dated as of July 30, 1997, in favor of The Chase Manhattan Bank, as administrative agent for the lenders from time to time parties to the Credit Agreement.** 4.15 Supplemental Indenture No. 1, dated as of July 31, 1998, to Amended and Restated Base Indenture, dated as of July 30, 1997 between AESOP Funding II L.L.C. as issuer and Harris Trust and Savings Bank, as trustee.* 20 4.16 Amendment No. 1, dated as of July 31, 1998, to Loan Agreement, dated as of July 30, 1997, between AESOP Leasing L.P., as borrower, and AESOP Funding II L.L.C., as lender.* 4.17 Amendment No. 1, dated as of July 31, 1998, to Loan Agreement, dated as of July 30, 1997, among AESOP Leasing L.P., as borrower, PV Holding Corp., as a permitted nominee of the borrower, Quartz Fleet Management, Inc., as a permitted nominee of the borrower, and AESOP Funding II L.L.C. as lender.* 4.18 Amendment No. 1, dated as of July 31, 1998, to Master Motor Vehicle Finance Lease Agreement, dated as of July 30, 1997, among AESOP Leasing L.P., as lessor, Avis Rent A Car Systems, Inc., as lessee individually and as Administrator, and Avis Rent A Car, Inc., as guarantor.* 4.19 Amended and Restated Loan Agreement, dated as of September 15, 1998 among AESOP Leasing L.P., as borrower, PV Holding Corp., as a permitted nominee of the borrower, Quartz Fleet Management, Inc., as a permitted nominee of the borrower, and AESOP Funding II L.L.C.* 4.20 Amended and Restated Master Motor Vehicle Operating Lease Agreement, dated as of September 15, 1998 among AESOP Leasing L.P., as lessor, Avis Rent A Car System, Inc., individually and as the Administrator, certain Eligible Rental Car Companies, as lessees, and Avis Rent A Car, Inc., as guarantor.* 4.21 Supplemental Indenture No. 2, dated as of September 15, 1998, to Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II L.L.C., as issuer, and Harris Trust and Savings Bank, as trustee.* 4.22 Series 1998-1 Supplement, dated as of February 26, 1998 between AESOP Funding II L.L.C., as issuer, and Harris Trust and Savings Bank, as trustee and Series 1998-1 agent, to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AESOP Funding II L.L.C., as issuer, and Harris Trust and Savings Bank, as trustee.* 10. Material Contracts 10.1 Form of Registration Rights Agreement** 10.2 Separation Agreement between Cendant Car Rental, Inc. and Avis Rent A Car, Inc.** 10.3 Master License Agreement among Cendant Car Rental, Inc., Avis Rent A Car System, Inc. and Wizard Co., Inc.** 10.4 Computer Services Agreement between Avis Rent A Car System, Inc. and WizCom International, Ltd.** 10.5 Reservation Services Agreement between Cendant Incorporated and Avis Rent A Car System, Inc.** 10.6 Form of Tax Disaffiliation Agreement among Cendant Incorporated, Cendant Car Rental, Inc. and Avis Rent A Car, Inc.** 10.7 Form of Lease Agreement by and between WizCom International, Ltd., as lessor, and Avis Rent A Car System, Inc. as lessee (Virginia Beach, Virginia).** 10.8 Form of Sublease Agreement by and between WizCom International, Ltd., as sublessor, and Avis Rent A Car System, Inc., as sublessee (Tulsa, Oklahoma).** 10.9 Form of Sublease Agreement by and between WizCom International, Ltd., as sublessor, and Avis Rent A Car System, Inc., as sublessee (Garden City, New York).** 10.10 Wizard Note Assignment, Assumption and Release Agreement, dated as of July 30, 1997 by and between Wizard Co., Inc., Avis Rent A Car System, Inc. and Reserve Claims Management Co.** 10.11 Termination Services Agreement, among Harris Trust and Savings Bank, AESOP Funding II L.L.C., Avis Rent A Car System, Inc., and Wizcom International, Ltd.** 10.13 Call Transfer Agreement, dated March 4, 1997, between HFS Incorporated and Avis Rent A Car System, Inc.** 10.14 Form of Amended and Restated Employment Agreement, dated as of February 9, 1996, between HFS Car Rental, Inc. and F. Robert Salerno** 10.15 Retention Agreement, dated as of January 1, 1999, between Avis Rent A Car, Inc. and F. Robert Salerno* 10.16 Retention Agreement, dated as of January 1, 1999, between Avis Rent A Car, Inc. and Kevin M. Sheehan* 21 10.17 Avis Rent A Car, Inc. 1997 Stock Option Plan** 10.18 Avis Rent A Car System, Inc. Nonqualified Deferred Compensation Plan* 13 Annual Report to Shareholders for the year ended December 31, 1998* 20 Proxy Statement of the Registrant for Annual Meeting of Stockholders-June 15, 1999**** 21 Subsidiaries of the Registrant** 23.1 Consent of Deloitte & Touche LLP, Independent Auditors of the Company to be incorporated by reference to the Registrant's Registration Statement Nos. 333-59693, 333-59695 and 333-63269 on Form S-8 from the 1998 Annual Report filed herewith* 27 Financial Data Schedule 27.1 Financial Data Schedule-December 31, 1996*** 27.2 Financial Data Schedule-December 31, 1997*** 27.3 Financial Data Schedule-December 31, 1998* - ----------- * Filed herewith. ** Incorporated by reference to the Registrant's Registration Statement on Form S-1, 333-28609. *** Incorporated by reference to the Registrant's Registration Statement on Form S-1, 333-46737. **** To be filed. 22 EX-4.15 2 SUPPLEMENTAL INDENTURE NO. 1 EXECUTION COPY AESOP FUNDING II L.L.C., as Issuer and HARRIS TRUST AND SAVINGS BANK, as Trustee ------------------------------ SUPPLEMENTAL INDENTURE No. 1 Dated as of July 31, 1998 to AMENDED AND RESTATED BASE INDENTURE Dated as of July 30, 1997 ------------------------------ Rental Car Asset Backed Notes (Issuable in Series) TABLE OF CONTENTS SECTION 1: CERTAIN DEFINED TERMS; AMENDMENT OF SCHEDULE 1 Section 1.2 Amendment of Schedule I 1 SECTION 2: REPRESENTATIONS AND WARRANTIES 2 Section 2.1 Affirmation of Representations and Warranties 2 Section 2.2 Limited Liability Company and Governmental Authorization 2 Section 2.3 Binding Effect 2 Section 2.4 No Consent 2 SECTION 3: CONDITIONS PRECEDENT 3 SECTION 4: MISCELLANEOUS 5 Section 4.1 Counterpart Originals 5 Section 4.2 Trustee Consent. 5 Section 4.3 Ratification and Effect 5 Section 4.4 Table of Contents, Headings, etc. 5 Section 4.5 Choice of Law 5 SUPPLEMENTAL INDENTURE No. 1, dated as of July 31, 1998 ("Supplemental Indenture"), to AMENDED AND RESTATED BASE INDENTURE, dated as of July 30, 1997, between AESOP FUNDING II L.L.C., a special purpose, limited liability company established under the laws of Delaware, as issuer ("AFC-II"), and HARRIS TRUST AND SAVINGS BANK, an Illinois banking corporation, as trustee (in such capacity, the "Trustee"). W I T N E S S E T H: WHEREAS, AFC-II and Harris Trust and Savings Bank are parties to an Amended and Restated Base Indenture, dated as of July 30, 1997 (the "Indenture"); and WHEREAS, AFC-II desires to amend and supplement certain terms defined in the Definitions List attached as Schedule I to the Indenture; and WHEREAS, AFC-II has duly authorized the execution and delivery of this Supplemental Indenture; and WHEREAS, Harris Trust and Savings Bank, as trustee under the Indenture, is willing to enter into this Supplemental Indenture; NOW, THEREFORE, for and in consideration of the premises, and other good and valuable consideration the receipt and sufficiency of which are acknowledged, it is mutually covenanted and agreed, that the Indenture be amended and supplemented as follows: SECTION 1: CERTAIN DEFINED TERMS; AMENDMENT OF SCHEDULE 1 Section 1.1 Certain Defined Terms. Certain capitalized terms used herein (including in the preamble and the recitals hereto) shall have the meanings assigned to such terms in the amended Definitions List attached hereto as Schedule I (the "Definitions List"), as such Definitions List may be hereafter further amended or modified from time to time in accordance with the provisions of the Indenture. Section 1.2 Amendment of Schedule I. From and after the date of this Supplemental Indenture, which shall not be a date prior to the satisfaction of each of the conditions to effectiveness of this Supplemental Indenture set forth in Section 3 hereof, any reference in the Indenture or any other Related Document to the "Definitions List" or "Schedule I to the Indenture" shall mean Schedule I to this Supplemental Indenture, and any reference to a capitalized term shall have the meanings assigned to such term therein, unless the context otherwise requires. SECTION 2: REPRESENTATIONS AND WARRANTIES In order to induce the Trustee to agree to this Supplemental Indenture, AFC-II hereby represents and warrants, as follows, for the benefit of the Trustee and the Secured Parties, as of date hereof: Section 2.1 Affirmation of Representations and Warranties. Each representation and warranty of AFC-II set forth in the Indenture and in each other Related Document to which it is a party, is true and correct as of the date of this Supplemental Indenture in all material respects as though such representation or warranty were being made on and as of the date hereof and is hereby deemed repeated as though fully set forth herein. Section 2.2 Limited Liability Company and Governmental Authorization. The execution, delivery and performance by AFC-II of this Supplemental Indenture (a) is within AFC-II's limited liability company powers, has been duly authorized by all necessary limited liability company action, (b) requires no action by or in respect of, or filing with, any governmental body, agency or official which has not been obtained and (c) does not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of formation or limited liability company agreement of AFC-II or of any law or governmental regulation, rule, contract, agreement, judgment, injunction, order, decree or other instrument binding upon AFC-II or any of its Assets or result in the creation or imposition of any Lien on any Asset of AFC-II, except for Liens created by the Indenture or the other Related Documents. This Supplemental Indenture has been executed and delivered by a duly authorized officer of AFC-II. Section 2.3 Binding Effect. This Supplemental Indenture is a legal, valid and binding obligation of AFC-II enforceable against AFC-II in accordance with its terms (except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally or by general equitable principles, whether considered in a proceeding at law or in equity and by an implied covenant of good faith and fair dealing). Section 2.4 No Consent. No consent, action by or in respect of, approval or other authorization of, or registration, declaration or filing with, any Governmental Authority or other Person is required for the valid execution and delivery of this Supplemental Indenture or for the performance of any of AFC-II's obligations hereunder other than such consents, approvals, authorizations, registrations, declarations or filings as were obtained by AFC-II prior to the Initial Closing Date, or the date hereof, as applicable. SECTION 3: CONDITIONS PRECEDENT This Supplemental Indenture shall become effective and shall be binding on each of the parties hereto upon the satisfaction or due waiver of each of the following conditions precedent: 1. The consent of the Requisite Investors shall have been given and a copy thereof provided to the Trustee. 2. The Rating Agency Consent Condition shall have been satisfied. 3. The CP Rating Agency Condition shall have been satisfied. 4. The Trustee shall have received evidence satisfactory to it that each Manager of AFC-II has approved this Supplement. 5. The Trustee shall have received an Officer's Certificate of AFC-II dated as of the date hereof to the effect that (i) no Amortization Event, Aggregate Asset Amount Deficiency, Enhancement Agreement Event of Default, if applicable, Enhancement Deficiency, Loan Event of Default, AESOP I Operating Lease Vehicle Deficiency, Manufacturer Event of Default, Lease Event of Default, Potential Amortization Event, Potential Enhancement Agreement Event of Default, Potential Loan Event of Default, Potential Lease Event of Default, or Potential Manufacturer Event of Default is continuing or will occur as a result of the execution and delivery of this Supplemental Indenture, and (ii) the execution and delivery of this Supplemental Indenture will not result in any breach of any of the terms, conditions or provisions of or constitute a default under any indenture, mortgage, deed of trust or other agreement or instrument, including, without limitation, any Related Document, to which AFC-II is a party or by which it or its property is bound or any order of any court or administrative agency entered in any suit, action or other judicial or administrative proceeding to which AFC-II is a party or by which it or its property may be bound or to which it or its property may be subject; 6. The Trustee shall have received an Opinion of Counsel, subject to the assumptions and qualifications stated therein, and in a form substantially acceptable to the Trustee, dated the date hereof, substantially to the effect that: (i) all conditions precedent provided for in the Indenture with respect to the execution and delivery of this Supplemental Indenture have been complied with in all material respects; (ii) (w) AFC-II is duly organized under the jurisdiction of its formation and has the power and authority to execute and deliver this Supplemental Indenture, (x) AESOP Leasing is duly organized under the jurisdiction of its formation and has the power and authority to execute and deliver each of the Amendment Documents (as defined in Clause 7, below) to which it is a party, (y) each of Original AESOP, PVHC and Quartx is duly incorporated under the jurisdiction of its incorporation and has the corporate power and authority to execute and deliver each of the Amendment Documents to which it is a party, and (z) each of ARC and ARAC is duly incorporated in the jurisdiction of its incorporation and, as of the date of this Supplemental Indenture, has the corporate power and authority to execute and deliver each of the Amendment Documents to which it is a party; (iii) this Supplemental Indenture, and each of the other Amendment Documents (as defined herein) to which AFC-II, AESOP Leasing, Original AESOP, PVHC, Quartx, ARAC or ARC is a party have been duly authorized, executed and delivered by AFC-II, AESOP Leasing, Original AESOP, PVHC, Quartx, ARAC or ARC, as the case may be; (iv) this Supplemental Indenture, and each of the other Amendment Documents to which AFC-II, AESOP Leasing, Original AESOP, PVHC, Quartx, ARAC or ARC is a party are legal, valid and binding agreements of AFC-II, AESOP Leasing, Original AESOP, PVHC, Quartx, ARAC or ARC, as the case may be, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally and to general principles of equity; and (v) such other matters as the Trustee may reasonably require; 7. The Trustee shall have received duly executed counterparts of each of: (i) the Amendment No. 1 to AESOP I Operating Lease Loan Agreement, dated as of July 31, 1998, (ii) the Amendment No. 1 to AESOP I Finance Lease Loan Agreement, dated as of July 31, 1998 and (iii) the Amendment No. 1 to AESOP I Finance Lease, dated as of July 31, 1998 (collectively, the "Amendment Documents"), each duly executed by the respective parties thereto; 8. The Trustee shall have received such other documents, instruments, certifications, agreements or other items as the Trustee may reasonably require. SECTION 4: MISCELLANEOUS Section 4.1 Counterpart Originals. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. Section 4.2 Trustee Consent. By its execution hereof, the Trustee consents to the execution and delivery by the respective parties thereto of the Amendment Documents (as defined above). Section 4.3 Ratification and Effect. The Base Indenture, as amended and supplemented by this Supplemental Indenture No. 1, is in all respects ratified and confirmed, shall continue to be in full force and effect, and shall be read, taken and construed as one and the same instrument. Section 4.4 Table of Contents, Headings, etc. The table of contents and headings of the Sections of this Supplemental Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. Section 4.5 Choice of Law. THIS SUPPLEMENTAL INDENTURE SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). IN WITNESS WHEREOF, the Trustee and AFC-II have caused this Supplemental Indenture No. 1 to be duly executed by their respective duly authorized officers as of the day and year first written above. AESOP FUNDING II L.L.C., as Issuer By: ------------------------------------ Name: ------------------------------ Title: ------------------------------ HARRIS TRUST AND SAVINGS BANK, as Trustee By: ------------------------------------ Name: ------------------------------ Title: ------------------------------ EX-4.16 3 LOAN AGREEMENT EXECUTION COPY AMENDMENT No. 1 dated as of July 31, 1998 to LOAN AGREEMENT dated as of July 30, 1997 between AESOP LEASING L.P., as Borrower, and AESOP FUNDING II L.L.C., as Lender AMENDMENT No. 1 to LOAN AGREEMENT THIS AMENDMENT No. 1, dated as of July 31, 1998 (the "Amendment"), is entered into between AESOP LEASING L.P., a Delaware limited partnership ("AESOP Leasing" or the "Borrower"), and AESOP FUNDING II L.L.C., a Delaware limited liability company ("AFC-II" or the "Lender"). BACKGROUND AESOP Leasing purchases and finances Program Vehicles (such capitalized term, together with all other capitalized terms used herein, shall have the meaning assigned thereto in Section 1.1) and Non-Program Vehicles that it leases to ARAC for use in its daily vehicle rental businesses pursuant to the AESOP I Finance Lease, and, pursuant to the Loan Agreement, dated as of July 30, 1997, between AESOP Leasing and the Lender (the "Loan Agreement") AESOP Leasing obtains financing for such Vehicles from the Lender. AESOP Leasing now wishes to amend Loan Agreement as set forth herein, and the Lender is willing to enter into this Amendment and to make Loans to AESOP Leasing on the terms and conditions of the Loan Agreement as amended by this Amendment No. 1. Accordingly, in consideration of the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and conditions hereof, the parties hereto agree as follows: SECTION 1. CERTAIN DEFINITIONS. SECTION 1.1. Certain Definitions. As used in this Amendment and unless the context requires a different meaning, capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Definitions List attached as Schedule I to the Supplemental Indenture dated the date hereof to the Base Indenture, dated as of July 30, 1997 (such agreement as it may be further amended, supplemented, restated or otherwise modified from time to time in accordance with its terms, the "Base Indenture"), between AFC-II and Harris Trust and Savings Bank, as trustee (the "Trustee"), as in effect on the date hereof and as such Schedule I may be further amended or modified from time to time in accordance with the terms of the Base Indenture (the "Definitions List"). SECTION 1.2. Accounting and Financial Determinations; Cross References, Headings; Interpretation. The provisions regarding accounting and financial determinations, cross references and headings and other principles of construction set forth in Sections 1.2, 1.3 and 1.4 of the Loan Agreement shall be deemed to apply to this Amendment as if set forth herein. SECTION 2. REPRESENTATIONS AND WARRANTIES. To induce the Lender to enter into this Amendment, AESOP Leasing represents and warrants to the Lender, as of the date hereof that: SECTION 2.1. Restatement of Representations. Each representation made by AESOP Leasing in the Loan Agreement shall be deemed incorporated herein and restated hereby and each such representation is true and correct on the date hereof. SECTION 2.2. Authorization; Enforceability. AESOP Leasing has the power and has taken all necessary action to authorize it to execute, deliver and perform this Amendment. This Amendment has been duly executed and delivered by AESOP Leasing and is a legal, valid and binding obligation of AESOP Leasing, enforceable in accordance with its terms. SECTION 2.3. Compliance. The execution, delivery and performance by AESOP Leasing of this Amendment do not and will not (i) require any consent, approval, authorization or registration not already obtained or effected, (ii) violate any applicable law with respect to AESOP Leasing, which violation could result in a Material Adverse Effect, (iii) conflict with, result in a breach of, or constitute a default under the certificate of limited partnership or limited partnership agreement of AESOP Leasing, or under any indenture, agreement, or other instrument to which AESOP Leasing is a party or by which its properties may be bound, or (iv) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by AESOP Leasing, except Permitted Liens. SECTION 3. AMENDMENT TO AFFIRMATIVE COVENANTS. SECTION 3.1. Non-Program Vehicle Report. Section 9.22 of the Loan Agreement is hereby deleted in its entirety and the following substituted therefor: On or before the second Determination Date immediately following June 30 and December 31 of each calendar year, AESOP Leasing shall cause a firm of nationally recognized independent public accountants (who may also render other services to AESOP Leasing, ARC or ARAC and who is acceptable to the Rating Agencies and each Enhancement Provider) to furnish a report to the Lender, the Trustee, each Enhancement Provider and the Rating Agencies to the effect that they have performed certain agreed upon procedures (which shall be acceptable to each Enhancement Provider) with respect to the calculation of (i) the Disposition Proceeds obtained from the sale or other disposition of all Non-Program Vehicles (other than Casualties and Redesignated Program Vehicles) sold or otherwise disposed of during each Related Month in such period, (ii) the respective Net Book Values of such Non-Program Vehicles, and (iii) the Non-Program Fleet Market Value and compared such calculations with the corresponding amounts set forth in the Monthly Certificates prepared pursuant to Section 4.1(b) of the Indenture and that on the basis of such comparison such accountants are of the opinion that such amounts are in agreement, except for such exceptions as they believe to be immaterial and such other exceptions as shall be set forth in such report. With respect to the calculations described in the foregoing clause (iii), such report shall make the comparison described with respect to the Non-Program Fleet Market Value only as of the last Determination Date in the period as to which the report is made. On or before the second Determination Date immediately following March 31 and September 30 of each calendar year, AESOP Leasing shall furnish an Officer's Certificate of AESOP Leasing to the Lender, the Trustee, each Enhancement Provider and the Rating Agencies to the effect that the officer making such certification has compared or caused to be compared the calculations described in clauses (i) and (ii) above with the corresponding amounts set forth in the Monthly Certificates prepared pursuant to Section 4.1(b) of the Indenture, and has compared or caused to be compared the calculation described in clause (iii) above with respect to the corresponding amount set forth in the Monthly Certificate prepared pursuant to Section 4.1(b) of the Indenture as of the last Determination Date in the period as to which the Officer's Certificate is given, and that on the basis of such comparison such officer is of the opinion that such amounts are in agreement, except for such exceptions as shall be set forth in such Officer's Certificate. SECTION 4. CONDITIONS TO EFFECTIVENESS SECTION 4.1. The effectiveness of this Amendment shall be subject to the prior or concurrent (i) delivery of each of the following documents to the Lender and, if not otherwise required to be delivered to the Trustee by any other Related Document, to the Trustee and any Enhancement Provider, as applicable (in form and substance satisfactory to the Lender and, if applicable, the Trustee and any Enhancement Provider) and (ii) satisfaction of the following conditions, as applicable: (a) Certificate of Limited Partnership; Certificates of Incorporation. The certificate of limited partnership of AESOP Leasing, duly certified by the Secretary of State of the State of Delaware, together with a copy of the limited partnership agreement of AESOP Leasing, duly certified by the Secretary or an Assistant Secretary of Original AESOP. The certificate of incorporation of Original AESOP, duly certified by the Secretary of State of the State of Delaware. (b) Resolutions. Copies of resolutions of the Board of Directors of Original AESOP, authorizing or ratifying the execution, delivery and performance of this Amendment, duly certified by the Secretary or an Assistant Secretary of Original AESOP, as the case may be; (c) Consents, etc. Certified copies of all documents evidencing any necessary limited partnership or corporate action, consents and governmental approvals (if any) with respect to this Agreement; (d) Incumbency and Signatures. A certificate of the Secretary or an Assistant Secretary of Original AESOP certifying the names of the individual or individuals authorized to sign this Agreement, together with a sample of the true signature of each such individual (the Lender may conclusively rely on each such certificate until formally advised by a like certificate of any changes therein); (e) Opinions of Counsel. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to AESOP Leasing and AFC-II, as to enforceability and certain corporate matters, addressed to the Lender, the Trustee, the Placement Agents, the Rating Agencies and the Administrative Agent, on behalf of the Liquidity Lenders; (f) Good Standing Certificates. Certificates of good standing for each of AESOP Leasing and Original AESOP in the jurisdiction of its formation and the jurisdiction of its principal place of business; (g) Indenture. Supplemental Indenture No. 1, dated the date hereof, duly executed by the Lender and the Trustee, and all conditions to the effectiveness thereof shall have been satisfied in all respects; (h) Other. Such other documents as the Trustee or the Lender may reasonably request. SECTION 5. MISCELLANEOUS SECTION 5.1. Governing Law. THIS AMENDMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). SECTION 5.2. Effect of Amendment. Except to the extent amended hereby, the Loan Agreement is in all respects ratified and confirmed and in full force and effect. From and after the date hereof, all references in the Related Documents to the AESOP I Finance Lease Loan Agreement shall mean such agreement as amended and restated hereby, unless the context otherwise requires. IN WITNESS WHEREOF, the parties have executed this Amendment by their respective duly authorized officers as of the day and year first above written. AESOP LEASING L.P. By: AESOP LEASING CORP., its general partner By: ------------------------------------ Name: Title: AESOP FUNDING II L.L.C. By: ------------------------------------ Name: Title: EX-4.17 4 LOAN AGREEMENT EXECUTION COPY AMENDMENT No. 1 dated as of July 31, 1998 to LOAN AGREEMENT dated as of July 30, 1997 among AESOP LEASING L.P., as Borrower, PV HOLDING CORP., as a Permitted Nominee of the Borrower, QUARTX FLEET MANAGEMENT, INC. as a Permitted Nominee of the Borrower, and AESOP FUNDING II L.L.C., as Lender AMENDMENT No. 1 to LOAN AGREEMENT THIS AMENDMENT No. 1, dated as of July 31, 1998 (the "Amendment"), is entered into among AESOP LEASING L.P., a Delaware limited partnership ("AESOP Leasing" or the "Borrower"), PV HOLDING CORP., a Delaware corporation ("PVHC"), as a Permitted Nominee of the Borrower, QUARTX FLEET MANAGEMENT, INC., a Delaware corporation ("Quartx"), as a Permitted Nominee of the Borrower, and AESOP FUNDING II L.L.C., a Delaware limited liability company ("AFC-II" or the "Lender"). BACKGROUND AESOP Leasing purchases and finances Program Vehicles (such capitalized term, together with all other capitalized terms used herein, shall have the meaning assigned thereto in Section 1.1) and Non-Program Vehicles that it leases to ARAC and certain other Eligible Rental Car Companies for use in their respective daily vehicle rental businesses pursuant to the AESOP I Operating Lease, and, pursuant to the Loan Agreement, dated as of July 30, 1997, among AESOP Leasing, PVHC, Quartx and the Lender (the "Loan Agreement") AESOP Leasing obtained financing for such Vehicles from the Lender. AESOP Leasing now wishes to amend Loan Agreement as set forth herein, and the Lender is willing to enter into this Amendment and to make Loans to AESOP Leasing on the terms and conditions of the Loan Agreement as amended by this Amendment No. 1. Accordingly, in consideration of the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and conditions hereof, the parties hereto agree as follows: SECTION 1. CERTAIN DEFINITIONS. SECTION 1.1. Certain Definitions. As used in this Amendment and unless the context requires a different meaning, capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Definitions List attached as Schedule I to the Supplemental Indenture dated the date hereof to the Base Indenture, dated as of July 30, 1997 (such agreement as it may be further amended, supplemented, restated or otherwise modified from time to time in accordance with its terms, the "Base Indenture"), between AFC-II and Harris Trust and Savings Bank, as trustee (the "Trustee"), as in effect on the date hereof and as such Schedule I may be further amended or modified from time to time in accordance with the terms of the Base Indenture (the "Definitions List"). SECTION 1.2. Accounting and Financial Determinations; Cross References, Headings; Interpretation. The provisions regarding accounting and financial determinations, cross references and headings and other principles of construction set forth in Sections 1.2, 1.3 and 1.4 of the Loan Agreement shall be deemed to apply to this Amendment as if set forth herein. SECTION 2. REPRESENTATIONS AND WARRANTIES. To induce the Lender to enter into this Amendment, AESOP Leasing represents and warrants to the Lender as to itself, and each of PVHC and Quartx represents and warrants to the Lender as to itself, as of the date hereof that: SECTION 2.1. Restatement of Representations. Each representation made by each of AESOP Leasing, PVHC and Quartx hereby shall be deemed incorporated herein and restated hereby and each such representation is true and correct as if made on the date hereof. SECTION 2.2. Authorization; Enforceability. Each of AESOP Leasing, PVHC and Quartx has the power and has taken all necessary action to authorize it to execute, deliver and perform this Amendment. This Amendment has been duly executed and delivered by each of AESOP Leasing, PVHC and Quartx and is a legal, valid and binding obligation of such party, enforceable in accordance with its terms. SECTION 2.3. Compliance. The execution, delivery and performance by each of AESOP Leasing, PVHC and Quartx of this Amendment do not and will not (i) require any consent, approval, authorization or registration not already obtained or effected, (ii) violate any applicable law with respect to AESOP Leasing, PVHC or Quartx, as the case may be, which violation could result in a Material Adverse Effect, (iii) conflict with, result in a breach of, or constitute a default under the certificate of limited partnership or limited partnership agreement of AESOP Leasing or under the certificate of incorporation, as amended, or by-laws of each of PVHC and Quartx, or under any indenture, agreement, or other instrument to which any of AESOP Leasing, PVHC or Quartx is a party or by which its properties may be bound, or (iv) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by any of AESOP Leasing, PVHC or Quartx except Permitted Liens. SECTION 3. AMENDMENT TO AFFIRMATIVE COVENANTS. SECTION 3.1. Non-Program Vehicle Report. Section 9.22 of the Loan Agreement is hereby deleted in its entirety and the following substituted therefor: On or before the second Determination Date immediately following June 30 and December 31 of each calendar year, AESOP Leasing shall cause a firm of nationally recognized independent public accountants (who may also render other services to AESOP Leasing, ARC or ARAC and who is acceptable to the Rating Agencies and each Enhancement Provider) to furnish a report to the Lender, the Trustee, each Enhancement Provider and the Rating Agencies to the effect that they have performed certain agreed upon procedures (which shall be acceptable to each Enhancement Provider) with respect to the calculation of (i) the Disposition Proceeds obtained from the sale or other disposition of all Non-Program Vehicles (other than Casualties and Redesignated Program Vehicles) sold or otherwise disposed of during each Related Month in such period, (ii) the respective Net Book Values of such Non-Program Vehicles, and (iii) the Non-Program Fleet Market Value and compared such calculations with the corresponding amounts set forth in the Monthly Certificates prepared pursuant to Section 4.1(b) of the Indenture and that on the basis of such comparison such accountants are of the opinion that such amounts are in agreement, except for such exceptions as they believe to be immaterial and such other exceptions as shall be set forth in such report. With respect to the calculations described in the foregoing clause (iii), such report shall make the comparison described with respect to the Non-Program Fleet Market Value only as of the last Determination Date in the period as to which the report is made. On or before the second Determination Date immediately following March 31 and September 30 of each calendar year, AESOP Leasing shall furnish an Officer's Certificate of AESOP Leasing to the Lender, the Trustee, each Enhancement Provider and the Rating Agencies to the effect that the officer making such certification has compared or caused to be compared the calculations described in clauses (i) and (ii) above with the corresponding amounts set forth in the Monthly Certificates prepared pursuant to Section 4.1(b) of the Indenture, and has compared or caused to be compared the calculation described in clause (iii) above with respect to the corresponding amount set forth in the Monthly Certificate prepared pursuant to Section 4.1(b) of the Indenture as of the last Determination Date in the period as to which the Officer's Certificate is given, and that on the basis of such comparison such officer is of the opinion that such amounts are in agreement, except for such exceptions as shall be set forth in such Officer's Certificate. SECTION 4. CONDITIONS TO EFFECTIVENESS SECTION 4.1. The effectiveness of this Amendment shall be subject to the prior or concurrent (i) delivery of each of the following documents to the Lender and, if not otherwise required to be delivered to the Trustee by any other Related Document, to the Trustee and any Enhancement Provider, as applicable (in form and substance satisfactory to the Lender and, if applicable, the Trustee and any Enhancement Provider) and (ii) satisfaction of the following conditions, as applicable: (a) Certificate of Limited Partnership; Certificates of Incorporation. The certificate of limited partnership of AESOP Leasing, duly certified by the Secretary of State of the State of Delaware, together with a copy of the limited partnership agreement of AESOP Leasing, duly certified by the Secretary or an Assistant Secretary of Original AESOP. The certificate of incorporation of each of Original AESOP, PVHC and Quartx, duly certified by the Secretary of State of the State of Delaware, together with a copy of the by-laws of each of Original AESOP, PVHC and Quartx, duly certified by the Secretary or an Assistant Secretary of Original AESOP, PVHC and Quartx, as the case may be. (b) Resolutions. Copies of resolutions of the Board of Directors of each of Original AESOP, PVHC and Quartx, authorizing or ratifying the execution, delivery and performance of this Amendment, duly certified by the Secretary or an Assistant Secretary of Original AESOP, PVHC or Quartx, as the case may be; (c) Consents, etc. Certified copies of all documents evidencing any necessary limited partnership or corporate action, consents and governmental approvals (if any) with respect to this Agreement; (d) Incumbency and Signatures. A certificate of the Secretary or an Assistant Secretary of each of Original AESOP, PVHC and Quartx certifying the names of the individual or individuals authorized to sign this Agreement and the other Related Documents to be executed by it, together with a sample of the true signature of each such individual (the Lender may conclusively rely on each such certificate until formally advised by a like certificate of any changes therein); (e) Opinions of Counsel. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to AESOP Leasing and AFC-II, as to enforceability and certain corporate matters, addressed to the Lender, the Trustee, the Placement Agents, the Rating Agencies and the Administrative Agent, on behalf of the Liquidity Lenders; (f) Good Standing Certificates. Certificates of good standing for each of AESOP Leasing, Original AESOP, PVHC and Quartx in the jurisdiction of its formation and the jurisdiction of its principal place of business; (g) Indenture. Supplemental Indenture No. 1, dated the date hereof, duly executed by the Lender and the Trustee, and all conditions to the effectiveness thereof shall have been satisfied in all respects; (h) Other. Such other documents as the Trustee or the Lender may reasonably request. SECTION 5. MISCELLANEOUS SECTION 5.1. Governing Law. THIS AMENDMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). SECTION 5.2. Effect of Amendment. Except to the extent amended hereby, the Loan Agreement is in all respects ratified and confirmed and in full force and effect. From and after the date hereof, all references in the Related Documents to the AESOP I Operating Lease Loan Agreement shall mean such agreement as amended and restated hereby, unless the context otherwise requires. IN WITNESS WHEREOF, the parties have executed this Amendment by their respective duly authorized officers as of the day and year first above written. AESOP LEASING L.P. By: AESOP LEASING CORP., its general partner By: ------------------------------------ Name: Title: PV HOLDING CORP. By: ------------------------------------ Name: Title: QUARTX FLEET MANAGEMENT, INC. By: ------------------------------------ Name: Title: AESOP FUNDING II L.L.C. By: ------------------------------------ Name: Title: EX-4.18 5 FINANCE LEASE AGREEMENT EXECUTION COPY AMENDMENT No. 1 dated as of July 31, 1998 to MASTER MOTOR VEHICLE FINANCE LEASE AGREEMENT dated as of July 30, 1997 among AESOP LEASING L.P., as Lessor, AVIS RENT A CAR SYSTEM, INC., as Lessee and as Administrator, and AVIS RENT A CAR, INC., as Guarantor AMENDMENT No. 1 TO MASTER MOTOR VEHICLE FINANCE LEASE AGREEMENT This Amendment No. 1 to Master Motor Vehicle Finance Lease Agreement (this "Amendment"), dated as of July 31, 1998, is made by and among AESOP LEASING L.P., a Delaware limited partnership (the "Lessor"), AVIS RENT A CAR SYSTEM, INC., a Delaware corporation ("ARAC" or the "Lessee"), individually and as the Administrator, and AVIS RENT A CAR, INC., a Delaware corporation, as guarantor (the "Guarantor"). W I T N E S S E T H: WHEREAS, the Lessor (such capitalized term, together with all other capitalized terms used and not otherwise defined herein, shall have the meaning assigned thereto in Section 1), ARAC and the Guarantor are parties to a Master Motor Vehicle Finance Lease Agreement, dated as of July 30, 1997 (the "AESOP I Finance Lease"), pursuant to which the Lessor has financed the purchase of Program Vehicles and Non-Program Vehicles of one or more Manufacturers with proceeds provided to the Lessor by the Lender pursuant to the AESOP I Finance Lease Loan Agreement and other available funds; and WHEREAS, the Guarantor has guaranteed the obligations of the Lessee under the AESOP I Finance Lease, pursuant to Section 26 of the AESOP I Finance Lease; and WHEREAS, the Lessor now wishes to amend certain provisions of the AESOP I Finance Lease; NOW, THEREFORE, in consideration of the foregoing premises, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree that the AESOP I Finance Lease is hereby amended as follows: SECTION 1. DEFINITIONS. Unless otherwise specified herein, capitalized terms used herein (including the preamble and recitals hereto) shall have the meanings ascribed to such terms in the Definitions List attached as Schedule I to the Base Indenture, dated as of July 30, 1997 (the "Base Indenture"), between AFC-II, as Issuer, and Harris Trust and Savings Bank, as Trustee, as such Definitions List has been amended by the Supplemental Indenture and as such Schedule I may from time to time be further amended in accordance with the Base Indenture. SECTION 2. AMENDED PROVISION. General Agreement. Section 2(b)(ii) of the AESOP I Finance Lease is hereby amended to add, prior to the semicolon as the end thereof, the following clause: , including, without limitation, any and all Franchisee Vehicles identified in an Officer's Certificate delivered pursuant to Section 2.1(iii) hereof, and all Certificates of Title with respect thereto, irrespective of whether the Franchisee Vehicle Leasing Condition shall have been satisfied with respect to such Franchisee Vehicles (provided, that this clause is intended to confirm the pledge and grant made hereby with respect to any Franchisee Vehicles and shall not be construed as a waiver or limitation of the Franchisee Vehicle Leasing Condition) SECTION 3. THE GUARANTY. Affirmation of Guaranty. The Guarantor hereby affirms and ratifies its guaranty as set forth in the AESOP I Finance Lease and confirms that the liabilities and obligations of the Guarantor thereunder will be absolute and unconditional under all circumstances and that the execution of this Amendment shall not in any way affect such liabilities and obligations. SECTION 4. CERTAIN REPRESENTATIONS AND WARRANTIES. The Lessee represents and warrants to the Lessor and the Trustee as to itself, and the Guarantor represents and warrants to the Lessor and the Trustee as to itself and as to the Lessee, that as of the date hereof: 4.1 Restatement of Representations. Each of the Guarantor and the Lessee hereby restates each representation made by it in the AESOP I Finance Lease and confirms that each such representation is true and correct as if made on the date hereof. 4.2 Authorization; Enforceability. Each of the Guarantor and the Lessee has the corporate power and has taken all necessary corporate action to authorize it to execute, deliver and perform this Amendment. This Amendment has been duly executed and delivered by the Guarantor and the Lessee and is a legal, valid and binding obligation of the Guarantor and the Lessee, enforceable in accordance with its terms. 4.3 Compliance. The execution, delivery and performance by the Guarantor and the Lessee of this Amendment do not and will not (i) require any consent, approval, authorization or registration not already obtained or effected, (ii) violate any applicable law with respect to the Guarantor or the Lessee which violation could result in a Material Adverse Effect, (iii) conflict with, result in a breach of, or constitute a default under the certificate or articles of incorporation or by-laws, as amended, of the Guarantor or the Lessee, (iv) conflict with, result in a breach of, or constitute a default under any indenture, agreement, or other instrument to which the Guarantor or the Lessee is a party or by which its properties may be bound which conflict, breach or default could result in a Material Adverse Effect, or (v) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by such Lessee except Permitted Encumbrances. SECTION 5. MISCELLANEOUS. 5.1 Governing Law. THIS AMENDMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). 5.2 Headings. Section headings used in this Amendment are for convenience of reference only and shall not affect the construction of this Amendment. 5.3 Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same Amendment. 5.4 Effective Date. This Amendment shall become effective on the date hereof. Except as expressly amended hereby, the AESOP I Finance Lease is in all respects ratified and confirmed and in full force and effect. From and after the date hereof, all references in the Related Documents to the AESOP I Finance Lease shall mean such agreement as amended and restated hereby, unless the context otherwise requires. IN WITNESS WHEREOF, the parties have executed this Agreement or caused it to be executed by their respective officers thereunto duly authorized as of the day and year first above written. LESSOR: AESOP LEASING L.P. By: AESOP LEASING CORP., its general partner By: LESSEE AND ADMINISTRATOR: AVIS RENT A CAR SYSTEM, INC. By: GUARANTOR: AVIS RENT A CAR, INC. By: EX-4.19 6 AMENDED AND RESTATED LOAN AGREEMENT [AMENDED AND RESTATED AESOP I Operating Lease Loan Agreement] AMENDED AND RESTATED LOAN AGREEMENT dated as of September 15, 1998 among AESOP LEASING L.P., as Borrower, PV HOLDING CORP., as a Permitted Nominee of the Borrower, QUARTX FLEET MANAGEMENT, INC. as a Permitted Nominee of the Borrower, and AESOP FUNDING II L.L.C., as Lender TABLE OF CONTENTS Page ---- SECTION 1. CERTAIN DEFINITIONS 2 SECTION 1.1. Certain Definitions 2 SECTION 1.2. Accounting and Financial Determinations 2 SECTION 1.3. Cross References; Headings 3 SECTION 1.4. Interpretation 3 SECTION 2. LOAN COMMITMENT OF THE LENDER 3 SECTION 2.1. Loan Commitment 3 SECTION 2.2. Certain Waivers 4 SECTION 2.3. Conditions 4 SECTION 2.4. Use of Proceeds 4 SECTION 3. LOAN NOTE; LOAN PROCEDURE; RECORDKEEPING 4 SECTION 3.1. Loan Note 4 SECTION 3.2. Loan Procedure 4 SECTION 3.3. Recordkeeping 5 SECTION 4. INTEREST 5 SECTION 4.1. Interest Rate on Loans 5 SECTION 4.2. Supplemental Interest 5 SECTION 4.3. Loan Interest Payment Dates 6 SECTION 4.4. Setting of Rates 6 SECTION 4.5. Carrying Charges 6 SECTION 5. REPAYMENT OF LOAN PRINCIPAL AMOUNT 6 SECTION 5.1. Mandatory Repayment of Monthly Loan Principal Amount of Loans 6 SECTION 5.2. Voluntary Prepayments of Loan Principal Amount 8 SECTION 6. MAKING OF PAYMENTS 9 SECTION 6.1. Making of Payments 9 SECTION 6.2. Due Date Extension 9 SECTION 6.3. Application of Sale Proceeds 9 SECTION 6.4. Payment Deficits 10 SECTION 7. LOAN COLLATERAL SECURITY 10 SECTION 7.1. Grant of Security Interest 10 SECTION 7.2. Certificates of Title 12 SECTION 7.3. Release of AESOP I Operating Lease Loan Collateral 12 SECTION 7.4. Change of Location or Name 13 SECTION 7.5. Deliveries; Further Assurances 14 SECTION 7.6. [RESERVED]. 14 SECTION 7.7. [RESERVED]. 14 SECTION 7.8. AESOP I Segregated Account 14 SECTION 8. REPRESENTATIONS AND WARRANTIES 15 SECTION 8.1. Organization; Ownership; Power; Qualification 15 SECTION 8.2. Authorization; Enforceability 15 SECTION 8.3. Compliance 15 SECTION 8.4. [RESERVED] 16 SECTION 8.5. Litigation 16 SECTION 8.6. Liens 16 SECTION 8.7. Employee Benefit Plans 16 SECTION 8.8. Investment Company Act 16 SECTION 8.9. Regulations T, U and X 17 SECTION 8.10. Proceeds 17 SECTION 8.11. Business Locations; Trade Names 17 SECTION 8.12. Taxes 17 SECTION 8.13. Governmental Authorizations 17 SECTION 8.14. Compliance with Laws 18 SECTION 8.15. Eligible Vehicles 18 SECTION 8.16. Manufacturer Programs 18 SECTION 8.17. Absence of Default 18 SECTION 8.18. No Security Interest; Title to Assets 18 SECTION 8.19. Accuracy of Information 19 SECTION 9. AFFIRMATIVE COVENANTS 19 SECTION 9.1. Existence; Foreign Qualification 19 SECTION 9.2. Books, Records and Inspections 20 SECTION 9.3. Insurance 20 SECTION 9.4. Manufacturer Programs 20 SECTION 9.5. Reporting Requirements 21 SECTION 9.6. Payment of Taxes; Removal of Liens 22 SECTION 9.7. Business 22 SECTION 9.8. Maintenance of the Vehicles 22 SECTION 9.9. Maintenance of Separate Existence 22 SECTION 9.10. Manufacturer Payments; Sales Proceeds 26 SECTION 9.11. Maintenance of Properties 26 SECTION 9.12. Verification of Title 26 SECTION 9.13. Legal Reserve Fund 27 SECTION 9.14. Delivery of Information 27 SECTION 9.15. Master Exchange Agreement 27 SECTION 9.16. Vehicles 27 SECTION 9.17. Assignments 27 SECTION 9.18. Notation of Liens 27 SECTION 9.19. [RESERVED]. 28 SECTION 9.20. [RESERVED]. 28 SECTION 9.21. [RESERVED] 28 SECTION 9.22. Non-Program Vehicle Report. 28 SECTION 9.23. Sale of Non-Program Vehicles Returned to AESOP Leasing 28 SECTION 10. NEGATIVE COVENANTS 29 SECTION 10.1. Liens. 29 SECTION 10.2. Other Indebtedness 29 SECTION 10.3. Mergers, Consolidations 29 SECTION 10.4. Sales of Assets 29 SECTION 10.5. Acquisition of Assets 29 SECTION 10.6. Dividends, Officers' Compensation, etc 29 SECTION 10.7. Organizational Documents 29 SECTION 10.8. Investments 30 SECTION 10.9. Regulations T, U and X 30 SECTION 10.10. Other Agreements 30 SECTION 10.11. Use of Vehicles 30 SECTION 10.12. Use of Proceeds 30 SECTION 10.13. Limitations on the Acquisition or Redesignation of Certain Vehicles 30 SECTION 10.14. Maximum Vehicle Age 30 SECTION 10.15. Transactions Pursuant to the Master Exchange Agreement 31 SECTION 10.16. Master Exchange Agreement 31 SECTION 11. CONDITIONS 31 SECTION 11.1. Initial Loans Pursuant to Amended and Restated Agreement 31 SECTION 11.2. All Loans 33 SECTION 11.3. All Transactions Under Master Exchange Agreement 34 SECTION 12. LOAN EVENTS OF DEFAULT AND THEIR EFFECT 34 SECTION 12.1. AESOP I Operating Lease Loan Events of Default 34 SECTION 12.1.1. Non-Payment of Loans 34 SECTION 12.1.2. Non-Payment of Other Amounts 35 SECTION 12.1.3. Bankruptcy, Insolvency, etc 35 SECTION 12.1.4. Non-Compliance With Provisions 35 SECTION 12.1.5. Warranties and Representations 35 SECTION 12.1.6. Lease Events of Default 35 SECTION 12.1.7. Loan Events of Default Under Other Loan Agreements 35 SECTION 12.1.8. Judgments 35 SECTION 12.2. Effect of AESOP I Operating Lease Loan Event of Default or Liquidation Event of Default 36 SECTION 12.3. Rights of Trustee Upon Liquidation Event of Default and Non-Performance of Certain Covenants 36 SECTION 12.4. Application of Proceeds 37 SECTION 12.5. Additional Agreements of AESOP Leasing 37 SECTION 13. GENERAL 38 SECTION 13.1. Waiver; Amendments 38 SECTION 13.2. Confirmations 38 SECTION 13.3. Notices 38 SECTION 13.4. Taxes 38 SECTION 13.5. Indemnification 39 SECTION 13.6. Bankruptcy Petition 39 SECTION 13.7. Submission to Jurisdiction 40 SECTION 13.8. Governing Law 41 SECTION 13.9. Jury Trial 41 SECTION 13.10. Successors and Assigns 41 SECTION 13.11. Tax Treatment of Loans 42 SECTION 13.12. No Recourse 42 SECTION 13.13. Effect of Amendment 42 EXHIBITS AND SCHEDULES EXHIBIT A FORM OF LOAN NOTE EXHIBIT B-1 FORM OF LOAN REQUEST EXHIBIT B-2 FORM OF LOAN REQUEST RESPONSE EXHIBIT C FORM OF PAYMENT DEFICIT NOTICE SCHEDULE 8.11 BUSINESS LOCATIONS, TRADE NAMES AMENDED AND RESTATED LOAN AGREEMENT THIS AMENDED AND RESTATED LOAN AGREEMENT, dated as of September 15, 1998 (the "Agreement"), is entered into among AESOP LEASING L.P., a Delaware limited partnership ("AESOP Leasing" or the "Borrower"), PV HOLDING CORP., a Delaware corporation ("PVHC"), as a Permitted Nominee of the Borrower, QUARTX FLEET MANAGEMENT, INC., a Delaware corporation ("Quartx"), as a Permitted Nominee of the Borrower, and AESOP FUNDING II L.L.C., a Delaware limited liability company ("AFC-II" or the "Lender"). BACKGROUND AESOP Leasing purchases and finances Program Vehicles (such capitalized term, together with all other capitalized terms used herein, shall have the meaning assigned thereto in Section 1.1) and Non-Program Vehicles that it leases to ARAC and certain other Eligible Rental Car Companies for use in their respective daily vehicle rental businesses pursuant to the AESOP I Operating Lease, and, pursuant to the Loan Agreement, dated as of July 30, 1997, among AESOP Leasing, PVHC, Quartx and the Lender, as amended by Amendment No. 1 thereto dated as of July 31, 1998 (the "Original Loan Agreement") AESOP Leasing obtained financing for such Vehicles from the Lender. AESOP Leasing has appointed PVHC pursuant to the PVHC/BONY Nominee Agreement and Quartx pursuant to the Quartx Nominee Agreement to act as nominee titleholders for the sole purpose of holding registered title to certain Vehicles acquired by AESOP Leasing. AESOP Leasing now wishes to amend and restate the Original Loan Agreement to permit it to engage, from time to time, in exchanges of property pursuant to Section 1031 of the Code, and, in furtherance thereof, to enter into a Master Exchange Agreement, of even date herewith, with Bank One, Texas, National Association, as Intermediary, and otherwise to take such actions in connection with such exchanges as are necessary and appropriate in order to comply with Section 1031 of the Code and the regulations thereunder. The Lender is willing to enter into this Amended and Restated Loan Agreement and to make Loans to AESOP Leasing on the terms and conditions set forth herein. The Lender will utilize the proceeds of one or more Series of Notes issued from time to time pursuant to the Indenture to make Loans to (i) AESOP Leasing hereunder, (ii) to AESOP Leasing under the AESOP I Finance Lease Loan Agreement and (iii) to AESOP Leasing II under the AESOP II Loan Agreement, in each case to the extent Vehicles eligible to be financed hereunder and thereunder are available for financing and, in certain other circumstances, to pay amortizing Notes. In addition, the Lender will utilize the proceeds of certain capital contributions from time to time to make Loans to AESOP Leasing hereunder to the extent Vehicles eligible to be financed hereunder are available for financing and, in certain other circumstances, to pay amortizing Notes. In connection with the foregoing, the Lender has assigned its rights hereunder and under the AESOP I Finance Lease Loan Agreement and the AESOP II Loan Agreement to the Trustee to secure the Lender's obligations to the Secured Parties. Except as expressly provided herein otherwise with respect to Relinquished Vehicles and related Relinquished Vehicle Property, and with respect to Excluded Payments or any guaranty thereof, the Loans made to AESOP Leasing hereunder will be secured by all of the right, title and interest of AESOP Leasing, PVHC and Quartx in and to (a) the Vehicles leased under the AESOP I Operating Lease, (b) the Manufacturer Programs as they relate to such Vehicles that are Program Vehicles, (c) all monies due arising from the sale of such Vehicles that are Non-Program Vehicles, (d) all payments under insurance policies or warranties relating to such Vehicles, (e) all payments due from the Lessees and ARC under the AESOP I Operating Lease and (f) all proceeds of the foregoing. Accordingly, in consideration of the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and conditions hereof, the parties hereto agree as follows: SECTION 1. CERTAIN DEFINITIONS. SECTION 1.1. Certain Definitions. As used in this Agreement and unless the context requires a different meaning, capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Definitions List attached as Schedule I to the Base Indenture, dated as of July 30, 1997 (such agreement as it has been and may be further amended, supplemented, restated or otherwise modified from time to time in accordance with its terms, the "Base Indenture"), between AFC-II and Harris Trust and Savings Bank, as trustee (the "Trustee"), as in effect on the date hereof pursuant to Supplemental Indenture No. 2 and as such Schedule I may be further amended or modified from time to time in accordance with the terms of the Base Indenture (the "Definitions List"). SECTION 1.2. Accounting and Financial Determinations. Where the character or amount of any asset or liability or item of income or expense is required to be determined, or any accounting computation is required to be made, for the purpose of this Agreement, such determination or calculation shall be made, to the extent applicable and except as otherwise specified in this Agreement, in accordance with GAAP. When used herein, the term "financial statement" shall include the notes and schedules thereto. SECTION 1.3. Cross References; Headings. The words "hereof", "herein" and "hereunder" and words of a similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Section, Schedule and Exhibit references contained in this Agreement are references to Sections, Schedules and Exhibits in or to this Agreement unless otherwise specified. Any reference in any Section or definition to any clause is, unless otherwise specified, to such clause of such Section or definition. The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provision hereof. SECTION 1.4. Interpretation. In this Agreement, unless the context otherwise requires: (i) the singular includes the plural and vice versa; (ii) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to any Person in a particular capacity only refers to such Person in such capacity; (iii) reference to any gender includes the other gender; (iv) reference to any Requirement of Law means such Requirement of Law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time; (v) "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; and (vi) with respect to the determination of any period of time, "from" means "from and including" and "to" and "until" means "to but excluding". SECTION 2. LOAN COMMITMENT OF THE LENDER. SECTION 2.1. Loan Commitment. Subject to the terms and conditions of this Agreement, including Section 12.2, and further subject to the availability of funds to the Lender pursuant to the Indenture, the Lender agrees to make loans hereunder (the "Loans") to AESOP Leasing from time to time on or after the Initial Closing Date and prior to the Loan Commitment Termination Date; provided, that on any one date the Loan Principal Amount of all Loans made hereunder to AESOP Leasing shall not exceed the AESOP I Operating Lease Loan Agreement Borrowing Base. The foregoing commitment of the Lender is called the "Loan Commitment". SECTION 2.2. Certain Waivers. AESOP Leasing waives presentment, demand for payment, notice of dishonor and protest, notice of the creation of any of its Liabilities and all other notices whatsoever to AESOP Leasing with respect to such Liabilities except notices required under Section 12.1. The obligations of AESOP Leasing under this Agreement and the Loan Note shall not be affected by (i) the failure of the Trustee or the Lender or the holder of the Loan Note or any of AESOP Leasing's Liabilities to assert any claim or demand or to exercise or enforce any right, power or remedy against AESOP Leasing or the AESOP I Operating Lease Loan Collateral or otherwise, (ii) any extension or renewal for any period (whether or not longer than the original period) or exchange of any of AESOP Leasing's Liabilities or the release or compromise of any obligation of any nature of any Person with respect thereto, (iii) the surrender, release or exchange of all or any part of any property (including the AESOP I Operating Lease Loan Collateral) securing payment and performance of any of AESOP Leasing's Liabilities or the compromise or extension or renewal for any period (whether or not longer than the original period) of any obligations of any nature of any Person with respect to any such property, and (iv) any other act, matter or thing which would or might, in the absence of this provision, operate to release, discharge or otherwise prejudicially affect the obligations of AESOP Leasing. SECTION 2.3. Conditions. The making of each Loan hereunder is subject to the satisfaction of the applicable conditions set forth in Section 11. SECTION 2.4. Use of Proceeds. AESOP Leasing shall apply the funds received by it pursuant to Section 2.1 hereof solely to purchase Eligible Vehicles that it will lease to ARAC and certain other Eligible Rental Car Companies pursuant to the AESOP I Operating Lease for use in their respective daily vehicle rental businesses. SECTION 3. LOAN NOTE; LOAN PROCEDURE; RECORDKEEPING. SECTION 3.1. Loan Note. The Loans made hereunder shall be evidenced by the promissory note issued by AESOP Leasing pursuant to the Original Loan Agreement (herein, as from time to time supplemented, extended or replaced, the "Loan Note"), a copy of which is attached as Exhibit A, dated as of the Initial Closing Date, payable to the order of the Lender and assigned to the Trustee pursuant to the Indenture. SECTION 3.2. Loan Procedure. AESOP Leasing shall deliver a Loan Request to the Lender no later than 4:00 p.m., New York City time, on a day that is not less than one, nor more than five, Business Days prior to the proposed Borrowing Date (which shall be a Business Day). Each Loan Request shall be irrevocable, and shall specify (i) the principal amount of the proposed Loan, (ii) the Borrowing Date of the proposed Loan, (iii) a summary of the Vehicles being financed (including for Program Vehicles subject to the GM Repurchase Program, the Designated Period for each such Program Vehicle), (iv) whether each Vehicle is a Program Vehicle or a Non-Program Vehicle, (v) the VIN for each Vehicle to be financed, and (vi) the total Capitalized Cost thereof as of the Borrowing Date. The aggregate requested borrowings hereunder on any Business Day shall be for an initial aggregate principal amount that, together with the Loan Principal Amount of Loans outstanding hereunder and under the AESOP I Finance Lease Loan Agreement and the AESOP II Loan Agreement on such date, shall not exceed the principal amount of Notes outstanding on such date. On the terms and subject to the conditions of this Agreement, on or before 2:00 p.m., New York City time, on the Borrowing Date specified in the Loan Request, the Lender shall transfer same day or immediately available funds to AESOP Leasing's account specified in such Loan Request in the amount specified in such Loan Request. Each Loan Request made pursuant to this Section 3.2 shall constitute AESOP Leasing's representation and warranty that all of the applicable conditions contained in Section 11 will, after giving effect to such Loan, be satisfied. SECTION 3.3. Recordkeeping. The Lender shall record in its records, or at its option on the schedule attached to the Loan Note, the date and principal amount of each Loan made hereunder, each repayment thereof, and the other information provided for thereon. The aggregate unpaid Loan Principal Amount so recorded shall be rebuttable presumptive evidence of the Loan Principal Amount owing and unpaid on the Loan Note. The failure to so record any such information or any error in so recording any such information shall not, however, limit or otherwise affect the actual obligations of AESOP Leasing hereunder or under the Loan Note to repay the Loan Principal Amount, together with all Loan Interest accruing thereon. SECTION 4. INTEREST. SECTION 4.1. Interest Rate on Loans. AESOP Leasing hereby promises to pay interest on the unpaid principal amount of each Loan made to it hereunder (the "Loan Interest"), for each Loan Interest Period commencing on the date such Loan is made to AESOP Leasing until such Loan is paid in full at a rate not less than the Lender's Carrying Cost Interest Rate for the applicable Loan Interest Period. The applicable rate of Loan Interest on each Loan shall be specified in a Loan Request Response provided by the Lender to AESOP Leasing on the date a Loan Request is delivered; provided that if the Lender's Carrying Cost Interest Rate for the applicable Loan Interest Period is higher than the rate of Loan Interest specified in the Loan Request Response, Loan Interest payable shall be determined using the higher rate. SECTION 4.2. Supplemental Interest. AESOP Leasing agrees to pay to the Lender, as an additional interest payment, an amount equal to the product of (A) the applicable Loan Agreement's Share as of the beginning of each Loan Interest Period times (B) the sum of (i) the Supplemental Carrying Charges for such Loan Interest Period, minus (ii) any accrued earnings on Permitted Investments in the Collection Account which earnings are available for distribution on the last Business Day of such Loan Interest Period (the product of the amounts described in clauses (A) and (B) above, "Supplemental Interest"). SECTION 4.3. Loan Interest Payment Dates. Accrued Loan Interest on each Loan made hereunder shall be payable on each Payment Date (with respect to the related Loan Interest Period), upon any prepayment and at maturity, commencing with the first of such dates to occur after the date such Loan is made. After maturity (whether by acceleration or otherwise), all accrued Loan Interest and Supplemental Interest on all Loans made hereunder shall be payable on demand. Supplemental Interest in respect of each Loan Interest Period shall be payable on each Payment Date and upon any prepayment and at maturity. All calculations of Loan Interest and Supplemental Interest shall be based on a 360-day year and the actual number of days elapsed in the related Loan Interest Period. SECTION 4.4. Setting of Rates. The Lender's Carrying Cost Interest Rate and Supplemental Carrying Charges used hereunder to compute Loan Interest due on each Loan made hereunder on each Payment Date and the Supplemental Interest due on each Payment Date shall be calculated from time to time by the Lender in accordance with this Agreement (and written notice thereof shall be provided to AESOP Leasing not later than ten days prior to the applicable Payment Date). Such calculation shall be conclusive, absent demonstrable error. SECTION 4.5. Carrying Charges. AESOP Leasing agrees to pay to the Lender on each Payment Date an amount equal to the product of (A) the applicable Loan Agreement's Share as of such Payment Date times (B) all accrued and unpaid Carrying Charges that are accrued and unpaid as of each such Payment Date. SECTION 5. REPAYMENT OF LOAN PRINCIPAL AMOUNT. SECTION 5.1. Mandatory Repayment of Monthly Loan Principal Amount of Loans. On each Payment Date, AESOP Leasing shall pay to the Lender, as a repayment of the Loan Principal Amount, an amount equal to the product of (A) the applicable Loan Payment Allocation Percentage as of the beginning of the Related Month times (B) the excess of (I) over (II), where: (I) is equal to the sum, without duplication, of (i) the accrued Depreciation Charges for the Related Month for all Vehicles (a) leased under the AESOP I Operating Lease at any time during the Related Month or (b) described in clauses (iii), (iv) or (v) of this Section 5.1, plus (ii) all upfront incentive payments paid by Manufacturers during the Related Month in respect of purchases of Non-Program Vehicles leased under the AESOP I Operating Lease, plus (iii) the aggregate Termination Values (each as of the date on which such Vehicle becomes an Ineligible Vehicle, a Casualty or is sold, as applicable) of all the Vehicles leased under the AESOP I Operating Lease at any time during such Related Month that, without double counting, while so leased either became Ineligible Vehicles, suffered a Casualty or were sold by or on behalf of AESOP Leasing (it being understood that AESOP Leasing has agreed to sell, or cause to be sold, Vehicles only in a manner consistent with the provisions hereof and of the Related Documents) to any Person other than to a Manufacturer pursuant to a Manufacturer Program or to a third party pursuant to an auction conducted through a Guaranteed Depreciation Program, in each case, during the Related Month, plus (iv) the aggregate Termination Values, each as of the applicable Turnback Date, of all Program Vehicles leased under the AESOP I Operating Lease that while so leased were returned to a Manufacturer pursuant to a Manufacturer Program with respect to which either (x) the Repurchase Price has been paid by such Manufacturer and/or the related auction dealers during the Related Month or (y) a Manufacturer Event of Default has occurred, plus (v) the aggregate Termination Values, each as of the applicable Turnback Date, of all Relinquished Vehicles as to which the amounts payable by the relevant Manufacturer pursuant to its Manufacturer Program shall have become Reconveyed Receivables and with respect to which either (x) the Repurchase Price has been paid by such Manufacturer during the Related Month or (y) a Manufacturer Event of Default has occurred plus (vi) an amount equal to the aggregate of the amounts receivable by the Intermediary from a Manufacturer with respect to which a Manufacturer Event of Default has occurred during the Related Month included in the Relinquished Vehicle Borrowing Base Component plus (vii) the amount, if any, on the last day of the Related Month by which the Relinquished Vehicle Borrowing Base Component exceeded $125,000,000 plus (viii) the amount, if any, on the last day of the Related Month by which the Post-Identification Period Component exceeded $25,000,000 plus (ix) with respect to (A) each Group of Relinquished Vehicles the last Replacement Vehicle with respect to which has been received by AESOP Leasing and the Identification Period with respect to which has ended during the Related Month and (B) each Group of Relinquished Vehicles the Post-Identification Period Termination Date for which has occurred during the Related Month, the excess, if any, of the aggregate Termination Values, each as of the applicable Turnback Date, of all of the Relinquished Vehicles in such Group of Relinquished Vehicles (excluding any such Relinquished Vehicles as to which the amounts payable by the relevant Manufacturer pursuant to its Manufacturer Program shall have become Reconveyed Receivables), over the aggregate amount, if any, withdrawn from the AESOP Trust Account for such Group of Relinquished Vehicles by the Intermediary to pay the purchase price of Replacement Vehicles for such Group of Relinquished Vehicles; and (II) is equal to the sum of (i) any amounts received by the Lender or the Trustee, or deposited into the Collection Account, during the Related Month, representing (a) Repurchase Prices for repurchases of Program Vehicles leased under the AESOP I Operating Lease at the applicable Turnback Date (other than any such amounts paid by the Trustee to the Intermediary or the Receivables Lender Agent pursuant to the Intercreditor Agreement) including any such amounts representing the proceeds of Reconveyed Receivables or (b) the sales proceeds (including amounts paid by a Manufacturer as a result of the sale of a Program Vehicle during the Related Month outside such Manufacturer's Manufacturer Program but excluding amounts released to AESOP Leasing pursuant to the last sentence of Section 5.2(a) of the Base Indenture) for sales of Vehicles leased under the AESOP I Operating Lease at the time of such sale to a third party other than (x) to a Manufacturer pursuant to a Repurchase Program or (y) through an auction dealer pursuant to a Guaranteed Depreciation Program or (c) amounts attributable to Repurchase Prices for repurchases of Relinquished Vehicles (including investment earnings thereon) released by the Intermediary to the Trustee in accordance with the Master Exchange Agreement and (ii) any amounts received in the Related Month and applied to the Loan Principal Amount pursuant to Section 6.3 (the product of the amounts described in clauses (A) and (B) above, the "Monthly Loan Principal Amount"). Unless otherwise required to be paid sooner pursuant to the terms of this Agreement, the entire unpaid Loan Principal Amount of the Loans made hereunder shall be payable on the last occurring Series Termination Date with respect to the Notes. All Loans made hereunder shall be due on the maturity date therefor, whether by acceleration or otherwise. Solely for determining the amounts payable under this Section 5.1, with respect to a Program Vehicle that became a Casualty during the Related Month as a result of such Program Vehicle being held beyond the stated expiration date of the applicable Repurchase Period and not being redesignated as a Non-Program Vehicle, such Vehicle will be deemed to have become a Casualty upon such expiration date. SECTION 5.2. Voluntary Prepayments of Loan Principal Amount. AESOP Leasing may from time to time prepay the principal amount with respect to any Loans made hereunder, in whole or in part, on any date; provided that, except for any prepayment made pursuant to Section 6.3 hereof or any payment made to comply with Section 10.13 hereof, AESOP Leasing shall give the Lender and the Trustee not less than one (1) Business Day's prior notice of any such prepayment, specifying the date and amount of such prepayment, and, if AESOP Leasing is requesting a release of Vehicles from the Lien hereof pursuant to Section 7.3, the Vehicles to which such prepayment relates. SECTION 6. MAKING OF PAYMENTS. SECTION 6.1. Making of Payments. All payments of the Monthly Loan Principal Amount or Loan Interest hereunder, all prepayments of the Loan Principal Amount hereunder, and all payments of Supplemental Interest, Carrying Charges and of all other Liabilities shall be made by AESOP Leasing to, or for the account of, the Lender in immediately available Dollars, without setoff, counterclaim or deduction of any kind. All such payments shall be made to the Collection Account (or such other account as the Lender may from time to time specify with the consent of the Trustee), not later than 11:00 a.m., New York City time, on the date due, and funds received after that hour shall be deemed to have been received by the Lender on the next following Business Day. The Lender hereby specifies that all (i) payments with respect to Program Vehicles leased under the AESOP I Operating Lease made by the Manufacturers and related auction dealers under the Manufacturer Programs (including any such amounts that are the proceeds of Reconveyed Receivables), (ii) amounts representing the proceeds from sales of Vehicles leased under the AESOP I Operating Lease (including amounts paid by a Manufacturer as a result of the sale of such Vehicle outside such Manufacturer's Manufacturer Program) to third parties (other than under any related Manufacturer Program), (iii) amounts representing Repurchase Prices for repurchases of Relinquished Vehicles released from the Trust Accounts by the Intermediary to the Trustee and (iv) payments with respect to any other AESOP I Operating Lease Loan Collateral shall be deposited in the Collection Account; provided, however, that, subject to Section 5.2 of the Base Indenture, insurance proceeds and warranty payments with respect to Vehicles leased under the AESOP I Operating Lease will be deposited in the Collection Account only if an Amortization Event or a Potential Amortization Event shall have occurred and be continuing. SECTION 6.2. Due Date Extension. If any (i) payment of the Monthly Loan Principal Amount or Loan Interest hereunder or (ii) prepayments of the Loan Principal Amount or Supplemental Interest with respect to any Loans made hereunder falls due on a day which is not a Business Day, then such due date shall be extended to the next following Business Day and Loan Interest or Supplemental Interest, as applicable, shall accrue through such Business Day. SECTION 6.3. Application of Sale Proceeds. AESOP Leasing agrees that an amount equal to the product of (A) the applicable Loan Payment Allocation Percentage as of the beginning of the Related Month times (B) the sum of (i) all payments made by the Manufacturers and related auction dealers under the Manufacturer Programs with respect to Vehicles leased under the AESOP I Operating Lease (other than any such amounts payable by the Trustee to the Intermediary or the Receivables Lender Agent pursuant to the Intercreditor Agreement), plus (ii) proceeds from the sale of Vehicles leased under the AESOP I Operating Lease to third parties (other than to the Manufacturer or pursuant to a Guaranteed Depreciation Program), plus (iii) amounts representing Repurchase Prices for repurchases of Relinquished Vehicles released from the AESOP Trust Accounts by the Intermediary, in each case deposited in the Collection Account on any date, shall be applied, upon receipt thereof in the Collection Account, to prepay the Loan Principal Amount. SECTION 6.4. Payment Deficits. At or before 11:30 a.m., New York City time, on each Payment Date, AESOP Leasing shall notify the Trustee and the related Enhancement Provider of the amount of the Lease Payment Deficit, if any, with respect to each Series of Notes issued pursuant to the Indenture, such notification to be in the form of Exhibit C. SECTION 7. LOAN COLLATERAL SECURITY. SECTION 7.1. Grant of Security Interest. (a) As security for the prompt and complete payment and performance of its Liabilities, each of AESOP Leasing, PVHC and Quartx hereby pledges, hypothecates, assigns, transfers and delivers to the Lender, and hereby grants to the Lender, a continuing, security interest in, all of the following, whether now owned or hereafter acquired: (i) all Vehicles leased under the AESOP I Operating Lease, and all Certificates of Title with respect thereto; (ii) all right, title and interest of each of AESOP Leasing, PVHC and Quartx in and to each Manufacturer Program, including any amendments thereof, and all monies due and to become due under or in connection with each such Manufacturer Program, in each case in respect of Vehicles leased under the AESOP I Operating Lease, whether payable as Vehicle Repurchase Prices, auction sales proceeds, fees, expenses, costs, indemnities, insurance recoveries, damages for breach of the Manufacturer Programs or otherwise (but excluding all incentive payments payable in respect of purchases of vehicles under the Manufacturer Programs) and all rights to compel performance and otherwise exercise remedies thereunder; (iii) all right, title and interest of each of AESOP Leasing, PVHC and Quartx in, to and under the AESOP I Operating Lease and the related Lessee Agreements (other than any right, title and interest of any of AESOP Leasing, PVHC and Quartx with respect to any Excluded Payments) including, without limitation, all monies due and to become due to any of AESOP Leasing, PVHC and Quartx from any of the Lessees or the Guarantor or any of their assigns under or in connection with the AESOP I Operating Lease and the related Lessee Agreements, whether payable as principal, interest, rent, guaranty payments (other than guaranty payments with respect to any Excluded Payments provided to any of AESOP Leasing, PVHC and Quartx under the AESOP I Operating Lease), fees, expenses, costs, indemnities, insurance recoveries, damages for the breach of any of the AESOP I Operating Lease and the related Lessee Agreements or otherwise, and all rights, remedies, powers, privileges and claims of each of AESOP Leasing, PVHC and Quartx against any other party under or with respect to the AESOP I Operating Lease and the related Lessee Agreements (whether arising pursuant to the terms of the AESOP I Operating Lease or the related Lessee Agreements or otherwise available to AESOP Leasing, PVHC or Quartx at law or in equity), the right to enforce the AESOP I Operating Lease and the related Lessee Agreements as provided herein and to give or withhold any and all consents, requests, notices, directions, approvals, extensions or waivers under or with respect to the AESOP I Operating Lease and the related Lessee Agreements or the obligations of any party thereunder, and all collateral pledged under the AESOP I Operating Lease; (iv) all right, title and interest of each of AESOP Leasing, PVHC and Quartx in, to and under the Vehicle Title and Lienholder Nominee Agreements, the Cendant Indemnity and the Administration Agreement, including any amendments thereof, and all monies due and to become due thereunder, in each case in respect of Vehicles leased under the AESOP I Operating Lease, whether payable as fees, expenses, costs, indemnities, insurance recoveries, damages for the breach of any of the Vehicle Title and Lienholder Nominee Agreements, the Cendant Indemnity and the Administration Agreement or otherwise and all rights to compel performance and otherwise exercise remedies thereunder; (v) all payments under insurance policies (whether or not the Lessor, the Lender or the Trustee is named as the loss payee thereof) or any warranty payable by reason of loss or damage to, or otherwise with respect to, any of the Vehicles leased under the AESOP I Operating Lease; (vi) all right, title and interest of each of AESOP Leasing, PVHC and Quartx in and to any proceeds from the sale of Vehicles leased under the AESOP I Operating Lease (including, without limitation, Reconveyed Receivables), including all monies due in respect of such Vehicles under the AESOP I Operating Lease, whether payable as the purchase price of such Vehicles, auction sales proceeds, or as fees, expenses, costs, indemnities, insurance recoveries, or otherwise (including all upfront incentive payments payable by Manufacturers in respect of purchases of Non-Program Vehicles); (vii) any assignment of a security interest in any Vehicle leased under the AESOP I Operating Lease granted to any of AESOP Leasing, PVHC and Quartx pursuant to the AESOP I Operating Lease or otherwise, and all Certificates of Title with respect to each such Vehicle; (viii) all right, title and interest of AESOP Leasing in, to and under the Master Exchange Agreement, including any amendments thereof, all monies due and to become due to AESOP Leasing thereunder, whether amounts released from the Trust Accounts by the Intermediary and payable to AESOP Leasing or payable as damages for breach of the Master Exchange Agreement or otherwise, and all other property released or to be released by the Intermediary to AESOP Leasing thereunder and all rights to compel performance and otherwise exercise remedies thereunder; provided, however, that in the case of any property and funds held in the Trust Accounts that constitute Relinquished Vehicle Property, such property shall not constitute part of the AESOP I Operating Lease Loan Collateral until such property is available to be released by the Intermediary to the Trustee pursuant to the Master Exchange Agreement in accordance with the terms thereof; and (ix) all products and proceeds of all of the foregoing; provided, however, that (A) the AESOP I Segregated Account shall not be subject to the grant of a security interest by each of AESOP Leasing, PVHC and Quartx pursuant to this Section 7.1(a) and shall not constitute part of the AESOP I Operating Lease Loan Collateral and (B) the property released from the security interest pursuant to Section 7.3 shall not constitute part of the AESOP I Operating Lease Loan Collateral. (b) To secure the AFC-II Obligations, each of AESOP Leasing, PVHC and Quartx hereby pledges, hypothecates, assigns, transfers and delivers to the Trustee, on behalf of the Secured Parties, and hereby grants to the Trustee, on behalf of the Secured Parties, a continuing, first priority security interest in, all of the AESOP I Operating Lease Loan Collateral, whether now owned or hereafter acquired. Upon the occurrence of a Liquidation Event of Default or a Limited Liquidation Event of Default and subject to the provisions of the Related Documents, the Trustee shall have all of the rights and remedies of a secured party, including, without limitation, the rights and remedies granted under the Uniform Commercial Code. SECTION 7.2. Certificates of Title. AESOP Leasing shall take, or shall cause to be taken, such action as shall be necessary to submit all of the Certificates of Title for Vehicles leased under the AESOP I Operating Lease (other than Certificates of Title with respect to the Initial PVT Vehicles, for which BONY is noted as the first lienholder, and Certificates of Title with respect to Vehicles titled in the states of Nebraska, Ohio and Oklahoma) to the appropriate state authority for notation of the Trustee's lien thereon. The original Certificates of Title shall be held by the Administrator, as agent for AESOP Leasing, in trust for the benefit of the Lender and the Trustee. SECTION 7.3. Release of AESOP I Operating Lease Loan Collateral. The Lender shall request the Trustee in writing to release its Lien on a Vehicle leased under the AESOP I Operating Lease and the Certificate of Title therefor upon the earliest of (i) in the case of a Program Vehicle or a Non-Program Vehicle subject to a Guaranteed Depreciation Program, the date of the sale of such Vehicle by an auction dealer to a third party, and in the case of a Program Vehicle or a Non-Program Vehicle subject to a Repurchase Program, the Turnback Date for such Program Vehicle, (ii) in the case of a Program Vehicle designated as an Identified Relinquished Vehicle, the date of the Transfer Notice designating such Program Vehicle as an Identified Relinquished Vehicle (and, in the case of an Identified Relinquished Vehicle, including in such release the related Relinquished Vehicle Property), (iii) voluntary prepayment in full of the principal amount of the Loan to which such Vehicle relates in accordance with Section 5.2, as noted in records maintained by the Trustee, (iv) receipt of proceeds from an ordinary course sale of such Vehicle in an amount at least equal to the Termination Value of such Vehicle, provided, however, that if such an ordinary course sale occurs during the Repurchase Period with respect to a Program Vehicle, AESOP Leasing shall only sell or permit a sale of such Program Vehicle for a purchase price, together with any amounts payable by a Manufacturer as a result of or in connection with such sale, equal to or greater than the Repurchase Price that it would have received if it had turned back such Program Vehicle to the Manufacturer and (v) receipt of proceeds from an ordinary course sale of a Vehicle subject to a Casualty in an amount at least equal to the Termination Value of such Vehicle. With respect to Vehicles leased under the AESOP I Operating Lease, from and after the earliest of (a) in the case of a Program Vehicle or a Non-Program Vehicle subject to a Guaranteed Depreciation Program, the date of the sale of such Vehicle by an auction dealer to a third party, and in the case of a Program Vehicle or a Non-Program Vehicle subject to a Repurchase Program, the Turnback Date for such Program Vehicle, (b) subject to the satisfaction of the conditions therefor set forth in Section 11.3, in the case of a Program Vehicle designated as an Identified Relinquished Vehicle, the date of the Transfer Notice designating such Program Vehicle as an Identified Relinquished Vehicle, (c) a prepayment of the principal amount of the Loan to which such Vehicle relates and (d) receipt of the purchase price for a Vehicle by AESOP Leasing, or by the Trustee on the Lender's behalf, in the case of (c) and (d), in an amount at least equal to the Termination Value of such Vehicle, such Vehicle and such Certificate of Title (and in the case of clause (b), the related Relinquished Vehicle Property) shall be deemed to be released from the Lien of this Agreement, and the Lender and the Trustee shall execute such documents and instruments as AESOP Leasing may reasonably request (including a power of attorney of the Trustee appointing the Administrator to act as the agent of the Trustee in releasing the Lien of the Trustee on Vehicles turned back, sold or transferred to the Intermediary pursuant to the provisions of this Section 7.3; which power of attorney shall be revocable by the Lender or the Trustee at any time following the occurrence of a Liquidation Event of Default), at AESOP Leasing's expense, to evidence and/or accomplish such release. SECTION 7.4. Change of Location or Name. So long as any of its Liabilities shall remain outstanding or the Lender shall continue to have any Loan Commitment, none of AESOP Leasing, PVHC or Quartx will change (i) the location of its principal place of business, chief executive office, major executive office, chief place of business or its records concerning its business and financial affairs, or (ii) its legal name or the name under or by which it conducts its business, in each case without first giving the Trustee and the Lender at least 30 days' advance written notice thereof and having taken any and all action required to maintain and preserve the first priority perfected Lien of the Lender or the Trustee on the AESOP I Operating Lease Loan Collateral (except, (a) as to perfection and priority, with respect to Vehicles titled in the states of Nebraska, Ohio and Oklahoma and (b) that the lien of the Trustee shall not be noted on the Certificates of Title with respect to the Initial PVT Vehicles), free and clear of any Lien whatsoever except for Permitted Liens; provided, however, that notwithstanding the foregoing, none of AESOP Leasing, PVHC or Quartx shall change the location of its principal place of business, chief executive office, major executive office, chief place of business or its records concerning its business and financial affairs to any place outside the United States of America. SECTION 7.5. Deliveries; Further Assurances. Each of AESOP Leasing, PVHC and Quartx agrees that it will, at its sole expense, (i) immediately deliver or cause to be delivered to the Lender (or the Trustee on behalf of the Secured Parties), in due form for transfer (i.e., endorsed in blank), all securities, chattel paper, instruments and documents, if any, at any time representing all or any of the AESOP I Operating Lease Loan Collateral, other than the Certificates of Title which shall be delivered to the Lender or the Trustee, as applicable, after the occurrence of a Liquidation Event of Default, if such delivery is reasonably necessary or appropriate to perfect or protect the Lender's (or the Trustee's on behalf of the Secured Parties) security interest in such AESOP I Operating Lease Loan Collateral, and (ii) execute and deliver, or cause to be executed and delivered, to the Lender or the Trustee in due form for filing or recording (and pay the cost of filing or recording the same in all public offices reasonably deemed necessary or advisable by the Lender or the Trustee), such assignments, security agreements, mortgages, consents, waivers, financing statements and other documents, and do such other acts and things, all as may from time to time be reasonably necessary or desirable to establish and maintain to the satisfaction of the Lender (or the Trustee) a valid perfected Lien on and security interest in all of the AESOP I Operating Lease Loan Collateral (except, as to perfection, with respect to Vehicles titled in the states of Nebraska, Ohio and Oklahoma) now or hereafter existing or acquired (free of all other Liens whatsoever other than Permitted Liens) to secure payment and performance of its Liabilities. SECTION 7.6. [RESERVED]. SECTION 7.7. [RESERVED]. SECTION 7.8. AESOP I Segregated Account. AESOP Leasing shall establish and maintain in its name an account entitled "AESOP Leasing L.P. Account" (the "AESOP I Segregated Account"). The AESOP I Segregated Account shall be maintained (i) with a Qualified Institution, or (ii) as a segregated trust account with the corporate trust department of a depository institution or trust company having corporate trust powers and acting as trustee for funds deposited in the AESOP I Segregated Account. If the AESOP I Segregated Account is not maintained in accordance with the previous sentence, then within 10 Business Days after obtaining knowledge of such fact, AESOP Leasing shall establish a new AESOP I Segregated Account which complies with such sentence and transfer into the new AESOP I Segregated Account all amounts then on deposit in the non-qualifying AESOP I Segregated Account. The parties hereto acknowledge and agree that the monies held in the AESOP I Segregated Account from time to time (i) are property of AESOP Leasing, (ii) are not being pledged to secure any obligation to, or otherwise held in trust for, the Lender or any of the persons specified in this Section 7.8 and (iii) are available to satisfy the claims of creditors of AESOP Leasing generally; provided, however, that if funds are deposited into the AESOP I Segregated Account in accordance with Section 9.13 for the purpose of paying legal fees and disbursements of counsel to AESOP Leasing or its Permitted Nominees, AESOP Leasing shall use such funds solely for such purpose; and provided further that nothing contained herein shall affect the rights of the Lender to pursue all legal remedies available to it with respect to any amounts payable by AESOP Leasing hereunder. SECTION 8. REPRESENTATIONS AND WARRANTIES. To induce the Lender to enter into this Agreement and to make Loans hereunder, AESOP Leasing represents and warrants to the Lender as to itself, and each of PVHC and Quartx represents and warrants to the Lender as to itself, as of the date hereof, as of the date of each Loan made hereunder and as of each Series Closing Date that: SECTION 8.1. Organization; Ownership; Power; Qualification. Each of AESOP Leasing, PVHC and Quartx is (i) a limited partnership or a corporation, as the case may be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation, (ii) has the power and authority to own its properties and to carry on its business as now being and hereafter proposed to be conducted and (iii) is duly qualified, in good standing and authorized to do business in each jurisdiction in which the character of its properties or the nature of its businesses requires such qualification or authorization. SECTION 8.2. Authorization; Enforceability. Each of AESOP Leasing, PVHC and Quartx has the power and has taken all necessary action to authorize it to execute, deliver and perform this Agreement and each of the other Related Documents to which it is a party in accordance with their respective terms, and to consummate the transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by each of AESOP Leasing, PVHC and Quartx and is, and each of the other Related Documents to which any of AESOP Leasing, PVHC or Quartx is a party is, a legal, valid and binding obligation of such party, enforceable in accordance with its terms. SECTION 8.3. Compliance. The execution, delivery and performance by each of AESOP Leasing, PVHC and Quartx of this Agreement and each other Related Document to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not (i) require any consent, approval, authorization or registration not already obtained or effected, (ii) violate any applicable law with respect to AESOP Leasing, PVHC or Quartx, as the case may be, which violation could result in a Material Adverse Effect, (iii) conflict with, result in a breach of, or constitute a default under the certificate of limited partnership or limited partnership agreement of AESOP Leasing or under the certificate of incorporation, as amended, or by-laws of each of PVHC and Quartx, or under any indenture, agreement, or other instrument to which any of AESOP Leasing, PVHC or Quartx is a party or by which its properties may be bound, or (iv) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by any of AESOP Leasing, PVHC or Quartx except Permitted Liens. SECTION 8.4. [RESERVED]. SECTION 8.5. Litigation. There is no action, suit or proceeding pending against or, to the knowledge of any of AESOP Leasing, PVHC or Quartx, threatened against or affecting any of AESOP Leasing, PVHC or Quartx before any court or arbitrator or any Governmental Authority in which there is a reasonable possibility of an adverse decision that could materially adversely affect the consolidated financial position, consolidated results of operations, business, properties, performance or condition (financial or otherwise) of AESOP Leasing, PVHC or Quartx, as the case may be, or which in any manner draws into question the validity or enforceability of this Agreement or any other Related Document or the ability of any of AESOP Leasing, PVHC or Quartx to comply with any of the respective terms hereunder or thereunder. SECTION 8.6. Liens. The AESOP I Operating Lease Loan Collateral is free and clear of all Liens other than (i) Permitted Liens and (ii) Liens in favor of the Lender or the Trustee. The Lender (or the Trustee on behalf of the Secured Parties) has obtained, as security for the Liabilities, a first priority perfected Lien on all AESOP I Operating Lease Loan Collateral (except, with respect to perfection and priority, Vehicles titled in the states