SPEED MERCHANT INC, S-4/A, 1998-10-14

SPEED MERCHANT INC
S-4/A, 1998-10-14

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1998

REGISTRATION NO. 333-61713
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

THE J. H. HEAFNER COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
NORTH CAROLINA 5014 56-0754594
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

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SEE TABLE OF ADDITIONAL REGISTRANTS
2105 WATER RIDGE PARKWAY, SUITE 500
CHARLOTTE, NORTH CAROLINA 28217
(704) 423-8989
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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DONALD C. ROOF
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
THE J. H. HEAFNER COMPANY, INC.
2105 WATER RIDGE PARKWAY, SUITE 500
CHARLOTTE, NORTH CAROLINA 28217
(704) 423-8989
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

WITH A COPY TO:
SCOTT F. SMITH, ESQ.
HOWARD, SMITH & LEVIN LLP
1330 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 841-1000

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

If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
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CALCULATION OF REGISTRATION FEE

(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(f)(2) under the Securities Act.

(2) Calculated pursuant to Rule 457(f)(2) under the Securities Act.

(3) Pursuant to Rule 457(n) under the Securities Act, no registration fee is
payable with respect to the Subsidiary Guaranties.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2

TABLE OF ADDITIONAL REGISTRANTS

<TABLE>
<CAPTION>
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JURISDICTION OF PRIMARY STANDARD
INCORPORATION OR INDUSTRIAL CLASSIFICATION IRS EMPLOYER
NAME ORGANIZATION CODE NUMBER IDENTIFICATION NUMBER
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<S> <C> <C> <C>
Oliver & Winston, Inc....................... California 5598 95-2407343
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ITCO Logistics Corporation.................. Delaware 5014 56-2001697
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ITCO Holding Company, Inc. ................. North Carolina 5014 56-1020830
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ITCO Tire Company........................... North Carolina 5014 56-1418417
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ITCO Tire Company of Georgia................ Virginia 5014 54-1260520
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The Speed Merchant, Inc. ................... California 5014 94-2414221
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Phoenix Racing, Inc. ....................... California 5598 77-0474076
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</TABLE>
<PAGE> 3

CROSS-REFERENCE SHEET PURSUANT TO RULE 404(a) AND ITEM 501 OF REGULATION S-K,
SHOWING THE LOCATION IN THE PROSPECTUS OF THE INFORMATION
REQUIRED TO BE INCLUDED THEREIN IN ACCORDANCE WITH PART I OF FORM S-4

<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING ON FORM S-4 CAPTION OR LOCATION IN PROSPECTUS
- ----------------------------------- ---------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus.............................. Facing Page and Outside Front Cover Page
of the Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Inside Front and Outside Back Cover
Pages of the Prospectus; Available
Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges, and
Other Information..................................... Forepart of Prospectus; Summary; Risk
Factors; Summary Historical and
Unaudited Pro Forma Financial Data;
Selected Historical Condensed Combined
Financial Data; The Exchange Offer
4. Terms of the Transaction................................ Summary; The Exchange Offer; Description
of the New Notes; Certain U.S. Federal
Income Tax Considerations; Risk
Factors
5. Pro Forma Financial Information......................... Summary Historical and Unaudited Pro
Forma Financial Data; Unaudited Pro
Forma Condensed Combined Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations
6. Material Contacts with Company Being Acquired........... *
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters......... *
8. Interests of Named Experts and Counsel.................. *
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities............................ *
10. Information with Respect to S-3 Registrants............. *
11. Incorporation of Certain Information by Reference....... *
12. Information with Respect to S-2 or S-3 Registrants...... *
13. Incorporation of Certain Information by Reference....... *
14. Information with Respect to Registrants Other Than S-3
or S-2 Registrants.................................... Summary; Risk Factors; Summary
Historical and Unaudited Pro Forma
Financial Data; Selected Historical
Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Description of New Credit
Facility; Description of the New Notes
15. Information with Respect to S-3 Companies............... *
16. Information with Respect to S-2 or S-3 Companies........ *
17. Information with Respect to Companies Other Than S-3 or
S-2 Companies......................................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
18. Information if Proxies, Consents or Authorizations Are
to be Solicited....................................... *
19. Information if Proxies, Consents or Authorizations Are
Not to be Solicited, or in an Exchange Offer.......... Management; Principal Stockholders;
Certain Relationships and Related
Transactions; The Exchange Offer
</TABLE>

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* Item is inapplicable or response thereto is in the negative.
<PAGE> 4

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

SUBJECT TO COMPLETION, DATED OCTOBER 14, 1998

PROSPECTUS

THE J. H. HEAFNER COMPANY, INC.
OFFER TO EXCHANGE ITS
10% SENIOR NOTES DUE 2008 WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT
FOR ANY AND ALL OF ITS OUTSTANDING
10% SENIOR NOTES DUE 2008

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,

ON NOVEMBER 16, 1998, UNLESS EXTENDED

The J. H. Heafner Company, Inc., a North Carolina corporation (the "Issuer"
and, together with its subsidiaries, the "Company"), hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange (the "Exchange Offer") $1,000 principal amount of its
10% Senior Notes Due 2008 (the "New Notes") which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), for each $1,000
principal amount tendered of its outstanding 10% Senior Notes Due 2008 (the "Old
Notes" and, together with the New Notes, the "Notes"), of which $100.0 million
aggregate principal amount is outstanding. The form and terms of the New Notes
are identical in all material respects to the form and terms of the Old Notes,
except for certain transfer restrictions and registration and other rights
relating to the exchange of Old Notes for New Notes. The New Notes evidence the
same debt as the Old Notes and will be issued under the Indenture (as defined
herein) governing the Old Notes. See "The Notes Exchange Offer" and "Description
of the New Notes."

Interest on the New Notes is payable semi-annually on May 15 and November
15 of each year, commencing November 15, 1998. The Notes are redeemable at the
option of the Issuer, in whole or in part, at any time, on or after May 15, 2003
at the redemption prices set forth herein, plus accrued and unpaid interest, if
any, to the date of redemption. In addition, up to 35% of the original aggregate
principal amount of the Notes may be redeemed from time to time prior to May 15,
2001 at the redemption price set forth herein, plus accrued and unpaid interest,
if any, to the date of redemption, with the net proceeds of one or more Public
Equity Offerings (as defined), provided that at least $65.0 million principal
amount of the Notes remains outstanding immediately after each such redemption.
Upon a Change of Control (as defined), each holder of Notes may require the
Issuer to repurchase such holder's outstanding Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
purchase.

The Notes are unsecured, senior obligations of the Issuer and are fully,
unconditionally and jointly and severally guaranteed on an unsecured, senior
basis by all of the Issuer's subsidiaries, other than certain immaterial
subsidiaries (the "Subsidiary Guarantors"). All of the Subsidiary Guarantors are
directly or indirectly wholly-owned by the Issuer. The Notes rank pari passu in
right of payment with all other existing and future unsecured senior
indebtedness of the Issuer and senior in right of payment to any existing and
future subordinated indebtedness of the Issuer. The Notes are effectively
subordinated to all existing and future secured indebtedness of the Issuer and
the Subsidiary Guarantors, including indebtedness under the New Credit Facility
(as defined), to the extent of the value of the assets securing such
indebtedness. The Notes are structurally subordinated to all existing and future
indebtedness of any subsidiary of the Issuer (other than the Subsidiary
Guarantors). As of June 30, 1998, the Company had outstanding, either directly
or through guarantees, approximately $170.9 million of indebtedness, all of
which was senior indebtedness and approximately $66.1 million of which was
secured. The Indenture relating to the Notes permits the Company to incur
additional indebtedness, including additional senior indebtedness, subject to
certain limitations. See "Description of the New Notes."
(cover continued on next page)

SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BEFORE TENDERING OLD NOTES IN THE EXCHANGE OFFER OR IN
CONNECTION WITH AN INVESTMENT IN THE NEW NOTES.

THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 5

(cover continued)

The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on November 16, 1998,
unless extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is subject to certain customary conditions. See "The Exchange
Offer."

Prior to this offering, there has been no public market for the Notes. The
Company does not intend to list the New Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. Although
there can be no assurance, the New Notes may be made eligible for trading in The
PORTAL(SM) Market ("PORTAL"), a subsidiary of The Nasdaq Stock Market, Inc.
There can be no assurance that an active market for the New Notes will develop.

The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement (as
defined herein). Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission") set forth in no-action letters issued to
third parties, the Company believes the New Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than Restricted Holders
(as defined herein) or Participating Broker-Dealers (as defined herein)) without
compliance with the registration and prospectus delivery requirements of the
Securities Act. Any holder who tenders Old Notes in the Exchange Offer with the
intention to participate, or for the purpose of participating, in a distribution
of the New Notes or who is an affiliate of the Company may not rely upon such
interpretations by the staff of the Commission and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Holders of Notes wishing to accept the Exchange Offer must
represent to the Company in the Letter of Transmittal that such conditions have
been met.

Each broker-dealer (other than a Restricted Holder) that receives New Notes
for its own account pursuant to the Exchange Offer (a "Participating
Broker-Dealer") must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution." Any broker-dealer who is an
affiliate of the Company may not rely on such no-action letters and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction.

This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. See "Plan of Distribution."

The Company will not receive any proceeds from this Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer.

Interest on the New Notes shall accrue from the last May 15 or November 15
on which interest was paid on the Old Notes so surrendered or, if no interest
has been paid, from May 20, 1998.

2
<PAGE> 6

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments, exhibits, annexes and schedules thereto, the
"Registration Statement,") under the Securities Act with respect to the New
Notes being offered by this Prospectus. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete. With respect to each such
contract, agreement or other document filed or incorporated by reference as an
exhibit to the Registration Statement, reference is made to such exhibit for a
more complete description of the matter involved, and each such statement is
qualified in its entirety by such reference. The Registration Statement
(including the exhibits and schedules thereto) may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be
available for inspection and copying at the regional offices of the Commission
located at Seven World Trade Center, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.

Upon consummation of the Exchange Offer, the Company will become subject to
the information requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
periodic reports and other information with the Commission. In the event that
the Company is not subject to the reporting requirements of the Exchange Act at
any time following consummation of the Exchange Offer, the Company will be
required under the Indenture, dated as of May 15, 1998 (the "Indenture"), among
the Issuer, the Subsidiary Guarantors and First Union National Bank, as trustee
(the "Trustee"), pursuant to which the Old Notes were, and the New Notes will
be, issued, to continue to file with the Commission, and to furnish holders of
the Notes with (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Company were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" with
respect to the Company, and, with respect to the annual information only, a
report on the financial statements therein by the Company's certified
independent accountants, and (ii) all reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports. In addition, for so long as any of the Old Notes remain outstanding,
the Company has agreed to make available to any prospective purchaser of the Old
Notes or beneficial owner of the Old Notes in connection with any sale thereof
the information required by Rule 144A(d)(4) under the Securities Act.

The market share information, descriptions of markets and industry
statistics contained in the "Prospectus Summary" and "Business" sections and
elsewhere in this Prospectus are based on the good faith estimates of the
Company's management. Such estimates are based on, among other things, the
following factors: (i) industry publications including Modern Tire Dealer and
Tire Business and industry statistics published by organizations such as the
Rubber Manufacturers Association (RMA); (ii) management's knowledge of the
market based on its historical business and industry experience; (iii)
management's discussions with customers and competitors in the markets in which
the Company competes; and (iv) the Company's product sales compared to
management's good faith estimates of the total product sales in the relevant
market. Although the Company believes this information to be reliable, the
Company has not independently verified any of this information. This Prospectus
contains trademarks, tradenames or registered marks of the Company and other
entities, including Regul(R) tires, Winston(R) tires, Pacer(R) custom wheels,
Monarch(R) tires and Magnum(R) automotive lifts.

3
<PAGE> 7

SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the related notes, appearing elsewhere in this Prospectus. As used in
this Prospectus, unless the context otherwise requires, (i) the "Issuer" refers
to The J.H. Heafner Company, Inc., (ii) "Heafner" refers to the Issuer and its
subsidiaries without giving effect to the ITCO Merger and the CPW Acquisition
(each as defined), (iii) the "Company" refers to Heafner after giving effect to
the ITCO Merger and the CPW Acquisition, (iv) "ITCO Logistics" refers to ITCO
Logistics Corporation, (v)"ITCO" refers to ITCO Logistics Corporation and its
subsidiaries, (vi) "Speed Merchant" refers to The Speed Merchant, Inc., (vii)
"CPW" refers to Speed Merchant, d/b/a Speed Merchant and Competition Parts
Warehouse, and its subsidiary and (viii) "New Businesses" refers to ITCO and
CPW. The pro forma statements of operations and other sales-related information
give effect to the Transactions (as defined) as if the Transactions had occurred
at January 1, 1997. For purposes of the financial and other information
appearing in this Prospectus, references to a fiscal year relate to a December
31 fiscal year end for the Company, the Issuer and Heafner, to a September 30
fiscal year end for ITCO and to an October 31 fiscal year end for CPW;
references to years relate to calendar years. The purchase of the New
Businesses, obtaining financing under the New Credit Facility, the offering of
the Old Notes (the "Offering"), the application of proceeds of the Old Notes and
under the New Credit Facility, the Reclassification (as defined) and the related
transactions are collectively referred to in this Prospectus as the
"Transactions."

THE COMPANY

General. The Company believes that it is one of the largest independent
suppliers of tires to the replacement tire market in the United States in terms
of sales and number of tires distributed. With over 65 distribution centers
servicing 20 states, the Company believes that it is the largest independent
distributor of new replacement tires in the Southeast and in California. Through
this distribution network, the Company's wholesale divisions supplied 9.7
million tires in 1997 and currently serve an average of 20,000 customers each
month. Through its retail division, the Company operates over 215 retail tire
and automotive service outlets in California and Arizona which sold over 1.2
million tires in 1997. The Company's Oliver & Winston, Inc. subsidiary
("Winston"), which currently operates 176 of the Company's retail tire and
automotive service outlets, was the fourth largest independent tire dealer in
the United States in 1997 based on number of locations. The Company supplies
premium, economy and private-label brands of tires manufactured by the major
tire manufacturers. In addition to its tire sales, the Company believes that it
is a significant independent distributor and retailer of aftermarket wheels,
automotive replacement parts and accessories and automotive service equipment.
On a pro forma basis, the Company generated net sales, EBITDA and a net loss of
$830.7 million, $28.1 million and $4.4 million, respectively, in fiscal 1997.

Industry Overview. Purchasers in the United States spent approximately
$18.1 billion on new replacement tires in 1997. Of that amount, passenger tires
accounted for approximately 59% of sales, light truck tires accounted for
approximately 15%, truck tires accounted for approximately 21% and farm,
specialty and other types of tires accounted for approximately 5%. Consumers of
new replacement tires in the United States obtain them from several principal
sources, including independent tire dealers, manufacturer-owned retail stores,
mass merchandisers such as Sears and Wal-Mart, auto supply chain stores and
wholesale clubs and discounters. Independent tire dealers, which represent the
largest customer base served by the Company, are the largest point of sale
suppliers of new replacement passenger tires to the United States market.
Independent tire dealers accounted for approximately 59.5% of retail sales of
domestic replacement passenger tires in 1997.

The replacement tire market for passenger cars and light trucks consists of
three primary types of tires: "flag" brands, which are premium tires made by the
major tire manufacturers; associate or "house" brands, which are primarily
economy brand tires made by the major tire manufacturers; and private-label
brands, which are brands made by tire manufacturers generally for independent
tire wholesale distributors and retailers. In 1997, flag brands constituted
approximately 50.0% of the United States passenger and light truck replacement
tire markets, private-label brands constituted approximately 29.9% of those
markets and house brands made up approximately 20.1% of those markets.

4
<PAGE> 8

Recent Acquisitions. On May 20, 1998, as part of the Transactions, the
Issuer acquired CPW and a wholly owned subsidiary of the Issuer was merged with
ITCO. The Company believes that the combination of Heafner, ITCO and CPW
represents a distinct opportunity to broaden product offerings, strengthen
manufacturer relationships, develop new competencies in its organization and
strengthen the Company's presence in the Southeast and the West. The Company
believes that the merger with ITCO will enable the Company's Eastern wholesale
division to provide more cost-effective service and will increase its
distribution capacity, positioning the Company for expansion into new geographic
areas. The Company believes that the acquisition of CPW and its distribution
facilities will establish a broader supply network with more frequent delivery
capabilities for the Company's Winston retail stores, improving the Company's
ability to restock inventory and obtain customer-requested products on a more
timely basis. In addition, the Company expects to realize significant cost
savings and operating efficiencies and improvements that will contribute to its
goal of increasing future profitability.

COMPETITIVE STRENGTHS AND BUSINESS STRATEGY

The Company's strategy is to increase net sales and EBITDA while becoming
the leading national distributor of tires and automotive equipment and services
through wholesale distribution centers and retail tire outlets. To achieve this
objective, the Company intends to build upon the following strengths:

Leading Market Positions. The Company believes that it is one of the
nation's largest buyers of new replacement passenger and light truck tires,
which it distributes to the consumer through its wholesale and retail
operations. Following the acquisition of the New Businesses in 1998, the Company
has become one of the leading wholesale tire distributors in the Southeast and
in California. In addition, the Company's retail division, which includes tire
and automotive service outlets operated by Winston and additional retail outlets
operated by CPW, currently operates over 215 retail locations in California and
Arizona. The Company intends to expand its wholesale and retail divisions
through selective acquisitions and geographic expansion.

Strong Relationships with Tire Manufacturers. The Company has established
long-standing relationships with major tire manufacturers, such as Michelin
(which manufactures the B.F. Goodrich and Uniroyal brands), Kelly-Springfield (a
division of Goodyear), Dunlop, Bridgestone/Firestone and Pirelli, and can offer
these manufacturers improved access to the replacement tire market through its
sophisticated distribution and retail networks.

Private-Label Brands. Private-label tires offered by the Company, such as
the Winston and Regul brands, generally allow the Company's independent retail
dealer customers to realize higher gross profit margins than are obtainable
through sales of flag or house brands. The Company intends to continue to build
the brand identity of its private-label tire and automotive products in its
existing businesses and in the new markets it serves.

Supply Practices and Customer Service. The Company intends to continue to
emphasize timely and efficient customer service, inventory management and supply
practices in all aspects of its business.

5
<PAGE> 9

THE TRANSACTIONS AND USE OF PROCEEDS

On May 20, 1998 (the "Closing Date"), a newly formed subsidiary of the
Issuer was merged with ITCO Logistics, with ITCO Logistics surviving the merger
as a wholly owned subsidiary of the Issuer (the "ITCO Merger"). The total
consideration paid to the stockholders of ITCO Logistics in connection with the
ITCO Merger consisted of $18.0 million in cash, 1,400,667 newly issued shares of
Class B Common Stock, $.01 par value (the "Class B Common Stock"), of the Issuer
and $1.4 million payable to holders of ITCO stock appreciation rights upon
exercise of such rights. Also on the Closing Date, the Issuer acquired from the
stockholders of Speed Merchant all of the issued and outstanding shares of Speed
Merchant (the "CPW Acquisition") for aggregate consideration equal to $45.0
million in cash, of which $35.0 million was paid on the Closing Date in exchange
for the stock of Speed Merchant, $7.4 million is payable in installments for
five years after the Closing Date in exchange for certain non-compete covenants
and $2.6 million is payable in the form of other contingent payouts to selling
stockholders. Also on the Closing Date, the Issuer applied a portion of the
proceeds of the offering of the Old Notes to repay $16.0 million of subordinated
debt and $10.3 million outstanding under a term loan of the Issuer outstanding
at the Closing Date.

Financing necessary to complete the acquisition of the New Businesses and
the repayment of Heafner's outstanding subordinated debt was obtained from the
proceeds of the offering of the Old Notes on the Closing Date and amounts
outstanding under an amended and restated senior revolving credit facility
entered into on the Closing Date (the "New Credit Facility"). The New Credit
Facility replaced an existing Heafner senior credit facility (the "Old Credit
Facility"), under which $33.5 million was outstanding on the Closing Date
(without giving effect to the Transactions). An ITCO facility with Fleet Capital
Corporation (the "ITCO Facility"), under which $26.3 million was outstanding on
the Closing Date, was repaid and terminated on July 15, 1998. For purposes of
the financial and other information in this Prospectus, amounts outstanding
under the Old Credit Facility and the ITCO Facility have been treated as repaid
on the Closing Date and borrowed under the New Credit Facility on the Closing
Date. The aggregate amount of commitments under the New Credit Facility is
currently $100.0 million.

The following table sets forth the approximate sources and uses of funds as
of the Closing Date (amounts in thousands):

<TABLE>
<S> <C>
SOURCES OF FUNDS
New Credit Facility....................................... $ 48,054
Notes..................................................... 100,000
Assumption of indebtedness(a)............................. 11,106
Deferred payments(b)...................................... 11,390
Class B Common Stock...................................... 14,959
--------
Total Sources..................................... $185,509
========
USES OF FUNDS
ITCO Merger(c)............................................ $ 34,349
CPW Acquisition(d)........................................ 45,000
Repayment/refinancing of existing indebtedness(e)......... 87,054
Assumption of indebtedness(a)............................. 11,106
Estimated transaction fees and expenses(f)................ 8,000
--------
Total Uses........................................ $185,509
========
</TABLE>

- ---------------
(a) Represents assumption of (i) ITCO building mortgages of $2.5 million and
(ii) vendor loans and other amounts at ITCO and CPW.

6
<PAGE> 10

(b) Includes (i) $7.4 million payable in installments over five years after the
Closing Date in exchange for certain non-compete covenants of the
stockholders of Speed Merchant, (ii) $2.6 million in other contingent
payouts to the stockholders of Speed Merchant and (iii) $1.4 million for the
exercise of stock appreciation rights by certain employees of ITCO.

(c) Includes 1,400,667 shares of Class B Common Stock appraised at approximately
$15.0 million and $1.4 million payable to holders of ITCO stock appreciation
rights.

(d) Includes the amounts described in clauses (i) and (ii) of footnote (b).

(e) Represents repayment or refinancing of (i) $59.8 million of long-term
indebtedness of Heafner (including $16.0 million of subordinated debt), (ii)
$26.3 million of long-term indebtedness of ITCO and (iii) $1.0 million of
long-term indebtedness of CPW.

(f) Fees and expenses include the Initial Purchasers' (as defined) discount and
other fees and expenses of the Offering and other fees and direct expenses
incurred in connection with the Transactions, including lenders' fees
(including prepayment fees), legal fees, accounting fees and other
out-of-pocket expenses.

PRINCIPAL EXECUTIVE OFFICES

The Company's principal executive offices are located at 2105 Water Ridge
Parkway, Suite 500, Charlotte, North Carolina 28217, and its telephone number is
(704) 423-8989.

7
<PAGE> 11

THE OFFERING

The Issuer.................... The Old Notes were sold by the Issuer on May
20, 1998 to "qualified institutional buyers"
(as defined in Rule 144A under the Securities
Act) in reliance upon Rule 144A under the
Securities Act.

Registration Rights
Agreement..................... In connection with the sale of the Old Notes,
the Issuer and the Subsidiary Guarantors
entered into a Registration Rights Agreement,
dated May 20, 1998 (the "Registration Rights
Agreement"), providing for, among other things,
the Exchange Offer.

THE EXCHANGE OFFER

The Exchange Offer............ The Company is offering to exchange up to
$100,000,000 aggregate principal amount of New
Notes for up to $100,000,000 aggregate
principal amount of Old Notes issued in the
Offering in reliance upon an exemption from
registration under the Securities Act. Upon
consummation of the Exchange Offer, the terms
of the New Notes (including principal amount,
interest rate, maturity and ranking) will be
identical in all material respects to the terms
of the Old Notes for which they may be
exchanged pursuant to the Exchange Offer,
except that the New Notes will have been
registered under the Securities Act and
therefore will not bear legends restricting
their transfer and will not contain terms
providing for an increase in the interest rate
thereon under certain circumstances described
in the Registration Rights Agreement.

Based on interpretations by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by
a holder thereof (other than a Restricted
Holder (as defined) or a Participating
Broker-Dealer) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that such New
Notes are acquired in the ordinary course of
such holder's business and that such holder is
not engaged in, and does not intend to engage
in, and has no arrangement or understanding
with any person to participate in, the
distribution of such New Notes.

Any Participating Broker-Dealer that receives
New Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired
by such broker or dealer as a result of market-
making activities or other trading activities,
must acknowledge that it will deliver a
prospectus in connection with any resale of
such New Notes. The Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that
it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may
be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in
connection with the resale of New Notes
received in exchange for Old Notes where such
Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making
activities or other trading activities. The
8
<PAGE> 12

Company has agreed that, for a period of 180
days after the Expiration Date, it will make
this Prospectus available to any Participating
Broker-Dealer for use in connection with any
such resale. See "Plan of Distribution."

Any holder who tenders Old Notes in the
Exchange Offer with the intention of
participating, or for the purpose of
participating, in a distribution of the New
Notes may not rely on the position of the staff
of the Commission enunciated in no-action
letters and, in the absence of an exemption
therefrom, must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with any resale.

Expiration Date............... 5:00 p.m., New York City time, on November 16,
1998, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange
Offer is extended.

Conditions to the Exchange
Offer......................... The obligation of the Company to consummate the
Exchange Offer is subject to certain
conditions. See "The Exchange Offer --
Conditions." The Company reserves the right to
terminate or amend the Exchange Offer at any
time prior to the Expiration Date upon the
occurrence of any such condition.