of Nebraska, Ohio and Oklahoma). All Vehicle Perfection and Documentation Requirements with respect to all Vehicles leased under the AESOP I Operating Lease on or after the date hereof have and will continue to be satisfied in accordance with the terms of this Agreement. SECTION 8.7. Employee Benefit Plans. None of AESOP Leasing, PVHC or Quartx have established and maintain or contribute to any employee benefit plan that is covered by Title IV of ERISA, and none of AESOP Leasing, PVHC or Quartx will do so, so long as the Loan Commitment has not expired, or any amount is owing to the Lender hereunder. SECTION 8.8. Investment Company Act. None of AESOP Leasing, PVHC or Quartx is or is controlled by an "investment company," within the meaning of the Investment Company Act, and none of AESOP Leasing, PVHC or Quartx is subject to any other statute which would impair or restrict its ability to perform its obligations under this Agreement or the other Related Documents, and neither the entering into or performance by any of AESOP Leasing, PVHC or Quartx of this Agreement nor the issuance of the Loan Note violates any provision of such Act. SECTION 8.9. Regulations T, U and X. None of AESOP Leasing, PVHC or Quartx is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation T, U and X of the Board of Governors of the Federal Reserve System). None of AESOP Leasing, PVHC or Quartx, any Affiliate of any of AESOP Leasing, PVHC or Quartx or any Person acting on its or their behalf has taken or will take action to cause the execution, delivery or performance of this Agreement or the Loan Note, the making or existence of the Loans or the use of proceeds of the Loans made hereunder to violate Regulation T, U or X of the Board of Governors of the Federal Reserve System. SECTION 8.10. Proceeds. The proceeds of the Loans made hereunder will be used solely to purchase or finance Eligible Vehicles that will be leased under the AESOP I Operating Lease. SECTION 8.11. Business Locations; Trade Names. Schedule 8.11 lists each of the locations where AESOP Leasing, PVHC or Quartx maintains a chief executive office, principal place of business, or any records, and Schedule 8.11 also lists the legal name of each of AESOP Leasing, PVHC and Quartx and each name under or by which it conducts its business. SECTION 8.12. Taxes. Each of AESOP Leasing, PVHC and Quartx has filed all tax returns which have been required to be filed by it (except where the requirement to file such return is subject to a valid extension), and has paid or provided adequate reserves for the payment of all taxes shown due on such returns or required to be paid as a condition to such extension, as well as all payroll taxes and federal and state withholding taxes, and all assessments payable by it that have become due, other than those that are payable without penalty or are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been established, and are being maintained, in accordance with GAAP. As of the date hereof, to the best of AESOP Leasing's, PVHC's and Quartx's knowledge, there is no unresolved claim by a taxing authority concerning AESOP Leasing's, PVHC's or Quartx's tax liability for any period for which returns have been filed or were due other than those contested in good faith by appropriate proceedings and with respect to which adequate reserves have been established, and are being maintained, in accordance with GAAP. SECTION 8.13. Governmental Authorizations. Each of AESOP Leasing, PVHC and Quartx has all licenses, franchises, permits and other governmental authorizations necessary for all businesses presently carried on by it (including owning and leasing the real and personal property owned and leased by it), except where failure to obtain such licenses, franchises, permits and other governmental authorizations would not have a material adverse effect on its business and properties or a Material Adverse Effect (as set forth in clauses (ii) and (iii) of the definition thereof). SECTION 8.14. Compliance with Laws. Each of AESOP Leasing, PVHC and Quartx: (i) is not in violation of any law, ordinance, rule, regulation or order of any Governmental Authority applicable to it or its property, which violation would have a material adverse effect on its business and properties or a Material Adverse Effect (as set forth in clauses (ii) and (iii) of the definition thereof), and no such violation has been alleged, (ii) has filed in a timely manner all reports, documents and other materials required to be filed by it with any governmental bureau, agency or instrumentality (and the information contained in each of such filings is true correct and complete in all material respects), except where failure to make such filings would not have a material adverse effect on its business and properties or a Material Adverse Effect (as set forth in clauses (ii) and (iii) of the definition thereof) and (iii) has retained all records and documents required to be retained by it pursuant to any Requirement of Law, except where failure to retain such records would not have a material adverse effect on its business and properties or a Material Adverse Effect (as set forth in clauses (ii) and (iii) of the definition thereof). SECTION 8.15. Eligible Vehicles. Each Vehicle leased under the AESOP I Operating Lease was, on the date of purchase or financing thereof by AESOP Leasing, an Eligible Vehicle. SECTION 8.16. Manufacturer Programs. No Manufacturer Event of Default has occurred and is continuing with respect to any Eligible Program Manufacturer. SECTION 8.17. Absence of Default. AESOP Leasing is in compliance with all of the provisions of its certificate of limited partnership and limited partnership agreement and each of PVHC and Quartx is in compliance with all provisions of its certificate of incorporation, as amended, and by-laws and no event has occurred or failed to occur which has not been remedied or waived, the occurrence or non-occurrence of which constitutes, or with the passage of time or giving of notice or both would constitute, (i) an AESOP I Loan Event of Default or a Potential AESOP I Loan Event of Default or (ii) a default or event of default by any of AESOP Leasing, PVHC or Quartx under any indenture, agreement or other instrument, or any judgment, decree or final order to which any of AESOP Leasing, PVHC or Quartx is a party or by which any of AESOP Leasing, PVHC or Quartx or any of its properties may be bound or affected. SECTION 8.18. No Security Interest; Title to Assets. (a) All action necessary (including the filing of UCC-1 financing statements, the assignment of rights under the Manufacturer Programs to the Trustee, the notation on Certificates of Title for all Vehicles leased under the AESOP I Operating Lease (other than the Initial PVT Vehicles, for which BONY is noted as the first lienholder, and other than Vehicles titled in the states of Nebraska, Ohio and Oklahoma) of the Trustee's lien for the benefit of the Noteholders) to protect and perfect AFC-II's security interest in the AESOP I Operating Lease Loan Collateral and the Trustee's security interest on behalf of the Secured Parties in the Collateral now in existence and hereafter acquired or created has been duly and effectively taken. (b) Each of AESOP Leasing, PVHC and Quartx has good, legal and marketable title to, or a valid leasehold interest in, all of its assets. None of such properties or assets is subject to any Liens, except for Permitted Liens. Except for financing statements or other filings with respect to or evidencing Permitted Liens and except for financing statements filed with respect to Relinquished Vehicle Property, no financing statement under the UCC of any state, application for a Certificate of Title or certificate of ownership, or other filing which names any of AESOP Leasing, PVHC or Quartx as debtor or which covers or purports to cover any of the assets of any of AESOP Leasing, PVHC or Quartx is on file in any state or other jurisdiction, and none of AESOP Leasing, PVHC or Quartx has signed any such financing statement, application or instrument authorizing any secured party or creditor of such Person thereunder to file any such financing statement, application or filing other than with respect to Permitted Liens. SECTION 8.19. Accuracy of Information. All data, certificates, reports, statements, opinions of counsel, documents and other information furnished to the Lender or the Trustee by or on behalf of any of AESOP Leasing, PVHC or Quartx pursuant to any provision of any Related Document, or in connection with or pursuant to any amendment or modification of, or waiver under, any Related Document, shall, at the time the same are so furnished, (i) be complete and correct in all material respects to the extent necessary to give the Lender or the Trustee, as the case may be, true and accurate knowledge of the subject matter thereof, (ii) not contain any untrue statement of a material fact and (iii) not omit to state a material fact necessary in order to make the statements contained therein (in light of the circumstances in which they were made) not misleading, and the furnishing of the same to the Lender or the Trustee, as the case may be, shall constitute a representation and warranty by AESOP Leasing, PVHC or Quartx, as the case may be, made on the date the same are furnished to the Lender or the Trustee, as the case may be, to the effect specified in clauses (i), (ii) and (iii) above. SECTION 9. AFFIRMATIVE COVENANTS. Until the expiration or termination of the Loan Commitment and thereafter until the Loan Note and all other Liabilities are paid in full, each of AESOP Leasing, PVHC and Quartx agrees that, unless at any time the Lender shall otherwise expressly consent in writing: SECTION 9.1. Existence; Foreign Qualification. Each of AESOP Leasing, PVHC and Quartx will do and cause to be done at all times all things necessary to (i) maintain and preserve its existence as a limited partnership or a corporation, as the case may be, (ii) be, and ensure that it is, duly qualified to do business and in good standing as a foreign limited partnership or foreign corporation, as the case may be, in each jurisdiction where the nature of its business makes such qualification necessary and the failure to so qualify would have a material adverse effect on its business and properties or a Material Adverse Effect (as set forth in clauses (ii) and (iii) of the definition thereof) and (iii) comply with all Contractual Obligations and Requirements of Law binding upon it, except to the extent that the failure to comply therewith would not, in the aggregate, have a material adverse effect on its business and properties or a Material Adverse Effect (as set forth in clauses (ii) and (iii) of the definition thereof). SECTION 9.2. Books, Records and Inspections. AESOP Leasing will maintain complete and accurate books and records with respect to the AESOP I Operating Lease Loan Collateral and each of AESOP Leasing, PVHC and Quartx will permit any Person designated by the Lender or the Trustee in writing to visit and inspect any of its properties, corporate books and financial records and to discuss its affairs, finances and accounts with its officers, its agents and its independent public accountants, all at such reasonable times and as often as the Lender or the Trustee may reasonably request. SECTION 9.3. Insurance. AESOP Leasing will obtain and maintain, or cause to be obtained and maintained, with respect to all Vehicles leased under the AESOP I Operating Lease (i) vehicle liability insurance to the full extent required by law and in any event not less than $500,000 per Person and $1,000,000 per occurrence, (ii) property damage insurance with a limit of $1,000,000 per occurrence and (iii) excess coverage public liability insurance with a limit of not less than $50,000,000 or the limit maintained from time to time by the relevant Lessee at any time hereafter, whichever is higher, with respect to all passenger cars and vans comprising such Lessee's rental fleet. The Lender acknowledges and agrees that AESOP Leasing may, to the extent permitted by applicable law, allow the relevant Lessees to self-insure with respect to the Vehicles leased under the AESOP I Operating Lease for the first $1,000,000 per occurrence, or a greater amount up to a maximum of $3,000,000, with the consent of each Enhancement Provider, per occurrence, of vehicle liability and property damage insurance which is otherwise required to be insured hereunder. All such policies shall be from financially sound and reputable insurers, shall name the Lender, Original AESOP, PVHC, Quartx and the Trustee as additional insured parties and, in the case of catastrophic physical damage insurance on such Vehicles, shall name the Trustee as loss payee as its interest may appear and will provide that the Lender and the Trustee shall receive at least 10 days' prior written notice of cancellation of such policies. AESOP Leasing will notify promptly the Lender and the Trustee of any curtailment or cancellation of any such Lessee's right to self-insure in any jurisdiction. SECTION 9.4. Manufacturer Programs. AESOP Leasing will turn in, or cause to be turned in, the Vehicles leased under the AESOP I Operating Lease which are Program Vehicles (subject to the redesignation provisions of Section 2.7 of the AESOP I Operating Lease) to the relevant Manufacturer within the Repurchase Period therefor, including in a transaction with respect to a Relinquished Vehicle pursuant to the Master Exchange Agreement (unless AESOP Leasing pays in full the Loan with respect to a Program Vehicle pursuant to Section 5.2 or sells a Program Vehicle and, prior to the end of the Repurchase Period therefor, receives sales proceeds thereof in cash in an amount equal to or greater than the repurchase price under such Manufacturer Program); and will comply with all of its obligations under each Manufacturer Program. SECTION 9.5. Reporting Requirements. AESOP Leasing will furnish, or cause to be furnished to the Lender and the Trustee and, in the case of items (ii) and (iii) below, each Rating Agency and each Enhancement Provider: (i) Reports. All reports of ARC and the Lessees required to be delivered to AESOP Leasing pursuant to Section 31.5 of the AESOP I Operating Lease; (ii) AESOP I Loan Events of Default; Amortization Events; Exchange Agreement Termination Events. As soon as possible but in any event within two Business Days after the occurrence thereof, notice of (A) any Potential AESOP I Loan Event of Default or AESOP I Loan Event of Default, a written statement of an Authorized Officer describing such event and the action that AESOP Leasing proposes to take with respect thereto; (B) any Potential Amortization Event or Amortization Event; and (C) any Exchange Agreement Termination Event; (iii) Manufacturers. Promptly after obtaining actual knowledge thereof, notice of any Manufacturer Event of Default or termination or replacement of a Manufacturer Program; (iv) Notice of Liens and Vicarious Liability Claims. On each Determination Date, AESOP Leasing shall forward to AFC-II, the Trustee and the Paying Agent, the Administrative Agent, the Rating Agencies and each Enhancement Provider, (A) an Officer's Certificate of AESOP Leasing certifying as to whether, to the knowledge of AESOP Leasing, (x) any Lien exists on any of the AESOP I Operating Lease Loan Collateral or (y) any vicarious liability claims shall have been made against AESOP Leasing as a result of its ownership of the Vehicles leased under the AESOP I Operating Lease or against PVHC or Quartx as a result of its holding legal title to the Vehicles leased under the AESOP I Operating Lease and (B) a written statement of an Authorized Officer summarizing each such Lien or claim and the action that AESOP Leasing proposes to take with respect thereto; and (v) Other. Promptly, from time to time, such other information, documents, or reports respecting the AESOP I Loan Collateral or the condition or operations, financial or otherwise, of any of AESOP Leasing, PVHC or Quartx as the Lender or the Trustee may from time to time reasonably request in order to protect the interests of the Lender or the Trustee under or as contemplated by this Agreement or any other Related Document. SECTION 9.6. Payment of Taxes; Removal of Liens. Each of AESOP Leasing, PVHC and Quartx will pay when due all taxes, assessments, fees and governmental charges of any kind whatsoever that may be at any time lawfully assessed or levied against or with respect to AESOP Leasing, PVHC or Quartx, as the case may be, or its property and assets or any interest thereon. Notwithstanding the previous sentence, but subject in any case to the other requirements hereof and of the Related Documents, none of AESOP Leasing, PVHC or Quartx shall be required to pay any tax, charge, assessment or imposition nor to comply with any law, ordinance, rule, order, regulation or requirement so long as AESOP Leasing, PVHC or Quartx, as the case may be, shall contest, in good faith, the amount or validity thereof, in an appropriate manner or by appropriate proceedings. Each such contest shall be promptly prosecuted to final conclusion (subject to the right of AESOP Leasing, PVHC or Quartx, as the case may be, to settle any such contest). SECTION 9.7. Business. Each of AESOP Leasing, PVHC and Quartx will engage only in businesses conducted on the date hereof. SECTION 9.8. Maintenance of the Vehicles. AESOP Leasing will maintain or cause to be maintained in good repair, working order, and condition all of the Vehicles leased under the AESOP I Operating Lease, except to the extent that any such failure to comply with such requirements does not, in the aggregate, materially adversely affect the interests of the Lender under this Agreement or the interests of the Secured Parties under the Indenture or the likelihood of repayment of the Loans made hereunder. From time to time AESOP Leasing will make or cause to be made all appropriate repairs, renewals, and replacements with respect to the Vehicles leased under the AESOP I Operating Lease. SECTION 9.9. Maintenance of Separate Existence. AESOP Leasing will do all things necessary to continue to be readily distinguishable from ARC, ARAC, Original AESOP, AESOP Leasing II, AFC, AFC-II, the Affiliates of the foregoing or any other affiliated or unaffiliated entity and to maintain its existence as a limited partnership separate and apart from that of Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC and ARC and Affiliates of ARC including, without limitation: (i) practicing and adhering to organizational formalities, such as maintaining appropriate books and records; (ii) observing all organizational formalities in connection with all dealings between itself and ARC, ARAC, Original AESOP, AESOP Leasing II, AFC, AFC-II, the Affiliates of the foregoing or any other affiliated or unaffiliated entity; (iii) observing all procedures required by its certificate of limited partnership, its limited partnership agreement and the laws of the State of Delaware; (iv) acting solely in its name and through its duly authorized officers or agents in the conduct of its businesses; (v) managing its business and affairs by or under the direction of its general partner; (vi) ensuring that its general partner duly authorizes all of its actions; (vii) ensuring the receipt of proper authorization, when necessary, from its limited partner(s) for its actions; (viii) requiring its general partner to maintain at least two corporate directors who are Independent Directors; (ix) owning or leasing (including through shared arrangements with Affiliates) all office furniture and equipment necessary to operate its business; (x) not (A) having or incurring any debt or obligations to any of Original AESOP, AESOP Leasing II, AFC, AFC-II, ARC, ARAC, the Affiliates of the foregoing or any other affiliated or unaffiliated entity, except for, the obligations to AFC-II under the AESOP I Loan Agreements; (B) other than as provided in the Related Documents, guaranteeing or otherwise becoming liable for any obligations of Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC or ARC or any Affiliates of the foregoing; (C) having obligations guaranteed by Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC or ARC or any Affiliates of the foregoing; (D) holding itself out as responsible for debts of Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC or ARC or any Affiliates of the foregoing or for decisions or actions with respect to the affairs of Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC or ARC or any Affiliates of the foregoing; (E) failing to correct any known misrepresentation with respect to the statement in subsection (C); (F) operating or purporting to operate as an integrated, single economic unit with respect to Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC, ARC, the Affiliates of the foregoing or any other affiliated or unaffiliated entity or any other affiliated or unaffiliated entity; (G) seeking to obtain credit or incur any obligation to any third party based upon the assets of Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC, ARC, the Affiliates of the foregoing or any other affiliated or unaffiliated entity; (H) induce any such third party to reasonably rely on the creditworthiness of Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC, ARC, the Affiliates of the foregoing or any other affiliated or unaffiliated entity; and (I) being directly or indirectly named as a direct or contingent beneficiary or loss payee on any insurance policy of Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC or ARC or any Affiliates of the foregoing other than as required by the Related Documents with respect to insurance on the Vehicles; (xi) other than as provided in the Related Documents, maintaining its deposit and other bank accounts and all of its assets separate from those of any other Person; (xii) maintaining its financial records separate and apart from those of any other Person; (xiii) disclosing in its annual financial statements the effects of the transactions contemplated by the Related Documents in accordance with generally accepted accounting principles; (xiv) setting forth clearly in its financial statements its separate assets and liabilities and the fact that the Vehicles leased under the AESOP I Operating Lease are owned by AESOP Leasing; (xv) not suggesting in any way, within its financial statements, that its assets are available to pay the claims of creditors of Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC, ARC, the Affiliates of the foregoing or any other affiliated or unaffiliated entity; (xvi) compensating all its employees, officers, consultants and agents for services provided to it by such Persons out of its own funds; (xvii) maintaining office space separate and apart from that of Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC or ARC or any Affiliates of the foregoing (even if such office space is subleased from or is on or near premises occupied by Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC or ARC or any Affiliates of the foregoing) and a telephone number separate and apart from that of Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC or ARC or any Affiliates of the foregoing; (xviii) conducting all oral and written communications, including, without limitation, letters, invoices, purchase orders, contracts, statements, and applications solely in its own name; (xix) having separate stationary from Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC, ARC, the Affiliates of the foregoing or any other affiliated or unaffiliated entity; (xx) accounting for and managing all of its liabilities separately from those of Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC or ARC or any Affiliates of the foregoing; (xxi) allocating, on an arm's-length basis, all shared operating services, leases and expenses, including, without limitation, those associated with the services of shared consultants and agents and shared computer and other office equipment and software; and otherwise maintaining an arm's-length relationship with each of Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC, ARC, the Affiliates of the foregoing or any other affiliated or unaffiliated entity; (xxii) refraining from filing or otherwise initiating or supporting the filing of a motion in any bankruptcy or other insolvency proceeding involving Original AESOP, AESOP Leasing II, AFC, AFC-II, AESOP Leasing, ARAC, ARC or any Affiliate of ARC, to substantively consolidate Original AESOP, AESOP Leasing II, AFC, AFC-II or AESOP Leasing with ARAC, ARC or any Affiliate of ARC; (xxiii) remaining solvent and assuring adequate capitalization for the business in which it is engaged; and (xxiv) conducting all of its business (whether written or oral) solely in its own name so as not to mislead others as to the identity of each of Original AESOP, AESOP Leasing II, AESOP Leasing, AFC, AFC-II, ARAC, ARC and the Affiliates of the foregoing or any other affiliated or unaffiliated entity. AESOP Leasing acknowledges its receipt of a copy of those certain opinion letters issued by Skadden, Arps, Slate, Meagher & Flom LLP dated July 30, 1997 and the date hereof addressing the issue of substantive consolidation as they may relate to any of ARAC, ARC and each affiliate of ARC on the one hand and any of Original AESOP, AESOP Leasing II, AFC, AFC-II and AESOP Leasing on the other hand and as among Original AESOP, AESOP Leasing II, AESOP Leasing, AFC-II and AFC. AESOP Leasing hereby agrees to maintain in place all policies and procedures, and take and continue to take all action, described in the factual assumptions set forth in such opinion letters and relating to it. SECTION 9.10. Manufacturer Payments; Sales Proceeds. AESOP Leasing will cause each Manufacturer and auction dealer to make all payments under the Manufacturer Programs with respect to Program Vehicles, including all payments with respect to Relinquished Vehicles, directly to the Collection Account. Any such payments from Manufacturers or related auction dealers received directly by AESOP Leasing, will be, within three Business Days of receipt, deposited into the Collection Account. AESOP Leasing shall, within two Business Days of receipt thereof, deposit into the Collection Account all amounts representing the proceeds from sales of Program Vehicles by auction dealers under a Guaranteed Depreciation Program and sales of Vehicles (including amounts paid by a Manufacturer as a result of the sale of such Vehicle outside such Manufacturer's Manufacturer Program) to third parties (other than under any related Manufacturer Program) and all payments with respect to other AESOP I Loan Collateral (other than the AESOP I Loan Collateral described in the last sentence of this paragraph). Insurance proceeds and warranty payments with respect to Vehicles will only be deposited into the Collection Account if an Amortization Event or Potential Amortization Event shall have occurred and be continuing. AESOP Leasing acknowledges that payments received from or on behalf of Manufacturers under the Manufacturer Programs with respect to Relinquished Vehicles shall be disbursed in accordance with the Intercreditor Agreement. SECTION 9.11. Maintenance of Properties. Each of AESOP Leasing, PVHC and Quartx will maintain or cause to be maintained in the ordinary course of business in good repair, working order and condition (reasonable wear and tear excepted) all properties, including, without limitation, vehicles necessary for the operation of its businesses (whether owned or held under lease), and from time to time make or cause to be made all needed and appropriate repairs, renewals, replacements, additions, betterments and improvements thereto, except to the extent no material adverse effect on its business and properties or a Material Adverse Effect (as set forth in clauses (ii) and (iii) of the definition thereof) could result, and maintain good, legal and marketable title to, or a valid leasehold interest in, all of its assets, free and clear of all Liens except for Permitted Liens, and except to the extent sold or otherwise disposed of in accordance with this Agreement or any other Related Document. SECTION 9.12. Verification of Title. AESOP Leasing will, on an annual basis, cause a title check to be performed by an independent nationally recognized firm of certified public accountants acceptable to the Trustee and each Enhancement Provider on a statistical sample of all Vehicles leased under the Leases designed to provide a ninety-five percent (95%) confidence level that no more than five percent (5%) of the Certificates of Title for such Vehicles did not correctly reference the Trustee or its Permitted Nominee, as first lienholder, and the Lessor of such Vehicle or its Permitted Nominee or, in the case of Financed Vehicles, ARAC or its Permitted Nominee, as owner, and cause such party to deliver a report stating that, within the confidence level set forth above, no more than five percent (5%) of the Certificates of Title did not correctly reference the lienholder or owner of the Vehicles described in the immediately preceding clause. SECTION 9.13. Legal Reserve Fund. On and after the Legal Reserve Funding Date and for so long as the Legal Reserve Release Condition is not met, AESOP Leasing shall maintain a balance of $500,000 in the AESOP I Segregated Account for the purpose of paying legal fees and disbursements of counsel to AESOP Leasing or its Permitted Nominees for the defense of vicarious liability claims. SECTION 9.14. Delivery of Information. Each of AESOP Leasing, PVHC and Quartx will provide to the Lender any information or materials necessary for the Lender to comply with its obligations under the Indenture. SECTION 9.15. Master Exchange Agreement. AESOP Leasing will comply in all material respects with all of its obligations under the Master Exchange Agreement. SECTION 9.16. Vehicles. AESOP Leasing will maintain good and marketable title to each Vehicle purchased by AESOP Leasing with the proceeds of Loans made hereunder and leased under the AESOP I Operating Lease, free and clear of all Liens and encumbrances, other than any Permitted Liens. SECTION 9.17. Assignments. AESOP Leasing will deliver to the Trustee on or prior to the Initial Closing Date, or such later date and thereafter, as necessary to comply with the terms of the Related Documents, executed counterparts of the Assignment Agreements related to the assignment of rights under each Manufacturer Program, dated as of the Initial Closing Date, or such later date, if delivered after the Initial Closing Date in accordance herewith, duly executed by ARAC, each other Lessee, AESOP Leasing, AESOP Leasing II, AFC-II, the Trustee and each applicable Manufacturer. SECTION 9.18. Notation of Liens. AESOP Leasing will deliver to the Lender and the Trustee on or prior to the Initial Closing Date and on an ongoing basis, as applicable, evidence (which, in the case of the filing of financing statements on form UCC-1, may be telephonic confirmation of such filing, followed by prompt written confirmation) that it has caused or is causing the Trustee's name to be noted on the Certificate of Title for each Vehicle leased under the AESOP I Operating Lease (other than Certificates of Title for the Initial PVT Vehicles, which Certificate of Title will show BONY as the first lienholder, and Vehicles titled in the states of Nebraska, Ohio and Oklahoma) in accordance herewith and all filings (including filings of financing statements on form UCC-1) and recordings have been accomplished as may be required by law to establish, perfect (other than perfection of the security interest of the Trustee in Vehicles by notation of the lien of the Trustee on the Certificates of Title for Vehicles titled in the States of Nebraska, Ohio and Oklahoma), protect and preserve the rights, titles, interests, remedies, powers, privileges, licenses and security interest of the Trustee in such Vehicles and other AESOP I Operating Lease Loan Collateral for the benefit of the Secured Parties. SECTION 9.19. [RESERVED]. SECTION 9.20. [RESERVED]. SECTION 9.21. [RESERVED]. SECTION 9.22. Non-Program Vehicle Report. On or before the second Determination Date immediately following June 30 and December 31 of each calendar year, AESOP Leasing shall cause a firm of nationally recognized independent public accountants (who may also render other services to AESOP Leasing, ARC or ARAC and who is acceptable to the Rating Agencies and each Enhancement Provider) to furnish a report to the Lender, the Trustee, each Enhancement Provider and the Rating Agencies to the effect that they have performed certain agreed upon procedures (which shall be acceptable to each Enhancement Provider) with respect to the calculation of (i) the Disposition Proceeds obtained from the sale or other disposition of all Non-Program Vehicles (other than Casualties) sold or otherwise disposed of during each Related Month in such period, (ii) the respective Net Book Values of such Non-Program Vehicles, and (iii) the Non-Program Fleet Market Value and compared such calculations with the corresponding amounts set forth in the Monthly Certificates prepared pursuant to Section 4.1(b) of the Indenture and that on the basis of such comparison such accountants are of the opinion that such amounts are in agreement, except for such exceptions as they believe to be immaterial and such other exceptions as shall be set forth in such report. With respect to the calculations described in the foregoing clause (iii), such report shall make the comparison described with respect to the Non-Program Fleet Market Value only as of the last Determination Date in the period as to which the report is made. On or before the second Determination Date immediately following March 31 and September 30 of each calendar year, AESOP Leasing shall furnish an Officer's Certificate of AESOP Leasing to the Lender, the Trustee, each Enhancement Provider and the Rating Agencies to the effect that the officer making such certification has compared or caused to be compared the calculations described in clauses (i) and (ii) above with the corresponding amounts set forth in the Monthly Certificates prepared pursuant to Section 4.1(b) of the Indenture, and has compared or caused to be compared the calculation described in clause (iii) above with the corresponding amount set forth in the Monthly Certificate prepared pursuant to Section 4.1(b) of the Indenture as of the last Determination Date in the period as to which the Officer's Certificate is given, and that on the basis of such comparison such officer is of the opinion that such amounts are in agreement, except for such exceptions as shall be set forth in such Officer's Certificate. SECTION 9.23. Sale of Non-Program Vehicles Returned to AESOP Leasing. In the event that any Non-Program Vehicle leased under the AESOP I Operating Lease is returned to AESOP Leasing in accordance with Section 2.6(c) of the AESOP I Operating Lease, AESOP Leasing shall use commercially reasonable efforts to arrange for the sale of such Vehicle and to maximize the sale price thereof. AESOP Leasing shall not return a Non-Program Vehicle to a Manufacturer under a Manufacturer Program unless the conditions set forth in Section 2.6(b) of the AESOP I Operating Lease would have been satisfied with respect to such disposition. SECTION 10. NEGATIVE COVENANTS. Until the expiration or termination of the Loan Commitment and thereafter until the Loan Note and all other Liabilities are paid in full, each of AESOP Leasing, PVHC and Quartx agrees that, unless at any time the Lender shall otherwise expressly consent in writing, it will not: SECTION 10.1. Liens. Create, incur, assume or permit to exist any Lien upon any of its Assets (including the AESOP I Collateral), other than Permitted Liens. SECTION 10.2. Other Indebtedness. Create, assume, incur, suffer to exist or otherwise become or remain liable in respect of any Indebtedness other than (i) Indebtedness hereunder and (ii) Indebtedness permitted under any other Related Document. SECTION 10.3. Mergers, Consolidations. Except as may be permitted by the express written approval of the Trustee and the Lender, merge with or into, enter into any joint venture or other association with, or consolidate with, any other Person. SECTION 10.4. Sales of Assets. Sell, lease, transfer, liquidate or otherwise dispose of any Assets, except as contemplated by the Related Documents. SECTION 10.5. Acquisition of Assets. Acquire, by long-term or operating lease or otherwise, any Assets except pursuant to the terms of the Related Documents. SECTION 10.6. Dividends, Officers' Compensation, etc. (i) Declare or pay any distributions on any of its partnership interests or capital stock, as the case may be, or make any other distribution on, or any purchase, redemption or other acquisition of, any of its partnership interests or any shares of its capital stock, as the case may be, except, in the case of AESOP Leasing, out of funds in the AESOP I Segregated Account, or (ii) pay any wages or salaries or other compensation to officers, employees or others except out of earnings computed in accordance with GAAP and, in the case of AESOP Leasing, only from funds in the AESOP I Segregated Account. SECTION 10.7. Organizational Documents. Amend any of its organizational documents, including its certificate of limited partnership or limited partnership agreement or certificate of incorporation or by-laws, as the case may be, unless prior to such amendment, each Rating Agency confirms that after such amendment the Rating Agency Consent Condition and the CP Rating Agency Condition will be met. SECTION 10.8. Investments. Make, incur, or suffer to exist any loan, advance, extension of credit or other investment in any Person other than pursuant to the Related Documents. SECTION 10.9. Regulations T, U and X. Use or permit any proceeds of the Loans made hereunder to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of "purchasing or carrying margin stock" within the meaning of Regulations T, U and X of the Board of Governors of the Federal Reserve System, as amended from time to time. SECTION 10.10. Other Agreements. Enter into any agreement containing any provision which would be violated or breached by the performance of its obligations hereunder or under any instrument or document delivered or to be delivered by it hereunder or in connection herewith. SECTION 10.11. Use of Vehicles. Use or allow the Vehicles leased under the AESOP I Operating Lease to be used in any manner (i) that would make Program Vehicles ineligible for repurchase under an Eligible Manufacturer Program, (ii) for any illegal purposes or (iii) that could subject the Vehicles to confiscation. SECTION 10.12. Use of Proceeds. Use or permit the proceeds of the Loans made hereunder to be used for any purpose other than to purchase or finance Eligible Vehicles that will be leased under the AESOP I Operating Lease. SECTION 10.13. Limitations on the Acquisition or Redesignation of Certain Vehicles. Unless otherwise specified in the related Supplement or unless waived by the Required Noteholders as specified in the related Supplement, permit (a) the Non-Eligible Manufacturer Amount as of any Payment Date to exceed any applicable Maximum Non-Eligible Manufacturer Amount, (b) the Financed Vehicle Amount as of any Payment Date to exceed any applicable Maximum Financed Vehicle Amount, (c) the Non-Program Vehicle Amount as of any Payment Date to exceed any applicable Maximum Non-Program Vehicle Amount, (d) the aggregate Net Book Value of all Vehicles leased under the Leases and manufactured by a particular Manufacturer or group of Manufacturers as of any Payment Date to exceed any applicable Maximum Manufacturer Amount and (e) the Specified States Amount as of any Payment Date to exceed any applicable Maximum Specified States Amount. SECTION 10.14. Maximum Vehicle Age. Permit at any time the age of any Non-Program Vehicle leased under the AESOP I Operating Lease, calculated from the date of the original manufacturer invoice for such Vehicle, to exceed 18 months. SECTION 10.15. Transactions Pursuant to the Master Exchange Agreement. (i) Designate any Program Vehicle as an Identified Relinquished Vehicle, transfer any Vehicle to the Intermediary pursuant to the Master Exchange Agreement or designate any Identified Replacement Vehicle without first satisfying the conditions thereto set forth in Section 11.3, or (ii) transfer any Vehicle to the Intermediary pursuant to the Master Exchange Agreement that is not a Program Vehicle subject to the GM Repurchase Program (unless, with respect to the transfer to the Intermediary pursuant to the Master Exchange Agreement of Program Vehicles subject to any additional Eligible Manufacturer Program, (x) an appropriate amendment to the Assignment Agreement in connection with such Eligible Manufacturer Program, reflecting the consent of such Manufacturer to sales and purchases by the Intermediary, has been executed and delivered, (y) the Rating Agency Consent Condition has been satisfied, and (z) if any Series of Notes supporting Commercial Paper Notes is outstanding, the CP Rating Agency Condition has been satisfied and the approval of the Majority Banks, as defined in the applicable Supplement, has been obtained). SECTION 10.16. Master Exchange Agreement. (i) Consent to any amendment or modification to, or waiver of, any provision of the Master Exchange Agreement, the Intercreditor Agreement or any of the Receivables Funding Documents, or (ii) appoint a successor to the Person acting as Intermediary under the Master Exchange Agreement, except a Person satisfying the definition of "Eligible Successor Intermediary" set forth therein, without (x) the prior written consent of the Trustee, (y) the satisfaction of the Rating Agency Consent Condition and (z) if any Series of Notes supporting Commercial Paper Notes is outstanding, satisfaction of the CP Rating Agency Condition and the approval of the Majority Banks (as defined in the applicable Supplement). SECTION 11. CONDITIONS. SECTION 11.1. Initial Loans Pursuant to Amended and Restated Agreement. The effectiveness of this Agreement shall be subject to the prior or concurrent (i) delivery of each of the following documents to the Lender and, if not otherwise required to be delivered to the Trustee by any other Related Document, to the Trustee and any Enhancement Provider, as applicable (in form and substance satisfactory to the Lender and, if applicable, the Trustee and any Enhancement Provider) and (ii) satisfaction of the following conditions, as applicable: (a) Certificate of Limited Partnership; Certificates of Incorporation. The certificate of limited partnership of AESOP Leasing, duly certified by the Secretary of State of the State of Delaware, together with a copy of the limited partnership agreement of AESOP Leasing, duly certified by the Secretary or an Assistant Secretary of Original AESOP. The certificate of incorporation of each of Original AESOP, PVHC and Quartx, duly certified by the Secretary of State of the State of Delaware, together with a copy of the by-laws of each of Original AESOP, PVHC and Quartx, duly certified by the Secretary or an Assistant Secretary of Original AESOP, PVHC and Quartx, as the case may be. (b) Resolutions. Copies of resolutions of the Board of Directors of each of Original AESOP, PVHC and Quartx, authorizing or ratifying the execution, delivery and performance of those documents and matters required of it with respect to this Agreement, duly certified by the Secretary or an Assistant Secretary of Original AESOP, PVHC or Quartx, as the case may be; (c) Consents, etc. Certified copies of all documents evidencing any necessary limited partnership or corporate action, consents and governmental approvals (if any) with respect to this Agreement; (d) Incumbency and Signatures. A certificate of the Secretary or an Assistant Secretary of each of Original AESOP, PVHC and Quartx certifying the names of the individual or individuals authorized to sign this Agreement and the other Related Documents to be executed by it, together with a sample of the true signature of each such individual (the Lender may conclusively rely on each such certificate until formally advised by a like certificate of any changes therein); (e) Opinions of Counsel. The opinions of counsel described in Supplemental Indenture No. 2; (f) Good Standing Certificates. Certificates of good standing for each of AESOP Leasing, Original AESOP, PVHC and Quartx in the jurisdiction of its formation and the jurisdiction of its principal place of business; (g) Search Reports. A written search report from a Person satisfactory to the Lender and the Trustee listing all effective financing statements that name any of AESOP Leasing, PVHC or Quartx, as debtor or assignor, and that are filed and the jurisdictions in which filings were made pursuant to subsection (i) below, together with copies of such financing statements, and tax and judgment lien search reports from a Person satisfactory to the Lender and the Trustee showing no evidence of such liens filed against AESOP Leasing, PVHC or Quartx; (h) Evidence. Evidence (which may be telephonic, followed by prompt written confirmation) of the filing of such UCC financing statements or amendments to financing statements previously filed, naming (1) AESOP Leasing as debtor, (2) PVHC as debtor and (3) Quartx as debtor, and the Lender as secured party and the Trustee as assignee or other, similar instruments or documents, if any, as may be necessary or, in the reasonable opinion of the Lender and the Trustee, desirable under the UCC of all applicable jurisdictions to perfect the Lender's and the Trustee's interest in the AESOP I Loan Collateral; (i) Enhancement. The Enhancement Amount with respect to any Series of Notes for which the Series Closing Date occurs on the Initial Closing Date is equal to or exceeds the Required Enhancement Amount for such Series; (j) Leases. An executed copy of the Amended and Restated AESOP I Operating Lease and all documents required to be delivered by any relevant Lessee and ARC to the Lessors pursuant thereto, and all conditions to the effectiveness thereof shall have been satisfied; (k) Assignment Agreement. An executed copy of the amendment to the Assignment Agreement of General Motors Corporation; (l) Indenture. Supplemental Indenture No. 2, dated the date hereof, duly executed by the Lender and the Trustee, and all conditions to the effectiveness thereof shall have been satisfied in all respects; (m) Master Exchange Agreement and Related Documents. Executed copies of the Master Exchange Agreement, the Intercreditor Agreement and the Receivables Funding Documents and all conditions to the effectiveness thereof shall have been satisfied. (n) Other. Such other documents as the Trustee or the Lender may reasonably request. SECTION 11.2. All Loans. All Loans hereunder (including the initial Loan) shall be subject to the further conditions precedent that (a) if the amount of Enhancement with respect to any Series of Notes is increased or if the current Enhancement with respect to any Series of Notes is replaced, to the extent such additional or replacement Enhancement is in the form of an unfunded commitment (including, without limitation, a letter of credit), AESOP Leasing shall cause the delivery to the Lender, the Trustee, the Enhancement Providers, if any, for any Series of Notes issued and outstanding on the date of such opinion(s), Placement Agents, if any, the Rating Agencies and the Administrative Agent (on behalf of the Liquidity Lenders) on or prior to the effectiveness of such additional or replacement Enhancement of opinion(s) of counsel as to the enforceability of such additional or replacement Enhancement substantially similar to the original opinions delivered with respect to such Enhancement, (b) the Lender shall have received a completed Loan Request therefor and a copy of the related Vehicle Order, (c) all conditions precedent to the issuance of any Series of Notes after the Initial Closing Date shall have been satisfied in accordance with the related Supplement and (d) on the date of such Loan the following statements shall be true (and AESOP Leasing, by accepting the amount of such Loan, shall be deemed to have represented and warranted that): (i) the representations and warranties contained in Section 8 are true and correct on and as of such date with the same effect as though made on and as of such date and shall be deemed to have made on such date and (ii) no Potential AESOP I Operating Lease Loan Event of Default or AESOP I Operating Lease Loan Event of Default has occurred and is continuing or would result from the making of such Loan or from the application of the proceeds of such Loan. SECTION 11.3. All Transactions Under Master Exchange Agreement. Each designation by AESOP Leasing of a Program Vehicle as an Identified Relinquished Vehicle, each transfer by AESOP Leasing of an Identified Relinquished Vehicle to the Intermediary pursuant to the Master Exchange Agreement and each designation by AESOP Leasing of an Identified Replacement Vehicle shall be subject to the satisfaction of the following conditions: (a) in connection with the designation of any Identified Replacement Vehicle, all conditions precedent to any borrowing required hereunder in connection with the purchase of such Identified Replacement Vehicle are satisfied; (b) no Manufacturer Event of Default with respect to the Manufacturer Program pursuant to which such Vehicle is intended to be transferred or acquired pursuant to the Master Exchange Agreement shall have occurred and be continuing; (c) in connection with the designation of any Program Vehicle as an Identified Relinquished Vehicle, AESOP Leasing shall have contracted to sell such Identified Relinquished Vehicle pursuant to an Eligible Manufacturer Program (under which the Manufacturer shall have consented to the purchase and sale of Vehicles by the Intermediary, which consent shall not have been revoked) and shall have directed the Intermediary to sell such Identified Relinquished Vehicle pursuant to such Eligible Manufacturer Program on the date such Identified Relinquished Vehicle is transferred to the Intermediary pursuant to the Master Exchange Agreement; and (d) on the date of any such designation or transfer, the following statements shall be true (and AESOP Leasing, by making such designation or transfer, shall be deemed to have represented and warranted that): the representations and warranties contained in Section 8 are true and correct on and as of such date and shall be deemed to have been made on such date with the same effect as though made on and as of such date and shall be deemed to have been made on such date, (ii) no Potential Loan Event of Default or Loan Event of Default, no Potential Amortization Event or Amortization Event and no Liquidation Event has occurred and is continuing or would result from the making of such designation or transfer and (iii) no Exchange Agreement Termination Event or event or occurrence, which, with the passage of time or the giving of notice thereof, or both, would become an Exchange Agreement Termination Event has occurred and is continuing or would result from the making of such designation or transfer. SECTION 12. LOAN EVENTS OF DEFAULT AND THEIR EFFECT. SECTION 12.1. AESOP I Operating Lease Loan Events of Default. Each of the following shall constitute an AESOP I Operating Lease Loan Event of Default under this Agreement: SECTION 12.1.1. Non-Payment of Loans. Default in the payment when due of the principal amount of any Loan made hereunder or the Monthly Loan Principal Amount hereunder, and the continuance thereof for one (1) Business Day after the occurrence thereof, or the default in the payment of any Loan Interest on any Loan made hereunder, and the continuance thereof for five (5) Business Days after the occurrence thereof; provided, however, that in the case of any failure to pay an amount owing pursuant to Section 5.1(B)(iii) or 5.1(B)(iv)(y), an AESOP I Operating Lease Loan Event of Default shall occur only to the extent that at the end of the applicable continuance period referred to above, an Enhancement Deficiency exists with respect to any Series of Notes or an AESOP I Operating Lease Vehicle Deficiency exists. SECTION 12.1.2. Non-Payment of Other Amounts. Default, and continuance thereof for five (5) Business Days after notice thereof by the Lender to AESOP Leasing, in the payment when due of any amount payable hereunder (other than any amount described in Section 12.1.1). SECTION 12.1.3. Bankruptcy, Insolvency, etc. The occurrence of an Event of Bankruptcy with respect to ARC, ARAC, any other Lessee under the AESOP I Operating Lease, AESOP Leasing, Original AESOP, PVHC or Quartx. SECTION 12.1.4. Non-Compliance With Provisions. Failure by AESOP Leasing to comply with or to perform any provision of this Agreement (and not constituting an AESOP I Operating Lease Loan Event of Default under any of the other provisions of this Section 12.1) and, other than the failure to comply with the provisions of Sections 10.1, 10.2 and 10.15 hereof, the continuance of such failure for 30 days after the earlier of the date of the receipt of written notice thereof from the Lender or the Trustee to AESOP Leasing and the date AESOP Leasing learns of such failure. SECTION 12.1.5. Warranties and Representations. Any warranty or representation made by or on behalf of AESOP Leasing in connection herewith is inaccurate or incorrect or is breached or false or misleading in any material respect as of the date such warranty or representation is made; or any schedule, certificate, financial statement, report, notice, or other writing furnished by or on behalf of AESOP Leasing to the Lender is false or misleading in any material respect on the date as of which the facts therein set forth are stated or certified. SECTION 12.1.6. Lease Events of Default. The occurrence of a Lease Event of Default. SECTION 12.1.7. Loan Events of Default Under Other Loan Agreements. The occurrence of an AESOP I Finance Lease Loan Event of Default or an AESOP II Loan Event of Default. SECTION 12.1.8. Judgments. Any final and unappealable (or, if capable of appeal, such appeal is not being diligently pursued or enforcement thereof has not been stayed) judgment or order for the payment of money in excess of $100,000 which is not fully covered by insurance shall be rendered against AESOP Leasing and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days. SECTION 12.2. Effect of AESOP I Operating Lease Loan Event of Default or Liquidation Event of Default. If any AESOP I Operating Lease Loan Event of Default described in Section 12.1.1 or 12.1.3 or any Liquidation Event of Default shall occur, the Loan Commitment (if not theretofore terminated) shall immediately terminate and in the case of any other AESOP I Operating Lease Loan Event of Default, the Lender may declare its Loan Commitment (if not theretofore terminated) to be terminated and whereupon it shall immediately terminate and may declare the Loan Note and all other Liabilities to be due and payable, whereupon the Loan Note shall become immediately due and payable. SECTION 12.3. Rights of Trustee Upon Liquidation Event of Default and Non-Performance of Certain Covenants. (a) If a Liquidation Event of Default shall have occurred and be continuing the Lender and the Trustee, to the extent provided in the Indenture, shall have all the rights against AESOP Leasing, PVHC and Quartx and the Loan Collateral provided in the Indenture upon a Liquidation Event of Default, including the right to take (under the specified circumstances) possession of all Vehicles immediately. (b) If (i) AESOP Leasing shall default in the due performance and observance of any of its obligations under Section 9.3, 9.4, 9.5(iii), 9.8, 10.1 or 10.11 hereof, or (ii) any Lessee shall default in the due performance and observance of its obligations under Section 31.10 of the AESOP I Operating Lease, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to AESOP Leasing by the Lender, the Lender shall have the ability to exercise all rights, remedies, powers, privileges and claims of AESOP Leasing, PVHC or Quartx against the Manufacturers under or in connection with the Manufacturer Programs with respect to (A) Program Vehicles leased under the AESOP I Operating Lease that AESOP Leasing has determined to turn back to the Manufacturers under such Manufacturer Programs (excluding Relinquished Vehicles), and (B) whether or not AESOP Leasing shall then have determined to turn back such Program Vehicles, any Program Vehicles leased under the AESOP I Operating Lease for which the applicable Repurchase Period will end within one week or less. (c) Upon a default in the performance (after giving effect to any grace periods provided herein) by AESOP Leasing, PVHC or Quartx of its obligations under Section 7.5 or 8.6 hereof with respect to certain Vehicles, the Lender or the Trustee shall have the right to take actions reasonably necessary to correct such default with respect to the subject Vehicles including the execution of UCC financing statements with respect to Manufacturer Programs and other general intangibles and the completion of Vehicle Perfection and Documentation Requirements on behalf of AESOP Leasing, PVHC, Quartx or the Lender, as applicable. (d) Upon the occurrence of a Liquidation Event of Default, AESOP Leasing will return all Program Vehicles leased under the AESOP I Operating Lease to the related Manufacturer and shall sell all Non-Program Vehicles leased under the AESOP I Operating Lease in accordance with the instructions of the Lender. Upon the occurrence of a Limited Liquidation Event of Default with respect to any Series of Notes, AESOP Leasing will return Program Vehicles leased under the AESOP I Operating Lease to the related Manufacturer, and shall sell Non-Program Vehicles leased under the AESOP I Operating Lease in accordance with the instructions of the Lender, to generate proceeds in an amount which, together with the proceeds of Vehicles returned pursuant to the AESOP I Finance Lease Loan Agreement and the AESOP II Loan Agreement, will be sufficient to pay all interest on and principal of such Series of Notes. To the extent any Manufacturer fails to accept any such Vehicles under the terms of the applicable Manufacturer Program, the Lender shall have the right to otherwise dispose of such Vehicles and to direct AESOP Leasing to dispose of such Vehicles in accordance with its instructions. In addition, the Lender shall have all of the rights, remedies, powers, privileges and claims vis-a-vis AESOP Leasing, PVHC and Quartx necessary or desirable to allow the Trustee to exercise the rights, remedies, powers, privileges and claims given to the Trustee pursuant to Sections 9.2 and 9.3 of the Base Indenture and each of AESOP Leasing, PVHC and Quartx acknowledges that it has hereby granted the Lender all of the rights, remedies, powers, privileges and claims granted to the Trustee pursuant to Article 9 of the Base Indenture and that, under certain circumstances set forth in the Base Indenture, the Trustee may act in lieu of the Lender in the exercise of such rights, remedies, powers, privileges and claims. SECTION 12.4. Application of Proceeds. The proceeds of any sale or other disposition on any date pursuant to Section 12.3 shall be applied in the following order: (i) to the reasonable costs and expenses incurred by the Lender in connection with such sale or disposition, including any reasonable costs associated with repairing any Vehicles leased under the AESOP I Operating Lease, and reasonable attorneys' fees in connection with the enforcement of this Agreement; (ii) to the payment of accrued Loan Interest and outstanding Loan Principal Amount, and all other amounts due hereunder in the Related Month; and (iii) any remaining amounts to AESOP Leasing, or such Person as may be lawfully entitled thereto. SECTION 12.5. Additional Agreements of AESOP Leasing. Upon the occurrence of any Loan Event of Default, any Lease Event of Default, any Amortization Event, any Liquidation Event of Default or any Exchange Agreement Termination Event, AESOP Leasing immediately shall rescind the identification of any Identified Replacement Vehicles (to the extent permitted pursuant to Section 3.6 of the Master Exchange Agreement, and pursuant to the Receivables Funding Documents), immediately shall revoke the identification of any Identified Replacement Vehicles to the extent permitted pursuant to Section 4.2 of the Master Exchange Agreement, and shall take any and all action available to it at law or in equity to effect the release of any funds or other property then held by the Intermediary pursuant to the Master Exchange Agreement, except to the extent that such funds or property constitute Receivables Lender Collateral. SECTION 13. GENERAL. SECTION 13.1. Waiver; Amendments. No delay on the part of the Lender or the holder of the Loan Note or other Liabilities in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by any of them of any right, power or remedy preclude other or further exercise thereof, or the exercise of any other right, power or remedy. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or the Loan Note shall in any event be effective unless (i) the same shall be writing and signed and delivered by the Lender, AESOP Leasing, PVHC and Quartx and consented to in writing by the Trustee, (ii) the Lender shall have received in writing confirmation from each of the Rating Agencies that its then current rating with respect to any outstanding Series of Notes or the Commercial Paper Notes will not be reduced or withdrawn as a result thereof and (iii) the Rating Agency Consent Condition shall have been satisfied; provided that any amendment or modification of the Loan Note need only be signed by AESOP Leasing. SECTION 13.2. Confirmations. AESOP Leasing and the Lender (or the holder of the Loan Note) agree from time to time, upon written request received by it from the other, to confirm to the other in writing the aggregate unpaid Loan Principal Amount. SECTION 13.3. Notices. All notices, amendments, waivers, consents and other communications provided to any party hereto under this Agreement shall be in writing and addressed, delivered or transmitted to such party at its address or facsimile number set forth below its signature hereto or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted upon receipt of electronic confirmation of transmission. SECTION 13.4. Taxes. AESOP Leasing agrees to pay, and to save the Trustee and the Lender harmless from all liability for, any document, stamp, filing, recording, mortgage or other taxes (other than net income taxes of the Lender) which may be payable in connection with the borrowings hereunder or the execution, delivery, recording or filing of this Agreement or of any other instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith. All obligations provided for in this Section 13.4 shall survive any termination of this Agreement. SECTION 13.5. Indemnification. In consideration of the Lender's execution and delivery of this Agreement and the Lender's extension of the Loan Commitment, AESOP Leasing hereby agrees to: (a) indemnify, exonerate and hold the Lender and its officers, directors, stockholders, employees, and agents (herein collectively called "Lender Parties" and individually called a "Lender Party") free and harmless from and against any and all claims, demands, actions, causes of action, suits, losses, costs, charges, liabilities, damages, and expenses in connection therewith (irrespective of whether such Lender Party is a party to the action for which indemnification hereunder is sought), and including, without limitation, reasonable attorneys' fees and disbursements (called in this paragraph the "Indemnified Liabilities"), incurred by Lender Parties or any of them as a result of, or arising out of, or relating to (i) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan made hereunder or involving any Loan made hereunder, or (ii) the execution, delivery, performance or enforcement of this Agreement and any instrument, document or agreement executed pursuant hereto by any of the Lender Parties, or (iii) the ownership, operation, maintenance, leasing, or titling of the Vehicles, except in each case, for any such Indemnified Liabilities arising on account of the relevant Lender Party's gross negligence or willful misconduct and, to the extent that the foregoing undertaking may be unenforceable for any reason, AESOP Leasing agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law; and (b) indemnify and hold harmless the Trustee (and its officers, directors, employees and agents) from and against any loss, liability, expense, damage or injury suffered or sustained by reason of, or arising out of or in connection with: (i) any acts or omissions of AESOP Leasing pursuant to this Agreement and (ii) the Trustee's appointment under the Indenture and the Trustee's performance of its obligations thereunder, or any document pertaining to any of the foregoing to which the Trustee is a signatory, including, but not limited to any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim; provided, however, AESOP Leasing shall have no duty to indemnify the Trustee to the extent such loss, liability, expense, damage or injury suffered or sustained is due to the Trustee's negligence or willful misconduct. AESOP Leasing agrees that the indemnification provided for in this Section 13.5 shall run directly to and be enforceable by an indemnified party subject to the limitations hereof. The indemnification provided for in this Section 13.5 shall survive the termination of this Agreement, the Indenture and the resignation or removal of the Trustee. SECTION 13.6. Bankruptcy Petition. (a) Each of AESOP Leasing, PVHC and Quartx hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of (i) all Commercial Paper Notes Outstanding and (ii) all Notes Outstanding, it will not institute against, or join any other Person in instituting against, AFC-II any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. In the event that AESOP Leasing, PVHC or Quartx takes action in violation of this Section 13.6, AFC-II agrees, for the benefit of the Noteholders and the Commercial Paper Note holders, respectively, that it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such a petition by AESOP Leasing, PVHC or Quartx against AFC-II or commencement of such action and raise the defense that each of AESOP Leasing, PVHC and Quartx has agreed in writing not to take such action and should be estopped and precluded therefrom and such other defenses, if any, as its counsel advises that it may assert. The provisions of this Section 13.6 shall survive the termination of this Agreement. (b) AFC-II hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of (i) all Commercial Paper Notes Outstanding, (ii) all Notes Outstanding and (iii) all Loans outstanding under the AESOP I Loan Agreements, it will not institute against, or join any other Person in instituting against, AESOP Leasing, Original AESOP, AESOP Leasing II, AFC, PVHC or Quartx any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. In the event that AFC-II takes action with respect to AESOP Leasing, PVHC or Quartx in violation of this Section 13.6, each of AESOP Leasing, PVHC and Quartx agrees, for the benefit of the Noteholders and the Commercial Paper Note Holders, respectively, that it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such a petition by AFC-II against AESOP Leasing, PVHC or Quartx or commencement of such action and raise the defense that AFC-II has agreed in writing not to take such action and should be estopped and precluded therefrom and such other defenses, if any, as its counsel advises that it may assert. The provisions of this Section 13.6 shall survive the termination of this Agreement. SECTION 13.7. Submission to Jurisdiction. The Lender may enforce any claim arising out of this Agreement or the Loan Note in any state or federal court having subject matter jurisdiction and located in New York, New York. For the purpose of any action or proceeding instituted with respect to any such claim, AESOP Leasing hereby irrevocably submits to the jurisdiction of such courts. Each of AESOP Leasing, PVHC and Quartx irrevocably consents to the service of process out of said courts by mailing a copy thereof, by registered mail, postage prepaid, to AESOP Leasing, PVHC or Quartx, as the case may be, and agrees that such service, to the fullest extent permitted by law, (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall be taken and held to be valid personal service upon and personal delivery to it. Nothing herein contained shall affect the right of the Trustee and the Lender to serve process in any other manner permitted by law or preclude the Lender from bringing an action or proceeding in respect hereof in any other country, state or place having jurisdiction over such action. Each of AESOP Leasing, PVHC and Quartx hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may have or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court located in New York, New York and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. SECTION 13.8. Governing Law. THIS AGREEMENT AND THE LOAN NOTE SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. All obligations of AESOP Leasing, PVHC and Quartx and rights of the Lender and the holder of the Loan Note or Liability expressed herein shall be in addition to and not in limitation of those provided by applicable law or in any other written instrument or agreement relating to any of the Liabilities. SECTION 13.9. JURY TRIAL. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT TO WHICH IT IS A PARTY, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY RELATED TRANSACTION, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. SECTION 13.10. Successors and Assigns. This Agreement shall be binding upon AESOP Leasing, PVHC, Quartx, the Lender and their respective successors and assigns, and shall inure to the benefit of AESOP Leasing, PVHC, Quartx, the Lender, the Trustee as a third party beneficiary and their respective successors and assigns; provided, however, that none of AESOP Leasing, PVHC or Quartx shall have the right to assign its rights or delegate its duties under this Agreement without (i) the Lender's and the Trustee's prior written consent and (ii) receipt of written confirmation from each of the Rating Agencies that its then current rating will not be reduced or withdrawn with respect to the Commercial Paper Notes or any outstanding Series of Notes as a result thereof. Each of AESOP Leasing, PVHC and Quartx acknowledges that this Agreement and the Loan Note will be assigned by the Lender to the Trustee pursuant to the Indenture, and hereby agrees that, subject to the terms of the Indenture, the Trustee may exercise all of the Lender's rights hereunder. This Agreement and the other Related Documents contain the entire agreement of the parties hereto with respect to the matters covered hereby. SECTION 13.11. Tax Treatment of Loans. It is the intention of the parties hereto that for U.S. federal income tax purposes each Loan made hereunder will constitute indebtedness of AESOP Leasing to the Lender and that AESOP Leasing shall be the owner of the Vehicles that are subject to the AESOP I Operating Lease. The parties agree to take no position in any tax return, filing or proceeding inconsistent with this provision. SECTION 13.12. No Recourse. The obligations of AFC-II, AESOP Leasing, PVHC and Quartx under this Agreement are solely the corporate obligations of AFC-II, AESOP Leasing, PVHC and Quartx, respectively. No recourse shall be had for the payment of any obligation or claim arising out of or based upon this Agreement against any shareholder, employee, officer, director, partner or incorporator of AFC-II, AESOP Leasing, PVHC or Quartx. SECTION 13.13. Effect of Amendment. Except to the extent amended hereby, the Original Loan Agreement is in all respects ratified and confirmed and in full force and effect. From and after the date hereof, all references in the Related Documents to the AESOP I Operating Lease Loan Agreement shall mean such agreement as amended and restated hereby, unless the context otherwise requires. Delivered at New York, New York as of the day and year first above written. AESOP LEASING L.P. By: AESOP LEASING CORP., its general partner By: ------------------------------------ Name: Title: Address: c/o Lord Securities Corporation Two Wall Street New York, NY 10055 Facsimile: (212) 346-9012 Telephone: (212) 346-9000 PV HOLDING CORP. By: ------------------------------------ Name: Title: Address: c/o The Corporation Trust Company Corporation Trust Center 1209 Orange Street Wilmington, DE 19801 Facsimile: (302) 658-2919 Telephone: (302) 777-0200 QUARTX FLEET MANAGEMENT, INC. By: ------------------------------------ Name: Title: Address: c/o The Corporation Trust Company Corporation Trust Center 1209 Orange Street Wilmington, DE 19801 Facsimile: (302) 658-2919 Telephone: (302) 777-0200 AESOP FUNDING II L.L.C. By: ------------------------------------ Name: Title: Address: c/o Lord Securities Corporation Two Wall Street New York, NY 10055 Facsimile: (212) 346-9012 Telephone: (212) 346-9000 EXHIBIT A TO THE LOAN AGREEMENT FORM OF LOAN NOTE [Intentionally Omitted.] EXHIBIT B-1 TO THE LOAN AGREEMENT FORM OF LOAN REQUEST AESOP Funding II L.L.C. c/o Lord Securities Corporation Two Wall Street, 19th Floor New York, New York 10005 Attention: Andrew L. Stidd Ladies and Gentlemen: This Loan Request is delivered to you pursuant to Section 3.2 of that certain Amended and Restated AESOP I Operating Lease Loan Agreement, dated as of September 15, 1998 (as further amended, supplemented, restated or otherwise modified from time to time, the "Loan Agreement"), among AESOP Leasing L.P., a Delaware limited partnership ("AESOP Leasing"), PV Holding Corp. and Quartx Fleet Management, Inc., as Permitted Nominees of AESOP Leasing, and AESOP Funding II L.L.C., a Delaware limited liability company (the "Lender"). Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Loan Agreement. AESOP Leasing hereby requests that a Loan be made in the amount of $______________ on _______________ , 19 __. AESOP Leasing hereby acknowledges that the delivery of this Loan Request and the acceptance by AESOP Leasing of the proceeds of the Loan requested hereby constitute a representation and warranty by AESOP Leasing that, on the date of such Loan, and before and after giving effect thereto and to the application of the proceeds therefrom, all conditions set forth in Section 11.2 of the Loan Agreement have been satisfied and all statements set forth in Section 11.2 of the Loan Agreement are true and correct. Attached hereto as Annex I is a true and correct copy of the schedule required to be delivered in connection herewith pursuant to Section 3.2 of the Loan Agreement. AESOP Leasing agrees that if prior to the time of the Loan requested hereby any matter certified to herein by it will not be true and correct at such time as if then made, it will immediately so notify the Lender. Except to the extent, if any, that prior to the time of the Loan requested hereby the Lender shall receive written notice to the contrary from AESOP Leasing, each matter certified to herein shall be deemed once again to be certified as true and correct at the date of such Loan as if then made. Please wire transfer the proceeds of the Loan to the account of AESOP Leasing at the financial institution set forth below:
Amount to be Account No. Person to be Paid Name, Address, etc. Transferred Name - ----------- ----------------- ------------------------------- ---- $____________ __________________ ________________________________ ________________________________ Attention: ______________________________________
AESOP Leasing has caused this Loan Request to be executed and delivered, and the certification and warranties contained herein to be made, by its duly Authorized Officer this day of , 19 . AESOP LEASING L.P. By: ------------------------------------ Name: Title: ANNEX I Vehicle Acquisition Schedule and Related Information 1. Principal amount of proposed Loan 2. Borrowing Date of proposed Loan 3. Vehicle Identification Number (VIN) 4. Summary of Vehicles being financed (including, for Program Vehicles subject to the GM Repurchase Program, the Designated Period for such Program Vehicles) 5. Program or Non-Program Vehicles 6. Capitalized Cost (New Vehicles) 7. Net Book Value (Franchisee Vehicles) EXHIBIT B-2 TO THE LOAN AGREEMENT FORM OF LOAN REQUEST RESPONSE AESOP Leasing L.P. c/o Lord Securities Corporation Two Wall Street, 19th Floor New York, New York 10005 Attention: Andrew L. Stidd ___________________, 199 Re: Loan Request Dated , 199 Ladies and Gentlemen: This Loan Request Response is delivered to you pursuant to Section 4.1 of that certain Amended and Restated AESOP I Operating Lease Loan Agreement, dated as of September 15, 1998 (as further amended, supplemented, restated or otherwise modified from time to time, the "Loan Agreement"), among AESOP Leasing L.P., a Delaware limited partnership ("AESOP Leasing"), PV Holding Corp. and Quartx Fleet Management, Inc., as Permitted Nominees of AESOP Leasing, and AESOP Funding II L.L.C., a Delaware limited liability company (the "Lender"). Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings assigned to such terms in the Loan Agreement. Reference is hereby made to the Loan Request delivered to us today by AESOP Leasing (the "Loan Request"). The applicable rate of Loan Interest on each Loan requested in the Loan Request is _%; provided, however, if the Lender's Carrying Cost Interest Rate for the Related Month is higher than the rate of Loan Interest specified herein, the Loan Interest payable on such Loans shall be determined using the higher rate. Very truly yours, AESOP FUNDING II L.L.C. By: ------------------------------------- Name: Title: EXHIBIT C TO THE LOAN AGREEMENT FORM OF PAYMENT DEFICIT NOTICE Harris Trust and Savings Bank, as Trustee 311 West Monroe Street, 12th Floor Chicago, Illinois 60606 Attn: Indenture Trust Administration [Related Enhancement Provider] [Address] [ ], 19 _ Ladies and Gentlemen: This Payment Deficit Notice is delivered to you pursuant to Section 6.4 of the Amended and Restated AESOP I Operating Lease Loan Agreement, dated as of September 15, 1998 (as further amended or modified from time to time, the "Loan Agreement") among AESOP Funding II L.L.C., a Delaware limited liability company, as Lender, PV Holding Corp. and Quartx Fleet Management, Inc., as Permitted Nominees of the Borrower, and AESOP Leasing L.P. ("AESOP Leasing"), a Delaware limited partnership, as Borrower. Terms used herein have the meanings provided in the Loan Agreement. AESOP Leasing hereby notifies the Trustee and [Related Enhancement Provider] that [a Lease Payment Deficit did not exist on ________, 199_] [there was a Lease Payment Deficit on ________, 199_ as follows: Series______: $______________ Series______: $______________ AESOP LEASING L.P. By: ------------------------------------- Name: Title: SCHEDULE 8.11 Business Locations, Trade Names State of Principal Place of States in which Business Location Business Conducts Business ----------------- -------- ----------------- AESOP Leasing c/o Lord Securities New York New York L.P. Corporation Two Wall Street 19TH Floor New York, NY 10005 EX-4.20 7 LEASE AGREEMENT EXECUTION COPY AMENDED AND RESTATED MASTER MOTOR VEHICLE OPERATING LEASE AGREEMENT dated as of September 15, 1998 among AESOP LEASING L.P., as Lessor, AVIS RENT A CAR SYSTEM, INC., as Lessee and as Administrator, and AVIS RENT A CAR, INC., as Guarantor AS SET FORTH IN SECTION 27 HEREOF, LESSOR HAS ASSIGNED TO AFC-II (AS DEFINED HEREIN) AND AFC-II HAS ASSIGNED TO THE TRUSTEE (AS DEFINED HEREIN) CERTAIN OF ITS RIGHT, TITLE AND INTEREST IN AND TO THIS LEASE. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION) NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL EXECUTED COUNTERPART, WHICH SHALL BE IDENTIFIED AS THE COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE TRUSTEE ON THE SIGNATURE PAGE THEREOF. [THIS IS NOT COUNTERPART NO. 1] TABLE OF CONTENTS Page ---- 1. DEFINITIONS 1 2. GENERAL AGREEMENT 2 2.1. Lease and Acquisition of Vehicles 4 2.2. Right of Lessees and Guarantor to Act as Lessor's Agent 5 2.3. Payment of Capitalized Cost or Assignment of Net Book Value by Lessor 5 2.4. Non-Liability of Lessor5 2.5. Lessees' Rights to Purchase Vehicles 6 2.6. Lessor's Right to Cause Vehicles to be Sold 6 2.7. Redesignation of Vehicles 8 2.8. Limitations on the Acquisition or Redesignation of Certain Vehicles 8 3. TERM 9 3.1. Vehicle Term 9 3.2. Term 10 4. RENT AND CHARGES 11 4.1. Payment of Rent 11 4.2. Special Service Charges 11 4.3. Net Lease 11 5. INSURANCE 12 5.1. Personal Injury and Damage 12 5.2. Delivery of Certificate of Insurance 13 5.3. Changes in Insurance Coverage 13 6. RISK OF LOSS; CASUALTY AND INELIGIBLE VEHICLE OBLIGATIONS 13 6.1. Risk of Loss Borne by Lessees 13 6.2. Casualty; Ineligible Vehicles 13 7. VEHICLE USE 14 8. LIENS 15 9. NON-DISTURBANCE 15 10. REGISTRATION; LICENSE; TRAFFIC SUMMONSES; PENALTIES AND FINES 15 11. MAINTENANCE AND REPAIR 16 12. VEHICLE WARRANTIES 16 12.1. No Lessor Warranties 16 12.2. Manufacturer's Warranties 17 13. VEHICLE USAGE GUIDELINES AND RETURN; SPECIAL DEFAULT PAYMENTS; EARLY TERMINATION PAYMENTS 17 13.1. Usage 17 13.2. Return 17 13.3. Special Default Payments 18 13.4. Early Termination Payments 19 14. DISPOSITION PROCEDURE 19 15. ODOMETER DISCLOSURE REQUIREMENT 19 16. GENERAL INDEMNITY 20 16.1. Indemnity by the Lessees and the Guarantor 20 16.2. Reimbursement Obligation by the Lessees and the Guarantor 22 16.3. Defense of Claims 22 17. ASSIGNMENT 23 17.1. Right of the Lessor to Assign this Agreement 23 17.2. Limitations on the Right of the Lessees to Assign this Agreement 23 18. DEFAULT AND REMEDIES THEREFOR 24 18.1. Events of Default 24 18.2. Effect of AESOP I Operating Lease Event of Default or Liquidation Event of Default 25 18.3. Rights of Lessor Upon AESOP I Operating Lease Event of Default, Limited Liquidation Event of Default or Liquidation Event of Default 26 18.4. Rights of Lender and Trustee Upon Liquidation Event of Default Limited Liquidation Event of Default and Non-Performance of Certain Covenants 27 18.5. Measure of Damages 28 18.6. Vehicle Return Default 29 18.7. Application of Proceeds 31 19. MANUFACTURER EVENTS OF DEFAULT 31 20. [RESERVED] 31 21. [RESERVED] 31 22. CERTIFICATION OF TRADE OR BUSINESS USE 32 23. SURVIVAL 32 24. ADDITIONAL LESSEES 32 25. TITLE 34 26. GUARANTY 34 26.1. Guaranty 34 26.2. Scope of Guarantor's Liability 35 26.3. Lessor's Right to Amend this Agreement, Etc 35 26.4. Waiver of Certain Rights by Guarantor 36 26.5. [RESERVED] 37 26.6. Guarantor to Pay Lessor's Expenses 37 26.7. Reinstatement 37 26.8. Pari Passu Indebtedness 37 27. RIGHTS OF LESSOR ASSIGNED 37 28. [RESERVED] 40 29. MODIFICATION AND SEVERABILITY 40 30. CERTAIN REPRESENTATIONS AND WARRANTIES 40 30.1. Organization; Ownership; Power; Qualification 40 30.2. Authorization; Enforceability 40 30.3. Compliance 41 30.4. Financial Information; Financial Condition 41 30.5. Litigation 42 30.6. Liens 42 30.7. Employee Benefit Plans 42 30.8. Investment Company Act 42 30.9. Regulations T, U and X 42 30.10. Business Locations; Trade Names; Principal Places of Business Locations 43 30.11. Taxes 43 30.12. Governmental Authorization 43 30.13. Compliance with Laws 44 30.14. Eligible Vehicles 44 30.15. Supplemental Documents True and Correct 44 30.16. Manufacturer Programs 44 30.17. Absence of Default 44 30.18. Title to Assets 44 30.19. Burdensome Provisions 45 30.20. No Adverse Change 45 30.21. No Adverse Fact 45 30.22. Accuracy of Information 45 30.23. Solvency 46 31. CERTAIN AFFIRMATIVE COVENANTS 46 31.1. Corporate Existence; Foreign Qualification 46 31.2. Books, Records and Inspections 46 31.3. Insurance 47 31.4. Manufacturer Programs 47 31.5. Reporting Requirements 47 31.6. Payment of Taxes; Removal of Liens 49 31.7. Business 50 31.8. Maintenance of Separate Existence 50 31.9. Trustee as Lienholder 50 31.10. Maintenance of the Vehicles 50 31.11. Enhancement 50 31.12. Manufacturer Payments 51 31.13. Accounting Methods; Financial Records 51 31.14. Disclosure to Auditors 51 31.15. Disposal of Non-Program Vehicles 51 32. CERTAIN NEGATIVE COVENANTS 51 32.1. Mergers, Consolidations 51 32.2. Other Agreements 52 32.3. Liens 52 32.4. Use of Vehicles 52 32.5. Termination of Agreement 52 33. ADMINISTRATOR ACTING AS AGENT OF THE LESSOR 52 34. NO PETITION53 35. CERTAIN AGREEMENTS RESPECTING THE MASTER EXCHANGE AGREEMENT 53 36. SUBMISSION TO JURISDICTION 53 37. GOVERNING LAW 54 38. JURY TRIAL 54 39. NOTICES 54 40. LIABILITY 56 41. TITLE TO MANUFACTURER PROGRAMS IN LESSOR 56 42. HEADINGS 57 43. EXECUTION IN COUNTERPARTS 57 44. EFFECTIVE DATE 57 45. NO RECOURSE 57 SCHEDULES AND ATTACHMENTS Schedule 30.5 Litigation Schedule 30.10 Business Locations Schedule 30.13 Compliance with Law ATTACHMENT A Information Relating to Initial Leased Vehicles ATTACHMENT B Vehicle Acquisition Schedule and Related Information ATTACHMENT C Form of Power of Attorney ATTACHMENT D Form of Joinder in Lease AMENDED AND RESTATED MASTER MOTOR VEHICLE OPERATING LEASE AGREEMENT This Amended and Restated Master Motor Vehicle Operating Lease Agreement (this "Agreement"), dated as of September 15, 1998, is made by and among AESOP LEASING L.P., a Delaware limited partnership (the "Lessor"), AVIS RENT A CAR SYSTEM, INC., a Delaware corporation ("ARAC"), individually and as the Administrator, Eligible Rental Car Companies that become party to this Agreement pursuant to the provisions of Section 24 hereof (individually, ARAC and each such Eligible Rental Car Company, a "Lessee" and, collectively, the "Lessees"), and AVIS RENT A CAR, INC., a Delaware corporation, as guarantor (the "Guarantor"). W I T N E S S E T H: WHEREAS, the Lessor (such capitalized term, together with all other capitalized terms used herein, shall have the meaning assigned thereto in Section 1), ARAC and the Guarantor are parties to a Master Motor Vehicle Operating Lease Agreement, dated as of July 30, 1997 (the "Prior AESOP I Operating Lease"), pursuant to which the Lessor has purchased Program Vehicles and Non-Program Vehicles of one or more Manufacturers with proceeds provided to the Lessor by the Lender pursuant to the AESOP I Operating Lease Loan Agreement and other available funds; and WHEREAS, the Lessor now wishes to amend the Prior AESOP I Operating Lease in order to reflect the terms of certain exchanges of Program Vehicles that the Lessor intends to effect in accordance with the relevant provisions of the Code and the terms of the Master Exchange Agreement between the Lessor and the Intermediary; and WHEREAS, the Lessor desires to lease to the Lessees and the Lessees desire to lease from the Lessor both Program Vehicles and Non-Program Vehicles financed by the Lessor with the proceeds of Loans and other available funds for use in the daily rental car businesses of the Lessees; and WHEREAS, the Guarantor has, pursuant to Section 26 hereof, guaranteed the obligations of the Lessees under this Agreement; NOW, THEREFORE, in consideration of the foregoing premises, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree that the Prior AESOP I Operating Lease is hereby amended and restated as follows: 1. DEFINITIONS. Unless otherwise specified herein, capitalized terms used herein (including the preamble and recitals hereto) shall have the meanings ascribed to such terms in the Definitions List attached as Schedule I to the Base Indenture, dated as of July 30, 1997 (the "Base Indenture"), between AFC-II, as Issuer, and Harris Trust and Savings Bank, as Trustee, as such Definitions List has been amended and may from time to time be further amended in accordance with the Base Indenture. 2. GENERAL AGREEMENT. (a) Each Lessee and the Lessor intend that this Agreement is a lease and that the relationship between the Lessor and each Lessee pursuant hereto shall always be only that of lessor and lessee, and each Lessee hereby declares, acknowledges and agrees that the Lessor is the owner of, and the Lessor or its Permitted Nominee holds legal title to, the Vehicles. No Lessee shall acquire by virtue of this Agreement any right, equity, title or interest in or to any Vehicles, except the right to use the same under the terms hereof. The parties agree that this Agreement is a "true lease" and agree to treat this Agreement as a lease for all purposes, including tax, accounting and otherwise and each party hereto will take no position on its tax returns and filings contrary to the position that the Lessor is the owner of the Vehicles for federal and state income tax purposes. (b) If, notwithstanding the intent of the parties to this Agreement, this Agreement is characterized by any third party as a financing arrangement or as otherwise not constituting a "true lease," then it is the intention of the parties that this Agreement shall constitute a security agreement under applicable law, and, to secure all of its obligations under this Agreement, each Lessee hereby grants to the Lessor a security interest in all of such Lessee's right, title and interest, if any, in and to all of the following assets, property and interests in property, whether now owned or hereafter acquired or created: (i) the rights of such Lessee under this Agreement, as same may be amended, modified or supplemented from time to time in accordance with its terms, and any other agreements related to or in connection with this Agreement to which the Lessees are a party (the "Lessee Agreements"), including, without limitation, (a) all monies, if any, due and to become due to such Lessee from the Guarantor and any other Lessee under or in connection with any of the Lessee Agreements, whether payable as rent, guaranty payments, fees, expenses, costs, indemnities, insurance recoveries, damages for the breach of any of the Lessee Agreements or otherwise, (b) all rights, remedies, powers, privileges and claims of such Lessee against any other party under or with respect to the Lessee Agreements (whether arising pursuant to the terms of such Agreements or otherwise available to such Lessee at law or in equity), including the right to enforce any of the Lessee Agreements and to give or withhold any and all consents, requests, notices, directions, approvals, extensions or waivers under or with respect to the Lessee Agreements or the obligations and liabilities of any party thereunder, (c) all liens and property from time to time purporting to secure payment of the obligations and liabilities of such Lessee arising under or in connection with the Lessee Agreements, and any documents or agreements describing any collateral securing such obligations or liabilities and (d) all guarantees, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such obligations and liabilities of such Lessee pursuant to the Lessee Agreements; (ii) all Vehicles leased by such Lessee from the Lessor under this Agreement which, notwithstanding that this Agreement is intended to convey only a leasehold interest, are determined to be owned by such Lessee, and all Certificates of Title with respect to such Vehicles; (iii) all right, title and interest of such Lessee in, to and under any Manufacturer Programs, including any amendments thereof, and all monies due and to become due thereunder, in each case in respect of Vehicles leased by such Lessee which, notwithstanding that this Agreement is intended to convey only a leasehold interest, are determined to be owned by such Lessee, whether payable as Vehicle repurchase prices, auction sales proceeds, fees, expenses, costs, indemnities, insurance recoveries, damages for breach of the Manufacturer Programs or otherwise (but excluding all incentive payments payable to such Lessee or the Lessor in respect of purchases of vehicles under the Manufacturer Programs) and all rights to compel performance and otherwise exercise remedies thereunder; (iv) all right, title and interest of such Lessee in and to any proceeds from the sale of Vehicles leased by such Lessee which, notwithstanding that this Agreement is intended to convey only a leasehold interest, are determined to be owned by such Lessee, including all monies due in respect of such Vehicles, whether payable as the purchase price of such Vehicles, as auction sales proceeds, or as fees, expenses, costs, indemnities, insurance recoveries, or otherwise (including all upfront incentive payments payable by Manufacturers to such Lessee or the Lessor in respect of purchases of Non-Program Vehicles); (v) all payments under insurance policies (whether or not the Lessor, the Lender or the Trustee is named as the loss payee thereof) or any warranty payable by reason of loss or damage to, or otherwise with respect to, any of the Vehicles leased by such Lessee; (vi) all additional property that may from time to time hereafter be subjected to the grant and pledge under this Agreement, as same may be modified or supplemented from time to time, by such Lessee or by anyone on its behalf; and (vii) all proceeds of any and all of the foregoing including, without limitation, payments under insurance (whether or not the Lessor is named as the loss payee thereof) and cash. (c) To secure the AFC-II Obligations, each Lessee hereby grants to the Trustee, on behalf of the Secured Parties, a first priority security interest in all of such Lessee's right, title and interest, if any, in and to all of the collateral described in Section 2(b) above, whether now owned or hereafter acquired or created. Upon the occurrence of a Liquidation Event of Default or a Limited Liquidation Event of Default and subject to the provisions of the Related Documents, the Trustee shall have all of the rights and remedies of a secured party, including, without limitation, the rights and remedies granted under the Uniform Commercial Code. (d) Each Lessee agrees to deliver to the Lessor, the Lender and the Trustee on or before the Initial Closing Date: (i) a written search report from a Person satisfactory to the Lessor, the Lender and the Trustee listing all effective financing statements that name such Lessee as debtor or assignor, and that are filed in the jurisdictions in which filings were made pursuant to clause (ii) below, together with copies of such financing statements, and tax and judgment lien search reports from a Person satisfactory to the Lessor, the Lender and the Trustee showing no evidence of liens filed against such Lessee that purport to affect any Vehicles leased hereunder or any Collateral under the Base Indenture; (ii) evidence of the filing of proper financing statements on Form UCC-1 naming such Lessee, as debtor, and the Lessor, as secured party, covering the collateral described in Section 2(b) hereof; and (iii) evidence of the filing in the states in which such Lessee conducts business of proper financing statements on Form UCC-1 naming such Lessee, as debtor, and the Trustee as secured party covering the collateral described in Section 2(b) hereof. 