Procedures for Tendering Old
Notes......................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof,
or transmit an Agent's Message (as defined
herein) in connection with a book-entry
transfer, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal,
such facsimile or such Agent's Message,
together with the Old Notes and any other
required documentation to the exchange agent
(the "Exchange Agent") at the address set forth
herein. By executing the Letter of Transmittal
or Agent's Message, each holder will represent
to the Company that, among other things, the
New Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course
of business of the person receiving such New
Notes, whether or not such person is the
holder, that neither the holder nor any such
other person (i) has any arrangement or
understanding with any person to participate in
the distribution of such New Notes, (ii) is
engaging or intends to engage in the
distribution of such New Notes or (iii) is an
"affiliate," as defined under Rule 405 of the
Securities Act, of the Company. See "The
Exchange Offer -- Purpose and Effect of the
Exchange Offer," "-- Procedures for Tendering"
and "Plan of Distribution."

Special Procedures for
Beneficial Owners............. Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such
owner must, prior to completing and executing
the Letter of Transmittal and delivering such
owner's Old Notes, either make appropriate
arrangements to

9
<PAGE> 13

register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable time. See "The Exchange
Offer -- Procedures for Tendering."

Guaranteed Delivery
Procedures.................... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not entirely
available or who cannot deliver their Old
Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal
to the Exchange Agent prior to the Expiration
Date must tender their Old Notes according to
the guaranteed delivery procedures set forth in
"The Exchange Offer -- Guaranteed Delivery
Procedures."

Withdrawal Rights............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date. See "The Offer -- Withdrawal
of Tenders."

Acceptance of Old Notes and
Delivery of New Notes......... The Company will accept for exchange any and
all Old Notes which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date and not
withdrawn. The New Notes issued pursuant to the
Exchange Offer will be delivered promptly
following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer."

Exchange Agent................ The Chase Manhattan Bank is serving as Exchange
Agent in connection with the Exchange Offer.
See "The Exchange Offer -- Exchange Agent."

10
<PAGE> 14

THE NEW NOTES

The Exchange Offer applies to $100.0 million aggregate principal amount of
Old Notes. The terms of the New Notes are identical in all material respects to
the Old Notes, except for certain transfer restrictions and registration rights
relating to the exchange of Old Notes for New Notes. The New Notes will evidence
the same debt as the Old Notes and will be entitled to the benefits of the
Indenture under which the Old Notes were issued and the New Notes will be
issued. See "Description of the New Notes."

Securities Offered............ $100,000,000 principal amount of 10% Senior
Notes Due 2008 of the Issuer.

Maturity Date................. May 15, 2008.

Interest Payment Dates........ May 15 and November 15 of each year, commencing
November 15, 1998.

Optional Redemption........... The Notes are redeemable at the option of the
Issuer, in whole or in part, at any time, on or
after May 15, 2003 at the redemption prices set
forth herein, plus accrued and unpaid interest,
if any, to the date of redemption. In addition,
up to 35% of the original aggregate principal
amount of the Notes may be redeemed from time
to time prior to May 15, 2001 at the redemption
price set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption,
with the net proceeds of one or more Public
Equity Offerings (as defined), provided that at
least $65.0 million principal amount of the
Notes remains outstanding immediately after
each such redemption. See "Description of the
New Notes -- Optional Redemption."

Change of Control............. Upon a Change of Control (as defined), each
holder of Notes may require the Issuer to
repurchase such holder's Notes at 101% of the
principal amount thereof, plus accrued and
unpaid interest, if any, to the date of
repurchase. There can be no assurance that the
Issuer will have sufficient funds to purchase
all the Notes in the event of a Change of
Control. See "Risk Factors -- Limitations on
Repurchases of Notes upon Change of Control"
and "Description of the New Notes -- Change of
Control."

Subsidiary Guaranties......... The obligations of the Issuer under the Notes
and the Indenture are fully, unconditionally
and jointly and severally guaranteed (the
"Subsidiary Guaranties") on an unsecured,
senior basis by all of the Subsidiary
Guarantors, all of which are directly or
indirectly wholly-owned by the Issuer. Each
Subsidiary Guaranty is irrevocable and
unconditional, but limited in amount to the
extent required by laws relating to fraudulent
transfer or similar laws. See "Description of
the New Notes -- Subsidiary Guaranties."

Ranking....................... The Notes are unsecured, senior obligations of
the Issuer and are unconditionally guaranteed
on an unsecured, senior basis by the Subsidiary
Guarantors. The Notes rank pari passu in right
of payment with all other existing and future
unsecured senior indebtedness of the Issuer and
senior in right of payment to any existing and
future subordinated indebtedness of the Issuer.
The Notes are effectively subordinated to all
existing and future secured indebtedness of the
Issuer and the Subsidiary Guarantors, including
indebtedness under the New Credit Facility, to
the extent of the value of the assets securing
such indebtedness. The Notes are structurally
11
<PAGE> 15

subordinated to all existing and future
indebtedness of any subsidiary of the Issuer
(other than the Subsidiary Guarantors). The
Subsidiary Guaranties are unsecured, senior
obligations of the Subsidiary Guarantors and
rank pari passu in right of payment with all
other senior, unsecured indebtedness of the
Subsidiary Guarantors and senior in right of
payment to any existing and future subordinated
indebtedness of the Subsidiary Guarantors. The
Subsidiary Guaranties are effectively
subordinated to all existing and future secured
indebtedness of the Subsidiary Guarantors to
the extent of the value of the assets securing
such indebtedness. As of June 30, 1998, the
Company had outstanding, either directly or
through guarantees, approximately $170.9
million of indebtedness, all of which was
senior indebtedness and approximately $66.1
million of which was secured. The Indenture
relating to the Notes permits the Issuer and
its subsidiaries to incur additional
indebtedness, including senior indebtedness,
subject to certain limitations. See
"Description of the New Notes -- Ranking."

Restrictive Covenants......... The Indenture under which the Notes are issued
contains certain covenants that, among other
things, will limit (i) the incurrence of
additional indebtedness by the Issuer and its
Restricted Subsidiaries (as defined), (ii) the
payment of dividends and other restricted
payments by the Issuer and its Restricted
Subsidiaries, (iii) the creation of
restrictions on distributions from Restricted
Subsidiaries, (iv) asset sales, (v) certain
transactions with affiliates, (vi) the
incurrence of liens and sale/leaseback
transactions and (vii) certain consolidations,
mergers and transfers of assets. However, all
of these limitations are subject to a number of
important qualifications. See "Description of
the New Notes -- Certain Covenants."

Use of Proceeds............... There will be no proceeds to the Company from
any exchange pursuant to the Exchange Offer.

Book-Entry Only............... The Notes will be issued in book-entry form
through the facilities of The Depository Trust
Company ("DTC" or the "Depository") for the
accounts of its participants and will trade in
DTC's Same-Day Funds Settlement System. For a
description of certain procedures relating to
clearance and settlement, see "Description of
the New Notes -- Book-Entry, Delivery and
Form."

RISK FACTORS

Holders of Notes should carefully consider the specific matters set forth
under "Risk Factors" as well as the other information and data included in this
Prospectus prior to tendering Old Notes in the Exchange Offer or making an
investment in the New Notes.

12
<PAGE> 16

SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA

The following summary historical consolidated financial data with respect
to Heafner and unaudited pro forma financial data with respect to the Company
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical consolidated
financial statements of Heafner and the related notes. The consolidated
financial statements of Heafner for each of the years in the three-year period
ended December 31, 1997 are included elsewhere in this Prospectus and have been
audited by Arthur Andersen LLP, independent certified public accountants. The
summary historical financial data for the six months ended June 30, 1997 and
1998 have been derived from financial statements that are included elsewhere
herein which are unaudited but which, in the opinion of management, include all
adjustments, except as otherwise described therein, necessary for the fair
presentation of the financial position and results of operations for such
period. The pro forma data have been derived from the Unaudited Pro Forma
Condensed Combined Financial Data of the Company included elsewhere in this
Prospectus. The Unaudited Pro Forma Condensed Combined Financial Data do not
purport to represent what the Company's results of operations actually would
have been if the transactions referred to therein had been consummated on the
date or for the periods indicated, or what such results will be for any future
date or any future period.

<TABLE>
<CAPTION>
COMPANY
----------------------
PRO FORMA
SIX MONTHS ENDED SIX MONTHS
FISCAL YEARS ENDED DECEMBER 31, JUNE 30, ENDED
--------------------------------- ------------------- PRO FORMA JUNE 30,
1995 1996 1997(A) 1997(A) 1998(B) 1997(C) 1998(C)
--------- --------- --------- -------- -------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales........................ $169,031 $190,535 $311,839 $127,377 $243,179 $830,749 $453,266
Cost of goods sold............... 140,811 158,880 233,941 99,677 182,131 659,335 354,697
-------- -------- -------- -------- -------- -------- --------
Gross profit..................... 28,220 31,655 77,898 27,700 61,048 171,414 98,569
Selling, general and
administrative expenses........ 26,584 29,660 74,441 26,128 57,262 160,616 90,149
Special charges.................. -- -- -- -- 1,409 -- --
-------- -------- -------- -------- -------- -------- --------
Income from operations........... 1,636 1,995 3,457 1,572 2,377 10,798 8,420
Interest and other expense,
net............................ 946 944 3,710 1,687 4,490 14,486 8,556
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations
before provision (benefit) for
income taxes and extraordinary
charge......................... 690 1,051 (253) (115) (2,113) (3,688) (136)
Provision (benefit) for income
taxes.......................... -- -- (239) (49) (837) 681 851
-------- -------- -------- -------- -------- -------- --------
Net income (loss) from operations
before extraordinary charge.... 690 1,051 (14) (66) (1,276) (4,369) (987)
Extraordinary charge............. -- -- -- -- 2,198 -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................ 690 1,051 (14) (66) (3,474) (4,369) (987)
Pro forma provision for income
taxes.......................... 325 439 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Pro forma net income (loss)...... $ 365 $ 612 $ (14) $ (66) $ (3,474) $ (4,369) $ (987)
======== ======== ======== ======== ======== ======== ========
CASH FLOWS DATA:
Net cash provided by (used in)
operating activities........... $ (363) $ 4,008 $ 6,703 $ (280) $ (4,874) $ -- $ --
Net cash used in investing
activities..................... (2,200) (7,626) (46,459) (44,983) (53,246) -- --
Net cash provided by financing
activities..................... 2,630 3,711 41,252 46,386 59,497 -- --
Depreciation and
amortization................... 1,062 1,331 5,399 1,551 4,029 16,961 8,737
Capital expenditures............. 2,205 7,865 4,908 2,849 1,905 9,958 2,538
</TABLE>

13
<PAGE> 17

- ---------------
(a) In May 1997, Heafner acquired Winston. The transaction was accounted for
using the purchase method of accounting.

(b) In May 1998, the ITCO Merger and the CPW Acquisition occurred. Each
transaction was accounted for using the purchase method of accounting.

(c) The pro forma statements of operations data for 1997 and for the six months
ended June 30, 1998 give effect to: (i) the Winston acquisition; (ii) the
ITCO Merger; (iii) the CPW Acquisition; (iv) the completion of the Offering
of the Old Notes and the application of the net proceeds; and (v) the
initial borrowing under the New Credit Facility, as if each had been
consummated on January 1, 1997.

(d) EBITDA represents net income plus income taxes, depreciation and
amortization and interest expense. EBITDA for the six months ended June 30,
1998 includes $321,000 related to amortization of deferred financing charges
that is included as amortization expense for cash flow purposes and interest
expense in the consolidated statements of operations. EBITDA for the pro
forma period ended June 30, 1998 also adds a restructuring charge of $1.4
million and an extraordinary charge of $3.7 million (pre-tax) for the
write-off of unamortized financing expenses and discounts and the payment of
prepayment penalties. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service or incur indebtedness.
However, EBITDA should not be considered an alternative to net income as a
measure of operating results or to cash flows from operations as a measure
of liquidity in accordance with generally accepted accounting principles.
EBITDA as calculated and presented here may not be comparable to EBITDA as
calculated and presented by other companies.

(e) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense (which includes amortization of deferred financing costs
and debt issuance cost) and one-third of rental expense, deemed
representative of that portion of rental expense estimated to be
attributable to interest. For the year ended December 31, 1997, the six
months ended June 30, 1997 and 1998, and the pro forma periods ended
December 31, 1997 and June 30, 1998, earnings were insufficient to cover
fixed charges by $253,000, $115,000, $2.1 million, $3.7 million and
$136,000, respectively.

14
<PAGE> 18

RISK FACTORS

Holders of Notes should carefully consider the following Risk Factors, as
well as the other information and data included in this Prospectus, prior to
tendering Old Notes in the Exchange Offer or making an investment in the New
Notes.

SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT

As of June 30, 1998, the Company had approximately $170.9 million of
long-term debt outstanding, approximately $66.1 million of which was secured,
and the Company's ratio of indebtedness to total capital was 0.84. The Company's
pro forma deficiency of earnings to fixed charges was $136,000 as of June 30,
1998. The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including: (i) the Company's ability to
obtain additional financing, whether for working capital, acquisitions, capital
expenditures, or other purposes, may be impaired; (ii) a substantial portion of
the Company's pro forma EBITDA will be required (approximately 50% of pro forma
EBITDA for the six months ended June 30, 1998 and the year ended December 31,
1997 would have been required) for debt service, thereby reducing funds
available to the Company for its operations; (iii) certain of the Company's
indebtedness contains financial and other restrictive covenants which, if
breached, would result in an event of default under such indebtedness; (iv) the
Company's flexibility in planning for or reacting to changes in market
conditions may be limited; (v) the Company may be more vulnerable upon a
downturn in its business or in the industry in which it operates; and (vi) to
the extent that the Company incurs any indebtedness at variable rates, including
under the New Credit Facility, the Company will be vulnerable to increases in
interest rates. On a pro forma basis, the Company had a net loss of $4.4 million
in fiscal 1997. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

The Company's ability to meet its debt service obligations will be
dependent upon its future performance which, in turn, will be subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control. Based on the current level of operations, the
Company believes that its operating cash flow, together with available
borrowings under the New Credit Facility, will be sufficient to meet the debt
service requirements on its indebtedness, meet its working capital needs and
fund its capital expenditures and other operating expenses for the near future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." However, there can be no
assurance that the Company's business will generate cash flow at levels
sufficient to meet these requirements. If it is unable to do so, the Company may
be required to refinance all or a portion of its indebtedness, including the
Notes, to sell assets or to obtain additional financing. There can be no
assurance that any such refinancing would be possible, that any assets could be
sold (or, if sold, of the timing of such sales and the amount of proceeds
realized therefrom) or that additional financing could be obtained.

RESTRICTIVE COVENANTS

The terms of the New Credit Facility, the Indenture and the other
agreements governing the Company's indebtedness impose certain operating and
financing restrictions on the Company. Such restrictions affect, and in many
respects limit, among other things, the ability of the Company to incur
additional indebtedness, make certain payments or investments, loans and
guarantees, create liens or other encumbrances, sell assets, or enter into
mergers or consolidations. The New Credit Facility requires the Company to
comply with certain financial ratios (minimum net worth) and tests (minimum loan
availability). The restrictions could limit the ability of the Company to plan
for or react to market conditions or meet extraordinary capital needs or
otherwise could restrict corporate activities. There can be no assurance that
such restrictions will not adversely affect the Company's ability to finance its
future operations or capital needs or to engage in other business activities
that would be in the interest of the Company. Moreover, a breach of any of these
covenants or the inability of the Company to comply with the required financial
ratios and tests could result in an event of default under the New Credit
Facility or the Indenture. Upon the occurrence of an event of default, the
lenders under the New Credit Facility could elect to declare all amounts
borrowed thereunder, together with accrued interest, to be due and payable. If
the Company were unable to repay such borrowings, such lenders

15
<PAGE> 19

could proceed against the collateral for the New Credit Facility. If the
indebtedness under the New Credit Facility were to be accelerated, there can be
no assurance that the assets of the Company would be sufficient to repay such
indebtedness and the Notes in full. As of the date of this Prospectus, the
Company is in compliance with the covenants and financial ratios and tests
contained in the New Credit Facility.

EFFECTIVE SUBORDINATION

The Notes and the Subsidiary Guaranties are unsecured, senior obligations
of the Issuer and the Subsidiary Guarantors, respectively, and rank pari passu
in right of payment with all other existing and future senior indebtedness of
the Issuer and the Subsidiary Guarantors and senior in right of payment to any
existing and future subordinated indebtedness of the Issuer and the Subsidiary
Guarantors, respectively. The Notes and the Subsidiary Guaranties are
effectively subordinated to all existing and future secured indebtedness of the
Issuer and the Subsidiary Guarantors including indebtedness under the New Credit
Facility, to the extent of the value of the assets securing such indebtedness.
Indebtedness under the New Credit Facility is secured by a lien on all inventory
and accounts receivable of the Issuer and its material subsidiaries (all of
which are Subsidiary Guarantors). See "Description of New Credit Facility."
Holders of existing or future secured indebtedness of the Issuer and the
Subsidiary Guarantors permitted under the Indenture, including holders of
indebtedness under the New Credit Facility, will have claims with respect to
assets constituting collateral that are prior to the claims of the holders of
the Notes. The Notes are and will be structurally subordinated to all existing
and future indebtedness of any subsidiary of the Issuer (other than the
Subsidiary Guarantors). As of June 30, 1998, the Company had outstanding, either
directly or through guarantees, approximately $170.9 million of indebtedness,
all of which was senior indebtedness and approximately $66.1 million of which
was secured. At September 30, 1998, the Company could have borrowed an
additional $30.9 million under the New Credit Facility, all of which would have
been secured. See "Description of the New Notes." The Indenture will permit the
Company to incur additional indebtedness, including senior indebtedness (some of
which may be secured), subject to certain limitations.

POTENTIAL INABILITY TO INTEGRATE NEW BUSINESSES AND FUTURE ACQUISITIONS

Although the Company and the New Businesses have been in operation for some
time, there can be no assurance that the Company will be able to successfully
integrate the business, operations or assets of either or both of the New
Businesses. The integration of the New Businesses may result in unforeseen
difficulties that require a disproportionate amount of management's attention
and the Company's resources. The ITCO Merger and CPW Acquisition represented the
largest acquisitions by the Company to date and the most significant expansion
of its business. The Company may face significant challenges in integrating the
New Businesses because of their magnitude. There can be no assurance that the
Company will be able to achieve the synergies it anticipates from the ITCO
Merger and CPW Acquisition. Although the Company has established a reserve of
$5.2 million and has taken a restructuring charge of $1.4 million for shut down
costs related to the Transactions and a non-recurring extraordinary charge of
$3.7 million for the write-off of unamortized financing discounts and payment of
prepayment penalties, there can be no assurance that such amounts will be
adequate to cover such costs or that the ITCO Merger and CPW Acquisition will
not have an adverse effect upon the Company's operating results, particularly in
the fiscal quarters immediately following the consummation of the Transactions,
while the operations of the New Businesses are being integrated into the
Company's operations.

As part of its business strategy, the Company may expand its network of
distribution centers and retail stores through selective acquisitions. There can
be no assurance that the Company will be able to identify or complete such
acquisitions and, if completed, no assurance that the Company will be able to
successfully integrate the businesses, operations or assets of acquired
companies into its existing operations. In addition, the New Credit Facility
will prohibit the Company from committing funds to new acquisitions beyond $25
million in any fiscal year and $40 million during the term of the New Credit
Facility. There can be no assurance that the Company would be able to obtain any
waiver of such limits in the future.

RELIANCE ON VENDORS

There are a limited number of tire manufacturers worldwide. Accordingly,
the Company relies on a limited number of tire manufacturers for its products.
In particular, the Company relied on Michelin and Kelly-Springfield, its top two
suppliers, for 35% and 34%, respectively, of the tires it sold in 1997. Although
in
16
<PAGE> 20

most cases the Company has long-term relationships with these manufacturers, the
Company's contracts with all but one of its suppliers are short-term in nature,
and there can be no assurance that these suppliers will continue to supply
products to the Company on favorable terms, or at all. Furthermore, although the
Company does not believe that it will be materially adversely affected and
believes that vendor response has been generally positive, the ITCO Merger and
CPW Acquisition may cause certain of the Company's vendors to reduce or
eliminate the number of product lines or SKUs carried by the Company or
otherwise affect the Company's relationship with its suppliers, in particular
with those suppliers who compete with the Company in the wholesale distribution
market. For example, Tire and Battery Corporation, a tire wholesaler and a
competitor of the Company which had supplied less than 4% of the products sold
by the Company, notified the Company that it would be discontinuing its
relationship with the Company following the consummation of the ITCO Merger. In
addition, in the event that any of the Company's vendors were to experience
financial, operational, production, supply or quality assurance difficulties
that could result in a reduction or interruption in supply to the Company, or
otherwise failed to meet the Company's requirements and specifications, the
Company could be materially adversely affected. For example, in 1997, two of the
Company's principal suppliers experienced labor strikes. Although the Company
was not materially adversely affected by these labor actions, the strikes did
affect the Company's suppliers' ability to meet the Company's supply orders. To
the extent that the Company would be required to find replacements for its
suppliers, a change in suppliers could result in cost increases, time delays in
deliveries and a loss of customers, any of which could have a material adverse
effect on the Company.

POSSIBLE LOSS OF CUSTOMERS

Although the Company believes that its relationships with its customers are
good and that customer response to the ITCO Merger and the CPW Acquisition has
been generally positive, the Company could lose some of its customers as a
result of the ITCO Merger and the CPW Acquisition. Some of CPW's customers, in
particular independent tire dealers, might discontinue their relationships due
to CPW's alignment with a chain of retail stores that compete with those
customers, even though CPW currently has retail operations itself. In the case
of ITCO, some of its customers may prefer to maintain relationships with
multiple suppliers. As ITCO and Heafner supply many of the same geographic areas
and in some cases share customers, those customers may look to alternative
suppliers for a portion of their product needs.

COMPETITION

The industry in which the Company competes is highly competitive, and many
of the Company's competitors have resources significantly greater than the
Company's. Tire manufacturers distribute tires to the retail market by direct
shipments to independent tire dealers, national retail chains such as Sears and
Wal-Mart and manufacturer-owned retail stores as well as through shipments to
independent wholesale distributors. A number of independent wholesale tire
distributors also compete in the regions in which the Company does business. In
its retail business, the Company also faces competition from national chains and
department stores, other independent tire stores, tire manufacturer-owned
stores, discount and warehouse clubs and other automotive product retailers.
Although the Company believes that it has been able to compete successfully in
its markets to date, there can be no assurance that it will be able to continue
to do so in the future. See "Business -- Competition."

ENVIRONMENTAL RISKS

The Company's operations and properties are subject to federal, state and
local laws, regulations and ordinances relating to the use, storage, handling,
generation, transportation, treatment, emission, release, discharge and disposal
of certain materials, substances and wastes under which the Company could be
held strictly, jointly and severally liable for costs associated with the
investigation and clean-up of contaminated properties. The nature of the
Company's existing and historical operations exposes it to the risk of
liabilities or claims with respect to environmental matters, including off-site
disposal matters. For example, the Company handles waste motor oil and hydraulic
brake fluid, the storage and disposal of which is strictly regulated by federal
and state authorities, in its automotive service operations. The Company
contracts with outside

17
<PAGE> 21

services to handle disposal of these materials. Although the Company believes
that it complies with all relevant environmental regulations and does not incur
significant costs maintaining compliance therewith, there can be no assurance
that material costs will not be incurred in connection with environmental
liabilities or claims or that future events, such as changes in existing laws
and regulations or their interpretation, will not give rise to additional
compliance costs or liabilities that could have a material adverse effect on the
Company.

CONSUMER PROTECTION ISSUES

Retail tire dealers and providers of automotive services have been the
subject of scrutiny by state and local officials regarding their sales tactics
and pricing practices. For example, in the early 1990s, the California Bureau of
Automotive Repair (which is charged with policing improper selling practices by
automobile repair shops and investigating companies alleged to have engaged in
such improper practices) investigated and fined a number of automobile repair
and service centers, including Winston, for unfair consumer practices. That
investigation resulted in fines against Winston (in 1993) totaling $1.4 million
and directly led to a change in Winston's consumer practices. Although the
Company believes that it materially complies with applicable laws regarding
consumer practices, there can be no assurance that a future investigation will
not be conducted or result in disruptions in the Company's operations, changes
in practices or fines against the Company.

DEPENDENCE ON MANAGEMENT

The Company is dependent upon the services of its executive officers for
management of the Company. The loss or interruption of the continued full-time
services of certain of these executives could have a material adverse effect on
the Company, and there can be no assurance that the Company would be able to
find replacements with equivalent skills or experience. The success of the
Company's integration of the New Businesses may depend on the retention of
certain current management of ITCO and CPW. Although the Company intends to
retain such employees, substantially all of whom have employment contracts with
the Company, there can be no assurance that such individuals will remain with
the Company. The Company has no key person life insurance policies with respect
to any of its senior executives.

SEASONALITY

Demand for tires tends to fluctuate from quarter to quarter, with the
highest demand generally from March through October of each calendar year and
the lowest demand typically from November through February of each calendar
year. In addition, the popularity, supply and demand for particular tire
products may change from year to year based on consumer confidence, the volume
of tires reaching the replacement tire market, the level of personal
discretionary income and other factors. Local economic, weather, transportation
and other conditions also affect the volume of tire sales, on both a wholesale
and retail basis.

LIMITATIONS ON REPURCHASES OF NOTES UPON CHANGE OF CONTROL

Upon the occurrence of a Change of Control (as defined in the Indenture),
the holders of the Notes have the right to require the Issuer to offer to
purchase all of the outstanding Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the date of purchase. There
can be no assurance that the Issuer will have sufficient funds available or will
be permitted by its other debt agreements to purchase the Notes upon the
occurrence of a Change of Control. In addition, the occurrence of a Change of
Control may require the Issuer to offer to purchase other outstanding
indebtedness and may cause a default under the New Credit Facility. The
inability to purchase all of the tendered Notes would constitute an Event of
Default (as defined) under the Indenture. See "Description of the New
Notes -- Change of Control."

FRAUDULENT CONVEYANCE STATUTES

Each of the Issuer and the Subsidiary Guarantors believes that the
indebtedness incurred by the Issuer in connection with the issuance of the Notes
and the Subsidiary Guaranties given by the Subsidiary Guarantors are being
incurred for proper purposes and in good faith and that, based on present
forecasts, asset valuations and other financial information, the Issuer and each
Subsidiary Guarantor is, after the consummation of the

18
<PAGE> 22

Transactions was, and after the consummation of the Exchange Offer will be,
solvent, will have sufficient capital for carrying on its business and will be
able to pay its debts as they mature. However, if a court of competent
jurisdiction were to find that the Issuer or such Subsidiary Guarantor did not
receive fair consideration or reasonably equivalent value for incurring such
indebtedness or obligation (including any guarantee thereof) and, at the time of
such incurrence, the Issuer or such Subsidiary Guarantor (i) was insolvent, (ii)
was rendered insolvent by reason of such incurrence or the acquisition of the
New Businesses, (iii) was engaged in a business or transaction for which the
assets remaining in the Issuer or such Subsidiary Guarantor, as the case may be,
constituted unreasonably small capital, or (iv) intended to incur or believed it
would incur debts beyond its ability to pay such debts as they mature, such
court, subject to applicable statutes of limitation, could, among other things,
(a) invalidate, in whole or in part, such indebtedness and obligation (including
any guarantee thereof) as fraudulent conveyances, the effect of which could be
that the holders of the Notes may not be repaid in full, and/or (b) subordinate
such indebtedness and obligation (including any guarantee thereof) to existing
or future creditors of the Issuer or such Subsidiary Guarantor, as the case may
be, the effect of which would be to entitle such other creditors to be paid in
full before any payment could be made on the Notes. If a court were to find that
the Issuer or any Subsidiary Guarantor, as the case may be, satisfied the
measures of insolvency or capital inadequacy described in (i) through (iv)
above, such court could avoid any previous distribution by such entity in
respect of such indebtedness (including, without limitation, any payment of
principal or interest) or obligation (including any guarantee thereof) and order
that it be returned to the Issuer or such Subsidiary Guarantor, as the case may
be, or to a fund for the benefit of the creditors of such entity.

With respect to each Subsidiary Guaranty, a court may compare its estimate
of the value received by each Subsidiary Guarantor with the magnitude of its
obligation under such Subsidiary Guaranty. If the value received by the
Subsidiary Guarantor is found to be disproportionately small as compared with
its obligation under such Subsidiary Guaranty, then, to that extent, there would
be a lack of fair consideration for the giving of the Subsidiary Guaranty and if
the Subsidiary Guaranty came within any of clauses (i) through (iv) above, such
Subsidiary Guaranty could be held invalid to such extent. The obligation of each
Subsidiary Guarantor under its Subsidiary Guaranty will be limited in a manner
intended to avoid it being deemed a fraudulent conveyance under applicable law.

The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, the Issuer or
any of the Subsidiary Guarantors would be considered insolvent at a particular
time if the sum of its debts was then greater than all of its property at a fair
valuation or if the present fair saleable value of its assets was then less than
the amount that would be required to pay its probable liabilities on its
existing debts as they became absolute and matured. The Issuer believes, based
upon the financial information contained elsewhere in the Prospectus, the recent
operating history as discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other factors, that, after
giving effect to the issuance of the Notes and the Subsidiary Guaranties, none
of the Issuer or any of the Subsidiary Guarantors will be rendered insolvent and
each such entity will have sufficient capital for the businesses in which it is
engaged and will be able to pay its debts as they mature. While the Issuer
believes that it is and each Subsidiary Guarantor is, after the consummation of
the Transactions was, and after the consummation of the Exchange Offer will be,
solvent, there can be no assurance as to whether a court would concur with such
beliefs.

CONTROL BY PRINCIPAL STOCKHOLDERS

The Issuer's Chairperson, Ann H. Gaither, and its President and Chief
Executive Officer, William H. Gaither, own or control 71.1% of the combined
voting power of the Issuer's outstanding capital stock (including shares of
stock held by other members of the Gaither family voted under the voting trust
described in the next sentence) on a fully-diluted basis. A Voting Trust
Agreement among Ann H. Gaither and William H. Gaither and other members of their
immediate family who own shares of common stock also gives Ann H. Gaither and
William H. Gaither the right to vote such other stockholders' shares of common
stock. Consequently, Ann H. Gaither and William H. Gaither have the ability to
control the business and affairs of the Issuer by virtue of their ability to
elect a majority of the Issuer's Board of Directors and its voting power

19
<PAGE> 23

with respect to actions requiring stockholder approval. If the Company
encounters financial difficulties, or is unable to pay certain of its debts as
they mature, the interests of the principal stockholders might conflict with
those of the holders of the Notes. In addition, the principal stockholders may
have an interest in pursuing acquisitions, divestitures or other transactions
that, in their judgment, could enhance their equity investment, even though such
transactions might involve risks to the holders of the Notes. See "Principal
Stockholders."

ABSENCE OF PUBLIC MARKET

The New Notes are being offered exclusively to holders of the Old Notes.
The Old Notes were issued to a limited number of institutional investors on May
20, 1998. There is currently no established market for the New Notes. There can
be no assurance as to the liquidity of any markets that may develop for the New
Notes, the ability of the holders of the New Notes to sell their Notes or the
price at which holders would be able to sell their Notes. Future trading prices
of the New Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results and the market for
similar securities. The Company does not intend to apply for listing of the New
Notes on any securities exchange.

The liquidity of, and trading market for, the New Notes may also be
materially and adversely affected by declines in the market for high yield
securities generally. Such a decline may materially and adversely affect such
liquidity and trading independent of the financial performance of, and prospects
for, the Company.

To the extent Old Notes are tendered and accepted in the Exchange Offer,
the principal amount of outstanding Old Notes will decrease with a resulting
decrease in the liquidity in the market for the Old Notes. Following the
consummation of the Exchange Offer, holders of Old Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for the Old Notes will be adversely affected. The Old Notes will continue
to be eligible for trading in PORTAL.

CONSEQUENCES OF FAILURE TO EXCHANGE

Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Old Notes desiring to tender
such Old Notes in exchange for New Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects or
irregularities with respect to tenders of Old Notes for exchange.

Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer, including holders of Old Notes whose Old Notes
are tendered but not accepted, will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon and, except in
certain limited circumstances, will no longer have any registration rights with
respect to the Old Notes. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register the Old Notes under the Securities Act.

New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold or otherwise transferred by holders thereof
(other than Restricted Holders or Participating Broker-Dealers) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such holder represents, among other things, that
such holder is not an "affiliate" of the Company or any Guarantor (as defined in
Rule 405 of the Securities Act), that such New Notes are acquired in the
ordinary course of such holder's business and that such holder is not engaged
in, and does not intend to engage in, and has no arrangement or understanding
with any person to participate in, the distribution of such New Notes. Any
holder unable to make such representations will not be able to participate in
the Exchange Offer and may only sell its Old Notes pursuant to a registration
statement and prospectus meeting the requirements of the Securities Act, or
pursuant to an exemption from the registration requirements of the Securities
Act.

Each Participating Broker-Dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any

20
<PAGE> 24

resale of such New Notes. The Letter of Transmittal states that, by so
acknowledging and by delivering a prospectus, a Participating Broker-Dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with resales
of New Notes received in exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any such
resale. See "Plan of Distribution." However, to comply with the securities laws
of certain jurisdictions, if applicable, the New Notes may not be offered or
sold unless they have been registered or qualified for sale in such
jurisdictions or an exemption from registration or qualification is available
and is complied with. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes will be adversely affected.

FORWARD-LOOKING STATEMENTS

Certain information included in this Prospectus is forward-looking,
including statements contained in "Summary," "Risk Factors," "Unaudited Pro
Forma Condensed Combined Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business," and includes
statements regarding the intent, belief and current expectations of the Company
and its directors and officers. Such forward-looking information involves
important risks and uncertainties that could materially alter results in the
future from those expressed in any forward-looking statements made by, or on
behalf of, the Company. These risks and uncertainties include, but are not
limited to, the ability of the Company to maintain existing relationships with
long-standing vendors or customers, the ability of the Company to successfully
implement its business strategy, the ability of the Company to integrate the New
Businesses and the ability of the Company to market and sell new products and to
continue to comply with environmental laws, rules and regulations. Other risks
and uncertainties include uncertainties relating to economic conditions,
acquisitions and divestitures, government and regulatory policies, technological
developments and changes in the competitive environment in which the Company
operates. Persons reading this Prospectus are cautioned that such statements are
only predictions and that actual events or results may differ materially. In
evaluating such statements, readers should specifically consider the various
factors which could cause actual events or results to differ materially from
those indicated by such forward-looking statements, including those discussed in
"Risk Factors."

THE TRANSACTIONS

THE ITCO MERGER AND THE RECLASSIFICATION

On the Closing Date, a wholly owned subsidiary of the Issuer merged with
ITCO Logistics pursuant to an Agreement and Plan of Merger (the "ITCO Merger
Agreement") with ITCO Logistics and the stockholders of ITCO Logistics (the
"ITCO Stockholders"). The total consideration paid on the Closing Date upon
completion of the ITCO Merger to the ITCO Stockholders consisted of $18.0
million in cash and 1,400,667 newly issued shares of Class B Common Stock. In
addition, approximately $5.1 million of ITCO's total indebtedness remained
outstanding, with the balance repaid as part of the Transactions. At the Closing
Date, ITCO's long-term indebtedness was approximately $31.4 million.

The ITCO Merger Agreement contains certain representations, warranties and
covenants made by the Issuer on the one hand and the ITCO Stockholders on the
other hand. With certain limited exceptions, such representations and warranties
expire two years after the Closing Date. In general, the ITCO Merger Agreement
provides for indemnification of the Issuer by the ITCO Stockholders, and for the
indemnification of the ITCO Stockholders by the Issuer, for losses relating to
misrepresentations or breaches of such representations, warranties and
covenants. With certain limited exceptions, the ITCO Merger Agreement provides
that a party has recourse with respect to claims for indemnification only
against, in the case of indemnification claims against the ITCO Stockholders,
their shares of Class B Common Stock and, in the

21
<PAGE> 25

case of indemnification claims against the Issuer, up to 1,400,667 newly issued
shares of Class B Common Stock.

In connection with the ITCO Merger, the Issuer's authorized common stock
was reclassified into shares of Class A Common Stock, $.01 par value (the "Class
A Common Stock"), and shares of Class B Common Stock (the "Reclassification").
As a result of the Reclassification, all outstanding shares of the Issuer's
common stock, and all options, warrants and other rights exercisable into or
exchangeable for the Issuer's common stock, became shares of Class A Common
Stock or became exercisable into or exchangeable for shares of Class A Common
Stock, as the case may be. The Class A Common Stock and the Class B Common Stock
have identical rights, powers and privileges, except that the shares of Class A
Common Stock are entitled to 20 votes per share and the shares of Class B Common
Stock are entitled to one vote per share, in each case, on all matters submitted
to a vote of the Issuer's stockholders.

In conjunction with the ITCO Merger, the Issuer entered into a number of
ancillary agreements with the ITCO Stockholders providing for, among other
things, (i) the granting of certain registration rights to such stockholders
with respect to the shares of Class B Common Stock that were issued to such
stockholders, (ii) the granting to such stockholders of the right to designate a
person to the Issuer's Board of Directors, (iii) certain restrictions on the
transfer of shares of Class B Common Stock that were issued to such
stockholders, (iv) certain restrictions on the Issuer selling or issuing shares
of Common Stock, or securities convertible into or exchangeable for shares of
Common Stock, at a price per share that is less than the fair market value of
such Common Stock, (v) certain limitations on transactions between the Company
and any affiliate of the Company, and (vi) the granting to the ITCO Stockholders
of the right to require the Issuer to redeem all of the outstanding shares of
Class B Common Stock that were issued to such stockholders according to an
agreed upon formula upon the occurrence of certain events or January 4, 2005, if
earlier.