2.1. Lease and Acquisition of Vehicles. From time to time, subject to the terms and provisions hereof, the Lessor agrees to lease to each Lessee and each Lessee agrees to lease from the Lessor, subject to the terms hereof, (i) the new Vehicles identified in Vehicle orders (each such Vehicle order, a "Vehicle Order") placed by such Lessee, pursuant to the terms of the Manufacturer Programs with respect to Program Vehicles and Non-Program Vehicles to the extent subject to a Manufacturer Program and as otherwise agreed by the Lessor, such Lessee and a dealer with respect to other Non-Program Vehicles and (ii) the Vehicles identified in Attachment A hereto containing information concerning the Initial PVT Vehicles and the Initial ARAC Vehicles leased by ARAC under this Agreement (the "Initial Leased Vehicles") of a scope agreed upon by ARAC and the Lessor (including, at a minimum, the Net Book Value (as of the first day of the Related Month in which the Initial Closing Date occurs) of each of the Initial Leased Vehicles). If requested by the Lessor, a Lessee shall make each Vehicle Order with respect to each Vehicle leased by such Lessee available to the Lessor, together with a schedule containing the information with respect to such Vehicles included within such Vehicle Order as is set forth in Attachment B hereto (each, a "Vehicle Acquisition Schedule"), or in such form as is otherwise requested by the Lessor. In addition, each Lessee agrees to provide such other information regarding such Vehicles as the Lessor may require from time to time. This Agreement, together with the Manufacturer Programs and any other related documents attached to this Agreement or submitted with a Vehicle Order (collectively, the "Supplemental Documents"), will constitute the entire agreement regarding the leasing of Vehicles by the Lessor to the Lessees. 2.2. Right of Lessees and Guarantor to Act as Lessor's Agent. The Lessor agrees that each Lessee and the Guarantor may act as the Lessor's agent in placing Vehicle Orders on behalf of the Lessor, as well as filing claims on behalf of the Lessor for damage in transit, and other Manufacturer delivery claims related to the Vehicles; provided, however, that the Lessor may hold a Lessee or the Guarantor liable for losses due to such Lessee's or the Guarantor's actions, or failure to act, in performing as the Lessor's agent in accordance with the terms hereof. In addition, the Lessor agrees that each Lessee may make arrangements for delivery of Vehicles leased by such Lessee to a location selected by such Lessee at its expense. Each Lessee agrees to accept Vehicles leased by such Lessee as produced and delivered except that each Lessee will have the option to reject any such Vehicle that may be rejected pursuant to the terms of the applicable Manufacturer Program (with respect to Program Vehicles and Non-Program Vehicles subject to a Manufacturer Program), or in accordance with its customary business practices with respect to other Non-Program Vehicles. Each Lessee, acting as agent for the Lessor, shall be responsible for pursuing any rights of the Lessor with respect to the return of any Vehicle leased by such Lessee to the Manufacturer pursuant to the preceding sentence. Each of the Lessees and the Guarantor agree that all Program Vehicles ordered as provided herein shall be ordered utilizing the procedures consistent with an Eligible Manufacturer Program. Without limiting the foregoing, each Lessee agrees to give immediate notice to the Lessor, in such form and to such address as the Lessor may from time to time specify, of each acceptance and of any rejection of any Program Vehicle identified by the Lessor as an Identified Replacement Vehicle. 2.3. Payment of Capitalized Cost or Assignment of Net Book Value by Lessor. On the AESOP I Operating Lease Commencement Date, the Lessor applied to each Initial Leased Vehicle the Net Book Value (as of the first day of the Related Month) for such Vehicle as described on Attachment A to the Prior AESOP I Operating Lease. Upon delivery of any Vehicle, the Lessor shall pay to the authorized dealer, if any, that sold such Vehicle to the Lessor, the Capitalized Cost for such Vehicle and the Lessee leasing such Vehicle shall pay all applicable costs and expenses of freight, packing, handling, storage, shipment and delivery of such Vehicle, and sales and use tax (if any), to the extent that the same have not been included in the Capitalized Cost for such Vehicle. 2.4. Non-Liability of Lessor. The Lessor shall not be liable to any Lessee for any failure or delay in obtaining Vehicles or making delivery thereof. AS BETWEEN THE LESSOR AND EACH LESSEE, ACCEPTANCE FOR LEASE OF THE VEHICLES LEASED BY SUCH LESSEE SHALL CONSTITUTE SUCH LESSEE'S ACKNOWLEDGMENT AND AGREEMENT THAT SUCH LESSEE HAS FULLY INSPECTED SUCH VEHICLES, THAT SUCH VEHICLES ARE IN GOOD ORDER AND CONDITION AND ARE OF THE MANUFACTURE, DESIGN, SPECIFICATIONS AND CAPACITY SELECTED BY SUCH LESSEE, THAT SUCH LESSEE IS SATISFIED THAT THE SAME ARE SUITABLE FOR THIS USE AND THAT THE LESSOR IS NOT A MANUFACTURER OR ENGAGED IN THE SALE OR DISTRIBUTION OF VEHICLES, AND HAS NOT MADE AND DOES NOT HEREBY MAKE ANY REPRESENTATION, WARRANTY OR COVENANT WITH RESPECT TO MERCHANTABILITY, CONDITION, QUALITY, DURABILITY OR SUITABILITY OF SUCH VEHICLE IN ANY RESPECT OR IN CONNECTION WITH OR FOR THE PURPOSES OR USES OF SUCH LESSEE, OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT THERETO. The Lessor shall not be liable for any failure or delay in delivering any Vehicle ordered for lease pursuant to this Agreement, or for any failure to perform any provision hereof, resulting from fire or other casualty, natural disaster, riot, strike or other labor difficulty, governmental regulation or restriction, or any cause beyond the Lessor's direct control. IN NO EVENT SHALL THE LESSOR BE LIABLE FOR ANY INCONVENIENCES, LOSS OF PROFITS OR ANY OTHER CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES RESULTING FROM ANY DEFECT IN OR ANY THEFT, DAMAGE, LOSS OR FAILURE OF ANY VEHICLE, AND THERE SHALL BE NO ABATEMENT OF MONTHLY BASE RENT, SUPPLEMENTAL RENT OR OTHER AMOUNTS PAYABLE HEREUNDER BECAUSE OF THE SAME. 2.5. Lessees' Rights to Purchase Vehicles. Each Lessee shall have the option, exercisable with respect to any Vehicle during the Vehicle Term with respect to such Vehicle, to purchase any Vehicle leased by such Lessee at the greater of (i) the Termination Value or (ii) the Market Value of such Vehicle (the greater of such amounts being referred to as the "Vehicle Purchase Price"), in which event such Lessee will pay the Vehicle Purchase Price to the Lessor on or before the Payment Date with respect to the Related Month in which such Lessee elects to purchase such Vehicle and such Lessee will pay on or before such Payment Date all accrued and unpaid Monthly Base Rent and any Supplemental Rent then due and payable with respect to such Vehicle through such Payment Date. The Lessor shall request title to any such Vehicle to be transferred to the relevant Lessee and the Administrator shall request the Trustee to cause its Lien to be removed from the Certificate of Title for such Vehicle, concurrently with or promptly after the Vehicle Purchase Price for such Vehicle (and any such unpaid Monthly Base Rent and Supplemental Rent) is deposited in the Collection Account. Notwithstanding the foregoing, with respect to any Vehicle that, when acquired by the Lessor, was a Replacement Vehicle, and with respect to any other Vehicle that the Lessor may wish to designate as an Identified Relinquished Vehicle, any Lessee's right to purchase shall be solely in the discretion of the Lessor. 2.6. Lessor's Right to Cause Vehicles to be Sold. If a Lessee does not elect to purchase any Vehicle leased by such Lessee hereunder pursuant to Section 2.5 hereof (or, pursuant to the last sentence of such Section 2.5, is not permitted to purchase a particular Vehicle, then: (a) Notwithstanding anything to the contrary contained herein, with respect to Program Vehicles leased hereunder, and subject to Sections 13.2 and 2.5 hereof, the Lessor shall have the right, at any time following the date ninety (90) days prior to the expiration of the Maximum Term for such Program Vehicle, to require that the Lessee leasing such Program Vehicle from the Lessor hereunder or another Person designated by the Lessor, which Person's compensation will be payable solely from the proceeds from the sale of such Vehicle, exercise commercially reasonable efforts to arrange for the sale of such Vehicle to a third party for the Vehicle Purchase Price with respect to such Vehicle, in which event such Lessee or such other designated Person shall, until not later than the date thirty (30) days prior to the expiration of such Maximum Term, exercise commercially reasonable efforts to arrange for the sale of such Vehicle to a third party for a price (as reduced by the amount of compensation to be paid to any such other designated Person) equal to or greater than the Termination Value thereof. If a sale of such Program Vehicle is arranged by such Lessee or such other designated Person prior to such date thirty (30) days prior to the expiration of such Maximum Term, then (i) such Lessee or such other designated Person shall deliver such Vehicle to the purchaser thereof, (ii) such Lessee or such other designated Person shall cause to be delivered to the Lessor the funds paid for such Vehicle by the purchaser and (iii) the Administrator shall request the Trustee to cause its Lien to be removed from the Certificate of Title for such Vehicle. If such Lessee or such other designated Person is unable to arrange for a sale of such Vehicle prior to such date thirty (30) days prior to the expiration of such Maximum Term, then such Lessee or such other designated Person shall cease attempting to arrange for such a sale and such Lessee shall return such Vehicle, if a Manufacturer Event of Default has not occurred, to the applicable Manufacturer as herein provided (and, if so requested by the Lessor, shall cooperate with the Lessor to effect any such return in accordance with the provisions of the Master Exchange Agreement). (b) With respect to Non-Program Vehicles leased hereunder and subject to the exercise of each Lessee's rights under Section 2.5, each Lessee shall use commercially reasonable efforts to arrange for the sale of each Non-Program Vehicle leased by such Lessee to a third party for the Vehicle Purchase Price with respect to such Vehicle on or prior to the applicable Vehicle Operating Lease Expiration Date. Each Lessee may return a Non-Program Vehicle subject to a Manufacturer Program to the applicable Manufacturer under such Manufacturer Program provided that (i) the Repurchase Price of such Vehicle, together with any Special Default Payments payable by such Lessee with respect to such Vehicle, is at least equal to the Termination Value with respect to such Vehicle, (ii) no Manufacturer Event of Default shall have occurred with respect to such Manufacturer and (iii) by the later of the sixtieth (60th) day after the Initial Closing Date and the date on which such Vehicle is returned to the Manufacturer, the Trustee and the Lender shall have received an assignment of the benefits of such Manufacturer Program, acknowledged in writing by such Manufacturer. Notwithstanding the disposition of a Non-Program Vehicle by such Lessee prior to the applicable Vehicle Operating Lease Expiration Date, such Lessee shall pay to the Lessor all accrued and unpaid Monthly Base Rent and any Supplemental Rent then due and payable with respect to such Non-Program Vehicle through the Payment Date with respect to the Related Month during which such disposition occurred, unless such Non-Program Vehicle is a Standard Casualty or becomes an Ineligible Vehicle, payment for which will be made in accordance with Section 6 hereof. If a sale of such Non-Program Vehicle is arranged by such Lessee pursuant to this Section 2.6(b), then (i) such Lessee shall deliver the Vehicle to the purchaser thereof, (ii) such Lessee shall cause to be delivered to the Lessor the funds paid for such Vehicle by the purchaser and (iii) the Administrator shall request the Trustee to cause its Lien to be removed from the Certificate for Title of such Vehicle. (c) In the event any Vehicle or Vehicles leased hereunder are not purchased by the Lessee of such Vehicle pursuant to Section 2.5, sold to a third party pursuant to Section 2.6(a) or sold to a third party or returned to a Manufacturer pursuant to Section 2.6(b), then, in the case of a Non-Program Vehicle, such Lessee shall return such Vehicle to the Lessor or, in the case of a Program Vehicle, such Lessee shall dispose of such Vehicle in accordance with the procedures set forth in Section 13.2(a), in each case, on the Payment Date with respect to the Related Month in which the applicable Vehicle Operating Lease Expiration Date falls, and such Lessee shall pay an amount equal to all accrued but unpaid Monthly Base Rent and all Supplemental Rent payable with respect to such Vehicles through such Payment Date. 2.7. Redesignation of Vehicles. If a Program Vehicle becomes ineligible for repurchase by its Manufacturer or for sale at auction under the applicable Manufacturer Program or the return of a Program Vehicle to the applicable Manufacturer cannot otherwise be effected for any reason (including by reason of the occurrence of a Manufacturer Event of Default with respect to the Manufacturer of such Program Vehicle or the failure of a Manufacturer to accept such Program Vehicle for repurchase and acceptance is not expected upon a subsequent return), the Lessee of such Vehicle may redesignate the related Program Vehicle as a Non-Program Vehicle, provided that (i) no Amortization Event or Potential Amortization Event has occurred and is continuing and (ii) no violation of the requirements of Section 10.13 of the AESOP I Operating Lease Loan Agreement or Section 2.8 hereof would be caused by such redesignation, and provided further, in each case, that (x) the relevant Lessee of such Vehicle shall pay to the Lessor on the next succeeding Payment Date an amount equal to the difference, if any, between the Net Book Value of such Vehicle as of the date of redesignation and an amount equal to the Net Book Value of such Vehicle as of the date of redesignation had such Vehicle been a Non-Program Vehicle at the time of delivery thereof pursuant to Section 2.1 and (y) the Required Enhancement Amount required under each Supplement, after giving effect to such redesignation, shall be satisfied on the date of redesignation. 2.8. Limitations on the Acquisition or Redesignation of Certain Vehicles. Unless otherwise specified in a Supplement or unless waived by the Required Noteholders as specified in a Supplement, (a) the aggregate Net Book Value of all Vehicles (or such portion thereof as is specified in such Supplement) manufactured by Manufacturers other than Eligible Non-Program Manufacturers and leased under this Agreement (after giving effect to the inclusion of such Vehicle under this Agreement) and the Finance Lease as of such date shall not exceed any applicable Maximum Non-Eligible Manufacturer Amount, (b) the aggregate Net Book Value of all Non-Program Vehicles (or such portion thereof as is specified in such Supplement) leased under this Agreement (after giving effect to the inclusion or redesignation, as the case may be, of such Vehicle under this Agreement) and the Finance Lease as of such date shall not exceed any applicable Maximum Non-Program Vehicle Amount, (c) the aggregate Net Book Value of all Vehicles (or such portion thereof as is specified in such Supplement) manufactured by a particular Manufacturer or group of Manufacturers and leased under the Leases (after giving effect to the inclusion of such Vehicle under this Agreement) as of such date shall not exceed any applicable Maximum Manufacturer Amount, (d) the aggregate Net Book Value of all Vehicles (or such portion thereof as is specified in such Supplement) titled in the States of Ohio, Oklahoma and Nebraska and leased under this Agreement (after giving effect to the inclusion of such Vehicle under this Agreement) and the AESOP II Operating Lease as of such date shall not exceed any applicable Maximum Specified States Amount and (e) after giving effect to the inclusion or redesignation of such Vehicle under this Agreement, there shall not be a failure or violation of any other conditions, requirements or restrictions with respect to the leasing of Eligible Vehicles under this Agreement as is specified in any Supplement. 3. TERM. 3.1. Vehicle Term. (a) The "Vehicle Operating Lease Commencement Date" (x) for each Initial Leased Vehicle shall mean the Initial Closing Date and (y) for each other Vehicle shall mean the day as referenced in the Vehicle Acquisition Schedule with respect to such Vehicle but in no event shall such date be a date later than the date that funds are expended or allocated by the Lessor to acquire such Vehicle or, in the case of a Replacement Vehicle, no later than the date that such Replacement Vehicle is "acquired" (as such term is defined in the Master Exchange Agreement) by the Intermediary pursuant to the Master Exchange Agreement. The "Vehicle Term" with respect to each Vehicle shall extend from the Vehicle Operating Lease Commencement Date through the earliest of (i) if such Vehicle is a Program Vehicle that has not been identified by the Lessor as an Identified Relinquished Vehicle pursuant to Section 3.1 of the Master Exchange Agreement or a Non-Program Vehicle returned to a Manufacturer under a Manufacturer Program in accordance with Section 2.6(b), the Turnback Date for such Vehicle, (ii) if such Vehicle is sold to a third party (other than through an auction conducted by or through or arranged by the Manufacturer pursuant to its Manufacturer Program), the date on which funds in respect of such sale are deposited in the Collection Account (by such third party or by the applicable Lessee or the Guarantor on behalf of such third party) and such funds equal or exceed the Termination Value of such Vehicle, (iii) if such Vehicle becomes a Standard Casualty or an Ineligible Vehicle, the date funds in the amount of the Termination Value thereof are deposited in the Collection Account by the applicable Lessee, (iv) the date that such Vehicle is purchased by the applicable Lessee pursuant to Section 2.5 hereof and the Vehicle Purchase Price with respect to such purchase (and any unpaid Monthly Base Rent and Supplemental Rent with respect to such Vehicle) is deposited in the Collection Account by such Lessee, (v) the date that is the last Business Day of the month that is 18 months after the month in which the Vehicle Operating Lease Commencement Date occurs with respect to such Vehicle, and (vi) if such Vehicle has been designated by the Lessor as an Identified Relinquished Vehicle pursuant to Section 3.1 of the Master Exchange Agreement, the date that such Vehicle is "transferred" to the Intermediary pursuant to Section 3.1 of the Master Exchange Agreement, provided, however, that if such designation as an Identified Relinquished Vehicle is rescinded pursuant to Section 3.6 of the Master Exchange Agreement, such Vehicle shall continue to be a leased Vehicle hereunder, as if such designation had not occurred, until the occurrence of one of the events described in the foregoing clauses (i) through (v) (the earliest of such six dates being referred to as the "Vehicle Operating Lease Expiration Date"). (b) Subject to the provisions of Sections 2.5 and 2.6, each Lessee shall use its commercially reasonable efforts to return each Program Vehicle leased by such Lessee hereunder to the related Manufacturer (or such Manufacturer's agent or as otherwise directed by such Manufacturer in accordance with such Manufacturer Program) (a) not prior to the end of the minimum holding period specified in the related Manufacturer Program (prior to which the Lessor may not return such Program Vehicle without penalty (the "Minimum Term")) and (b) not later than the end of the maximum holding period (after which the Lessor may not return such Program Vehicle without penalty (the "Maximum Term")); provided, however, that each Lessee shall in any case return each Program Vehicle leased by such Lessee hereunder to the related Manufacturer (or such Manufacturer's agent or as otherwise directed by such Manufacturer in accordance with such Manufacturer Program) on or before the Vehicle Operating Lease Expiration Date with respect to such Vehicle pursuant to Section 13.2 hereof. The Lessee of any Program Vehicles returned before the Minimum Term will pay to the Lessor the equivalent of the Monthly Base Rent with respect to such vehicle for the Minimum Term plus any early turn back surcharges payable by the Lessor or deductible from the Repurchase Price of such Vehicle regardless of actual usage, unless such Vehicle is a Standard Casualty or becomes an Ineligible Vehicle, in which case, the disposition of such Vehicle will be handled in accordance with Section 6 hereof. 3.2. Term. The "AESOP I Operating Lease Commencement Date" shall mean the Initial Closing Date. The "AESOP I Operating Lease Expiration Date" shall mean the latest of (i) the date of the payment in full of all Loans (including any Loan Interest thereon) the proceeds of which were used by the Lessor to finance the purchase of Vehicles subject to this Agreement, (ii) the Vehicle Operating Lease Expiration Date for the last Vehicle leased by any Lessee hereunder and (iii) the date on which all amounts payable hereunder and under the Loan Agreements have been paid in full. The "Term" of this Agreement shall mean the period commencing on the AESOP I Operating Lease Commencement Date and ending on the AESOP I Operating Lease Expiration Date. 4. RENT AND CHARGES. Each Lessee will pay Monthly Base Rent and any Supplemental Rent due and payable on a monthly basis (and any Special Service Charges, on the date due and payable) as set forth in this Section 4. 4.1. Payment of Rent. On each Payment Date each Lessee shall pay in immediately available funds to the Lessor not later than 11:00 a.m. New York City time, on such Payment Date, such Lessee's allocable portion of (i) all Monthly Base Rent that has accrued during the Related Month with respect to each Vehicle leased hereunder during or prior to the Related Month and (ii) all Supplemental Rent due and payable on such Payment Date. The portion of Monthly Base Rent allocable to each Lessee will equal (i) with respect to the amounts described in clause (b) of the definition of Monthly Base Rent, the portion thereof that relates to the particular Vehicles leased hereunder by such Lessee and (ii) with respect to other amounts included in the definition of Monthly Base Rent, such Lessee's Share, determined as of the beginning of the Related Month, of such amounts. The portion of Supplemental Rent allocable to each Lessee will equal (i) with respect to Supplemental Rent that relates to particular Vehicles, the portion thereof that relates to the particular Vehicles leased hereunder by such Lessee and (ii) with respect to Supplemental Rent that does not relate to particular Vehicles, such Lessee's Share, determined as of the beginning of the Related Month, of such amounts. 4.2. Special Service Charges. On each Payment Date, or on such other Business Day as the Lessor shall request, each Lessee shall pay in immediately available funds to, or at the direction of, the Lessor, not later than 11:00 a.m., New York City time, on such date, such Lessee's allocable portion of the Special Service Charges determined by the Lessor to be due and payable on such date. The portion of Special Service Charges allocable to each Lessee will equal (i) with respect to Special Service Charges that relate to particular Vehicles, the portion thereof that relates to the particular Vehicles leased hereunder by such Lessee, and (ii) with respect to Special Service Charges that do not relate to particular Vehicles, such Lessee's Share, determined as of the beginning of the Related Month, of such amounts. Each Lessee acknowledges that the Lessor has assigned and transferred its right to payment of such amounts to the Intermediary, together with the right to invoice or request payment thereof, pursuant to the Master Exchange Agreement, and that the Intermediary shall be entitled to further assign and pledge any such rights to the Lender Agent, and that either of the Intermediary or the Lender Agent, as applicable, shall be entitled to exercise the rights to enforce and collect such amounts if any such amounts are not paid when due. The provisions of this Section 4.2 will survive the expiration or earlier termination of the Term. 4.3. Net Lease. THIS AGREEMENT SHALL BE A NET LEASE, AND EACH LESSEE'S OBLIGATION TO PAY ALL MONTHLY BASE RENT, SUPPLEMENTAL RENT AND OTHER SUMS HEREUNDER SHALL BE ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY ABATEMENT, SETOFF, COUNTERCLAIM, DEDUCTION OR REDUCTION FOR ANY REASON WHATSOEVER. The obligations and liabilities of each Lessee hereunder shall in no way be released, discharged or otherwise affected (except as may be expressly provided herein including, without limitation, the right of each Lessee to reject Vehicles pursuant to Section 2.2 hereof) for any reason, including without limitation: (i) any defect in the condition, merchantability, quality or fitness for use of the Vehicles or any part thereof; (ii) any damage to, removal, abandonment, salvage, loss, scrapping or destruction of or any requisition or taking of the Vehicles or any part thereof; (iii) any restriction, prevention or curtailment of or interference with any use of the Vehicles or any part thereof; (iv) any defect in or any Lien on title to the Vehicles or any part thereof; (v) any change, waiver, extension, indulgence or other action or omission in respect of any obligation or liability of such Lessee or the Lessor; (vi) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to such Lessee, the Lessor or any other Person, or any action taken with respect to this Agreement by any trustee or receiver of any Person mentioned above, or by any court; (vii) any claim that such Lessee has or might have against any Person, including without limitation the Lessor; (viii) any failure on the part of the Lessor or any other Lessee to perform or comply with any of the terms hereof or of any other agreement; (ix) any invalidity or unenforceability or disaffirmance of this Agreement or any provision hereof or any of the other Related Documents or any provision of any thereof, in each case whether against or by such Lessee or otherwise; (x) any insurance premiums payable by such Lessee with respect to the Vehicles; or (xi) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, whether or not such Lessee shall have notice or knowledge of any of the foregoing and whether or not foreseen or foreseeable. This Agreement shall be noncancelable by the Lessees and, except as expressly provided herein, each Lessee, to the extent permitted by law, waives all rights now or hereafter conferred by statute or otherwise to quit, terminate or surrender this Agreement, or to any diminution or reduction of Monthly Base Rent, Supplemental Rent or other amounts payable by such Lessee hereunder. All payments by each Lessee made hereunder shall be final (except to the extent of adjustments provided for herein), absent manifest error and, except as otherwise provided herein, each Lessee shall not seek to recover any such payment or any part thereof for any reason whatsoever, absent manifest error. If for any reason whatsoever this Agreement shall be terminated in whole or in part by operation of law or otherwise except as expressly provided herein, each Lessee shall nonetheless pay an amount equal to such Lessee's allocable portion of all Monthly Base Rent, all Supplemental Rent and all other amounts due hereunder at the time and in the manner that such payments would have become due and payable under the terms of this Agreement as if it had not been terminated in whole or in part. All covenants and agreements of each Lessee herein shall be performed at its cost, expense and risk unless expressly otherwise stated. 5. INSURANCE. Each Lessee represents that it shall at all times maintain or cause to be maintained insurance coverage in force as follows: 5.1. Personal Injury and Damage. Insurance coverage as set forth in Section 31.3 hereof. In addition, each Lessee will maintain with respect to each Lessee's properties and businesses insurance against loss or damage of the kind customarily insured against by corporations engaged in the same or similar businesses, of such types and in such amounts as are customarily carried by such similarly situated corporations. 5.2. Delivery of Certificate of Insurance. Within 10 days after the Initial Closing Date (or, with respect to any additional party becoming a "Lessee" hereunder pursuant to the provisions of Section 24 hereof, within 10 days after the date such party becomes a "Lessee" hereunder), each Lessee or the Guarantor shall deliver to the Lessor a certificate(s) of insurance naming the Lender, the Lessor, Original AESOP, PVHC, Quartx, and the Trustee as additional insureds as to the item required by Section 31.3. Such insurance shall not be changed or canceled except as provided below in Section 5.3. 5.3. Changes in Insurance Coverage. No changes shall be made in any of the foregoing insurance requirements unless the prior written consent of the Lessor, the Lender and the Trustee are first obtained. The Lessor may grant or withhold its consent to any proposed change in such insurance in its sole discretion. The Lender and the Trustee shall be required to grant its consent to any proposed change in such insurance upon compliance with the following conditions: (i) The relevant Lessee or the Guarantor shall deliver not less than 30 days' prior written notice of any proposed change in such insurance to the Lender and the Trustee; (ii) The relevant Lessee or the Guarantor shall furnish to the Lender and the Trustee a letter from each Rating Agency with respect to all Outstanding Commercial Paper Notes and Notes rated by such Rating Agency to the effect that such proposed change will not cause a reduction in or a withdrawal of the current rating of such Commercial Paper Notes or the Notes; and (iii) The proposed change will satisfy the Rating Agency Confirmation Condition. 6. RISK OF LOSS; CASUALTY AND INELIGIBLE VEHICLE OBLIGATIONS. 6.1. Risk of Loss Borne by Lessees. Upon delivery of each Vehicle to the Lessee of such Vehicle, as between the Lessor and such Lessee, such Lessee assumes and bears the risk of loss, damage, theft, taking, destruction, attachment, seizure, confiscation or requisition with respect to such Vehicle, however caused or occasioned, and all other risks and liabilities, including personal injury or death and property damage, arising with respect to such Vehicle or the manufacture, purchase, acceptance, rejection, ownership, delivery, leasing, subleasing, possession, use, inspection, registration, operation, condition, maintenance, repair, storage, sale, return or other disposition of such Vehicle, howsoever arising. 6.2. Casualty; Ineligible Vehicles. If a Vehicle becomes a Standard Casualty or an Ineligible Vehicle, then the Lessee of such Vehicle will (i) promptly notify the Lessor thereof and (ii) promptly, but in no event later than the Payment Date with respect to the Related Month during which such Vehicle became a Standard Casualty or an Ineligible Vehicle, pay to the Lessor the Termination Value of such Vehicle (as of the date such Vehicle became a Standard Casualty or an Ineligible Vehicle). Upon payment by such Lessee to the Lessor of the Termination Value of any Vehicle that has become a Standard Casualty or an Ineligible Vehicle (i) the Lessor shall cause title to such Vehicle to be transferred to such Lessee to facilitate liquidation of such Vehicle by such Lessee, (ii) such Lessee shall be entitled to any physical damage insurance proceeds applicable to such Vehicle and (iii) the Administrator shall request the Trustee to cause its Lien to be removed from the Certificate of title for such Vehicle. 7. VEHICLE USE. So long as no AESOP I Operating Lease Event of Default, Liquidation Event of Default or Limited Liquidation Event of Default has occurred (subject, however, to Section 2.6 hereof), each Lessee may use Vehicles leased hereunder in its regular course of business. Such use shall be confined primarily to the United States; provided, however, that the principal place of business or rental office of each Lessee with respect to the Vehicles is located in the United States. The Administrator shall promptly and duly execute, deliver, file and record all such documents, statements, filings and registrations, and take such further actions as the Lessor, the Lender or the Trustee shall from time to time reasonably request in order to establish, perfect and maintain the Lessor's title to and interest in the Vehicles and the Certificates of Title as against each Lessee or any third party in any applicable jurisdiction and to establish, perfect and maintain the Trustee's Lien on the Vehicles and the Certificates of Title (other than noting the Lien of the Trustee on the Certificates of Title with respect to (i) the Initial PVT Vehicles (which shall reflect the Lien of BONY) and (ii) Vehicles titled in the states of Ohio, Oklahoma and Nebraska) as a perfected first lien in any applicable jurisdiction. Each Lessee may, at its sole expense, change the place of principal location of any Vehicles. Notwithstanding the foregoing, no change of location shall be undertaken unless and until (x) all actions necessary to maintain the Lien of the Trustee on such Vehicles and the Certificates of Title (other than noting the Lien of the Trustee on the Certificates of Title with respect to (i) the Initial PVT Vehicles (which shall reflect the Lien of BONY) and (ii) Vehicles titled in the states of Ohio, Oklahoma and Nebraska) with respect to such Vehicles shall have been taken and (y) all legal requirements applicable to such Vehicles shall have been met or obtained. Following the occurrence of an AESOP I Operating Lease Event of Default, a Limited Liquidation Event of Default, a Liquidation Event of Default or a Manufacturer Event of Default, and upon the Lender's request, each Lessee shall advise the Lender in writing where all Vehicles leased hereunder as of such date are principally located. Each Lessee shall not knowingly use any Vehicles or knowingly permit the same to be used for any unlawful purpose. Each Lessee shall use reasonable precautions to prevent loss or damage to Vehicles. Each Lessee shall comply with all applicable statutes, decrees, ordinances and regulations regarding acquiring, titling, registering, leasing, insuring and disposing of Vehicles and shall take reasonable steps to ensure that operators are licensed. Each Lessee and the Lessor agree that such Lessee shall perform, at such Lessee's own expense, such Vehicle preparation and conditioning services with respect to Vehicles leased by such Lessee hereunder as are customary. The Lessor, the Lender or the Trustee or any authorized representative of the Lessor, the Lender or the Trustee may during reasonable business hours from time to time, without disruption of each Lessee's business, subject to applicable law, inspect Vehicles and registration certificates, Certificates of Title and related documents covering Vehicles wherever the same be located. No Lessee shall sublease any Vehicles, nor shall any Lessee assign any right or interest herein or in any Vehicles; provided, however, the foregoing shall not be deemed to prohibit the Lessees from renting Vehicles to third party customers in the ordinary course of their respective car rental businesses. 8. LIENS. Except for Permitted Liens, each Lessee shall keep all Vehicles leased by it hereunder free of all Liens arising during the Term. Upon the Vehicle Operating Lease Expiration Date for each Vehicle leased hereunder should any such Lien exist the Lessor may, in its discretion, remove such Lien and any sum of money that may be paid by the Lessor in release or discharge thereof, including attorneys' fees and costs, will be paid by the Lessee of such Vehicle upon demand by the Lessor. The Lessor may grant security interests in the Vehicles leased by a Lessee hereunder without consent of such Lessee; provided, however, that if any such Liens would interfere with the rights of such Lessee under this Agreement, the Lessor must obtain the prior written consent of such Lessee. Each Lessee agrees and acknowledges that the granting of Liens and the taking of other actions pursuant to the Loan Agreements, the Indenture and the other Related Documents does not interfere with the rights of such Lessee under this Agreement. 9. NON-DISTURBANCE. So long as each Lessee satisfies its obligations hereunder, its quiet enjoyment, possession and use of the Vehicles leased by such Lessee hereunder will not be disturbed during the Term subject, however, to Sections 2.6 and 18 hereof and except that the Lessor and the Trustee each retains the right, but not the duty, to inspect such Vehicles without disturbing the ordinary conduct of such Lessee's business. Upon the request of the Lessor, the Lender or the Trustee from time to time, each Lessee will make reasonable efforts to confirm to the Lessor, the Lender and the Trustee the location, mileage and condition of each Vehicle leased by such Lessee hereunder and to make available for the Lessor's, the Lender's or the Trustee's inspection within a reasonable time period, not to exceed 45 days, such Vehicles at the location where such Vehicles are normally domiciled. Further, each Lessee will, during normal business hours and with a notice of 3 Business Days, make its records pertaining to the Vehicles leased by such Lessee hereunder available to the Lessor, the Lender or the Trustee for inspection at the location where such Lessee's records are normally domiciled. 10. REGISTRATION; LICENSE; TRAFFIC SUMMONSES; PENALTIES AND FINES. Each Lessee, at its expense, shall be responsible for proper registration and licensing of Vehicles leased by such Lessee hereunder, and titling of such Vehicles in the name of the Lessor or its Permitted Nominee (with the Lien of the Trustee noted thereon (except with respect to the Initial PVT Vehicles for which BONY is noted as the first lienholder and Vehicles titled in the States of Oklahoma, Nebraska and Ohio)), and, where required, shall have such Vehicles inspected by any appropriate governmental authority; provided, however, that notwithstanding the foregoing, possession of all Certificates of Title shall at all times remain with the Administrator, who will hold such Certificates of Title in its capacity as agent for the Lessor and on behalf of the Lender and the Trustee. Each Lessee shall be responsible for the payment of all registration fees, title fees, license fees, traffic summonses, penalties, judgments and fines incurred with respect to any Vehicle leased by such Lessee hereunder during the Vehicle Term for such Vehicle or imposed during the Vehicle Term for such Vehicle by any governmental authority or any court of law or equity with respect to such Vehicles in connection with such Lessee's operation of such Vehicles. The Lessor agrees to execute a power of attorney in substantially the form of Attachment C hereto (each, a "Power of Attorney"), and such other documents as may be necessary in order to allow the Lessees to title, register and dispose of the Vehicles leased hereunder in accordance with the terms hereof; provided, however, that possession of all Certificates of Title shall at all times remain with the Administrator who will hold such Certificates of Title in its capacity as agent for the Lessor and on behalf of the Lender and the Trustee, and each Lessee acknowledges and agrees that it has no right, title or interest in or with respect to any Certificate of Title. Notwithstanding anything herein to the contrary, the Lessor may terminate such Power of Attorney as provided in Section 18.3(iii) hereof. 11. MAINTENANCE AND REPAIRS. Each Lessee shall pay for all maintenance and repairs to keep Vehicles leased by such Lessee hereunder in good working order and condition, and such Lessee will maintain such Vehicles as required in order to keep the Manufacturer's warranty in force. Each Lessee will return Vehicles leased by such Lessee hereunder to an authorized Manufacturer facility or such Lessee's Manufacturer authorized warranty station for warranty work. Each Lessee will comply with any Manufacturer's recall of any Vehicle leased by such Lessee hereunder. Each Lessee will pay, or cause to be paid, all usual and routine expenses incurred in the use and operation of Vehicles leased by such Lessee hereunder including, but not limited to, fuel, lubricants, and coolants. Each Lessee agrees that it shall not make any material alterations to any Vehicles without the prior consent of the Lessor. Any improvements or additions to any Vehicles leased hereunder shall become and remain the property of the Lessor, except that any addition to Vehicles made by the Lessee of such Vehicles shall remain the property of such Lessee if such addition can be disconnected from such Vehicles without impairing the functioning of such Vehicles or its resale value, excluding such addition. 12. VEHICLE WARRANTIES. 12.1. No Lessor Warranties. EACH LESSEE ACKNOWLEDGES THAT THE LESSOR IS NOT THE MANUFACTURER, THE AGENT OF THE MANUFACTURER, OR THE DISTRIBUTOR OF THE VEHICLES LEASED BY SUCH LESSEE HEREUNDER. THE LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, AS TO THE FITNESS, SAFENESS, DESIGN, MERCHANTABILITY, CONDITION, QUALITY, CAPACITY OR WORKMANSHIP OF THE VEHICLES NOR ANY WARRANTY THAT THE VEHICLES WILL SATISFY THE REQUIREMENTS OF ANY LAW OR ANY CONTRACT SPECIFICATION, AND AS BETWEEN THE LESSOR AND EACH LESSEE, EACH LESSEE AGREES TO BEAR ALL SUCH RISKS AT ITS SOLE COST AND EXPENSE. EACH LESSEE SPECIFICALLY WAIVES ALL RIGHTS TO MAKE CLAIMS AGAINST THE LESSOR AND ANY VEHICLE FOR BREACH OF ANY WARRANTY OF ANY KIND WHATSOEVER AND, AS TO THE LESSOR, EACH LESSEE LEASES THE VEHICLES "AS IS." IN NO EVENT SHALL THE LESSOR BE LIABLE FOR SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, WHATSOEVER OR HOWSOEVER CAUSED. 12.2. Manufacturer's Warranties. If a Vehicle leased hereunder is covered by a Manufacturer's warranty, the Lessee of such Vehicle, during the Vehicle Term for such Vehicle, shall have the right to make any claims under such warranty which the Lessor could make. 13. VEHICLE USAGE GUIDELINES AND RETURN; SPECIAL DEFAULT PAYMENTS; EARLY TERMINATION PAYMENTS. 13.1. Usage. As used herein "Vehicle Turn-In Condition" (a) with respect to each Program Vehicle leased hereunder will be determined in accordance with the related Manufacturer Program and (b) with respect to each Non-Program Vehicle leased hereunder shall mean (i) if such Non-Program Vehicle is manufactured by the same Manufacturer as any Program Vehicle leased hereunder, the same standard as required with respect to such Program Vehicle and (ii) if such Non-Program Vehicle does not satisfy clause (i) above, that each such Vehicle shall have no body dents, rust, corrosion, paint mismatches or special colors, or paint which is less than factory grade, dented, rusted, broken, missing chrome or trim, ripped or stained, upholstery, seats, dash, headliner, carpeting, trunk, or convertible vinyl top, missing interior trim, sprung or misaligned doors or their openings, or worn, cracked, split, broken or leaking weather-stripping, faulty window mechanisms, or broken, cracked, missing glass, mirrors or lights, faulty electronic systems, including on-board computers, processors, sensors, controls, radios, stereos, and the like, faulty heating, air conditioning or climate control systems, worn or faulty shock absorbers or other suspension or steering parts, systems or mechanisms, excessively worn tires, or any other condition that adversely affects the appearance or operating condition of such Vehicle, in each case other than any such condition that would reasonably be considered to be normal wear and tear or otherwise de minimis by the Manufacturer of such Vehicle (or its authorized agent) under such Manufacturer's Manufacturer Program or, if such Manufacturer does not maintain a Manufacturer Program, under the Manufacturer Program of another Manufacturer with comparable sales volume, and the equivalent of any Excess Damage Charges and Excess Mileage Charges with respect to such Vehicle shall be determined by the Administrator and the Lessor in accordance with the foregoing standard. 13.2. Return. (a) Each Lessee will, subject to Sections 2.5 and 2.6, return each Program Vehicle leased by such Lessee hereunder (other than a Standard Casualty or a Program Vehicle which has become an Ineligible Vehicle) to the nearest related Manufacturer official auction or other facility designated by such Manufacturer at such Lessee's sole expense or to such other location designated by the Lessor (with any additional cost of delivery in excess of what would have been incurred upon delivery to the related Manufacturer at the expense of the Lessor), in each case in accordance with the requirements of Section 3.1(b) hereof. (b) Each Lessee agrees that the Vehicles leased by such Lessee hereunder will be in Vehicle Turn-In Condition upon return to or upon the order of the Lessor. Any rebate or credits applicable to the unexpired term of any license plates for a Vehicle leased by a Lessee hereunder shall inure to the benefit of such Lessee. 13.3. Special Default Payments. (a) Each Lessee will use its best efforts to maintain the Program Vehicles leased by such Lessee hereunder such that no Excess Damage Charges or Excess Mileage Charges will be deductible from the Repurchase Price due from a Manufacturer or payable by the Lessor upon the turn back of such Program Vehicles under the applicable Manufacturer Program. Upon any of (i) receipt of payment of the Repurchase Price of each Program Vehicle leased by a Lessee hereunder from the Manufacturer (or the receipt of payment of the Repurchase Price of each such Program Vehicle sold through an auction conducted by or through a Manufacturer), (ii) receipt of payment of the Repurchase Price of each Relinquished Vehicle from the Manufacturer, or (iii) the date by which the Repurchase Price of each such Program Vehicle turned-back to a Manufacturer would have been paid if not for a Manufacturer Event of Default, the Lessor will charge such Lessee for any Excess Damage Charges and/or Excess Mileage Charges applicable to such Program Vehicle pursuant to the applicable Manufacturer Program (any such charges are referred to as "Program Vehicle Special Default Payments"). (b) Each Lessee will use its best efforts to maintain the Non-Program Vehicles leased by such Lessee hereunder in a manner such that no Non-Program Vehicle Special Default Payments (as defined below) shall be due upon disposition of such Non-Program Vehicles by or for the benefit of the Lessor. Upon disposition of each Non-Program Vehicle leased hereunder by or for the benefit of the Lessor, other than the sale of any Non-Program Vehicle to the Lessee of such Vehicle in accordance with the terms hereof, the Lessor will charge such Lessee (i) if such Non-Program Vehicle is manufactured by the same Manufacturer as any Program Vehicle or is subject to a Manufacturer Program, an amount equal to any Excess Damage Charges and/or Excess Mileage Charges that would be applicable to the comparable Program Vehicle pursuant to the applicable Manufacturer Program or an amount equal to any Excess Damage Charges and/or Excess Mileage Charges that are applicable to such Vehicle pursuant to the applicable Manufacturer Program, as the case may be, and (ii) if such Non-Program Vehicle is subject to a Vehicle Turn-In Condition standard established pursuant to Section 13.1(b)(ii), an amount equal to any charges applicable to such Non-Program Vehicle pursuant to such Vehicle Turn-In Condition standard (any such charges are referred to as "Non-Program Vehicle Special Default Payments" and, together with the Program Vehicle Special Default Payments, the "Special Default Payments"). (c) On each Payment Date, each Lessee shall pay to the Lessor all Special Default Payments that have accrued during the Related Month; provided, however, that in the case of Assigned Special Default Payments, the Lessor, or the Administrator on its behalf, may invoice the relevant Lessee or Lessees for payment of such amounts as may be required to pay amounts owing by the Intermediary pursuant to the Receivables Financing Agreement on a Business Day other than a Payment Date, and may direct the relevant Lessee or Lessees to pay such amounts directly to the Intermediary or to the Lender Agent. The obligation of such Lessee to pay Special Default Payments shall constitute the sole remedy respecting the breach of its covenant contained in the first sentence of each of Section 13.3(a) and 13.3(b). The provisions of this Section 13.3 will survive the expiration or earlier termination of the Term. 13.4. Early Termination Payments. With respect to any Program Vehicle leased by a Lessee hereunder that is turned back to a Manufacturer under its Manufacturer Program (including by the Intermediary pursuant to the Master Exchange Agreement), upon the receipt of the Repurchase Price of such Vehicle from such Manufacturer or upon the date by which the Repurchase Price would have been paid if not for a Manufacturer Event of Default, the Lessor will charge such Lessee an amount equal to (i) the excess, if any, of (x) the Termination Value of such Vehicle (as of the Turnback Date) over (y) the sum of the Repurchase Price received with respect to such Vehicle or that would have been received but for a Manufacturer Event of Default, as applicable, and any Special Default Payments made by such Lessee in respect of such Vehicle pursuant to Section 13.3, plus (ii) any unpaid Monthly Base Rent for the Minimum Term plus any early turn back charges payable or deductible from the Repurchase Price for Program Vehicles returned before the Minimum Term in accordance with Section 3.1(b) hereof (any such amount is referred to as an "Early Termination Payment"). On each Payment Date, each Lessee shall pay to the Lessor all Early Termination Payments that have accrued during the Related Month. The provisions of this Section 13.4 will survive the expiration or earlier termination of the Term. 14. DISPOSITION PROCEDURE. Each Lessee will comply with the requirements of law and the requirements of the Manufacturer Programs in connection with, among other things, the delivery of Certificates of Title and documents of transfer signed as necessary, signed Condition Reports, and signed odometer statements to be submitted with the Program Vehicles or Non-Program Vehicles returned to a Manufacturer pursuant to Section 2.6(b) and accepted by the Manufacturer or its agent at the time of Program Vehicle or Non-Program Vehicle return. 15. ODOMETER DISCLOSURE REQUIREMENT. Each Lessee agrees to comply with all requirements of law and all Manufacturer Program requirements with respect to Vehicles leased by such Lessee hereunder in connection with the transfer of ownership by the Lessor of any such Vehicle leased by such Lessee hereunder, including, without limitation, the submission of any required odometer disclosure statement at the time of any such transfer of ownership. 16. GENERAL INDEMNITY. 16.1. Indemnity by the Lessees and the Guarantor. The Lessees and the Guarantor agree jointly and severally to indemnify and hold harmless the Lessor, the Lender, the Intermediary and the Trustee and the Lessor's, the Lender's, the Intermediary's and the Trustee's directors, officers, stockholders, agents and employees (collectively, the "Indemnified Persons"), on a net after-tax basis against any and all claims, demands and liabilities of whatsoever nature and all costs and expenses relating to or in any way arising out of: 16.1.1. the ordering, delivery, acquisition, title on acquisition, rejection, installation, possession, titling, retitling, registration, re-registration, custody by the Lessees or the Guarantor of title and registration documents, use, non-use, misuse, operation, deficiency, defect, transportation, repair, control or disposition of any Vehicle leased hereunder or to be leased hereunder pursuant to a request by a Lessee. The foregoing shall include, without limitation, any liability (or any alleged liability) of the Lessor to any third party arising out of any of the foregoing, including, without limitation, all legal fees, costs and disbursements arising out of such liability (or alleged liability); 16.1.2. all (i) federal, state, county, municipal or foreign license, qualification, registration, franchise, sales, use, gross receipts, ad valorem, business, property (real or personal), excise, motor vehicle, and occupation fees and taxes, and all federal, state and local income taxes, and penalties and interest thereon, and all other taxes, fees and assessments of any kind whatsoever whether assessed, levied against or payable by the Lessor or otherwise, with respect to any Vehicle leased hereunder or the acquisition, purchase, sale, rental, delivery, use, operation, control, ownership or disposition of any such Vehicle or measured in any way by the value thereof or by the ownership by the Lessor with respect thereto and (ii) documentary, stamp, filing, recording, mortgage or other taxes, if any, which may be payable by the Lessor in connection with this Agreement or any other Related Documents; provided, however, that the following taxes are excluded from the indemnity provided in clauses (i) and (ii) above: (i) any tax on, based on, with respect to, or measured by net income (including federal alternative minimum tax) other than any taxes or other charges which may be imposed as a result of any determination by a taxing authority that the Lessor is not the owner for tax purposes of the Vehicles leased hereunder or that this Agreement is not a "true lease" for tax purposes or that depreciation deductions that would be available to the owner of such Vehicles are disallowed, or that the Lessor is not entitled to include the full purchase price for any such Vehicle in basis including any amounts payable in respect of interest charges, additions to tax and penalties that may be imposed, and all attorneys and accountants fees and expenses and all other fees and expenses that may be incurred in defending against or contesting any such determination; (ii) any withholding tax imposed by the United States federal government other than such a tax imposed as a result of a change in law enacted (including new interpretations thereof), adopted or promulgated after the Initial Closing Date or, if later, the date the Trustee or the Lender acquires its interest in the Vehicles leased hereunder or the Loan Agreements, the Indenture, the Assignment Agreements, or any other related operative documents that causes it to be an Indemnified Person hereunder unless such a tax is enacted, adopted or promulgated as a tax in lieu of, or in substitution for a tax not otherwise indemnifiable hereunder; (iii) any tax with respect to any Vehicle leased by a Lessee hereunder or any transaction relating to such Vehicle to the extent it covers any period beginning after the earlier of (A) the discharge in full of such Lessee's obligation to pay Monthly Base Rent, Supplemental Rent and any other amount payable hereunder with respect to such Vehicle or (B) the expiration or other termination of this Agreement with respect to such Vehicle, unless such tax accrues in respect of any period during which such Lessee holds over such Vehicle; and (iv) any tax that is imposed on an Indemnified Person or any of its Affiliates, to the extent that such tax results from the willful misconduct or gross negligence of such Indemnified Person or such Affiliates; 16.1.3. any violation by any Lessee or the Guarantor of this Agreement or of any Related Documents to which such Lessee or the Guarantor is a party or by which it is bound or of any laws, rules, regulations, orders, writs, injunctions, decrees, consents, approvals, exemptions, authorizations, licenses and withholdings of objecting of any governmental or public body or authority and all other requirements having the force of law applicable at any time to any Vehicle leased hereunder or any action or transaction by any Lessee or the Guarantor with respect thereto or pursuant to this Agreement; 16.1.4. all out of pocket costs of the Lessor (including the fees and out of pocket expenses of counsel for the Lessor) in connection with the execution, delivery and performance of this Agreement and the other Related Documents; 16.1.5. all out of pocket costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by the Lessor, the Lender, the Intermediary or the Trustee in connection with the administration, enforcement, waiver or amendment of this Agreement and any other Related Documents and all indemnification obligations of the Lender or the Lessor under the Related Documents (including all obligations of the Lessor under Section 13.4 and Section 13.5 of the AESOP I Operating Lease Loan Agreement); and 16.1.6. all costs, fees, expenses, damages and liabilities (including, without limitation, the fees and out of pocket expenses of counsel) in connection with, or arising out of, any claim made by any third party against the Lessor for any reason (including, without limitation, in connection with any audit or investigation conducted by a Manufacturer under its Manufacturer Program). If the Lessor shall actually receive any tax benefit (whether by way of offset, credit, deduction, refund or otherwise) not already taken into account in calculating the net after-tax basis for such payment as a result of the payment of any tax indemnified pursuant to this Section 16 or in connection with the circumstances giving rise to the imposition of such tax, such tax benefit shall be used to offset any indemnity payment owed pursuant to this Section 16 or shall be paid to the relevant Lessee (but only to the extent of any prior indemnity payments actually made pursuant to this Section 16 and only after the Lessor shall actually receive such tax benefits), provided, however, that no such payment to such Lessee shall be made while an AESOP I Operating Lease Event of Default shall have occurred and be continuing. 16.2. Reimbursement Obligation by the Lessees and the Guarantor. Each of the Lessees and the Guarantor shall forthwith upon demand reimburse the Lessor or the relevant Indemnified Person for any sum or sums expended with respect to any of the foregoing; provided, however, that to the extent such amounts constitute Excluded Payments, such amounts shall be paid only to the AESOP I Segregated Account; and provided further that, if so requested by the relevant Lessee or the Guarantor, the Lessor shall submit to such Lessee or the Guarantor, as applicable, a statement documenting any such demand for reimbursement or prepayment. To the extent that any Lessee or the Guarantor in fact indemnifies the Lessor under the indemnity provisions of this Agreement, such Lessee or the Guarantor, as applicable, shall be subrogated to the Lessor's rights in the affected transaction and shall have a right to determine the settlement of claims therein. The foregoing indemnity as contained in this Section 16 shall survive the expiration or earlier termination of this Agreement or any lease of any Vehicle hereunder. 16.3. Defense of Claims. The Lessor agrees to notify any relevant Lessee of any claim made against it for which such Lessee may be liable pursuant to this Section 16 and, if such Lessee requests, to contest or allow such Lessee to contest such claim. If any AESOP I Operating Lease Event of Default shall have occurred and be continuing, no contest shall be required, and any contest which has begun shall not be required to be continued to be pursued, unless arrangements to secure the payment of such Lessee's obligations pursuant to this Section 16 hereunder have been made and such arrangements are reasonably satisfactory to the Lessor. The Lessor shall not settle any such claim without such Lessee's consent, which consent shall not be unreasonably withheld. Defense of any claim referred to in this Section 16 for which indemnity may be required shall, at the option and request of the Indemnified Person, be conducted by the relevant Lessee or the Guarantor, as applicable. Such Lessee or the Guarantor, as the case may be, will inform the Indemnified Person of any such claim and of the defense thereof and will provide copies of material documents relating to any such claim or defense to such Indemnified Person upon request. Such Indemnified Person may participate in any such defense at its own expense provided such participation does not interfere with such Lessee's or the Guarantor's assertion of such claim or defense. Each Lessee and the Guarantor agrees that no Indemnified Person will be liable to such Lessee or the Guarantor, as applicable, for any claim caused directly or indirectly by the inadequacy of any Vehicle leased by such Lessee for any purpose or any deficiency or defect therein or the use or maintenance thereof or any repairs, servicing or adjustments thereto or any delay in providing or failure to provide such repairs, servicing or adjustments or any interruption or loss of service or use thereof or any loss of business, all of which shall be the risk and responsibility of such Lessee or the Guarantor. The rights and indemnities of each Indemnified Person hereunder are expressly made for the benefit of, and will be enforceable by, each Indemnified Person notwithstanding the fact that such Indemnified Person is either no longer a party to (or entitled to receive the benefits of) this Agreement, or was not a party to (or entitled to receive the benefits of) this Agreement at its outset. Except as otherwise set forth herein, nothing herein shall be deemed to require any Lessee or the Guarantor to indemnify the Lessor for any of the Lessor's acts or omissions which constitute gross negligence or willful misconduct. This general indemnity shall not affect any claims of the type discussed above which any Lessee or the Guarantor may have against the Manufacturer. 17. ASSIGNMENT. 17.1. Right of the Lessor to Assign this Agreement. The Lessor shall have the right to finance the acquisition and ownership of Vehicles by selling or assigning, in whole or in part, its right, title and interest in this Agreement, including, without limitation, in moneys due from each Lessee and any third party under this Agreement; provided, however, that any such sale or assignment shall be subject to the rights and interest of each Lessee in the Vehicles leased by such Lessee hereunder, including but not limited to such Lessee's right of quiet and peaceful possession of such Vehicles as set forth in Section 9 hereof, and under this Agreement. 17.2. Limitations on the Right of the Lessees to Assign this Agreement. Each Lessee agrees that it shall not, without prior written consent of the Lessor, AFC-II and the Trustee and without having satisfied the Rating Agency Consent Condition and the CP Rating Agency Condition, assign this Agreement or any of its rights hereunder to any other party; provided, however, that each Lessee may rent the Vehicles leased by such Lessee hereunder under the terms of its normal daily rental programs. Any purported assignment in violation of this Section 17.2 shall be void and of no force or effect. Nothing contained herein shall be deemed to restrict the right of any Lessee to acquire or dispose of, by purchase, lease, financing, or otherwise, motor vehicles that are not subject to the provisions of this Agreement. 18. DEFAULT AND REMEDIES THEREFOR. 18.1. Events of Default. Any one or more of the following will constitute an event of default (an "AESOP I Operating Lease Event of Default") as that term is used herein: 18.1.1. there occurs (i) a default in the payment of the portion of Monthly Base Rent that relates to the Loan Principal Amount, the Special Default Payments, the Early Termination Payments, Vehicle Purchase Price or Termination Value upon a Standard Casualty or when a Vehicle becomes an Ineligible Vehicle or upon a Vehicle Return Default or any Supplemental Rent (to the extent not included in any of the foregoing) and the continuance thereof for a period of five Business Days or (ii) a default and continuance thereof for five Business Days after notice thereof by the Lessor or the Trustee to the relevant Lessee or the Guarantor in the payment of any amount payable under this Agreement (other than amounts described in clause (i) above); 18.1.2. any unauthorized assignment or transfer of this Agreement by any Lessee or the Guarantor occurs; 18.1.3. the failure, in any material respect, of any Lessee and the Guarantor to maintain, or cause to be maintained, insurance as required in Section 5 or Section 31.3; 18.1.4. the failure of any Lessee and the Guarantor to observe or perform any other covenant, condition, agreement or provision hereof, including, but not limited to, usage, and maintenance, and such default continues for more than thirty (30) days after the date written notice thereof is delivered by the Lessor or the Trustee to such Lessee; 18.1.5. if any representation or warranty made by any Lessee or the Guarantor herein is inaccurate or incorrect or is breached or is false or misleading in any material respect as of the date of the making thereof or any schedule, certificate, financial statement, report, notice, or other writing furnished by or on behalf of such Lessee or the Guarantor to the Lessor or the Trustee is false or misleading in any material respect on the date as of which the facts therein set forth are stated or certified, and the circumstance or condition in respect of which such representation, warranty or writing was inaccurate, incorrect, breached, false or misleading in any material respect, as the case may be, shall not have been eliminated or otherwise cured for thirty (30) days after the earlier of (x) the date of the receipt of written notice thereof from the Lessor, the Lender or the Trustee to the Guarantor or such Lessee and (y) the date the Guarantor or such Lessee learns of such circumstance or condition; 18.1.6. an Event of Bankruptcy occurs with respect to any Lessee or the Guarantor; 18.1.7. a Loan Event of Default occurs; 18.1.8. a Finance Lease Event of Default or an AESOP II Operating Lease Event of Default occurs; or 18.1.9. the Pension Benefit Guaranty Corporation or the Internal Revenue Service shall have filed notice of one or more liens against a Lessee (unless such lien does not purport to cover the Collateral or any amount payable under the Leases), and, in the case of notice filed by the Internal Revenue Service, such notice shall have remained in effect for more than thirty (30) days unless, prior to the expiration of such period, such Lessee shall have provided the Lessor with a bond in an amount at least equal to the amount of such lien or, in the case of any such lien in an amount less than $1,000,000, such Lessee shall have established to the reasonable satisfaction of the Lessor that such lien is being contested in good faith and that adequate reserves have been established in respect of the claim giving rise to such lien. 18.2. Effect of AESOP I Operating Lease Event of Default or Liquidation Event of Default. If any AESOP I Operating Lease Event of Default described in Section 18 or any Liquidation Event of Default shall occur, (i) the rights of the Lessees to place Vehicle Orders pursuant to Section 2.1 and to lease additional Vehicles from the Lessor shall immediately terminate, and (ii) if AFC-II has declared the Loan Note under any Loan Agreement to be due and payable pursuant to Section 12.2 of such Loan Agreement, (x) any accrued and unpaid Monthly Base Rent, Supplemental Rent and all other payments accrued but unpaid under this Agreement (calculated as if all Vehicles leased hereunder had become a Standard Casualty for the Related Month and the full amount of interest on such Loan Note was then due and payable in full) shall, automatically, without further action by the Lessor or the Trustee, become immediately due and payable and (y) each Lessee shall, at the request of the Lessor, return or cause to be returned all Vehicles leased by such Lessee subject to this Agreement (and the Administrator shall deliver to the Trustee the Certificates of Title relating thereto) to the Lessor in accordance with the provisions of Section 13.2 hereof. 18.3. Rights of Lessor Upon AESOP I Operating Lease Event of Default, Limited Liquidation Event of Default or Liquidation Event of Default. If an AESOP I Operating Lease Event of Default, Limited Liquidation Event of Default or Liquidation Event of Default shall occur, then the Lessor at its option may: (i) Proceed by appropriate court action or actions, either at law or in equity, to enforce performance by the Lessees (or any Lessee(s) against which the Lessor determines to exercise its remedies hereunder) or the Guarantor of the applicable covenants and terms of this Agreement or to recover damages for the breach hereof calculated in accordance with Section 18.5; or (ii) By notice in writing to the Lessees (or any Lessee(s) against which the Lessor determines to exercise its remedies hereunder), terminate this Agreement in its entirety and/or the right of possession hereunder of the Lessees (or in respect only of the applicable Lessee(s)) of Vehicles leased hereunder, and the Lessor may direct delivery by the Lessees (or in respect only of the applicable Lessee(s)) or the Guarantor of documents of title to the Vehicles leased hereunder, whereupon all rights and interests of the Lessees (or the applicable Lessee(s)) or the Guarantor to such Vehicles will cease and terminate (but the Lessees (or the applicable Lessee(s)) and the Guarantor will remain liable hereunder as herein provided, provided, however, that their liability will be calculated in accordance with Section 18.5); and thereupon, the Lessor or its agents may peaceably enter upon the premises of the applicable Lessee(s) or other premises where such Vehicles may be located and take possession of them and thenceforth hold, possess and enjoy the same free from any right of the Lessees (or the applicable Lessee(s)) or the Guarantor, or their successors or assigns, to use such Vehicles for any purpose whatsoever, and the Lessor will, nevertheless, have a right to recover from the Lessees (or the applicable Lessee(s)) or the Guarantor any and all amounts which under the terms of this Section 18.3 (as limited by Section 18.5 of this Agreement) as may be then due. The Lessor will provide the applicable Lessee(s) with written notice of the place and time of the sale at least five days prior to the proposed sale, which shall be deemed commercially reasonable, and any Lessee may purchase such Vehicle(s) at the sale. Each and every power and remedy hereby specifically given to the Lessor will be in addition to every other power and remedy hereby specifically given or now or hereafter existing at law, in equity or in bankruptcy and each and every power and remedy may be exercised from time to time and simultaneously and as often and in such order as may be deemed expedient by the Lessor; provided, however, that the measure of damages recoverable against the Lessees will in any case be calculated in accordance with Section 18.5. All such powers and remedies will be cumulative, and the exercise of one will not be deemed a waiver of the right to exercise any other or others. No delay or omission of the Lessor in the exercise of any such power or remedy and no renewal or extension of any payments due hereunder will impair any such power or remedy or will be construed to be a waiver of any default or any acquiescence therein. Any extension of time for payment hereunder or other indulgence duly granted to the Lessees (or the applicable Lessee(s)) or the Guarantor will not otherwise alter or affect the Lessor's rights or the obligations hereunder of such Lessee(s) and the Guarantor. The Lessor's acceptance of any payment after it will have become due hereunder will not be deemed to alter or affect the Lessor's rights hereunder with respect to any subsequent payments or defaults therein; or (iii) By notice in writing to the Lessees (or any Lessee(s) against which the Lessor determines to exercise its remedies hereunder), terminate the Power of Attorney. 18.4. Rights of Lender and Trustee Upon Liquidation Event of Default, Limited Liquidation Event of Default and Non-Performance of Certain Covenants. (i) If a Liquidation Event of Default or a Limited Liquidation Event of Default shall have occurred and be continuing, the Lender and the Trustee, to the extent provided in the Indenture, shall have the rights against the Guarantor, the Lessee(s), and the AESOP I Operating Lease Loan Collateral provided in the Indenture upon a Liquidation Event of Default or a Limited Liquidation Event of Default, as the case may be, including the right to take possession of all or a portion of the Vehicles leased hereunder immediately from the Lessee(s) of such Vehicles. (ii) If the Guarantor or any Lessee shall default in the due performance and observance of any of its obligations under Section 31.3, 31.4, 31.5(iv), 31.10, 32.3 or 32.4 hereof, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to such Lessee by the Lessor, the Lender or the Trustee, as assignee of the Lessor's rights hereunder, shall have the ability to exercise all rights, remedies, powers, privileges and claims of the Guarantor or any Lessee against the Manufacturers under or in connection with the Manufacturer Programs with respect to (i) Program Vehicles the Lessee thereof has determined to turn back to the Manufacturers under such Manufacturer Programs (excluding Relinquished Vehicles) and (ii) whether or not the Lessee thereof shall then have determined to turn back such Program Vehicles, any Program Vehicles for which the applicable Repurchase Period will end within one week or less. (iii) Upon a default in the performance (after giving effect to any grace periods provided herein) by the Guarantor or any Lessee of its obligations hereunder to keep the Vehicles leased hereunder free of Liens (other than Permitted Liens) and to maintain the Trustee's first priority perfected security interest in the AESOP I Operating Lease Loan Collateral, the Lessor or the Trustee shall have the right to take actions reasonably necessary to correct such default with respect to the subject Vehicles including the execution of UCC financing statements with respect to Manufacturer Programs and other general intangibles and the completion of Vehicle Perfection and Documentation Requirements on behalf of the Guarantor or any Lessee as applicable. (iv) Upon the occurrence of a Liquidation Event of Default or a Limited Liquidation Event of Default, each Lessee shall return any Program Vehicles leased by such Lessee hereunder to the related Manufacturer in accordance with the instructions of the Lessor. To the extent any Manufacturer fails to accept any such Program Vehicles under the terms of the applicable Manufacturer Program, the Lessor shall have the right to otherwise dispose of such Program Vehicles and to direct the Lessee thereof to dispose of such Program Vehicles in accordance with its instructions. Upon the occurrence of a Liquidation Event of Default or a Limited Liquidation Event of Default, each Lessee shall dispose of any Non-Program Vehicles leased by such Lessee hereunder in accordance with the instructions of the Lessor. To the extent any Lessee fails to so dispose of any such Non-Program Vehicles, the Lessor shall have the right to otherwise dispose of such Non-Program Vehicles. In addition, following the occurrence of a Liquidation Event of Default or a Limited Liquidation Event of Default, the Lessor shall have all of the rights, remedies, powers, privileges and claims vis-a-vis the Guarantor or any Lessee, necessary or desirable to allow (a) the Lender to exercise the rights, remedies, powers, privileges and claims given to the Lender pursuant to Section 12.3 of the AESOP I Operating Lease Loan Agreement, and each of the Guarantor and each Lessee acknowledges that it has hereby granted to the Lessor all of the rights, remedies, powers, privileges and claims granted by the Lessor to the Lender pursuant to Article 7 of the AESOP I Operating Lease Loan Agreement and that, under certain circumstances set forth in the AESOP I Operating Lease Loan Agreement, the Lender may act in lieu of the Lessor in the exercise of such rights, remedies, powers, privileges and claims and (b) the Trustee to exercise the rights, remedies, powers, privileges and claims given to the Trustee pursuant to Sections 3.3 and 9.2 of the Indenture, and each of the Guarantor and each Lessee acknowledges that it has hereby granted to the Lessor all of the rights, remedies, powers, privileges and claims granted by the Lender to the Trustee pursuant to Article 3 of the Indenture and that, under certain circumstances set forth in the Indenture, the Trustee may act in lieu of the Lessor in the exercise of such rights, remedies, powers, privileges and claims. 18.5. Measure of Damages. If an AESOP I Operating Lease Event of Default, a Limited Liquidation Event of Default or a Liquidation Event of Default occurs and the Lessor, the Lender or the Trustee exercises the remedies granted to the Lessor, the Lender or the Trustee under this Article 18, the amount that the Lessor shall be permitted to recover shall be equal to: (i) all Monthly Base Rent, all Supplemental Rent and all other payments payable under this Agreement (calculated as provided in Section 18.2); plus (ii) any damages and expenses, including reasonable attorneys' fees and expenses (but excluding net after-tax losses of federal and state income tax benefits to which the Lessor would otherwise be entitled as a result of this Agreement), which the Lessor, the Lender or the Trustee will have sustained by reason of the AESOP I Operating Lease Event of Default, Limited Liquidation Event of Default or Liquidation Event of Default, together with reasonable sums for such attorneys' fees and such expenses as will be expended or incurred in the seizure, storage, rental or sale of the Vehicles leased hereunder or in the enforcement of any right or privilege hereunder or in any consultation or action in such connection; plus (iii) interest on amounts due and unpaid under this Agreement at the applicable Lender's Carrying Cost Interest Rate plus 1.0% from time to time computed from the date of the AESOP I Operating Lease Event of Default, Limited Liquidation Event of Default or Liquidation Event of Default or the date payments were originally due to the Lessor under this Agreement or from the date of each expenditure by the Lessor which is recoverable from the Lessees pursuant to this Section 18, as applicable, to and including the date payments are made by the Lessees. 18.6. Vehicle Return Default. If any Lessee fails to comply with the provisions of (a) Section 13.2 hereof with respect to any Vehicle leased by such Lessee hereunder or (b) Section 3.1 with respect to returning any Program Vehicles leased by such Lessee hereunder to the related Manufacturer not later than the end of the Maximum Term (each, a "Vehicle Return Default"), and the Vehicle is not redesignated as a Non-Program Vehicle in accordance with Section 2.7, then the Lessor at its option may: (i) proceed by appropriate court action or actions, either at law or equity, to enforce performance by such Lessee of such covenants and terms of this Agreement or to recover damages for the breach hereof calculated in accordance with Section 18.5 as it relates to such Vehicle; or (ii) by notice in writing to such Lessee following the occurrence of such Vehicle Return Default, terminate the Agreement with respect to such Vehicle and/or the right of possession hereunder of such Lessee with respect to such Vehicle and the Lessor may direct delivery by such Lessee or the Guarantor of documents of title to such Vehicle, whereupon all rights and interests of such Lessee and the Guarantor to such Vehicle will cease and terminate (but such Lessee and the Guarantor will remain liable hereunder as herein provided, provided, however, that their liability will be calculated in accordance with Section 18.5 as it relates to such Vehicle); and thereupon the Lessor or its agents may peaceably enter upon the premises of such Lessee or other premises where the Vehicle may be located and take possession of it and thenceforth hold, possess and enjoy the same free from any right of such Lessee or the Guarantor or their successors or assigns to use such Vehicle for any purpose whatsoever and the Lessor will nevertheless have a right to recover from such Lessee or the Guarantor any and all amounts which, under the terms of this Agreement may then be due. The Lessor will provide such Lessee with written notice of the place and time of the sale of such Vehicle at least five days prior to the proposed sale, which sale shall be deemed commercially reasonable and such Lessee may purchase the Vehicle at such sale; or (iii) hold, keep idle or lease to others such Vehicle, as the Lessor in its sole discretion may determine, free and clear of any rights of such Lessee without any duty to account to such Lessee with respect to such action or inaction or for any proceeds with respect to such action or inaction except that such Lessee's obligation to pay Monthly Base Rent for periods commencing after such Lessee shall have been deprived of the use of such Vehicle pursuant to this clause (iii) shall be reduced by the net proceeds, if any, received by the Lessor from leasing such Vehicle to any person other than such Lessee for the same period or any portion thereof; or (iv) whether or not the Lessor shall have exercised or shall thereafter exercise any of the rights under the foregoing clauses (i), (ii) or (iii), demand by written notice to such Lessee that such Lessee pay to the Lessor immediately, and such Lessee shall so pay to the Lessor as liquidated damages for loss of a bargain and not as a penalty, any unpaid Monthly Base Rent due through the Payment Date with respect to the Related Month during which such Vehicle is rejected by the Manufacturer or otherwise is not returned to the Manufacturer or on the date such Lessee is required to, but does not, sell, return or otherwise dispose of such Vehicle pursuant to Section 3.1 or 2.6(b) hereof, any Supplemental Rent then accrued and unpaid plus whichever of the following amounts the Lessor, in its sole discretion shall specify in such notice: (1) an amount equal to the excess, if any, of the Termination Value for such Vehicle over the Market Value of such Vehicle as of (a) the date such Vehicle (if such Vehicle is a Program Vehicle) is rejected by a Manufacturer for not meeting its Manufacturer Program's Vehicle Turn-In Condition guidelines, or (b) the date such Lessee is required to, but does not, sell, return or otherwise dispose of such Vehicle (if such Vehicle is a Non-Program Vehicle) pursuant to Section 3.1 or 2.6(b) hereof; or (2) an amount equal to the Termination Value for such Vehicle as of (a) the date such Vehicle is rejected by a Manufacturer for not meeting its Manufacturer Program's Vehicle Turn-In Condition guidelines (if such Vehicle is a Program Vehicle), or (b) the date such Lessee is required to, but does not, sell, return or otherwise dispose of such Vehicle (if such Vehicle is a Non-Program Vehicle) pursuant to Section 3.1 or 2.6(b) hereof, in which event (x) the Lessor shall cause title to such Vehicle to be transferred to such Lessee, (y) such Lessee shall be entitled to any physical damage insurance proceeds applicable to such Vehicle, and (z) the Administrator shall request the Trustee to cause its Lien to be removed from the Certificate of Title for such Vehicle. (v) If the Lessor shall have sold any Vehicle pursuant to clause (ii) above, the Lessor in lieu of exercising its rights under clause (iv) above with respect to such Vehicle may, if it shall so elect, demand that the relevant Lessee of such Vehicle pay to the Lessor and such Lessee shall pay to the Lessor on the date of such sale as liquidated damages for loss of a bargain and not as a penalty, any unpaid Monthly Base Rent and Supplemental Rent due through such date of sale plus the amount of any deficiency between the net proceeds of such sale and the Termination Value of such Vehicle computed as of the date of the sale. 18.7. Application of Proceeds. The proceeds of any sale or other disposition pursuant to Section 18.2, 18.3 or 18.6 shall be applied by the Lessor in its sole discretion as the Lessor deems appropriate. 19. MANUFACTURER EVENTS OF DEFAULT. (a) Upon the occurrence of a Manufacturer Event of Default with respect to any Manufacturer (a "Defaulting Manufacturer"), each Lessee, on behalf of the Lessor (i) shall no longer place Vehicle Orders for additional Program Vehicles from such Manufacturer and (ii) shall cancel any Vehicle Order with such Defaulting Manufacturer for any Program Vehicle with respect to which a VIN has not been assigned as of the date such Manufacturer Event of Default occurs. (b) Upon the occurrence of a Manufacturer Event of Default, each Lessee agrees to (i) act at the direction of the Lessor, the Lender or the Trustee to take commercially reasonable action to liquidate the Program Vehicles subject to a Manufacturer Program with respect to which such Manufacturer Event of Default has occurred or (ii) convert such Program Vehicles to Non-Program Vehicles in accordance with Section 2.7 hereof and subject to the limitations set forth therein. (c) Upon the occurrence of a Manufacturer Event of Default, except as provided in Section 13.3, no Lessee shall be liable for any failure by the Lessor to recover all or any portion of the Repurchase Price with respect to any Program Vehicles subject to the Manufacturer Program of the Defaulting Manufacturer; provided, however, that nothing in this Section 19 shall be construed to modify, terminate or otherwise affect the Lessees' obligations under this Agreement. 20. [RESERVED]. 21. [RESERVED]. 22. CERTIFICATION OF TRADE OR BUSINESS USE. Each Lessee hereby warrants and certifies, under penalties of perjury, that it intends to use the Vehicles which are subject to this Agreement, in its trade or business. 23. SURVIVAL. In the event that, during the term of this Agreement, any Lessee or the Guarantor becomes liable for the payment or reimbursement of any obligations, claims or taxes pursuant to any provision hereof, such liability will continue, notwithstanding the expiration or termination of this Agreement, until all such amounts are paid or reimbursed by such Lessee or the Guarantor. 24. ADDITIONAL LESSEES. Any Eligible Rental Car Company shall have the right to become a "Lessee" under and pursuant to the terms of this Agreement by complying with the provisions of this Section 24. In the event an Eligible Rental Car Company desires to become a "Lessee" under this Agreement, then the Guarantor and such Eligible Rental Car Company shall execute (if appropriate) and deliver to the Lessor, the Lender and the Trustee: (i) a Joinder in Lease Agreement in the form attached hereto as Attachment D (each, a "Joinder in Lease"); (ii) the certificate of incorporation for such Eligible Rental Car Company, duly certified by the Secretary of State of the jurisdiction of such Eligible Rental Car Company's incorporation, together with a copy of the by-laws of such Eligible Rental Car Company, duly certified by a Secretary or Assistant Secretary of such Eligible Rental Car Company; (iii) copies of resolutions of the Board of Directors of such Eligible Rental Car Company authorizing or ratifying the execution, delivery and performance, respectively, of those documents and matters required of it with respect to this Agreement, duly certified by the Secretary or Assistant Secretary of such Eligible Rental Car Company; (iv) a certificate of the Secretary or Assistant Secretary of such Eligible Rental Car Company certifying the names of the individual or individuals authorized to sign the Joinder in Lease and the other Related Documents to be executed by it, together with samples of the true signatures of each such individual; (v) a good standing certificate for such Eligible Rental Car Company in the jurisdiction of its incorporation and the jurisdiction of its principal place of business; (vi) a written search report from a Person satisfactory to the Lessor, the Lender and the Trustee listing all effective financing statements that name such Eligible Rental Car Company as debtor or assignor, and that are filed in the jurisdictions in which filings were made pursuant to clause (vii) below, together with copies of such financing statements, and tax and judgment lien search reports from a Person satisfactory to the Lessor, the Lender and the Trustee showing no evidence of liens filed against such Eligible Rental Car Company that purport to affect any Vehicles leased hereunder or any Collateral under the Base Indenture; (vii) evidence of the filing of proper financing statements on Form UCC-1 naming such Eligible Rental Car Company, as debtor, and the Lessor as secured party covering the collateral described in Section 2(b) hereof; (viii) evidence of the filing of proper financing statements on Form UCC-1 naming such Eligible Rental Car Company, as debtor, and the Trustee as secured party covering the collateral described in Section 2(b) hereof; (ix) an Officer's Certificate and an opinion of counsel each stating that such joinder by such Eligible Rental Car Company complies with this Section 24 and that all conditions precedent herein provided for relating to such transaction have been complied with; (x) an Officer's Certificate from such Eligible Rental Car Company, as to itself, and from the Guarantor, as to itself and such Eligible Rental Car Company, stating that the representations and warranties contained in Section 30 hereof are true and correct; (xi) an opinion of counsel stating that such Joinder in Lease and the other Related Documents to which such Eligible Rental Car Company is a party are legal, valid and binding agreements of such Eligible Rental Car Company, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally and to general principles of equity; (xii) (1) pro forma unaudited financial statements consisting of consolidated and consolidating balance sheets and cash flow statements of the Guarantor and its Consolidated Subsidiaries as of the end of the fiscal year of the Guarantor immediately preceding the date such Eligible Rental Car Company proposes to become a "Lessee" under this Agreement and a statement of income and retained earnings of the Guarantor and its Consolidated Subsidiaries for such fiscal year, setting forth in comparative form the corresponding figures for the corresponding period of the preceding fiscal year; (2) a computation of the financial covenants required to be complied with pursuant to the Working Capital Facility, in each case for each of the fiscal years referred to above based on the pro forma financial information presented above; and (3) an Officer's Certificate verifying the accuracy and completeness of such financial statements and computations signed by an Authorized Officer of the Guarantor. Such unaudited financial statements and computations shall reflect the financial results of such Eligible Rental Car Company as a consolidated direct or indirect (as applicable) Wholly-Owned Subsidiary of the Guarantor as if such Eligible Rental Car Company had been directly or indirectly wholly-owned by the Guarantor as of the beginning of the earliest fiscal year shown. No Eligible Rental Car Company shall become a "Lessee" under this Agreement unless the Guarantor is in compliance on a pro forma basis with the financial covenants required to be complied with pursuant to the Working Capital Facility for each of the fiscal years referred to above; and (xiii) any additional documentation that the Lessor or the Trustee may require to evidence the assumption by such Eligible Rental Car Company of the obligations and liabilities set forth in this Agreement. Upon satisfaction of the foregoing conditions and receipt by such Eligible Rental Car Company of the applicable Joinder in Lease executed by the Lessor, such Eligible Rental Car Company shall for all purposes be deemed to be a "Lessee" for purposes of this Agreement and shall be entitled to the benefits and subject to the liabilities and obligations of a Lessee hereunder. Each Eligible Rental Car Company that becomes a Lessee hereunder shall provide prompt written notice thereof to each Rating Agency. 25. TITLE. This is an agreement to lease only and title to Vehicles will at all times remain in the Lessor's name or in the name of the Lessor's Permitted Nominee. None of the Lessees nor the Guarantor will have any rights or interest in Vehicles whatsoever other than the right of possession and use as provided by this Agreement. 26. GUARANTY. 26.1. Guaranty. In order to induce the Lessor to execute and deliver this Agreement and to lease Vehicles to the Lessees, and in consideration thereof, the Guarantor hereby (i) unconditionally and irrevocably guarantees to the Lessor the obligations of the Lessees to make any payments required to be made by them under this Agreement, (ii) agrees to cause the Lessees to duly and punctually perform and observe all of the terms, conditions, covenants, agreements and indemnities of the Lessees under this Agreement, and (iii) agrees that, if for any reason whatsoever, any Lessee fails to so perform and observe such terms, conditions, covenants, agreements and indemnities, the Guarantor will duly and punctually perform and observe the same (the obligations referred to in clauses (i) through (iii) above are collectively referred to as the "Guaranteed Obligations"). The liabilities and obligations of the Guarantor under the guaranty contained in this Section 26 (this "Guaranty") will be absolute and unconditional under all circumstances. Without limiting the foregoing, the Guarantor affirms and ratifies its guaranty as set forth in the Prior AESOP I Operating Lease and confirms that the liabilities and obligations of the Guarantor thereunder will be absolute and unconditional under all circumstances and that the execution of this Agreement shall not in any way affect such liabilities and obligations arising prior to the date hereof. This Guaranty shall be a guaranty of payment and performance and not merely of collection, and the Guarantor hereby agrees that it shall not be required that the Lessor, the Lender or the Trustee assert or enforce any rights against any Lessee or any other person before or as a condition to the obligations of the Guarantor pursuant to this Guaranty. 26.2. Scope of Guarantor's Liability. The Guarantor's obligations hereunder are independent of the obligations of any Lessee(s), any other guarantor or any other Person, and the Lessor may enforce any of its rights hereunder independently of any other right or remedy that the Lessor may at any time hold with respect to this Agreement or any security or other guaranty therefor. Without limiting the generality of the foregoing, the Lessor may bring a separate action against the Guarantor without first proceeding against any Lessee(s), any other guarantor or any other Person, or any security held by the Lessor, and regardless of whether any Lessee(s) or any other guarantor or any other Person is joined in any such action. The Guarantor's liability hereunder shall at all times remain effective with respect to the full amount due from any Lessee(s) hereunder, notwithstanding any limitations on the liability of any Lessee(s) to the Lessor contained in any of the Related Documents or elsewhere. The Lessor's rights hereunder shall not be exhausted by any action taken by the Lessor until all Guaranteed Obligations have been fully paid and performed. The liability of the Guarantor hereunder shall be reinstated and revived, and the rights of the Lessor shall continue, with respect to any amount at any time paid on account of the Guaranteed Obligations which shall thereafter be required to be restored or returned by the Lessor upon the bankruptcy, insolvency or reorganization of any Lessee(s), any other guarantor or any other Person, or otherwise, all as though such amount had not been paid. 26.3. Lessor's Right to Amend this Agreement, Etc. The Guarantor hereby acknowledges and consents to the amendments of the Prior AESOP I Operating Lease made hereby, and the Guarantor hereby authorizes the Lessor, at any time and from time to time without notice and without affecting the liability of the Guarantor hereunder, to: (a) alter the terms of all or any part of the Guaranteed Obligations and any security and guaranties therefor including without limitation modification of times for payment and rates of interest; (b) accept new or additional instruments, documents, agreements, security or guaranties in connection with all or any part of the Guaranteed Obligations; (c) accept partial payments on the Guaranteed Obligations; (d) waive, release, reconvey, terminate, abandon, subordinate, exchange, substitute, transfer, compound, compromise, liquidate and enforce all or any part of the Guaranteed Obligations and any security or guaranties therefor, and apply any such security and direct the order or manner of sale thereof (and bid and purchase at any such sale), as the Lessor in its discretion may determine; (e) release any Lessee, any other guarantor or any other Person from any personal liability with respect to all or any part of the Guaranteed Obligations; and (f) assign its rights under this Guaranty in whole or in part. 26.4. Waiver of Certain Rights by Guarantor. The Guarantor hereby waives each of the following to the fullest extent allowed by law: (a) all statutes of limitation as a defense to any action brought by the Lessor against the Guarantor; (b) any defense based upon: (i) the unenforceability or invalidity of all or any part of the Guaranteed Obligations or any security or other guaranty for the Guaranteed Obligations or the lack of perfection or failure of priority of any security for the Guaranteed Obligations; or (ii) any act or omission of the Lessor or any other Person that directly or indirectly results in the discharge or release of any Lessee or any other Person or any of the Guaranteed Obligations or any security therefor; or (iii) any disability or any other defense of any Lessee or any other Person with respect to the Guaranteed Obligations, whether consensual or arising by operation of law or any bankruptcy, insolvency or debtor-relief proceeding, or from any other cause; (c) any right (whether now or hereafter existing) to require the Lessor, as a condition to the enforcement of this Guaranty, to: (i) accelerate the Guaranteed Obligations; or (ii) give notice to the Guarantor of the terms, time and place of any public or private sale of any security for the Guaranteed Obligations; or (iii) proceed against any Lessee, any other guarantor or any other Person, or proceed against or exhaust any security for the Guaranteed Obligations. (d) all rights of subrogation, all rights to enforce any remedy that the Lessor now or hereafter has against any Lessee or any other Person, and any benefit of, and right to participate in, any security now or hereafter held by the Lessor with respect to the Guaranteed Obligations; (e) presentment, demand, protest and notice of any kind, including without limitation notices of default and notice of acceptance of this Guaranty; (f) all suretyship defenses and rights of every nature otherwise available under New York law and the laws of any other jurisdiction; and (g) all other rights and defenses the assertion or exercise of which would in any way diminish the liability of the Guarantor hereunder. 26.5. [RESERVED]. 26.6. Guarantor to Pay Lessor's Expenses. The Guarantor agrees to pay to the Lessor, on demand, all costs and expenses, including attorneys' and other professional and paraprofessional fees, incurred by the Lessor in exercising any right, power or remedy conferred by this Guaranty, or in the enforcement of this Guaranty, whether or not any action is filed in connection therewith. Until paid to the Lessor, such amounts shall bear interest, commencing with the Lessor's demand therefor, at the Prime Rate plus 1.0%. 26.7. Reinstatement. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time payment of any of the amounts payable by any Lessee under this Agreement is rescinded or must otherwise be restored or returned by the Lessor, upon an event of bankruptcy, dissolution, liquidation or reorganization of any Lessee or the Guarantor or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any Lessee or the Guarantor or any substantial part of their respective property, or otherwise, all as though such payment had not been made. 26.8. Pari Passu Indebtedness. The Guarantor (i) represents and warrants that, as of the date hereof, the obligations of the Guarantor under this Guaranty will rank pari passu with any existing unsecured indebtedness of the Guarantor and (ii) covenants and agrees that from and after the date hereof the obligations of the Guarantor under this Guaranty will rank pari passu with any unsecured indebtedness of the Guarantor incurred after the date hereof. 27. RIGHTS OF LESSOR ASSIGNED. Notwithstanding anything to the contrary contained in this Agreement, each of the Lessees and the Guarantor acknowledges that (A) the Lessor has assigned all of its rights under this Agreement (other than its right to receive Excluded Payments and Assigned Special Default Payments, including any guaranty thereof and its right to enforce payment thereof) to AFC-II pursuant to the AESOP I Operating Lease Loan Agreement and AFC-II has assigned such rights to the Trustee pursuant to the Indenture and (B) the Lessor may from time to time assign to the Intermediary, who may further assign the same to the Lender Agent, the Lessor's right to receive and collect Special Service Charges and Assigned Special Default Payments (including the guaranty thereof and its right to enforce payment thereof) in accordance with Section 7.3 of the AESOP I Operating Lease Loan Agreement and the Master Exchange Agreement. Accordingly, each of the Lessees and the Guarantor agrees that: (i) Subject to the terms of the AESOP I Loan Agreement and the Indenture, the Trustee shall have all the rights, powers, privileges and remedies of the Lessor hereunder (other than the right to receive Excluded Payments, which shall be paid to the AESOP I Segregated Account and which, in the case of Special Service Charges or any guaranty thereof, may be directed by the Lessor to be paid directly to the Intermediary or to the Lender Agent, and other than the right to receive Assigned Special Default Payments or guaranty payments with respect thereto, which may be directed by the Lessor to be paid directly to the Intermediary or to the Lender Agent) and the obligations of the Guarantor and of each Lessee hereunder (including with respect to the payment of Monthly Base Rent, Supplemental Rent and all other amounts payable hereunder) shall not be subject to any claim or defense which the Guarantor or such Lessee may have against the Lessor or any Lessee (other than the defense of payment actually made) and shall be absolute and unconditional and shall not be subject to any abatement, setoff, counterclaim, deduction or reduction for any reason whatsoever. Specifically, each of the Lessees and the Guarantor agrees that, upon the occurrence of an AESOP I Operating Lease Event of Default, a Limited Liquidation Event of Default or a Liquidation Event of Default, the Trustee may exercise (for and on behalf of the Lessor) any right or remedy against any Lessee or the Guarantor provided for herein (other than with respect to the right to receive Excluded Payments or any guaranty payments related thereto, and other than with respect to the Assigned Special Default Payments and related guaranty rights assigned to the Intermediary) and none of the Lessees nor the Guarantor will interpose as a defense that such claim should have been asserted by the Lessor; (ii) Upon the delivery by the Trustee of any notice to any Lessee or the Guarantor stating that an AESOP I Operating Lease Event of Default, a Limited Liquidation Event of Default or a Liquidation Event of Default has occurred, the relevant Lessee or the Guarantor, as the case may be, will, if so requested by the Trustee, treat the Trustee or the Trustee's designee for all purposes (other than with respect to the right to receive Excluded Payments or any guaranty payments related thereto and other than with respect to the Assigned Special Default Payments and related guaranty rights assigned to the Intermediary) as the Lessor hereunder and in all respects comply with all obligations under this Agreement that are asserted by the Trustee as the successor to the Lessor hereunder, irrespective of whether such Lessee or the Guarantor has received any such notice from the Lessor; provided, however, that the Trustee shall in no event be liable to any Lessee for any action taken by it in its capacity as successor to the Lessor other than actions that constitute negligence or willful misconduct; (iii) Each of the Lessees and the Guarantor acknowledges that pursuant to the AESOP I Operating Lease Loan Agreement and the Indenture the Lessor has irrevocably authorized and directed each Lessee or the Guarantor to, and each Lessee and the Guarantor shall, make payments of Monthly Base Rent and Supplemental Rent hereunder (and any other payments hereunder) (other than Excluded Payments, which shall be paid to the AESOP I Segregated Account and which, in the case of Special Service Charges or any guaranty thereof, may be directed by the Lessor to be paid directly to the Intermediary or to the Lender Agent, and other than the right to receive Assigned Special Default Payments or any guaranty payments with respect thereto, which may be directed by the Lessor to be paid directly to the Intermediary or to the Lender Agent) directly to the Trustee for deposit in the Collection Account established by the Trustee for receipt of such payments pursuant to the Indenture and such payments shall discharge the obligation of such Lessee and the Guarantor to the Lessor hereunder to the extent of such payments. Upon written notice to the Lessees or the Guarantor of a sale or assignment by the Trustee of its right, title and interest in moneys due under this Agreement to a successor Trustee, each Lessee or the Guarantor, as the case may be, shall thereafter make payments of all Monthly Base Rent and Supplemental Rent (and any other payments hereunder) (other than Excluded Payments, which shall be paid to the AESOP I Segregated Account and which, in the case of Special Service Charges or any guaranty thereof, may be directed by the Lessor to be paid directly to the Intermediary or the Lender Agent, and other than Assigned Special Default Payments or any guaranty payments with respect thereto, which may be directed by the Lessor to be paid directly to the Intermediary or to the Lender Agent) to the party specified in such notice; (iv) Upon request made by the Trustee at any time, each of the Lessees and the Guarantor will take such actions as are requested by the Trustee to assist the Trustee in maintaining the Trustee's first priority perfected security interest in the Vehicles leased hereunder, the Certificates of Title with respect thereto and any other portion of the AESOP I Operating Lease Loan Collateral; and (v) In the event that the Indenture terminates and all obligations owing under the Indenture have been paid in full, the Lender shall have all rights under this Agreement previously assigned to the Trustee. 28. [RESERVED]. 29. MODIFICATION AND SEVERABILITY. The terms of this Agreement will not be waived, altered, modified, amended, supplemented or terminated in any manner whatsoever unless (i) the same shall be in writing and signed and delivered by the Lessor, the Guarantor and each Lessee and consented to in writing by the Lender and the Trustee, (ii) the Lessor shall have received in writing confirmation from each of the Rating Agencies that its then current rating of the Notes and the Commercial Paper Notes will not be reduced or withdrawn as a result thereof and (iii) the Rating Agency Consent Condition shall have been satisfied. If any part of this Agreement is not valid or enforceable according to law, all other parts will remain enforceable. The Lessor shall provide prompt written notice to each Rating Agency of any such waiver, modification or amendment. 30. CERTAIN REPRESENTATIONS AND WARRANTIES. Each Lessee represents and warrants to the Lessor and the Trustee as to itself, and the Guarantor represents and warrants to the Lessor and the Trustee as to itself and as to each Lessee, that as of the date hereof and as of each Series Closing Date: 30.1. Organization; Ownership; Power; Qualification. The Guarantor and each Lessee is (i) a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) has the corporate power and authority to own its properties and to carry on its business as now being and hereafter proposed to be conducted, and (iii) is duly qualified, in good standing and authorized to do business in each jurisdiction in which the character of its properties or the nature of its businesses requires such qualification or authorization. 30.2. Authorization; Enforceability. The Guarantor and each Lessee has the corporate power and has taken all necessary corporate action to authorize it to execute, deliver and perform this Agreement and each of the other Related Documents to which it is a party in accordance with their respective terms, and to consummate the transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by the Guarantor and each Lessee and is, and each of the other Related Documents to which the Guarantor or such Lessee is a party is, a legal, valid and binding obligation of the Guarantor and such Lessee, enforceable in accordance with its terms. 30.3. Compliance. The execution, delivery and performance, in accordance with their respective terms, by the Guarantor and each Lessee of this Agreement and each of the other Related Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not (i) require any consent, approval, authorization or registration not already obtained or effected, (ii) violate any applicable law with respect to the Guarantor or such Lessee which violation could result in a Material Adverse Effect, (iii) conflict with, result in a breach of, or constitute a default under the certificate or articles of incorporation or by-laws, as amended, of the Guarantor or such Lessee, (iv) conflict with, result in a breach of, or constitute a default under any indenture, agreement, or other instrument to which the Guarantor or such Lessee is a party or by which its properties may be bound which conflict, breach or default could result in a Material Adverse Effect, or (v) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by such Lessee except Permitted Encumbrances. 30.4. Financial Information; Financial Condition. All balance sheets, all statements of operations, of shareholders' equity and of cash flow, and other financial data (other than projections) which have been or shall hereafter be furnished to the Lessor, the Lender or the Trustee for the purposes of or in connection with this Agreement or the Related Documents have been and will be prepared in accordance with GAAP and do and will present fairly the financial condition of the entities involved as of the dates thereof and the results of their operations for the periods covered thereby. Such financial data include the following financial statements and reports which have been furnished to the Lessor and the Trustee on or prior to the date hereof or such Closing Date: (i) the audited consolidated financial statements consisting of a statement of financial position of the Guarantor and its Consolidated Subsidiaries as of December 31, 1997, and the related statements of operations, stockholder's equity and cash flows of the Guarantor and its Consolidated Subsidiaries for the year ended December 31, 1997; and (ii) the unaudited condensed consolidated financial statements consisting of a statement of financial position of the Guarantor and its Consolidated Subsidiaries as of March 31, 1998, and the related statements of operations, stockholder's equity and cash flows of the Guarantor and its Consolidated Subsidiaries for the three months ended March 31, 1998; 30.5. Litigation. Except as set forth in Schedule 30.5 hereto and except for claims as to which the insurer has admitted coverage in writing and which are fully covered by insurance, no claims, litigation (including, without limitation, derivative actions), arbitration, governmental investigation or proceeding or inquiry is pending or, to the best of the Guarantor's or each Lessee's knowledge, threatened against the Guarantor or such Lessee which would, if adversely determined, have a Material Adverse Effect. 30.6. Liens. The Vehicles and other Collateral are free and clear of all Liens other than (i) Permitted Liens and (ii) Liens in favor of the Lessor, the Lender or the Trustee. The Trustee has obtained, and will continue to obtain, for the benefit of the Secured Parties pursuant to the Indenture, a first priority perfected Lien on all Vehicles leased hereunder. All Vehicle Perfection and Documentation Requirements with respect to all Vehicles on or after the date hereof have and will continue to be satisfied. 30.7. Employee Benefit Plans. (a) During the twelve consecutive month period prior to the date hereof: (i) no steps have been taken by the Guarantor, any Lessee or any member of the Controlled Group, or to the knowledge of the Guarantor, by any Person, to terminate any Pension Plan; and (ii) no contribution failure has occurred with respect to any Pension Plan maintained by the Guarantor, any Lessee or any member of the Controlled Group sufficient to give rise to a Lien under Section 302(f)(1) of ERISA in connection with such Pension Plan; and (b) no condition exists or event or transaction has occurred with respect to any Pension Plan which could reasonably be expected to result in the incurrence by the Guarantor or any Lessee or any member of the Controlled Group of liabilities, fines or penalties in an amount that could have a Material Adverse Effect. 30.8. Investment Company Act. Neither the Guarantor nor any Lessee is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended, and neither the Guarantor nor any Lessee is subject to any other statute which would impair or restrict its ability to perform its obligations under this Agreement or the other Related Documents, and neither the entering into or performance by the Guarantor or any Lessee of this Agreement violates any provision of such Act. 30.9. Regulations T, U and X. Neither the Guarantor nor any Lessee is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T, U and X of the Board of Governors of the Federal Reserve System). None of the Guarantor, any Lessee, any Affiliates of any of them or any Person acting on their behalf has taken or will take action to cause the execution, delivery or performance of this Agreement or the Loan Note, the making or existence of the Loans or the use of proceeds of the Loans to violate Regulation T, U, or X of the Board of Governors of the Federal Reserve System. 30.10. Business Locations; Trade Names; Principal Places of Business Locations. Schedule 30.10 lists each of the locations where each of the Lessees and the Guarantor maintains a chief executive office, principal place of business, or any records; and Schedule 30.10 also lists the Lessees' and the Guarantor's legal names, each name under or by which each of the Lessees and the Guarantor conducts its business, each state in which each of the Lessees and the Guarantor conducts business and each state in which each of the Lessees and the Guarantor has its principal place of business. 30.11. Taxes. The Guarantor and each Lessee has filed all tax returns which have been required to be filed by it (except where the requirement to file such return is subject to a valid extension or such failure relates to returns which, in the aggregate, show taxes due in an amount of not more than $500,000), and has paid or provided adequate reserves for the payment of all taxes shown due on such returns or required to be paid as a condition to such extension, as well as all payroll taxes and federal and state withholding taxes, and all assessments payable by it that have become due, other than those that are payable without penalty or are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been established, and are being maintained, in accordance with GAAP. As of the date hereof and as of each Series Closing Date, to the best of the Guarantor's or each Lessee's knowledge, there is no unresolved claim by a taxing authority concerning the Guarantor's or such Lessee's tax liability for any period for which returns have been filed or were due other than those contested in good faith by appropriate proceedings and with respect to which adequate reserves have been established and are being maintained in accordance with GAAP. 30.12. Governmental Authorization. The Guarantor and each Lessee has all licenses, franchises, permits and other governmental authorizations necessary for all businesses presently carried on by it (including owning and leasing the real and personal property owned and leased by it), except where failure to obtain such licenses, franchises, permits and other governmental authorizations would not have a Material Adverse Effect. 30.13. Compliance with Laws. Except as disclosed in Schedule 30.13 hereto, the Guarantor and each Lessee: (i) is not in violation of any law, ordinance, rule, regulation or order of any Governmental Authority applicable to it or its property, which violation would have a Material Adverse Effect, and no such violation has been alleged, (ii) has filed in a timely manner all reports, documents and other materials required to be filed by it with any governmental bureau, agency or instrumentality (and the information contained in each of such filings is true, correct and complete in all material respects), except where failure to make such filings would not have a Material Adverse Effect, and (iii) has retained all records and documents required to be retained by it pursuant to any Requirement of Law, except where failure to retain such records would not have a Material Adverse Effect. 30.14. Eligible Vehicles. Each Vehicle is or will be, as the case may be, on the Vehicle Operating Lease Commencement Date with respect to such Vehicle, an Eligible Vehicle. 30.15. Supplemental Documents True and Correct. All information contained in any Vehicle Order or other Supplemental Document which has been submitted, or which may hereafter be submitted by any Lessee to the Lessor is, or will be, true, correct and complete. 30.16. Manufacturer Programs. No Manufacturer Event of Default has occurred and is continuing with respect to any Eligible Program Manufacturer. 30.17. Absence of Default. The Guarantor and each Lessee is in compliance with all of the provisions of its certificate or articles of incorporation and by-laws and no event has occurred or failed to occur which has not been remedied or waived, the occurrence or non-occurrence of which constitutes, or with the passage of time or giving of notice or both would constitute, (i) an AESOP I Operating Lease Event of Default or a Potential AESOP I Operating Lease Event of Default or (ii) a default or event of default by the Guarantor or any Lessee under any material indenture, agreement or other instrument, or any judgment, decree or final order to which the Guarantor or any Lessee is a party or by which the Guarantor or any Lessee or any of their properties may be bound or affected that could result in a Material Adverse Effect. 30.18. Title to Assets. The Guarantor and each Lessee has good, legal and marketable title to, or a valid leasehold interest in, all of its assets, except to the extent no Material Adverse Effect could result. None of such properties or assets is subject to any Liens, except for Permitted Encumbrances. Except for financing statements or other filings with respect to or evidencing Permitted Encumbrances, no financing statement under the UCC of any state, application for a Certificate of Title or certificate of ownership, or other filing which names the Guarantor or any Lessee as debtor or which covers or purports to cover any of the assets of the Guarantor or such Lessee is on file in any state or other jurisdiction, and neither the Guarantor nor any Lessee has signed any such financing statement, application or instrument authorizing any secured party or creditor of such Person thereunder to file any such financing statement, application or filing other than with respect to Permitted Encumbrances and except, in each case, to the extent no Material Adverse Effect could result. 30.19. Burdensome Provisions. Neither the Guarantor nor any Lessee is a party to or bound by any Contractual Obligation that could have a Material Adverse Effect. 30.20. No Adverse Change. Since March 31, 1998, (x) no material adverse change in the business, assets, liabilities, financial condition, results of operations or business prospects of the Guarantor or any Lessee has occurred, and (y) no event has occurred or failed to occur, which has had or may have, either alone or in conjunction with all other such events and failures, a Material Adverse Effect. 30.21. No Adverse Fact. No fact or circumstance is known to the Guarantor or any Lessee, as of the date hereof or as of such Closing Date, which, either alone or in conjunction with all other such facts and circumstances, has had or might in the future have (so far as the Guarantor or any Lessee can foresee) a Material Adverse Effect which has not been set forth or referred to in the financial statements referred to in Section 30.4 or 31.5 or in a writing specifically captioned "Disclosure Statement" and delivered to the Lessor prior to such Closing Date. If a fact or circumstance disclosed in such financial statements or Disclosure Statement, or if an action, suit or proceeding disclosed to the Lessor, should in the future have a Material Adverse Effect, such Material Adverse Effect shall be a change or event subject to Section 30.20 notwithstanding such disclosure. 30.22. Accuracy of Information. All data, certificates, reports, statements, opinions of counsel, documents and other information furnished to the Lessor, the Lender or the Trustee by or on behalf of the Guarantor or any Lessee pursuant to any provision of any Related Document, or in connection with or pursuant to any amendment or modification of, or waiver under, any Related Document, shall, at the time the same are so furnished, (i) be complete and correct in all material respects to the extent necessary to give the Lessor, the Lender or the Trustee, as the case may be, true and accurate knowledge of the subject matter thereof, (ii) not contain any untrue statement of a material fact, and (iii) not omit to state a material fact necessary in order to make the statements contained therein (in light of the circumstances in which they were made) not misleading, and the furnishing of the same to the Lessor, the Lender or the Trustee, as the case may be, shall constitute a representation and warranty by the Guarantor and each Lessee made on the date the same are furnished to the Lessor, the Lender or the Trustee, as the case may be, to the effect specified in clauses (i), (ii) and (iii). 30.23. Solvency. Both before and after giving effect to the transactions contemplated by this Agreement and the other Related Documents, each of the Guarantor and each Lessee is solvent within the meaning of the Bankruptcy Code and each of the Guarantor and each Lessee is not the subject of any voluntary or involuntary case or proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy or insolvency law and no Event of Bankruptcy has occurred with respect to the Guarantor or any Lessee. 31. CERTAIN AFFIRMATIVE COVENANTS. Until the expiration or termination of this Agreement, and thereafter until the obligations of the Lessees and the Guarantor under this Agreement and the Related Documents are satisfied in full, each Lessee covenants and agrees as to itself, and the Guarantor covenants and agrees as to itself and as to each Lessee that, unless at any time the Lessor, the Lender and the Trustee shall otherwise expressly consent in writing, it will (and, in the case of the Guarantor, will cause each Lessee to): 31.1. Corporate Existence; Foreign Qualification. Do and cause to be done at all times all things necessary to (i) maintain and preserve the corporate existence of the Guarantor and each Lessee (it being understood that subject to Section 32.1, each Lessee shall remain a direct or indirect Wholly-Owned Subsidiary of the Guarantor); (ii) be, and ensure that each Lessee is, duly qualified to do business and in good standing as a foreign corporation in each jurisdiction where the nature of its business makes such qualification necessary and the failure to so qualify would have a Material Adverse Effect; and (iii) comply with all Contractual Obligations and Requirements of Law binding upon it and its Subsidiaries, except to the extent that the failure to comply therewith would not, in the aggregate, have a Material Adverse Effect. 31.2. Books, Records and Inspections. (i) Maintain complete and accurate books and records with respect to the Vehicles leased by it under this Agreement and (ii) permit any Person designated by the Lessor, the Lender or the Trustee in writing to visit and inspect any of the properties, corporate books and financial records of the Guarantor and its Subsidiaries and to discuss its affairs, finances and accounts with officers of the Guarantor and its Subsidiaries, agents of the Guarantor and with the Guarantor's independent public accountants, all at such reasonable times and as often as the Lessor, the Lender or the Trustee may reasonably request. 31.3. Insurance. Obtain and maintain with respect to all Vehicles that are subject to this Agreement (a) vehicle liability insurance to the full extent required by law and in any event not less than $500,000 per Person and $1,000,000 per occurrence, (b) property damage insurance with a limit of $1,000,000 per occurrence, and (c) excess coverage public liability insurance with a limit of not less than $50,000,000 or the limit maintained from time to time by the relevant Lessee at any time hereafter, whichever is greater, with respect to all passenger cars and vans comprising such Lessee's rental fleet. The Lessor acknowledges and agrees that each Lessee may, to the extent permitted by applicable law, self-insure for the first $1,000,000 per occurrence, or a greater amount up to a maximum of $3,000,000, with the consent of each Enhancement Provider, per occurrence, of vehicle liability and property damage which is otherwise required to be insured hereunder. All such policies shall be from financially sound and reputable insurers, shall name the Lender, the Lessor and the Trustee as additional insured parties, in the case of catastrophic physical damage insurance on such Vehicles, shall name the Trustee as loss payee as its interest may appear and will provide that the Lender, the Lessor and the Trustee shall receive at least 10 days' prior written notice of cancellation of such policies. Each Lessee will notify promptly the Lender, the Lessor and the Trustee of any curtailment or cancellation of such Lessee's right to self-insure in any jurisdiction. 31.4. Manufacturer Programs. Turn in the Program Vehicles leased by such Lessee to the relevant Manufacturer within the Repurchase Period therefor (unless such Lessee sells such Program Vehicle prior to the end of the Repurchase Period therefor and receives sales proceeds thereof in cash in an amount equal to or greater than the repurchase price under such Manufacturer Program); and comply with all of its obligations under each Manufacturer Program. 31.5. Reporting Requirements. Furnish, or cause to be furnished to the Lessor, the Lender and the Trustee and, in the case of item (iv) below, each Rating Agency: (i) Audit Report. As soon as available and in any event within 120 days after the end of each fiscal year of the Guarantor, (a) consolidated financial statements consisting of a statement of financial position of the Guarantor and its Consolidated Subsidiaries as of the end of such fiscal year and a statement of operations, stockholders' equity and cash flows of the Guarantor and its Consolidated Subsidiaries for such fiscal year, setting forth in comparative form the corresponding figures for the preceding fiscal year, certified by and containing an opinion, unqualified as to scope, of independent certified public accountants of recognized standing selected by the Guarantor and acceptable to the Lessor, the Lender and the Trustee, accompanied by (b) a letter from such accountants addressed to the Lessor, the Lender and the Trustee stating that, in the course of their annual audit of the books and records of the Guarantor, no Potential AESOP I Operating Lease Event of Default or AESOP I Operating Lease Event of Default has come to their attention which was continuing at the close of such fiscal year or on the date of their letter, or, if such an event has come to the attention of such accountants and was continuing at the close of such fiscal year or on the date of their letter, the nature of such event, it being understood that such accountants shall have no liability to the Lessor or the Trustee by reason of the failure of such accountants to obtain knowledge of the occurrence or continuance of such an AESOP I Operating Lease Event of Default or Potential AESOP I Operating Lease Event of Default; (ii) Quarterly Statements. As soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Guarantor, (a) financial statements consisting of a consolidated statement of financial position of the Guarantor and its Consolidated Subsidiaries as of the end of such quarter and a statement of operations, stockholders' equity and cash flows of the Guarantor and its Consolidated Subsidiaries for each such quarter, setting forth in comparative form the corresponding figures for the corresponding periods of the preceding fiscal year, all in reasonable detail and certified (subject to year-end audit adjustments) by a senior financial officer of the Guarantor as having been prepared in accordance with GAAP consistently applied, accompanied by (b) a letter from such officer addressed to the Lessor, the Lender and the Trustee stating that no Potential AESOP I Operating Lease Event of Default or AESOP I Operating Lease Event of Default has come to his attention which was continuing at the end of such quarter or on the date of his letter, or, if such an event has come to his attention and was continuing at the end of such quarter or on the date of his letter, indicating the nature of such event and the action which the Guarantor proposes to take with respect thereto; (iii) Amortization Events and AESOP I Operating Lease Events of Default. As soon as possible but in any event within two Business Days after the occurrence of any Amortization Event, Potential Amortization Event, AESOP I Operating Lease Event of Default or Potential AESOP I Operating Lease Event of Default, a written statement of an Authorized Officer describing such event and the action that the Guarantor or such Lessee, as the case may be, proposes to take with respect thereto; (iv) Manufacturers. Promptly after obtaining actual knowledge thereof, notice of any Manufacturer Event of Default or termination or replacement of a Manufacturer Program; (v) Interim Financial Statements. Promptly following the Guarantor's receipt thereof, copies of all other financial reports submitted to the Guarantor by independent public accountants relating to any annual or interim audit of the books of the Guarantor, or opinion as to the proper book value of the assets of the Guarantor; (vi) Reports. Promptly, from time to time, such information with respect to the Vehicles leased hereunder and payments made and owing hereunder as the Lessor may require to satisfy its reporting obligations to the Lender pursuant to Section 9.5 of the AESOP I Operating Lease Loan Agreement; and (vii) Other. Promptly, from time to time, such other information, documents, or reports respecting the Vehicles leased hereunder or the condition or operations, financial or otherwise, of the Guarantor or such Lessee as the Lessor, the Lender or the Trustee may from time to time reasonably request in order to protect the interests of the Lessor, the Lender or the Trustee under or as contemplated by this Agreement or any other Related Document. 31.6. Payment of Taxes; Removal of Liens. Pay when due all taxes, assessments, fees and governmental charges of any kind whatsoever that may be at any time lawfully assessed or levied against or with respect to such Lessee, the Guarantor or their respective property and assets or any interest thereon. Notwithstanding the previous sentence, but subject in any case to the other requirements hereof and of the Related Documents, neither such Lessee nor the Guarantor shall be required to pay any tax, charge, assessment or imposition nor to comply with any law, ordinance, rule, order, regulation or requirement so long as such Lessee or the Guarantor shall contest, in good faith, the amount or validity thereof, in an appropriate manner or by appropriate proceedings. Each such contest shall be promptly prosecuted to final conclusion (subject to the right of the Guarantor or such Lessee to settle any such contest). 31.7. Business. Such Lessee will engage only in businesses in substantially the same or related fields as the businesses conducted on the date hereof and such other lines of business, which, in the aggregate, do not constitute a material part of the operations of such Lessee. 31.8. Maintenance of Separate Existence. Each of the Guarantor and such Lessee acknowledges its receipt of a copy of that certain opinion letter issued by Skadden, Arps, Slate, Meagher & Flom LLP dated the Initial Closing Date and addressing the issue of substantive consolidation as it may relate to the Guarantor, each Lessee, the Lessor, Original AESOP, AESOP Leasing II, AFC-II and AFC. The Guarantor and each Lessee hereby agree to maintain in place all policies and procedures, and take and continue to take all action, described in the factual assumptions set forth in such opinion letter and relating to such Person. 31.9. Trustee as Lienholder. Concurrently with each leasing of a Vehicle under this Agreement, the Administrator shall indicate on its computer records that the Trustee as assignee of the Lender is the holder of a Lien on such Vehicle pursuant to the terms of the Indenture. 31.10. Maintenance of the Vehicles. Maintain and cause to be maintained in good repair, working order, and condition all of the Vehicles leased by such Lessee in accordance with its ordinary business practices with respect to all other vehicles owned by it, except to the extent that any such failure to comply with such requirements does not, in the aggregate, materially adversely affect the interests of the Lessor under this Agreement, the interests of the Lender under the AESOP I Operating Lease Loan Agreement or the interests of the Secured Parties under the Indenture or the likelihood of repayment of the Loans. From time to time the Guarantor and such Lessee will make or cause to be made all appropriate repairs, renewals, and replacements with respect to the Vehicles. The Guarantor and such Lessee shall maintain good, legal and marketable title to, or a valid leasehold interest in, all of its assets, free and clear of all Liens except for Permitted Liens, and except to the extent sold or otherwise disposed of in accordance with this Agreement or any of the other Related Documents, and except to the extent no Material Adverse Effect could result. 31.11. Enhancement. If the Enhancement with respect to any Series of Notes is provided by a letter of credit and (i) the short-term debt or deposit rating of the Enhancement Provider of such letter of credit shall be downgraded below the then-current rating of such Series of Notes by the Rating Agencies with respect to such Series of Notes or (ii) such Enhancement Provider shall notify the Lessees that its compliance with any of its obligations under such letter of credit would be unlawful, use its best efforts to obtain a successor institution to act as Enhancement Provider or, in the alternative, to otherwise credit enhance the payments to be made under this Agreement by the Lessees, subject to the satisfaction of the Rating Agency Confirmation Condition and any other requirements set forth in the Related Documents. 31.12. Manufacturer Payments. Cause each Manufacturer and auction dealer to make all payments made by it under the Manufacturer Programs with respect to Vehicles leased hereunder directly to the Collection Account. Any such payments from Manufacturers or related auction dealers received directly by the Guarantor or any Lessee, will be, within three Business Days of receipt, deposited into the Collection Account. 31.13. Accounting Methods; Financial Records. Maintain, and cause each of its material Subsidiaries to maintain, a system of accounting and keep, and cause each of its material Subsidiaries to keep, such records and books of account (which shall be true and complete) as may be required or necessary to permit the preparation of financial statements in accordance with GAAP. 31.14. Disclosure to Auditors. Disclose, and cause each of its material Subsidiaries to disclose, to its independent certified public accountants in a timely manner all loss contingencies of a type requiring disclosure to auditors under accounting standards promulgated by the Financial Accounting Standards Board. 31.15. Disposal of Non-Program Vehicles. Dispose of the Non-Program Vehicles leased by the Lessee in accordance with Section 2.6(b) (unless the Lessee purchases such Non-Program Vehicle in accordance with the terms hereof). 32. CERTAIN NEGATIVE COVENANTS. Until the expiration or termination of this Agreement and thereafter until the obligations of each Lessee and the Guarantor under this Agreement and the Related Documents are satisfied in full, each Lessee covenants and agrees as to itself, and the Guarantor covenants and agrees as to itself and as to each Lessee that, unless at any time the Lessor and the Trustee shall otherwise expressly consent in writing, it will not (and, in the case of the Guarantor, will not permit each Lessee to): 32.1. Mergers, Consolidations. Merge or consolidate with any Person, except that, if after giving effect thereto, no Potential AESOP I Operating Lease Event of Default or AESOP I Operating Lease Event of Default would exist, this Section 32.1 shall not apply to (i) any merger or consolidation, provided that the Guarantor or such Lessee, as applicable, is the surviving corporation and if such Lessee is the surviving corporation, it is a direct or indirect Wholly-Owned Subsidiary of the Guarantor after such merger or consolidation and (ii) any merger or consolidation of such Lessee with or into another Subsidiary of the Guarantor, provided that the surviving entity executes an agreement of assumption to perform every obligation of such Lessee under this Agreement and such surviving entity is a direct or indirect Wholly-Owned Subsidiary of the Guarantor. 32.2. Other Agreements. Enter into any agreement containing any provision which would be violated or breached by the performance of its obligations hereunder or under any instrument or document delivered or to be delivered by it hereunder or in connection herewith. 32.3. Liens. Create or permit to exist any Lien with respect to any Vehicle leased hereunder now or hereafter existing or acquired, except for Permitted Liens. 32.4. Use of Vehicles. Use or allow the Vehicles to be used in any manner that would (i) make such Vehicles that are Program Vehicles ineligible for repurchase under an Eligible Manufacturer Program, (ii) for any illegal purposes or (iii) subject the Vehicles to confiscation. 32.5. Termination of Agreement. Allow this Agreement to terminate prior to the termination of each other Lease. 33. ADMINISTRATOR ACTING AS AGENT OF THE LESSOR. The parties to this Agreement acknowledge and agree that ARAC shall act as Administrator and, in such capacity, as the agent for the Lessor, for purposes of performing certain duties of the Lessor under this Agreement and the Related Documents. As compensation for the Administrator's performance of such duties, the Lessor shall pay to the Administrator on each Payment Date (i) the portion of the Monthly Administration Fee payable by the Lessor pursuant to the Administration Agreement and (ii) the reasonable costs and expenses of the Administrator incurred by it as a result of arranging for the sale of Vehicles returned to the Lessor in accordance with Section 2.6(c) or as a result of a Vehicle Return Default and sold to third parties, provided, however, that such costs and expenses shall only be payable to the Administrator to the extent of any excess of the sale price received by the Lessor for any such Vehicle over the Termination Value thereof. 34. NO PETITION. Each of the Guarantor, each Lessee and the Administrator hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of all of the Notes and the Commercial Paper Notes, it will not institute against, or join any other Person in instituting against, the Lessor, Original AESOP, AESOP Leasing II, Quartx, PVHC, AFC or AFC-II any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. In the event that the Guarantor, any Lessee or the Administrator takes action in violation of this Section 34, the Lessor agrees, for the benefit of the Secured Parties, that it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such a petition by the Guarantor, such Lessee or the Administrator against the Lessor, Original AESOP, AESOP Leasing II, Quartx, PVHC, AFC or AFC-II or the commencement of such action and raise the defense that the Guarantor, such Lessee or the Administrator has agreed in writing not to take such action and should be estopped and precluded therefrom and such other defenses, if any, as its counsel advises that it may assert. The provisions of this Section 34 shall survive the termination of this Agreement. 35. CERTAIN AGREEMENTS RESPECTING THE MASTER EXCHANGE AGREEMENT. Without limiting any other provision hereof, each Lessee and the Administrator hereby covenants and agrees that it will cooperate with the Lessor in order to effect transfers of Relinquished Vehicles to the Intermediary and acquisitions of Replacement Vehicles by the Intermediary in accordance with the terms of the Master Exchange Agreement, including by giving such notices and providing such information to the Lessor or to other persons as the Lessor may from time to time reasonably request. 36. SUBMISSION TO JURISDICTION. The Lessor and the Trustee may enforce any claim arising out of this Agreement in any state or federal court having subject matter jurisdiction, including, without limitation, any state or federal court located in the State of New York. For the purpose of any action or proceeding instituted with respect to any such claim, the Guarantor and each Lessee hereby irrevocably submits to the jurisdiction of such courts. The Guarantor and each Lessee further irrevocably consents to the service of process out of said courts by mailing a copy thereof, by registered mail, postage prepaid, to the Guarantor or such Lessee, as the case may be, and agrees that such service, to the fullest extent permitted by law, (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall be taken and held to be valid personal service upon and personal delivery to it. Nothing herein contained shall affect the right of the Trustee, the Lender and the Lessor to serve process in any other manner permitted by law or preclude the Lessor, the Lender or the Trustee from bringing an action or proceeding in respect hereof in any other country, state or place having jurisdiction over such action. The Guarantor and each Lessee hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may have or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court located in the State of New York and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. 37. GOVERNING LAW. THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. All obligations of the Guarantor and each Lessee and all rights of the Lessor, the Lender or the Trustee expressed herein shall be in addition to and not in limitation of those provided by applicable law or in any other written instrument or agreement. 38. JURY TRIAL. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT TO WHICH IT IS A PARTY, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY RELATED TRANSACTION, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. 39. NOTICES. All notices, requests and other communications to any party hereunder shall be in writing including facsimile transmission or similar writing) and shall be given to such party, addressed to it, at its address or telephone number set forth on the signature pages below, or at such other address or telephone number as such party may hereafter specify for the purpose by notice to the other party. In each case, a copy of all notices, requests and other communications that are sent by any party hereunder shall be sent to the Trustee and the Lender and a copy of all notices, requests and other communications that are sent by any Lessee or the Guarantor to each other that pertain to this Agreement shall be sent to the Lessor, the Lender and the Trustee. Copies of notices, requests and other communications delivered to the Trustee, the Lender and/or the Lessor pursuant to the foregoing sentence shall be sent to the following addresses: TRUSTEE: Harris Trust and Savings Bank 311 West Monroe Street, 12th Floor Chicago, Illinois 60606 Attention: Corporate Trust Officer Telephone: (312) 461-2532 Fax: (312) 461-3525 LENDER: AESOP Funding II L.L.C. c/o Lord Securities Corporation Two Wall Street New York, New York 10005 Attention: Frank Bilotta Telephone: (212) 346-9000 Fax: (212) 346-9012 LESSOR: AESOP Leasing L.P. c/o Lord Securities Corporation Two Wall Street New York, New York 10005 Attention: Frank Bilotta Telephone: (212) 346-9000 Fax: (212) 346-9012 Each such notice, request or communication shall be effective when received at the address specified below. Copies of all notices must be sent by first class mail promptly after transmission by facsimile. 40. LIABILITY. Each Lessee shall be held jointly and severally liable for all of the obligations of each other Lessee and the Guarantor hereunder. The Guarantor shall be held jointly and severally liable for all the obligations of each Lessee hereunder. 41. TITLE TO MANUFACTURER PROGRAMS IN LESSOR. Each Lessee, by its execution hereof, acknowledges and agrees that (i) the Lessor is the sole owner and holder of all right, title and interest in and to the Manufacturer Programs, (ii) in accordance with the Assignment Agreements, all of the Lessor's right, title and interest in and to such Manufacturer Programs have been assigned to the Trustee (except as expressly provided otherwise in any Related Document with respect to Relinquished Vehicles and any related Relinquished Vehicle Property), and (iii) no Lessee has any right, title or interest in any Manufacturer Program. To confirm the foregoing, each Lessee, by its execution hereof, hereby assigns and transfers to the Lessor any rights that such Lessee may have in respect of any Manufacturer Programs. 42. HEADINGS. Section headings used in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. 43. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same Agreement. 44. EFFECTIVE DATE. This Agreement shall become effective on the date hereof; provided, however, that prior to or simultaneously with the execution and delivery hereof there shall have been satisfied: (i) the conditions set forth in Section 29 of the Prior AESOP I Operating Lease; and, (ii) without duplication, the conditions precedent to the effectiveness of Supplemental Indenture No. 2 to the Base Indenture. Except to the extent amended hereby, the Prior AESOP I Operating Lease is in all respects ratified and confirmed and in full force and effect. From and after the date hereof all references in the Related Documents to the AESOP I Operating Lease shall mean such agreement as amended and restated hereby, unless the context otherwise requires. 45. NO RECOURSE. The obligations of AESOP Leasing under this Agreement are solely the corporate obligations of AESOP Leasing. No recourse shall be had for the payment of any obligation or claim arising out of or based upon this Agreement against any shareholder, partner, employee, officer, director or incorporator of AESOP Leasing. IN WITNESS WHEREOF, the parties have executed this Agreement or caused it to be executed by their respective officers thereunto duly authorized as of the day and year first above written. 180997-NYS7A - AESOP I A&R Op. Lease LESSOR: AESOP LEASING L.P. By: AESOP LEASING CORP., its general partner By: Address: c/o Lord Securities Corporation Two Wall Street 19th Floor New York, New York 10005 Attention: Frank Bilotta Telephone: (212) 346-9000 Telefax: (212) 346-9012 LESSEE AND ADMINISTRATOR: AVIS RENT A CAR SYSTEM, INC. By: Address: 900 Old Country Road Garden City, NY 11530 Attention: Treasurer cc: General Counsel Telephone: (516) 222-3000 Telefax: (516) 222-3751 GUARANTOR: AVIS RENT A CAR, INC. By: Address: 900 Old Country Road Garden City, NY 11530 Attention: Treasurer cc: General Counsel Telephone:(516) 222-3000 Telefax: (516) 222-3751 COUNTERPART NO. OF TEN (10) SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS. TO THE EXTENT IF ANY THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST IN THIS DOCUMENT MAY BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1. Schedule 30.5 Litigation [NONE] SCHEDULE 30.10 Business Locations
================================================================================ Principal Place of Additional States in which Party Business Records Location Conducts Business ================================================================================ Avis Rent A 900 Old Country Road 300 Centre Pointe Dr. AZ, AR, CA, CO, CT, Car System, Garden City, NY Virginia Beach, VA DE, DC, FL, GA, HI, Inc. d/b/a/ 11530 23462 ID, IL, IN, KS, KY, Avis Rent A LA, ME, MD, MA, MI, Car and Avis MN, MS, MO, MT, NE, NV, NJ, NM, NY, NC, OH, OK, OR, PA, RI, SC, TN, TX, UT, VT, VA, WA, WV, WI and WY ================================================================================ Avis Rent A 900 Old Country Road NY Car, Inc. Garden City, NY 11530 ================================================================================
Schedule 30.13 Compliance with Law [NONE] ATTACHMENT A Information Relating to Initial Leased Vehicles Delivered to Trustee at July 30, 1997 closing. ATTACHMENT B Vehicle Acquisition Schedule and Related Information 1. Principal amount of Loan financing the Vehicle 2. Date of Loan financing the Vehicle 3. Vehicle Operating Lease Commencement Date 4. Vehicle Identification Number (VIN) 5. Summary of Vehicles being financed (including, for Vehicles subject to the GM Repurchase Program, the Designated Period for such Vehicles) 6. Program or Non-Program Vehicle 7. Capitalized Cost (if applicable) 8. Net Book Value (if applicable) ATTACHMENT C Form of Power of Attorney KNOW ALL MEN BY THESE PRESENTS, that AESOP LEASING L.P. does hereby make, constitute and appoint Avis Rent A Car System, Inc. ("ARAC") its true and lawful Attorney-in-Fact for it and in its name, stead and behalf, (i) to execute any and all documents pertaining to the titling of motor vehicles in the name of AESOP LEASING L.P., PV HOLDING CORP. or QUARTX FLEET MANAGEMENT INC., (ii) the noting of the lien of Harris Trust and Savings Bank, as trustee (in such capacity, the "Trustee"), as the first lienholder on certificates of title, (iii) the licensing and registration of motor vehicles, (iv) designating c/o ARAC as the mailing address of the Trustee for all documentation relating to the title and registration of such motor vehicles, (v) applying for duplicate certificates of title indicating the lien of the Trustee where original certificates of title have been lost or destroyed and (vi) upon the sale of any such motor vehicle pursuant to the Amended and Restated Master Motor Vehicle Operating Lease Agreement, dated as of September 15, 1998, among AESOP Leasing L.P., ARAC, any other Eligible Rental Car Company that becomes a party thereto pursuant to the terms thereof and Avis Rent A Car, Inc., in accordance with the terms and conditions thereof, releasing the lien of the Trustee on such motor vehicle by executing any documents required in connection therewith. This power is limited to the foregoing and specifically does not authorize the creation of any liens or encumbrances on any of said motor vehicles. The powers and authority granted hereunder shall be effective as of the 15th day of September, 1998, and unless sooner terminated, revoked or extended, cease eight years from such date. IN WITNESS WHEREOF, AESOP LEASING L.P. has caused this instrument to be executed on its behalf by its duly authorized officer this ___ day of September, 1998. AESOP LEASING L.P. By: ------------------------------- State of ________ ) County of _______ ) Subscribed and sworn before me, a notary public, in and for said county and state, this ___ day of _____, 19__. ------------------------- Notary Public My Commission Expires: _______ ATTACHMENT D Form of Joinder in Lease THIS JOINDER IN LEASE AGREEMENT (this "Joinder") is executed as of ___________ __, 19__, by _______________, a _______________ ("Joining Party"), and delivered to AESOP Leasing L.P., a Delaware limited partnership ("AESOP Leasing"), as lessor pursuant to the Amended and Restated Master Motor Vehicle Operating Lease Agreement, dated as of September 15, 1998 (as further amended, supplemented or otherwise modified from time to time, the "Agreement"), among AESOP Leasing, Avis Rent A Car System, Inc., a Delaware corporation ("ARAC"), and other Eligible Rental Car Companies that become party to the Lease pursuant to the provisions of Section 24 thereof (individually, a "Lessee" and, collectively, the "Lessees"), and Avis Rent A Car, Inc. ("ARC"), as guarantor. Capitalized terms used herein but not defined herein shall have the meanings provided for in the Lease. R E C I T A L S: WHEREAS, the Eligible Rental Car Company is a direct or indirect Subsidiary of ARC; and WHEREAS, the Eligible Rental Car Company desires to become a "Lessee" under and pursuant to the Lease. NOW, THEREFORE, the Eligible Rental Car Company agrees as follows: A G R E E M E N T: 1. The Joining Party hereby represents and warrants to and in favor of AESOP Leasing and the Trustee that (i) the Eligible Rental Car Company is a direct or indirect wholly-owned Subsidiary of ARC, (ii) all of the conditions required to be satisfied pursuant to Section 24 of the Lease in respect to the Eligible Rental Car Company becoming a Lessee thereunder have been satisfied, and (iii) all of the representations and warranties contained in Section 30 of the Lease with respect to the Lessees are true and correct as applied to the Eligible Rental Car Company as of the date hereof. 2. The Eligible Rental Car Company hereby agrees to assume all of the obligations of a "Lessee" under the Lease and agrees to be bound by all of the terms, covenants and conditions therein. 3. By its execution and delivery of this Joinder, the Eligible Rental Car Company hereby becomes a Lessee for all purposes under the Lease. By its execution and delivery of this Joinder, AESOP Leasing acknowledges that the Joining Party is a Lessee for all purposes under the Lease. IN WITNESS WHEREOF, the Eligible Rental Car Company has caused this Joinder to be duly executed as of the day and year first above written. [Name of Joining Party] By: ------------------------------- Name: Title: Accepted and Acknowledged by: AESOP LEASING L.P. By: --------------------------- Name: Title: Acceptance and Acknowledgment by: ARC as guarantor By: --------------------------- Name: Title: EX-4.21 8 INDENTURE SECOND AMENDED SCHEDULE I TO THE BASE INDENTURE AS OF SEPTEMBER 15, 1998 DEFINITIONS LIST "Accrued Amounts" means, with respect to any Series of Notes (or any class of such Series of Notes), on any date of determination, the sum of (i) accrued and unpaid interest on the Notes of such Series of Notes (or the applicable class thereof) as of such date, plus any Swap Payments payable by AFC-II with respect to such Series of Notes and (ii) the product of (A) the sum of all other accrued and unpaid Trustee fees and other fees and expenses and indemnity amounts, if any, payable by AFC-II under the Indenture and/or the Related Documents on such date, times (B) a fraction, the numerator of which is the Invested Amount of such Series of Notes (or the applicable class thereof) on such date and the denominator of which is the Aggregate Invested Amount of all Series of Notes on such date. "Accumulation Period" means, with respect to any Series of Notes, the period, if any, specified in the applicable Supplement. "Administration Agreement" means the Administration Agreement, dated as of July 30, 1997, by and among the Administrator, AESOP Leasing, AESOP Leasing II, AFC-II and the Trustee, as amended, modified or supplemented from time to time in accordance with its terms. "Administrator" means ARAC, in its capacity as administrator under the Administration Agreement, or any successor Administrator thereunder. "Administrator Default" means any of the events described in Section 13(c) of the Administration Agreement. "AESOP Exchange Agreement Termination Event" has the meaning assigned to such term in the Master Exchange Agreement. "AESOP I Finance Lease Loan Agreement" means the Loan Agreement, dated as of July 30, 1997, between AFC-II, as lender thereunder, and AESOP Leasing, as the borrower thereunder, relating to the financing of Vehicles to be leased under the Finance Lease, as such Loan Agreement may be amended, supplemented, restated or otherwise modified from time to time in accordance with its terms. "AESOP I Finance Lease Loan Agreement Borrowing Base" means, on any date of determination, the sum of the AESOP I Finance Lease Loan Agreement Program Vehicle Borrowing Base and the AESOP I Finance Lease Loan Agreement Non-Program Vehicle Borrowing Base on such date. "AESOP I Finance Lease Loan Agreement Non-Program Vehicle Borrowing Base" means, on any date of determination, without duplication, the sum of (i) the Capitalized Cost of new Non-Program Vehicles being leased under the Finance Lease on such date and the Net Book Value of all Non-Program Vehicles (other than new Vehicles) leased under the Finance Lease that are Eligible Vehicles on such date, plus (ii) all amounts receivable, as of such date, by ARAC or AESOP Leasing from any person or entity in connection with the auction, sale or other disposition of Non-Program Vehicles leased under the Finance Lease that were at the time of disposition Eligible Vehicles, plus (iii) all accrued and unpaid Monthly Base Rent and Supplemental Rent with respect to Non-Program Vehicles leased under the Finance Lease (other than amounts specified in clause (ii) above), minus (iv) the Finance Lease Non-Program Vehicle Ineligible Asset Amount, if any. "AESOP I Finance Lease Loan Agreement Program Vehicle Borrowing Base" means, on any date of determination, without duplication, the sum of (i) the Capitalized Cost of new Program Vehicles being leased under the Finance Lease on such date and the Net Book Value of all Program Vehicles (other than new Vehicles) leased under the Finance Lease that are Eligible Vehicles on such date, plus (ii) all amounts receivable, as of such date, by ARAC or AESOP Leasing from Manufacturers under and in accordance with their respective Eligible Manufacturer Programs with respect to Program Vehicles leased under the Finance Lease that were at the time of disposition Eligible Vehicles, plus (iii) all amounts (other than amounts specified in clause (ii) above) receivable, as of such date, by ARAC or AESOP Leasing from any person or entity in connection with the auction, sale or other disposition of Program Vehicles leased under the Finance Lease that were at the time of disposition Eligible Vehicles, plus (iv) all accrued and unpaid Monthly Base Rent and Supplemental Rent with respect to Program Vehicles leased under the Finance Lease (other than amounts specified in clauses (ii) and (iii) above), minus (v) the Finance Lease Program Vehicle Ineligible Asset Amount, if any. "AESOP I Finance Lease Loan Collateral" means all the property and rights on or in which a Lien is granted to the Lender to secure all or any of the Liabilities under the AESOP I Finance Lease Loan Agreement pursuant to Section 7.1(a) of the AESOP I Finance Lease Loan Agreement, or under any other instruments, agreements or documents provided for in the AESOP I Finance Lease Loan Agreement or delivered or to be delivered thereunder or in connection therewith. "AESOP I Finance Lease Loan Event of Default" means any of the events described in Section 12.1 of the AESOP I Finance Lease Loan Agreement. "AESOP I Loan Agreements" means the AESOP I Operating Lease Loan Agreement and the AESOP I Finance Lease Loan Agreement. "AESOP I Loan Collateral" means the AESOP I Operating Lease Loan Collateral and the AESOP I Finance Lease Loan Collateral. "AESOP I Loan Event of Default" means an AESOP I Operating Lease Loan Event of Default or an AESOP I Finance Lease Loan Event of Default. "AESOP I Operating Lease" means the Master Motor Vehicle Operating Lease Agreement, dated as of July 30, 1997, among AESOP Leasing, as the lessor thereunder, ARAC, as a lessee thereunder and as Administrator, and any other Person who becomes a party thereto pursuant to Section 24 thereof, as a lessee thereunder, and ARC, as the guarantor thereunder, as amended and restated as of September 15, 1998, and as it may be further amended, modified or supplemented from time to time in accordance with its terms. "AESOP I Operating Lease Commencement Date" is defined in Section 3.2 of the AESOP I Operating Lease. "AESOP I Operating Lease Event of Default" is defined in Section 18.1 of the AESOP I Operating Lease. "AESOP I Operating Lease Expiration Date" is defined in Section 3.2 of the AESOP I Operating Lease. "AESOP I Operating Lease Loan Agreement" means the Loan Agreement, dated as of July 30, 1997, among AFC-II, as lender thereunder, AESOP Leasing, as the borrower thereunder, and PVHC and Quartx, each as a Permitted Nominee of AESOP Leasing, relating to the financing of Vehicles to be leased under the AESOP I Operating Lease, as amended and restated as of September 15, 1998, and as it may be amended, supplemented, restated or otherwise modified from time to time in accordance with its terms. "AESOP I Operating Lease Loan Agreement Borrowing Base" means, on any date of determination, the sum of the AESOP I Operating Lease Loan Agreement Program Vehicle Borrowing Base and the AESOP I Operating Lease Loan Agreement Non-Program Vehicle Borrowing Base on such date. "AESOP I Operating Lease Loan Agreement Non-Program Vehicle Borrowing Base" means, on any date of determination, without duplication, the sum of (i) the Capitalized Cost of new Non-Program Vehicles being leased under the AESOP I Operating Lease on such date and the Net Book Value of all Non-Program Vehicles (other than new Vehicles) leased under the AESOP I Operating Lease that are Eligible Vehicles on such date, plus (ii) all amounts receivable, as of such date, by AESOP Leasing from any person or entity in connection with the auction, sale or other disposition of Non-Program Vehicles leased under the AESOP I Operating Lease that were at the time of disposition Eligible Vehicles, plus (iii) all accrued and unpaid Monthly Base Rent and Supplemental Rent with respect to Non-Program Vehicles leased under the AESOP I Operating Lease (other than amounts specified in clause (ii) above), minus (iv) the AESOP I Operating Lease Non-Program Vehicle Ineligible Asset Amount, if any. "AESOP I Operating Lease Loan Agreement Program Vehicle Borrowing Base" means, on any date of determination, without duplication, the sum of (i) the Capitalized Cost of new Program Vehicles being leased under the AESOP I Operating Lease on such date and the Net Book Value of all Program Vehicles (other than new Vehicles) leased under the AESOP I Operating Lease that are Eligible Vehicles on such date, plus (ii) all amounts receivable, as of such date, by AESOP Leasing from Manufacturers under and in accordance with their respective Eligible Manufacturer Programs with respect to Program Vehicles leased under the AESOP I Operating Lease that were at the time of disposition Eligible Vehicles and not Relinquished Vehicles, plus (iii) with respect to Relinquished Vehicles, the lesser of (x) $125,000,000 and (y) the Relinquished Vehicle Borrowing Base Component on such date, plus (iv), all amounts receivable, as of such date, by AESOP Leasing from Manufacturers under and in accordance with their respective Eligible Manufacturer Programs in respect of Reconveyed Receivables, plus (v) all amounts (other than amounts specified in clauses (ii), (iii)and (iv) above) receivable, as of such date, by AESOP Leasing from any person or entity in connection with the auction, sale or other disposition of Program Vehicles leased under the AESOP I Operating Lease that were at the time of disposition Eligible Vehicles, plus (vi) all accrued and unpaid Monthly Base Rent and Supplemental Rent with respect to Program Vehicles leased under the AESOP I Operating Lease (other than amounts specified in clauses (ii), (iii), (iv) and (v) above), minus (vii) the AESOP I Operating Lease Program Vehicle Ineligible Asset Amount, if any. "AESOP I Operating Lease Loan Collateral" means all the property and rights on or in which a Lien is granted to the Lender to secure all or any of the Liabilities under the AESOP I Operating Lease Loan Agreement pursuant to Section 7.1(a) of the AESOP I Operating Lease Loan Agreement, or under any other instruments, agreements or documents provided for in the AESOP I Operating Lease Loan Agreement or delivered or to be delivered thereunder or in connection therewith; other than any such property released from such lien pursuant to Section 7.3 of the AESOP I Operating Lease Loan Agreement. "AESOP I Operating Lease Loan Event of Default" means any of the events described in Section 12.1 of the AESOP I Operating Lease Loan Agreement. "AESOP I Operating Lease Non-Program Vehicle Ineligible Asset Amount" means, as of any date of determination, an amount equal to the sum, without duplication, of (a) the aggregate of all amounts specified in clause (ii) of the definition of "AESOP I Operating Lease Loan Agreement Non-Program Vehicle Borrowing Base" which are unpaid more than thirty (30) days past the applicable disposition date, plus (b) the aggregate of all amounts specified in clause (iii) of the definition of "AESOP I Operating Lease Loan Agreement Non-Program Vehicle Borrowing Base" which are past due as of such date. "AESOP I Operating Lease Program Vehicle Ineligible Asset Amount" means, as of any date of determination, an amount equal to the sum, without duplication, of (a) the aggregate of all amounts receivable as of such date by AESOP Leasing under and in accordance with a Manufacturer Program with respect to Program Vehicles that were leased under the AESOP I Operating Lease from a Manufacturer with respect to which a Manufacturer Event of Default has occurred, plus (b) the aggregate of all amounts specified in clauses (iii) and (iv) of the definition of "AESOP I Operating Lease Loan Agreement Program Vehicle Borrowing Base" that are payable by a Manufacturer with respect to which a Manufacturer Event of Default has occurred, plus (c) the aggregate of all amounts receivable as of such date by AESOP Leasing under and in accordance with a Manufacturer Program with respect to Program Vehicles that were leased under the AESOP I Operating Lease from a Manufacturer which amounts are unpaid more than ninety (90) days past the applicable Turnback Date, plus (d) the aggregate of all amounts specified in clause (v) of the definition of "AESOP I Operating Lease Loan Agreement Program Vehicle Borrowing Base" which are unpaid more than thirty (30) days past the applicable disposition date, plus (e) the aggregate of all amounts specified in clause (vi) of the definition of "AESOP I Operating Lease Loan Agreement Program Vehicle Borrowing Base" which are past due as of such date. "AESOP I Operating Lease Vehicle Deficiency" means, on any date of determination, the amount by which the aggregate Required AESOP I Operating Lease Vehicle Amounts with respect to all Series of Notes exceeds the AESOP I Operating Lease Loan Agreement Borrowing Base on such date. "AESOP I Operating Lease Vehicle Percentage" means, with respect to any Series of Notes, the percentage specified in the applicable Supplement. "AESOP I Segregated Account" is defined in Section 7.8 of each of the AESOP I Operating Lease Loan Agreement and the AESOP I Finance Lease Loan Agreement. "AESOP II Ineligible Asset Amount" means, as of any date of determination, an amount equal to the sum, without duplication, of (a) the aggregate of all amounts receivable as of such date by AESOP Leasing II under and in accordance with a Manufacturer Program with respect to Program Vehicles leased under the AESOP II Operating Lease from a Manufacturer with respect to which a Manufacturer Event of Default has occurred, plus (b) the aggregate of all amounts receivable as of such date by AESOP Leasing II under and in accordance with a Manufacturer Program with respect to Program Vehicles leased under the AESOP II Operating Lease from a Manufacturer which amounts are unpaid more than ninety (90) days past the applicable Turnback Date, plus (c) the aggregate of all amounts specified in clause (iii) of the definition of "AESOP II Loan Agreement Borrowing Base" which are unpaid more than thirty (30) days past the applicable disposition date, plus (d) the aggregate of all amounts specified in clause (iv) of the definition of "AESOP II Loan Agreement Borrowing Base" which are past due as of such date. "AESOP II Loan Agreement" means the Loan Agreement, dated as of July 30, 1997, among AFC-II, as lender thereunder, AESOP Leasing II, as the borrower thereunder, and Original AESOP, as Permitted Nominee of AESOP Leasing II, as amended, supplemented, restated or otherwise modified from time to time in accordance with its terms. "AESOP II Loan Agreement Borrowing Base" means, on any date of determination, without duplication, the sum of (i) the Capitalized Cost of new Program Vehicles leased under the AESOP II Operating Lease on such date and the Net Book Value of Program Vehicles (other than new Vehicles) leased under the AESOP II Operating Lease on such date, plus (ii) all amounts receivable, as of such date, by AESOP Leasing II from Manufacturers under and in accordance with their respective Eligible Manufacturer Programs with respect to Program Vehicles leased under the AESOP II Operating Lease, plus (iii) all amounts (other than amounts specified in clause (ii) above) receivable, as of such date, by AESOP Leasing II from any person or entity in connection with the auction, sale or other disposition of Program Vehicles leased under the AESOP II Operating Lease, plus (iv) all accrued and unpaid Monthly Base Rent and Supplemental Rent under the AESOP II Operating Lease (other than amounts specified in clauses (ii) and (iii) above), minus (vi) the AESOP II Ineligible Asset Amount, if any. "AESOP II Loan Collateral" means all property and rights on or in which a Lien is granted to the Lender to secure all or any of the Liabilities under the AESOP II Loan Agreement pursuant to Section 7.1(a) of the AESOP II Loan Agreement, or under any other instruments, agreements or documents provided for in the AESOP II Loan Agreement or delivered or to be delivered thereunder or in connection therewith. "AESOP II Loan Event of Default" means any of the events described in Section 12.1 of the AESOP II Loan Agreement. "AESOP II Management Agreement" means the Management Agreement, dated as of July 30, 1997, between the Managing Agent and AESOP Leasing II. "AESOP II Management Fee" is defined in Section 2 of the AESOP II Management Agreement. "AESOP II Operating Lease" means the Master Motor Vehicle Operating Lease Agreement, dated as of July 30, 1997, among AESOP Leasing II, as the lessor thereunder, ARAC, individually as a lessee and as Administrator, and any other Person who becomes a party thereto pursuant to Section 24 thereof, as a lessee thereunder, and ARC, as the guarantor thereunder, as amended, modified or supplemented from time to time in accordance with its terms. "AESOP II Operating Lease Commencement Date" is defined in Section 3.2 of the AESOP II Operating Lease. "AESOP II Operating Lease Event of Default" is defined in Section 18.1 of the AESOP II Operating Lease. "AESOP II Operating Lease Expiration Date" is defined in Section 3.2 of the AESOP II Operating Lease. "AESOP II Segregated Account" is defined in Section 7.8 of the AESOP II Loan Agreement. "AESOP Leasing" means AESOP Leasing L.P., a Delaware limited partnership. "AESOP Leasing Limited Partnership Agreement" means the Limited Partnership Agreement of AESOP Leasing, dated as of July 21, 1997, between Original AESOP, as general partner, and AESOP Leasing, as limited partner, as amended, modified or supplemented from time to time in accordance with its terms. "AESOP Leasing II" means AESOP Leasing Corp. II, a Delaware corporation. "AESOP Trust Account" has the meaning assigned to such term in the Master Exchange Agreement. "AFC" means AESOP Funding Corp., a Delaware corporation. "AFC-II" means AESOP Funding II L.L.C., a Delaware limited liability company. "AFC-II Agreements" means the AFC-II Limited Liability Company Agreement, the Loan Agreements, the Loan Notes, the Assignment Agreements, the Indenture, the Administration Agreement, the Termination Services Agreement, the AFC-II Account Control Agreements, any Swap Agreement, any Enhancement Agreement and any other agreements to which AFC-II is a party. "AFC-II Limited Liability Company Agreement" means the Limited Liability Company Agreement of AFC-II, dated as of July 21, 1997, between AESOP Leasing and Original AESOP, as amended, modified or supplemented from time to time in accordance with its terms. "AFC-II Management Agreement" means the Management Agreement, dated as of July 30, 1997, between the Managing Agent and AFC-II. "AFC-II Management Fee" is defined in Section 2 of the AFC-II Management Agreement. "AFC-II Obligations" means all principal and interest, at any time and from time to time, owing by AFC-II on the Notes and all costs, fees and expenses payable by, or obligations of, AFC-II under the Indenture and/or the Related Documents. "AFC-II Securities Account Control Agreements" means (i) the Securities Account Control Agreement dated as of July 30, 1997 among AFC-II, the Trustee and Harris Trust and Savings Bank, as Securities Intermediary, relating to the Collection Account and (ii) the Securities Account Control Agreement dated as of July 30, 1997 among AFC-II and Harris Trust and Savings Bank, as Series 1997-1 Agent and as Securities Intermediary, relating to the Series 1997-1 Reserve Account. "Affiliate" means, with respect to any specified Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified. For purposes of this definition, "control" means the power to direct the management and policies of a Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and "controlled" and "controlling" have meanings correlative to the foregoing. For purposes of the Loan Agreements, the Lender shall not be considered to be an Affiliate of either AESOP Leasing or AESOP Leasing II. "Agent" means any Registrar or Paying Agent. "Aggregate Asset Amount" means, as of any date of determination, an amount equal to the sum of (without duplication) (a) the aggregate Loan Principal Amount of Loans outstanding under the Loan Agreements on such date and (b) cash and Permitted Investments on deposit in the Collection Account on such date minus an amount equal to the sum of (x) any Aggregate Asset Amount Decline and (y) amounts credited to the Collection Account on such date that are payable to the Intermediary or the Lender Agent in accordance with the Intercreditor Agreement. "Aggregate Asset Amount Decline" means the aggregate amount of all Monthly Loan Principal Amount payments then or previously due but not paid with respect to the Loans under all the Loan Agreements. "Aggregate Asset Amount Deficiency" means, with respect to any date of determination, the amount, if any, by which the Required Aggregate Asset Amount on such date exceeds the Aggregate Asset Amount on such date. "Aggregate Invested Amount" means the sum of the Invested Amounts with respect to all Series of Notes then outstanding. "Amortization Commencement Date" means, with respect to a Series of Notes, the date on which an Amortization Event for such Series is deemed to have occurred pursuant to Section 9.1 of the Base Indenture. "Amortization Event" with respect to each Series of Notes, has the meaning specified in Section 9.1 of the Base Indenture. "Amortization Period" means, with respect to any Series of Notes, the period following the Revolving Period (as defined in any related Supplement) which shall be the Accumulation Period, the Controlled Amortization Period, or the Rapid Amortization Period, each as defined in the related Supplement. "Annual Noteholders' Tax Statement" is defined in Section 6.4(b) of the Base Indenture. "Approved Lockbox Account" means a lockbox account that is: (i) maintained with a Qualified Institution, (ii) established and maintained pursuant to an agreement that is approved in writing by the Trustee and each Enhancement Provider, (iii) pledged to the Trustee and over which no other Person has rights of withdrawal. "ARAC" means Avis Rent A Car System, Inc., a Delaware corporation. "ARAC Securities Account Control Agreement" means the Securities Account Control Agreement dated as of July 30, 1997 among AFC-II and Harris Trust and Savings Bank, as Trustee and as Securities Intermediary, relating to the Termination Services Reserve Account. "ARC" means Avis Rent A Car, Inc., a Delaware corporation. "Assets" means any interest of any kind in any assets or property of any kind (including, without limitation, any security interest in Vehicles), tangible or intangible, real, personal or mixed, now owned or hereafter acquired by AFC-II, AFC, AESOP Leasing, AESOP Leasing II or such other Person as the context may require. "Assigned Special Default Payments" has the meaning assigned to such term in the Master Exchange Agreement. "Assignment Agreement" means the agreement with respect to each Manufacturer and its Manufacturer Program, entered into or to be entered into among AFC-II, ARAC, AESOP Leasing, AESOP Leasing II and the Trustee and acknowledged by such Manufacturer, assigning to the Trustee certain of AESOP Leasing's, AESOP Leasing II's and ARAC's right, title and interest in and to such Manufacturer's Manufacturer Program as it relates to Vehicles purchased from such Manufacturer. "Authorized Officer" means (a) as to Original AESOP, PVHC, Quartx and AESOP Leasing II, any of the President, any Vice President, the Secretary or any Assistant Secretary, (b) as to AESOP Leasing, any of the President, any Vice President, the Secretary or any Assistant Secretary of Original AESOP, (c) as to AFC-II, any Manager, and (d) as to ARC, ARAC or any Lessee, those officers, employees and agents of ARC, ARAC or such Lessee whose signatures and incumbency shall have been certified in such certificates as may be delivered by ARC, ARAC or such Lessee to AESOP Leasing or AESOP Leasing II, as the case may be, from time to time as duly authorized to execute and deliver the applicable Leases and any instruments, certificates, notices and other documents in connection herewith on behalf of ARC, ARAC or such Lessee and to take, from time to time, all other actions on behalf of ARC, ARAC or such Lessee in connection therewith. "Average Daily Loan Balance" means, for any Loan Interest Period, (i) with respect to Loans made under the AESOP I Operating Lease Loan Agreement, the average daily outstanding Loan Principal Amount of all such Loans at any time during such Loan Interest Period, (ii) with respect to Loans made under the AESOP I Finance Lease Loan Agreement, the average daily outstanding Loan Principal Amount of all such Loans at any time during such Loan Interest Period and (iii) with respect to Loans made under the AESOP II Loan Agreement, the average daily outstanding Loan Principal Amount of all such Loans at any time during such Loan Interest Period. "Bankruptcy Code" means The Bankruptcy Reform Act of 1978, as amended from time to time, and as codified as 11 U.S.C. Section 101 et seq. "Base Indenture" means the Amended and Restated Base Indenture, dated as of July 30, 1997, between AFC-II and the Trustee, as amended, modified or supplemented from time to time, exclusive of Supplements creating a new Series of Notes. "Board of Directors" means the Board of Directors of AFC, AESOP Leasing II, Original AESOP, PVHC, Quartx, the Guarantor, any Lessee, as applicable, or any authorized committee of the Board of Directors. "BONY" means The Bank of New York, a New York banking corporation. "BONY Nominee Agreement" means the Vehicle Lienholder Nominee Agreement, dated as of July 30, 1997, among BONY, ARAC, ARC, AESOP Leasing and the Trustee, as amended, modified or supplemented from time to time in accordance with its terms. "Book-Entry Notes" means beneficial interests in the Notes, ownership and transfers of which shall be evidenced or made through book entries by a Clearing Agency as described in Section 2.16 of the Base Indenture; provided that after the occurrence of a condition whereupon book-entry registration and transfer are no longer permitted and Definitive Notes are issued to the Note Owners, such Definitive Notes shall replace Book-Entry Notes. "Borrower" means (i) AESOP Leasing, in its capacity as the borrower under each of the AESOP I Loan Agreements, and (ii) AESOP Leasing II, in its capacity as the borrower under the AESOP II Loan Agreement. "Borrowing Date" means the date a Loan is made to a Borrower under the Loan Agreement to which such Borrower is a party. "Business Day" means any day other than a Saturday, Sunday or other day on which banks are authorized or required by law to be closed in New York City, New York or Chicago, Illinois. "Capitalized Cost" means, with respect to each Vehicle purchased by AESOP Leasing (including any Vehicle acquired pursuant to the Master Exchange Agreement), AESOP Leasing II or ARAC, as the case may be, directly from a dealer, the price paid for such Vehicle by AESOP Leasing (including any Vehicle acquired pursuant to the Master Exchange Agreement), AESOP Leasing II or ARAC, as applicable, to the dealer selling such Vehicle, including dealer profit and delivery charges but excluding taxes and any registration or titling fees. "Carrying Charges" means, as of any day, (i) the aggregate of all Trustee fees and other costs, fees and expenses and indemnity amounts, if any, payable by the Lender under the Indenture or the Related Documents which have accrued since the then most recent Payment Date, plus (ii) the Monthly Administration Fee payable by the Lender under the Administration Agreement on the next succeeding Payment Date plus (iii) without duplication, all other operating expenses of AFC-II (including, without limitation, the AFC-II Management Fee and all costs, fees, expenses and other amounts payable by AFC-II to any Enhancement Provider) (other than amounts payable by AESOP Leasing pursuant to Section 13.4 or 13.5 of the AESOP I Loan Agreements and by AESOP Leasing II pursuant to Section 13.4 or 13.5 of the AESOP II Loan Agreement) which have accrued since the then most recent Payment Date. "Carryover Controlled Amortization Amount" means, with respect to each Series of Notes, the amount specified as such in the related Supplement. "Cash Collateral Account" is defined, with respect to any Series, in the related Supplement. "Casualty" means, with respect to any Vehicle, that (i) such vehicle is destroyed, seized or otherwise rendered permanently unfit or unavailable for use and is not tendered to and accepted for repurchase by the applicable Manufacturer within 90 days following the occurrence thereof, (ii) such Vehicle is lost or stolen and is not recovered, tendered to and accepted for repurchase by the applicable Manufacturer within 180 days following the occurrence thereof, (iii) the return of such Vehicle (if a Program Vehicle) to the applicable Manufacturer during the applicable Repurchase Period cannot be, or is not, effected for any reason (provided that such Vehicle will not be deemed a Casualty if the Lessee of such Vehicle redesignates it as a Non-Program Vehicle pursuant to Section 2.7 of the AESOP I Operating Lease or the Finance Lease) or (iv) the applicable Manufacturer did not accept such Vehicle (if a Program Vehicle) for repurchase for any reason unless the Lessee of such Vehicle reasonably believes such Manufacturer will accept such Vehicle for repurchase upon a subsequent return (provided that such Vehicle will not be deemed a Casualty if the Lessee of such Vehicle redesignates it as a Non-Program Vehicle pursuant to Section 2.7 of the AESOP I Operating Lease or the Finance Lease). "Cede" means Cede & Co., a nominee of DTC. "Cedel" means Cedel Bank, societe anonyme. "Cendant Indemnity" means the Indemnity Agreement, dated as of July 30, 1997, by and among AESOP Leasing, AESOP Leasing II and Cendant Corporation (as successor to HFS Incorporated), as amended, modified or supplemented from time to time in accordance with its terms; any reference in any Related Document to the "HFS Indemnity" shall be deemed a reference to the Cendant Indemnity. "Certificate of Title" means, with respect to each Vehicle, the certificate of title applicable to such Vehicle duly issued in accordance with the certificate of title act or statute of the jurisdiction applicable to such Vehicle. "Chairman of the Managers" is defined in Section 1.1 of the AFC-II Limited Liability Company Agreement. "Chrysler" means Chrysler Corporation, a Delaware corporation. "Clearing Agency" means an organization registered as a "clearing agency" pursuant to Section 17A of the Exchange Act or any successor provision thereto or Euroclear and Cedel. The initial Clearing Agencies shall be DTC, Euroclear and Cedel. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Date" means the Initial Closing Date or any Series Closing Date. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time, and any successor statute of similar import, in each case as in effect from time to time. References to sections of the Code also refer to any successor sections. "Collateral" is defined in Section 3.1 of the Base Indenture. "Collection Account" is defined in Section 5.1 of the Base Indenture. "Collections" means (i) all payments by or on behalf of the Borrowers under the Loan Agreements (except to the extent constituting Assigned Special Default Payments), (ii) all payments on the Collateral, including payments made by or on behalf of any Manufacturer or auction dealer, under the related Manufacturer Program with respect to Vehicles (excluding, however, any amounts constituting proceeds of Relinquished Vehicle Receivables), (iii) all payments by or on behalf of any other Person as proceeds from the sale of Vehicles or payments of insurance proceeds and warranty payments which the Borrowers are required to deposit into the Collection Account, whether such payments are in the form of cash, checks, wire transfers or other forms of payment and whether in respect of principal, interest, repurchase price, fees, expenses or otherwise, (iv) all payments by the Intermediary to the Trustee of funds released from the Trust Accounts pursuant to the Master Exchange Agreement in accordance with the terms thereof, (v) all payments by or on behalf of ARAC or ARC under the Vehicle Title and Lienholder Nominee Agreements with respect to Vehicles, (vi) all payments by or on behalf of Cendant Corporation under the Cendant Indemnity and (vii) all amounts earned on Permitted Investments of funds in the Collection Account. To the extent so specified in a Supplement, Collections also shall include all proceeds from the sale of the Notes issued under such Supplement. "Commercial Paper Notes" means the promissory notes of AFC issued by AFC in the commercial paper market pursuant to a depositary agreement. "Company Order" and "Company Request" means a written order or request signed in the name of AFC-II by any one of its Authorized Officers and delivered to the Trustee. "Computer Services Agreement" means the Computer Services Agreement, dated as of July 30, 1997, by and between ARAC and WizCom International, Ltd., as amended, supplemented, restated or otherwise modified from time to time in accordance with its terms. "Condition Report" means a condition report with respect to a Program Vehicle, signed and dated by the applicable Lessee and a Manufacturer or its agent in accordance with the applicable Manufacturer Program. "Consolidated Subsidiary" means, at any time, any Subsidiary or other entity the accounts of which would be consolidated with those of ARC in its consolidated financial statements as of such time. "Contingent Obligation", as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person (a) with respect to any indebtedness, lease, dividend, letter of credit or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof or (b) under any letter of credit issued for the account of that Person or for which that Person is otherwise liable for reimbursement thereof. Contingent Obligation shall include (a) the direct or indirect guarantee, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another and (b) any liability of such Person for the obligations of another through any agreement (contingent or otherwise) (i) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), (ii) to maintain the solvency of any balance sheet item, level of income or financial condition of another or (iii) to make take-or-pay or similar payments if required regardless of non-performance by any other party or parties to an agreement, if in the case of any agreement described under subclause (i) or (ii) of this sentence the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported. "Contractual Obligation" means, with respect to any Person, any provision of any security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "Controlled Amortization Period" means, with respect to any Series of Notes, the period specified in the applicable Supplement. "Controlled Distribution Amount" means, with respect to any Class of Notes, the amount (or amounts) specified in any applicable Supplement. "Controlled Group" means, with respect to any Person, such Person, whether or not incorporated, and any corporation, trade or business that is, along with such Person, a member of a controlled group of corporations or a controlled group of trades or businesses as described in Sections 414(b) and (c), respectively, of the Code. "Corporate Trust Office" shall mean the principal office of the Trustee at which at any particular time its corporate trust business shall be administered which office at the date of the execution of the Base Indenture is located at 311 West Monroe Street, 12th Floor, Chicago, Illinois 60606, Attention: Indenture Trust Administration, or at any other time at such other address as the Trustee may designate from time to time by notice to the Noteholders and AFC-II. "CP Rating Agency Condition" means, with respect to any action and so long as any Commercial Paper Notes are outstanding, that each Rating Agency shall have notified AFC, ARAC, the administrative agent for the liquidity lenders with respect to the Commercial Paper Notes and the Trustee in writing that such action will not result in a reduction or withdrawal of the rating (in effect immediately before the taking of such action) of the Commercial Paper Notes with respect to which it is a Rating Agency. "Daily Report" is defined in Section 4.1(a) of the Base Indenture. "Default Amount" means, with respect to (i) any Guaranteed Depreciation Program, zero, (ii) Nissan's or Nissan Hawaii's Manufacturer Program, $10 million, (iii) Mazda's Manufacturer Program, $10 million and (iv) any other Manufacturer's Manufacturer Program, $25 million. "Defaulting Manufacturer" is defined (i) for purposes of the AESOP I Operating Lease in Section 19 thereof, (ii) for purposes of the AESOP II Operating Lease in Section 19 thereof and (iii) for purposes of the Finance Lease in Section 19 thereof. "Definitions List" means this Definitions List, as amended or modified from time to time. "Definitive Notes" is defined in Section 2.16(d) of the Base Indenture. "Deposited Funds" means all funds on deposit in the Collection Account. "Depreciation Charge" means, with respect to (a) any Program Vehicle subject to the GM Repurchase Program, the rate determined by dividing (x) 100% minus the repurchase price percentage specified in respect of such Vehicle pursuant to the terms of the GM Repurchase Program for the Designated Period applicable to such Vehicle by (y) the number of days in such Designated Period (or, if such Vehicle is held past the Designated Period set forth in the Loan Request relating to the Loan in respect of such Vehicle, the applicable depreciation charge set forth in the GM Repurchase Program for such Vehicle calculated on a daily basis), (b) any Program Vehicle subject to an Eligible Manufacturer Program other than the GM Repurchase Program (but including any other Eligible Manufacturer Program provided by GM), the applicable depreciation charge set forth in the related Manufacturer Program for such Vehicle with respect to such Vehicle calculated on a daily basis and (c) any Non-Program Vehicle, the scheduled daily depreciation charge for such Vehicle set forth by AESOP Leasing in the Depreciation Schedule for such Vehicle. If such charge is expressed as a percentage, the daily Depreciation Charge for such Vehicle shall be such percentage multiplied by the Capitalized Cost for such Vehicle calculated on a daily basis. For Vehicles not held for a full month in the month of acquisition, the Depreciation Charges shall be prorated by multiplying the applicable depreciation amount by a fraction, the numerator of which is the number of days from the date depreciation related to such Vehicle begins to the first day of the next month and the denominator of which is the number of days in such month. For the month in which a Program Vehicle is turned back to the applicable Manufacturer, the Depreciation Charge shall be prorated by multiplying the applicable depreciation amount by a fraction, the numerator of which is the number of days from the first day of such month to the Turnback Date for such Vehicle and the denominator of which is the number of days in such month. In the event a Vehicle is sold (other than pursuant to the Manufacturer Program of a Manufacturer), the Depreciation Charge shall be prorated by multiplying the applicable depreciation amount by a fraction, the numerator of which is the number of days from the first day of such month to the date proceeds were received by the Trustee from the sale of such Vehicle and the denominator of which is the number of days in such month. "Depreciation Schedule" means the initial schedule of estimated daily depreciation prepared by AESOP Leasing based on a depreciation rate of 1.67% per calendar month with respect to each type of Non-Program Vehicle that is an Eligible Vehicle, as revised from time to time by AESOP Leasing; provided, however, that the effectiveness of any such revision shall be subject to satisfaction of the Rating Agency Consent Condition. "Designated Period" shall mean, with respect to any Program Vehicle subject to GM's Repurchase Program, the period designated by AESOP Leasing or AESOP Leasing II, as the case may be, in the applicable Loan Request relating to the Loan used to finance such Vehicle as the period of time for which AESOP Leasing or AESOP Leasing II, as applicable, expects such Vehicle to be subject to the related Loan. "Determination Date" means the date five days prior to each Distribution Date. "Disposition Proceeds" means the net proceeds (other than the portion of the Repurchase Price (i) payable by the Manufacturer pursuant to an Eligible Manufacturer Program or (ii) with respect to Non-Program Vehicles, by the applicable Lessee pursuant to the relevant Lease) from the sale or disposition of a Vehicle to any Person, whether at an auction or otherwise. "Distribution Account" means, with respect to any Series of Notes, an account established as such pursuant to the related Supplement. "Distribution Date" means, unless otherwise specified in any Supplement for the related Series of Notes, the twentieth day of each calendar month, or, if such day is not a Business Day, the next succeeding Business Day, commencing August 20, 1997. "Dollar" and the symbol "$" mean the lawful currency of the United States. "DTC" means The Depository Trust Company. "Early Termination Payments" is defined (i) for purposes of the AESOP I Operating Lease in Section 13.4 thereof, (ii) for purposes of the AESOP II Operating Lease in Section 13.4 thereof and (iii) for purposes of the Finance Lease in Section 13.4 thereof. "Eligible Manufacturer Program" means, at any time, a Manufacturer Program that is in full force and effect with an Eligible Program Manufacturer (i) pursuant to which the repurchase price or guaranteed auction sale price is at least equal to (a) with respect to the GM Repurchase Program, a specified percentage of the Capitalized Cost of each Vehicle, such percentage being determined for each Vehicle based upon the model year of such Vehicle and the calendar month in which such Vehicle is returned to the Manufacturer, minus Excess Mileage Charges, minus Excess Damage Charges, or (b) with respect to any Manufacturer Program other than the GM Repurchase Program (but including any other Eligible Manufacturer Program provided by GM), the Capitalized Cost of each Vehicle, minus all Depreciation Charges accrued with respect to such Vehicle prior to the date that the Vehicle is submitted for repurchase, minus Excess Mileage Charges, minus Excess Damage Charges, (ii) that cannot be amended or terminated with respect to any Vehicle after the purchase of that Vehicle, and (iii) the assignment of the benefits of which to AFC-II and to the Trustee for the benefit of the Secured Parties has been acknowledged in writing by the related Manufacturer and AFC-II and the Trustee have been provided with an opinion of counsel reasonably satisfactory to them that AFC-II and the Trustee can enforce the applicable Manufacturer's obligations thereunder; provided that (a) with respect to any new Manufacturer Program (including a new model year Manufacturer Program of an Eligible Program Manufacturer and a Manufacturer Program of a new Eligible Program Manufacturer) that is proposed for consideration after the date hereof as an Eligible Manufacturer Program, prior to such new Manufacturer Program constituting an "Eligible Manufacturer Program" hereunder, the Rating Agencies have been given 30 days' notice (or such shorter period of time as shall be acceptable to the Rating Agencies) of a draft of such new Manufacturer Program as it then exists at the time of such notice (and shall be provided a final copy of such Manufacturer Program promptly upon its being available) and the inclusion of such new Manufacturer Program as an "Eligible Manufacturer Program" hereunder shall be conditioned on satisfaction of the Rating Agency Consent Condition and the CP Rating Agency Condition, and (b) with respect to any change (other than as specified in clause (a) above) in the terms of any existing Eligible Manufacturer Program, prior to such Manufacturer Program constituting an "Eligible Manufacturer Program" hereunder, the Rating Agencies shall have been notified of such change and such change shall be conditioned on satisfaction of the Rating Agency Consent Condition and the CP Rating Agency Condition; provided further that in either case described in clause (a) or (b) above, if such new Manufacturer Program or such change in the terms of an existing Manufacturer Program would have a material adverse effect on the interests of the Secured Parties, prior to any such Manufacturer Program constituting an "Eligible Manufacturer Program", AFC-II shall have obtained the written consent of the Trustee thereto. "Eligible Non-Program Manufacturer" means each Eligible Program Manufacturer, Subaru, Mitsubishi, Hyundai, Suzuki and any other Manufacturer that (i) has been approved by the Rating Agencies or has been reviewed by the Rating Agencies and the Rating Agencies have indicated that the inclusion of such Manufacturer as an Eligible Non-Program Manufacturer will not adversely affect the current rating of any Series of Notes, (ii) has been approved by each Enhancement Provider and (iii) to the extent any Series of Notes supporting Commercial Paper Notes are outstanding, has been approved by the Majority Banks (as defined in the applicable Supplement). "Eligible Program Manufacturer" means GM, Chrysler, Ford, Mazda, Nissan, Nissan Hawaii, Toyota and any other Manufacturer that (i) has been approved by the Rating Agencies or has been reviewed by the Rating Agencies and the Rating Agencies have indicated that the inclusion of such Manufacturer as an Eligible Program Manufacturer will not adversely affect the current rating of any Series of Notes, (ii) has been approved by each Enhancement Provider and (iii) to the extent any Series of Notes supporting Commercial Paper Notes are outstanding, has been approved by the Majority Banks (as defined in the applicable Supplement); provided, however, that upon the occurrence of a Manufacturer Event of Default with respect to any such Eligible Program Manufacturer, such Manufacturer shall no longer qualify as an Eligible Program Manufacturer and provided, further, that if so specified in the applicable Supplement for a Series of Notes, a Manufacturer may be considered an Eligible Program Manufacturer only with respect to a portion of the Vehicles acquired from such Manufacturer that are eligible under its Manufacturer Program. "Eligible Rental Car Company" means any direct or indirect Wholly-Owned Subsidiary of ARC. "Eligible Vehicle" means an automobile or light truck that (i) either is a Program Vehicle (other than a light truck manufactured by Chrysler that is subject to a nine-month or longer minimum hold period under the Guaranteed Depreciation Program with Chrysler) or a Non-Program Vehicle manufactured by an Eligible Non-Program Manufacturer or other Manufacturer, in each case at the time of leasing under the relevant Lease, (ii) is owned by AESOP Leasing, AESOP Leasing II or ARAC, as applicable, free and clear of all Liens other than Permitted Liens, and (iii) with respect to which the Trustee is noted as the first lienholder on the Certificate of Title (other than with respect to Certificates of Title for (i) the Initial PVT Vehicles and the Initial Financed Vehicles (which Certificates of Title will show BONY as the first lienholder), (ii) the Franchisee Vehicles (which Certificates of Title will show the nominee lienholder under the related Franchisee Nominee Agreement as the first lienholder) and (iii) Vehicles located in the states of Ohio, Oklahoma and Nebraska) therefor, or the Certificate of Title has been submitted to the appropriate state authorities for such notation (other than with respect to Certificates of Title for Vehicles located in the states of Ohio, Oklahoma and Nebraska). "Enhancement" means, with respect to any Series of Notes, the rights and benefits provided to the Note-holders of such Series of Notes pursuant to any letter of credit, surety bond, cash collateral account, overcollateralization, issuance of subordinated Notes, spread account, guaranteed rate agreement, maturity guaranty facility, tax protection agreement, interest rate swap or any other similar arrangement. "Enhancement Agreement" means any contract, agreement, instrument or document governing the terms of any Enhancement or pursuant to which any Enhancement is issued or outstanding. "Enhancement Agreement Event of Default" means with respect to any Series of Notes any event of default under any Enhancement Agreement specified in the related Supplement. "Enhancement Amount" is defined, with respect to any Series of Notes, in the related Supplement. "Enhancement Deficiency" is defined, with respect to any Series of Notes, in the related Supplement. "Enhancement Percentage" means, with respect to any Series of Notes or class of Notes, the percentage, if any, specified in the applicable Supplement. "Enhancement Provider" means the Person providing any Enhancement as designated in the applicable Supplement, other than any Noteholders the Notes of which are subordinated to any Series of Notes. "Enhancement Provider Account" is defined, with respect to any Series of Notes, in the related Supplement. "Enhancement Provider's Office" is defined, with respect to any Series of Notes, in the related Supplement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "Euroclear" means Euroclear System. "Event of Bankruptcy" shall be deemed to have occurred with respect to a Person if: (a) a case or other proceeding shall be commenced, without the application or consent of such Person, in any court, seeking the liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of such Person, the appointment of a trustee, receiver, custodian, liquidator, assignee, sequestrator or the like for such Person or all or any substantial part of its assets, or any similar action with respect to such Person under any law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, and such case or proceeding shall continue undismissed, or unstayed and in effect, for a period of 60 consecutive days; or an order for relief in respect of such Person shall be entered in an involuntary case under the federal bankruptcy laws or other similar laws now or hereafter in effect; or (b) such Person shall commence a voluntary case or other proceeding under any applicable bankruptcy, insolvency, reorganization, debt arrangement, dissolution or other similar law now or hereafter in effect, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) for such Person or for any substantial part of its property, or shall make any general assignment for the benefit of creditors; or (c) the board of directors of such Person (if such Person is a corporation or similar entity) shall vote to implement any of the actions set forth in clause (b) above. "Event of Default" means any occurrence of an event of default pursuant to the relevant agreement. "Excess Damage Charges" means, with respect to any Program Vehicle, the amount charged to AESOP Leasing, AESOP Leasing II or ARAC, as the case may be, or deducted from the Repurchase Price, by the Manufacturer of such Vehicle due to damage over a prescribed limit and, if applicable, damage not subject to a prescribed limit and missing equipment, in each case with respect to such Vehicle at the time that such Vehicle is turned in to such Manufacturer or its agent for repurchase pursuant to the applicable Manufacturer Program. "Excess Mileage Charges" means, with respect to any Program Vehicle, the amount charged to AESOP Leasing, AESOP Leasing II or ARAC, as the case may be, or deducted from the Repurchase Price, by the Manufacturer of such Vehicle due to the fact that such Vehicle has mileage over a prescribed limit at the time that such Vehicle is turned in to such Manufacturer or its agent for repurchase pursuant to the applicable Manufacturer Program. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Date" is defined in Section 2.9 of the Base Indenture. "Exchange Agreement Termination Event" means an AESOP Exchange Agreement Termination Event or an Intermediary Exchange Agreement Termination Event. "Excluded Payments" means, with respect to each Lease, as applicable, any payments due from the respective Lessee or the Guarantor to the Lessor in respect of (i) the portion of Monthly Base Rent allocable to dividends accrued on the outstanding Preferred Stock of AESOP Leasing II (including any applicable tax gross-up), determined in accordance with the certificates of designation relating to such Preferred Stock, (ii) amounts due and payable pursuant to Section 16.2 of the Leases as such amounts relate to claims, demands, liabilities, and related costs and expenses arising under Section 16.1.2 of the Leases, (iii) amounts due and payable pursuant to Section 16.2 of the Leases (other than the amounts described in clause (ii) above) to the Lessor's stockholders, officers and directors (with respect to the Lessor's officers and directors, only to the extent such officer or director is not an Affiliate of the related Lessee or the Guarantor) or (iv) amounts due and payable pursuant to Section 4.2 of the AESOP I Operating Lease in respect of Special Service Charges. "Expected Final Distribution Date" means, with respect to any applicable Series of Notes, the date stated in the related Supplement as the date on which such Series of Notes is expected to be paid in full. "FGL" means The First Gray Line Corporation, a Delaware corporation, that prior to July 31, 1998 was a Wholly-Owned Subsidiary of ARAC and the holder of all of the issued and outstanding capital stock of FGL West. "FGL West" means The First Gray Line West Corporation, a Delaware corporation that prior to July 31, 1998 was a Wholly-Owned Subsidiary of FGL and the holder of all of the issued and outstanding capital stock of Grand. "Financed Vehicle" means a Vehicle subject to the Finance Lease. "Financed Vehicle Amount" means, as of any date of determination, the aggregate Net Book Value of all Financed Vehicles on such day. "Finance Lease" means the Master Motor Vehicle Finance Lease Agreement, dated as of July 30, 1997, among AESOP Leasing, as the lessor thereunder, ARAC, as the lessee thereunder, and ARC, as the guarantor thereunder, as amended, modified or supplemented from time to time in accordance with its terms. "Finance Lease Commencement Date" is defined in Section 3.2 of the Finance Lease. "Finance Lease Event of Default" is defined in Section 18.1 of the Finance Lease. "Finance Lease Expiration Date" is defined in Section 3.2 of the Finance Lease. "Finance Lease Non-Program Vehicle Ineligible Asset Amount" means, as of any date of determination, an amount equal to the sum, without duplication, of (a) the aggregate of all amounts specified in clause (ii) of the definition of "AESOP I Finance Lease Loan Agreement Non-Program Vehicle Borrowing Base" which are unpaid more than thirty (30) days past the applicable disposition date, plus (b) the aggregate of all amounts specified in clause (iii) of the definition of "AESOP I Finance Lease Loan Agreement Non-Program Vehicle Borrowing Base" which are past due as of such date. "Finance Lease Program Vehicle Ineligible Asset Amount" means, as of any date of determination, an amount equal to the sum, without duplication, of (a) the aggregate of all amounts receivable as of such date by ARAC or AESOP Leasing under and in accordance with a Manufacturer Program with respect to Program Vehicles leased under the Finance Lease from a Manufacturer with respect to which a Manufacturer Event of Default has occurred, plus (b) the aggregate of all amounts receivable as of such date by ARAC or AESOP Leasing under and in accordance with a Manufacturer Program with respect to Program Vehicles leased under the Finance Lease from a Manufacturer which amounts are unpaid more than ninety (90) days past the applicable Turnback Date, plus (c) the aggregate of all amounts specified in clause (iii) of the definition of "AESOP I Finance Lease Loan Agreement Program Vehicle Borrowing Base" which are unpaid more than thirty (30) days past the applicable disposition date, plus (d) the aggregate of all amounts specified in clause (iv) of the definition of "AESOP I Finance Lease Loan Agreement Program Vehicle Borrowing Base" which are past due as of such date. "Financial Officer" means, with respect to any corporation, the chief financial officer, vice-president-finance, principal accounting officer, controller or treasurer of such corporation. "Financing Provider" is defined in Section 2.3(b)(ii) of the Base Indenture. "Ford" means Ford Motor Company, a Delaware corporation. "Franchisee Nominee Agreement" means, with respect to any Franchisee Vehicle, a Vehicle Title and Lienholder Nominee Agreement substantially in the form of the PVHC/BONY Nominee Agreement (with such differences as are necessary to reflect the identities of the nominees), dated on or prior to the date of the inclusion of such Franchisee Vehicle under the Finance Lease, among ARAC, ARC, AESOP Leasing, the holder of record title to such Franchisee Vehicle, the lienholder shown on the Certificate of Title with respect to such Franchisee Vehicle and the Trustee, pursuant to which, among other things, (i) AESOP Leasing shall appoint the holder of record title to such Franchisee Vehicle as its nominee titleholder and the Trustee shall appoint the lienholder shown on the Certificate of Title with respect to such Franchisee Vehicle as its nominee lienholder, (ii) ARAC shall indemnify AESOP Leasing and its permitted assignees (including the Trustee) for any losses that occur as a consequence of any claim made on such Franchisee Vehicle by a creditor or purchaser from the entity that owned such Vehicle prior to ARAC's acquisition thereof, as a result of such entity's prior ownership of such Vehicle or as a result of the notation of the lien on the Certificates of Title with respect to such Vehicle not being in the Trustee's name, (iii) ARC shall guarantee ARAC's obligations thereunder and (iv) the holder of record title to such Franchisee Vehicle and the lienholder shown on the Certificate of Title with respect to such Franchisee Vehicle shall each covenant and agree that, prior to the date which is one year and one day after the payment in full of the latest maturing Note, it will not institute against, or join with any other Person in instituting, against AFC-II, AESOP Leasing, AESOP Leasing II, Original AESOP, PVHC, Quartx, AFC or any other Permitted Nominee under any Franchisee Agreement, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings; provided, that in the case of the Grand Franchisee Vehicles, the Franchisee Nominee Agreement shall mean the Franchisee Nominee Lienholder Agreement executed and delivered on the date of the Grand Merger. "Franchisee Vehicle" means any Eligible Vehicle (which need not be a new Vehicle) acquired by ARAC from any Person on or within six (6) months after the closing date of a transaction in which ARAC acquires such Person or substantially all of the assets of such Person; provided that such Person shall have been a franchisee of Cendant Car Rental, Inc. and Wizard Co., Inc. immediately prior to such acquisition; and further provided, that, pursuant to the Related Documents, the foregoing six (6) month limit was waived in the case of the Grand Franchisee Vehicles. "Franchisee Vehicle Leasing Condition" means, with respect to any Franchisee Vehicle, the delivery to AESOP Leasing, AFC-II and the Trustee on or prior to the date of inclusion of such Franchisee Vehicle under the Finance Lease of the following items: (1) an executed copy of a Franchisee Nominee Agreement with respect to such Franchisee Vehicle; (2) a written search report from a Person satisfactory to AESOP Leasing, AFC-II and the Trustee listing all effective financing statements that name the holder of record title to such Franchisee Vehicle as debtor or assignor, and that are filed in the jurisdictions in which filings were made pursuant to clause (3) below, together with copies of such financing statements, and tax and judgment lien search reports from a Person satisfactory to AESOP Leasing, AFC-II and the Trustee showing no evidence of liens filed against such holder of record title to such Franchisee Vehicle that purport to affect such Franchisee Vehicle; (3) a purchase agreement, pledge agreement or similar agreement, pursuant to which such holder of record title to such Franchisee Vehicle will grant a security interest in its right, title and interest in and to such Vehicle to AESOP Leasing, AFC-II and the Trustee; (4) an opinion of counsel stating that such Franchisee Nominee Agreement and the agreement referred to in clause (3) above are legal, valid and binding agreements of such holder of record title to such Franchisee Vehicle, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally and to general principles of equity; (5) evidence of the filing of proper financing statements on Form UCC-1 naming such holder of record title to such Franchisee Vehicle, as debtor, and AESOP Leasing as secured party covering such Franchisee Vehicle; (6) evidence of the filing of proper financing statements on Form UCC-1 naming such holder of record title to such Franchisee Vehicle, as debtor, and the Trustee as secured party covering such Franchisee Vehicle; and (7) any additional documentation that AESOP Leasing, AFC-II or the Trustee may reasonably require. With respect to the Grand Franchisee Vehicles, the references in clause (2) above to "holder of record title" shall mean Grand prior to the Grand Merger, and the references in clauses (3) through (6) above to "holder of record title" shall mean ARAC. "GAAP" means the generally accepted accounting principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors and successors from time to time. "GM" means General Motors Corporation, a Delaware Corporation. "GM Repurchase Program" means the General Motors Corporation Passenger and Light Duty Truck Repurchase Program for Daily Rental Operations, as amended from time to time, and pursuant to which the repurchase price is calculated based upon a specified percentage of the Capitalized Cost of a Vehicle as set forth in such program. "Governmental Authority" means any Federal, state, local or foreign court or governmental department, commission, board, bureau, agency, authority, instrumentality or regulatory body. "Grand" means Grand Rent a Car, a California corporation, that prior to July 31, 1998 was an indirect, wholly-owned subsidiary of ARAC. "Grand Merger" means the series of simultaneous transactions on July 31, 1998, whereby Grand was merged into FGL West, FGL West was merged into FGL, and FGL was merged into ARAC. "Grand Franchisee Vehicles" means the Eligible Vehicles owned by Grand on the date of the Grand Merger. "Group of Relinquished Vehicles" has the meaning assigned to such term in the Master Exchange Agreement. "Guaranteed Depreciation Program" means a guaranteed depreciation program pursuant to which a Manufacturer has agreed with AESOP Leasing, AESOP Leasing II or ARAC, as the case may be, to (a) cause Vehicles manufactured by it or one of its Affiliates that are turned back during the specified Repurchase Period to be sold by an auction dealer, (b) cause the proceeds of any such sale to be paid to AESOP Leasing, AESOP Leasing II or ARAC, as the case may be, by such auction dealer within seven days of such sale and (c) pay to AESOP Leasing, AESOP Leasing II or ARAC, as the case may be, the excess, if any, of the guaranteed payment amount with respect to any such Vehicle calculated as of the Turnback Date in accordance with the provisions of such guaranteed depreciation program over the amount paid to AESOP Leasing, AESOP Leasing II or ARAC, as the case may be, by an auction dealer pursuant to clause (b) above. "Guaranteed Obligations" is defined (i) for purposes of the AESOP I Operating Lease in Section 26.1 thereof, (ii) for purposes of the AESOP II Operating Lease in Section 26.1 thereof and (iii) for purposes of the Finance Lease in Section 26.1 thereof. "Guarantor" means ARC, in its capacity as guarantor of the Lessees' obligations under (i) the Leases and (ii) any applicable Enhancement Agreement. "Guaranty" is defined (i) for purposes of the AESOP I Operating Lease in Section 26.1 thereof, (ii) for purposes of the AESOP II Operating Lease in Section 26.1 thereof and (iii) for purposes of the Finance Lease in Section 26.1 thereof. "Hyundai" means Hyundai Motor America Corporation, a California corporation. "Identification Period" has the meaning assigned to such term in the Master Exchange Agreement. "Identification Period Component" means, on any date of determination, the aggregate of the amounts, without duplication, calculated with respect to each Group of Relinquished Vehicles for which the Identification Period shall not have ended as of the third preceding Business Day, of the sum of (A) all amounts receivable, as of such date of determination, by the Intermediary from Manufacturers under their respective Eligible Manufacturer Programs with respect to each such Group of Relinquished Vehicles as to which no Receivables Funding Loan shall have been made against the amounts receivable from Manufacturers in respect thereof (unless there shall have been a determination of payment in full of such Receivables Funding Loan pursuant to Section 6(c) of the Intercreditor Agreement), plus (B), any amount on deposit in the respective AESOP Trust Account on such date of determination that was paid by any such Manufacturer with respect to each Group of Relinquished Vehicles described in the foregoing clause (A), plus (C) any amount on deposit in the respective AESOP Trust Account on such date of determination representing the proceeds of Receivables Funding Loans, plus (D) any amount on deposit in the respective AESOP Trust Account on such date of determination representing amounts released from the corresponding Lender Trust Account for such Group of Relinquished Vehicles following payment in full of all principal and interest on the Receivables Funding Loan related to such Group of Relinquished Vehicles; plus (E) any amount on deposit in the AESOP Trust Accounts on such date representing investment earning on the amounts described in the foregoing clauses (B) , (C), and (D). "Indebtedness", as applied to any Person, means, without duplication, (a) all indebtedness for borrowed money, (b) that portion of obligations with respect to any lease of any property (whether real, personal or mixed) that is properly classified as a liability on a balance sheet in conformity with GAAP, (c) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (d) any obligation owed for all or any part of the deferred purchase price for property or services, which purchase price is (i) due more than six months from the date of the incurrence of the obligation in respect thereof or (ii) evidenced by a note or similar written instrument, (e) all indebtedness secured by any Lien on any property or asset owned by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person, and (f) all Contingent Obligations of such Person in respect of any of the foregoing. "Identified Relinquished Vehicle" has the meaning assigned to such term in the Master Exchange Agreement. "Identified Replacement Vehicle" has the meaning assigned to such term in the Master Exchange Agreement. "Indemnified Liabilities" is defined (i) for purposes of the AESOP I Operating Lease Loan Agreement in Section 13.5 thereof, (ii) for purposes of the AESOP I Finance Lease Loan Agreement in Section 13.5 thereof and (iii) for purposes of the AESOP II Loan Agreement in Section 13.5 thereof. "Indemnified Persons" is defined (i) for purposes of the AESOP I Operating Lease in Section 16.1 thereof, (ii) for purposes of the AESOP II Operating Lease in Section 16.1 thereof and (iii) for purposes of the Finance Lease in Section 16.1 thereof. "Indenture" means the Base Indenture, together with all Supplements, as the same may be amended, modified or supplemented from time to time. "Independent Director" means, (a) with respect to AESOP Leasing II, an individual who is not, and, except for having previously acted as a director of AESOP Leasing II, Original AESOP, Original AFC-II or AFC, never was, (i) a stockholder, member, partner, director, officer, employee, affiliate, associate, customer, supplier, creditor or independent contractor of, or any person that has received any benefit (excluding, however, any compensation received by an Independent Director in such person's capacity as a director of AESOP Leasing II or in such person's capacity as a director of Original AESOP, Original AFC-II or AFC during a period which occurred prior to July 31, 1997) in any form whatever from, or any person that has provided any service (excluding, however, any service provided by a director in such person's capacity as a director of AESOP Leasing II or in such person's capacity as an Independent Director of Original AESOP, Original AFC-II or AFC during a period which occurred prior to July 31, 1997) in any form whatever to, AESOP Leasing II, ARC, AFC, AFC-II, ARAC, AESOP Leasing, Original AESOP, Original AFC-II or any of their affiliates or associates, or (ii) any person owning beneficially, directly or indirectly, any outstanding shares of common stock, any limited liability company interests or any partnership interests, as applicable, of AESOP Leasing II, ARC, AFC, AFC-II, ARAC, AESOP Leasing, Original AESOP, Original AFC-II or any of their affiliates, or a stockholder, member, partner, director, officer, employee, affiliate, associate, customer, supplier, creditor or independent contractor of, or any person that has received any benefit (excluding, however, any compensation received by a director in such person's capacity as an Independent Director of AESOP Leasing II or in such person's capacity as a director of Original AESOP, Original AFC-II or AFC during a period which occurred prior to July 31, 1997) in any form whatever from, or any person that has provided any service (excluding, however, any service provided by a director in such person's capacity as a director of AESOP Leasing II or in such person's capacity as an Independent Director of Original AESOP, Original AFC-II or AFC during a period which occurred prior to July 30, 1997) in any form whatever to, such beneficial owner or any of such beneficial owner's affiliates or associates, or (iii) a member of the immediate family of any person described above. (b) with respect to Original AESOP, an individual who is not, and, except for having previously acted as a director of Original AESOP, Original AFC-II or AFC, never was, (i) a stockholder, member, partner, director, officer, employee, affiliate, associate, customer, supplier, creditor or independent contractor of, or any person that has received any benefit (excluding, however, any compensation received by a director in such person's capacity as a director of Original AESOP or in such person's capacity as an Independent Director of AFC or Original AFC-II during a period which occurred prior to July 31, 1997) in any form whatever from, or any person that has provided any service (excluding, however, any service provided by a director in such person's capacity as an Independent Director of Original AESOP or in such person's capacity as a director of AFC or Original AFC-II during the period occurring prior to July 31, 1997) in any form whatever to, Original AESOP, ARC, AFC, AFC-II, ARAC, AESOP Leasing, AESOP Leasing II, Original AFC-II or any of their affiliates or associates, or (ii) any person owning beneficially, directly or indirectly, any outstanding shares of common stock, any limited liability company interests or any partnership interests, as applicable, of Original AESOP, ARC, AFC, AFC-II, ARAC, AESOP Leasing, AESOP Leasing II, Original AFC-II or any of their affiliates, or a stockholder, member, partner, director, officer, employee, affiliate, associate, customer, supplier, creditor or independent contractor of, or any person that has received any benefit (excluding, however, any compensation received by a director in such person's capacity as an Independent Director of Original AESOP or in such person's capacity as a director of AFC or Original AFC-II during the period occurring prior to July 31, 1997) in any form whatever from, or any person that has provided any service (excluding, however, any service provided by a director in such person's capacity as a director of Original AESOP or in such person's capacity as an Independent Director of AFC or Original AFC-II during the period occurring prior to July 30, 1997) in any form whatever to, such beneficial owner or any of such beneficial owner's affiliates or associates, or (iii) a member of the immediate family of any person described above. (c) with respect to AFC, an individual who is not, and never was, (i) a stockholder, member, partner, director, officer, employee, affiliate, associate, customer, supplier, creditor or independent contractor of, or any person that has received any benefit in any form whatever from, or any person that has provided any service in any form whatever to, ARC, ARAC or any of their affiliates or associates, or (ii) any person owning beneficially, directly or indirectly, any outstanding shares of common stock, any limited liability interests or any partnership interests, as applicable, of ARC, ARAC or any of their affiliates, or a stockholder, member, partner, director, officer, employee, affiliate, associate, customer, supplier, creditor or independent contractor of, or any person that has received any benefit in any form whatever from, or any person that has provided any service in any form whatever to, such beneficial owner or any of such beneficial owner's affiliates or associates, or (iii) a member of the immediate family of any person described above; provided, however, that in the event there is a director of AFC meeting the above clauses (i), (ii) and (iii) then "Independent Director" with respect to AFC shall mean an individual who is not, (i) a stockholder, member, partner, director, officer, employee, affiliate, associate, customer, supplier, creditor or independent contractor of, or any person that has received any benefit in any form whatever from, or any person that has provided any service in any form whatever to, AFC, AFC-II, AESOP Leasing, AESOP Leasing II, Original AESOP, Original AFC-II or any of their affiliates or associates, or (ii) any person owning beneficially, directly or indirectly, any outstanding shares of common stock, any limited liability company interests or any partnership interests, as applicable, of AFC, AFC-II, AESOP Leasing, AESOP Leasing II, Original AESOP, Original AFC-II or any of their affiliates, or a stockholder, member, partner, director, officer, employee, affiliate, associate, customer, supplier, creditor or independent contractor of, or any person that has received any benefit in any form whatever from, or any person that has provided any service in any form whatever to, such beneficial owner or any of such beneficial owner's affiliates or associates, or (iii) a member of the immediate family of any person described above. "Independent Manager" is defined in Section 1.1 of the AFC-II Limited Liability Company Agreement. "Ineligible Vehicle" means a Vehicle that is not an Eligible Vehicle. "Initial AESOP Vehicle" means any Vehicle previously subject to the Original Operating Lease and made subject to the AESOP II Operating Lease on the Initial Closing Date. "Initial ARAC Vehicle" means any Vehicle previously subject to the Original Synthetic Lease and made subject to the AESOP I Operating Lease on the Initial Closing Date. "Initial Closing Date" means the date on which the initial Loans are made by the Lender under the Loan Agreements. "Initial Financed Vehicle" means any Vehicle owned by ARAC and made subject to the Finance Lease on the Initial Closing Date. "Initial Invested Amount" means, with respect to any Series of Notes, the aggregate initial principal amount specified in the applicable Supplement. "Initial Leased Vehicle" is defined (i) for purposes of the AESOP I Operating Lease in Section 2.1 thereof, (ii) for purposes of the AESOP II Operating Lease in Section 2.1 thereof and (iii) for purposes of the Finance Lease in Section 2.1 thereof. "Initial PVT Vehicle" means any Vehicle previously subject to the Original PVT Lease and made subject to Lease on the Initial Closing Date. "Initial Vehicle" means an Initial AESOP Vehicle, an Initial ARAC Vehicle, an Initial PVT Vehicle or an Initial Financed Vehicle, as the context may require. "Intercreditor Agreement" means the agreement, dated as of September 15, 1998, among the Trustee, AFC-II, AESOP Leasing, the Administrator, the Intermediary and the Receivables Lender Agent. "Interest Collections" means on any date of determination, all Collections which, pursuant to the Loan Agreements, represent payments of Loan Interest and Supplemental Interest plus any amounts earned on Permitted Investments in the Collection Account which are available for distribution on such date. "Interest Period" means, with respect to any Series of Notes, the period specified in the related Supplement. "Intermediary" means the Person acting in the capacity of Qualified Intermediary pursuant to the Master Exchange Agreement, which initially shall be Bank One, Texas, National Association. "Intermediary Exchange Agreement Termination Event" has the meaning assigned to such term in the Master Exchange Agreement. "Invested Amount" means, with respect to each Series of Notes, the amount specified in the applicable Supplement. "Invested Percentage" means, with respect to any Series of Notes, the percentage specified in the applicable Supplement. "Investment Company Act" means the Investment Company Act of 1940, as amended. "Issuer" means AFC-II, as issuer of the Notes, unless a successor replaces it and, thereafter, means the successor. "Lease Event of Default" means an AESOP I Operating Lease Event of Default, an AESOP II Operating Lease Event of Default or a Finance Lease Event of Default. "Lease Guide" means the Black Book Official Finance/Lease Guide. "Lease Payment Deficit" with respect to a Series shall be defined in the Supplement for such Series. "Leases" means the Operating Leases and the Finance Lease. "Lease's Share" means, with respect to each Lease on any date of determination, a fraction expressed as a percentage, the numerator of which is equal to the Net Book Value of Vehicles subject to such Lease and the denominator of which is equal to the sum of the Net Book Value of all Vehicles subject to the Leases, each as of such date of determination; provided, however, that on any date of determination on which the Net Book Value of Vehicles subject to each Lease is zero, the Lease's Share with respect to (i) the AESOP I Operating Lease shall be 67.5%, (ii) the Finance Lease shall be 10% and (iii) the AESOP II Operating Lease shall be 22.5%. "Legal Reserve Funding Date" means (i) in the event that the closing of the initial public offering of the common stock of ARC (as described in Registration Statement on Form S-1 (No. 333-28609), as amended, filed with the Securities and Exchange Commission) occurs prior to December 31, 1997, the date, if any, on which the total stockholders' equity of ARC and its Consolidated Subsidiaries is reduced to an amount equal to or less than 65% of such total stockholders' equity on the date of such closing (after giving effect to the issuance of such common stock on such date) and (ii) otherwise, December 31, 1997. "Legal Reserve Release Condition" means in the event that the closing of the initial public offering of the common stock of ARC (as described in Registration Statement on Form S-1 (No. 333-28609), as amended, filed with the Securities and Exchange Commission) occurs prior to December 31, 1997, the total stockholders' equity of ARC and its Consolidated Subsidiaries is greater than 65% of such total stockholders' equity on the date of such closing (after giving effect to the issuance of such common stock on such date). "Lender" means AFC-II, in its capacity as lender under the Loan Agreements. "Lender Party" is defined (i) for purposes of the AESOP I Operating Lease Loan Agreement in Section 13.5 thereof, (ii) for purposes of the AESOP I Finance Lease Loan Agreement in Section 13.5 thereof and (iii) for purposes of the AESOP II Loan Agreement in Section 13.5 thereof. "Lender Trust Account" has the meaning assigned to such term in the Master Exchange Agreement. "Lender's Carrying Cost Interest Rate" means for any Loan Interest Period an interest rate equal to the percentage equivalent of a fraction, (i) the numerator of which is equal to the sum of (A) the amount of interest accrued during such Loan Interest Period with respect to all Series of Notes, plus (B) the sum of any Swap Payments payable by AFC-II on the next succeeding Payment Date, minus (C) the sum of any Swap Payments payable to AFC-II on the next succeeding Payment Date, minus (D) any accrued earnings on Permitted Investments in the Collection Account which are available for distribution on the last Business Day of such Loan Interest Period, and (ii) the denominator of which is equal to the Average Daily Loan Balance for all Loans under the Loan Agreements with respect to such Loan Interest Period; provided, however that the Lender's Carrying Cost Interest Rate after the occurrence of a Event of Bankruptcy with respect to ARC, ARAC or any other Lessee shall equal an interest rate equal to (x) with respect to the AESOP I Operating Lease Loan Agreement, the percentage equivalent of a fraction, (I) the numerator of which is equal to the product of (A) the sum specified in clause (i) above and (B) a fraction, the numerator of which is the AESOP I Operating Lease Loan Agreement Borrowing Base and the denominator of which is the sum of the AESOP I Operating Lease Loan Agreement Borrowing Base, the AESOP I Finance Lease Loan Agreement Borrowing Base and the AESOP II Loan Agreement Borrowing Base, each determined as of the first day of such Loan Interest Period, and (II) the denominator of which is equal to the Average Daily Loan Balance for all Loans under the AESOP I Operating Lease Loan Agreement with respect to such Loan Interest Period and (y) with respect to the AESOP I Finance Lease Loan Agreement and the AESOP II Loan Agreement, the percentage equivalent of a fraction, (I) the numerator of which is equal to the product of (A) the sum specified in clause (i) above and (B) a fraction, the numerator of which is the sum of the AESOP I Finance Lease Loan Agreement Borrowing Base and the AESOP II Loan Agreement Borrowing Base and the denominator of which is the sum of the AESOP I Operating Lease Loan Agreement Borrowing Base, the AESOP I Finance Lease Loan Agreement Borrowing Base and the AESOP II Loan Agreement Borrowing Base, each determined as of the first day of such Loan Interest Period, and (II) the denominator of which is equal to the Average Daily Loan Balance for all Loans under the AESOP I Finance Lease Loan Agreement and the AESOP II Loan Agreement with respect to such Loan Interest Period. "Lessee" means, as applicable, (i) each of ARAC and each Eligible Rental Car Company that becomes a party to the AESOP I Operating Lease pursuant to the provisions of Section 24 thereof, in its capacity as a lessee under the AESOP I Operating Lease, (ii) each of ARAC and each Eligible Rental Car Company that becomes a party to the AESOP II Operating Lease pursuant to the provisions of Section 24 thereof, in its capacity as a lessee under the AESOP II Operating Lease and (iii) ARAC, in its capacity as the lessee under the Finance Lease. "Lessee Agreements" is defined (i) for purposes of the AESOP I Operating Lease in Section 2(b) thereof, (ii) for purposes of the AESOP II Operating Lease in Section 2(b) thereof and (iii) for purposes of the Finance Lease in Section 2(b) thereof. "Lessee's Share" means, with respect to each Lessee under a particular Lease on any date of determination, a fraction expressed as a percentage, the numerator of which is equal to the Net Book Value of all Vehicles leased by such Lessee under such Lease and the denominator of which is equal to the sum of the Net Book Value of all Vehicles leased under such Lease, each as of such date of determination. "Lessor" means (i) AESOP Leasing, in its capacity as the lessor under each of the AESOP I Operating Lease and the Finance Lease, and (ii) AESOP Leasing II, in its capacity as the lessor under the AESOP II Operating Lease. "Liabilities" means (i) with respect to the AESOP I Operating Lease Loan Agreement, all obligations to the Lender of AESOP Leasing arising under or in connection with the AESOP I Operating Lease Loan Agreement or the related Loan Note, in each case howsoever created, arising or evidenced, whether direct or indirect, joint or several, absolute or contingent, or now or hereafter existing, or due or to become due including, without limitation, Loan Interest accruing after the filing of a bankruptcy petition whether or not allowed as a claim, (ii) with respect to the AESOP I Finance Lease Loan Agreement, all obligations to the Lender of AESOP Leasing arising under or in connection with the AESOP I Finance Lease Loan Agreement or the related Loan Note, in each case howsoever created, arising or evidenced, whether direct or indirect, joint or several, absolute or contingent, or now or hereafter existing, or due or to become due including, without limitation, Loan Interest accruing after the filing of a bankruptcy petition whether or not allowed as a claim and (iii) with respect to the AESOP II Loan Agreement, all obligations to the Lender of AESOP Leasing II arising under or in connection with the AESOP II Loan Agreement or the related Loan Note, in each case howsoever created, arising or evidenced, whether direct or indirect, joint or several, absolute or contingent, or now or hereafter existing, or due or to become due including, without limitation, Loan Interest accruing after the filing of a bankruptcy petition whether or not allowed as a claim. "Licensing Agreement" means the Master License Agreement, dated as of July 30, 1997, among Cendant Car Rental, Inc. (formerly known as HFS Car Rental, Inc.), ARAC and Wizard Co., Inc., as amended, supplemented, restated or otherwise modified from time to time in accordance with its terms. "Lien" means, when used with respect to any Person, any interest in any real or personal property, asset or other right held, owned or being purchased or acquired by such Person which secures payment or performance of any obligation, and shall include any mortgage, lien, pledge, encumbrance, charge, retained security title of a conditional vendor or lessor, or other security interest of any kind, whether arising under a security agreement, mortgage, lease, deed of trust, chattel mortgage, assignment, pledge, retention or security title, financing or similar statement, or notice or arising as a matter of law, judicial process or otherwise. "Limited Liquidation Event of Default" means, with respect to any Series of Notes, any event specified as such in the related Supplement. "Liquidation Event of Default" means, so long as such event or condition continues, any of the following: (a) any event or condition with respect to AFC-II, AESOP Leasing, AESOP Leasing II, Original AESOP, PVHC, Quartx, ARAC, any Lessee or ARC of the type described in Section 9.1(d) of the Base Indenture, (b) a payment default by AFC-II under the Base Indenture as specified in Sections 9.1(a) and (b) of the Base Indenture, (c) an event specified in Section 9.1(e)(i), (k), (l) or (m) of the Base Indenture, (d) a payment default by ARAC, any Lessee or ARC under any Enhancement Agreement, as specified therein, (e) a payment default by any Lessee under Section 18.1.1 of the AESOP I Operating Lease, (f) a payment default by any Lessee under Section 18.1.1 of the AESOP II Operating Lease or (g) a payment default by the Lessee under Section 18.1.1 of the Finance Lease. "Loan" is defined (i) for purposes of the AESOP I Operating Lease Loan Agreement in Section 2.1 thereof, (ii) for purposes of the AESOP I Finance Lease Loan Agreement in Section 2.1 thereof and (iii) for purposes of the AESOP II Loan Agreement in Section 2.1 thereof. "Loan Agreements" means the AESOP I Loan Agreements and the AESOP II Loan Agreement. "Loan Agreement's Share" means, with respect to each Loan Agreement on any date of determination, a fraction expressed as a percentage, the numerator of which is equal to the Loan Principal Amount of Loans outstanding under such Loan Agreement and the denominator of which is equal to the sum of the Loan Principal Amounts of all Loans outstanding under the Loan Agreements, each as of such date of determination; provided, however, that on any date of determination on which the Loan Principal Amount of Loans outstanding under each Loan Agreement is zero, the Loan Agreement's Share with respect to each Loan Agreement shall equal the Lease's Share with respect to the Related Lease as of such date. "Loan Collateral" means the AESOP I Loan Collateral and the AESOP II Loan Collateral. "Loan Commitment" is defined (i) for purposes of the AESOP I Operating Lease Loan Agreement in Section 2.1 thereof, (ii) for purposes of the AESOP I Finance Lease Loan Agreement in Section 2.1 thereof and (iii) for purposes of the AESOP II Loan Agreement in Section 2.1 thereof. "Loan Commitment Termination Date" means the date on which all Notes shall have been paid in full and the Base Indenture shall have terminated pursuant to Section 11.1 thereof. "Loan Event of Default" means an AESOP I Loan Event of Default or an AESOP II Loan Event of Default. "Loan Interest" (i) with respect to Loans made under the AESOP I Operating Lease Loan Agreement, is defined in Section 4.1 thereof, (ii) with respect to Loans made under the AESOP I Finance Lease Loan Agreement, is defined in Section 4.1 thereof and (iii) with respect to Loans made under the AESOP II Loan Agreement, is defined in Section 4.1 thereof. "Loan Interest Period" means, with respect to any Distribution Date, the period from and including the preceding Distribution Date to but excluding the current Distribution Date, provided, however, that the initial Loan Interest Period shall commence on the Initial Closing Date and the final Loan Interest Period shall end on the date following the Loan Commitment Termination Date on which all Loans under the Loan Agreements shall have been paid in full. "Loan Note" means, (i) with respect to Loans made under the AESOP I Operating Lease Loan Agreement, is defined in Section 3.1 thereof, (ii) with respect to Loans made under the AESOP I Finance Lease Loan Agreement, is defined in Section 3.1 thereof and (iii) with respect to Loans made under the AESOP II Loan Agreement, is defined in Section 3.1 thereof. "Loan Payment Allocation Percentage" means, (i) with respect to the AESOP I Operating Lease Loan Agreement on any date of determination, a fraction expressed as a percentage (which percentage shall never exceed 100%), the numerator of which is equal to the Loan Principal Amount of Loans outstanding under the AESOP I Operating Lease Loan Agreement and the denominator of which is equal to the AESOP I Operating Lease Loan Agreement Borrowing Base, each as of such date of determination, (ii) with respect to the AESOP I Finance Lease Loan Agreement on any date of determination, a fraction expressed as a percentage (which percentage shall never exceed 100%), the numerator of which is equal to the Loan Principal Amount of Loans outstanding under the AESOP I Finance Lease Loan Agreement and the denominator of which is equal to AESOP I Finance Lease Loan Agreement Borrowing Base, each as of such date of determination, and (iii) with respect to the AESOP II Loan Agreement, 100%. "Loan Principal Amount" means, as of any date, (i) with respect to Loans made under the AESOP I Operating Lease Loan Agreement, the aggregate principal amount outstanding of such Loans, (ii) with respect to Loans made under the AESOP I Finance Lease Loan Agreement, the aggregate principal amount outstanding of such Loans and (iii) with respect to Loans made under the AESOP II Loan Agreement, the aggregate principal amount outstanding of such Loans. "Loan Request" means a loan request, substantially in the form of Exhibit B-1 to each Loan Agreement, executed by an Authorized Officer of the relevant Borrower. "Loan Request Response" means a loan request response, substantially in the form of Exhibit B-2 to each Loan Agreement, executed by an Authorized Officer of the Lender. "Lockbox Agreement" means each agreement establishing an Approved Lockbox Account. "Luxembourg Agent" is defined in Section 2.4(c) of the Base Indenture. "Manager" is defined in Section 1.1 of the AFC-II Limited Liability Company Agreement. "Managing Agent" means Lord Securities Corporation, a Delaware corporation. "Mandatorily Redeemable Obligations" means, as applied to a Person, an obligation of such Person to the extent that it is redeemable, payable or required to be purchased or otherwise retired or extinguished (a) at a fixed or determinable date, whether by operation of a sinking fund or otherwise, (b) at the option of any Person other than such Person or (c) upon the occurrence of a condition not solely within the control of such Person, such as a redemption required to be made out of future earnings. "Manufacturer" means a manufacturer of passenger automobiles and/or light trucks. "Manufacturer Event of Default" means, with respect to any Manufacturer, (i) the failure by such Manufacturer (or in the case of a Guaranteed Depreciation Program, the failure by such Manufacturer or any related auction dealers) to pay any amount due under such Manufacturer's Manufacturer Program with respect to a Vehicle turned in to such Manufacturer (including any Relinquished Vehicle); provided, however, that (a)(I), in the case of an Eligible Manufacturer Program, such failure continues for more than ninety (90) days following the Turnback Date for such Vehicle or (II) in the case of any other Manufacturer Program, such failure continues for more than thirty (30) days following the Turnback Date for such Vehicle and (b) in the case of an Eligible Manufacturer Program only, the aggregate of any such amounts not paid (each, a "Past Due Amount") are equal to or in excess of the lesser of the Default Amount with respect to such Manufacturer Program and the then outstanding aggregate amount of repurchase obligations of the Manufacturer under such Manufacturer Program, in each case net of Past Due Amounts that are the subject of a good faith dispute as evidenced by a writing by AESOP Leasing, AESOP Leasing II or ARAC, as applicable, or the Manufacturer questioning the accuracy of amounts paid or payable in respect of certain Vehicles tendered for repurchase under a Manufacturer Program (as distinguished from any dispute relating to the repudiation by such Manufacturer generally of its obligations under such Manufacturer Program or the assertion by such Manufacturer of the invalidity or unenforceability as against it of such Manufacturer Program); (ii) the occurrence of an Event of Bankruptcy with respect to such Manufacturer; or (iii) the termination of such Manufacturer's Manufacturer Program or the failure of an Eligible Program Manufacturer's Manufacturer Program to meet the requirements of an Eligible Manufacturer Program. "Manufacturer Program" means any Repurchase Program or Guaranteed Depreciation Program. "Market Value" means, with respect to any Vehicle as of any date of determination, the market value of such Vehicle as specified in the Related Month's published NADA Guide for the model class and model year of such Vehicle based on the average equipment and the average mileage of each vehicle of such model class and model year; provided, that if the NADA Guide is being published but such Vehicle is not included therein, the Market Value shall mean the Capitalized Cost of such Vehicle less depreciation charges equal to 1.67% per month of the Capitalized Cost of such Vehicle since the date of such Vehicle's purchase; provided, further, that if the NADA Guide was not published in the Related Month, the Market Value of such Vehicle shall be based on an independent third-party data source approved by each Rating Agency that is rating any Series of Notes or the Commercial Paper Notes at the request of AFC-II or ARAC based on the average equipment and average mileage of each Vehicle of such model class and model year or based upon such other methodology approved by each such Rating Agency. "Market Value Average" means, as of any day on or after the third Determination Date, the percentage equivalent of a fraction, the numerator of which is the average of the Non-Program Fleet Market Value as of such preceding Determination Date and the two Determination Dates precedent thereto and the denominator of which is the average of the aggregate Net Book Value of Non-Program Vehicles leased under the AESOP I Operating Lease and the Finance Lease as of such preceding Determination Date and the two Determination Dates precedent thereto. "Master Exchange Agreement" means the Master Exchange Agreement, dated as of September 15, 1998, between AESOP Leasing and Bank One, Texas, National Association, as Intermediary. "Material Adverse Effect" means, with respect to any occurrence, event or condition: (i) a materially adverse effect on the financial condition, prospects, business, assets or operations of the Guarantor and its Consolidated Subsidiaries; (ii) a materially adverse effect on the ability of (a) the Guarantor, ARAC, any other Lessee, AESOP Leasing, AESOP Leasing II, Original AESOP, PVHC or Quartx to perform its obligations under any of the Related Documents or (b) the Lender to perform its obligations under any of the Related Documents; or (iii) an adverse effect on (a) the enforceability of any Related Document or (b) on the priority or perfection of the Lender's or the Trustee's Lien on any Loan Collateral or the Collateral. "Maximum Financed Vehicle Amount" means, as of any Determination Date or Payment Date, the lowest Maximum Financed Vehicle Amount specified in any Supplement under which Notes are Outstanding as of such date. "Maximum Invested Amount" means, with respect to each Series of Notes, the amount, if any, specified in the applicable Supplement. "Maximum Manufacturer Amount" means, as of any Determination Date or Payment Date, with respect to a particular Manufacturer or group of Manufacturers, the lowest Maximum Manufacturer Amount specified in any Supplement under which Notes are Outstanding as of such date. "Maximum Non-Eligible Manufacturer Amount" means, as of any Determination Date or Payment Date, the lowest Maximum Non-Eligible Manufacturer Amount specified in any Supplement under which Notes are Outstanding as of such date. "Maximum Non-Program Vehicle Amount" means, as of any Determination Date or Payment Date, the lowest Maximum Non-Program Vehicle Amount specified in any Supplement under which Notes are Outstanding as of such date. "Maximum Specified States Amount" means, as of any Determination Date or Payment Date, the lowest Maximum Specified States Amount specified in any Supplement under which Notes are Outstanding as of such date. "Maximum Term" is defined (i) for purposes of the AESOP I Operating Lease in Section 3.1 thereof, (ii) for purposes of the AESOP II Operating Lease in Section 3.1 thereof and (iii) for purposes of the Finance Lease in Section 3.1 thereof. "Mazda" means, collectively, Mazda Motor Corporation and Mazda Motor of America, Inc. "Measurement Month" with respect to any date, means collectively, each of the three periods most closely preceding such date, each of which periods shall consist of one calendar month or the smallest number of consecutive calendar months, in which (a) at least 250 Non-Program Vehicles were sold at auction or otherwise and (b) at least one-twelfth of the aggregate Net Book Value of the Non-Program Vehicles leased under the AESOP I Operating Lease and the Finance Lease as of the last day of each such period were sold at auction or otherwise; provided, however, that no calendar month included in a Measurement Month shall be included in any other Measurement Month; and, further provided, that Redesignated Program Vehicles shall be excluded for purposes of the foregoing determination. "Measurement Month Average" means, with respect to any Measurement Month, the percentage equivalent of a fraction, the numerator of which is the aggregate amount of Disposition Proceeds of all Non-Program Vehicles sold at auction or otherwise during such Measurement Month (excluding any Redesignated Program Vehicles) and the denominator of which is the aggregate Net Book Value of such Vehicles on the dates of their respective sales. "Merger Agreement" is defined in the recitals to the Base Indenture. "Minimum Term" is defined (i) for purposes of the AESOP I Operating Lease in Section 3.1 thereof, (ii) for purposes of the AESOP II Operating Lease in Section 3.1 thereof and (iii) for purposes of the Finance Lease in Section 3.1 thereof. "Mitsubishi" means Mitsubishi Motors Corp., a Delaware corporation. "Monthly Administration Fee" means, with respect to each Payment Date, one-twelfth of the product of (i) in the case of the Monthly Administration Fee payable by AESOP Leasing in respect of Vehicles subject to the AESOP I Operating Lease and the Finance Lease, 0.40% and the Net Book Value of such Vehicles as of the first day of the applicable Related Month; (ii) in the case of the Monthly Administration Fee payable by AESOP Leasing II in respect of Vehicles subject to the AESOP II Operating Lease, 0.40% and the Net Book Value of such Vehicles as of the first day of the applicable Related Month; and (iii) in the case of the Monthly Administration Fee payable by AFC-II, 0.10% and the Net Book Value of all Vehicles leased under the Leases as of the first day of the applicable Related Month; provided, however, that if an Amortization Event with respect to any Series of Notes shall have occurred and be continuing, the Monthly Administration Fee for each Payment Date will equal the greater of (A) the product of (x) $20.00 and (y) the number of Vehicles subject to the Leases as of the first day of the applicable Related Month, and (B) the sum of the amounts described in the clauses (i), (ii) and (iii) of this definition; and provided, further, that if the Monthly Administration Fee is determined as provided in clause (A), such Monthly Administration Fee shall be payable by AESOP Leasing, AESOP Leasing II and AFC-II in the same relative proportions that would have been payable had such Monthly Administration Fee been determined as provided in clauses (i), (ii) and (iii) of this definition. "Monthly Base Rent" means, with respect to each Lease on a Payment Date, without duplication, the sum of (a) the Loan Interest and Supplemental Interest with respect to the Loan(s) made to finance the Vehicles subject to such Lease that is due and payable on such Payment Date, plus (b) the accrued Depreciation Charges for the Related Month for all Vehicles (x) subject to such Lease as of the end of the Related Month or (y) that, without double counting, while subject to such Lease either became Ineligible Vehicles, suffered a Casualty or were sold by or on behalf of the applicable Lessor to any Person other than to a Manufacturer pursuant to a Manufacturer Program or to a third party pursuant to an auction conducted through a Guaranteed Depreciation Program, in each case, during the Related Month, plus (c) in the case of the AESOP I Operating Lease or the Finance Lease, all upfront incentive payments paid by Manufacturers during the Related Month in respect of purchases of Non-Program Vehicles leased under such Lease, plus (d) the Monthly Administration Fee payable by the applicable Lessor under the Administration Agreement with respect to such Payment Date; plus (e) in the case of the AESOP II Operating Lease, an amount equal to the dividends accrued during the Related Month on the outstanding Preferred Stock of AESOP Leasing II (including any applicable tax gross-up), determined in accordance with the certificates of designation relating to such Preferred Stock, plus (f) the applicable Loan Agreement's Share (determined as of the beginning of the Related Month) with respect to the Related Loan Agreement of Carrying Charges, (g) in the case of the AESOP II Operating Lease, the monthly portion of the AESOP II Management Fee and any other amounts payable by AESOP Leasing II under the AESOP II Management Agreement, plus (h) in the case of the AESOP I Operating Lease or the Finance Lease, the monthly portion of the Original AESOP Management Fee, allocated to each such Lease pro rata, based upon the applicable Lease's Share (determined as of the beginning of the Related Month), (i) in the case of the AESOP I Operating Lease or the Finance Lease, an amount equal to 1% of the sum of (A) the Net Book Value of the Non-Program Vehicles subject to such Lease as of the first day of the Related Month, (B) the Capitalized Cost of each new Non-Program vehicles leased thereunder since the first day of the Related Month and (C) the Net Book Value of each Program Vehicle subject to such Lease redesignated as a Non-Program Vehicle since the first day of the Related Month; and (j) indemnity payments paid by the applicable Lessor pursuant to any Vehicle Title and Lienholder Nominee Agreement to which such Lessor is a party. "Monthly Certificate" is defined in Section 4.1(b) of the Base Indenture. "Monthly Loan Principal Amount" (i) with respect to Loans made under the AESOP I Operating Lease Loan Agreement, is defined in Section 5.1 thereof, (ii) with respect to Loans made under the AESOP I Finance Lease Loan Agreement, is defined in Section 5.1 thereof and (iii) with respect to Loans made under the AESOP II Loan Agreement, is defined in Section 5.1 thereof. "Monthly Noteholders Statement" means a statement substantially in the form of Exhibit E to the Indenture. "Moody's" means Moody's Investors Service, Inc. "NADA Guide" means the National Automobile Dealers Association, Official Used Car Guide, Eastern Edition. "Net Book Value" means, with respect to each Vehicle, such Vehicle's Capitalized Cost, minus, in the case of any Non-Program Vehicle, the amount of any upfront incentive fees paid by a Manufacturer in respect of the purchase of such Vehicle, minus the aggregate Depreciation Charges accrued with respect to such Vehicle through the last day of the Related Month. "Nissan" means Nissan Motor Corporation in U.S.A., Inc., a California corporation. "Nissan Hawaii" means Nissan Motor Corporation in Hawaii, Ltd., a Hawaii corporation. "Non-Eligible Manufacturer Amount" means, as of any date of determination, the aggregate Net Book Value of all Vehicles leased under the Leases on such day that were manufactured by Manufacturers other than Eligible Non-Program Manufacturers. "Non-Program Fleet Market Value" means, with respect to all Non-Program Vehicles (excluding any Redesignated Program Vehicles) as of any date of determination, the sum of the respective Market Values of each Non-Program Vehicle subject to the AESOP I Operating Lease or the Finance Lease. For purposes of computing the Non-Program Fleet Market Value, the "Market Value" of a Non-Program Vehicle means the market value of such Non-Program Vehicle as specified in the most recently published NADA Guide for the model class and model year of such Non-Program Vehicle based on the average equipment and the average mileage of each Non-Program Vehicle of such model class and model year then leased under the AESOP I Operating Lease and the Finance Lease. If such Non-Program Vehicle is not listed in the most recently published NADA Guide, then the "Market Value" of a Non-Program Vehicle means the Capitalized Cost of such Non-Program Vehicle less depreciation charges accrued in respect of such Non-Program Vehicle in accordance with the applicable Depreciation Schedule since the date of such Non-Program Vehicle's purchase. Notwithstanding the foregoing, if a Non-Program Vehicle is subject to a Manufacturer Program and for so long as no Manufacturer Event of Default has occurred with respect to the related Manufacturer, the Market Value of such Non-Program Vehicle as of any date of determination, will equal the Repurchase Price on such date with respect to such Vehicle under such Manufacturer Program. "Non-Program Vehicle" means a Vehicle that is not subject to an Eligible Manufacturer Program. "Non-Program Vehicle Amount" means, as of any date of determination, the aggregate Net Book Value of all Non-Program Vehicles leased under the Leases on such day, excluding, however, any Redesignated Program Vehicle. "Non-Program Vehicle Percentage" means, as of any date of determination, a fraction, expressed as a percentage, (a) the numerator of which is the aggregate Net Book Value of all Non-Program Vehicles leased under the Leases on such day and (b) the denominator of which is the aggregate Net Book Value of all Vehicles leased under the Leases on such day. "Non-Program Vehicle Special Default Payments" is defined (i) for purposes of the AESOP I Operating Lease in Section 13.3 thereof and (ii) for purposes of the Finance Lease in Section 13.3 thereof. "Noteholder" and "Holder" means the Person in whose name a Note is registered in the Note Register. "Note Owner" means, with respect to a Book-Entry Note, the Person who is the beneficial owner of such Book-Entry Note, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly or as an indirect participant, in accordance with the rules of such Clearing Agency). "Note Rate" means, with respect to any Series of Notes, the annual rate at which interest accrues on the Notes of such Series of Notes (or formula on the basis of which such rate shall be determined) as stated in the applicable Supplement. "Note Register" means the register maintained pursuant to Section 2.6(a) of the Base Indenture, providing for the registration of the Notes and transfers and exchanges thereof. "Notes" is defined in the recitals to the Base Indenture. "Officer's Certificate" means a certificate signed by an Authorized Officer of, AFC, AFC-II, AESOP Leasing, AESOP Leasing II, Original AESOP, PVHC, Quartx, ARAC or any Lessee, as the case may be. "Operating Leases" means the AESOP I Operating Lease and the AESOP II Operating Lease. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to AFC-II, AESOP Leasing, AESOP Leasing II, Original AESOP, PVHC, Quartx, ARAC, any Lessee or ARC, as the case may be, unless the Requisite Investors shall notify the Trustee of objection thereto. "Original AESOP" means AESOP Leasing Corp., a Delaware corporation. "Original AESOP Management Agreement" means the Amended and Restated Management Agreement, dated as of July 30, 1997, between the Managing Agent and Original AESOP. "Original AESOP Management Fee" is defined in Section 2 of the Original AESOP Management Agreement. "Original AESOP Nominee Agreement" means the Vehicle Title Nominee Agreement, dated as of July 30, 1997, among Original AESOP, the Trustee, ARAC, ARC and AESOP Leasing II, as amended, modified or supplemented from time to time in accordance with its terms. "Original AFC-II" means AESOP Funding Corp. II, a Delaware corporation. "Original Operating Lease" means the Master Motor Vehicle Operating Lease and Servicing Agreement, dated as of May 1, 1996, among Original AESOP, as the lessor thereunder, ARAC, as the lessee thereunder, and HFS Car Rental, Inc., as the guarantor thereunder, as amended, modified or supplemented from time to time in accordance with its terms. "Original PVT Lease" means the Restated Third Amendment and Restatement to Lease, dated as of September 21, 1987, among Bankers Trust Company, as trustee for Prime Vehicles Trust, as the lessor thereunder, ARAC, as the lessee thereunder, and HFS Car Rental, Inc., as the guarantor thereunder, as amended, modified or supplemented from time to time in accordance with its terms. "Original Synthetic Lease" means the Master Motor Vehicle Lease and Servicing Agreement, dated as of May 1, 1996, among Original AESOP, as the lessor thereunder, ARAC, as the lessee thereunder, and HFS Car Rental, Inc., as the guarantor thereunder, as amended, modified or supplemented from time to time in accordance with its terms. "Outstanding" is defined, with respect to any Series, in the related Supplement. "Paired Series" is defined in Section 5.5 of the Base Indenture. "Paying Agent" is defined in Section 2.6(a) of the Base Indenture. "Payment Date" means the 20th day of each month, or if such date is not a Business Day, the next succeeding Business Day, commencing August 20, 1997. "Pension Plan" means any "employee pension benefit plan", as such term is defined in ERISA, which is subject to Title IV of ERISA (other than a "multiemployer plan", as defined in Section 4001 of ERISA) and to which any company in the Controlled Group has liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA for any time within the preceding five years or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA. "Permanent Global Note" is defined in Section 2.5(b) of the Base Indenture. "Permitted Encumbrances" means: (a) a Lien securing a tax, assessment or other governmental charge or levy (excluding any Lien arising under any of the provisions of ERISA) or the claim of a materialman, mechanic, carrier, warehouseman or landlord for labor, materials, supplies or rentals incurred in the ordinary course of business, and foreclosure, distraint, sale or other similar proceedings shall not have been commenced; (b) a Lien on the properties and assets of a Subsidiary of ARC, other than a Lessee, securing Indebtedness owing to ARC or any Lessee; (c) a Lien consisting of a deposit or pledge made, in the ordinary course of business, in connection with, or to secure payment of, obligations under worker's compensation, unemployment insurance or similar legislation; (d) a Lien constituting an encumbrance in the nature of zoning restrictions, easements, and rights or restrictions of record on the use of real property which does not materially detract from the value of such property or impair the use thereof in the business of ARC or any Subsidiary; (e) a Lien constituting a lease or sublease granted by ARC or any Lessee to others in the ordinary course of business; (f) a Lien existing on (i) property of any Person at the time such Person becomes a Consolidated Subsidiary of ARC or (ii) any asset prior to the acquisition thereof by ARC or a Consolidated Subsidiary, but only, in the case of either clause (i) or (ii), if such Lien was not created in contemplation thereof and so long as the obligation secured by such Lien is not in default and such Lien is and will remain confined to the property subject to it at the time such Person becomes a Consolidated Subsidiary of ARC or such property is acquired and to fixed improvements thereafter erected on such property; (g) a Lien securing Purchase Money Indebtedness but only if, in the case of each such Lien: (i) such Lien shall at all times be confined solely to the asset the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien and to fixed improvements then or thereafter erected on such asset; (ii) such Lien attached to such asset within 90 days of the acquisition of such property; and (iii) the aggregate principal amount of Purchase Money Indebtedness secured by such Lien at no time exceeds an amount equal to the lesser of (A) the cost (including the principal amount of such Indebtedness, whether or not assumed) to ARC or a Consolidated Subsidiary of the asset subject to such Lien and (B) the fair value of such asset at the time of such acquisition; (h) a Lien constituting a renewal, extension or replacement of a Lien constituting a Permitted Encumbrance by virtue of clause (f) or (g) of this definition, but only, in the case of each such renewal, extension or replacement Lien, to the extent that the principal amount of indebtedness secured by such Lien does not exceed the principal amount of such indebtedness so secured at the time of the extension, renewal or replacement, and that such renewal, extension or replacement Lien is limited to all or a part of the property that was subject to the Lien extended, renewed or replaced and to fixed improvements then or thereafter erected on such property; (i) Liens on property of non-U.S. Subsidiaries including those in Puerto Rico and the U.S. Virgin Islands; and (j) a Lien arising pursuant to an order of attachment, distraint or similar legal process arising in connection with legal proceedings, but only if and so long as the execution or other enforcement thereof is not unstayed for more than 20 days. For this purpose "Purchase Money Indebtedness" means Indebtedness of ARC or any Consolidated Subsidiary that, within 90 days of such purchase, is incurred to finance part or all of (but not more than) the purchase price of a tangible asset in which neither ARC nor any Subsidiary had at any time prior to such purchase any interest other than a security interest or an interest as lessee under an operating lease and renewals, extensions or refundings, thereof, but not any increases in the principal amounts thereof or interest rates thereon, except for increases in interest rates upon the occasion of any such renewal, extension or refunding that are commercially reasonable at such time. "Permitted Investments" means negotiable instruments or securities maturing on or before the Distribution Date next occurring after the investment therein, payable in Dollars, issued by an entity organized under the laws of the United States of America and represented by instruments in bearer or registered or in book-entry form which evidence (i) obligations the full and timely payment of which are to be made by or is fully guaranteed by the United States of America other than financial contracts whose value depends on the values or indices of asset values; (ii) demand deposits of, time deposits in, or certificates of deposit issued by, any depositary institution or trust company incorporated under the laws of the United States of America or any state thereof whose short-term debt is rated P-1 or higher by Moody's and A-1 or higher by Standard & Poor's and subject to supervision and examination by Federal or state banking or depositary institution authorities; provided, however, that at the earlier of (x) the time of the investment and (y) the time of the contractual commitment to invest therein, the certificates of deposit or short-term deposits, if any, or long-term unsecured debt obligations (other than such obligation whose rating is based on collateral or on the credit of a Person other than such institution or trust company) of such depositary institution or trust company shall have a credit rating from Standard & Poor's of "A-1+", in the case of certificates of deposit or short-term deposits, or a rating from Standard & Poor's not lower than "AA", in the case of long-term unsecured debt obligations; (iii) commercial paper having, at the earlier of (x) the time of the investment and (y) the time of the contractual commitment to invest therein, a rating from Standard & Poor's of "A-1+"; (iv) bankers' acceptances issued by any depositary institution or trust company described in clause (ii) above; (v) investments in money market funds rated "AAm" by Standard & Poor's or otherwise approved in writing by Standard & Poor's; (vi) Eurodollar time deposits having a credit rating from Standard & Poor's of "A-1+"; (vii) repurchase agreements involving any of the Permitted Investments described in clauses (i) and (vi) above and the certificates of deposit described in clause (ii) above which are entered into with a depository institution or trust company, having a commercial paper or short-term certificate of deposit rating of "A-1+" by Standard & Poor's and P-1 by Moody's or which otherwise is approved as to collateralization by the Rating Agencies; and (viii) any other instruments or securities, if the Rating Agencies confirm in writing that the investment in such instruments or securities will not adversely affect any ratings with respect to any Series of Notes. "Permitted Liens" means (i) Liens for current taxes not delinquent or for taxes being contested in good faith and by appropriate proceedings, and with respect to which adequate reserves have been established, and are being maintained, in accordance with GAAP, (ii) mechanics', materialmen's, landlords', warehousemen's and carrier's Liens, and other Liens imposed by law, securing obligations arising in the ordinary course of business that are not more than thirty days past due or are being contested in good faith and by appropriate proceedings and with respect to which adequate reserves have been established, and are being maintained, in accordance with GAAP, (iii) Liens in favor of the Lessors pursuant to each of the Leases; (iv) Liens in favor of the Lender in respect of the Liabilities pursuant to the Loan Agreements, (iv) the Liens in favor of the Trustee pursuant to the Indenture, and (v) Liens in favor of an Enhancement Provider, provided, however, that such Liens are subordinate to the Liens in favor of the Trustee and have been consented to by the Trustee. "Permitted Nominee" means, with respect to AESOP Leasing, AESOP Leasing II or ARAC, the nominee titleholder(s) for such Person appointed pursuant to the Vehicle Title and Lienholder Nominee Agreements to which it is a party. "Person" means any natural person, corporation, business trust, joint venture, association, company, partnership, limited liability company, joint stock company, corporation, trust, unincorporated organization or Government Authority. "Placement Agency Agreement" means any agreement pursuant to which a Placement Agent agrees with AFC-II to place Notes with investors. "Placement Agent" means any Person in its capacity as placement agent under a Placement Agency Agreement. "Pool Factor" means, unless any Series of Notes is issued in more than one class as stated in any related Supplement, a number carried out to eight significant decimals representing the ratio of the applicable Invested Amount as of the end of the Related Month to the applicable Initial Invested Amount. "Post-Identification Period Component" means, on any date of determination, the aggregate of the amounts, without duplication, calculated with respect to each Group of Relinquished Vehicles for which the Identification Period shall have ended but the Post-Identification Period Termination Date shall not have occurred as of the third preceding Business Day, of the sum of (A) all amounts receivable, as of such date of determination, by the Intermediary from Manufacturers under their respective Eligible Manufacturer Programs with respect to each such Group of Relinquished Vehicles as to which no Receivables Funding Loan shall have been made against the amounts receivable from Manufacturers in respect thereof (unless there shall have been a determination of payment in full of such Receivables Funding Loan pursuant to Section 6(c) of the Intercreditor Agreement), excluding any such amounts that are unpaid more than ninety (90) days past the applicable Turnback Date, plus (B), any amount on deposit in the respective AESOP Trust Account on such date of determination that was paid by any such Manufacturer with respect to each Group of Relinquished Vehicles described in the foregoing clause (A), plus (C) any amount on deposit in the respective AESOP Trust Account on such date of determination representing the proceeds of Receivables Funding Loans, plus (D) any amount on deposit in the respective AESOP Trust Account on such date of determination representing amounts released from the corresponding Lender Trust Account for such Group of Relinquished Vehicles following payment in full of all principal and interest on the Receivables Funding Loan related to such Group of Relinquished Vehicles; plus (E) any amount on deposit in the AESOP Trust Accounts on such date representing investment earning on the amounts described in the foregoing clauses (B), (C), and (D). "Post-Identification Period Termination Date" means for each Group of Relinquished Vehicles with respect to which the Identification Period shall have ended prior to the receipt by AESOP Leasing of the last Replacement Vehicle with respect to such Group of Relinquished Vehicles, the earlier of the date on which the Exchange Period with respect to such Group of Relinquished Vehicles shall end and the date on which the last Replacement Vehicle with respect to such Group of Relinquished Vehicles shall have been received by AESOP Leasing. "Potential AESOP I Finance Lease Loan Event of Default" means any occurrence or event which, with the giving of notice, the passage of time or both, would constitute an AESOP I Finance Lease Loan Event of Default. "Potential AESOP I Loan Event of Default" means a Potential AESOP I Operating Lease Loan Event of Default or a Potential AESOP I Finance Lease Loan Event of Default. "Potential AESOP I Operating Lease Event of Default" means any occurrence or event which, with the giving of notice, the passage of time or both, would constitute an AESOP I Operating Lease Event of Default. "Potential AESOP I Operating Lease Loan Event of Default" means any occurrence or event which, with the giving of notice, the passage of time or both, would constitute an AESOP I Operating Lease Loan Event of Default. "Potential AESOP II Loan Event of Default" means any occurrence or event which, with the giving of notice, the passage of time or both, would constitute an AESOP II Loan Event of Default. "Potential AESOP II Operating Lease Event of Default" means any occurrence or event which, with the giving of notice, the passage of time or both, would constitute an AESOP II Operating Lease Event of Default. "Potential Amortization Event" means any occurrence or event which, with the giving of notice, the passage of time or both, would constitute an Amortization Event. "Potential Enhancement Agreement Event of Default" means an event which, with the giving of notice, the passage of time or both, would constitute an Enhancement Agreement Event of Default under any Enhancement Agreement. "Potential Finance Lease Event of Default" means any occurrence or event which, with the giving of notice, the passage of time or both, would constitute a Finance Lease Event of Default. "Potential Lease Event of Default" means an event which, with the giving of notice, the passage of time or both, would constitute a Lease Event of Default. "Potential Loan Event of Default" means an event which, with the giving of notice, the passage of time or both, would constitute a Loan Event of Default. "Potential Manufacturer Event of Default" means an event which, with the giving of notice, the passage of time or both, would constitute a Manufacturer Event of Default. "Power of Attorney" means a power of attorney in the form of Attachment C to any Lease. "Predecessor Companies" means Avis Rent A Car Systems Holdings, Inc. and Subsidiaries, Avis International, Ltd. and Subsidiaries, Avis Enterprises, Inc. and Subsidiaries, Pathfinder Insurance Company and Global Excess & Reinsurance, Ltd. "Preferred Stock" means, as of any date, the issued and outstanding Series A Preferred Stock, together with any other issued and outstanding preferred stock, of AESOP Leasing II on such date. "Principal Collections" means any Collections other than Interest Collections. "Principal Terms" is defined in Section 2.3 of the Base Indenture. "Prior Indenture" is defined in the recitals to the Base Indenture. "Program Size" means, with respect to any Series of Notes, the amount specified in the applicable Supplement. "Program Vehicle" means a Vehicle subject to an Eligible Manufacturer Program. "Program Vehicle Special Default Payments" is defined (i) for purposes of the AESOP I Operating Lease in Section 13.3 thereof and (ii) for purposes of the Finance Lease in Section 13.3 thereof. "PVHC" means PV Holding Corp., a Delaware corporation. "PVHC/BONY Nominee Agreement" means the Vehicle Title and Lienholder Nominee Agreement, dated as of July 30, 1997, among PV Holding Corp., BONY, ARAC, ARC, AESOP Leasing and the Trustee, as amended, modified or supplemented from time to time in accordance with its terms. "Qualified Institution" means a depositary institution or trust company (which may include the Trustee) organized under the laws of the United States of America or any one of the states thereof or the District of Columbia; provided, however, that at all times such depositary institution or trust company is a member of the FDIC and has (i) from Standard & Poor's a long-term indebtedness rating not lower than AA- and a short-term indebtedness rating of A-1+ and from Moody's a long-term indebtedness rating not lower than A2 and a short-term indebtedness rating of P-1, or (ii) such other rating which satisfies the Rating Agency Consent Condition. "Qualified Intermediary" means a Person satisfying the requirements for a "qualified intermediary" within the meaning of Section 1031 of the Code and the regulations thereunder. "Quartx" means Quartx Fleet Management Inc., a Delaware corporation. "Quartx Nominee Agreement" means the Vehicle Title Nominee Agreement, dated as of July 30, 1997, among Quartx Fleet Management Inc., the Trustee, ARAC, ARC and AESOP Leasing, as amended, modified or supplemented from time to time in accordance with its terms. "Rating Agency" means, (i) with respect to each outstanding Series of Notes, any rating agency or agencies then issuing a rating for such Series of Notes at the request of AFC-II or ARAC, or (ii) with respect to the Commercial Paper Notes, collectively S&P, Moody's and any other nationally recognized rating agency approved by the administrative agent for the liquidity lenders with respect to the Commercial Paper Notes, ARAC and the Required Secured Parties. "Rating Agency Confirmation Condition" means, with respect to any action, that (i) each Rating Agency shall have notified AFC-II, AESOP Leasing, AESOP Leasing II, ARAC, each Lessee, any Enhancement Provider and the Trustee in writing that such action will not result in a reduction or withdrawal of the rating (in effect immediately before the taking of such action) of any outstanding Series of Notes with respect to which it is a Rating Agency and (ii) each Rating Agency shall have notified any applicable Enhancement Provider entitled to such notification pursuant to the relevant Supplement in writing that such action will not result in a reduction or withdrawal of the rating (without regard to the presence of the Enhancement provided by each such Enhancement Provider and in effect immediately before the taking of such action) of any outstanding Series of Notes issued pursuant to such related Supplement and, with respect to the issuance of a Series of Notes, the "Rating Agency Confirmation Condition" also means, in addition to the above, that each Rating Agency that is referred to in the related Supplement as being required to deliver its rating with respect to such Series of Notes shall have notified AFC-II, AESOP Leasing, AESOP Leasing II, ARAC, each Lessee, any Enhancement Provider and the Trustee in writing that such rating has been issued by such Rating Agency. "Rating Agency Consent Condition" means, with respect to any action, that (i) each Rating Agency shall have notified AFC-II, AESOP Leasing, AESOP Leasing II, ARAC, each Lessee, any Enhancement Provider and the Trustee in writing that such action will not result in a reduction or withdrawal of the rating (in effect immediately before the taking of such action) of any outstanding Series of Notes with respect to which it is a Rating Agency and, with respect to the issuance of a Series of Notes, the "Rating Agency Consent Condition" also means that each Rating Agency that is referred to in the related Supplement as being required to deliver its rating with respect to such Series of Notes shall have notified AFC-II, AESOP Leasing, AESOP Leasing II, ARAC, each Lessee, any Enhancement Provider and the Trustee in writing that such rating has been issued by such Rating Agency and (ii) any Enhancement Provider entitled to consent pursuant to the related Supplement shall have consented in writing to such action. "Receivables Financing Agreement" means each agreement pursuant to which financing may be extended to the Intermediary for the purchase of Replacement Vehicles as to which the Rating Agency Consent Condition has been satisfied and as to which, if there shall be any Series of Notes outstanding supporting Commercial Paper Notes, the CP Rating Agency Condition has been satisfied and the approval of the Majority Banks (as defined in the applicable Supplement) has been obtained, and which initially shall mean the Receivables Financing Agreement, dated as of September 15, 1998, among the Intermediary and Atlantic Asset Securitization Corp., Lyon Short Term Funding Corp., and Credit Lyonnais New York Branch, individually and as agent. "Receivables Funding Documents" means each Receivables Financing Agreement and each note or other document delivered pursuant thereto. "Receivables Funding Loans" means loans made by the Receivables Lender pursuant to the Receivables Financing Agreement for the purpose of acquiring Replacement Vehicles on the terms and subject to the conditions of the Master Exchange Agreement. "Receivables Lender" means, the financial institutions from time to time party to each Receivables Financing Agreement, which initially shall mean, collectively, Atlantic Asset Securitization Corp., Lyon Short Term Funding Corp., and Credit Lyonnais New York Branch, and their respective successors and assigns. "Receivables Lender Agent" means the financial institution from time to time serving as lender agent for the Receivables Lender, which initially shall be Credit Lyonnais New York Branch. "Receivables Lender Collateral" has the meaning assigned to such term in the Master Exchange Agreement. "Reconveyed Receivables" means Relinquished Vehicle Receivables that have been reconveyed by the Intermediary to AESOP Leasing pursuant to Section 2.4, 8.1 or 8.2 of the Master Exchange Agreement. "Record Date" means, with respect to any Distribution Date, the last day of the Related Month. "Redesignated Program Vehicle" means a Program Vehicle that is rejected as ineligible for repurchase by the related Manufacturer (or for sale at auction under the applicable Manufacturer Program) and that is not expected to be accepted upon a subsequent return, or that at the time of its intended disposition is determined by the relevant Lessee as likely to be so rejected; provided, however, that after such rejection or determination such Vehicle will not be used in the operating fleet of the relevant Lessee. "Registrar" is defined in Section 2.6(a) of the Base Indenture. "Regulation S" is defined in Section 2.5(b) of the Base Indenture. "Related Documents" means, collectively, the Indenture, the Notes, any Enhancement Agreement, the Loan Agreements, the Assignment Agreements, the Vehicle Title and Lienholder Nominee Agreements, the Administration Agreement, the Cendant Indemnity, the Termination Services Agreement, the Securities Account Control Agreements, the Loan Notes, any Placement Agency Agreement, any agreements relating to the issuance or the purchase of any of the Notes, the Leases, the Supplemental Documents relating to the Leases, each Lockbox Agreement, the Master Exchange Agreement, the Intercreditor Agreement, and the Receivables Funding Documents. "Related Lease" means (i) with respect to the AESOP I Operating Lease Loan Agreement, the AESOP I Operating Lease, (ii) with respect to the AESOP I Finance Lease Loan Agreement, the Finance Lease and (iii) with respect to the AESOP II Loan Agreement, the AESOP II Operating Lease. "Related Loan Agreement" means (i) with respect to the AESOP I Operating Lease, the AESOP I Operating Lease Loan Agreement, (ii) with respect to the AESOP I Finance Lease, the AESOP I Finance Lease Loan Agreement and (iii) with respect to the AESOP II Operating Lease, the AESOP II Loan Agreement. "Related Month" means, (i) with respect to any Payment Date, Determination Date or Distribution Date, the most recently ended calendar month, (ii) with respect to any other date, the calendar month in which such date occurs and (iii) with respect to an Interest Period, the month in which such Interest Period commences; provided, however, that with respect to the above clause (i), the initial Related Month shall be the period from and including the date of issuance of the first Series of Notes to and including the last day of the calendar month in which such issuance occurs. "Relinquished Vehicle" has the meaning assigned to such term in the Master Exchange Agreement. "Relinquished Vehicle Borrowing Base Component" means, on any date of determination, the sum of (i) the Identification Period Component and (ii) the lesser of (A) $25,000,000 and (B) the Post-Identification Period Component on such date. "Relinquished Vehicle Property" means (i) the rights to sell or otherwise dispose of Relinquished Vehicles under the relevant Manufacturer Programs, (ii) any and all proceeds of such Relinquished Vehicles (other than Reconveyed Receivables), and (iii) solely to the extent assigned pursuant to the Master Exchange Agreement, as provided in the definition of the term "Assigned Special Default Payments" set forth therein, any Special Default Payments payable in respect of such Relinquished Vehicles, any rights under the Guaranty with respect to such Special Default Payments and any rights to exercise remedies to enforce collection of any of the foregoing. "Relinquished Vehicle Receivables"means the amounts payable by the Manufacturers of Relinquished Vehicles as the purchase price thereof pursuant to the relevant Repurchase Program, other than Reconveyed Receivables. "Replacement Vehicle" has the meaning assigned to such term in the Master Exchange Agreement. "Repurchase Amount" means, with respect to any Series of Notes, the amount specified in the applicable Supplement. "Repurchase Period" means, with respect to any Program Vehicle, the period during which such Vehicle may be turned in to the Manufacturer thereof for repurchase or sale at auction pursuant to the applicable Manufacturer Program. "Repurchase Price" with respect to any Vehicle (i) subject to a Repurchase Program means the price paid or payable by the Manufacturer thereof to repurchase such Vehicle pursuant to its Manufacturer Program and (ii) subject to a Guaranteed Depreciation Program means the amount which the Manufacturer thereof guarantees will be paid to AESOP Leasing (or the Intermediary, pursuant to the Master Exchange Agreement), AESOP Leasing II or ARAC, as the case may be, as the seller of such Vehicle by such Manufacturer and/or the related auction dealers upon the disposition of such Vehicle pursuant to its Manufacturer Program. "Repurchase Program" means a program pursuant to which a Manufacturer has agreed with AESOP Leasing (or the Intermediary, pursuant to the Master Exchange Agreement), AESOP Leasing II or ARAC, as the case may be, to repurchase Vehicles manufactured by such Manufacturer or one of its Affiliates during the specified Repurchase Period. "Required AESOP I Operating Lease Vehicle Amount" means, with respect to each Series of Notes, the amount specified in the applicable Supplement. "Required Aggregate Asset Amount" means on any date of determination the Aggregate Invested Amount on such date. "Required Enhancement Amount" is defined, with respect to any Series, in the related Supplement. "Required Noteholders" means Noteholders holding in excess of 50% of the aggregate Invested Amount of a Series of Notes (excluding, for the purposes of making the foregoing calculation, any Notes held by (i) AFC-II or any Affiliate of AFC-II and (ii) ARC or any Affiliate of ARC). "Required Secured Parties" is defined with respect to any Series in the related Supplement. "Requirements of Law" means, with respect to any Person or any of its property, the certificate of incorporation or articles of association and by-laws or other organizational or governing documents of such Person or any of its property, and any law, treaty, rule or regulation, or determination of any arbitrator or Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, whether Federal, state or local (including, without limitation, usury laws, the Federal Truth in Lending Act and retail installment sales acts). "Requisite Investors" means Noteholders holding in excess of 50% of the aggregate Invested Amount of all outstanding Series of Notes (excluding, for the purposes of making the foregoing calculation, any Notes held by (i) AFC-II or any Affiliate of AFC-II and (ii) ARC or any Affiliate of ARC). "Residual Value Payment" shall mean, with respect to a Vehicle as of the date of calculation, an amount equal to the Termination Value of such Vehicle, provided, however, that in no event shall the sum of the net present value of the Monthly Base Rent paid or accrued with respect to such Vehicle to the date of calculation plus the net present value of the Termination Value of such Vehicle exceed 88 percent of the Capitalized Cost of such Vehicle, with such net present value calculated to the Vehicle Finance Lease Commencement Date for such Vehicle with the discount rate equal to the interest rate utilized to calculate the interest component of the Monthly Base Rent heretofore paid or accrued for such Vehicle to the date of calculation. This Residual Value Payment will be reduced (but not below zero) by the proceeds received by the Lessor on the sale of the Vehicle including any sale pursuant to any Manufacturer Program. "Restricted Global Note" is defined in Section 2.5(a) of the Base Indenture. "Revolving Period" means, with respect to any Series of Notes, the period specified in the applicable Supplement. "Rule 144A" is defined in Section 2.5(a) of the Base Indenture. "S&P" or "Standard & Poor's" means Standard & Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc. "Secured Parties" is defined in Section 3.1 of the Base Indenture. "Securities Account Control Agreements" means the AFC-II Securities Account Control Agreements and the ARAC Securities Account Control Agreement. "Securities Act" means the Securities Act of 1933, as amended. "Segregated Series" is defined in Section 2.3(b) of the Base Indenture. "Series A Preferred Stock" means the Adjustable Rate Cumulative Participating Preferred Stock ($1 par value), Series A, of AESOP Leasing II issued on the Initial Closing Date. "Series Closing Date" means, with respect to any Series of Notes, the date of issuance of such Series of Notes, as specified in the related Supplement. "Series of Notes" or "Series" means each Series of Notes issued and authenticated pursuant to the Base Indenture and a related Supplement. "Series-Specific Collateral" is defined in Section 2.3(b) of the Base Indenture. "Series Termination Date" means, with respect to any Series of Notes, the date stated in the related Supplement as the termination date. "Special Default Payments" is defined (i) for purposes of the AESOP I Operating Lease in Section 13.3 thereof, (ii) for purposes of the AESOP II Operating Lease in Section 13.3 thereof and (iii) for purposes of the Finance Lease in Section 13.3 thereof. "Special Service Charges" means any and all charges assessed to the Lessees pursuant to the AESOP I Operating Lease with respect to the fees, expenses, indemnities and other amounts payable by AESOP Leasing (without giving effect to any recourse limitation applicable to AESOP Leasing, including the limitation set forth in Section 8.14 of the Master Exchange Agreement) to the Intermediary pursuant to the Master Exchange Agreement. "Specified States Amount" means, as of any date of determination, the aggregate Net Book Value of all Vehicles leased under the Operating Leases on such day that are titled in the States of Ohio, Oklahoma and Nebraska. "Standard Casualty" means, with respect to any Vehicle, that (i) such Vehicle is destroyed, seized or otherwise rendered permanently unfit or unavailable for use and, if such Vehicle is a Program Vehicle, is not tendered to and accepted for repurchase by the applicable Manufacturer within 90 days following the occurrence thereof or (ii) such Vehicle is lost or stolen and is not recovered and, if such Vehicle is a Program Vehicle, not tendered to and accepted for repurchase by the applicable Manufacturer within 180 days following the occurrence thereof. "Subaru" means Subaru of America Inc., a Nebraska corporation. "Sublease Notice" is defined in Section 7 of the Finance Lease. "Subsidiary" means, with respect to any Person (herein referred to as the "parent"), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held by the parent or (b) that is, at the time any determination is being made, otherwise controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Supplement" means a supplement to the Base Indenture complying (to the extent applicable) with the terms of Section 2.3 or Article 12 of the Base Indenture. "Supplemental Carrying Charges" means, with respect to each Loan Interest Period for which the Average Daily Loan Balance under each Loan Agreement is zero, an amount equal to the sum of (A) the amount of interest accrued during such Loan Interest Period with respect to all Series of Notes, plus (B) the sum of any Swap Payments payable by AFC-II on the next succeeding Payment Date, minus (C) the sum of any Swap Payments payable to AFC-II on the next succeeding Payment Date. "Supplemental Documents" is defined (i) for purposes of the AESOP I Operating Lease in Section 2.1 thereof, (ii) for purposes of the AESOP II Operating Lease in Section 2.1 thereof and (iii) for purposes of the Finance Lease in Section 2.1 thereof. "Supplemental Interest" is defined (i) for purposes of the AESOP I Operating Lease Loan Agreement in Section 4.2 thereof, (ii) for purposes of the AESOP I Finance Lease Loan Agreement in Section 4.2 thereof and (iii) for purposes of the AESOP II Loan Agreement in Section 4.2 thereof. "Supplemental Rent" means, with respect to each of the Leases, any and all amounts due thereunder other than Monthly Base Rent. "Suzuki" means American Suzuki Motor Corporation, a California corporation. "Swap Agreement" means one or more interest rate swap contracts, interest rate cap agreements or similar contracts entered into by AFC-II in connection with the issuance of a Series of Notes, as specified in the related Supplement, providing limited protection against interest rate risks. "Swap Payments" means amounts payable to or receivable by AFC-II pursuant to any Swap Agreement. "Temporary Global Note" is defined in Section 2.5(b) of the Base Indenture. "Term" is defined (i) for purposes of the AESOP I Operating Lease in Section 3.2 thereof, (ii) for purposes of the AESOP II Operating Lease in Section 3.2 thereof and (iii) for purposes of the Finance Lease in Section 3.2 thereof. "Termination Services Agreement" means the Termination Services Agreement, dated as of July 30, 1997, by and among WizCom, ARAC, AFC-II and the Trustee, as amended, modified or supplemented from time to time in accordance with its terms. "Termination Services Reserve Account" is defined in Section 3 of the Administration Agreement. "Termination Services Reserve Draw Amount" means, as of any date of determination, the lesser of (i) the amount then due to WizCom from ARAC pursuant to the Termination Services Agreement and (ii) the amount on deposit in the Termination Services Reserve Account on such date. "Termination Value" means, with respect to any Vehicle, as of any date, an amount equal to (i) the Capitalized Cost of such Vehicle, minus (ii) unless otherwise deducted in the calculation of "Capitalized Cost", all Depreciation Charges for such Vehicle accrued prior to such date, minus (iii) in the case of any Non-Program Vehicle, the amount of any upfront incentive fees paid by the Manufacturer of such Vehicle in respect of the purchase of such Vehicle. "Toyota" means Toyota Motor Sales, U.S.A., Inc., a California Corporation. "Transfer Agent" is defined in Section 2.9(a)(iii) of the Base Indenture. "Trust Accounts" has the meaning assigned to such term in the Master Exchange Agreement. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. "Trust Officer" means, with respect to the Trustee, any Senior Vice President, Vice President, Assistant Vice President, Assistant Secretary or Assistant Treasurer of the Corporate Trust Office, or any trust officer, or any officer customarily performing functions similar to those performed by the person who at the time shall be such officers, or to whom any corporate trust matter is referred because of his knowledge of and familiarity with a particular subject, or any successor thereto responsible for the administration of the Base Indenture. "Trustee" means the party named as such in the Indenture until a successor replaces it in accordance with the applicable provisions of the Indenture and thereafter means the successor serving thereunder. "Turnback Date" means, with respect to any Program Vehicle or Non-Program Vehicle subject to a Manufacturer Program, the date on which such Vehicle is accepted for return by a Manufacturer or its agent pursuant to its Manufacturer Program and the Depreciation Charges cease to accrue pursuant to its Manufacturer Program. "UCC" means the Uniform Commercial Code as in effect from time to time in the specified jurisdiction. "United States" or "U.S." means the United States of America, its fifty States and the District of Columbia. "U.S. Government Obligations" means direct obligations of the United States of America, or any agency or instrumentality thereof for the payment of which the full faith and credit of the United States of America is pledged as to full and timely payment of such obligations. "Variable Funding Note" is defined in Section 2.5(c) of the Base Indenture. "Vehicle" means a passenger automobile or light truck leased by any Lessee pursuant to a Lease and when used in a Lease means a vehicle leased pursuant to such Lease. "Vehicle Acquisition Schedule" means a schedule in the form of Attachment B to each Operating Lease and the Finance Lease. "Vehicle Finance Lease Commencement Date" is defined in Section 3.1 of the Finance Lease. "Vehicle Finance Lease Expiration Date" is defined in Section 3.1 of the Finance Lease. "Vehicle Operating Lease Commencement Date" (i) with respect to Vehicles subject to the AESOP I Operating Lease is defined in Section 3.1 thereof and (ii) with respect to Vehicles subject to the AESOP II Operating Lease is defined in Section 3.1 thereof. "Vehicle Operating Lease Expiration Date" (i) with respect to Vehicles subject to the AESOP I Operating Lease is defined in Section 3.1 thereof and (ii) with respect to Vehicles subject to the AESOP II Operating Lease is defined in Section 3.1 thereof. "Vehicle Order" (i) with respect to Vehicles subject to the AESOP I Operating Lease is defined in Section 2.1 thereof, (ii) with respect to Vehicles subject to the AESOP II Operating Lease is defined in Section 2.1 thereof and (iii) with respect to Vehicles subject to the Finance Lease is defined in Section 2.1 thereof. "Vehicle Perfection and Documentation Requirements" means, (i) with respect to a Vehicle (other than an Initial Vehicle), submission of an application for the issuance of a certificate of title for such Vehicle with the department of registry of motor vehicles of the applicable state in which such Vehicle is to be registered, which application shall reflect the following: AESOP Leasing or its Permitted Nominee (in the case of Vehicles subject to the AESOP I Operating Leases), AESOP Leasing II or its Permitted Nominee (in the case of Vehicles subject to the AESOP II Operating Lease) and ARAC or its Permitted Nominee (in the case of Vehicles subject to the Finance Lease), as the registered owner and the Trustee as the first lienholder (except that with respect to Vehicles titled in the states of Ohio, Oklahoma and Nebraska, the Trustee will not be noted as the first lienholder on the Certificates of Title relating to such Vehicles), (ii) with respect to each Initial PVT Vehicle and each Initial Financed Vehicle, BONY will be noted as the first lienholder on the Certificates of Title relating to such Vehicles and (iii) with respect to each Franchisee Vehicle, the nominee lienholder under the related Franchisee Nominee agreement will be noted as the first lienholder on the Certificate of Title relating to such Vehicle. "Vehicle Purchase Price" (i) with respect to Vehicles subject to the AESOP I Operating Lease is defined in Section 2.5 thereof, (ii) with respect to Vehicles subject to the AESOP II Operating Lease is defined in Section 2.5 thereof and (iii) with respect to Vehicles subject to the Finance Lease is defined in Section 2.5 thereof. "Vehicle Purchase Surplus Amount" means, with respect to Vehicles subject to the Finance Lease, as of any Payment Date, an amount equal to the sum of (1) the excess, if any, of (x) the aggregate of the Vehicle Purchase Price for all Vehicles purchased by the Lessee pursuant to Section 2.5(a) of the Finance Lease or sold to third parties pursuant to Section 2.6 of the Finance Lease, in each case during the Related Month over (y) the aggregate of the Termination Values for all Vehicles so purchased or sold during such Related Month, and (2) the excess, if any, of (x) the aggregate Repurchase Price for Vehicles returned to a Manufacturer during the Related Month and which had a Repurchase Price in excess of the Termination Value for such Vehicles over (y) the aggregate Termination Value for all such Vehicles. "Vehicle Return Default" (i) with respect to Vehicles subject to the AESOP I Operating Lease is defined in Section 18.6 thereof, (ii) with respect to Vehicles subject to the AESOP II Operating Lease is defined in Section 18.6 thereof and (iii) with respect to Vehicles subject to the Finance Lease is defined in Section 18.6 thereof. "Vehicle Term" (i) with respect to Vehicles subject to the AESOP I Operating Lease is defined in Section 3.1 thereof, (ii) with respect to Vehicles subject to the AESOP II Operating Lease is defined in Section 3.1 thereof and (iii) with respect to Vehicles subject to the Finance Lease is defined in Section 3.1 thereof. "Vehicle Title and Lienholder Nominee Agreements" means the PVHC/BONY Nominee Agreement, the Quartx Nominee Agreement, the Original AESOP Nominee Agreement, the BONY Nominee Agreement and any Franchisee Nominee Agreements. "Vehicle Turn-In Condition" (i) with respect to Vehicles subject to the AESOP I Operating Lease is defined in Section 13.1 thereof, (ii) with respect to Vehicles subject to the AESOP II Operating Lease is defined in Section 13.1 thereof (iii) with respect to Vehicles subject to the Finance Lease is defined in Section 13.1 thereof. "VIN" means vehicle identification number. "Wholly-Owned Subsidiary" means, with respect to any Person (herein referred to as the "parent"), any corporation, partnership, association or other business entity of which securities or other ownership interests representing 100% of the equity or 100% of the ordinary voting power or 100% of the general partnership interests are, at the time any determination is being made, owned, controlled or held by the parent. "WizCom" means WizCom International, Ltd., a Delaware corporation. "Working Capital Facility" means the Credit Agreement, dated as of July 30, 1997, among ARC, ARAC, the lenders parties thereto from time to time, The Chase Manhattan Bank and Lehman Commercial Paper Inc., as amended Supplemented, restated or otherwise modified from time to time in accordance with the terms thereof. "written" or "in writing" means any form of written communication, including, without limitation, by means of telex, telecopier device, telegraph or cable. EX-4.22 9 AMENDED AND RESTATED BASE INDENTURE AESOP FUNDING II L.L.C., as Issuer and HARRIS TRUST AND SAVINGS BANK, as Trustee and Series 1998-1 Agent ------------------------- SERIES 1998-1 SUPPLEMENT dated as of February 26, 1998 to AMENDED AND RESTATED BASE INDENTURE dated as of July 30, 1997 ------------------------- TABLE OF CONTENTS Page ---- PRELIMINARY STATEMENT 1 DESIGNATION 1 ARTICLE I DEFINITIONS 2 ARTICLE II SERIES 1998-1 ALLOCATIONS 14 Section 2.1 Establishment of Series 1998-1 Collection Account, Series 1998-1 Excess Collection Account and Series 1998-1 Accrued Interest Account 14 Section 2.2 Allocations with Respect to the Series 1998-1 Notes 14 Section 2.3 Payments To Noteholders 18 Section 2.4 Payment of Note Interest 21 Section 2.5 Payment of Note Principal 21 Section 2.6 Administrator's Failure to Instruct the Trustee to Make a Deposit or Payment 22 Section 2.7 Series 1998-1 Reserve Account 23 Section 2.8 Series 1998-1 Distribution Account 25 ARTICLE III AMORTIZATION EVENTS 28 ARTICLE IV RIGHT TO WAIVE PURCHASE RESTRICTIONS 29 ARTICLE V FORM OF SERIES 1998-1 NOTES 31 Section 5.1 Restricted Global Series 1998-1 Notes 31 Section 5.2 Temporary Global Series 1998-1 Notes; Permanent Global Series 1998-1 Notes. 32 Page ---- ARTICLE VI GENERAL 32 Section 6.1 Optional Repurchase 32 Section 6.2 Information 33 Section 6.3 Exhibits 33 Section 6.4 Ratification of Base Indenture 33 Section 6.5 Counterparts 33 Section 6.6 Governing Law 33 Section 6.7 Amendments 34 Section 6.8 Discharge of Indenture 34 Section 6.9 Notice to Surety Provider and Rating Agencies 34 Section 6.10 Certain Rights of Surety Provider 34 Section 6.11 Surety Provider Deemed Noteholder 35 Section 6.12 Capitalization of AFC-II 35 Section 6.13 Series 1998-1 Required Non-Program Enhancement Percentage. 35 Section 6.14 Third Party Beneficiary. 35 Section 6.15 Prior Notice by Trustee to Surety Provider. 36 Exhibit A-1-1: Form of Restricted Global Series 1998-1 Note Exhibit A-1-2: Form of Temporary Global Series 1998-1 Note Exhibit A-1-3: Form of Permanent Global Series 1998-1 Note Exhibit B: Form of Consent SERIES 1998-1 SUPPLEMENT, dated as of February 26, 1998 (this " Supplement") between AESOP FUNDING II L.L.C., a special purpose limited liability company established under the laws of Delaware ("AFC-II"), HARRIS TRUST AND SAVINGS BANK, an Illinois banking corporation, as trustee (together with its successors in trust thereunder as provided in the Base Indenture referred to below, the "Trustee"), and HARRIS TRUST AND SAVINGS BANK, an Illinois banking corporation, as agent for the benefit of the Series 1998-1 Noteholders and the Surety Provider (the "Series 1998-1 Agent"), to the Amended and Restated Base Indenture, dated as of July 30, 1997, between AFC-II and the Trustee (as amended, modified or supplemented from time to time, exclusive of Supplements creating a new Series of Notes, the "Base Indenture"). PRELIMINARY STATEMENT WHEREAS, Sections 2.2 and 12.1 of the Base Indenture provide, among other things, that AFC-II and the Trustee may at any time and from time to time enter into a supplement to the Base Indenture for the purpose of authorizing the issuance of one or more Series of Notes. NOW, THEREFORE, the parties hereto agree as follows: DESIGNATION There is hereby created a Series of Notes to be issued pursuant to the Base Indenture and this Supplement and such Series of Notes shall be designated as 6.14% Rental Car Asset Backed Notes, Series 1998-1(the "Series 1998-1 Notes"). The proceeds from the sale of the Series 1998-1 Notes shall be deposited in the Collection Account and shall be paid to AFC-II and used to make Loans under the Loan Agreements to the extent that the Borrowers have requested Loans thereunder and Eligible Vehicles are available to acquire or refinance thereunder on the date hereof. Any such portion of proceeds not so used to make Loans shall be deemed to be Principal Collections. The Series 1998-1 Notes are a non-Segregated Series of Notes (as more fully described in the Base Indenture). Accordingly, all references in this Supplement to "all" Series of Notes (and all references in this Supplement to terms defined in the Base Indenture that contain references to "all" Series of Notes) shall refer to all Series of Notes other than Segregated Series of Notes. ARTICLE I DEFINITIONS (a) All capitalized terms not otherwise defined herein are defined in the Definitions List attached to the Base Indenture as Schedule I thereto. All Article, Section or Subsection references herein shall refer to Articles, Sections or Subsections of the Base Indenture, except as otherwise provided herein. Unless otherwise stated herein, as the context otherwise requires or if such term is otherwise defined in the Base Indenture, each capitalized term used or defined herein shall relate only to the Series 1998-1 Notes and not to any other Series of Notes issued by AFC-II. (b) The following words and phrases shall have the following meanings with respect to the Series 1998-1 Notes and the definitions of such terms are applicable to the singular as well as the plural form of such terms and to the masculine as well as the feminine and neuter genders of such terms: "Consent" has the meaning set forth in Article IV of this Supplement. "Consent Period Expiration Date" has the meaning set forth in Article IV of this Supplement. "Designated Amounts" has the meaning set forth in Article IV of this Supplement. "Excess Collections" has the meaning specified in Section 2.3(b) of this Supplement. "Insurance Agreement" means the Insurance Agreement, dated as February 26, 1998, among the Surety Provider, the Trustee and AFC-II, which shall constitute an "Enhancement Agreement" with respect the Series 1998-1 Notes for all purposes under the Indenture. "Monthly Total Principal Allocation" means for any Related Month the sum of all Series 1998-1 Principal Allocations with respect to such Related Month. "Permanent Global Series 1998-1 Note" has the meaning specified in Section 5.2 of this Supplement. "Principal Deficit Amount" means, with respect to any Distribution Date, the excess, if any, of (a) the Series 1998-1 Invested Amount on such Distribution Date (after giving effect to the distribution of the Monthly Total Principal Allocation for the Related Month) over (b) the sum of the Series 1998-1 Available Reserve Account Amount on such Distribution Date and the Series 1998-1 AESOP I Operating Lease Loan Agreement Borrowing Base on such Distribution Date. "Requisite Noteholders" means Series 1998-1 Noteholders holding 50% or more of the Series 1998-1 Invested Amount. "Restricted Global Series 1998-1 Note" has the meaning specified in Section 5.1 of this Supplement. "Series 1997-1 Notes" means the Series of Notes designated as the Series 1997-1 Notes. "Series 1997-2 Supplement" means the supplement to the Base Indenture authorizing the issuance of the Series of Notes designated as the Series 1997-2 Notes. "Series 1998-1 Accrued Interest Account" has the meaning specified in Section 2.1(b) of this Supplement. "Series 1998-1 AESOP I Operating Lease Loan Agreement Borrowing Base" means, as of any date of determination, the product of (a) the Series 1998-1 AESOP I Operating Lease Vehicle Percentage as of such date and (b) the AESOP I Operating Lease Loan Agreement Borrowing Base as of such date. "Series 1998-1 AESOP I Operating Lease Vehicle Percentage" means, as of any date of determination, a fraction, expressed as a percentage, the numerator of which is the Series 1998-1 Required AESOP I Operating Lease Vehicle Amount as of such date and the denominator of which is the sum of the Required AESOP I Operating Lease Vehicle Amounts for all Series of Notes as of such date. "Series 1998-1 Available Reserve Account Amount" means, as of any date of determination, the amount on deposit in the Series 1998-1 Reserve Account (after giving effect to any deposits thereto and withdrawals and releases therefrom on such date). "Series 1998-1 Carryover Controlled Amortization Amount" means, with respect to any Related Month during the Series 1998-1 Controlled Amortization Period, the amount, if any, by which the Monthly Total Principal Allocation for the previous Related Month was less than the Series 1998-1 Controlled Distribution Amount for the previous Related Month; provided, however, that for the first Related Month in the Series 1998-1 Controlled Amortization Period, the Series 1998-1 Carryover Controlled Amortization Amount shall be zero. "Series 1998-1 Closing Date" means February 26, 1998. "Series 1998-1 Collateral" means the Collateral, the Series 1998-1 Distribution Account Collateral and the Series 1998-1 Reserve Account Collateral. "Series 1998-1 Collection Account" has the meaning specified in Section 2.1(b) of this Supplement. "Series 1998-1 Controlled Amortization Amount" means, with respect to any Related Month during the Series 1998-1 Controlled Amortization Period, $100,000,000. "Series 1998-1 Controlled Amortization Period" means the period commencing at the close of business on November 1, 2004 (or, if such day is not a Business Day, the Business Day immediately preceding such day) and continuing to the earliest of (i) the commencement of the Series 1998-1 Rapid Amortization Period, (ii) the date on which the Series 1998-1 Notes are fully paid and the Surety Provider has been paid all Surety Provider Fees and all other Surety Provider Reimbursement Amounts then due, (iii) the Series 1998-1 Termination Date, and (iv) the termination of the Indenture. "Series 1998-1 Controlled Distribution Amount" means, with respect to any Related Month during the Series 1998-1 Controlled Amortization Period, an amount equal to the sum of the Series 1998-1 Controlled Amortization Amount and any Series 1998-1 Carryover Controlled Amortization Amount for such Related Month. "Series 1998-1 Deposit Date" has the meaning specified in Section 2.2 of this Supplement. "Series 1998-1 Distribution Account" has the meaning specified in Section 2.8(a) of this Supplement. "Series 1998-1 Distribution Account Collateral" has the meaning specified in Section 2.8(d) of this Supplement. "Series 1998-1 Enhancement" means the Series 1998-1 Overcollateralization Amount and the Series 1998-1 Reserve Account Amount. "Series 1998-1 Enhancement Amount" means, as of any date of determination, the sum of the Series 1998-1 Overcollateralization Amount and the Series 1998-1 Available Reserve Account Amount as of such date. "Series 1998-1 Enhancement Deficiency" means, on any date of determination, the amount by which the Series 1998-1 Enhancement Amount is less than the Series 1998-1 Required Enhancement Amount as of such date. "Series 1998-1 Excess Collection Account" has the meaning specified in Section 2.1(b) of this Supplement. "Series 1998-1 Expected Final Distribution Date" means the May 2005 Distribution Date. "Series 1998-1 Final Distribution Date" means the May 2006 Distribution Date. "Series 1998-1 Initial Invested Amount" means the aggregate initial principal amount of the Series 1998-1 Notes, which is $600,000,000. "Series 1998-1 Interest Period" means a period commencing on and including a Distribution Date and ending on and including the day preceding the next succeeding Distribution Date; provided, however, that the initial Series 1998-1 Interest Period shall commence on and include the Series 1998-1 Closing Date and end on and include March 19, 1998. "Series 1998-1 Invested Amount" means, when used with respect to any date, an amount equal to (a) the Series 1998-1 Initial Invested Amount minus (b) the amount of principal payments made to Series 1998-1 Noteholders on or prior to such date. "Series 1998-1 Invested Percentage" means as of any date of determination: (a) when used with respect to Principal Collections, the percentage equivalent (which percentage shall never exceed 100%) of a fraction the numerator of which shall be equal to the sum of the Series 1998-1 Invested Amount and the Series 1998-1 Overcollateralization Amount, determined during the Series 1998-1 Revolving Period as of the end of the Related Month (or, until the end of the initial Related Month, on the Series 1998-1 Closing Date), or, during the Series 1998-1 Controlled Amortization Period and the Series 1998-1 Rapid Amortization Period, as of the end of the Series 1998-1 Revolving Period, and the denominator of which shall be the greater of (I) the Aggregate Asset Amount as of the end of the Related Month or, until the end of the initial Related Month, as of the Series 1998-1 Closing Date, and (II) as of the same date as in clause (I), the sum of the numerators used to determine (i) invested percentages for allocations with respect to Principal Collections (for all Series of Notes and all classes of such Series of Notes) and (ii) overcollateralization percentages for allocations with respect to Principal Collections (for all Series of Notes that provide for credit enhancement in the form of overcollateralization); and (b) when used with respect to Interest Collections, the percentage equivalent (which percentage shall never exceed 100%) of a fraction the numerator of which shall be the Accrued Amounts with respect to the Series 1998-1 Notes on such date of determination, and the denominator of which shall be the aggregate Accrued Amounts with respect to all Series of Notes on such date of determination. "Series 1998-1 Limited Liquidation Event of Default" means, so long as such event or condition continues, any event or condition of the type specified in clauses (a) through (g) of Article III of this Supplement; provided, however, that any event or condition of the type specified in clauses (a) through (e) of Article III of this Supplement shall not constitute a Series 1998-1 Limited Liquidation Event of Default if (i) within such thirty (30) day period, such Amortization Event shall have been cured and, after such cure of such Amortization Event is provided for, the Trustee shall have received the written consent of the Surety Provider waiving the occurrence of such Series 1998-1 Limited Liquidation Event of Default or (ii) the Trustee shall have received the written consent of the Surety Provider waiving the occurrence of such Series 1998-1 Limited Liquidation Event of Default. "Series 1998-1 Maximum Aggregate Subaru/Hyundai/Suzuki Amount" means, as of any day, with respect to Subaru, Hyundai and Suzuki, in the aggregate, an amount equal to 10% of the aggregate Net Book Value of all Vehicles leased under the Leases on such day. "Series 1998-1 Maximum Amount" means any of the Series 1998-1 Maximum Manufacturer Amounts, the Series 1998-1 Maximum Non-Eligible Manufacturer Amount, the Series 1998-1 Maximum Non-Program Vehicle Amount or the Series 1998-1 Maximum Specified States Amount. "Series 1998-1 Maximum Individual Subaru/Hyundai/Suzuki Amount" means, as of any day, with respect to Subaru, Hyundai or Suzuki, individually, an amount equal to 5% of the aggregate Net Book Value of all Vehicles leased under the Leases on such day. "Series 1998-1 Maximum Manufacturer Amount" means, as of any day, any of the Series 1998-1 Maximum Mitsubishi Amount, the Series 1998-1 Maximum Individual Subaru/Hyundai/Suzuki Amount, the Series 1998-1 Maximum Aggregate Subaru/Hyundai/Suzuki Amount, the Series 1998-1 Maximum Mazda Amount or the Series 1998-1 Maximum Mazda Program Vehicle Amount. "Series 1998-1 Maximum Mazda Amount" means, as of any day, an amount equal to 20% of the aggregate Net Book Value of all Vehicles leased under the Leases on such day. "Series 1998-1 Maximum Mazda Program Vehicle Amount" means, as of any day, an amount equal to the Series 1998-1 Maximum Mazda Program Vehicle Percentage of the aggregate Net Book Value of all Vehicles leased under the Leases on such day. "Series 1998-1 Maximum Mazda Program Vehicle Percentage" means 20% or such lesser percentage as may be agreed to in writing by AFC-II and the Surety Provider (initially 5%) on or after the Series 1998-1 Closing Date, with prompt written notice thereof delivered by AFC-II to the Trustee. "Series 1998-1 Maximum Mitsubishi Amount" means, as of any day, an amount equal to 10% of the aggregate Net Book Value of all Vehicles leased under the Leases on such day. "Series 1998-1 Maximum Non-Eligible Manufacturer Amount" means, as of any day, an amount equal to 3% of the aggregate Net Book Value of all Vehicles leased under the Leases on such day. "Series 1998-1 Maximum Non-Program Vehicle Amount" means, as of any day, an amount equal to the Series 1998-1 Maximum Non-Program Vehicle Percentage of the aggregate Net Book Value of all Vehicles leased under the Leases on such day. "Series 1998-1 Maximum Non-Program Vehicle Percentage" means 25% or such lesser percentage as may be agreed to in writing by AFC-II and the Surety Provider (initially 15%) on or after the Series 1998-1 Closing Date, with prompt written notice thereof delivered by AFC-II to the Trustee. "Series 1998-1 Maximum Specified States Amount" means, as of any day, an amount equal to 7.5% of the aggregate Net Book Value of all Vehicles leased under the Leases on such day. "Series 1998-1 Monthly Interest" means, with respect to (i) the initial Series 1998-1 Interest Period, an amount equal to the product of (A) the Series 1998-1 Note Rate, (B) the Series 1998-1 Initial Invested Amount and (C) 24/360 and (ii) any other Series 1998-1 Interest Period, an amount equal to the product of (A) one-twelfth of the Series 1998-1 Note Rate and (B) the Series 1998-1 Invested Amount on the first day of such Series 1998-1 Interest Period, after giving effect to any principal payments made on such date. "Series 1998-1 Non-Program Vehicle Percentage" means, as of any date of determination, a fraction, expressed as a percentage, the numerator of which is the aggregate Net Book Value of all Non-Program Vehicles leased under the AESOP I Operating Lease as of such date and the denominator of which is the aggregate Net Book Value of all Vehicles leased under the AESOP I Operating Lease as of such date. "Series 1998-1 Note Rate" means 6.14% per annum. "Series 1998-1 Noteholder" means the Person in whose name a Series 1998-1 Note is registered in the Note Register. "Series 1998-1 Notes" means any one of the 6.14% Rental Car Asset Backed Notes, Series 1998-1, executed by AFC-II and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A-1, Exhibit A-2 or Exhibit A-3. Definitive Series 1998-1 Notes shall have such insertions and deletions as are necessary to give effect to the provisions of Section 2.18 of the Base Indenture. "Series 1998-1 Overcollateralization Amount" means (i) as of any date on which no AESOP I Operating Lease Vehicle Deficiency exists, the Series 1998-1 Required Overcollateralization Amount as of such date and (ii) as of any date on which an AESOP I Operating Lease Vehicle Deficiency exists, the excess, if any, of (x) the Series 1998-1 AESOP I Operating Lease Loan Agreement Borrowing Base as of such date over (y) the Series 1998-1 Invested Amount as of such date. "Series 1998-1 Percentage" means, as of any date of determination, a fraction, expressed as a percentage, the numerator of which is the Series 1998-1 Invested Amount as of such date and the denominator of which is the aggregate Invested Amount of each Series of Notes outstanding as of such date. "Series 1998-1 Principal Allocation" has the meaning specified in Section 2.2(a)(ii) of this Supplement. "Series 1998-1 Program Vehicle Percentage" means, as of any date of determination, a fraction, expressed as a percentage, the numerator of which is the aggregate Net Book Value of all Program Vehicles leased under the AESOP I Operating Lease as of such date and the denominator of which is the aggregate Net Book Value of all Vehicles leased under the AESOP I Operating Lease as of such date. "Series 1998-1 Rapid Amortization Period" means the period beginning at the close of business on the Business Day immediately preceding the day on which an Amortization Event is deemed to have occurred with respect to the Series 1998-1 Notes and ending upon the earliest to occur of (i) the date on which the Series 1998-1 Notes are fully paid and the Surety Provider has been paid all Surety Provider Fees and all other Surety Provider Reimbursement Amounts then due, (ii) the Series 1998-1 Termination Date and (iii) the termination of the Indenture. "Series 1998-1 Repurchase Amount" has the meaning specified in Section 6.1 of this Supplement. "Series 1998-1 Required AESOP I Operating Lease Vehicle Amount" means, as of any date of determination, the sum of the Series 1998-1 Invested Amount and the Series 1998-1 Required Overcollateralization Amount as of such date. "Series 1998-1 Required Enhancement Amount" means, as of any date of determination, the sum of (i) the product of the Series 1998-1 Required Enhancement Percentage as of such date and the Series 1998-1 Invested Amount as of such date, (ii) the Series 1998-1 Percentage of the excess, if any, of the Non-Program Vehicle Amount as of such date over the Series 1998-1 Maximum Non-Program Vehicle Amount as of such date, (iii) the Series 1998-1 Percentage of the excess, if any, of the aggregate Net Book Value of all Vehicles manufactured by Mitsubishi and leased under the Leases as of such date over the Series 1998-1 Maximum Mitsubishi Amount as of such date, (iv) the Series 1998-1 Percentage of the excess, if any, of the aggregate Net Book Value of all Vehicles manufactured by Subaru, Hyundai or Suzuki, individually, and leased under the Leases as of such date over the Series 1998-1 Maximum Individual Subaru/Hyundai/Suzuki Amount as of such date, (v) the Series 1998-1 Percentage of the excess, if any, of the aggregate Net Book Value of all Vehicles manufactured by Subaru, Hyundai or Suzuki, in the aggregate, and leased under the Leases as of such date over the Series 1998-1 Maximum Aggregate Subaru/Hyundai/Suzuki Amount as of such date, (vi) the Series 1998-1 Percentage of the excess, if any, of the aggregate Net Book Value of all Vehicles manufactured by Mazda and leased under the Leases as of such date over the Series 1998-1 Maximum Mazda Amount as of such date, (vii) the Series 1998-1 Percentage of the excess, if any, of the aggregate Net Book Value of all Program Vehicles manufactured by Mazda and leased under the Leases as of such date over the Series 1998-1 Maximum Mazda Program Vehicle Amount as of such date, (viii) the Series 1998-1 Percentage of the excess, if any, of the Specified States Amount as of such date over the Series 1998-1 Maximum Specified States Amount as of such date and (ix) the Series 1998-1 Percentage of the excess, if any, of the Non-Eligible Manufacturer Amount as of such date over the Series 1998-1 Maximum Non-Eligible Manufacturer Amount as of such date. "Series 1998-1 Required Enhancement Percentage" means, as of any date of determination, a fraction, expressed as a percentage, the numerator of which is the sum of (i) the product of (A) 11% times (B) the Series 1998-1 Program Vehicle Percentage as of such date times (C) the Series 1998-1 Invested Amount as of such date and (ii) the product of (A) the Series 1998-1 Required Non-Program Enhancement Percentage as of such date times (B) the Series 1998-1 Non-Program Vehicle Percentage as of such date times (C) the Series 1998-1 Invested Amount as of such date and the denominator of which is the Series 1998-1 Invested Amount as of such date. "Series 1998-1 Required Non-Program Enhancement Percentage" means, as of any date of determination, the greater of (a) 15% and (b) the sum of (i) 15% and (ii) the sum, for each calendar month within the preceding twelve calendar months (or such fewer number of calendar months as have elapsed since the Initial Closing Date), of the greater of (x) an amount (not less than zero) equal to 100% minus the Measurement Month Average for the immediately preceding Measurement Month and (y) an amount (not less than zero) equal to 100% minus the Market Value Average as of the Determination Date within such calendar month (excluding the Market Value Average for any Determination Date which has not yet occurred). "Series 1998-1 Required Overcollateralization Amount" means, as of any date of determination, the excess, if any, of the Series 1998-1 Required Enhancement Amount over the sum of (i) the Series 1998-1 Available Reserve Account Amount as of such date and (ii) the amount of cash and Permitted Investment on deposit in the Series 1998-1 Collection Account and the Series 1998-1 Excess Collection Account on such date. "Series 1998-1 Required Reserve Account Amount" means, with respect to any Distribution Date, an amount equal to 4.0% of the Series 1998-1 Invested Amount on such Distribution Date (after giving effect to any payments of principal to be made on the Series 1998-1 Notes on such Distribution Date). "Series 1998-1 Reserve Account" has the meaning specified in Section 2.7(a) of this Supplement. "Series 1998-1 Reserve Account Collateral" has the meaning specified in Section 2.7(d) of this Supplement. "Series 1998-1 Reserve Account Initial Deposit" means $24,000,000. "Series 1998-1 Reserve Account Surplus" means, with respect to any Distribution Date, the excess, if any, of the Series 1998-1 Available Reserve Account Amount over the Series 1998-1 Required Reserve Account Amount on such Distribution Date. "Series 1998-1 Revolving Period" means the period from and including the Series 1998-1 Closing Date to the earlier of (i) the commencement of the Series 1998-1 Controlled Amortization Period and (ii) the commencement of any Series 1998-1 Rapid Amortization Period. "Series 1998-1 Shortfall" has the meaning specified in Section 2.3(a) of this Supplement. "Series 1998-1 Termination Date" means the May 2006 Distribution Date. "Supplement" has the meaning set forth in the preamble. "Surety Bond" means the Note Guaranty Insurance Policy No. SB 13014, dated February 26, 1998, issued by the Surety Provider. "Surety Default" means (i) the occurrence and continuance of any failure by the Surety Provider to pay upon a demand for payment in accordance with the requirements of the Surety Bond or (ii) the occurrence of an Event of Bankruptcy with respect to the Surety Provider. "Surety Provider" means Capital Markets Assurance Corporation, a New York stock insurance company. The Surety Provider shall constitute an "Enhancement Provider" with respect to the Series 1998-1 Notes for all purposes under the Indenture and the other Related Documents. "Surety Provider Fee" has the meaning set forth in the Insurance Agreement. "Surety Provider Reimbursement Amounts" means, as of any date of determination, (i) an amount equal to the aggregate of any amounts due as of such date to the Surety Provider pursuant to the Insurance Agreement in respect of unreimbursed draws under the Surety Bond, including interest thereon determined in accordance with the Insurance Agreement, and (ii) an amount equal to the aggregate of any other amounts due as of such date to the Surety Provider pursuant to the Insurance Agreement. "Temporary Global Series 1998-1 Note" has the meaning specified in Section 5.2 of this Supplement. "Waiver Event" means the occurrence of the delivery of a Waiver Request and the subsequent waiver of any Series 1998-1 Maximum Amount. "Waiver Request" has the meaning set forth in Article IV of this Supplement. ARTICLE II SERIES 1998-1 ALLOCATIONS With respect to the Series 1998-1 Notes, the following shall apply: Section 2.1 Establishment of Series 1998-1 Collection Account, Series 1998-1 Excess Collection Account and Series 1998-1 Accrued Interest Account. (a) All Collections allocable to the Series 1998-1 Notes shall be allocated to the Collection Account. (b) The Trustee will create three administrative subaccounts within the Collection Account for the benefit of the Series 1998-1 Noteholders and the Surety Provider: the Series 1998-1 Collection Account (such sub-account, the "Series 1998-1 Collection Account"), the Series 1998-1 Excess Collection Account (such sub-account, the "Series 1998-1 Excess Collection Account") and the Series 1998-1 Accrued Interest Account (such sub-account, the "Series 1998-1 Accrued Interest Account"). Section 2.2 Allocations with Respect to the Series 1998-1 Notes. The proceeds from the initial sale of the Series 1998-1 Notes will be deposited into the Collection Account. On each Business Day on which Collections are deposited into the Collection Account (each such date, a "Series 1998-1 Deposit Date"), the Administrator will direct the Trustee in writing pursuant to the Administration Agreement to allocate all amounts deposited into the Collection Account in accordance with the provisions of this Section 2.2: (a) Allocations of Collections During the Series 1998-1 Revolving Period. During the Series 1998-1 Revolving Period, the Administrator will direct the Trustee in writing pursuant to the Administration Agreement to allocate on each day, prior to 11:00 a.m. (New York City time) on each Series 1998-1 Deposit Date, all amounts deposited into the Collection Account as set forth below: (i) allocate to the Series 1998-1 Collection Account an amount equal to the Series 1998-1 Invested Percentage (as of such day) of the aggregate amount of Interest Collections on such day. All such amounts allocated to the Series 1998-1 Collection Account shall be further allocated to the Series 1998-1 Accrued Interest Account; and (ii) allocate to the Series 1998-1 Excess Collection Account an amount equal to the Series 1998-1 Invested Percentage (as of such day) of the aggregate amount of Principal Collections on such day (for any such day, the "Series 1998-1 Principal Allocation"); provided however, if a Waiver Event shall have occurred, then such allocation shall be modified as provided in Article IV of this Supplement. (b) Allocations of Collections During any Series 1998-1 Controlled Amortization Period. With respect to the Series 1998-1 Controlled Amortization Period, the Administrator will direct the Trustee in writing pursuant to the Administration Agreement to allocate, prior to 11:00 a.m. (New York City time) on any Series 1998-1 Deposit Date, all amounts deposited into the Collection Account as set forth below: (i) allocate to the Series 1998-1 Collection Account an amount determined as set forth in Section 2.2(a)(i) above for such day, which amount shall be further allocated to the Series 1998-1 Accrued Interest Account; and (ii) allocate to the Series 1998-1 Collection Account an amount equal to the Series 1998-1 Principal Allocation for such day, which amount shall be used to make principal payments in respect of the Series 1998-1 Notes; provided, however, that if the Monthly Total Principal Allocation exceeds the Series 1998-1 Controlled Distribution Amount, then the amount of such excess shall be allocated to the Series 1998-1 Excess Collection Account; and provided further that if a Waiver Event shall have occurred, then such allocation shall be modified as provided in Article IV of this Supplement. (c) Allocations of Collections During the Series 1998-1 Rapid Amortization Period. With respect to the Series 1998-1 Rapid Amortization Period, other than after the occurrence of an Event of Bankruptcy with respect to ARAC, any other Lessee or ARC, the Administrator will direct the Trustee in writing pursuant to the Administration Agreement to allocate, prior to 11:00 a.m. (New York City time) on any Series 1998-1 Deposit Date, all amounts deposited into the Collection Account as set forth below: (i) allocate to the Series 1998-1 Collection Account an amount determined as set forth in Section 2.2(a)(i) above for such day, which amount shall be further allocated to the Series 1998-1 Accrued Interest Account; and (ii) allocate to the Series 1998-1 Collection Account an amount equal to the Series 1998-1 Principal Allocation for such day, which amount shall be used to make principal payments in respect of the Series 1998-1 Notes, ratably, without preference or priority of any kind, until the Series 1998-1 Invested Amount is paid in full. (d) Allocations of Collections after the Occurrence of an Event of Bankruptcy. After the occurrence of an Event of Bankruptcy with respect to ARAC, any other Lessee or ARC, the Administrator will direct the Trustee in writing pursuant to the Administration Agreement to allocate, prior to 11:00 a.m. (New York City time) on any Series 1998-1 Deposit Date, all amounts attributable to the AESOP I Operating Lease Loan Agreement deposited into the Collection Account as set forth below: (i) allocate to the Series 1998-1 Collection Account an amount equal to the Series 1998-1 AESOP I Operating Lease Vehicle Percentage as of the date of the occurrence of such Event of Bankruptcy of the aggregate amount of Interest Collections made under the AESOP I Operating Lease Loan Agreement. All such amounts allocated to the Series 1998-1 Collection Account shall be further allocated to the Series 1998-1 Accrued Interest Account; (ii) allocate to the Series 1998-1 Collection Account an amount equal to the Series 1998-1 AESOP I Operating Lease Vehicle Percentage as of the date of the occurrence of such Event of Bankruptcy of the aggregate amount of Principal Collections made under the AESOP I Operating Lease Loan Agreement, which amount shall be used to make principal payments in respect of the Series 1998-1 Notes, ratably, without preference or priority of any kind, until the Series 1998-1 Invested Amount is paid in full. After the occurrence of an Event of Bankruptcy with respect to ARAC, any other Lessee or ARC, the Administrator will direct the Trustee in writing pursuant to the Administration Agreement to allocate all amounts attributable to the AESOP I Finance Lease Loan Agreement and the AESOP II Loan Agreement in accordance with the provisions of the Series 1997-2 Supplement. (e) Series 1998-1 Excess Collection Account. Amounts allocated to the Series 1998-1 Excess Collection Account on any Series 1998-1 Deposit Date will be (w) first, deposited in the Series 1998-1 Reserve Account in an amount up to the excess, if any, of the Series 1998-1 Required Reserve Account Amount for such date over the Series 1998-1 Available Reserve Account Amount for such date, (x) second, used to pay the principal amount of other Series of Notes that are then in amortization, (y) third, released to AESOP Leasing in an amount equal to the product of (A) the Loan Agreement's Share with respect to the AESOP I Operating Lease Loan Agreement as of such date times (B) 100% minus the Loan Payment Allocation Percentage with respect to the AESOP I Operating Lease Loan Agreement as of such date times (C) the amount of any remaining funds and (z) fourth, paid to AFC-II and used to make Loans under the Loan Agreements to the extent the Borrowers have requested Loans thereunder, Eligible Vehicles are available for financing thereunder and no Series 1998-1 Enhancement Deficiency or AESOP I Operating Lease Vehicle Deficiency would result therefrom. Upon the occurrence of an Amortization Event, funds on deposit on the Series 1998-1 Excess Collection Account will be withdrawn by the Trustee, deposited in the Series 1998-1 Collection Account and allocated as Principal Collections to reduce the Series 1998-1 Invested Amount on the immediately succeeding Distribution Date. Section 2.3 Payments To Noteholders. On each Determination Date, as provided below, the Administrator shall instruct the Paying Agent in writing pursuant to the Administration Agreement to withdraw, and on the following Distribution Date the Paying Agent, acting in accordance with such instructions, shall withdraw the amounts required to be withdrawn from the Collection Account pursuant to Sections 2.3(a) and (b) below in respect of all funds available from Interest Collections processed since the preceding Distribution Date and allocated to the holders of the Series 1998-1 Notes. (a) Note Interest with respect to the Series 1998-1 Notes. On each Determination Date, the Administrator shall instruct the Trustee and the Paying Agent in writing pursuant to Administration Agreement as to the amount to be withdrawn and paid pursuant to Section 2.4 of this Supplement from the Series 1998-1 Accrued Interest Account to the extent funds are anticipated to be available from Interest Collections allocable to the Series 1998-1 Notes processed from but not including the preceding Distribution Date through the succeeding Distribution Date in respect of (x) first, an amount equal to Series 1998-1 Monthly Interest for the Series 1998-1 Interest Period ending on the day preceding the related Distribution Date, (y) second, an amount equal to the amount of any unpaid Series 1998-1 Shortfall as of the preceding Distribution Date (together with any accrued interest on such Series 1998-1 Shortfall) and (z) third, an amount equal to the Surety Provider Fee for such Series 1998-1 Interest Period plus any Surety Provider Reimbursement Amounts then due and owing. If the amounts anticipated to be available from the Series 1998-1 Accrued Interest Account will be insufficient to pay the sum of the amounts described in clauses (x), (y) and (z) above on any Distribution Date, the Administrator shall instruct the Trustee in writing to withdraw from the Series 1998-1 Reserve Account and deposit in the Series 1998-1 Distribution Account on the following Distribution Date an amount equal to the lesser of the Series 1998-1 Available Reserve Account Amount and such insufficiency; provided, however, that after the occurrence of a Surety Default, no amounts in respect of the Surety Provider Fee shall be withdrawn from the Series 1998-1 Reserve Account. If the amounts described in the preceding two sentences are insufficient to pay the sum of the amounts described in clauses (x) and (y) above on any Distribution Date, the Trustee shall make a demand on the Surety Bond in accordance with the terms thereof in an amount equal to such insufficiency and deposit the proceeds thereof in the Series 1998-1 Distribution Account. If the amounts described in this Section 2.3(a) are insufficient to pay Series 1998-1 Monthly Interest on any Distribution Date, payments of interest to the Series 1998-1 Noteholders will be reduced on a pro rata basis by the amount of such deficiency. The aggregate amount, if any, of such deficiency on any Distribution Date shall be referred to as the "Series 1998-1 Shortfall." Interest shall accrue on the Series 1998-1 Shortfall at the Series 1998-1 Note Rate. On the following Distribution Date, the Trustee shall withdraw the amounts described in this Section 2.3(a) from the Series 1998-1 Accrued Interest Account and deposit such amounts in the Series 1998-1 Distribution Account. (b) Balance. On or prior to the second Business Day preceding each Distribution Date, the Administrator shall instruct the Trustee and the Paying Agent in writing pursuant to the Administration Agreement to pay the balance (after making the payments required in Section 2.3(a) of this Supplement), if any, of the Interest Collections allocated to holders of the Series 1998-1 Notes since the preceding Distribution Date as follows: (i) on each Distribution Date during the Series 1998-1 Revolving Period or the Series 1998-1 Controlled Amortization Period, (1) first, to the Surety Provider, in an amount equal to (x) the Surety Provider Fee for the related Series 1998-1 Interest Period and, without duplication, (y) any Surety Provider Reimbursement Amounts then due and owing, (2) second, to the Administrator, an amount equal to the Series 1998-1 Percentage as of the beginning of such Series 1998-1 Interest Period of the portion of the Monthly Administration Fee payable by AFC-II (as specified in clause (iii) of the definition thereof) for such Series 1998-1 Interest Period, (3) third, to the Trustee, an amount equal to the Series 1998-1 Percentage as of the beginning of such Series 1998-1 Interest Period of the Trustee's fees for such Series 1998-1 Interest Period, (4) fourth, to pay any Carrying Charges (other than Carrying Charges provided for above) to the Persons to whom such amounts are owed, an amount equal to the Series 1998-1 Percentage as of the beginning of such Series 1998-1 Interest Period of such Carrying Charges (other than Carrying Charges provided for above) for such Series 1998-1 Interest Period and (5) fifth, the balance, if any ("Excess Collections"), shall be withdrawn by the Paying Agent from the Series 1998-1 Collection Account and deposited in the Series 1998-1 Excess Collection Account; and (ii) on each Distribution Date during the Series 1998-1 Rapid Amortization Period, (1) first, to the Surety Provider, in an amount equal to (x) the Surety Provider Fee for the related Series 1998-1 Interest Period and, without duplication, (y) any Surety Provider Reimbursement Amounts then due and owing, (2) second, to the Trustee, an amount equal to the Series 1998-1 Percentage as of the beginning of such Series 1998-1 Interest Period of the Trustee's fees for such Series 1998-1 Interest Period, (3) third, to the Administrator, an amount equal to the Series 1998-1 Percentage as of the beginning of such Series 1998-1 Interest Period of the portion of the Monthly Administration Fee (as specified in clause (iii) of the definition thereof) payable by AFC-II for such Series 1998-1 Interest Period, (4) fourth, to pay any Carrying Charges (other than Carrying Charges provided for above) to the Persons to whom such amounts are owed, an amount equal to the Series 1998-1 Percentage as of the beginning of such Series 1998-1 Interest Period of such Carrying Charges (other than Carrying Charges provided for above) for such Series 1998-1 Interest Period and (5) fifth, the balance, if any, shall constitute Excess Collections and shall be withdrawn by the Paying Agent from the Series 1998-1 Collection Account and deposited in the Series 1998-1 Excess Collection Account. Section 2.4 Payment of Note Interest. On each Distribution Date, subject to Section 9.8 of the Base Indenture, the Paying Agent shall, in accordance with Section 6.1 of the Base Indenture, pay to the Series 1998-1 Noteholders from the Series 1998-1 Distribution Account the amount deposited in the Series 1998-1 Distribution Account for the payment of interest pursuant to Section 2.3(a) of this Supplement and, to the extent necessary to pay interest on the Series 1998-1 Notes, first, amounts on deposit in the Series 1998-1 Collection Account, second, amounts on deposit in the Series 1998-1 Reserve Account and third, proceeds of a demand on the Surety Bond made in accordance with the terms thereof. Section 2.5 Payment of Note Principal. (a) Monthly Payments During Controlled Amortization Period or Rapid Amortization Period. Commencing on the second Determination Date during the Series 1998-1 Controlled Amortization Period, or the first Determination Date after the commencement of the Series 1998-1 Rapid Amortization Period, the Administrator shall instruct the Trustee and the Paying Agent in writing pursuant to the Administration Agreement as to the amount allocated to the Series 1998-1 Notes during the Related Month pursuant to Section 2.2(b)(ii), (c)(ii) or (d)(ii), as the case may be, of this Supplement, as to any amounts to be withdrawn from the Series 1998-1 Reserve Account and deposited into the Series 1998-1 Distribution Account, and as to the amount of any demand on the Surety Bond in accordance with the terms thereof. On the Distribution Date following each such Determination Date, the Trustee shall withdraw the amount allocated to the Series 1998-1 Notes during the Related Month pursuant to Section 2.2(b)(ii), (c)(ii) or (d)(ii), as the case may be, of this Supplement from the Series 1998-1 Collection Account and deposit such amount in the Series 1998-1 Distribution Account, to be paid to the holders of the Series 1998-1 Notes. If the amount so deposited in the Series 1998-1 Collection Account with respect to the Series 1998-1 Final Distribution Date is less than the Series 1998-1 Invested Amount, the Trustee shall withdraw from the Series 1998-1 Reserve Account, an amount equal to the lesser of the Series 1998-1 Available Reserve Account Amount and such insufficiency. If the Series 1998-1 Available Reserve Account Amount is less than such insufficiency, the Trustee shall make a demand on the Surety Bond in accordance with the terms thereof in an amount equal to such insufficiency and deposit the proceeds thereof in the Series 1998-1 Distribution Account. The entire principal amount of all Outstanding Series 1998-1 Notes shall be due and payable on the Series 1998-1 Final Distribution Date. (b) If on any Determination Date the Administrator determines that the Principal Deficit Amount with respect to the next succeeding Distribution Date will be greater than zero, the Administrator shall instruct the Trustee in writing to make a demand on the Surety Bond on such Determination Date in accordance with the terms thereof in an amount equal to such Principal Deficit Amount and deposit the proceeds thereof into the Series 1998-1 Distribution Account. (c) On each Distribution Date occurring on or after the date a withdrawal is made from the Series 1998-1 Collection Account or the Series 1998-1 Reserve Account pursuant to Section 2.5(a) of this Supplement or a demand is made pursuant to Section 2.5(b) of this Supplement, the Paying Agent shall, in accordance with Section 6.1 of the Base Indenture, pay pro rata to each Series 1998-1 Noteholder from the Series 1998-1 Distribution Account the amount deposited therein pursuant to Section 2.5(a) or (b) of this Supplement, to the extent necessary to pay the Series 1998-1 Controlled Amortization Amount during the Series 1998-1 Controlled Amortization Period, or to the extent necessary to pay the Series 1998-1 Invested Amount during the Series 1998-1 Rapid Amortization Period. Section 2.6 Administrator's Failure to Instruct the Trustee to Make a Deposit or Payment. If the Administrator fails to give notice or instructions to make any payment from or deposit into the Collection Account required to be given by the Administrator, at the time specified in the Administration Agreement or any other Related Document (including applicable grace periods), the Trustee shall make such payment or deposit into or from the Collection Account without such notice or instruction from the Administrator, provided that the Administrator, upon request of the Trustee, promptly provides the Trustee with all information necessary to allow the Trustee to make such a payment or deposit. When any payment or deposit hereunder or under any other Related Document is required to be made by the Trustee or the Paying Agent at or prior to a specified time, the Administrator shall deliver any applicable written instructions with respect thereto reasonably in advance of such specified time. Section 2.7 Series 1998-1 Reserve Account. (a) Establishment of Series 1998-1 Reserve Account. AFC-II shall establish and maintain in the name of the Series 1998-1 Agent for the benefit of the Series 1998-1 Noteholders and the Surety Provider, or cause to be established and maintained, an account (the "Series 1998-1 Reserve Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Series 1998-1 Noteholders and the Surety Provider. The Series 1998-1 Reserve Account shall be maintained (i) with a Qualified Institution, or (ii) as a segregated trust account with the corporate trust department of a depository institution or trust company having corporate trust powers and acting as trustee for funds deposited in the Series 1998-1 Reserve Account; provided that, if at any time such Qualified Institution is no longer a Qualified Institution or the credit rating of any securities issued by such depositary institution or trust company shall be reduced to below BBB- by S&P or Baa3 by Moody's, then AFC-II shall, within 30 days of such reduction, establish a new Series 1998-1 Reserve Account with a new Qualified Institution. If the Series 1998-1 Reserve Account is not maintained in accordance with the previous sentence, AFC-II shall establish a new Series 1998-1 Reserve Account, within ten (10) Business Days after obtaining knowledge of such fact, which complies with such sentence, and shall instruct the Series 1998-1 Agent in writing to transfer all cash and investments from the non-qualifying Series 1998-1 Reserve Account into the new Series 1998-1 Reserve Account. Initially, the Series 1998-1 Reserve Account will be established with Harris Trust and Savings Bank. On the Series 1998-1 Closing Date, AFC-II shall deposit an amount equal to the Series 1998-1 Reserve Account Initial Deposit into the Series 1998-1 Reserve Account. (b) Administration of the Series 1998-1 Reserve Account. The Administrator may instruct the institution maintaining the Series 1998-1 Reserve Account to invest funds on deposit in the Series 1998-1 Reserve Account from time to time in Permitted Investments; provided, however, that any such investment shall mature not later than the Business Day prior to the Distribution Date following the date on which such funds were received, unless any Permitted Investment held in the Series 1998-1 Reserve Account is held with the Paying Agent, then such investment may mature on such Distribution Date and such funds shall be available for withdrawal on or prior to such Distribution Date. All such Permitted Investments will be credited to the Series 1998-1 Reserve Account. (c) Earnings from Series 1998-1 Reserve Account. All interest and earnings (net of losses and investment expenses) paid on funds on deposit in the Series 1998-1 Reserve Account shall be deemed to be on deposit therein and available for distribution. (d) Series 1998-1 Reserve Account Constitutes Additional Collateral for Series 1998-1 Notes. In order to secure and provide for the repayment and payment of the AFC-II Obligations with respect to the Series 1998-1 Notes, AFC-II hereby grants a security interest in and assigns, pledges, grants, transfers and sets over to the Series 1998-1 Agent, for the benefit of the Series 1998-1 Noteholders and the Surety Provider, all of AFC-II's right, title and interest in and to the following (whether now or hereafter existing or acquired): (i) the Series 1998-1 Reserve Account, including any security entitlement thereto; (ii) all funds on deposit therein from time to time; (iii) all certificates and instruments, if any, representing or evidencing any or all of the Series 1998-1 Reserve Account or the funds on deposit therein from time to time; (iv) all investments made at any time and from time to time with monies in the Series 1998-1 Reserve Account, whether constituting securities, instruments, general intangibles, investment property, financial assets or other property; (v) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for the Series 1998-1 Reserve Account, the funds on deposit therein from time to time or the investments made with such funds; and (vi) all proceeds of any and all of the foregoing, including, without limitation, cash (the items in the foregoing clauses (i) through (vi) are referred to, collectively, as the "Series 1998-1 Reserve Account Collateral"). The Series 1998-1 Agent shall possess all right, title and interest in all funds on deposit from time to time in the Series 1998-1 Reserve Account and in all proceeds thereof, and shall be the only person authorized to originate entitlement orders in respect of the Series 1998-1 Reserve Account. The Series 1998-1 Reserve Account Collateral shall be under the sole dominion and control of the Series 1998-1 Agent for the benefit of the Series 1998-1 Noteholders and the Surety Provider. (e) Series 1998-1 Reserve Account Surplus. In the event that the Series 1998-1 Reserve Account Surplus on any Distribution Date, after giving effect to all withdrawals from the Series 1998-1 Reserve Account, is greater than zero, the Trustee, acting in accordance with the written instructions of the Administrator pursuant to the Administration Agreement, shall withdraw from the Series 1998-1 Reserve Account an amount equal to the Series 1998-1 Reserve Account Surplus and shall pay such amount to AFC-II. (f) Termination of Series 1998-1 Reserve Account. Upon the termination of the Indenture pursuant to Section 11.1 of the Base Indenture, the Trustee, acting in accordance with the written instructions of the Administrator, after the prior payment of all amounts owing to the Series 1998-1 Noteholders and to the Surety Provider and payable from the Series 1998-1 Reserve Account as provided herein, shall withdraw from the Series 1998-1 Reserve Account all amounts on deposit therein for payment to AFC-II. Section 2.8 Series 1998-1 Distribution Account. (a) Establishment of Series 1998-1 Distribution Account. The Trustee shall establish and maintain in the name of the Series 1998-1 Agent for the benefit of the Series 1998-1 Noteholders and the Surety Provider, or cause to be established and maintained, an account (the "Series 1998-1 Distribution Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Series 1998-1 Noteholders and the Surety Provider. The Series 1998-1 Distribution Account shall be maintained (i) with a Qualified Institution, or (ii) as a segregated trust account with the corporate trust department of a depository institution or trust company having corporate trust powers and acting as trustee for funds deposited in the Series 1998-1 Distribution Account; provided that, if at any time such Qualified Institution is no longer a Qualified Institution or the credit rating of any securities issued by such depositary institution or trust company shall be reduced to below BBB- by S&P or Baa3 by Moody's, then AFC-II shall, within 30 days of such reduction, establish a new Series 1998-1 Distribution Account with a new Qualified Institution. If the Series 1998-1 Distribution Account is not maintained in accordance with the previous sentence, AFC-II shall establish a new Distribution Account, within ten (10) Business Days after obtaining knowledge of such fact, which complies with such sentence, and shall instruct the Series 1998-1 Agent in writing to transfer all cash and investments from the non-qualifying Series 1998-1 Distribution Account into the new Series 1998-1 Distribution Account. Initially, the Series 1998-1 Distribution Account will be established with Harris Trust and Savings Bank. (b) Administration of the Series 1998-1 Distribution Account. The Administrator may instruct the institution maintaining the Series 1998-1 Distribution Account to invest funds on deposit in the Series 1998-1 Distribution Account from time to time in Permitted Investments; provided, however, that any such investment shall mature not later than the Business Day prior to the Distribution Date following the date on which such funds were received, unless any Permitted Investment held in the Series 1998-1 Distribution Account is held with the Paying Agent, then such investment may mature on such Distribution Date and such funds shall be available for withdrawal on or prior to such Distribution Date. All such Permitted Investments will be credited to the Series 1998-1 Distribution Account. (c) Earnings from Series 1998-1 Distribution Account. All interest and earnings (net of losses and investment expenses) paid on funds on deposit in the Series 1998-1 Distribution Account shall be deemed to be on deposit and available for distribution. (d) Series 1998-1 Distribution Account Constitutes Additional Collateral for Series 1998-1 Notes. In order to secure and provide for the repayment and payment of the AFC-II Obligations with respect to the Series 1998-1 Notes, AFC-II hereby grants a security interest in and assigns, pledges, grants, transfers and sets over to the Series 1998-1 Agent, for the benefit of the Series 1998-1 Noteholders and the Surety Provider, all of AFC-II's right, title and interest in and to the following (whether now or hereafter existing or acquired): (i) the Series 1998-1 Distribution Account, including any security entitlement thereto; (ii) all funds on deposit therein from time to time; (iii) all certificates and instruments, if any, representing or evidencing any or all of the Series 1998-1 Distribution Account or the funds on deposit therein from time to time; (iv) all investments made at any time and from time to time with monies in the Series 1998-1 Distribution Account, whether constituting securities, instruments, general intangibles, investment property, financial assets or other property; (v) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for the Series 1998-1 Distribution Account, the funds on deposit therein from time to time or the investments made with such funds; and (vi) all proceeds of any and all of the foregoing, including, without limitation, cash (the items in the foregoing clauses (i) through (vi) are referred to, collectively, as the "Series 1998-1 Distribution Account Collateral"). The Series 1998-1 Agent shall possess all right, title and interest in all funds on deposit from time to time in the Series 1998-1 Distribution Account and in all proceeds thereof, and shall be the only person authorized to originate entitlement orders in respect of the Series 1998-1 Distribution Account. The Series 1998-1 Distribution Account Collateral shall be under the sole dominion and control of the Series 1998-1 Agent for the benefit of the Series 1998-1 Noteholders and the Surety Provider. ARTICLE III AMORTIZATION EVENTS In addition to the Amortization Events set forth in Section 9.1 of the Base Indenture, the following shall be Amortization Events with respect to the Series 1998-1 Notes and shall constitute the Amortization Events set forth in Section 9.1(n) of the Base Indenture with respect to the Series 1998-1 Notes (without notice or other action on the part of the Trustee or any holders of the Series 1998-1 Notes) and shall not be subject to waiver: (a) a Series 1998-1 Enhancement Deficiency shall occur and continue for at least two (2) Business Days; provided, however, that such event or condition shall not be an Amortization Event if (i) during such two (2) Business Day period such Series 1998-1 Enhancement Deficiency shall have been cured in accordance with the terms and conditions of the Indenture and the Related Documents; (b) the Series 1998-1 Available Reserve Account Amount shall be less than the Series 1998-1 Required Reserve Account Amount for at least two (2) Business Days; provided, however, that such event or condition shall not be an Amortization Event if (i) during such two (2) Business Day period such insufficiency shall have been cured in accordance with the terms and conditions of the Indenture and the Related Documents; (c) the Series 1998-1 Reserve Account shall be subject to an injunction, estoppel or other stay or a Lien (other than Liens permitted under the Related Documents); (d) all principal and interest of the Series 1998-1 Notes is not paid in full on or before the Series 1998-1 Expected Final Distribution Date; (e) the Trustee shall make a demand for payment under the Surety Bond; (f) the occurrence of an Event of Bankruptcy with respect to the Surety Provider; and (g) the Surety Provider fails to pay a demand for payment in accordance with the requirements of the Surety Bond. ARTICLE IV RIGHT TO WAIVE PURCHASE RESTRICTIONS Notwithstanding any provision to the contrary in the Indenture or the Related Documents, upon the Trustee's receipt of notice from any Lessee, any Borrower or AFC-II (i) to the effect that a Manufacturer Program is no longer an Eligible Manufacturer Program and that, as a result, the Series 1998-1 Maximum Non-Program Vehicle Amount is or will be exceeded or (ii) that the Lessees, the Borrowers and AFC-II have determined to increase any Series 1998-1 Maximum Amount, (such notice, a "Waiver Request"), each Series 1998-1 Noteholder may, at its option, waive the Series 1998-1 Maximum Non-Program Vehicle Amount or any other Series 1998-1 Maximum Amount if (i) no Amortization Event exists, (ii) the Requisite Noteholders and the Surety Provider consent to such waiver and (iii) 60 days' prior, written notice of such proposed waiver is provided to the Rating Agencies by the Trustee. Upon receipt by the Trustee of a Waiver Request (a copy of which the Trustee shall promptly provide to the Rating Agencies), all amounts which would otherwise be allocated to the Series 1998-1 Excess Collection Account (collectively, the "Designated Amounts") from the date the Trustee receives a Waiver Request through the Consent Period Expiration Date will be held by the Trustee in the Series 1998-1 Collection Account for ratable distribution as described below. Within ten (10) Business Days after the Trustee receives a Waiver Request, the Trustee shall furnish notice thereof to the Series 1998-1 Noteholders and the Surety Provider, which notice shall be accompanied by a form of consent (each a "Consent") in the form of Exhibit B by which the Series 1998-1 Noteholders may, on or before the Consent Period Expiration Date, consent to waiver of the applicable Series 1998-1 Maximum Amount. If the Trustee receives the consent of the Surety Provider and Consents from the Requisite Noteholders agreeing to waiver of the applicable Series 1998-1 Maximum Amount within forty-five (45) days after the Trustee notifies the Series 1998-1 Noteholders of a Waiver Request (theday on which such forty-five (45) day period expires, the "Consent Period Expiration Date"), (i) the applicable Series 1998-1 Maximum Amount shall be deemed waived by the consenting Series 1998-1 Noteholders, (ii) the Trustee will distribute the Designated Amounts as set forth below and (iii) the Trustee shall promptly (but in any event within two days) provide the Rating Agency with notice of such waiver. Any Series 1998-1 Noteholder from whom the Trustee has not received a Consent on or before the Consent Period Expiration Date will be deemed not to have consented to such waiver. If the Trustee receives Consents from the Requisite Noteholders on or before the Consent Period Expiration Date, then on the immediately following Distribution Date, the Trustee will pay the Designated Amounts as follows: (i) to the non-consenting Series 1998-1 Noteholders, if any, pro rata up to the amount required to pay all Series 1998-1 Notes held by such non-consenting Series 1998-1 Noteholders in full; and (ii) any remaining Designated Amounts to the Series 1998-1 Excess Collection Account. If the amount paid pursuant to clause (i) of the preceding paragraph is not paid in full on the date specified therein, then on each day following such Distribution Date, the Administrator will allocate to the Series 1998-1 Collection Account on a daily basis all Designated Amounts collected on such day. On each following Distribution Date, the Trustee will withdraw a portion of such Designated Amounts from the Series 1998-1 Collection Account and deposit same in the Series 1998-1 Distribution Account for distribution as follows: (a) to the non-consenting Series 1998-1 Noteholders, if any, pro rata an amount equal to the Designated Amounts in the Series 1998-1 Collection Account as of the applicable Determination Date up to the aggregate outstanding principal balance of the Series 1998-1 Notes held by the non-consenting Series 1998-1 Noteholders; and (b) any remaining Designated Amounts to the Series 1998-1 Excess Collection Account. If the Requisite Noteholders or the Surety Provider do not timely consent to such waiver, the Designated Amounts will be re-allocated to the Series 1998-1 Excess Collection Account for allocation and distribution in accordance with the terms of the Indenture and the Related Documents. In the event that the Series 1998-1 Rapid Amortization Period shall commence after receipt by the Trustee of a Waiver Request, all such Designated Amounts will thereafter be considered Principal Collections allocated to the Series 1998-1 Noteholders. ARTICLE V FORM OF SERIES 1998-1 NOTES Section 5.1 Restricted Global Series 1998-1 Notes. The Series 1998-1 Notes to be issued in the United States will be issued in book-entry form of and represented by one or more permanent global Notes in fully registered form without interest coupons (each, a "Restricted Global Series 1998-1 Note", substantially in the form set forth in Exhibit A-1-1 hereto, with such legends as may be applicable thereto as set forth in the Base Indenture, and will be sold only in the United States (1) initially to institutional accredited investors within the meaning of Regulation D under the Securities Act in reliance on an exemption from the registration requirements of the Securities Act and (2) thereafter to qualified institutional buyers within the meaning of, and in reliance on, Rule 144A under the Securities Act and shall be deposited on behalf of the purchasers of the Series 1998-1 Notes represented thereby, with a custodian for DTC, and registered in the name of Cede as DTC's nominee, duly executed by AFC-II and authenticated by the Trustee in the manner set forth in Section 2.4 of the Base Indenture. Section 5.2 Temporary Global Series 1998-1 Notes; Permanent Global Series 1998-1 Notes. The Series 1998-1 Notes to be issued outside the United States will be issued and sold in transactions outside the United States in reliance on Regulation S under the Securities Act, as provided in the applicable note purchase agreement, and shall initially be issued in the form of one or more temporary notes in registered form without interest coupons (each, a "Temporary Global Series 1998-1 Note", substantially in the form set forth in Exhibit A-2, which shall be deposited on behalf of the purchasers of the Series 1998-1 Notes represented thereby with a custodian for, and registered in the name of a nominee of DTC, for the accounts of Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear and for Cedel, duly executed by AFC-II and authenticated by the Trustee in the manner set forth in Section 2.4 of the Base Indenture. Interests in a Temporary Global Series 1998-1 Note will be exchangeable, in whole or in part, for interests in one or more permanent global notes in registered form without interest coupons (each, a "Permanent Global Series 1998-1 Note", substantially in the form of Exhibit A-3 hereto, in accordance with the provisions of such Temporary Global Series 1998-1 Note and the Base Indenture (as modified by this Supplement). Interests in a Permanent Global Series 1998-1 Note will be exchangeable for a definitive Series 1998-1 Note, in accordance with the provisions of such Permanent Global Series 1998-1 Note and the Base Indenture (as modified by this Supplement). ARTICLE VI GENERAL Section 6.1 Optional Repurchase. The Series 1998-1 Notes shall be subject to repurchase by AFC-II at its option in accordance with Section 6.3 of the Base Indenture on any Distribution Date after the Series 1998-1 Invested Amount is reduced to an amount less than or equal to 10% of the Series 1998-1 Initial Invested Amount (the "Series 1998-1 Repurchase Amount"); provided, however, that as a condition precedent to any such optional repurchase, on or prior to the Distribution Date on which any Series 1998-1 Note is repurchased by AFC-II pursuant to this Section 6.1, AFC-II shall have paid the Surety Bond Provider all Surety Provider Fees and all other Surety Provider Reimbursement Amounts due and unpaid as of such Distribution Date. The repurchase price for any Series 1998-1 Note shall equal the aggregate outstanding principal balance of such Series 1998-1 Note (determined after giving effect to any payments of principal and interest on such Distribution Date), plus accrued and unpaid interest on such outstanding principal balance. Section 6.2 Information. The Trustee shall provide to the Series 1998-1 Noteholders, or their designated agent, and the Surety Provider copies of all information furnished to the Trustee or AFC-II pursuant to the Related Documents, as such information relates to the Series 1998-1 Notes or the Series 1998-1 Collateral. Section 6.3 Exhibits. The following exhibits attached hereto supplement the exhibits included in the Indenture. Exhibit A-1: Form of Restricted Global Series 1998-1 Note Exhibit A-2: Form of Temporary Global Series 1998-1 Note Exhibit A-3: Form of Permanent Global Series 1998-1 Note Exhibit B: Form of Consent Section 6.4 Ratification of Base Indenture. As supplemented by this Supplement, the Base Indenture is in all respects ratified and confirmed and the Base Indenture as so supplemented by this Supplement shall be read, taken, and construed as one and the same instrument. Section 6.5 Counterparts. This Supplement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. Section 6.6 Governing Law. This Supplement shall be construed in accordance with the law of the State of New York (without giving effect to the provisions thereof regarding conflicts of laws), and the obligations, rights and remedies of the parties hereto shall be determined in accordance with such law. Section 6.7 Amendments. This Supplement may be modified or amended from time to time in accordance with the terms of the Base Indenture; provided, however, that if, pursuant to the terms of the Base Indenture or this Supplement, the consent of the Required Noteholders is required for an amendment or modification of this Supplement, such requirement shall be satisfied if such amendment or modification is consented to by Noteholders representing more than 50% of the aggregate outstanding principal amount of the Series 1998-1 Notes affected thereby. Section 6.8 Discharge of Indenture. Notwithstanding anything to the contrary contained in the Base Indenture, no discharge of the Indenture pursuant to Section 11.1(b) of the Base Indenture will be effective as to the Series 1998-1 Notes without the consent of the Required Noteholders. Section 6.9 Notice to Surety Provider and Rating Agencies. The Trustee shall provide to the Surety Provider and each Rating Agency a copy of each notice, opinion of counsel, certificate or other item delivered to, or required to be provided by, the Trustee pursuant to this Supplement or any other Related Document. Each such opinion of counsel shall be addressed to the Surety Provider, shall be from counsel reasonably acceptable to the Surety Provider and shall be in form and substance reasonably acceptable to the Surety Provider. All such notices, opinions, certificates or other items delivered to the Surety Provider shall be forwarded to Capital Markets Assurance Corporation, 885 Third Avenue, New York, New York 10022, Attention: Chief Financial Officer and Chief Underwriting Officer, telecopy: (212) 755-5487; confirmation: (212) 755-1155. Section 6.10 Certain Rights of Surety Provider. The Surety Provider shall be deemed to be an Enhancement Provider entitled to receive confirmation of the rating on the Series 1998-1 Notes (without regard to the Surety Bond) pursuant to the definition of "Rating Agency Confirmation Condition." In addition, the Surety Provider shall be deemed to be an Enhancement Provider entitled to exercise the consent rights described in clause (ii) of the definition of "Rating Agency Consent Condition." Section 6.11 Surety Provider Deemed Noteholder and Secured Party. Except for any period during which a Surety Default is continuing, the Surety Provider shall be deemed to be the holder of 100% of the Series 1998-1 Notes for the purposes of giving any consents, waivers, approvals, instructions, directions, requests, declarations and/or notices pursuant to the Base Indenture and this Supplement. Any reference in the Base Indenture or the Related Documents (including, without limitation, in Sections 2.3, 8.14, 9.1, 9.2 or 12.1 of the Base Indenture) to materially, adversely, or detrimentally affecting the rights or interests of the Noteholders, or words of similar meaning, shall be deemed, for purposes of the Series 1998-1 Notes, to refer to the rights or interests of the Surety Provider. Furthermore, the Surety Provider shall be deemed to be a "Secured Party" under the Base Indenture and the Related Documents to the extent of amounts payable to the Surety Provider pursuant to this Supplement. Moreover, wherever in the Related Documents money or other property is assigned, conveyed, granted or held for, a filing is made for, action is taken for or agreed to be taken for, or a representation or warranty is made for the benefit of the Noteholders, the Surety Provider shall be deemed to be the Noteholder with respect to 100% of the Series 1998-1 Notes for such purposes. Section 6.12 Capitalization of AFC-II. AFC-II agrees that on the Series 1998-1 Closing Date it will have capitalization in an amount equal to or greater than 3% of the sum of (x) the Series 1998-1 Initial Invested Amount and (y) the invested amount of the Series 1997-1 Notes. Section 6.13 Series 1998-1 Required Non-Program Enhancement Percentage. AFC-II agrees that it will not make any Loan under any Loan Agreement to finance the acquisition of any Vehicle by AESOP Leasing, AESOP Leasing II or ARAC, as the case may be, if, after giving effect to the making of such Loan, the acquisition of such Vehicle and the inclusion of such Vehicle under the relevant Lease, the Series 1998-1 Required Non-Program Enhancement Percentage would exceed 25.0%. Section 6.14 Third Party Beneficiary. The Surety Provider is an express third party beneficiary of (i) the Base Indenture to the extent of provisions relating to any Enhancement Provider and (ii) this Supplement. Section 6.15 Prior Notice by Trustee to Surety Provider. Subject to Section 10.1 of the Base Indenture, the Trustee agrees that, so long as no Amortization Event shall have occurred and be continuing with respect to any Series of Notes other than the Series 1998-1 Notes, it shall not exercise any rights or remedies available to it as a result of the occurrence of an Amortization Event with respect to the Series 1998-1 Notes (except those set forth in clauses (f) and (g) of Article III of this Supplement) until after the Trustee has given prior written notice thereof to the Surety Provider and obtained the direction of the Required Noteholders with respect to the Series 1998-1 Notes. The Trustee agrees to notify the Surety Provider promptly following any exercise of rights or remedies available to it as a result of the occurrence of any Amortization Event or a Series 1998-1 Limited Liquidation Event of Default. IN WITNESS WHEREOF, AFC-II and the Trustee have caused this Supplement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. AESOP FUNDING II L.L.C. By: ---------------------------------- Name: Title: HARRIS TRUST AND SAVINGS BANK as Trustee By: ---------------------------------- Name: Title: HARRIS TRUST AND SAVINGS BANK as Series 1998-1 Agent By: ---------------------------------- Name: Title: EX-10.15 10 RETENTION AGREEMENT RETENTION AGREEMENT THIS RETENTION AGREEMENT dated as of January 1, 1999 (the "Effective Date") by and between Avis Rent A Car, Inc. (the "Company") and F. Robert Salerno (the "Executive"). WITNESSETH: WHEREAS, the Company has determined that appropriate steps should be taken to encourage the Executive to remain employed by the Company by providing for certain benefits; NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree to the following: 1. Definitions. The capitalized terms used herein shall have the meanings ascribed to them below. (a) "Cause" shall mean (i) the willful and continued failure by the Executive substantially to perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness), as determined by the Board of Directors of the Company (the "Board"), (ii) the willful engaging by the Executive in misconduct which is materially injurious to the Company, monetarily or otherwise, or (iii) the Executive's conviction of a felony. Notwithstanding the foregoing, the Executive's employment shall not be deemed to have been terminated for Cause under clause (i) or (ii) above unless and until there shall have been delivered to the Executive by the Company a copy of a Notice of Termination authorized by the Board stating that in the good faith opinion of the Board the Executive is guilty of conduct set forth in clause (i) or (ii) above and specifying the particulars thereof in detail. (b) "Good Reason" shall mean a reduction in the Executive's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time during the term of this Agreement. Notwithstanding the foregoing, a termination by the Executive for Good Reason shall not be effective unless (x) the Executive has delivered to the Company a Notice of Termination for Good Reason within 30 days of his becoming aware of the existence of an event or circumstance constituting Good Reason; and (y) the Company has not cured such event or circumstance within 10 business days of its receipt of such Notice of Termination. 