THE CPW ACQUISITION

On the Closing Date, the Issuer acquired all of the outstanding shares of
Speed Merchant pursuant to a Stock Purchase Agreement (the "CPW Acquisition
Agreement") between the Issuer and the stockholders of Speed Merchant (the "CPW
Stockholders"). The total consideration payable to the CPW Stockholders in
connection with the CPW Acquisition is $45.0 million in cash, of which $35.0
million was paid on the Closing Date upon consummation of the CPW Acquisition in
exchange for the stock of Speed Merchant, $7.4 million is payable in
installments for five years after the CPW Acquisition in exchange for covenants
not to compete given by the CPW Stockholders and $2.6 million is payable in the
form of contingent payouts to the CPW Stockholders. At the request of the
Issuer, the agent under the New Credit Facility issued a letter of credit under
the New Credit Facility to be held in escrow to secure the Issuer's obligations
to make such non-compete payments. In addition, at the Closing Date,
approximately $1.0 million of CPW's long-term indebtedness was repaid.

The CPW Acquisition Agreement contains certain representations, warranties
and covenants made by the Issuer on the one hand and the CPW Stockholders on the
other hand. With certain limited exceptions, such representations and warranties
expire two years after the Closing Date. In general, the CPW Acquisition
Agreement provides for indemnification of the Issuer by the CPW Stockholders,
and for the indemnification of the CPW Stockholders by the Issuer, for losses
relating to misrepresentations or breaches of such representations, warranties
and covenants.

The CPW Acquisition Agreement provides that the purchase price payable for
the stock of Speed Merchant will be reduced dollar for dollar if Speed
Merchant's net worth or working capital as at the Closing Date falls below
certain specified amounts. An additional adjustment amount is payable by the
Issuer to the CPW Stockholders (or by the CPW Stockholders to the Issuer) if the
net earnings attributable to certain Arizona retail stores acquired by Phoenix
Racing, Inc., a wholly owned subsidiary of Speed Merchant, exceed (or fall short
of) specified targets for the year following the Closing Date.

On the Closing Date, Arthur C. Soares, the President of the Company's
Western wholesale division and a CPW Stockholder, entered into a two-year
employment agreement with the Issuer which provides for an annual base salary,
stay-put bonuses payable at the end of each year of the two-year term, a
"synergy" bonus payable at the end of the first year based on the attainment of
specified performance targets for CPW and an

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<PAGE> 26

annual incentive and performance bonus to be determined in the discretion of the
Board of Directors of the Issuer. On the Closing Date, Ray C. Barney, the Chief
Operating Officer of the Company's Speed Merchant subsidiary and a CPW
Stockholder, entered into a three-year employment agreement, which provides for
an annual base salary, stay-put bonuses payable at the end of each year of the
three-year term, a "synergy" bonus payable at the end of the first year based on
the attainment of specified performance targets for CPW and an annual incentive
and performance bonus to be determined in the discretion of the Board of
Directors of the Issuer. Both employment agreements contain non-compete,
non-solicitation and confidentiality provisions.

FINANCING TRANSACTIONS

Financing necessary to complete the acquisition of the New Businesses and
the repayment of Heafner's outstanding subordinated debt was obtained from the
proceeds of the offering of the Old Notes on the Closing Date and amounts
outstanding under the New Credit Facility. The New Credit Facility replaced the
Old Credit Facility, under which $33.5 million was outstanding on the Closing
Date (without giving effect to the Transactions). The ITCO Facility, under which
$26.3 million was outstanding on the Closing Date, was repaid and terminated on
July 15, 1998. For purposes of the financial and other information in this
Prospectus, amounts outstanding under the Old Credit Facility and the ITCO
Facility have been treated as repaid on the Closing Date and borrowed under the
New Credit Facility on the Closing Date. The aggregate amount of commitments
under the New Credit Facility is currently $100.0 million.

Also on the Closing Date, the Issuer applied a portion of the proceeds of
the offering of the Old Notes to repay $16.0 million of subordinated debt and
$10.3 million outstanding under a term loan of the Issuer outstanding at the
Closing Date.

GOVERNMENTAL APPROVALS

Apart from requirements under the Securities Act, there are no governmental
approvals required in connection with the Exchange Offer.

SOURCES AND USES OF FUNDS

The following table sets forth the approximate sources and uses of funds on
the Closing Date (amounts in thousands):

<TABLE>
<S> <C>
SOURCES OF FUNDS
New Credit Facility......................................... $ 48,054
Notes....................................................... 100,000
Assumption of indebtedness(a)............................... 11,106
Deferred payments(b)........................................ 11,390
Class B Common Stock........................................ 14,959
--------
Total Sources..................................... $185,509
========
USES OF FUNDS
ITCO Merger(c).............................................. $ 34,349
CPW Acquisition(d).......................................... 45,000
Repayment/refinancing of existing indebtedness(e)........... 87,054
Assumption of indebtedness(a)............................... 11,106
Estimated transaction fees and expenses(f).................. 8,000
--------
Total Uses........................................ $185,509
========
</TABLE>

- ---------------
(a) Represents assumption of (i) ITCO building mortgages of $2.5 million and
(ii) vendor loans and other amounts at ITCO and CPW.

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<PAGE> 27

contingent payouts to the stockholders of Speed Merchant and (iii) $1.4
million for the exercise of stock appreciation rights by certain employees
of ITCO.

(c) Includes 1,400,667 shares of Class B Common Stock appraised at approximately
$15.0 million and $1.4 million payable to holders of ITCO stock appreciation
rights.

(d) Includes the amounts described in clauses (i) and (ii) of footnote (b).

USE OF PROCEEDS

The proceeds of the offering of the Old Notes, together with other sources
of funds obtained on the Closing Date, were applied towards payment, repayment
or refinancing of approximately (i) $18.0 million in cash consideration for the
ITCO Merger, (ii) $1.4 million to holders of ITCO stock appreciation rights,
(iii) $45.0 million for the CPW Acquisition (including approximately $10.0
million payable in installment and incentive payments to the stockholders of
Speed Merchant), (iv) $59.8 million of long-term indebtedness of Heafner
(including $16.0 million of subordinated debt), (v) $26.3 million of long-term
indebtedness of ITCO, (vi) $1.0 million of long-term indebtedness of CPW and
(vii) fees and expenses, including the Initial Purchasers' (as defined)
discount, and other fees and direct expenses incurred in connection with the
Transactions, including lenders' fees (including prepayment fees), legal fees,
accounting fees and other out-of-pocket expenses.

There will be no proceeds to the Company from any exchange pursuant to the
Exchange Offer.

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<PAGE> 28

THE EXCHANGE OFFER

PURPOSE AND EFFECT OF THE EXCHANGE OFFER

The Old Notes were sold by the Issuer on the Closing Date to Credit Suisse
First Boston Corporation and BancBoston Securities Inc. (together, the "Initial
Purchasers") who resold the Old Notes to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) in reliance upon Rule 144A under
the Securities Act. In connection therewith, the Issuer, the Subsidiary
Guarantors and the Initial Purchasers entered into the Registration Rights
Agreement.

The Issuer has agreed pursuant to the Registration Rights Agreement, for
the benefit of the holders of the Old Notes, that the Issuer will, at its cost,
(i) within 90 days after the date of original issue of the Old Notes, file a
registration statement (the "Exchange Offer Registration Statement") with the
SEC with respect to a registered offer to exchange the Old Notes for New Notes
and (ii) use its best efforts to cause the Exchange Offer Registration Statement
to be declared effective under the Securities Act within 150 days after the date
of original issue of the Old Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Issuer will offer the New Notes in exchange for
surrender of the Old Notes. The Issuer will keep the Exchange Offer open for not
less than 20 Business Days (or longer, for a limited period only, if required by
applicable law or if other unforeseen circumstances arise) after the date notice
of the Exchange Offer is mailed or otherwise transmitted to the holders of the
Old Notes. For each Old Note surrendered to the Issuer pursuant to the Exchange
Offer, the holder of such Old Note will receive a New Note having a principal
amount equal to that of the surrendered Old Note. Interest on each New Note will
accrue from the last interest payment date on which interest was paid on the Old
Note surrendered in exchange therefor or, if no interest has been paid on such
Old Note, from the date of its original issue.

A Holder of Old Notes (other than certain specified holders) who wishes to
exchange such Old Notes for New Notes in the Exchange Offer will be required to
represent that any New Notes to be received by it will be acquired in the
ordinary course of its business and that at the time of the commencement of the
Exchange Offer it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the New Notes and that it is not an "affiliate" of the Issuer, as defined in
Rule 405 of the Securities Act, or if it is an affiliate, that it will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable (a holder of Notes unable to make the foregoing
representation is referred to as a "Restricted Holder"). A Restricted Holder
will not be able to participate in the Exchange Offer and may only sell its Old
Notes pursuant to a registration statement containing the selling security
holder information required by Item 507 of Regulation S-K under the Securities
Act, or pursuant to an exemption from the registration requirement of the
Securities Act.

Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, including to Exxon Capital Holdings
(available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5,
1991), K-III Communications Corporation (available May 14, 1993), Shearman &
Sterling (available July 2, 1993) and Brown & Wood LLP (available February 7,
1997), the Company believes that the New Notes issued pursuant to the Exchange
Offer may be offered for resale, resold and otherwise transferred by any holder
of such New Notes (other than Restricted Holders or Participating
Broker-Dealers) without compliance with the registration and prospectus delivery
provisions of the Securities Act. Any holder of Notes who tenders Old Notes in
the Exchange Offer for the purpose of participating in a distribution of the New
Notes cannot rely on the staff position enunciated in the no-action letters
issued to third parties referred to above and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction.

Each Participating Broker-Dealer must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
New Notes received pursuant to the Exchange Offer. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. Based upon interpretations by the staff of the Commission,
the Company believes that New Notes issued pursuant to the Exchange Offer to
Participating Broker-Dealers may be offered for resale, resold and otherwise
transferred by a Participating Broker-Dealer upon compliance with the prospectus
delivery requirements, but without

25
<PAGE> 29

compliance with the registration requirements, of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 180 days after the date the Exchange Offer
Registration Statement is declared effective by the Commission, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. By acceptance of this Exchange Offer, each broker-dealer that
receives New Notes pursuant to the Exchange Offer agrees to notify the Company
prior to using this Prospectus in connection with the sale or transfer of New
Notes. See "Plan of Distribution."

As a result of the filing and the effectiveness of the Exchange Offer
Registration Statement and the consummation of the Exchange Offer, the Company's
obligation to make certain semi-annual payments with respect to the Old Notes
will be terminated. The Old Notes were issued to a limited number of
institutional investors on the Closing Date and there is no public market for
them at present. To the extent Old Notes are tendered and accepted in the
exchange, the principal amount of outstanding Old Notes will decrease with a
resulting decrease in the liquidity in the market therefor. Following the
consummation of the Exchange Offer, holders of Old Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for the Old Notes could be adversely affected.

In the event that applicable interpretations of the staff of the Commission
do not permit the Issuer to effect such an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of the Issue Date,
or if the Initial Purchasers so request with respect to Old Notes not eligible
to be exchanged for New Notes in the Exchange Offer, or if any holder of Old
Notes is not eligible to participate in the Exchange Offer or does not receive
freely tradeable New Notes in the Exchange Offer (provided that a Participating
Broker-Dealer which has a prospectus delivery requirement with respect to New
Notes received in the Exchange Offer will not be deemed, for purposes of this
sentence, to have failed to receive freely tradeable New Notes), the Issuer
will, at its cost, (a) as promptly as practicable, file a shelf registration
statement (a "Shelf Registration Statement") covering resales of the Notes or
the New Notes, as the case may be, (b) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act and (c)
keep the Shelf Registration Statement effective until the time when the Notes
covered by the Shelf Registration Statement can be sold by non-affiliates of the
Issuer pursuant to Rule 144 without any limitations under clauses (c), (e), (f)
and (h) of Rule 144. The Issuer will, in the event a Shelf Registration
Statement is filed, among other things, provide to each holder for whom such
Shelf Registration Statement was filed copies of the prospectus which is a part
of the Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Notes or the New Notes, as
the case may be. A holder selling such Notes or New Notes pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations).

If (i) by August 18, 1998, neither the Exchange Offer Registration
Statement nor a Shelf Registration Statement has been filed with the SEC; (ii)
by November 16, 1998, the Exchange Offer is not consummated and, if applicable,
the Shelf Registration Statement is not declared effective; or (iii) after
either the Exchange Offer Registration Statement or the Shelf Registration
Statement is declared effective, such Registration Statement thereafter ceases
to be effective or usable (subject to certain exceptions) in connection with
resales of Old Notes or New Notes in accordance with and during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (i) through (iii) a "Registration Default"), additional interest will
accrue on the applicable Old Notes and the New Notes at the rate of 0.50% per
annum from and including the date on which any such Registration Default shall
occur to but excluding the date on which all Registration Defaults have been
cured. Such interest is payable in addition to any other interest payable from
time to time with respect to the Old Notes and the New Notes; provided that such
interest shall be the sole remedy for a Registration Default.

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<PAGE> 30

Pursuant to the Registration Rights Agreement, the Issuer is entitled to
close the Exchange Offer 20 Business Days after the commencement thereof
provided that it has accepted all Notes theretofore validly tendered in
accordance with the terms of the Exchange Offer.

The summary herein of certain provisions of the Registration Rights
Agreement describes all material provisions of the Registration Rights
Agreement, but is subject to, and is qualified in its entirety by reference to,
all the provisions of the Registration Rights Agreement, a copy of which is
available upon request to the Issuer.

TERMS OF THE EXCHANGE OFFER

Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. As of the date of this Prospectus, an aggregate of $100.0
million principal amount of the Old Notes is outstanding. The Company will issue
$1,000 principal amount at maturity of New Notes in exchange for each $1,000
principal amount at maturity of outstanding Old Notes accepted in the Exchange
Offer. Holders may tender some or all of their Old Notes pursuant to the
Exchange Offer. However, Old Notes may be tendered only in integral multiples of
$1,000.

The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes will
have been registered under the Securities Act and therefore will not bear
legends restricting the transfer thereof. The New Notes will evidence the same
debt as the Old Notes and will be entitled to the benefits of the Indenture
under which the Old Notes were, and the New Notes will be, issued.

Holders of the Old Notes do not have any appraisal or dissenters' rights
under law or the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.

The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral (promptly confirmed in writing) or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering holders for the purpose of receiving the New Notes from
the Company.

If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.

Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."

EXPIRATION DATE; EXTENSIONS; AMENDMENTS

The term "Expiration Date" means 5:00 p.m., New York City time, on November
16, 1998, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.

In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral (promptly confirmed in writing) or written notice
and will make a public announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date unless otherwise required by applicable law or regulation.

The Company reserves the right, in its reasonable discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth below under "Conditions" shall not have been satisfied, to
terminate the Exchange Offer, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by a public
announcement thereof. If the Exchange Offer is amended in a manner determined by
the Company to

27
<PAGE> 31

constitute a material change, the Company will promptly disclose such amendment
by means of a prospectus supplement that will be distributed to the registered
holders, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the amendment and the
manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such five to ten business day period.

Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.

PROCEDURES FOR TENDERING

Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder of Old Notes must complete, sign and
date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the Old Notes (or a confirmation of an appropriate book-entry transfer into the
Exchange Agent's account at DTC as described below) and any other required
documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date. To be tendered effectively, the Old Notes (or a timely
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC as described below), Letter of Transmittal and other
required documents must be received by the Exchange Agent at the address set
forth below under "Exchange Agent" prior to 5:00 p.m., New York City time, on
the Expiration Date. The tender by a holder will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.

The Exchange Agent has established an account with respect to the Old Notes
at DTC, and any financial institution which is a participant in DTC may make
book-entry delivery of the Old Notes by causing DTC to transfer such Old Notes
into the Exchange Agent's account in accordance with DTC's procedure for such
transfer. Although delivery of Old Notes may be effected through book-entry
transfer into the Exchange Agent's account at DTC, the Letter of Transmittal,
with any required signature guarantees and any other required documents, must in
any case be transmitted to and received by the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date at one of its addresses set
forth below under "Exchange Agent", or the guaranteed delivery procedure
described below must be complied with. Delivery of documents to DTC in
accordance with its procedures does not constitute delivery to the Exchange
Agent. All references in this Prospectus to deposit or delivery of Old Notes
shall be deemed to include DTC's book-entry delivery method.

The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent, including delivery through DTC,
is at the election and risk of the Holder. Instead of delivery by mail, it is
recommended that Holders use an overnight or hand delivery service. If Old Notes
are sent by mail, registered mail with return receipt requested, properly
insured, is recommended. In all cases, sufficient time should be allowed to
assure delivery to the Exchange Agent before the Expiration Date. No Letter of
Transmittal or Old Notes should be sent to the Company.

Holders may request their respective brokers, dealers, commercial banks,
trust companies or nominees to effect the above transactions for such holders.

Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Old Notes, either make appropriate arrangements to register ownership of
the Old Notes in such owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.

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<PAGE> 32

Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").

If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.

All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders
(or, in the case of Old Notes delivered by book-entry transfer within DTC, will
be credited to the account maintained within DTC by the participant in DTC which
delivered such Old Notes), unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.

In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date or, as set forth below under "Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.

By tendering, each holder of Old Notes will represent to the Company that,
among other things, such holder is not a Restricted Holder. In addition, each
Participating Broker-Dealer must acknowledge that it will deliver a prospectus
in connection with any resale of New Notes. See "Plan of Distribution."

BOOK-ENTRY TRANSFER

The Exchange Agent will establish a new account or utilize an existing
account with respect to the Old Notes at the Depository promptly after the date
of this Prospectus, and any financial institution that is a participant in the
Depository and whose name appears on a security position listing as the owner of
Old Notes may make a book-entry tender of Old Notes by causing the Depository to
transfer such Old Notes into the Exchange Agent's account in accordance with the
Depository's procedures for such transfer. However, although tender of Old Notes
may be effected through book-entry transfer into the Exchange Agent's account at
the Depository, the Letter of Transmittal (or a manually-signed facsimile
thereof), properly completed and validly executed, with any required signature
guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and any
other required documents, must, in any case, be received by the Exchange Agent
at its

29
<PAGE> 33

address set forth below under the caption "Exchange Agent" on or prior to the
Expiration Date, or the guaranteed delivery procedures described below must be
complied with. The confirmation of book-entry transfer of Old Notes into the
Exchange Agent's account at the Depository as described above is referred to
herein as a "Book-Entry Confirmation." Delivery of documents to the Depository
in accordance with the Depository's procedures does not constitute delivery to
the Exchange Agent.

The term "Agent's Message" means a message transmitted by the Depository
to, and received by, the Exchange Agent and forming a part of a Book-Entry
Confirmation, which states that the Depository has received an express
acknowledgment from the participant in the Depository tendering Old Notes
stating (i) the aggregate principal amount of Old Notes which have been tendered
by such participant, (ii) that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal and (iii) that the Company may
enforce such agreement against the participant.

GUARANTEED DELIVERY PROCEDURES

Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes (or a
confirmation of book-entry transfer of Old Notes into the Exchange Agent's
account at DTC), the Letter of Transmittal or any other required documents to
the Exchange Agent prior to the Expiration Date or (iii) who cannot complete the
procedure for book-entry transfer on a timely basis, may effect a tender if:

(a) the tender is made by or through an Eligible Institution;

(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of such Old Notes and the
principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three (3) New York Stock
Exchange, Inc. trading days after the Expiration Date, a duly executed
Letter of Transmittal (or facsimile thereof) together with the Old Notes
(or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC), and any other documents required by the
Letter of Transmittal and the instructions thereto, will be deposited by
such Eligible Institution with the Exchange Agent; and

(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), and all tendered Old Notes in proper form for transfer
(or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within three (3)
New York Stock Exchange, Inc. trading days after the Expiration Date.

Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.

WITHDRAWAL OF TENDERS

Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.

To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m.. New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the holder
of such Old Notes in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such Old
Notes into the name of the person withdrawing the tender and (iv) specify the
name in which any such Old Notes are to be registered, if different from that of
the Depositor. If the Old Notes have
30
<PAGE> 34

been delivered pursuant to the book-entry procedure set forth above under
"-- Procedures for Tendering," any notice of withdrawal must specify the name
and number of the participant's account at DTC to be credited with the withdrawn
Old Notes. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company in its sole
discretion, which determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly retendered. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "-- Procedures for Tendering" at any time prior to the
Expiration Date.

Any Old Notes which are tendered but which are not accepted due to
withdrawal, rejection of tender or termination of the Exchange Offer will be
returned as soon as practicable to the holder thereof without cost to such
holder (or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Old Notes will be credited
to an account maintained with such Book-Entry Transfer Facility for the Old
Notes).

CONDITIONS

Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate the Exchange Offer as provided herein before the acceptance of
such Old Notes, if:

(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company, or
any material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or

(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred which, in the reasonable judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer or materially impair the contemplated benefits of the Exchange Offer
to the Company; or

(c) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the reasonable judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or

(d) there shall have occurred (i) any general suspension of trading
in, or general limitation on prices for, securities on the New York Stock
Exchange, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation by any
governmental agency or authority that adversely affects the extension of
credit to the Company or (iii) a commencement of war, armed hostilities or
other similar international calamity directly or indirectly involving the
United States; or, in the event that any of the foregoing exists at the
time of commencement of the Exchange Offer, a material acceleration or
worsening thereof; or

(e) any governmental approval has not been obtained, which approval
the Company shall in its reasonable judgment deem necessary, for the
consummation of the Exchange Offer as contemplated hereby.

The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.

If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering holders thereof (or, in the
case of Old Notes delivered by book-entry transfer within DTC, credit such Old
Notes to the account maintained within DTC by the participant in DTC which
delivered such Notes), (ii) extend the Exchange Offer and retain all Old Notes
tendered prior to the expiration of the Exchange Offer, subject,

31
<PAGE> 35

however, to the rights of holders thereof to withdraw such tenders of Old Notes
(see "Withdrawal of Tenders" above) or (iii) waive such unsatisfied conditions
with respect to the Exchange Offer and accept all properly tendered Old Notes
which have not been withdrawn. If such waiver constitutes a material change to
the Exchange Offer, the Company will promptly disclose such waiver by means of a
prospectus supplement that will be distributed to the registered holders of
Notes, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders of Notes, if the Exchange Offer would
otherwise expire during such five to ten business day period.

EXCHANGE AGENT

The Chase Manhattan Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:

The Chase Manhattan Bank, Exchange Agent

<TABLE>
<S> <C>
By Mail, Hand or Overnight Courier: Facsimile Transmission Number
55 Water Street (Eligible Institutions only):
Room 234, North Building (212) 638-7375 or
New York, New York 10041 (212) 344-9367
Attention: Carlos Esteves
To Confirm Facsimile
(If by Mail, Registered or or for Information Call
Certified Mail Recommended) (212) 638-0828
</TABLE>

FEES AND EXPENSES

The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by facsimile, telephone or in person by officers and regular
employees of the Company and its affiliates.

The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for services and will reimburse it
for its reasonable out-of-pocket expenses in connection therewith and will pay
the reasonable fees and expenses of one firm acting as counsel for the holders
of Old Notes should such holders deem it advisable to appoint such counsel.

The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.

The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, New Notes or Old Notes
for principal amounts not tendered or accepted for exchange are to be
registered, or are to be issued in the name of, or delivered to, any person
other than the registered holder, or if tendered Old Notes are registered in the
name of any person other than the person signing the Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.

ACCOUNTING TREATMENT

The New Notes will be recorded at the same carrying value as the Old Notes
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by the Company. The expenses of the Exchange Offer
and the unamortized expenses relating to the issuance of the Old Notes will be
amortized over the term of the New Notes.

32
<PAGE> 36

CAPITALIZATION

The following table sets forth, as of December 31, 1997, and June 30, 1998,
the consolidated capitalization of Heafner and the Company, respectively. This
table should be read in conjunction with the consolidated financial statements
of Heafner and the New Businesses and the related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
HEAFNER COMPANY
----------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 2,502 $ 3,879
======= ========
Long-term debt, including current maturities:
Old Credit Facility....................................... $31,949 $ --
New Credit Facility....................................... -- 54,305
10% Senior Notes Due 2008................................. -- 100,000
Vendor loans.............................................. 5,654 11,038
Other debt................................................ 27,055 5,522
------- --------
Total debt........................................ 64,658 170,865
------- --------
Redeemable Preferred Stock Series A -- 4% cumulative, $.01
par value, 7,000 shares authorized, 7,000 shares issued... 7,000 7,000
------- --------
Redeemable Preferred Stock Series B -- variable rate
cumulative, $.01 par value, 4,500 shares authorized, 4,500
shares issued............................................. 4,500 4,500
------- --------
Warrants.................................................... 1,137 1,137
------- --------
Stockholders' equity:
Class A Common Stock, $.01 par value, 10,000,000 shares
authorized; 3,691,000 shares issued at December 31,
1997 and June 30, 1998(a).............................. 37 37
Class B Common Stock, $.01 par value, 1,400,667 shares
authorized; no shares issued at December 31, 1997;
1,400,667 shares issued at June 30, 1998............... -- 14
Additional paid-in capital................................ 7,256 22,200
Notes receivable from stock sales......................... (248) (178)
Retained earnings (deficit)............................... 614 (3,000)
------- --------
Total stockholders' equity........................ 7,659 19,073
------- --------
Total capitalization.............................. $84,954 $202,575
======= ========
</TABLE>

- ---------------
(a) Gives effect to the Reclassification as if it had occurred as of December
31, 1997, and excludes 1,034,000 shares issuable upon exercise of warrants
and 256,000 shares issuable upon exercise of options.