2. Retention Incentive. (a) Subject to the conditions of paragraph (b) below, the Executive shall be entitled to receive the following: (i) a lump sum cash payment (the "First Cash Incentive") of $350,000 on June 30, 2000 (the "First Retention Date"); and (ii) a lump sum cash payment (the "Second Cash Incentive" and, together with the First Cash Incentive, the "Retention Incentive") of $350,000 on December 31, 2001 (the "Second Retention Date"). (b) The Executive shall be entitled to the First Cash Incentive and the Second Cash Incentive only if the Executive is employed by the Company as of the First Retention Date and the Second Retention Date, respectively; provided, however, that, in the event that the Executive's employment with the Company is terminated prior to the Second Retention Date either (i) by the Company without Cause or (ii) by the Executive for Good Reason, then the First Cash Incentive (if it has not previously been paid) and the Second Cash Incentive shall be paid on the dates described in clauses (a)(i) and (a)(ii), respectively. (c) If the Executive's employment is terminated prior to the Second Retention Date either (i) by the Company for Cause or (ii) by the Executive other than for Good Reason, the Second Cash Incentive shall immediately be forfeited. If the Executive's employment is terminated prior to the First Retention Date either (x) by the Company for Cause or (y) by the Executive other than for Good Reason, the Retention Incentive shall immediately be forfeited. (d) The Retention Incentive shall be subject to deductions for applicable federal, state and local withholding taxes. 3. No Effect on Other Contractual Rights. The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights (or rights which would accrue solely as a result of the passage of time) under any employee benefit plan or employment agreement or other contract, plan or arrangement nor shall any amounts payable hereunder be considered in determining the amount of benefits payable to the Executive under any such plan, agreement or contract. 4. Successor to the Company. (a) This Agreement shall be binding on the Company's successors and assigns. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts are still payable to the Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's personal representative, devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 5. Notice. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid as follows: If to the Company: Avis Rent A Car, Inc. 900 Old Country Road Garden City, New York 11530 Attention: General Counsel If to the Executive: F. Robert Salerno 28 Katonah"s Wood Road Katonah, New York 10536 or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 6. Amendment, Waiver. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach of the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 7. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforce ability of any other provision of this Agreement, which shall remain in full force and effect. 8. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 9. Governing Law. This Agreement shall be governed by and construed in accordance with federal laws of the United States, if applicable or, if inapplicable, in accordance with the laws of the State of New York applicable to contracts entered into and to be performed entirely with the State of New York. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. -------------------------------- By: Martin L. Edelman Title: Chairman -------------------------------- F. Robert Salerno EX-10.16 11 RETENTION AGREEMENT RETENTION AGREEMENT THIS RETENTION AGREEMENT dated as of January 1, 1999 (the "Effective Date") by and between Avis Rent A Car, Inc. (the "Company") and Kevin M. Sheehan (the "Executive"). WITNESSETH: WHEREAS, the Company has determined that appropriate steps should be taken to encourage the Executive to remain employed by the Company by providing for certain benefits; NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree to the following: 1. Definitions. The capitalized terms used herein shall have the meanings ascribed to them below. (a) "Cause" shall mean (i) the willful and continued failure by the Executive substantially to perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness), as determined by the Board of Directors of the Company (the "Board"), (ii) the willful engaging by the Executive in misconduct which is materially injurious to the Company, monetarily or otherwise, or (iii) the Executive's conviction of a felony. Notwithstanding the foregoing, the Executive's employment shall not be deemed to have been terminated for Cause under clause (i) or (ii) above unless and until there shall have been delivered to the Executive by the Company a copy of a Notice of Termination authorized by the Board stating that in the good faith opinion of the Board the Executive is guilty of conduct set forth in clause (i) or (ii) above and specifying the particulars thereof in detail. (b) "Good Reason" shall mean a reduction in the Executive's annual rate of base salary as in effect on the date hereof or as the same may be increased from time to time during the term of this Agreement. Notwithstanding the foregoing, a termination by the Executive for Good Reason shall not be effective unless (x) the Executive has delivered to the Company a Notice of Termination for Good Reason within 30 days of his becoming aware of the existence of an event or circumstance constituting Good Reason; and (y) the Company has not cured such event or circumstance within 10 business days of its receipt of such Notice of Termination. 2. Retention Incentive. (a) Subject to the conditions of paragraph (b) below, the Executive shall be entitled to receive the following: (i) a lump sum cash payment (the "First Cash Incentive") of $275,000 on June 30, 2000 (the "First Retention Date"); and (ii) a lump sum cash payment (the "Second Cash Incentive" and, together with the First Cash Incentive, the "Retention Incentive") of $275,000 on December 31, 2001 (the "Second Retention Date"). (b) The Executive shall be entitled to the First Cash Incentive and the Second Cash Incentive only if the Executive is employed by the Company as of the First Retention Date and the Second Retention Date, respectively; provided, however, that, in the event that the Executive's employment with the Company is terminated prior to the Second Retention Date either (i) by the Company without Cause or (ii) by the Executive for Good Reason, then the First Cash Incentive (if it has not previously been paid) and the Second Cash Incentive shall be paid on the dates described in clauses (a)(i) and (a)(ii), respectively. (c) If the Executive's employment is terminated prior to the Second Retention Date either (i) by the Company for Cause or (ii) by the Executive other than for Good Reason, the Second Cash Incentive shall immediately be forfeited. If the Executive's employment is terminated prior to the First Retention Date either (x) by the Company for Cause or (y) by the Executive other than for Good Reason, the Retention Incentive shall immediately be forfeited. (d) The Retention Incentive shall be subject to deductions for applicable federal, state and local withholding taxes. 3. No Effect on Other Contractual Rights. The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights (or rights which would accrue solely as a result of the passage of time) under any employee benefit plan or employment agreement or other contract, plan or arrangement nor shall any amounts payable hereunder be considered in determining the amount of benefits payable to the Executive under any such plan, agreement or contract. 4. Successor to the Company. (a) This Agreement shall be binding on the Company's successors and assigns. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts are still payable to the Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's personal representative, devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 5. Notice. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid as follows: If to the Company: Avis Rent A Car, Inc. 900 Old Country Road Garden City, New York 11530 Attention: General Counsel If to the Executive: Kevin M Sheehan 47 Glen Way Cold Spring Harbor, New York 11724 or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 6. Amendment, Waiver. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach of the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 7. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforce ability of any other provision of this Agreement, which shall remain in full force and effect. 8. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 9. Governing Law. This Agreement shall be governed by and construed in accordance with federal laws of the United States, if applicable or, if inapplicable, in accordance with the laws of the State of New York applicable to contracts entered into and to be performed entirely with the State of New York. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ----------------------------------- By: Martin L. Edelman Title: Chairman ----------------------------------- Kevin M. Sheehan EX-10.18 12 NONQUALIFIED DEFERRED COMPENSATION PLAN EXHIBIT 10.18 The Avis Rent A Car System, Inc. Nonqualified Deferred Compensation Plan ARTICLE 1--INTRODUCTION 1.1 Purpose of Plan Avis Rent A Car System, Inc. (the "Employer ") has adopted the Plan set forth herein to provide a means by which certain employees may elect to defer receipt of designated percentages or amounts of their Compensation and to provide a means for certain other deferrals of Compensation. 1.2 Status of Plan The Plan is intended to be "a plan that is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of Sections 201(2) and 301(a)(3) of the Emplovee Retirement Income Security Act of 1974 ("ERISA"), and shall be interpreted and administered to the extent possible in a manner consistent with that intent. ARTICLE 2--DEFINITIONS Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context: 2.1 Account means, for each Participant, the account established for his or her benefit under Section 5.1. 2.2 Adoption Agreement means the Merrill Lynch Special Nonqualified Deferred Compensation Plan for Select Employees Adoption Agreement signed by the Employer to establish the Plan and containing all the options selected by the Employer, as the same may be amended from time to time. 2.3 Change of Control means (a) the purchase or other acquisition in one or more transactions other than from the Employer, by any individual, entity or group of persons, within the meaning of section 13(d)(3) or 14(d) of the Securities Exchange Act of 1934 or any comparable successor provisions, of beneficial ownership (within the meaning of Rule 13d-3 of Securities Exchange Act of 1934) of 30% or more of either the outstanding shares of common stock or the combined voting power of the Employer's then outstanding voting securities entitled to vote generally, or (b) the approval by the stockholders of the Employer of a reorganization, merger or consolidation, in each case, with respect to which persons who were stockholders of the Employer immediately prior to such reorganization, merger or consolidation do not immediately thereafter own more than 50% of the combined voting power of the reorganized, merged or consolidated Employer's then outstanding securities that are entitled to vote generally in the election of directors or (c) the sale of substantially all of the Employer's assets. 2.4 Code means the Internal Revenue Code of 1986, as amended from time to time. Reference to any section or subsection of the Code includes reference to any comparable or succeeding provisions of any legislation that amends, supplements or replaces such section or subsection. 2.5 Compensation has the meaning elected by the Employer in the Adoption Agreement. 2.6 Effective Date means the date chosen in the Adoption Agreement as of which the Plan first becomes effective. 2.7 Election Form means the participation election form as approved and prescribed by the Plan Administrator. 2.8 Elective Deferral means the portion of Cornpensation that is deferred by a Participant under Section 4.l. 2.9 Eligible Emplovee means, on the Effective Date or on any Entry Date thereafter, each employee of the Employer who satisfies the criteria established in the Adoption Agreement. 2.10 Employer means the corporation referred to in the Adoption Agreement, any successor to all or a major portion of the Employer's assets or business that assumes the obligations of the Employer, and each other entity that is affiliated with the Employer, which adopts the Plan with the consent of the Employer, provided that the Employer that signs the Adoption Agreement shall have the sole power to amend this Plan and shall be the Plan Administrator if no other person or entity is so serving at any time. 2.11 ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time. Reference to any section or subsection of ERISA includes reference to any comparable or succeeding provisions of any legislation that amends, supplements or replaces such section or subsection. 2.12 Incentive Contribution means a discretionary additional contribution made by the Employer as described in Section 4.3. 2.13 Insolvent means either (i) the Employer is unable to pay its debts as they become due, or (ii) the Employer is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. 2.14 Matching Deferral means a deferral for the benefit of a Participant as described in Section 4.2. EXHIBIT 10.18 2.15 Participant means any individual who participates in the Plan in accordance with Article 3. 2.16 Plan means the Employer's plan in the form of the Merrill Lynch Special Nonqualified Deferred Compensation Plan for Select Employees and the Adoption Agreement and all amendments thereto. 2.17 Plan Administrator means the person, persons or entity designated by the Employer in the Adoption Agreement to administer the Plan and to serve as the agent for "Company" with respect to the Trust as contemplated by the agreement establishing the Trust. If no such person or entity is so serving at any time, the Employer shall be the Plan Administrator. 2.18 Plan Year means the 12-month period chosen in the Adoption Agreement. 2.19 Total and Permanent Disability means the inability of a Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months, and the permanence and degree of which shall be supported by medical evidence satisfactory to the Plan Administrator. 2.20 Trust means the trust established by the Employer that identifies the Plan as a plan with respect to which assets are to be held by the Trustee. 2.21 Trustee means the trustee or trustees under the Trust. 2.22 Year of Service means the computation period and service requirement elected in the Adoption Agreement ARTICLE 3--PARTICIPATION 3.1 Commencement of Participation Any individual who elects to defer part of his or her Compensation in accordance with Section 4.1 shall become a Participant in the Plan as of the date such deferrals commence in accordance with Section 4.1. Any individual who is not already a Participant and whose Account is credited with an Incentive Contribution shall become a Participant as of the date such amount is credited. 3.2 Continued Participation A Participant in the Plan shall continue to be a Participant so long as any amount remains credited to his or her Account. ARTICLE 4--ELECTIVE AND MATCHING DEFERRALS 4.1 Elective Deferrals An individual who is an Eligible Employee on the Effective Date may, by completing an Election Form and filing it with the Plan Administrator within 30 days following the Effective Date, elect to defer a percentage or dollar amount of one or more payments of Compensation, on such terms as the Plan Administrator may permit, which are payable to the Participant after the date on which the individual files the Election Form. Any individual who becomes an Eligible Employee after the Effective Date may, by completing an Election Form and filing it with the Plan Administrator within 30 days following the date on which the Plan Administrator gives such individual written notice that the individual is an Eligible Employee, elect to defer a percentage or dollar amount of one or more payments of Compensation, on such terms as the Plan Administrator may permit, which are payable to the Participant after the date on which the individual files the Election Form. Any Eligible Employee who has not otherwise initially elected to defer Compensation in accordance with this paragraph 4.1 may elect to defer a percentage or dollar amount of one or more payments of Compensation, on such terms as the Plan Administrator may permit, commencing with Compensation paid in the next succeeding Plan Year, by completing an Election Form prior to the first day of such succeeding Plan Year. In addition, a Participant may defer all or part of the amount of any elective deferral or matching contribution made on his or her behalf to the Employer's 401(k) plan for the prior Plan Year but treated as an excess deferral, an excess contribution or otherwise limited by the application of the limitations of sections 401(k), 401(m), 415 or 402(q) of the Code, so long as the Participant so indicates on an Election Form. A Participant's Compensation shall be reduced in accordance with the Participant's election hereunder and amounts deferred hereunder shall be paid by the Employer to the Trust as soon as administratively feasible and credited to the Participant's Account as of the date the amounts are received by the Trustee. An election to defer a percentage or dollar amount of Compensation for any Plan Year shall apply for subsequent Plan Years unless changed or revoked. A Participant may change or revoke his or her deferral election as of the first day of any Plan Year by giving written notice to the Plan Administrator before such first day (or any such earlier date as the Plan Administrator may prescribe). 4.2 Matching Deferrals After each payroll period, monthly, quarterly, or annually, at the Employer's discretion, the Employer shall contribute to the Trust Matching Deferrals equal to the rate of Matching Contribution selected by the Employer and multiplied by the amount of the Elective Deferrals credited to the Participants' Accounts for such period under Section 4.1. Each Matching Deferral will be credited, as of the later of the date it is received by the Trustee or the date the Trustee receives from the Plan Administrator such instructions as the Trustee may reasonably require to allocate the amount received among the asset accounts maintained by the Trustee, to the Participants' Accounts pro rata in accordance with the amount of Elective Deferrals of each Participant, which are taken into account in calculating the Matching Deferral. EXHIBIT 10.18 4.3 Incentive Contributions In addition to other contributions provided for under the Plan, the Employer may, in its sole discretion, select one or more Eligible Employees to receive an Incentive Contribution to his or her Account on such terms as the Employer shall specify at the time it makes the contribution. For example, the Employer may contribute an amount to a Participant's Account and condition the payment of that amount and accrued earnings thereon upon the Participant remaining employed by the Employer for an additional specified period of time. The terms specified by the Employer shall supersede any other provision of this Plan as regards Incentive Contributions and earnings with respect thereto, provided that if the Employer does not specify a method of distribution, the Incentive Contribution shall be distributed in a manner consistent with the election last made by the particular Participant prior to the year in which the Incentive Contribution is made. The Employer, in its discretion, may permit the Participant to designate a distribution schedule for a particular Incentive Contribution provided that such designation is made prior to the time that the Employer finally determines that the Participant will receive the Incentive Contribution. ARTICLE 5--ACCOUNTS 5.1 Accounts The Plan Administrator shall establish an Account for each Participant reflecting Elective Deferrals, Matching Deferrals and Incentive Contributions made for the Participant's benefit together with any adjustments for income, gain or loss and any payments from the Account. The Plan Administrator may cause the Trustee to maintain and invest separate asset accounts corresponding to each Participant's Account. The Plan Administrator shall establish sub-accounts for each Participant that has more than one election in effect under Section 7.1 and such other subaccounts as are necessary for the proper administration of the Plan. As of the last business day of each calendar quarter, the Plan Administrator shall provide the Participant with a statement of his or her Account reflecting the income, gains and losses (realized and unrealized), amounts of deferrals, and distributions of such Account since the prior statement. 5.2 Investments The assets of the Trust shall be invested in such investments as the Trustee shall determine. The Trustee may (but is not required to) consider the Employer's or a Participant's investment preferences when investing the assets attributable to a Participant's Account. ARTICLE 6--VESTING 6.1 General A Participant shall be immediately vested in, i.e., shall have a nonforfeitable right to, all Elective Deferrals, and all income and gain attributable thereto, credited to his or her Account. A Participant shall become vested in the portion of his or her Account attributable to Matching Deferrals and income and gain attributable thereto in accordance with the schedule selected by the Employer in the Adoption Agreement, subject to earlier vesting in accordance with Sections 6.3, 6.4, and 6.5. 6.2 Vesting Service For purposes of applying the vesting schedule in the Adoption Agreement, a Participant shall be considered to have completed a Year of Service for each complete year of full-time service with the Employer or an Affiliate, measured from the Participant's first date of such employment, unless the Employer also maintains a 401(k) plan that is qualified under section 401(a) of the Internal Revenue Code in which the Participant participates, in which case the rules governing vesting service under that plan shelf also be controlling under this Plan. 6.3 Change of Control A Participant shall become fully vested in his or her Account immediately prior to a Change of Control of the Employer. 6.4 Death or Disability A Participant shall become fully vested in his or her Account immediately prior to termination of the Participant's employment by reason of the Participant's death or Total and Permanent Disability. Whether a Participant's termination of employment is by reason of the Participant's Total and Permanent Disability shall be determined by the Plan Administrator in its sole discretion. 6.5 Insolvency A Participant shall become fully vested in his or her Account immediately prior to the Employer becoming Insolvent, in which case the Participant will have the same rights as a general creditor of the Employer with respect to his or her Account balance. ARTICLE 7--PAYMENTS 7.1 Election as to Time and Form of Payment A Participant shall elect (on the Election Form used to elect to defer Compensation under Section 4.1) the date at which the Elective Deferrals and vested Matching Deferrals (including any earnings attributable thereto) will commence to be paid to the Participant. The Participant shall also elect thereon for payments to be paid in either: a. a single lump-sum payment; b. a series of substantially equal periodic payments (not less frequently than annually) over a period elected by the Participant not to exceed the life expectancy of the Participant (or the joint life expectancies of the Participant and the designated beneficiary of the Participant): EXHIBIT 10.18 c. payments equal to the amounts paid under an annuity chosen by the Participant that is acceptable to the Trustee; d. annual installments over a period elected by the Participant, the amount of each installment to equal the balance of his or her Account immediately prior to the installment divided by the number of installments remaining to be paid. Each such election will be effective for the Plan Year for which it is made and succeeding Plan Years, unless changed by the Participant. Any change will be effective only for Elective Deferrals and Matching Deferrals made for the first Plan Year beginning after the date on which the Election Form containing the change is filed with the Plan Administrator. Except as provided in Sections 7.2, 7.3, 7.4, or 7.5, payment of a Participant's Account shall be made in accordance with the Participant's elections under this Section 7.1. 7.2 Change of Control As soon as possible following a Change of Control of the Employer, each Participant shall be paid his or her entire Account balance (including any amount vested pursuant to Section 6.3) in a single lump sum. 7.3 Termination of Employment Upon termination of a Participant's employment for any reason other than death and prior to the attainment of the Retirement Age specified in the Adoption Agreement, the vested portion of the Participant's Account (including any portion vested pursuant to Section 6.4 as a consequence of the Participant's Total and Permanent Disability) shall be paid to the Participant in a single lump sum as soon as practicable following the date of such termination; provided, however, that the Plan Administrator, in its sole discretion, may pay out a Participant's Account balance in annual installments if the Participant's employment terminates by reason of the Participant's Total and Permanent Disability. 7.4 Death If a Participant dies prior to the complete distribution of his or her Account, the balance of the Account shall be paid as soon as practicable to the Participant's designated beneficiary or beneficiaries, in accordance with the payment election in effect under Section 7.1 on the date of the Participant's death. Alternatively, Participant may elect that the balance of the Account be paid to the Participant's beneficiary or beneficiaries. Any designation of beneficiary and form of payment to such beneficiary shall be made by the Participant on an Election Form filed with the Plan Administrator and may be changed by the Participant at any time by filing another Election Form containing the revised instructions. If no beneficiary is designated or no designated beneficiary survives the Participant, payment shall be made to the Participant's surviving spouse, or, if none, to his or her issue per stirpes, in a single payment. If no spouse or issue survives the Participant, payment shall be made in a single lump sum to the Participant's estate. 7.5 Unforeseen Emergency If a Participant suffers an unforeseen emergency, as defined herein, the Plan Administrator, in its sole discretion, may pay to the Participant only that portion, if any, of the vested portion of his or her Account that the Plan Administrator determines is necessary to satisfy the emergency need, including any amounts necessary to pay any federal, state or local income taxes reasonably anticipated to result from the distribution. A Participant requesting an emergency payment shall apply for the payment in writing in a form approved by the Plan Administrator and shall provide such additional information as the Plan Administrator may require. For purposes of this paragraph, "unforeseen emergency" means an immediate and heavy financial need resulting from any of the following: a. expenses that are not covered by insurance and which the Participant or his or her spouse or dependent has incurred as a result of, or is required to incur in order to receive, medical care; b. the need to prevent eviction of a Participant from his or her principal residence or foreclosure on the mortgage of the Participant's principal residence: or c. any other circumstance that is determined by the Plan Administrator in its sole discretion to constitute an unforeseen emergency that is not covered by insurance and which cannot reasonably be relieved by the liquidation of the Participant's assets. 7.6 Forfeiture of Non-vested Amounts To the extent that any amounts credited to a Participant's Account are not vested at the time such amounts are otherwise payable under Sections 7.1 or 7.3, such amounts shall be forfeited and shall be used to satisfy the Employer's obligation to make contributions to the Trust under the Plan. 7.7 Taxes All federal, state or local taxes that the Plan Administrator determines are required to be withheld from any payments made pursuant to this Article 7 shall be withheld. EXHIBIT 10.18 ARTICLE 8--PLAN ADMINISTRATOR 8.1 Plan Administration and Interpretation The Plan Administrator shall oversee the administration of the Plan. The Plan Administrator shall have complete control and authority to determine the rights and benefits and all claims, demands and actions arising out of the provisions of the Plan of any Participant, beneficiary, deceased Participant. or other person having or claiming to have any interest under the Plan. The Plan Administrator shall have complete discretion to interpret the Plan and to decide all matters under the Plan. Such interpretation and decision shall be final, conclusive and binding on all Participants and any person claiming under or through any Participant, in the absence of clear and convincing evidence that the Plan Administrator acted arbitrarily and capriciously. Any individual(s) serving as Plan Administrator who is a Participant will not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Plan Administrator shall be entitled to rely on information furnished by a Participant, a beneficiary, the Employer or the Trustee. The Plan Administrator shall have the responsibility for complying with any reporting and disclosure requirements of ERISA. 8.2 Powers, Duties, Procedures, Etc. The Plan Administrator shall have such powers and duties, may adopt such rules and tables, may act in accordance with such procedures, may appoint such officers or agents, may delegate such powers and duties, may receive such reimbursements and compensation, and shall follow such claims and appeal procedures with respect to the Plan as it may establish. 8.3 Information To enable the Plan Administrator to perform its functions, the Employer shall supply full and timely information to the Plan Administrator on all matters relating to the compensation of Participants, their employment, retirement, death, termination of employment, and such other pertinent facts as the Plan Administrator may require. 8.4 Indemnification of Plan Administrator The Employer agrees to indemnify and to defend to the fullest extent permitted by law any officer(s) or employee(s) who serve as Plan Administrator (including any such individual who formerly served as Plan Administrator) against all liabilities, damages, costs and expenses (including attorneys' fees and amounts paid in settlement of any claims approved by the Employer) occasioned by any act or omission to act in connection with the Plan. if such act or omission is in good faith. ARTICLE 9--AMENDMENT AND TERMINATION 9.1 Amendments The Employer shall have the right to amend the Plan from time to time, subject to Section 9.3, by an instrument in writing that has been executed on the Employer's behalf by its duly authorized officer. 9.2 Termination of Plan This Plan is strictly a voluntary undertaking on the part of the Employer and shall not be deemed to constitute a contract between the Employer and any Eligible Employee (or any other employee) or a consideration for, or an inducement or condition of employment for, the performance of the services by any Eligible Employee (or other employee). The Employer reserves the right to terminate the Plan at any time, subject to Section 9.3, by an instrument in writing that has been executed on the Employer's behalf by its duly authorized officer. Upon termination, the Employer may (a) elect to continue to maintain the Trust to pay benefits hereunder as they become due as if the Plan had not terminated or (b) direct the Trustee to pay promptly to Participants (or their beneficiaries) the vested balance of their Accounts. For purposes of the preceding sentence, in the event the Employer chooses to implement clause (b), the Account balances of all Participants who are in the employ of the Employer at the time the Trustee is directed to pay such balances shall become fully vested and nonforfeitable. After Participants and their beneficiaries are paid all Plan benefits to which they are entitled, all remaining assets of the Trust attributable to Participants who terminated employment with the Employer prior to termination of the Plan and who were not fully vested in their Accounts under Article 6 at that time shall be returned to the Employer. 9.3 Existing Rights No amendment or termination of the Plan shall adversely affect the rights of any Participant with respect to amounts that have been credited to his or her Account prior to the date of such amendment or termination. ARTICLE 10--MISCELLANEOUS 10.1 No Funding The Plan constitutes a mere promise by the Employer to make payments in accordance with the terms of the Plan and Participants and beneficiaries shall have the status of general unsecured creditors of the Employer. Nothing in the Plan will be construed to give any employee or any other person rights to any specific assets of the Employer or of any other person. In all events, it is the intent of the Employer that the Plan be treated as unfunded for tax purposes and for purposes of Title I of ERISA. 10.2 Non-assignability None of the benefits, payments, proceeds or claims of any Participant or beneficiary shall be subject to any claim of any creditor of any Participant or beneficiary and, in particular, the same shall not be subject to attachment or garnishment or other legal process by any creditor of such Participant or beneficiary, nor shall any Participant or beneficiary have any right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments or proceeds that he or she may expect to receive, contingently or otherwise, under the Plan. EXHIBIT 10.18 10.3 Limitation of Participants' Rights Nothing contained in the Plan shall confer upon any person a right to be employed or to continue in the employ of the Employer, or interfere in any way with the right of the Employer to terminate the employment of a Participant in the Plan at any time, with or without cause. 10.4 Participants Bound Any action with respect to the Plan taken by the Plan Administrator or the Employer or the Trustee or any action authorized by or taken at the direction of the Plan Administrator, the Employer or the Trustee shall be conclusive upon all Participants and beneficiaries entitled to benefits under the Plan. 10.5 Receipt and Release Any payment to any Participant or beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims against the Employer, the Plan Administrator and the Trustee under the Plan, and the Plan Administrator may require such Participant or beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. If any Participant or beneficiary is determined by the Plan Administrator to be incompetent by reason of physical or mental disability (including minority) to give a valid receipt and release, the Plan Administrator may cause the payment or payments becoming due to such person to be made to another person for his or her benefit without responsibility on the part of the Plan Administrator, the Employer or the Trustee to follow the application of such funds. 10.6 Governing Law The Plan shall be construed, administered, and governed in all respects under and by the laws of the state in which the Employer maintains its primary place of business. If any provision shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective. 10.7 Headings and Subheadings Headings and subheadings in this Plan are inserted for convenience only and are not to be considered in the construction of the provisions hereof. The Avis Rent A Car System, Inc. Special Nonqualified Deferred Compensation Plan Adoption Agreement Please complete the information requested in the Adoption Agreement to establish the specific provisions of your plan. You do not have to provide a copy to your Financial Consultant. (Only the Merrill Lynch account opening agreements and an original executed copy of the associated Trust Agreement need to be returned to Merrill Lynch at the address printed on those forms.) This document and the Merrill Lynch Special Nonqualified Deferred Compensation Plan for Select Employees govern the rights of plan participants and should, therefore, be disclosed to participants and retained as part of your permanent records. 1. EMPLOYER INFORMATION A. Name of Plan: AVIS RENT A CAR SYSTEM, INC. NON QUALIFIED DEFERRED COMPENSATION PLAN B. Name and Address of employer sponsoring the Plan. Please provide employer's business name. Business Name: AVIS RENT A CAR SYSTEM, INC. Address: 900 OLD COUNTRY ROAD City: GARDEN CITY State: NEW YORK Zip Code: 11530 C. Provide employer's primary contact for the Plan and telephone and FAX numbers. Also include the employer's Tax Identification Number. Primary Contact: WINSTON PHILLIPS Title: VP-EMPLOYEE BENEFITS Telephone: 516-222-3856 FAX: 516-222-4177 Employer Tax Idenufication Number: 11-1998661 D. Give the first day of the 12-month period for which the employer pays taxes: 1/1 EXHIBIT 10.18 2. PLAN INFORMATION A. What is the effective date of the Plan? January 1, 1998 B. Plan Year Ends. Your "Plan Year" is the 12-consecutive-month period for which you credit elective and matching deferrals and keep Plan records. Enter the last day of your Plan Year. For example, if you use the calendar year as your plan year, enter "December 31." If you use a different 12-month period--for instance if your business is on a fiscal year--enter the last day of your fiscal year, e.g., "July 31." December 31 3. ELIGIBLE EMPLOYEES The following persons or classes of persons shall be Participants (enter the names or positions of individuals eligible to participate or the criteria used to identify Participants, e.g.. Those key employees of the Company selected by the Compensation Committee of the Board of Directors"). Key Employees with a salary grade level of 22 or higher (or a comparable grade level under a successor salary grading system) or are selected by the Employer to participate in the Plan. - ----------------------------------------------------------- - ----------------------------------------------------------- - ----------------------------------------------------------- 4. COMPENSATION Cornpensation is used to determine the amount of Elective Deferrals a Participant can elect. Compensation under the Plan is defined as (select one): |_| the Participant's wages, salaries, fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer or an Affiliate to the extent that the amounts are includable in gross income, including but not limited to commissions paid to salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, reimbursements, and expense allowances, |_| the regular or base salary payable to the individual by the Employer or an Affiliate, excluding commissions and bonuses. |X| the cash compensation payable to the individual by the Employer or an Affiliate, including any commissions and bonuses. |_| the cash bonuses payable to the individual by the Employer or an Affiliate. For purposes of the Plan, Compensation will be determined before giving effect to Elective Deferrals and other salary reduction amounts that are not included in the Participant's gross income under Code section 125, 401 ( k). 402(h) or 403(b). 5. CONTRIBUTIONS A. Elective Deferrals. Participants may elect to reduce their Compensation and to have Elective Deferrals credited to their Accounts by making an election under the Plan (which may be changed each year for later Plan Years as described in the plan), but no Participant may defer more than 80% OF BASE PAY/98% OF BONUS COMPONENT OF COMPENSATION of his or her Compensation for a Plan Year. B. Matching Deferrals. If the Employer elects to match Elective Deferrals, specify the matching rate and indicate the amount of the Participant's Elective Deferrals that will be matched. You may also elect to decide each year whether Matching Deferrals will be made and, if so, what that year's matching rate will be. For example, the Employer may decide to credit a Matching Deferral of, for example, 50 cents for each dollar of a Participant's Elective Deferrals, but limit the match to the first 5% of Compensation deferred by the Participant. If you want to set a maximum dollar amount on the amount of Elective Deferrals that will be matched, insert the dollar amount and interval over which that amount is to be measured. For example, you could say that you will not match Elective Deferrals in excess of $1,000 per month. Matching Deferrals can be made after each payroll period, monthly, quarterly, or annually, at the Employer's discretion. Matching Deferrals will be subject to the vesting schedule selected in Item 6A (select one): |_| No Matching Deferrals will be credited. |_| The Employer will credit Matching Deferrals for each Participant equal to 50% of the first 4% of the Participant's Compensation which is elected as an Elective Deferral, but no Matching Deferral will be made on Elective Deferrals in excess of $ N/A per (specify time period if applicable). EXHIBIT 10.18 |_| The Employer will decide from year to year whether Matching Deferrals will be made and will notify Participants annually of the manner in which Matching Deferrals will be calculated for the subsequent year. C. Discretionary Incentive Contributions. The Employer may make Discretionary Incentive Contributions in any amounts the Employer selects. These contributions will be subject to the vesting schedule selected in Item 6C. The Employer will make Discretionary Incentive Contributions under the Plan. |_| yes |X| no 6. VESTING OF MATCHING DEFERRALS AND DISCRETIONARY INCENTIVE CONTRIBUTIONS A. Vesting Schedule for Matching Deferrals. Indicate how the portion of a Participant's Account attributable to Matching Deferrals is to vest. Matching Deferrals vest in accordance with the following schedule (select one): |X| 100% immediate. |_| 100% after ___ years of service. |_| 20% after ___ years of service and an additional 20%, for each year thereafter. |_| Other vesting schedule (specify): B. Vesting Service. NA Indicate whether you will give credit for vesting service for time spent with a predecessor employer, and if so, specify the maximum number of years and the type of predecessor service for which credit will be given. For vesting purposes (select one): |_| Service with a predecessor employer will not be considered. |_| Service (up to a maximum of __ years) with the following employer(s) will be considered: ----------------------------------------- ----------------------------------------- ----------------------------------------- C. Vesting Schedule for Discretionary Incentive Contributions. N/A Indicate how the portion of a Participant's Account attributable to Discretionary Incentive Contributions is to vest. Unless otherwise specified by the Employer at the time a Discretionary Incentive Contribution is made, Discretionary Incentive Contributions vest in accordance with the following schedule (select one): |_| 100% immediate. |_| 100% after ___ years of service. |_| 20% after years of service and an additional 20% for each year thereafter. |_| Other vesting schedule (specify): 7. ACCOUNTS The Trustee can either invest each Participant's Account balance as a separate account ( in which case the Trustee, could, but would not be required to, take into consideration the investment preferences of the Participants) or invest the Account balances of all Participants as a single fund (in which case the Trustee could, but would not be required to, take into consideration the investment preference of the Employer) (select one): |X| Account balances are to be invested separately. |_| Account balances are to be invested as a single fund. 8. RETIREMENT AGE EXHIBIT 10.18 The Retirement Age under the Plan is age 65. A Participant terminating employment before Retirement Age for reasons other than death or Total and Permanent Disability will not be entitled to receive any installment payments elected on the Election Form. EXHIBIT 10.18 9. WITHDRAWALS WHILE WORKING Withdrawals for Unforeseen Emergency. If you check the first box, Participants may make withdrawals while working in the event they encounter an unforeseen emergency. They generally can withdraw the vested portion of their Accounts. NOTE: Withdrawals are strictly limited as described in Plan Section 7.5. It is the Plan Administrator's responsibility to ensure that the limits are being followed. Excess withdrawals may result in loss of the tax deferral on all amounts credited under the Plan for the benefit of all Participants. Withdrawals of the vested portion of a Participant's Account for unforeseen emergencies (select one): |X| Are permitted to the full extent allowable under the plan. |_| Are not permitted. 10. ADMINISTRATION Plan Administrator. The Plan Administrator is legally responsible for the operation of the Plan, including: o Keeping track of which employees are eligible to participate in the Plan and the date each employee becomes eligible to participate. o Maintaining Participants'Accounts, including all sub-accounts required for different contribution types and payment elections, and keeping track of all elections made by Participants under the Plan and any other relevant information. o Transmitting important communications to the Participants, and obtaining relevant information from Participants such as changes in investment selections. o Filing important reports required to be submitted to governmental agencies. The Plan Administrator will be the person or persons identified below: WINSTON A. PHILLIPS - ---------------------------------------------- Name VP-EMPLOYEE BENEFITS - ---------------------------------------------- Title GERARD McCORMACK - ---------------------------------------------- Name VP-HUMAN RESOURCES - ---------------------------------------------- Title 11. SIGNATURES After reviewing the Adoption Agreement, enter the current date and the name of the Employer. The signature of the Employer or the person signing for the Employer must be witnessed. Note that the person signing for the Employer must be authorized to do so, such as by a resolution of the Employer's board of directors or governing by-laws. While the Merrill Lynch Special Nonqualified Deferred Compensation Plan for Select Employees, including this Adoption Agreement, has been designed in a manner to permit Participants to defer federal income tax on amounts credited to their accounts until the amounts are actually paid, neither Merrill Lynch, Pierce, Fenner & Smith Incorporated, the sponsor of this document, nor any of its affiliates ("Merrill Lynch") provide any assurances of that result in the Employer's particular situation or assume any responsibility in this regard. Please consult your tax advisor regarding the tax consequences of this Plan to you and your employees and the advisability of submitting this document to the Internal Revenue Service to obtain a ruling concerning those consequences. In addition, please consult your independent legal counsel with respect to securities law issues. By signing this Adoption Agreement the Employer acknowledges that no representations or warranties as to the tax consequences to the Employer and Participants of the operation of this Plan have been made by Merrill Lynch. AVIS RENT A CAR SYSTEM, INC. - --------------------------------------------- Name of Employer (Print or Type) By: - --------------------------------------------- Authorized Signature GERARD McCORMACK VP-HUMAN RESOURCES - ----------------------------------- Print Name and Title Date: 1/2/98 Witness: - --------------------------------------------- Signature KAREN C. SCLAFANI - SECRETARY EX-13 13 ANNUAL REPORT [GRAPHIC OMITTED] 1998 Annual Report Avis Rent A Car, Inc. - -------------------------------------------------------------------------------- Avis Rent A Car, Inc. (AVI-NYSE) is a leading provider of rental cars with approximately 660 locations, with operations in the United States, Canada, Puerto Rico, U.S. Virgin Islands, Argentina, Australia and New Zealand. Financial Summary FINANCIAL RESULTS (YEARS ENDED DECEMBER 31) - -------------------------------------------------------------------------------- (Dollars in millions, except per share data.) 1997 1998 % INCREASE - -------------------------------------------------------------------------------- Revenue $ 2,046 $ 2,298 12 - -------------------------------------------------------------------------------- Costs and Expenses $ 1,996 $ 2,185 10 - -------------------------------------------------------------------------------- Pre-Tax Profit $ 50 $ 112 123 - -------------------------------------------------------------------------------- Net Income $ 27.5 $ 63.5 131 - -------------------------------------------------------------------------------- Basic Earnings per Share $ 0.89 $ 1.86 109 - -------------------------------------------------------------------------------- Diluted Earnings per Share $ 0.88 $ 1.82 107 - -------------------------------------------------------------------------------- Diluted Shares Outstanding 31.2 34.9 12 ================================================================================ - -------------------------------------------------------------------------------- BALANCE SHEET DATA 1997 1998 % INCREASE (December 31) - -------------------------------------------------------------------------------- Total Assets $ 4,283 $ 4,505 5 - -------------------------------------------------------------------------------- Total Debt $ 2,826 $ 3,015 7 - -------------------------------------------------------------------------------- Shareholder Equity $ 454 $ 623 37 ================================================================================ - -------------------------------------------------------------------------------- KEY FINANCIAL RATIOS 1997 1998 - -------------------------------------------------------------------------------- Return on Assets (for the years ended December 31) 0.7% 1.5% - -------------------------------------------------------------------------------- Debt to Net Worth (at December 31) 6.2X 4.8X - -------------------------------------------------------------------------------- Pre-Tax Margin (for the years ended December 31) 2.5% 4.9% ================================================================================ Avis Rent A Car, Inc. World Headquarters 900 Old Country Road Garden City, NY 11530 www.avis.com - -------------------------------------------------------------------------------- A Message From Management [PHOTO OMITTED] Kevin M. Sheehan, Executive Vice President and Chief Financial Officer (left) and F. Robert Salerno, President and Chief Operating Officer (right) To Our Shareholders, Employees and Friends: On behalf of the Board of Directors and our 19,000 Avis colleagues, we are pleased to present our 1998 Annual Report that highlights the Company's record financial results and other major accomplishments in the year past. In 1998, Avis advanced on many fronts. We made significant investments in new marketing initiatives and in our technological systems. We introduced cutting edge programs to enhance the skills of our employees and improve the quality of our service and staffing. We successfully initiated a stock repurchase program and made strategic acquisitions. We intensified efforts to improve our business mix through our marketing and suburban strategy, expanded our Internet capabilities through a redesigned Web site and further leveraged our cross marketing synergies with Cendant Corporation. Through the continuation of such strategies in 1999, we are confident we can differentiate Avis from the competition and position ourselves for travelers as the rent a car brand of choice. Since going public in September 1997, Avis has vigorously met the intensified competition in the rental car industry and has benefited from what appears to be the first sustainable and significant price increases the industry has seen in many years. We are well-equipped to meet the future and look forward to the challenges and opportunities of the year ahead. 1998 Milestones Building Record Results Our 1998 financial results were strongly influenced by solid transaction growth, our ability to better utilize our fleet and our effective management of cost initiatives. We also benefited from industry price rationalization and Avis remains committed to achieving optimal price levels for the long term. On a pro forma basis net income for 1998 increased 61% over 1997 to $63.5 million and diluted earnings per share rose 44% to $1.82 from $1.26 in 1997, while revenue increased 5.6%. On a historical basis, net income and diluted earnings per share for 1998 increased 131% and 107%, respectively, compared to 1997, while revenue increased 12.3%. Launching Innovative Marketing Initiatives We are changing our marketing tactics from a broad-based approach to a more targeted format, focusing on building loyalty with our most profitable customers. We began this initiative in the fall of 1998 and we have already seen favorable results. We are convinced this new marketing approach will provide us with a growing base of high margin customers, derived and maintained with more efficient marketing expenditures. As another part of our effort to build customer loyalty, we will continue in 1999 to improve our facilities to ensure customers have a pleasant, stress-free rental experience. Achieving an Optimal Business Mix We are aggressively implementing strategies to change our business mix. Traditionally, the Avis customer profile has in large measure been comprised of business travelers who account for a majority of our business. Through new sales initiatives--like the suburban strategy--and innovative marketing programs, the Company is seeking to selectively increase the proportion of leisure customers. We are also focusing on developing our portfolio of small and medium commercial accounts, which typically have higher revenue per day than the large commercial accounts. We see tremendous growth opportunity in this area. At the same time, we will continue to service, maintain and add to our core of large commercial accounts. - -------------------------------------------------------------------------------- Suburban Strategy In 1998, we embarked on a program to expand our presence in the suburban marketplace. We opened 29 new suburban locations bringing our total to 208, generating $137 million in revenue. New locations are chosen only after our research indicates a high degree of probable success. The attractiveness of this strategy is that it allows our suburban operations to build a solid customer market within their local areas. But since these locations are generally within reasonable proximity to airports, the program enables us to better utilize our fleet by moving excess cars to them during slower periods at the airports. In 1999, we will continue to carefully implement this strategy and we anticipate opening another 40 locations. Leveraging Synergies with Cendant In 1998, the Company continued to capitalize on the close relationship it enjoys with Cendant Corporation. Cendant affords us cross-marketing synergies that allow us access to an enormous pool of potential car rental customers in the hospitality, relocation and time share sectors, as well as those available from their formidable direct marketing data base. In 1998, these efforts produced over $40 million in revenue for the Company, an increase of nearly 30% from 1997. We are also realizing cost savings by using Cendant preferred alliances for improved purchasing power, including telecommunications, printing services and media purchasing. Investing in Our Employees This past year, we rolled out programs designed to further improve the quality of our workforce and produce greater responsiveness to our customers. In Leadership Training courses our managers were trained in how to become more effective and Change Management courses helped our employees meet the challenge of an ever changing competitive environment. Respect for the Individual training brought greater sensitivity to an increasingly diverse workforce and customer base. Training in the Avis Experience heightened the quality of service our employees deliver to our customers. Employee Survey In a service industry, employees are the essential element in overall service delivery. It is our employees who interface on a transaction by transaction basis with our customers. They are the people who will, in large measure, fulfill the promises made by our marketing and secure the loyalty of our customers. In addition to the training and developmental initiatives outlined above, we also conducted our annual employee survey. The survey was presented to all employees of the Company and this year the vast majority responded. Total Company scores rose in every category. An overwhelming majority of the employees said they were proud to work for Avis and that they felt Avis had a high degree of ability to compete successfully in the marketplace. Investing in Technology To ensure the Company's future, in 1998 we made significant investments in technology. These investments included upgrading financial systems, increased resources for a marketing data warehouse, upgrading of our overall internal systems and funds for Year 2000 compliance. In 1998, we redesigned our Web site. We feel the new design facilitates ease of booking for those who prefer to use the Internet to make reservations and the statistics bear this out--over 220,000 reservations were booked last year, a substantial increase over the previous year. Use of the Internet still accounts for only a small percentage of Avis' total bookings, but the number is growing rapidly. We believe that the Internet will continue to grow as both a reservation and marketing opportunity for the Company. We are therefore increasing our development commitment to it in 1999. These investments in technology are crucial to the success of the Company as we move forward. Building Value with Strategic Acquisition Opportunities On May 1, 1998, Avis purchased the Avis system franchises for the cities of Dallas, Fort Worth, San Antonio and Austin from Hayes Leasing Company, Inc. for approximately $86 million. The acquisition brought Avis the assets of a company which, in 1997, reported revenue of $77 million from approximately 640,000 transactions and operated a fleet of approximately 8,000 vehicles. More importantly, upon closing, the purchase became immediately accretive to Avis' earnings. The purchase was part of Avis' strategy to increase the number of key airport locations owned by the Company. In addition to the purchase of Hayes, the Company made six other smaller acquisitions. We will continue to look for strategically advantageous acquisitions. Building Shareholder Return - -------------------------------------------------------------------------------- On September 1, 1998, the Company announced a program to repurchase 1.5 million shares of Avis common stock and on September 23, 1998 expanded the repurchase program to a total of 5 million shares. Avis undertook the repurchase program because the Company's stock represented an outstanding value. The repurchase enhances shareholder value and demonstrates the Company's confidence in the future of Avis. Executive Changes On December 16, 1998 R. Craig Hoenshell stepped down as Chairman and Chief Executive Officer of Avis. Craig expertly led Avis through the public offering process and the initial phases of our acquisition program. Martin L. Edelman, an Avis Board member, was named to serve as Interim Chairman. Since that date, F. Robert Salerno, President and Chief Operating Officer, and Kevin M. Sheehan, Executive Vice President and Chief Financial Officer, have overseen the Company's operations. The Road Ahead We have every confidence that the future holds great promise for Avis. We are focused on raising profitability by increasing brand loyalty as we capitalize on changing industry dynamics. We will continue to improve our business mix and fleet utilization and will continue to pursue strategic acquisitions as a means of increasing operating leverage. We have not yet fully mined the opportunities inherent in our relationship with Cendant; through cross marketing and other synergies we will continue to capitalize on this relationship. The car rental industry is vibrant and growing and we expect to benefit from its growth. Small and medium size businesses are becoming a larger and highly profitable part of our business. With our suburban strategy we are well positioned to tap the potential of the leisure market which includes the trend towards shorter, more frequent vacations. Air travel continues to increase and the demand for our services remains strong. We would like to thank all of our Avis colleagues for the hard work, dedication and energy that made 1998 so successful and, we know, will make 1999 another remarkable year for the Company. Further, we would like to thank all our shareholders for their continued support and confidence. While we are proud of our accomplishments in 1998, we know those accomplishments are only building blocks towards success in 1999 and beyond. Our famous motto--"We Try Harder"--went beyond a slogan to become part of the American vocabulary and a part of the Avis culture. It's part of how we think about ourselves, our company and our individual jobs. Now we are building on this past success with a new advertising campaign-- "We Try Harder. For You." The new slogan shifts focus to our valued customers and emphasizes how hard we intend to work to capture and retain their business in our drive to become the world's pre-eminent rent a car brand. Sincerely, /s/ Martin L. Edelman /s/ F. Robert Salerno /s/ Kevin M. Sheehan Martin L. Edelman F. Robert Salerno Kevin M. Sheehan Interim Chairman President and Executive Vice President of the Board Chief Operating Officer and Chief Financial Officer [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- Vision To Become The World's Pre-eminent Rent A Car Brand. [GRAPHIC OMITTED] SELECTED HISTORICAL FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND AVERAGE REVENUE PER RENTAL TRANSACTION) The selected financial data for the years ended December 31, 1994 and 1995, the periods ended October 16, 1996 and December 31, 1996 and the years ended December 31, 1997 and 1998 are derived from the audited Consolidated Financial Statements of the Company.
PREDECESSOR COMPANIES(A) ------------------------------------- YEARS OCTOBER 17, 1996 ENDED YEARS ENDED DECEMBER JANUARY 1, 1996 (DATE OF DECEMBER 31, TO ACQUISITION) COMBINED 31, -------------------- OCTOBER 16, TO YEAR ENDED --------- 1994 1995 1996 DECEMBER 31, 1996 DECEMBER 31, 1996(B) 1997 --------- --------- --------------- ------------------- -------------------- --------- STATEMENTS OF OPERATIONS DATA: Revenue.......................... $1,412,400 $1,615,951 $ 1,504,673 $ 362,844 $1,867,517 $2,046,154 --------- --------- --------------- ------------------- ----------- --------- Costs and expenses: Direct operating, net.......... 664,993 724,759 650,750 167,682 818,432 863,839 Vehicle depreciation and lease charges, net................. 301,805 394,057 358,937 85,455 444,392 525,143 Selling, general and Administrative(a)............ 252,024 269,434 283,180 68,215 351,395 415,728 Interest, net.................. 136,508 162,244 138,225 38,205 176,430 184,261 Amortization of cost in excess of net assets acquired....... 4,754 4,757 3,782 1,026 4,808 6,860 --------- --------- --------------- ------------------- ----------- --------- 1,360,084 1,555,251 1,434,874 360,583 1,795,457 1,995,831 --------- --------- --------------- ------------------- ----------- --------- Income before provision for income taxes..................... 52,316 60,700 69,799 2,261 72,060 50,323 Provision for income taxes....... 30,213 34,635 31,198 1,040 32,238 22,850 --------- --------- --------------- ------------------- ----------- --------- Net income....................... $ 22,103 $ 26,065 $ 38,601 $ 1,221 $ 39,822 $ 27,473 --------- --------- --------------- ------------------- ----------- --------- --------- --------- --------------- ------------------- ----------- --------- Earnings per share(c) Basic........................ $ .72 $ .84 $ 1.25 $ .04 -- $ .89 Diluted...................... $ .72 $ .84 $ 1.25 $ .04 -- $ .88 STATEMENTS OF FINANCIAL POSITION DATA: Vehicles, net.................... $1,873,158 $2,167,167 $ 2,404,275 $ 2,243,492 $2,243,492 $3,018,856 Total assets..................... $2,602,774 $2,824,798 $ 3,186,503 $ 3,131,232 $3,131,232 $4,282,657 Debt(d).......................... $2,110,123 $2,289,747 $ 2,645,095 $ 2,542,974 $2,542,974 $2,826,422 Stockholders' equity............. $ 658,012 $ 688,260 $ 740,113 $ 76,415 $ 76,415 $ 453,722 Selected Operating Data: Number of rental locations at period-end..................... 576 541 550 546 546 612 Peak number of vehicles during period......................... 150,966 167,511 196,077 177,839 196,077 212,104 Average number of vehicles during period......................... 137,715 150,853 174,813 172,461 174,226 186,317 Number of rental transactions during period (in thousands)... 10,577 11,544 10,272 2,534 12,806 13,667 Average revenue per rental transaction during period...... $ 134 $ 140 $ 146 $ 143 $ 146 $ 150 1998 --------- STATEMENTS OF OPERATIONS DATA: Revenue.......................... $2,297,582 --------- Costs and expenses: Direct operating, net.......... 939,986 Vehicle depreciation and lease charges, net................. 593,064 Selling, general and Administrative(a)............ 438,724 Interest, net.................. 201,726 Amortization of cost in excess of net assets acquired....... 11,854 --------- 2,185,354 --------- Income before provision for income taxes..................... 112,228 Provision for income taxes....... 48,707 --------- Net income....................... $ 63,521 --------- --------- Earnings per share(c) Basic........................ $ 1.86 Diluted...................... $ 1.82 STATEMENTS OF FINANCIAL POSITION DATA: Vehicles, net.................... $3,164,816 Total assets..................... $4,505,062 Debt(d).......................... $3,014,712 Stockholders' equity............. $ 622,614 Selected Operating Data: Number of rental locations at period-end..................... 660 Peak number of vehicles during period......................... 231,086 Average number of vehicles during period......................... 205,685 Number of rental transactions during period (in thousands)... 15,296 Average revenue per rental transaction during period...... $ 150
- ------------------------------ (a) See Note 1 to the audited Consolidated Financial Statements. Selling, general and administrative expenses includes a 4% royalty fee payable to Cendant for the years ended December 31,1997 and 1998 and charges from Cendant for the period October 17, 1996 (Date of Acquisition) to December 31, 1996. See Note 5 to the audited Consolidated Financial Statements. (b) Presented on a combined twelve-month basis and includes the results of the Predecessor Companies for the period January 1, 1996 to October 16, 1996 and the results of the Company for the period October 17, 1996 (Date of Acquisition) to December 31, 1996. (c) Basic and diluted earnings per share are computed based on 30,925,000 shares of Common Stock, the number of shares of Common Stock outstanding for periods presented from December 31, 1994 through December 31, 1997, except for diluted earnings per share for 1997. Diluted earnings per share for the years ended December 31, 1997 and 1998 are calculated based on 31,181,134 shares and 34,952,557 shares of Common Stock, respectively, which includes the dilutive effect of the assumed exercise of outstanding stock options. Basic earnings per share for the year ended December 31, 1998 is computed based on 34,172,249 shares outstanding. (d) Includes vehicle financing notes-due to affiliates at December 31, 1994, 1995, October 16, 1996 and December 31, 1996 of $1,050,000, $1,180,000, $1,289,500 and $247,500, respectively. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL OVERVIEW On October 17, 1996, Cendant Corporation ("Cendant") acquired Avis, Inc. (the "Franchisor") and its subsidiaries, which included the operations presently conducted by Avis Rent A Car, Inc. (the "Acquisition"). The Acquisition was accounted for as a purchase. (See Note 1 to the Consolidated Financial Statements). After the acquisition of Avis, Inc., Cendant retained the Avis trade names, trademarks, and became the franchisor of the Avis System ("Avis System"). Avis Rent A Car, Inc. became a franchisee of the Avis System. On August 20, 1997, Avis Rent A Car, Inc. (the "Company") purchased the First Gray Line Corporation ("First Gray Line"). First Gray Line was the then second largest Avis System franchisee in North America, after the Company, with locations in Southern California, Nevada and Arizona. On September 24, 1997, the Company issued and sold 22,425,000 shares of its common stock in an initial public offering ("IPO") and received net proceeds of approximately $359 million. The net proceeds were used to repay amounts outstanding under a credit facility established to complete the First Gray Line acquisition, pay certain acquisition expenses incurred to complete the First Gray Line acquisition and to prepay outstanding indebtedness. The Franchisor has entered into a Master License Agreement with the Company granting the Company the right to operate as a franchisee under the Avis System. As an Avis System franchisee, the Company is required to make payments consisting of a base royalty of 3.0% of the Company's revenue payable monthly and a supplemental royalty of 1.0% of revenue payable quarterly in arrears (which will increase 0.1% per year commencing July 30, 1999, and in each of the following four years thereafter to a maximum of 1.5% until July 30, 2003). The supplemental royalty or a portion thereof may be deferred if the Company does not attain certain financial targets. On March 23, 1998, the Company sold 5,000,000 shares of its common stock through a public offering and received net proceeds of approximately $161 million. The Company used the proceeds of the common stock issuance to acquire the assets of the rental business of Hayes Leasing Company, Inc., mentioned below, and for working capital and general corporate purposes, including the repayment of certain indebtedness. On May 1, 1998, the Company acquired the assets of the car rental business of Hayes Leasing Company, Inc., ("Hayes Leasing") including the Avis System franchises for the cities of Austin, Fort Worth and San Antonio, and the counties of Dallas and Tarrant, Texas for approximately $86 million in cash plus the refinancing of fleet-related indebtedness, which totaled approximately $136 million for a total purchase price of approximately $222 million. In addition, during the twelve month period ended December 31, 1998, the Company purchased the assets of several other Avis System franchisees, for approximately $15 million in cash. The Company conducts vehicle rental operations through wholly-owned subsidiaries in the United States, Canada, Puerto Rico, the U.S. Virgin Islands, Argentina, Australia and New Zealand. Revenue is derived principally from time and mileage charges for vehicle rentals and, to a lesser extent, fees for loss damage waivers, liability insurance and other products and services. The Company's expenses consist primarily of: - Direct operating expenses (primarily wages and related benefits, concessions and commissions paid to airport authorities, vehicle insurance premiums and other costs relating to the operation of the rental fleet). - Depreciation and lease charges relating to the rental fleet (including net gains or losses upon the disposition of vehicles). - Selling, general and administrative expenses (including royalties, advertising, reservations and marketing costs, and commissions paid to airlines and travel agencies). - Interest expense relating primarily to financing of the rental fleet. 6 The Company's profitability is primarily a function of the volume and pricing of its rental transactions and the utilization of its rental fleet. Significant changes in the Company's net cost of vehicles or in interest rates can also have a material effect on the Company's profitability, depending on its ability to adjust its rental rates. In addition, because the Company is required to pay royalties based on its revenue, not its profits, royalty payments could increase during a period of declining profits. The Company's royalty fee obligations and its significant expenditures for vehicles and facilities impose a significant need for liquidity. Management believes that a more meaningful comparison of the results of operations for the years ended December 31, 1997 and 1996 is obtained by presenting results on a pro forma basis to give effect to the following transactions as if they had occurred on January 1 of each period presented: the acquisition of the Company by Cendant and the establishment of a franchisor/franchisee relationship; the acquisition of First Gray Line and the repayment of debt with net proceeds (after the acquisition of First Gray Line) from the IPO. The following discussion and analysis provides information that management believes to be relevant to understanding the Company's consolidated financial position and results of operations. For comparative purposes, results for 1996 are presented on a combined twelve-month basis and include the results of the Predecessor Companies for the period January 1, 1996 to October 16, 1996 and the results of the Company for the period October 17, 1996 (Date of Acquisition) to December 31, 1996. As a result of the Acquisition, the Consolidated Financial Statements for the period subsequent to the Acquisition are presented on a different basis of accounting than those for the period prior to the Acquisition and, therefore, are not directly comparable. This discussion should be read in conjunction with the Audited Consolidated Financial Statements and related notes thereto included elsewhere in this Annual Report. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items in the Company's consolidated statements of operations (dollars in thousands):
UNAUDITED PRO FORMA (A) HISTORICAL ---------------------------------------------------- ------------------------- PERCENTAGE PERCENTAGE PERCENTAGE 1996 OF REVENUE 1997 OF REVENUE 1998 OF REVENUE ------------ ----------- ------------ ----------- ------------ ----------- Revenue.................................... $ 2,055,519 100.0% $ 2,175,897 100.0% $ 2,297,582 100.0% ------------ ----- ------------ ----- ------------ ----- Costs and Expenses: Direct operating, net.................... 905,534 44.0 920,283 42.3 939,986 40.9 Vehicle depreciation and lease charges, net.................................... 493,306 24.0 559,433 25.7 593,064 25.8 Selling, general and administrative...... 439,674 21.4 422,053 19.4 438,724 19.1 Interest, net............................ 183,115 8.9 192,598 8.9 201,726 8.8 Amortization of cost in excess of net assets acquired........................ 9,295 0.5 9,743 0.4 11,854 0.5 ------------ ----- ------------ ----- ------------ ----- 2,030,924 98.8 2,104,110 96.7 2,185,354 95.1 ------------ ----- ------------ ----- ------------ ----- Income before provision for income taxes... 24,595 1.2 71,787 3.3 112,228 4.9 Provision for income taxes................. 16,028 0.8 32,355 1.5 48,707 2.1 ------------ ----- ------------ ----- ------------ ----- Net income................................. $ 8,567 0.4% $ 39,432 1.8% $ 63,521 2.8% ------------ ----- ------------ ----- ------------ ----- ------------ ----- ------------ ----- ------------ -----
- ------------------------ (a) Includes the effects of the following transactions as if they had occurred on January 1 of each period presented: (i) the acquisition of the Company by Cendant and the establishment of a franchisor/ franchisee relationship, (ii) the acquisition of First Gray Line and (iii) the repayment of debt with the net proceeds (after the acquisition of First Gray Line) from the IPO. 7 HISTORICAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO PRO FORMA YEAR ENDED DECEMBER 31, 1997 REVENUE Revenue for 1998 increased 5.6% from $2,175.9 million to $2,297.6 million, over 1997. The increase in revenue is due primarily to the acquisition of Hayes Leasing (2.7%) and overall market demand (2.9%). The revenue increase reflected a 5.3% increase in the number of rental transactions and a 0.3% increase in revenue per rental transaction. COSTS AND EXPENSES Total costs and expenses for 1998 increased 3.9%, from $2,104.1 million to $2,185.4 million, over 1997. Direct operating expenses increased 2.1%, from $920.3 million to $940.0 million, over 1997. As a percentage of revenue, direct operating expenses for 1998 declined to 40.9%, from 42.3% for 1997. Operating efficiencies were derived primarily from lower vehicle insurance costs (0.3% of revenue), lower airport commissions (1.5% of revenue), and lower computer services costs (0.4% of revenue). These efficiencies were partially offset by higher vehicle damage costs (0.2% of revenue) and higher compensation costs (0.5% of revenue). Vehicle depreciation and lease charges for 1998 increased 6.0%, from $559.4 million to $593.1 million, over 1997. As a percentage of revenue, vehicle depreciation and lease charges were 25.8% of revenue in 1998, as compared to 25.7% of revenue in 1997. The change reflected a 3.4% increase in the average rental fleet combined with a higher monthly cost per vehicle. In addition, the net proceeds received in excess of book value for the disposition of used vehicles was $2.3 million lower (0.1% of revenue) in 1998 compared to 1997. This was primarily due to favorable market conditions for the sale of certain model vehicles during 1997. Selling, general and administrative expenses for 1998 increased 3.9%, from $422.1 million to $438.7 million, over 1997. The increase was due to $6.6 million higher reservation costs, $5.2 million higher marketing expenses, and $4.9 million higher royalty fees. Interest expense for 1998 increased 4.7%, from $192.6 million to $201.7 million, over 1997, due to higher borrowings required to finance the growth of the rental fleet. The provision for income taxes for 1998 increased 50.5%, from $32.4 million to $48.7 million, over 1997. The effective income tax rate was 43.4%, down from 45.1% in 1997. The effective tax rate reflects differences between foreign income tax rates and the U.S. federal statutory income tax rate, taxes on the repatriation of foreign earnings, and foreign withholding taxes on dividends paid to the Company. Net income for 1998 increased 61.1%, from $39.4 million to $63.5 million, over 1997. The increase reflected higher revenue, decreased costs and expenses as a percentage of revenue and a lower effective income tax rate in 1998. PRO FORMA YEAR ENDED DECEMBER 31, 1997 COMPARED TO PRO FORMA YEAR ENDED DECEMBER 31, 1996 REVENUE Revenue for 1997 increased 5.9%, from $2,055.5 million to $2,175.9 million, over 1996. The revenue increase reflected a 3.5% increase in the number of rental transactions and a 2.3% increase in revenue per rental transaction, resulting from greater overall market demand. COSTS AND EXPENSES Total costs and expenses for 1997 increased 3.6%, from $2,030.9 million to $2,104.1 million, over 1996. Direct operating expenses for 1997 increased 1.6%, from $905.5 million to $920.3 million, over 1996. As a 8 percentage of revenue, direct operating expenses for 1997 declined to 42.3% from 44.0% for 1996. Operating efficiencies were derived primarily from lower vehicle damage costs (0.3% of revenue), lower facility costs (0.3% of revenue), lower vehicle insurance costs (0.2% of revenue), lower vehicle registration costs (0.6% of revenue) and a decline in wages and benefits as a percentage of revenue (0.2% of revenue). Vehicle depreciation and lease charges for 1997 increased 13.4%, from $493.3 million to $559.4 million, over 1996. As a percentage of revenue, vehicle depreciation and lease charges for 1997 was 25.7% of revenue, as compared to 24.0% of revenue for 1996. The change reflected a 3.2% increase in the average rental fleet required to service higher rental day activity. In addition, due to favorable market conditions for the sale of certain model vehicles, the net proceeds received in excess of book value upon the disposition of used vehicles was $30.0 million higher in 1996 as compared to 1997. This resulted in a 1.7% reduction in vehicle depreciation and lease charges as a percentage of revenue in 1996. Selling, general and administrative expenses for 1997 decreased 4.0%, from $439.7 million to $422.1 million, over 1996. As a percentage of revenue, selling, general and administrative expenses for 1997 decreased to 19.4% from 21.4% for 1996. This decrease was the result of lower reservation costs due to operating efficiencies and reduced marketing costs as a result of the elimination of certain marketing programs in place during the first half of 1996, partially offset by higher royalty fees due to increased revenue. Interest expense for 1997 increased 5.2%, from $183.1 million to $192.6 million, over 1996, due primarily to higher borrowings required to finance the growth of the rental fleet, partially offset by lower average interest rates. The provision for income taxes for 1997 increased 101.9%, from $16.0 million to $32.4 million, over 1996. The effective tax rate for 1997 was 45.1% as compared to 65.2% for 1996. The increase in the tax provision and the decrease in the effective tax rate were primarily due to higher domestic income before provision for income taxes. The effective tax rate reflects differences between the foreign income tax rates and the U.S. federal statutory income tax rate, taxes on the repatriation of foreign earnings, and foreign withholding taxes on dividends paid to the Company. Net income for 1997 increased 360.3%, from $8.6 million to $39.4 million, over 1996. The increase reflected higher revenue, decreased costs and expenses as a percentage of revenue and a higher effective income tax rate in 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's domestic and foreign operations are funded by cash provided by operating activities and by financing arrangements maintained by the Company. The Company's primary use of funds is for the acquisition of new vehicles. In 1998, the Company's expenditures for new vehicles were approximately $4.3 billion and its proceeds from the disposition of used vehicles were approximately $3.6 billion. For 1999, the Company expects its expenditures for new vehicles (net of proceeds from the disposition of used vehicles) to be higher than in 1998. New vehicles are generally purchased by the Company in accordance with the terms of manufacturer repurchase programs ("Repurchase Programs") Since the late 1980's, the Company has acquired vehicles primarily pursuant to Repurchase Programs. Repurchase prices under the Repurchase Programs are based on either (i) a specified percentage of original vehicle cost determined by the month the vehicle is returned to the manufacturer or (ii) the original capitalization cost less a set daily depreciation amount. These Repurchase Programs limit the Company's residual risk with respect to vehicles purchased under the programs. This enables the Company to better estimate depreciation expense in advance. The financing requirements for vehicles typically reaches an annual peak during the second and third calendar quarters, as fleet levels build in response to increased rental demand during that period. The typical low point for cash requirements occurs during the end of the fourth quarter and the beginning of the first quarter, coinciding with lower levels of fleet and rental demand. The Company has established methods for disposition of its used vehicles that are not covered by Repurchase Programs. 9 The Company expects that cash flows from operations and funds from available credit facilities will be sufficient to enable the Company to meet its anticipated cash requirements for operating purposes for the next twelve months. The Company also makes capital investments for property improvements and equipment. Capital investments for property improvements and equipment were $42.9 million in 1998, and management estimates such expenditures will approximate $50.0 million in 1999. The Company's customer receivables also provide liquidity with approximately 11 days of daily sales outstanding. The Company has a domestic integrated financing program that provides for up to $3.75 billion in financing for vehicles covered by Repurchase Programs, with up to 25% of the facility available for vehicles not covered by Repurchase Programs. The fleet financing program provides for the issuance of up to $1.5 billion of asset backed variable funding notes (the "Commercial Paper Notes") and $2.25 billion of asset-backed medium term notes (the "Medium Term Notes"). The Commercial Paper Notes and the Medium Term Notes are backed by, among other things, a first priority security interest in the Company's fleet. The Commercial Paper Notes are rated A-1 by Standard & Poor's Ratings Group ("Standard & Poor's") and P-1 by Moody's Investors Services, Inc. ("Moody's"). The Medium Term Notes are supported by a Surety Bond issued by MBIA and rated AAA by Standard & Poor's and Aaa by Moody's. At December 31, 1998, the Company had approximately $2.9 billion of debt outstanding under its fleet financing facilities. In addition, at December 31, 1998, the Company had approximately $818 million of additional credit available for vehicle purchases. Based on current market conditions and the Company's current banking relationships, the Company expects to fund maturities of the Medium Term Notes by the issuance of either new medium term notes or commercial paper depending on market conditions at the time the Medium Term Notes mature. However, the Company can give no assurance that will occur. Avis Rent A Car System, Inc. ("ARACS") is party to a $350 million secured credit agreement (the "Credit Agreement") that provides for (i) a revolving credit facility in the amount of up to $125 million which is available on a revolving basis until December 31, 2001 (the "Final Maturity Date") in order to finance the general corporate needs of ARACS in the ordinary course of business with up to $75 million of such amount available for the issuance of standby letters of credit to support workers' compensation and other insurance and bonding requirements of ARACS, the Company and their subsidiaries, in the ordinary course of business, and (ii) a standby letter of credit facility of up to $225 million available on a revolving basis to fund (a) any shortfall in certain payments owing pursuant to fleet lease agreements and (b) maturing Commercial Paper Notes if such Commercial Paper Notes cannot be repaid through the issuance of additional Commercial Paper Notes or draws under the liquidity facility supporting the Commercial Paper Notes. Borrowings under the Credit Agreement are secured by substantially all of the tangible and intangible assets of the Company, including its intellectual property and its rights under the Master License Agreement, except for those assets which are subject to a negative pledge. At December 31, 1998, the Company had issued letters of credit under the Credit Agreement of $31.9 million to support (i) certain insurance requirements and (ii) certain airport concession agreements and $150.0 million to support its Commercial Paper Notes. Approximately 25% of the Company's outstanding debt at December 31, 1998 was interest rate sensitive and had a weighted-average interest rate of 5.5%. The Company has developed an interest rate management policy, including a target mix for average fixed rate and floating rate indebtedness on a consolidated basis. However, an increase in interest rates may have a material adverse impact on the Company's profitability. During the year, the Company entered into interest rate swap agreements with a notional value of $288.6 million, which reduced its interest rate sensitive debt to 16% (see Note 9 to the audited Consolidated Financial Statements). Borrowings for the Company's international operations consist mainly of loans obtained from local and international banks. All borrowings for international operations are in the local currencies of the 10 countries in which those operations are conducted. The Company guarantees only the borrowings of its subsidiary in Argentina. At December 31, 1998, the total debt for the Company's international operations was $84.6 million, of which $74.9 million was short-term (with original maturity of one year or less). The impact on liquidity and financial condition due to exchange rate fluctuations regarding the Company's foreign operations is not material. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has derivative financial instruments at December 31, 1998 that are sensitive to changes in interest rates on its debt obligations and on its interest rate swap agreements (see Note 9 to the Consolidated Financial Statements). For long-term obligations, the following table presents cash flows and weighted average interest rates by expected maturity dates. The Company has entered into four interest rate swap agreements to reduce the impact of changes in interest rates on certain outstanding current Domestic and Canadian debt obligations. The Company's swap agreements have the effect of changing the interest rate on certain of the Company's current debt from a variable to a fixed rate of interest. The variable interest rates for certain of these interest rate swap agreements are either reset quarterly or daily based upon the average 30-day commercial paper rate for the quarter. Interest is cash settled on a net basis for each agreement quarterly. The U.S. interest rate swap agreement will terminate in October 2001 and the three Canadian swap agreements in August 2003. Under the Canadian swap agreements terminating in August 2003, the counter-party has the right to terminate one of the agreements in August 2000 and one agreement in August 2001. The notional amounts used to calculate the contractual payments to be exchanged under these swap agreements consist of $250 million and $38.6 million for the U.S. and Canada swap agreements, respectively. The weighted average variable payment and receipt rates are based on implied forward rates in the yield curve at December 31, 1998. The weighted average expected payment rates are 4.8%, 4.8%, 4.8%, 5.6% and 5.6% for the years ended December 31, 1999, 2000, 2001, 2002 and 2003, respectively. The weighted average expected receipt rates are 4.9%, 5.0%, 5.1%, 5.2% and 5.4% for the years ended December 31, 1999, 2000, 2001, 2002 and 2003, respectively. The fair value of the interest Rate Swap agreements at December 31, 1998 is approximately $885,000.
EXPECTED MATURITY DATES AS OF DECEMBER 31, 1998 -------------------------------------------------------------------------------------------- FAIR 1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE --------- --------- --------- --------- --------- ----------- ----------- ----------- (IN THOUSANDS) Long-term debt: Fixed rate Medium Term Notes............. $ 800,000 $ 850,000 $ 600,000 $ 2,250,000 $ 2,294,541 Other domestic debt........... $ 1,085 $ 209 $ 227 $ 256 $ 1,777 $ 1,777 Annualized weighted average interest rate............... 8.0% 6.2% 9.3% 6.4% 6.1% Variable Rate Floating rate notes........... $ 9,677 $ 9,677 $ 9,677 Average interest rate......... 6.0%
RESTRICTIONS IMPOSED BY INDEBTEDNESS The agreements with the Company's lenders include a number of significant covenants that, among other things, restrict its ability to dispose of non-fleet assets, incur additional indebtedness, create liens, pay dividends, enter into certain investments or acquisitions, repurchase or redeem capital stock, engage in mergers or consolidations or engage in certain transactions with affiliates, and otherwise restrict corporate activities. Certain of these agreements also require the Company to maintain specified financial ratios. A breach of any of these covenants or the inability of the Company to maintain the required financial ratios could result in a default in respect of the related indebtedness. In the event of a default, the lenders could 11 declare, among other options, the indebtedness, together with accrued interest and other fees, to be immediately due and payable, failing which the lenders could proceed against the collateral securing such indebtedness. As of December 31, 1998, the Company was in compliance with all such covenants related to these agreements. INFLATION The increased acquisition cost of vehicles is the primary inflationary factor affecting the Company's operations. Many of the Company's other operating expenses are inflation sensitive, with increases in inflation generally resulting in increased costs of operations. The effect of inflation-driven cost increases on the Company's overall operating costs is not expected to be greater for the Company than for its competitors. SEASONALITY The Company's third quarter, which covers the peak summer travel months, has historically been its strongest quarter, accounting for approximately 28% and 47% of the Company's revenue and pre-tax income, respectively, in 1998. Any occurrence that disrupts travel patterns during the summer period could have a material adverse effect on the Company's Statements of Operations. The Company's fourth quarter is generally its weakest, when there is limited leisure travel and a greater potential for adverse weather conditions. Many of the Company's operating expenses, such as rent, insurance and personnel, are fixed and cannot be reduced during periods of decreased rental demand. As a result, there can be no assurance that the Company would have sufficient liquidity under all conditions. RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD A recent pronouncement of the Financial Accounting Standards Board which is not required to be adopted at this date, is Statement of Financial Accounting Standards No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES", ("SFAS 133"), which is effective for the Company's consolidated financial statements for the year ending December 31, 2000. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that any entity recognize all derivatives as either assets or liabilities in the statement of financial position at fair value. The Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued a Statement of Position No. 98-5, "ACCOUNTING FOR START-UP COSTS" ("SOP NO. 98-5").The SOP requires that all start-up costs should be expensed as incurred, unless the costs incurred were to acquire or develop tangible assets or to acquire intangible assets from a third party. SOP No. 98-5 is effective for fiscal years beginning after December 15, 1998. The adoption of SFAS 133 and the SOP No. 98-5 are not expected to have a material effect on the Company's consolidated financial statements. YEAR 2000 READINESS DISCLOSURE Many currently installed computer systems and software products are coded to accept only two-digit entries in the date code field and cannot distinguish 21(st) century dates from 20(th) century dates. Consequently, these software and computer systems need to be either reprogrammed, upgraded or replaced in order to properly function when Year 2000 arrives. 12 The Company's state of readiness, contingency plans, Year 2000 costs and possible consequences from Year 2000 problems are as follows: (I) STATE OF READINESS The Company has implemented a comprehensive plan to address the Year 2000 requirements in its mission critical systems. Mission critical systems are those whose failure poses a risk of disruption to the Company's ability to provide vehicle reservation and rental services. The Company's comprehensive plan includes (i) the identification of all mission critical systems and the inventory of all hardware and software affected by the Year 2000; (ii) assessment of these systems including prioritization; (iii) modification, upgrading and replacement of the affected systems; and (iv) testing of the systems. The Company is using both internal and external sources to implement its plan. The Company has completed the remediation of its mission critical systems including the modification, upgrading and replacement of the affected systems. The Company has completed the testing of approximately 50% of these mission critical systems The Company currently believes its mission critical systems will be Year 2000 compliant in the summer of 1999. Much of the Company's technology, including technology associated with its mission critical systems, is purchased from third parties. The Company is dependent on those third parties to assess the impact of Year 2000 on the technology they have supplied and to take any necessary corrective action. The Company is monitoring the progress of these third parties and conducting tests to determine whether they have accurately assessed the problem and taken corrective action. (II) CONTINGENCY PLANS Based upon the progress of its comprehensive plan, the Company expects that it will not experience a disruption of its operations as a result of the change to the Year 2000. However, there can be no assurance that the third parties who have supplied technology used in the Company's mission critical systems will be successful in taking corrective action in a timely manner. The Company is developing contingency plans with respect to certain key technology used in its mission critical systems, which are intended to enable the Company to continue to operate. The contingency plans include performing certain processes manually; repairing systems and changing suppliers if necessary, although there can be no assurance that these contingency plans will successfully avoid service disruption in the reservation and rental of vehicles. The Company believes, that due to the widespread nature of potential Year 2000 issues, the contingency planning process is ongoing, which will require further modifications as the Company obtains additional information regarding (1) the Company's internal systems and equipment during the remediation and testing phases of its Year 2000 comprehensive plan; and (2) the status of third parties Year 2000 readiness. (III) YEAR 2000 COSTS Total costs of hardware and software remediation are expected to be $21.3 million. Costs of hardware and software remediation were approximately $3.0 million in 1997, $8.4 million for the year ended December 31, 1998 and are estimated to be approximately $9.5 million in 1999 and $395,000 in 2000. These estimates include the costs of certain equipment and software for which planned replacement was accelerated due to Year 2000 requirements. In addition, they reflected the cost of redeploying certain internal resources to address the Year 2000 requirements. This estimate assumes that third party suppliers have accurately assessed the compliance of their products and that they will successfully correct the issue in non-compliant products. Because of the complexity of correcting the Year 2000 issue, actual costs may vary from these estimates. The Company expects to finance these costs through internally generated cash flow and existing credit facilities. 13 (IV) POSSIBLE CONSEQUENCES FROM YEAR 2000 PROBLEMS The Company believes that completed and planned modifications and conversions of its internal systems and equipment will allow it to be Year 2000 compliant in a timely manner. There can be no assurance, however, that the Company's internal systems or equipment or those of third parties on which the Company relies will be Year 2000 compliant in a timely manner or that the Company's or third parties' contingency plans will mitigate the effects of any non-compliance. The failure of the systems or equipment of the Company or third parties (which the Company believes is the most reasonably likely worst case scenario) could effect vehicle reservation and rental operations and could have a material adverse effect on the Company's business or consolidated financial statements. FORWARD LOOKING INFORMATION Certain matters discussed in this report that are not historical facts are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties including the impact of competitive products and pricing, changing market conditions, the ability of the Company and its vendors to complete the necessary actions to achieve a Year 2000 conversion for its computer systems and applications, and other risks which were detailed from time to time in the Company's publicly-filed documents, including its Annual Report on Form 10-K for the period ended December 31, 1998. Actual results may differ materially from those projected. These forward-looking statements represent the Company's judgement as of the date of this report. MARKET INFORMATION The Company's Common Stock is listed on the NYSE under the symbol "AVI". The following table sets forth for the period January 1, 1998 to December 31, 1998 the high and low sales price per share of the Common Stock on the NYSE Composite Tape. As of March 22, 1999, there were approximately 7,455 holders of record. No dividends were paid in 1998.
HIGH LOW --------- --------- 1998 Quarters Ended: March 31, 1998............................................................. $ 38.25 $ 27.00 June 30, 1998.............................................................. 33.13 20.00 September 30, 1998......................................................... 28.25 15.25 December 31, 1998.......................................................... 24.50 11.38 1997 December 31, 1997 (from September 24, 1997)................................ 36.56 21.50
14 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Avis Rent A Car, Inc. Garden City, New York We have audited the accompanying consolidated statements of financial position of Avis Rent A Car, Inc. and subsidiaries (successor to Rental Car System Holdings, Inc. and subsidiaries, Avis International, Ltd. and subsidiaries, Avis Enterprises, Inc. and subsidiaries, Pathfinder Insurance Company and Global Excess & Reinsurance, Ltd., all previously wholly-owned by Avis, Inc., collectively the "Predecessor Companies") (collectively referred to as "Avis Rent A Car, Inc." or the "Company") as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 1998 and 1997 and for the period October 17, 1996 (Date of Acquisition) to December 31, 1996 and as to the Predecessor Companies the related consolidated statements of operations, stockholders' equity and cash flows for the period January 1, 1996 to October 16, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years ended December 31, 1998 and 1997 and for the period October 17, 1996 to December 31, 1996 (period after the change in control referred to in Note 1 to the consolidated financial statements), and with respect to the Predecessor Companies for the period January 1, 1996 to October 16, 1996 (period up to the change in control referred to in Note 1 to the consolidated financial statements) in conformity with generally accepted accounting principles. As more fully discussed in Note 1 to the consolidated financial statements, the Predecessor Companies were acquired in a business combination accounted for as a purchase. As a result of the acquisition, the consolidated financial statements for the period subsequent to the acquisition are presented on a different basis of accounting than those for the periods prior to the acquisition and, therefore, are not directly comparable. /s/ Deloitte & Touche New York, New York January 25, 1999 (March 19, 1999 as to Note 21) 15 AVIS RENT A CAR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OCTOBER 17, PREDECESSOR 1996 COMPANIES (DATE OF ----------------- ACQUISITION) YEARS ENDED DECEMBER JANUARY 1, 1996 TO 31, TO DECEMBER 31, -------------------- OCTOBER 16, 1996 1996 1997 1998 ----------------- --------------- --------- --------- Revenue......................... $ 1,504,673 $ 362,844 $2,046,154 $2,297,582 ----------------- --------------- --------- --------- Costs and expenses: Direct operating, net......... 650,750 167,682 863,839 939,986 Vehicle depreciation and lease charges, net................ 358,937 85,455 525,143 593,064 Selling, general and administrative.............. 283,180 68,215 415,728 438,724 Interest, net................. 138,225 38,205 184,261 201,726 Amortization of cost in excess of net assets required...... 3,782 1,026 6,860 11,854 ----------------- --------------- --------- --------- 1,434,874 360,583 1,995,831 2,185,354 ----------------- --------------- --------- --------- Income before provision for income taxes.................. 69,799 2,261 50,323 112,228 Provision for income taxes...... 31,198 1,040 22,850 48,707 ----------------- --------------- --------- --------- Net income...................... $ 38,601 $ 1,221 $ 27,473 $ 63,521 ----------------- --------------- --------- --------- ----------------- --------------- --------- --------- Earnings per share: Basic........................... $ 1.25 $ .04 $ .89 $ 1.86 ----------------- --------------- --------- --------- Diluted......................... $ 1.25 $ .04 $ .88 $ 1.82 ----------------- --------------- --------- --------- ----------------- --------------- --------- ---------
See accompanying notes to the consolidated financial statements. 16 AVIS RENT A CAR, INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, DECEMBER 31, 1997 1998 ------------ ------------ ASSETS Cash and cash equivalents............................................................ $ 44,899 $ 29,751 Restricted cash...................................................................... 106,984 133,284 Accounts receivable, net............................................................. 359,463 360,574 Prepaid expenses..................................................................... 47,360 42,083 Vehicles, net........................................................................ 3,018,856 3,164,816 Property and equipment, net.......................................................... 122,860 145,045 Other assets......................................................................... 40,469 40,590 Deferred income tax assets........................................................... 145,726 120,779 Cost in excess of net assets acquired, net........................................... 396,040 468,140 ------------ ------------ Total assets......................................................................... $4,282,657 $4,505,062 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable..................................................................... $ 329,706 $ 198,481 Accrued liabilities.................................................................. 315,287 326,204 Due to affiliates, net............................................................... 44,512 22,293 Current income tax liabilities....................................................... 22,873 23,045 Deferred income tax liabilities...................................................... 34,106 28,504 Public liability, property damage and other insurance liabilities, net............... 256,029 269,209 Debt................................................................................. 2,826,422 3,014,712 ------------ ------------ Total liabilities................................................................ 3,828,935 3,882,448 ------------ ------------ Commitments and contingencies Stockholders' equity: Preferred stock ($.01 par value 20,000,000 shares authorized; none issued)........... Class A Common stock ($.01 par value, 100,000,000 shares authorized; 35,925,000 issued at December 31, 1998; 30,925,000 shares issued and outstanding at December 31, 1997).......................................................................... 309 359 Additional paid-in capital........................................................... 430,507 591,651 Retained earnings.................................................................... 28,694 92,215 Accumulated other comprehensive loss................................................. (5,788) (10,651) Treasury stock 2,672,700 shares, at cost............................................. (50,960) ------------ ------------ Total stockholders' equity....................................................... 453,722 622,614 ------------ ------------ Total liabilities and stockholders' equity........................................... $4,282,657 $4,505,062 ------------ ------------ ------------ ------------
See accompanying notes to the consolidated financial statements. 17 AVIS RENT A CAR, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ADDITIONAL COMPREHENSIVE COMMON PAID-IN RETAINED INCOME STOCK CAPITAL EARNINGS --------------- ----------- ----------- ----------- Balance, January 1, 1996.................................................... $ 2,977 $ 344,531 $ 340,596 Net income.................................................................. $ 38,601 38,601 Tax benefit of ESOP income tax deduction.................................... 12,939 Foreign currency translation adjustment..................................... 1,711 Cash dividends.............................................................. (1,398) ------- ----------- ----------- ----------- Comprehensive income........................................................ $ 40,312 ------- ------- Balance, October 16, 1996................................................... $ 2,977 $ 357,470 $ 377,799 ----------- ----------- ----------- ----------- ----------- ----------- Avis Rent A Car, Inc. ($.01 par value 100,000,000 shares of Class A Common Stock authorized; 8,500,000 shares of Common Stock outstanding at October 17, 1996 (Date of Acquisition) after restatement for a 85,000 to 1 stock split on September 24,1997................................................ $ 85 $ 74,915 Net income.................................................................. $ 1,221 $ 1,221 Foreign currency translation adjustment..................................... 217 Additional minimum pension charge........................................... (23) ------- ----------- ----------- ----------- Comprehensive income........................................................ $ 1,415 ------- ------- Balance, December 31, 1996.................................................. 85 74,915 1,221 Net income.................................................................. $ 27,473 27,473 Sale of Class A Common Stock ($.01 par value) through an initial public offering of 22,425,000 shares of Common Stock on September 24, 1997....... 224 355,592 Foreign currency translation adjustment..................................... (5,761) Additional minimum pension charge........................................... (221) ------- ----------- ----------- ----------- Comprehensive income........................................................ $ 21,491 ------- ------- Balance, December 31, 1997.................................................. 309 430,507 28,694 Net income.................................................................. $ 63,521 63,521 Sale of Class A Common Stock ($.01 par value) through a public offering of 5,000,000 shares of Common Stock on March 23, 1998........................ 50 161,144 Purchases of Treasury stock, 2,672,700 shares, at cost...................... Foreign currency translation adjustment..................................... (3,374) Additional minimum pension charge........................................... (1,489) ------- ----------- ----------- ----------- Comprehensive income........................................................ $ 58,658 ------- ------- Balance, December 31, 1998.................................................. $ 359 $ 591,651 $ 92,215 ----------- ----------- ----------- ----------- ----------- ----------- ACCUMULATED OTHER COMPREHENSIVE TREASURY INCOME/(LOSS) STOCK TOTAL -------------- ----------- --------- Balance, January 1, 1996.................................................... $ 156 $ 688,260 Net income.................................................................. 38,601 Tax benefit of ESOP income tax deduction.................................... 12,939 Foreign currency translation adjustment..................................... 1,711 1,711 Cash dividends.............................................................. (1,398) -------------- --------- Comprehensive income........................................................ Balance, October 16, 1996................................................... $ 1,867 $ 740,113 -------------- --------- -------------- --------- Avis Rent A Car, Inc. ($.01 par value 100,000,000 shares of Class A Common Stock authorized; 8,500,000 shares of Common Stock outstanding at October 17, 1996 (Date of Acquisition) after restatement for a 85,000 to 1 stock split on September 24,1997................................................ $ 75,000 Net income.................................................................. 1,221 Foreign currency translation adjustment..................................... $ 217 217 Additional minimum pension charge........................................... (23) (23) -------------- --------- Comprehensive income........................................................ Balance, December 31, 1996.................................................. 194 76,415 Net income.................................................................. 27,473 Sale of Class A Common Stock ($.01 par value) through an initial public offering of 22,425,000 shares of Common Stock on September 24, 1997....... 355,816 Foreign currency translation adjustment..................................... (5,761) (5,761) Additional minimum pension charge........................................... (221) (221) -------------- --------- Comprehensive income........................................................ Balance, December 31, 1997.................................................. (5,788) 453,722 Net income.................................................................. 63,521 Sale of Class A Common Stock ($.01 par value) through a public offering of 5,000,000 shares of Common Stock on March 23, 1998........................ 161,194 Purchases of Treasury stock, 2,672,700 shares, at cost...................... $ (50,960) (50,960) Foreign currency translation adjustment..................................... (3,374) (3,374) Additional minimum pension charge........................................... (1,489) (1,489) -------------- ----------- --------- Comprehensive income........................................................ Balance, December 31, 1998.................................................. $ (10,651) $ (50,960) $ 622,614 -------------- ----------- --------- -------------- ----------- ---------
See accompanying notes to the consolidated financial statements. 18 AVIS RENT A CAR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PREDECESSOR COMPANIES OCTOBER 17, 1996 --------------------- (DATE OF YEARS ENDED JANUARY 1, 1996 ACQUISITION) DECEMBER 31, TO TO ---------------------- OCTOBER 16, 1996 DECEMBER 31, 1996 1997 1998 --------------------- ------------------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income..................................... $ 38,601 $ 1,221 $ 27,473 $ 63,521 Adjustments to reconcile net income to net cash provided by operating activities: Vehicle depreciation......................... 306,159 71,343 466,799 581,022 Depreciation and amortization of property and equipment.................................... 12,333 2,212 11,791 13,191 Amortization of other non-revenue producing assets....................................... 6,205 1,026 11,231 23,559 Deferred income tax provision................ 22,342 33 9,161 38,457 Undistributed (earnings) losses of associated companies.................................... (232) 146 Provision for doubtful accounts receivable... 1,238 227 3,208 2,961 Provision for public liability, property damage and other insurance liabilities, net.......................................... 17,745 1,340 25,574 13,687 Changes in operating assets and liabilities: Restricted cash.............................. (535) 724 (76,596) (26,300) Accounts receivable.......................... (204,137) 10,327 (15,201) (14,045) Prepaid expenses............................. (2,125) (2,664) 3,914 6,848 Other assets................................. 2,391 (2,754) (8,915) (6,069) Accounts payable............................. 82,354 (18,712) 152,777 (23,148) Accrued liabilities.......................... 101,069 (24,718) (84,150) (2,475) Due to (from) affiliates..................... (137,196) (3,796) 53,761 (18,320) ----------- ---------- ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES.... 246,212 35,809 580,973 652,889 ----------- ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for vehicle additions............... (2,325,460) (561,117) (4,406,183) (4,303,048) Vehicle deletions............................ 1,795,562 565,896 3,382,177 3,610,721 Payments for additions to property and equipment.................................... (25,953) (3,484) (24,733) (42,933) Retirements of property and equipment........ 1,849 361 3,971 5,302 Payments for purchase of licensees........... (3,134) (199,381) (237,182) ----------- ---------- ---------- ---------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES................................... (557,136) 1,656 (1,244,149) (967,140) ----------- ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from public offerings, net............ 359,316 161,194 Purchases of treasury stock.................... (50,960) Changes in debt: Proceeds..................................... 519,167 63,903 3,381,173 1,217,289 Repayments................................... (267,317) (133,457) (3,031,885) (1,023,432) ----------- ---------- ---------- ---------- Net increase (decrease) in debt.............. 251,850 (69,554) 349,288 193,857 Intercompany debt.............................. 109,500 (2,865) Payments for debt issuance costs............... (2,604) (29,302) (4,654) Cash dividends................................. (1,398) ----------- ---------- ---------- ---------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................................... 357,348 (72,419) 679,302 299,437 ----------- ---------- ---------- ---------- Effect of exchange rate changes on cash........ 260 94 (945) (334) ----------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents.................................. 46,684 (34,860) 15,181 (15,148) Cash and cash equivalents at beginning of period....................................... 17,894 64,578 29,718 44,899 ----------- ---------- ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD..... $ 64,578 $ 29,718 $ 44,899 $ 29,751 ----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest..................................... $ 135,733 $ 28,170 $ 189,086 $ 209,977 ----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- Income taxes................................. $ 6,220 $ 827 $ 8,899 $ 13,338 ----------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
See accompanying notes to the consolidated financial statements. 19 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements include Avis Rent A Car, Inc. (name changed from and formerly known as Rental Car System Holdings, Inc. which was incorporated on October 17, 1996) and subsidiaries (including the carved out corporate operations of HFS Car Rental, Inc. (name changed from and formerly known as, and hereinafter referred to as, Avis, Inc.), which is the holding company of Rental Car System Holdings, Inc., and Prime Vehicles Trust (the "Vehicle Trust")), Avis International, Ltd. and subsidiaries, Avis Enterprises, Inc. and subsidiaries, Pathfinder Insurance Company and Global Excess & Reinsurance, Ltd. (collectively referred to as "Avis Rent A Car, Inc."). All of the foregoing companies were ultimately wholly-owned subsidiaries of Avis, Inc., which was acquired by Cendant Corporation (formerly HFS Incorporated ("Cendant")) on October 17, 1996 (the "Date of Acquisition") for approximately $806.5 million (the "Acquisition"). The purchase price was comprised of approximately $367.2 million in cash, $100.9 million of indebtedness and $338.4 million of common stock. Prior to October 17, 1996, the above-named entities were wholly-owned by Avis, Inc. and are referred to collectively as the "Predecessor Companies". Avis Rent A Car, Inc. and the Predecessor Companies are referred to throughout the notes to the consolidated financial statements as the "Company". Prior to the Acquisition, the major shareholder of Avis, Inc. was an Employee Stock Ownership Plan ("ESOP") and the minority shareholder was General Motors Corporation ("General Motors"). The Company purchases a significant portion of its vehicles, and receives certain financial incentives and allowances from General Motors (see Notes 4, 6, and 19). As a result of the Acquisition, the consolidated financial statements for the period subsequent to the Acquisition are presented on a different basis of accounting than those for the periods prior to the Acquisition and, therefore, are not directly comparable. On January 1, 1997, Avis, Inc. contributed the net assets of its corporate operations and all of its common stock ownership in Avis International, Ltd. and subsidiaries, Avis Enterprises, Inc. and subsidiaries, Pathfinder Insurance Company and Global Excess & Reinsurance, Ltd. to the Company. After the transfer, the remaining operations of Avis, Inc. consist of an investment in a wholly-owned subsidiary which owns the Avis trade names and trademarks. Pursuant to a plan developed by Cendant prior to the Date of Acquisition, Cendant caused the Company to undertake an initial public offering ("IPO"). On September 24, 1997, the Company issued and sold 22,425,000 shares of its common stock through such IPO and received net proceeds of $359.3 million. On March 23, 1998, the Company sold 5,000,000 shares of its common stock through a public offering (the "Offering") and received net proceeds of approximately $161 million. In addition, in the Offering on March 23, 1998, Cendant reduced its ownership of the Company by selling 1,000,000 shares of the Company's common stock and retained the net proceeds. As a result of the IPO, the Offering on March 23, 1998 and the repurchase of 2,672,700 shares of treasury stock by the Company during 1998, Cendant's equity interest in the Company at January 23, 1999 is approximately 20% (see Notes 12 and 21). The Company has used the net proceeds from these offerings to (i) acquire certain Avis System franchises (see Note 2) and (ii) for working capital and general corporate purposes, including the repayment of certain indebtedness. A Cendant subsidiary owns and operates the reservation system as well as the telecommunications and computer processing systems which service the rental car operations for reservations, rental agreement processing, accounting and vehicle control. Cendant is reimbursed for such services at cost (see Note 5). In addition, a Cendant subsidiary charges the Company a royalty fee for the use of the Avis trade name (see Note 5). The acquisition of the Company by Cendant was accounted for under the purchase method and includes the operations of the Company subsequent to the Date of Acquisition. A portion of the purchase price has been allocated to the fair value of the Company. This fair value was calculated on the basis that 20 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) the Company is an independent franchisee of Avis, Inc. and is required to pay certain fees for use of the Avis trade name, reservation services and other franchise related services. The fair value of the Company has been allocated to individual assets and liabilities based on their fair value at the Date of Acquisition. The purchase cost allocation at the Date of Acquisition has been allocated to the Company as follows (in thousands): Allocated purchase cost......................................... $ 75,000 --------- Fair value of: Liabilities assumed........................................... 3,215,677 Assets acquired............................................... 3,059,186 --------- Net liabilities................................................. 156,491 --------- Cost in excess of net assets acquired........................... $ 231,491 --------- ---------
Certain prior year amounts have been reclassified so that the consolidated financial statements are comparable with the current year. PRINCIPLES OF CONSOLIDATION All material intercompany accounts and transactions have been eliminated. ACCOUNTING ESTIMATES Generally accepted accounting principles require the use of estimates, which are subject to change, in the preparation of financial statements. Significant accounting estimates used include estimates for determining public liability, property damage and other insurance liabilities, and the realization of deferred income tax assets. However, actual results may differ. REVENUE RECOGNITION Revenue is recognized over the period the vehicle is rented. CASH AND CASH EQUIVALENTS The Company considers unrestricted deposits and short-term investments with an original maturity date of three months or less to be cash equivalents. RESTRICTED CASH Restricted cash includes cash and short-term investments that are not readily available for normal company disbursements. Certain amounts have been set aside as required under the Company's debt covenants and to satisfy insurance related and other commitments of the Company. VEHICLES, NET Vehicles are stated at cost, net of accumulated depreciation, incentives and allowances. In accordance with industry practice, when vehicles are sold, gains or losses are reflected as an adjustment to depreciation. Vehicles are generally depreciated at rates ranging from 10% to 25% per annum. Manufacturers 21 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) provide the Company with incentives and allowances (such as rebates and volume discounts) which are amortized to income over the holding periods of the vehicles. PROPERTY AND EQUIPMENT, NET Property and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful life of the assets. Estimated useful lives range from five to ten years for furniture, fixtures and equipment, to thirty years for buildings. Leasehold improvements are amortized over the shorter of twenty years or the remaining life of the lease. Maintenance and repairs are expensed; renewals and improvements are capitalized. When depreciable assets are retired or sold, the cost and related accumulated depreciation are removed from the accounts with any resulting gain or loss reflected in the consolidated statement of operations. COST IN EXCESS OF NET ASSETS ACQUIRED, NET Cost in excess of net assets acquired is amortized over a 40 year period and is shown net of accumulated amortization of $7.9 million and $19.7 million at December 31, 1997 and 1998, respectively. IMPAIRMENT ACCOUNTING The Company reviews the recoverability of its long-lived assets, including cost in excess of net assets acquired, when events or changes in circumstances occur that indicate that the carrying value of the assets may not be recoverable. The measurement of possible impairment is based on the Company's ability to recover the carrying value of the asset from the expected future pre-tax undiscounted cash flows generated. The measurement of impairment requires management to use estimates of expected future cash flows. If an impairment loss existed, the amount of the loss would be recorded under the caption costs and expenses in the consolidated statements of operations. It is at least reasonably possible that future events or circumstances could cause these estimates to change. PUBLIC LIABILITY, PROPERTY DAMAGE AND OTHER INSURANCE LIABILITIES, NET Insurance liabilities on the accompanying consolidated statements of financial position include additional liability insurance, personal effects protection insurance, public liability and property damage ("PLPD") and personal accident insurance claims for which the Company is self-insured. The Company is self-insured up to $1 million per claim under its automobile liability insurance program for PLPD and additional liability insurance. Costs in excess of $1 million per claim are insured under various contracts with commercial insurance carriers. The liability for claims up to $1 million is estimated based on the Company's historical loss and loss adjustment expense experience, which is adjusted for current trends. The insurance liabilities include a provision for both claims reported to the Company as well as claims incurred but not yet reported to the Company. This method is an actuarially accepted loss reserve method. Adjustments to this estimate and differences between estimates and the amounts subsequently paid are reflected in the Consolidated Statements of Operations as they occur. FOREIGN CURRENCY TRANSLATION The assets and liabilities of foreign companies are translated at year-end exchange rates. Results of operations are translated at the average rates of exchange in effect during the year. The resultant 22 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) translation adjustment is included as a component of comprehensive income within consolidated stockholders' equity. INCOME TAXES Effective September 30, 1997, the Company files a U.S. consolidated federal income tax return. The Company has adopted the calendar year as its fiscal year. The Company files separate income tax returns in states where a consolidated return is not permitted. The Company was included in the consolidated federal income tax return of Cendant through September 29, 1997. Pursuant to the regulations under the Internal Revenue Code, the Company's pro rata share of the consolidated federal income tax liability of Cendant was allocated to the Company on a separate return basis. The Predecessor Companies were included in the consolidated federal income tax return of Avis, Inc. In accordance with Statement of Financial Accounting Standards No. 109, "ACCOUNTING FOR INCOME TAXES" ("SFAS 109"), deferred income tax assets and liabilities are measured based upon the difference between the financial accounting and tax basis of assets and liabilities. PENSIONS Costs of the defined benefit plans are actuarially determined under the projected unit credit cost method and include amounts for current service and interest on projected benefit obligations and plan assets. The Company's policy is to fund at least the minimum contribution amount required by the Employee Retirement Income Security Act of 1974. ADVERTISING Advertising costs are expensed as incurred. Advertising costs were $66.1 million, $10.3 million, $65.6 million and $77.7 million for the periods ended October 16, 1996, December 31, 1996, 1997, and 1998, respectively. ENVIRONMENTAL COSTS The Company's operations include the storage and dispensing of gasoline. The Company accrues losses associated with the remediation of accidental fuel discharges when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries from insurance companies and other reimbursements are generally not significant. RECENT ACCOUNTING PRONOUNCEMENTS Recent pronouncements of the Financial Accounting Standards Board, which were adopted for the year ended December 31, 1998 are Financial Accounting Standards No. 130, "REPORTING COMPREHENSIVE INCOME" (see Note 11), and No. 132 "EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS" (see Note 13). The adoption of these accounting standards has not had a material effect on the results of operations or the financial position of the Company. 23 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A recent pronouncement of the Financial Accounting Standards Board which is not required to be adopted at this date, is Statement of Financial Accounting Standards No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS 133"), which is effective for the Company's consolidated financial statements for the year ending December 31, 2000. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that any entity recognize all derivatives as either assets or liabilities in the statement of financial position at fair value. The Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position No. 98-5, "ACCOUNTING FOR START-UP COSTS" ("SOP 98-5"). SOP 98-5 requires that all start-up costs should be expensed as incurred, unless the costs incurred were to acquire or develop tangible assets or to acquire intangible assets from a third party. The SOP is effective for fiscal years beginning after December 15, 1998. The adoption of SFAS 133 and SOP 98-5 is not expected to have a material effect on the results of the Company's consolidated financial statements. NOTE 2--ACQUISITIONS (continued) On May 1, 1998, the Company acquired the assets of the car rental business of Hayes Leasing Company, Inc., including the Avis System franchises for the cities of Austin, Fort Worth and San Antonio, and the counties of Dallas and Tarrant, Texas for approximately $86 million in cash plus the refinancing of fleet-related indebtedness, which totaled approximately $136 million for a total purchase price of approximately $222 million. In addition, during the year ended December 31, 1998, the Company purchased the assets of several other Avis System franchises for approximately $15 million in cash. If these Acquisitions had occurred on January 1, 1998 or 1997, they would not have had a material impact on the Company's results of operations. The excess purchase price over the net assets acquired for these acquisitions was approximately $90 million. The following is the preliminary purchase cost allocation for the acquisition of the assets of Hayes Leasing Company, Inc. and other Avis System franchises during the year ended December 31, 1998 mentioned above (in thousands): Purchase cost..................................................... $ 237,182 --------- Fair value of: Assets acquired................................................. 153,828 Liabilities assumed............................................. (6,967) --------- Net assets........................................................ 146,861 --------- Cost in excess of net assets acquired............................. $ 90,321 --------- ---------
On August 20, 1997, the Company purchased The First Gray Line Corporation. On September 18, 1997, the Company purchased certain assets and repurchased the franchise rights of another Avis System franchisee. These acquisitions had an aggregate purchase cost of approximately $199 million. The excess purchase cost over net assets acquired was approximately $173 million. 24 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2--ACQUISITIONS (CONTINUED) - -------------------------------- The following is the purchase cost allocation for these 1997 acquisitions mentioned above (in thousands): Purchase cost..................................................... $ 199,381 --------- Fair value of: Assets acquired................................................. 354,637 Liabilities assumed............................................. 328,269 --------- Net assets........................................................ 26,368 --------- Cost in excess of net assets acquired............................. $ 173,013 --------- ---------
The preliminary purchase cost allocations for certain acquisitions are subject to adjustment when additional information concerning asset and liability valuations are obtained. The final asset and liability fair values may differ from those set forth in the accompanying statement of financial position at December 31, 1998. However, the changes are not expected to have a material effect on the financial position of the Company. These acquisitions have been accounted for by the purchase method. The financial statements include the operating results of these acquisitions subsequent to their respective dates of acquisition. The acquisition of the franchise rights of the additional Avis System franchisee, if it had occurred on January 1, 1997, would not have had a material impact on the results of operations of the Company. The following unaudited pro forma information presents the results of operations of the Company, which assumes that the following transactions had occurred on January 1 of each period presented: (i) the acquisition of the Company by Cendant and the establishment of a franchisor/franchisee relationship, (ii) the acquisition of First Gray Line and (iii) the repayment of debt with the net proceeds (after the purchase of First Gray Line) from the IPO (in thousands, except earnings per share amounts):
1996 1997 ------------ ------------ Revenue........................................................... $ 2,055,519 $ 2,175,897 ------------ ------------ ------------ ------------ Net income........................................................ $ 8,567 $ 39,432 ------------ ------------ ------------ ------------ Basic earnings per share.......................................... $ .28 $ 1.28 ------------ ------------ ------------ ------------ Diluted earnings per share........................................ $ .28 $ 1.26 ------------ ------------ ------------ ------------
NOTE 3--RESTRICTED CASH At December 31, 1997 and 1998, restricted cash includes an escrow amount of $66,000,000 and $90,000,000, respectively, as required under the Company's debt agreements, to provide additional credit enhancement on the Company's Medium Term Notes (the "Medium Term Notes") (see Note 9). In addition, restricted cash includes amounts relating to lease obligations of the Company's Canadian vehicle financing arrangements, amounts set aside to satisfy certain claims under the Company's self-insurance programs and other obligations of the Company. 25 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4--ACCOUNTS RECEIVABLE, NET Accounts receivable, net at December 31, 1997 and 1998 consist of the following (in thousands):
1997 1998 ---------- ---------- Vehicle rentals....................................................... $ 102,697 $ 104,032 Due from General Motors............................................... 166,941 161,377 Vehicle related....................................................... 52,450 65,586 Damage claims......................................................... 11,938 14,710 Due from licensees.................................................... 4,361 1,571 Other................................................................. 23,362 16,648 ---------- ---------- 361,749 363,924 Less allowance for doubtful accounts.................................. (2,286) (3,350) ---------- ---------- $ 359,463 $ 360,574 ---------- ---------- ---------- ----------
Vehicle related amounts include receivables for vehicles sold under guaranteed repurchase contracts ("Repurchase Programs") and amounts due for incentives and allowances. Incentives and allowances are based on all of the following: the volume of vehicles to be purchased for a model year, the manufacturers' willingness to encourage the Company to retain vehicles rather than return the vehicles back to the manufacturer and the purchase of particular models not subject to repurchase under "buyback" arrangements. Incentives and allowances are amortized to income over the average holding period of the vehicles (see Notes 6 and 19). NOTE 5--DUE TO AFFILIATES, NET Due to affiliates, net at December 31, 1997 and 1998 consist of non-interest bearing advances due Cendant or its consolidated subsidiaries of $44.5 million and $22.3 million, respectively. Non-interest bearing advances represents intercompany transactions relating primarily to royalty fees, reservation processing, data processing and management, service and administrative fees. Expense and (income) items of the Company include the following charges from (to) Avis, Inc. and subsidiaries prior to the Date of Acquisition for the period ended October 16, 1996 (in thousands):
JANUARY 1, 1996 TO OCTOBER 16, 1996 --------------- Vehicle related costs............................................................................ $ (25,134) Data processing.................................................................................. 30,209 Employee benefits allocation..................................................................... (2,776) Rent............................................................................................. (2,459) --------------- $ (160) --------------- ---------------
26 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5--DUE TO AFFILIATES, NET (CONTINUED) Expense items of the Company include the following charges from Cendant and affiliates of Cendant for the period October 17, 1996 (Date of Acquisition) to December 31, 1996 and for the years ended December 31, 1997 and 1998 (in thousands):
OCTOBER 17, 1996 TO YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996 1997 1998 --------------- ------------ ------------ Royalty fee.................................... $ -- $ 81,846 $ 91,904 Reservations................................... 10,900 43,240 49,872 Data processing................................ 8,772 41,896 35,844 Management, service and administrative fees and other........................................ 12,079 4,927 4,648 ------- ------------ ------------ $ 31,751 $ 171,909 $ 182,268 ------- ------------ ------------ ------- ------------ ------------
These charges seek to reimburse the affiliated company for the actual costs incurred. They are determined in accordance with various intercompany agreements and include certain allocations which are based upon such factors as square footage, employee salaries, computer usage time, etc. Effective January 1, 1997, Cendant charged the Company a royalty fee of 4.0% of revenue for the use of the Avis trade name. The royalty fee of 4.0% consists of a base royalty of 3.0% of the Company's gross revenue and a supplemental royalty of 1.0% of gross revenue payable quarterly in arrears (which will increase 0.1% per year commencing July 30, 1999 and each of the following four years thereafter to a maximum of 1.5% until July 30, 2003). The supplemental royalty or a portion thereof may be deferred if the Company does not meet certain financial targets. In addition, for the year ended December 31, 1998, the Company was charged by Cendant approximately $3.8 million for certain software developed for internal use, which have been capitalized on the accompanying Consolidated Statements of Financial Position. Under the Computer Services Agreement with Cendant dated July 30, 1997, software developed for the Company's internal use is charged to the Company at Cendant's cost. NOTE 6--VEHICLES, NET Vehicles at December 31, 1997 and 1998 consist of the following (in thousands):
1997 1998 ------------ ------------ Rental vehicles....................................................................... $ 3,173,526 $ 3,443,385 Buses and support vehicles............................................................ 55,761 67,786 Vehicles held for sale................................................................ 51,645 21,871 ------------ ------------ 3,280,932 3,533,042 Less accumulated depreciation......................................................... (262,076) (368,226) ------------ ------------ $ 3,018,856 $ 3,164,816 ------------ ------------ ------------ ------------
Depreciation expense recorded for vehicles was $275.9 million, $66.8 million, $460.6 million and $576.2 million for the periods ended October 16, 1996, December 31, 1996, 1997, and 1998, respectively. Depreciation expense is stated net of amortization of certain incentives and allowances from various 27 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6--VEHICLES, NET (CONTINUED) vehicle manufacturers of approximately $67.6 million, $15.6 million, $119 million and $107 million for the periods ended October 16, 1996, December 31, 1996, 1997 and 1998, respectively. Depreciation expense also reflects a net gain (loss) on the disposal of vehicles of $23.7 million, $2.9 million, $7.0 million and $(6.8) million for the periods ended October 16, 1996, December 31, 1996, 1997, and 1998, respectively. In April 1990 and December 1994, the Company entered into seven year operating leases. Rental expense for those vehicles under the Company's operating lease agreements was $93.0 million, $16.1 million, and $58.4 million for the periods ended October 16, 1996, December 31, 1996 and 1997, respectively. These leases were terminated on July 31, 1997 and refinanced under a domestic integrated fleet financing program (see Note 9). NOTE 7--PROPERTY AND EQUIPMENT, NET Property and equipment at December 31, 1997 and 1998 consist of the following (in thousands):
1997 1998 ---------- ---------- Land.................................................................. $ 25,269 $ 23,726 Buildings............................................................. 12,775 8,655 Leasehold improvements................................................ 64,779 87,830 Furniture, fixtures and equipment..................................... 13,456 16,869 Construction-in-progress.............................................. 18,714 32,236 ---------- ---------- 134,993 169,316 Less accumulated depreciation and amortization........................ (12,133) (24,271) ---------- ---------- $ 122,860 $ 145,045 ---------- ---------- ---------- ----------
NOTE 8--ACCRUED LIABILITIES Accrued liabilities at December 31, 1997 and 1998 consist of the following (in thousands):
1997 1998 ---------- ---------- Payroll and related costs............................................. $ 101,962 $ 103,043 Taxes, other than income taxes........................................ 9,229 9,349 Rents and property related............................................ 35,644 22,241 Interest.............................................................. 7,294 6,140 Sales and marketing................................................... 24,672 43,704 Vehicle related....................................................... 25,475 27,102 Other................................................................. 111,011 114,625 ---------- ---------- $ 315,287 $ 326,204 ---------- ---------- ---------- ----------
28 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9--FINANCING AND DEBT Debt outstanding at December 31, 1997 and 1998 consist of the following (in thousands):
1997 1998 ------------ ------------ Commercial Paper Notes (at an average rate of 5.9% in 1997 and 5.6% in 1998)................................................... $ 1,091,800 $ 678,377 Short-term notes-foreign at 5.77% to 13.5% in 1997 and 5.0% to 12.0% in 1998................................................... 17,996 17,904 Floating rate notes at rates from 5.42% to 5.63%.................. 56,977 Current portion of long-term debt................................. 49,644 1,085 ------------ ------------ Total current debt.............................................. 1,159,440 754,343 Medium Term Notes due July 2000 at 6.22%.......................... 800,000 800,000 Medium Term Notes due July 2002 at 6.40%.......................... 850,000 850,000 Medium Term Notes due February 2005 at 6.14%...................... 600,000 Foreign floating rate notes due July 2000 at rates from 5.81% to 7.02% in 1997 and 5.69% to 6.21% in 1998........................ 15,205 9,677 Other debt........................................................ 1,777 692 ------------ ------------ $ 2,826,422 $ 3,014,712 ------------ ------------ ------------ ------------
On July 31, 1997, the Company through Avis Rent A Car System, Inc. ("ARACS") entered into a domestic integrated fleet financing program that provided for up to $3.65 billion in financing for vehicles covered by Repurchase Programs, with up to 25% of the facility available for vehicles not covered by Repurchase Programs. As of December 31, 1998, the availability of the domestic integrated fleet financing program is $3.75 billion. The domestic integrated fleet financing program provides for the issuance of up to $1.5 billion of asset-backed variable funding notes (the "Commercial Paper Notes") and $2.25 billion of asset backed medium term notes (The "Medium Term Notes"). The Commercial Paper Notes and the Medium Term Notes are backed by a first priority security interest in the Company's fleet. Additional credit enhancement was provided for the Medium Term Notes by establishing an escrow account in the amounts of $66 million and $90 million, which is included in "Restricted Cash" (see Note 3) on the accompanying Consolidated Statements of Financial Position at December 31, 1997 and 1998, respectively. The weighted average interest rate on commercial paper was 5.5% for the year ended December 31, 1998. Average commercial paper borrowings during 1998 amounted to $809.7 million. As part of the acquisition of The First Gray Line Corporation (see Notes 1 and 2), the Company assumed a $200 million vehicle financing facility between Grand Rent A Car, Inc. (a subsidiary of The First Gray Line Corporation) and Atlantic Asset Securitization Corporation, under a credit agreement originally dated as of September 15, 1995. This agreement provided for the financing of vehicles used in The First Gray Line Corporation's rental business, and expired on August 15, 1998. At December 31, 1997 under this credit agreement, there was $115 million outstanding and included in Commercial Paper Notes. The weighted average interest rate and average borrowing under this credit agreement was 5.7% and $171.1 million respectively for the period August 20, 1997 to December 31, 1997. The credit facility was maintained until July 31, 1998, when it was terminated. For the period January 1, 1998, to July 31, 1998, the weighted average interest rate and average borrowing under this credit facility was 5.6% and $58.1 million, respectively. 29 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9--FINANCING AND DEBT (CONTINUED) On July 31, 1997, ARACS entered into a $470 million secured credit facility (the "Credit Facility") which is guaranteed by the Company and certain of ARACS' subsidiaries. The Credit Facility was reduced to $350 million with the repayment of a $120 million term loan on December 1, 1997. The following is a summary of the material terms and conditions of the Credit Facility: The Credit Facility consists of (i) a revolving credit facility in the amount of up to $125 million and is available on a revolving basis until December 31, 2001 in order to finance the working capital needs of ARACS in the ordinary course of business (with up to $75 million of such amount available for the issuance of standby letters of credit to support worker's compensation and other insurance and bonding requirements of ARACS, the Company and its subsidiaries in the ordinary course of business), (ii) a 364 day standby letter of credit facility of $225 million available on a revolving basis until April 29, 1999 to fund (a) any shortfall in certain payments owing to AESOP Leasing, a subsidiary of ARACS pursuant to fleet agreements and (b) maturing Commercial Paper Notes if such Commercial Paper Notes cannot be repaid through the issuance of additional Commercial Paper Notes or draws under the liquidity facility supporting the Commercial Paper Notes. In addition, up to $75 million of the $225 million is available on a revolving basis to finance the working capital needs of ARACS in the ordinary course of business. For the period July 31, 1997 through December 1, 1997, the average outstanding borrowings on this facility were $74.6 million with a weighted average interest rate of 8%. At December 31, 1998, the Company had issued letters of credit of $31.9 million under the $125 million revolving credit facility and $150 million under the $225 million standby letter of credit facility. At December 31, 1998 there were no loans outstanding under either facility. Interest accrues on borrowings outstanding under the Credit Facility at a rate equal to at the option of ARACS, (A) the sum of (i) the highest of (a) the rate of interest publicly announced by Chase Securities Inc. as its prime rate in effect at its principal office in New York City, or (b) the secondary market rate for three-month certificates of deposit (adjusted for statutory reserve requirements) plus 1% or (c) the federal funds effective rate from time to time plus 0.5% and (ii) an applicable margin; or (B) the sum of (i) the rate (adjusted for statutory reserve requirements) at which eurodollar deposits for one, two, three or six months (as selected by ARACS) are offered in the interbank eurodollar market and (ii) an applicable margin. The Credit Facility is secured by the tangible and intangible assets of ARACS and the Company (including, without limitation, its intellectual property, its rights under the Master License Agreement and related agreements, real property and all of the capital stock or equivalent equity ownership interests of ARACS and each of its direct and indirect domestic subsidiaries and 65% of ARACS first-tier foreign subsidiaries), except for those assets which are subject to a negative pledge or as to which the agents for the Credit Facility shall determine in their sole discretion that the costs of obtaining such a security interest are excessive in relation to the value of the security to be afforded thereby. The weighted-average interest rates of the short-term notes-foreign as of December 31, 1997 and 1998 were 8.7% and 6.0%, respectively. Prior to July 31, 1997, the primary source of funding the Company's domestic vehicles was provided by a Vehicle Trust. The annualized weighted average interest rates for Vehicle Trust financing for the periods ended October 16, 1996, December 31, 1996 and 1997 were 6.6%, 6.5% and 6.6%, respectively. 30 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9--FINANCING AND DEBT (CONTINUED) The agreements with the Company's lenders include a number of significant covenants that, among other things, restrict its ability to dispose of non-fleet assets, incur additional indebtedness, create liens, prohibit the payment of dividends, enter into certain investments or acquisitions, repurchase or redeem capital stock, engage in mergers or consolidations or engage in certain transactions with affiliates and otherwise restrict corporate activities. Certain of these agreements also require the Company to maintain specified financial ratios. As of December 31, 1998, the Company was in compliance with all such covenants related to these agreements. Mandatory maturities of long-term obligations, including current maturities, for each of the next five years ending December 31, and thereafter, are as follows (in thousands): 1999.............................................. $ 1,085 2000.............................................. 809,886 2001.............................................. 227 2002.............................................. 850,220 2003.............................................. 36 Thereafter........................................ 600,000
OTHER CREDIT FACILITIES At December 31, 1998, in addition to the Credit Facility previously described, the Company has available letters of credit/overdraft agreements for its international operations totaling $29.8 million, which may be renewed annually at the Company's option and the banks' discretion. The collateral for certain of these agreements consists of a pledge of certain cash balances in the amount of $25 million, which are included in "Restricted Cash" on the accompanying Consolidated Statements of Financial Position at December 31, 1998. At December 31, 1998, the Company has outstanding letters of credit under these facilities totaling $26.7 million. In addition, for certain of its international operations, the Company has available unused lines of credit totaling $227.1 million. At December 31, 1998, the unused lines of credit agreements require an annual fee of 0.2% to 0.5% of the unused line. INTEREST RATE SWAP AGREEMENTS The Company has entered into four interest rate swap agreements to reduce the impact of changes in interest rates on certain outstanding current debt obligations. These agreements effectively change the Company's interest rate exposure on $24.6 million and $288.6 million of its outstanding debt from a weighted average variable interest rate to a fixed rate of 6.3% and 4.8% at December 31, 1997 and 1998, respectively. The variable interest rates for certain of these interest rate swap agreements are either reset quarterly or daily based upon the average 30-day commercial paper rate for the quarter. Interest is cash settled on a net basis for each agreement quarterly. The interest rate swap agreements will terminate in October 2001 and August 2003. Under certain of the swap agreements terminating in August 2003, the counter-party has the right to terminate one of the agreements in August 2000 and one agreement in August 2001. The differential to be paid or received is recognized ratably as interest rates change over the life of the agreements as an adjustment to interest expense. The net interest differential charged to interest expense for the periods ended October 16, 1996, December 31, 1996, 1997 and 1998 was $582,000, $285,000, $909,000 and $53,000, respectively. The 31 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9--FINANCING AND DEBT (CONTINUED) Company is exposed to credit risk in the event of nonperformance by counterparties to its interest rate swap agreements. Credit risk is limited by entering into such agreements with primary dealers only. Therefore, the Company does not anticipate that non-performance by counterparties will occur. Notwithstanding this, the Company monitors counterparty credit ratings at least quarterly through reviewing independent credit agency reports. Both current and potential exposure are evaluated, as necessary, by obtaining replacement cost information from alternative dealers. Potential loss to the Company from credit risk on these agreements is limited to amounts receivable, if any. NOTE 10--FAIR VALUE OF FINANCIAL INSTRUMENTS The net interest payable and the estimated fair value of the Company's interest rate swap agreements represent liabilities of approximately $193,000 and $366,000, respectively, at December 1997. At December 31, 1998, the net interest receivable and estimated fair value of the Company's interest rate swap agreements represent assets of approximately $268,000 and $885,000, respectively. For instruments including cash and cash equivalents, restricted cash, accounts receivable, and accounts payable, the carrying amount approximates fair value because of the short maturity of these instruments. The fair value of floating-rate debt approximates carrying value because these instruments re-price frequently at current market prices. At December 31, 1998, the fair value of the Medium Term Notes exceeds the carrying value by approximately $44.5 million. The Company believes that it is not practicable to estimate the current fair value of the amounts due from (to) affiliates because of the related party nature of the instruments. NOTE 11--INCOME TAXES The provision for income taxes consists of the following (in thousands):
OCTOBER 17, 1996 JANUARY 1, 1996 (DATE OF TO ACQUISITION) OCTOBER 16, TO YEAR ENDED YEAR ENDED 1996 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998 --------------- ------------------- ----------------- ----------------- Current: Federal........................... $ 800 State............................. $ 2,176 $ 719 $ 1,013 980 Foreign........................... 6,680 288 12,676 8,470 ------- ------ ------- ------- 8,856 1,007 13,689 10,250 ------- ------ ------- ------- Deferred: Federal........................... 19,614 (85) 12,463 33,200 State............................. 410 3,520 Foreign........................... 2,728 118 (3,712) 1,737 ------- ------ ------- ------- 22,342 33 9,161 38,457 ------- ------ ------- ------- Provision for income taxes.......... $ 31,198 $ 1,040 $ 22,850 $ 48,707 ------- ------ ------- ------- ------- ------ ------- -------
32 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11--INCOME TAXES (CONTINUED) The effective income tax rates for the periods ended October 16, 1996, December 31, 1996, 1997 and 1998 vary from the statutory U.S. federal income tax rate due to the following (dollar amounts in thousands):
OCTOBER 17, 1996 (DATE OF JANUARY 1, 1996 ACQUISITION) TO TO OCTOBER 16, 1996 DECEMBER 31, 1996 -------------------- -------------------- Statutory U.S. federal income tax provision/tax rate.................. $ 24,429 35.0% $ 791 35.0% Tax effect of foreign operations and dividends........................ 5,134 7.4 (1,073) (47.5) Amortization of cost in excess of net assets acquired and other intangibles......................................................... 1,045 1.5 359 15.9 State income taxes, net of federal tax benefit........................ 1,413 2.0 469 20.8 Other non-deductible business expenses................................ 462 .6 494 21.8 Other................................................................. (1,285) (1.8) --------- --- --------- --------- Effective income tax provision/tax rate............................... $ 31,198 44.7% $ 1,040 46.0% --------- --- --------- --------- --------- --- --------- ---------
YEAR ENDED YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1998 -------------------- -------------------- Statutory U.S. federal income tax provision/tax rate.................. $ 17,613 35.0% $ 39,280 35.0% Tax effect of foreign operations and dividends........................ 1,436 2.9 2,677 2.4 Amortization of cost in excess of net assets acquired and other intangibles......................................................... 2,369 4.7 3,351 3.0 State income taxes, net of federal tax benefit........................ 924 1.8 2,925 2.6 Other non-deductible business expenses................................ 508 1.0 474 0.4 --------- --- --------- --- Effective income tax provision/tax rate............................... $ 22,850 45.4% $ 48,707 43.4% --------- --- --------- --- --------- --- --------- ---
In accordance with SFAS 109, the net deferred income tax assets at December 31, 1997 and 1998, include the following (in thousands):
1997 1998 ---------- ---------- GROSS DEFERRED INCOME TAX ASSETS: Accrued liabilities....................................................................... $ 223,881 $ 233,695 Net operating loss carryforwards.......................................................... 96,253 118,437 Alternative minimum income tax credit carryforwards....................................... 3,025 3,825 ---------- ---------- 323,159 355,957 ---------- ---------- GROSS DEFERRED INCOME TAX LIABILITIES: Tax depreciation in excess of book depreciation........................................... (197,082) (247,090) Prepaids and other........................................................................ (14,457) (16,592) ---------- ---------- (211,539) (263,682) ---------- ---------- Net deferred income tax assets............................................................ $ 111,620 $ 92,275 ---------- ---------- ---------- ----------
In connection with the adoption of Statement of Financial Accounting Standards No. 130, "REPORTING COMPREHENSIVE INCOME" ("SFAS 130"), the Company has included in net deferred income tax assets and 33 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11--INCOME TAXES (CONTINUED) Stockholders' Equity, a decrease of $1.2 million, a decrease of $0.1 million, an increase of $3.8 million, and an increase of $3.1 million related to the income tax effects of the Foreign Currency Translation Adjustment and Minimum Pension Liability for the periods ended October 16, 1996, December 31, 1996, 1997, and 1998, respectively. The Company has alternative minimum tax net operating loss carryforwards of $191.4 million. The federal net operating loss carryforward is $318.5 million; the net operating loss carryforward expires as follows: 2000, $7.5 million; 2001, $7.1 million; 2004, $93.1 million; 2007, $67.7 million; 2008, $41.1 million; 2009, $18.3 million; and 2012, $83.7 million. NOTE 12--TREASURY STOCK On September 1, 1998, the Board of Directors authorized the Company to repurchase up to 1,500,000 shares of the outstanding common stock at market prices. On September 23, 1998, the Board of Directors authorized the Company to purchase up to 3,500,000 additional shares of outstanding common stock. For the year ended December 31, 1998, the Company repurchased 2,672,700 shares of common stock at an aggregate cost of $50,960,000. On January 23, 1999, the Company repurchased an additional 1,300,000 common shares from Cendant at a cost of $31,500,000, which reduced Cendant's ownership in the Company's common stock to approximately 20% (see Note 21). NOTE 13--RETIREMENT BENEFITS The Company, through its subsidiary ARACS, sponsors non-contributory defined benefit plans covering employees who are members of certain collective bargaining units and non-union full-time employees hired prior to December 31, 1983 who were age 25 or above on January 1, 1985. ARACS also contributes to union sponsored pension plans. Effective January 1, 1999 the Company curtailed its defined benefit plans to its eligible salaried and hourly employees as of June 30, 1985. The Company will recognize a gain as a result of the curtailment during the first quarter of fiscal year ending December 31, 1999. Through ARACS, the Company sponsors two Voluntary Investment Savings Plans under a "qualified cash or deferred arrangement" under Section 401(k) of the Internal Revenue Code covering its union and non-union employees. For the periods ended October 16, 1996, December 31, 1996, 1997 and 1998, the Company's cost of these plans was $1.4 million, $0.4 million, $1.8 million and $1.6 million, respectively. Included in the non-union Investment Savings Plan, ARACS makes a defined contribution for full-time employees. The contributions are determined at 2% of each covered employee's compensation. Employer contributions for the periods ended October 16, 1996, December 31, 1996, 1997 and 1998 amounted to $1.5 million, $0.4 million, $2.1 million and $2.3 million, respectively. The defined benefit plans provide benefits based upon years of credited service, highest average compensation and social security benefits. Annual retirement benefits, at age 65, are equal to 1 1/2% of the participating employee's final average compensation (average compensation during the highest five consecutive years of employment in the ten years prior to retirement) less 1 3/7% of the Social Security benefits for each year of service up to a maximum of 35 years. In addition, the plan provides for reduced benefits before age 65 and for a joint and survivor annuity option. 34 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13--RETIREMENT BENEFITS (CONTINUED) The Company also sponsors several foreign pension plans. The most significant of these is the Canadian pension plan. The status of the Company's defined benefit plans at December 31, 1997 and 1998, including the plans to its Salaried and Hourly Employees as of June 1985, the Bargaining Plan, the Non Qualified Defined Benefit Plan and the Canadian Plan is as follows (in thousands):
1997 1998 ---------- ---------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year............................... $ 89,325 $ 106,887 Service cost........................................................ 3,446 2,809 Interest cost....................................................... 6,956 6,922 Plan participants' contributions.................................... 193 182 Amendments.......................................................... 631 635 Actuarial gain...................................................... 9,266 11,014 Benefits paid....................................................... (2,752) (2,798) Foreign currency translation loss................................... (178) (400) ---------- ---------- Benefit obligation at end of year..................................... 106,887 125,251 ---------- ---------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year........................ 77,747 89,816 Actual return on plan assets........................................ 9,707 8,969 Plan participants' contributions.................................... 192 182 Employer contributions.............................................. 5,160 5,908 Benefits paid....................................................... (2,628) (2,798) Foreign currency translation loss................................... (362) (715) ---------- ---------- Fair value of plan assets at end of year.............................. 89,816 101,362 ---------- ---------- Funded status......................................................... (17,071) (23,889) Unrecognized net accrual gain......................................... 7,629 16,394 Unrecognized prior service cost....................................... 1,228 1,703 Unrecognized transition asset......................................... (2,587) (2,251) ---------- ---------- Accrued benefit cost.................................................. $ (10,801) $ (8,043) ---------- ---------- ---------- ---------- AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION: Prepaid benefit cost.................................................. $ 1,704 $ 1,752 Accrued benefit liability............................................. (4,351) (14,340) Intangible asset...................................................... (8,554) 1,704 Accumulated other comprehensive income................................ 400 2,841 ---------- ---------- Net amount recognized................................................. $ (10,801) $ (8,043) ---------- ---------- ---------- ----------
35 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 13--RETIREMENT BENEFITS (CONTINUED) Net pension costs of the non-qualified defined benefit plan for the periods ended October 16, 1996, December 31, 1996, 1997 and 1998, include the following components (in thousands):
JANUARY 1, 1996 OCTOBER 17, 1996 JANUARY 1, 1997 JANUARY 1, 1998 TO TO TO TO OCTOBER 16, 1996 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998 ----------------- ------------------- ------------------- ------------------- Service cost-benefits earned during the period.. $ 2,558 $ 359 $ 3,446 $ 2,809 Interest cost on projected benefit obligation... 4,224 517 6,956 6,922 Return on assets-expected gain on plan assets... (5,380) (1,558) (6,804) (7,786) Net amortization of prior service cost.......... 765 1,257 35 70 Contributions to union plans and other.......... 2,029 733 3,021 3,894 Amortization of unrecognized net assets at transition.................................... (106) (28) (132) (123) ------ ------- ------ ------ Net pension cost................................ $ 4,090 $ 1,280 $ 6,522 $ 5,786 ------ ------- ------ ------ ------ ------- ------ ------
At December 31, 1997 and 1998, the measurement of the projected benefit obligation was based upon the following assumptions weighted average interest rates:
1997 1998 --------- --------- Discount rate................................................................. 7.24% 6.00% Compensation increase......................................................... 4.72% 4.72% Long-term return on plan assets............................................... 8.81% 8.77%
The U.S. plans' assets are invested in corporate bonds, U.S. government securities and common stock mutual funds. The Canadian plan's assets are invested in Canadian stocks, bonds, mutual funds, real estate and money market funds. NOTE 14--EARNINGS PER SHARE ("EPS") In calculating basic earnings per share, the shares issued in the initial public offering of 22,425,000 shares together with 8,500,000 shares owned by Cendant, resulting from the 85,000 to 1 stock split on September 24, 1997 (Date of IPO), were used for all periods presented through December 31, 1997. Basic EPS for 1998 was calculated using 34,172,249 weighted-average shares outstanding for the year ended December 31, 1998. Diluted EPS for the year ended December 31, 1997 and 1998 was calculated as follows (in thousands, except share amounts):
1997 1998 ------------- ------------- DILUTED EPS Income available to common stockholders........................ $ 27,473 $ 63,521 ------------- ------------- ------------- ------------- Weighted average common shares outstanding..................... 30,925,000 34,172,249 Plus: Dilutive effect of the assumed exercise of stock options (i).......................................................... 256,134 780,308 ------------- ------------- Adjusted weighted average shares outstanding................... 31,181,134 34,952,557 ------------- ------------- ------------- ------------- Diluted EPS (i)................................................ $ 0.88 $ 1.82 ------------- ------------- ------------- -------------
- ------------------------ (i) Prior to September 23, 1997, there were no stock options outstanding. 36 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15--STOCK OPTION PLAN On September 23, 1997, the Avis Rent A Car, Inc. 1997 Stock Option Plan (the "Stock Option Plan") was adopted by the Board of Directors under which 4,620,977 shares of Common Stock were reserved for issuance upon the exercise of options granted to officers, key employees, independent contractors and non-employee Directors of the Company and its designated subsidiaries. On September 23, 1997, 3,953,900 options were granted at $17.00 per share, the fair market value of the Company's common stock on the date of grant. On May 21, 1998, at the Annual Meeting of Stockholders, the shareholders approved an amendment to the Company's Stock Option Plan, increasing the maximum number of shares authorized for issuance under the Stock Option Plan to 6,000,000. At December 31, 1998, approximately 4,443,100 options are outstanding under the Stock Option Plan. The primary purpose of the Stock Option Plan is to provide additional incentive to officers, key employees, independent contractors and non-employee Directors of the Company and to strengthen their commitment to the Company and its subsidiaries. Subsequently elected non-employee Directors will receive a like grant under the Stock Option Plan upon election or appointment to the Board of Directors. The exercise price of each option under the Stock Option Plan may not be less than the fair market value of a share of Common Stock on the date the option is granted. Options held by an optionee will generally become exercisable as to 20% of the shares covered by such options on the first anniversary of the date of grant and with respect to an additional 20% of the shares covered by such options on each of the four succeeding anniversaries of the date of grant if the optionee continues to be employed or retained as an independent contractor by the Company, on each such date. All options held by an optionee will become fully exercisable (to the extent not already exercisable) if a "change of control transaction" (as defined in the Stock Option Plan) occurs. Shares of Common Stock acquired upon the exercise of the options may be subject to restrictions on transfer which will be set forth in the agreement evidencing the grant of the option. All options granted under the Stock Option Plan, to the extent not exercised, expire on the earliest of (i) the tenth anniversary of the date of grant, (ii) two years following the optionee's termination of employment on account of death, retirement, disability or (iii) one year following the termination of optionee's employment for any other reason. Generally, the Board of Directors of the Company may amend or terminate the Stock Option Plan, provided that (i) no such amendment or termination may adversely affect the rights of any participant without the consent of such participant and (ii) to the extent required by any law, regulation or stock exchange rule, no amendment shall be effective without the approval of the Company's stockholders. The Company makes no recognition of the options in the financial statements until they are exercised. The Company applies Accounting Principles Board Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" and related Interpretations in accounting for its plans and does not recognize compensation expense for its stock-based compensation plans. The Company has adopted only the disclosure provisions of Statement of Financial Accounting Standard No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" ("SFAS 123"). 37 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15--STOCK OPTION PLAN (CONTINUED) The following is a summary of stock option activity for the period September 23, 1997 through December 31, 1997 and the year ended December 31, 1998:
WEIGHTED AVERAGE EXERCISE SHARES PRICE ---------- ------------- Granted September 23, 1997 (inception of the stock option plan)... 3,953,900 $ 17.00 Forfeited......................................................... (78,200) $ 17.00 ---------- ------ Outstanding at December 31, 1997.................................. 3,875,700 $ 17.00 Granted........................................................... 1,437,000 $ 23.49 Forfeited......................................................... (869,600) $ 19.32 ---------- ------ Outstanding at December 31, 1998.................................. 4,443,100 $ 18.65 ---------- ------ ---------- ------ Exercisable Options December 31, 1998................................................. 759,140 $ 17.00 ---------- ------ ---------- ------
No options were exercisable at December 31, 1997. Pro forma disclosures are provided for the years ended December 31, 1997 and 1998 as if the Company adopted the cost recognition requirements under SFAS 123. The weighted average fair value of each option granted is (estimated on the date of grant using the Black-Scholes option-pricing model) is $9.80 and $11.73 for 1997 and 1998, respectively, using the following assumptions:
1997 1998 --------- --------- Expected volatility........................................................... 45.0% 40.0% Risk-free interest rate....................................................... 5.7 6.0 Expected option life in years................................................. 7.5 6.5
The weighted-average remaining contractual life of the stock options is 9.6 years and 7.3 years at December 31, 1997 and 1998, respectively. Had compensation expense been recognized for the years ended December 31, 1997 and 1998, grants for stock-based compensation plans in accordance with provisions of SFAS 123, the Company would have recorded net income and earnings per share as follows (in thousands, except per share data):
1997 1998 ------------------------ ------------------------ AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- ----------- ----------- ----------- Net income...................................................... $ 27,473 $ 26,436 $ 63,521 $ 58,656 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Basic earnings per share........................................ $ .89 $ .85 $ 1.86 $ 1.72 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Diluted earnings per share...................................... $ .88 $ .85 $ 1.82 $ 1.68 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
NOTE 16--LEASES, AIRPORT CONCESSION FEES AND COMMITMENTS The Company is committed to make rental payments under noncancelable operating leases relating principally to vehicle rental facilities and equipment. Under certain leases, the Company is obligated to pay 38 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 16--LEASES, AIRPORT CONCESSION FEES AND COMMITMENTS (CONTINUED) certain additional costs, such as property taxes, insurance and maintenance. Airport concession agreements usually require a guaranteed minimum amount plus contingent fees, which are generally based on a percentage of revenues. Operating lease payments and net airport concession fees charged to expense for the periods ended October 16, 1996, December 31, 1996, 1997 and 1998 are as follows (in thousands):
OCTOBER 17, 1996 JANUARY 1, 1996 (DATE OF TO ACQUISITION) OCTOBER 16, TO YEAR ENDED YEAR ENDED 1996 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998 --------------- ------------------- ----------------- ----------------- Minimum fees........................ $ 88,787 $ 23,576 $ 122,015 $ 147,034 Contingent fees..................... 61,290 13,220 72,954 34,944 --------------- ------- -------- -------- 150,077 36,796 194,969 181,978 Less sublease rentals............... (3,843) (1,000) (4,741) (4,701) --------------- ------- -------- -------- $ 146,234 $ 35,796 $ 190,228 $ 177,277 --------------- ------- -------- -------- --------------- ------- -------- --------
Future minimum rental commitments under noncancelable operating leases amounted to approximately $467.8 million at December 31, 1998. The minimum rental payments due in each of the next five years ending December 31, and thereafter, are as follows (in thousands): 1999............................................................... $ 89,185 2000............................................................... 73,512 2001............................................................... 58,671 2002............................................................... 43,841 2003............................................................... 26,195 Thereafter......................................................... 176,430
At December 31, 1998, future minimum rental commitments include $75.0 million due to a subsidiary of Cendant, related to the Company's corporate headquarters and Virginia Beach processing facility. In addition to the Company's lease commitments, the Company has outstanding purchase commitments of approximately $2.1 billion at December 31, 1998, which relate principally to vehicle purchases. NOTE 17--SEGMENT INFORMATION The Company operates in one industry segment, the rental car business. The Company's rental car business rents vehicles to business and leisure travelers, and is divided into four main geographic areas; the United States, Australia/New Zealand, Canada, and other Foreign Operations. Revenue generated from the car rental business is recorded in the country in which the vehicle is rented. The accounting policies of each geographic area are the same as those described in the summary of significant accounting policies 39 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 17--SEGMENT INFORMATION (CONTINUED) (see Note 1). The operations within major geographic areas for the periods ended October 16, 1996, December 31, 1996, 1997 and 1998 are summarized as follows (in thousands):
PERIOD ENDED OCTOBER 16, 1996 ----------------------------------------------------------------- OTHER UNITED AUSTRALIA/ FOREIGN STATES NEW ZEALAND CANADA OPERATIONS CONSOLIDATED ------------ ------------ ---------- ----------- ------------ Revenue....................................... $ 1,313,619 $ 105,401 $ 69,814 $ 15,839 $1,504,673 ------------ ------------ ---------- ----------- ------------ ------------ ------------ ---------- ----------- ------------ Total assets.................................. $ 2,858,008 $ 115,082 $ 147,617 $ 65,796 $3,186,503 ------------ ------------ ---------- ----------- ------------ ------------ ------------ ---------- ----------- ------------
PERIOD ENDED DECEMBER 31, 1996 ----------------------------------------------------------------- OTHER UNITED AUSTRALIA/ FOREIGN STATES NEW ZEALAND CANADA OPERATIONS CONSOLIDATED ------------ ------------ ---------- ----------- ------------ Revenue....................................... $ 312,194 $ 31,107 $ 13,467 $ 6,076 $ 362,844 ------------ ------------ ---------- ----------- ------------ ------------ ------------ ---------- ----------- ------------ Total assets.................................. $ 2,839,188 $ 120,216 $ 122,657 $ 49,171 $3,131,232 ------------ ------------ ---------- ----------- ------------ ------------ ------------ ---------- ----------- ------------
YEAR ENDED DECEMBER 31, 1997 ----------------------------------------------------------------- OTHER UNITED AUSTRALIA/ FOREIGN STATES NEW ZEALAND CANADA OPERATIONS CONSOLIDATED ------------ ------------ ---------- ----------- ------------ Revenue....................................... $ 1,804,478 $ 131,228 $ 85,021 $ 25,427 $2,046,154 ------------ ------------ ---------- ----------- ------------ ------------ ------------ ---------- ----------- ------------ Total assets.................................. $ 4,001,186 $ 98,145 $ 131,987 $ 51,339 $4,282,657 ------------ ------------ ---------- ----------- ------------ ------------ ------------ ---------- ----------- ------------
YEAR ENDED DECEMBER 31, 1998 ----------------------------------------------------------------- OTHER UNITED AUSTRALIA/ FOREIGN STATES NEW ZEALAND CANADA OPERATIONS CONSOLIDATED ------------ ------------ ---------- ----------- ------------ Revenue....................................... $ 2,061,967 $ 115,790 $ 92,402 $ 27,423 $2,297,582 ------------ ------------ ---------- ----------- ------------ ------------ ------------ ---------- ----------- ------------ Total assets.................................. $ 4,209,835 $ 98,361 $ 148,230 $ 48,636 $4,505,062 ------------ ------------ ---------- ----------- ------------ ------------ ------------ ---------- ----------- ------------
40 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18--SELECTED QUARTERLY FINANCIAL DATA
QUARTERS ENDED ------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1997 1997 1997 1997 ------------ ------------ ------------- ------------ Revenue................................................. $ 456,014 $ 489,633 $ 580,049 $ 520,458 Costs and expenses...................................... 449,031 472,256 555,096 519,448 ------------ ------------ ------------- ------------ Income before provision for income taxes................ 6,983 17,377 24,953 1,010 Provision for income taxes.............................. 2,778 8,476 11,085 511 ------------ ------------ ------------- ------------ Net income.............................................. $ 4,205 $ 8,901 $ 13,868 $ 499 ------------ ------------ ------------- ------------ ------------ ------------ ------------- ------------ Earnings per share: Basic................................................... $ .14 $ .29 $ .45 $ .02 ------------ ------------ ------------- ------------ ------------ ------------ ------------- ------------ Diluted................................................. $ .14 $ .29 $ .45 $ .02 ------------ ------------ ------------- ------------ ------------ ------------ ------------- ------------ Shares of Common Stock outstanding: Basic................................................... 30,925,000 30,925,000 30,925,000 30,925,000 ------------ ------------ ------------- ------------ ------------ ------------ ------------- ------------ Diluted................................................. 30,925,000 30,925,000 30,925,000 31,949,535 ------------ ------------ ------------- ------------ ------------ ------------ ------------- ------------
QUARTERS ENDED ------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1998 1998 1998 1998 ------------ ------------ ------------- ------------ Revenue................................................. $ 511,390 $ 575,280 $ 652,385 $ 558,527 Costs and expenses...................................... 498,161 535,370 599,679 552,144 ------------ ------------ ------------- ------------ Income before provision for income taxes................ 13,229 39,910 52,706 6,383 Provision for income taxes.............................. 5,821 17,560 22,568 2,758 ------------ ------------ ------------- ------------ Net income.............................................. $ 7,408 $ 22,350 $ 30,138 $ 3,625 ------------ ------------ ------------- ------------ ------------ ------------ ------------- ------------ Earnings per share: Basic................................................. $ .24 $ .62 $ .85 $ .11 ------------ ------------ ------------- ------------ ------------ ------------ ------------- ------------ Diluted............................................... $ .23 $ .61 $ .83 $ .11 ------------ ------------ ------------- ------------ ------------ ------------ ------------- ------------ Shares of Common Stock outstanding: Basic................................................. 31,425,000 35,925,000 35,608,000 33,690,798 ------------ ------------ ------------- ------------ ------------ ------------ ------------- ------------ Diluted............................................... 32,561,483 36,730,233 36,180,000 34,068,603 ------------ ------------ ------------- ------------ ------------ ------------ ------------- ------------
NOTE 19--RELATED PARTY TRANSACTIONS The Company and Avis Europe, plc cooperate jointly in marketing and promotional activities, the exchange of reservations, the honoring of charge cards and vouchers, and the transfer of the related billings. Two members of the Company's board of directors are executive officers of Cendant and also serve on the board of Avis Europe Limited, the parent company of Avis Europe, plc. During the period ended October 16, 1996, the Company purchased from General Motors approximately $1.8 billion of vehicles net of incentives and allowances (see Notes 1 and 4). 41 AVIS RENT A CAR, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19--RELATED PARTY TRANSACTIONS (CONTINUED) Vehicle manufacturers offer vehicle repurchase programs on an ongoing basis to assist in the acquisition and disposition of vehicles. These programs generally allow the Company, at its option, subject to certain provisions, to sell the vehicles back to the manufacturers at pre-determined prices. Amounts included under these programs are reflected in "Accounts receivable, net" on the accompanying consolidated statement of financial position at December 31, 1998 (see Note 4). Under the terms of certain financing agreements with General Motors, the Company is required to purchase a significant percentage of its fleet from local dealers of General Motors subject to market conditions. In addition, the Company participates in an arrangement whereby General Motors provides payments for purchasing and promoting a specified number and mix of vehicles (see Note 6). At December 31, 1998, the Company is affiliated with Cendant, which owns approximately 20% of the Company as of January 23, 1999. For the years ended December 31, 1997 and 1998, the Company earned revenues of approximately $2.2 million and $62.1 million, respectively, from Cendant and its subsidiary companies, of which approximately $76 thousand and $745 thousand was outstanding and is included in accounts receivable on the accompanying Consolidated Statements of Financial Position at December 31, 1997 and 1998. The Company purchased approximately $90.6 million and $91.0 million in 1997 and 1998, respectively, of goods and services from these affiliated companies. NOTE 20--LITIGATION From time to time, the Company is subject to routine litigation incidental to its business. The Company maintains insurance policies that cover most of the actions brought against the Company. The Company is not currently involved in any legal proceeding which it believes would have a material adverse effect upon its financial condition or results of operations. NOTE 21--SUBSEQUENT EVENTS On March 19, 1999, the Company purchased the common stock and franchise rights of Rent A Car Company, Incorporated, of Richmond, Virginia for $10.2 million. Cost in excess of the fair value of net assets acquired at March 19, 1999, is approximately $7.6 million. The Company financed this transaction through internally generated funds. From January 1, 1999 through March 10, 1999, the Company under its Common Stock Repurchase Program, purchased 2,013,100 shares of common stock at an aggregate cost of $48.0 million including 1.3 million shares, which were repurchased from Cendant at a cost of $31.5 million. As of March 10, 1999, under the Company's Common Stock Repurchase Program, the Company has cumulatively repurchased 4,685,800 common shares at an average cost of approximately $21 per share. 42 Board of Directors ================================================================================ Martin L. Edelman Interim Chairman of the Board W. Alun Cathcart Chairman, Avis Europe plc Leonard S. Coleman, Jr. President, National League of Professional Baseball Deborah L. Harmon Principal, Office of the President, J.E. Robert Companies R. Craig Hoenshell Senior Advisor to Avis Rent A Car, Inc. Stephen P. Holmes Vice Chairman, Cendant Corporation Michael J. Kennedy Attorney Michael P. Monaco Vice Chairman, Cendant Corporation Chairman and Chief Executive Officer, Alliance Marketing Division F. Robert Salerno President and Chief Operating Officer Michael L. Tarnopol Vice Chairman of The Bear Stearns Companies Inc. Officers ================================================================================ F. Robert Salerno Richard S. Jacobson President and Chief Operating Officer Vice President--Tax Kevin M. Sheehan Gerard J. Kennell Executive Vice President and Vice President and Treasurer Chief Financial Officer James A. Keyes Thomas J. Byrnes Vice President--Human Resources, Senior Vice President--Sales Staffing and Diversity Maria M. Miller Karen C. Sclafani Senior Vice President--Marketing Vice President, General Counsel and Secretary Michael P. Collins Vice President--International Timothy M. Shanley Vice President and Controller Field Operations ================================================================================ Kerry L. Morris Thomas J. Tobias Vice President, Western Area Vice President, Northeast Area George Proos James R. Weber Vice President, Southeast Area Vice President, Central Area ================================================================================ Registrar and Transfer Agent: Auditors: Harris Trust and Savings Bank Deloitte & Touche LLP 311 West Monroe, 11th Floor Two World Financial Center P.O. Box A3504 New York, New York 10281-1418 Chicago, Illinois 60690-3504 Investor Information: Elizabeth Logler Director of Investor Relations Avis Rent A Car, Inc. 900 Old Country Road Garden City, New York 11530 516-222-4795 - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] 1999 Wizard Co., Inc. 3/99 DTPP/M - -------------------------------------------------------------------------------- EX-23.1 14 INDEPENDENT AUDITOR'S CONSENT Exhibit No. 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the previously filed Registration Statements No. 333-59693, 333-59695 and 333-63269 of Avis Rent A Car, Inc. on Form S-8 of our report dated January 25, 1999 (March 19, 1999 as to Note 21), appearing in the Annual Report to Shareholders incorporated by reference in the Annual Report on Form 10-K of Avis Rent A Car, Inc. for the year ended December 31, 1998. /s/Deloitte & Touche LLP New York, New York March 26, 1999 EX-27.3 15 FDS
5 1000 YEAR Dec-31-1998 Dec-31-1998 29,751 0 363,924 (3,350) 3,164,816 0 169,316 (24,271) 4,505,062 0 3,014,712 0 0 359 622,255 4,505,062 2,297,582 2,297,582 0 1,968,813 11,854 2,961 201,726 112,228 48,707 63,521 0 0 0 63,521 1.86 1.82
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