33
<PAGE> 37

UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL DATA

The following unaudited pro forma condensed combined statement of
operations ("Pro Forma Statement of Operations") for the year ended December 31,
1997 has been derived by the application of pro forma adjustments to the
historical statements of operations of Heafner, Winston, ITCO and CPW which are
included elsewhere in this Prospectus. The historical accounts of ITCO for the
year ended September 30, 1997, and the historical accounts of CPW for the year
ended October 31, 1997, have been derived from the audited financial statements
included elsewhere in this Prospectus. The unaudited Pro Forma Statement of
Operations for the six months ended June 30, 1998, includes the unaudited
condensed consolidated statement of operations for the six months ended June 30,
1998 for the Company, and the unaudited condensed statements of operations for
the five months ended May 20, 1998 and May 31, 1998, for ITCO and CPW,
respectively. The unaudited Pro Forma Statements of Operations for the year
ended December 31, 1997, and for the six months ended June 30, 1998, give effect
to the Winston acquisition and the Transactions as if they had all occurred on
January 1, 1997.

The pro forma adjustments are described in the accompanying notes and are
based upon available information and certain assumptions that the Company
believes are reasonable, including assumptions relating to the preliminary
allocation of the consideration paid in connection with the ITCO Merger and CPW
Acquisition to the assets and liabilities of the New Businesses based on
estimates of their respective fair values. The actual purchase price allocation
may differ from that reflected in the Pro Forma Statements of Operations.

The unaudited Pro Forma Statements of Operations do not purport to
represent what the Company's results would have been if the Winston acquisition
and the Transactions had occurred on the date or for the periods indicated, or
to project what the Company's results of operations for any future period or
date will be. The unaudited Pro Forma Statements of Operations should be read in
conjunction with "Selected and Historical and Unaudited Financial Data of
Heafner," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Financial Statements of Heafner, Winston, ITCO
and CPW, and notes thereto included elsewhere in this Prospectus.

34
<PAGE> 38

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL
----------------------------------- PRO FORMA (NOTE 3)
ITCO CPW ---------------------------------------
HEAFNER (5/20/98) (5/31/98) ACQUISITION FINANCING PRO FORMA
6/30/98 (5 MONTHS) (5 MONTHS) ADJUSTMENTS ADJUSTMENTS COMBINED
-------- ---------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................ $243,179 $149,123 $60,964 $453,266
Cost of goods sold....... 182,131 126,920 44,411 $ 1,235(a) 354,697
-------- -------- ------- --------- --------
Gross profit........ 61,048 22,203 16,553 (1,235) 98,569
General, selling and
administrative
expenses............... 55,462 17,531 13,484 (1,900)(b) 84,577
Amortization expense..... 1,800 375 -- 3,397(c) 5,572
Special charges.......... 1,409 -- -- (1,409)(d) --
-------- -------- ------- --------- --------
Income from operations... 2,377 4,297 3,069 (1,323) 8,420
OTHER EXPENSE:
Interest expense,
net................. 4,286 1,526 212 247(e) $ 2,031(e) 8,302
Other expense, net..... 204 -- 50 254
-------- -------- ------- --------- ------- --------
Total nonoperating
expense........... 4,490 1,526 262 247 2,031 8,556
-------- -------- ------- --------- ------- --------
Income (loss) before
income taxes........... (2,113) 2,771 2,807 (1,570) (2,031) (136)
Provision (benefit) for
income taxes........... (837) 1,179 1,125 192(f) (808)(f) 851
-------- -------- ------- --------- ------- --------
Net income (loss)
before extraordinary
item................ $ (1,276) $ 1,592 $ 1,682 $ (1,762) $(1,223) $ (987)
======== ======== ======= ========= ======= ========
OTHER DATA:
Depreciation and
amortization........ 4,029 1,065 246 3,397 8,737
EBITDA(g).............. 5,882 5,362 3,265 2,074 16,583
Capital expenditures... 1,908 292 338 2,538
Ratio of earnings to
fixed charges(h).... -- 2.2x 5.2x --
</TABLE>

35
<PAGE> 39

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL ACQUISITIONS PRO FORMA (NOTE 4)
---------- ------------------------------------- ---------------------------------------
HEAFNER WINSTON ITCO CPW ACQUISITION FINANCING PRO FORMA
12/31/97 (4 MONTHS) (9/30/97) (10/31/97) ADJUSTMENTS ADJUSTMENTS COMBINED
---------- ---------- --------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $311,839 $44,504 $351,996 $122,410 $830,749
Cost of goods sold........... 233,941 27,475 301,970 98,289 $(2,340)(a) 659,335
-------- ------- -------- -------- ------- --------
Gross profit............... 77,898 17,029 50,026 24,121 2,340 171,414
General, selling and
administrative expenses.... 72,893 16,788 46,995 20,087 (6,233)(b) 150,530
Amortization expense......... 1,548 -- 872 -- 7,666(c) 10,086
-------- ------- -------- -------- ------- --------
Income from operations....... 3,457 241 2,159 4,034 907 10,798
OTHER (INCOME) EXPENSE:
Interest expense (income),
net...................... 4,842 (165) 3,710 156 286(d) $ 5,958(d) 14,787
Other expense (income),
net...................... (1,132) 424 340 67 (301)
-------- ------- -------- -------- ------- ------- --------
Total nonoperating
expense................ 3,710 259 4,050 223 286 5,958 14,486
-------- ------- -------- -------- ------- ------- --------
Income (loss) before income
taxes...................... (253) (18) (1,891) 3,811 621 (5,958) (3,688)
Provision (benefit) for
income taxes............... (239) (7) (452) 1,531 2,223(e) (2,375)(e) 681
-------- ------- -------- -------- ------- ------- --------
Net income (loss).......... $ (14) $ (11) $ (1,439) $ 2,280 $(1,602) $(3,583) $ (4,369)
======== ======= ======== ======== ======= ======= ========
OTHER DATA:
Depreciation and
amortization............. $ 5,399 $ 632 $ 2,493 $ 484 $ 7,953 $ 16,961
EBITDA(f).................. 9,988 449 4,312 4,451 8,860 28,060
Capital expenditures....... 4,908 373 1,188 3,489 9,958
Ratio of earnings to fixed
charges(g)............... -- -- -- 3.9x --
</TABLE>

36
<PAGE> 40

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

NOTE 1: ACQUISITIONS

Following is a description of the ITCO Merger, the CPW Acquisition and the
Winston Acquisition which are reflected in the accompanying unaudited Pro Forma
Statements of Operations:

ITCO Merger

The ITCO Merger occurred on May 20, 1998. The ITCO Merger has been
accounted for as a purchase, with the excess of the purchase price over the fair
value of the net assets acquired allocated to goodwill, which is being amortized
over 15 years.

A summary of the purchase price and related preliminary purchase allocation
follows:

AGGREGATE PURCHASE PRICE

<TABLE>
<S> <C>
Cash paid to holders of ITCO common and preferred stock..... $18,000
Appraised value of Class B Common Stock issued in connection
with the ITCO Merger (1,400,667 shares at $10.68 per
share).................................................... 14,959
Severance, facility closing expenses and other exit costs
incurred in connection with the ITCO Merger............... 4,380(1)
Amount payable upon settlement of ITCO stock appreciation
rights.................................................... 1,390
Financial advisors, accounting, legal and other direct
acquisition costs......................................... 929
-------
Aggregate purchase price.................................. $39,658
=======
</TABLE>

PRELIMINARY ALLOCATION OF PURCHASE PRICE

<TABLE>
<S> <C>
Aggregate purchase price.................................... $39,658
Less net book value of assets acquired.................... (7,152)
-------
Excess of cost over net book value of assets acquired....... 32,506
Adjustments to record assets and liabilities at fair market
value:
Property and equipment.................................... (153)
Deferred tax asset........................................ (1,944)(2)
Goodwill (historical)..................................... 13,963
Accrued expenses.......................................... 644
-------
Total adjustments...................................... 12,510
-------
Goodwill.................................................. $45,016(3)(4)
=======
</TABLE>

- ---------------
(1) Reflects exit costs incurred in connection with the ITCO Merger in
accordance with EITF 95-3, "Recognition of Liabilities in Connection with a
Purchase Business Combination."

(2) Represents a deferred tax asset related to the temporary difference between
the financial statement carrying amount and the tax basis of certain
liabilities recorded in the opening balance sheet at an assumed income tax
rate of 40%.

(3) Upon completion of its determination of fair values, Heafner may identify
other intangible assets to which a portion of the purchase price will be
allocated. The Company believes that the amortization period for such
identifiable intangible assets will be up to 15 years.

37
<PAGE> 41
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS -- (CONTINUED)

(4) For purposes of the accompanying Pro Forma Statements of Operations,
goodwill resulting from the ITCO Merger will not be deductible for income
tax reporting purposes.

CPW Acquisition

On May 20, 1998, Heafner acquired the common stock of CPW. The CPW
Acquisition has been accounted for as a purchase, with the excess of the
purchase price over the fair value of the net assets acquired allocated to
goodwill, which is being amortized over 15 years.

A summary of the purchase price and related preliminary purchase allocation
follows:

AGGREGATE PURCHASE PRICE

<TABLE>
<S> <C>
Cash paid to CPW Stockholders............................... $35,000
Amount payable for non-compete agreement and other deferred
payments.................................................. 10,000
Repayment of long-term indebtedness......................... 976
Severance, facility closing expenses and other costs
incurred in connection with the CPW Acquisition........... 862(5)
Financial, accounting, legal and other direct acquisition
costs..................................................... 633
-------
Aggregate purchase price.................................. $47,471
=======
</TABLE>

PRELIMINARY ALLOCATION OF PURCHASE PRICE

<TABLE>
<S> <C>
Aggregate purchase price.................................... $47,471
Less net book value of assets acquired.................... (9,472)
-------
Excess of cost over net book value of assets acquired....... 37,999
Less adjustments to record assets and liabilities at fair
market value:
Inventory................................................. 1,018
Other current assets...................................... (22)
Non-compete agreement and other deferred payments......... (10,000)
Other assets.............................................. 267(6)
Deferred tax asset........................................ (1,353)(7)
Accounts payable.......................................... 276
Accrued expenses.......................................... 971
-------
Total adjustments...................................... (8,843)
-------
Goodwill.................................................. $29,156(8)
=======
</TABLE>

- ---------------
(5) Reflects exit costs incurred in connection with the CPW Acquisition in
accordance with EITF 95-3, "Recognition of Liabilities in Connection with a
Purchase Business Combination."

(6) Upon completion of its determination of fair values, the Company may
identify other intangible assets to which a portion of the purchase price
will be allocated. The Company believes that the amortization period for
such identifiable intangible assets will be up to 15 years.

(7) Represents a deferred tax asset related to the temporary difference between
the financial statement carrying amount and the tax basis of certain
liabilities recorded in the opening balance sheet at an assumed income tax
rate of 40%.

(8) For purposes of the accompanying Pro Forma Statements of Operations,
goodwill resulting from the CPW Acquisition will not be deductible for
income tax purposes.
38
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS -- (CONTINUED)

Winston Acquisition

On May 7, 1997, the Company acquired all of the outstanding common stock of
Winston for approximately $43,133. The acquisition was accounted for as a
purchase and accordingly, the operating results of Winston have been included in
the Company's consolidated statement of operations since May 7, 1997.
Accordingly, management adjusted, on a pro forma basis, the statement of
operations to include the historical results of Winston for the portion of the
year ended December 31, 1997 prior to its acquisition by the Company.

See Note 2 in The J.H. Heafner Company, Inc.'s audited financial statements
for the Winston acquisition purchase allocation.

NOTE 2: FINANCING TRANSACTIONS

These represent adjustments for the Offering of the Notes and the New
Credit Facility.

The following table sets forth the approximate sources and uses of funds as
of the Closing Date (amounts in thousands):

<TABLE>
<S> <C>
SOURCES OF FUNDS
New Credit Facility....................................... $ 48,054
Notes..................................................... 100,000
Assumption of indebtedness................................ 11,106
Deferred payments......................................... 11,390
Class B Common Stock...................................... 14,959
--------
Total Sources..................................... $185,509
========
USES OF FUNDS
ITCO Merger............................................... $ 34,349
CPW Acquisition........................................... 45,000
Repayment/refinancing of existing indebtedness............ 87,054
Assumption of indebtedness................................ 11,106
Estimated transaction fees and expenses................... 8,000
--------
Total Uses........................................ $185,509
========
</TABLE>

NOTE 3: PRO FORMA ADJUSTMENTS -- CONDENSED COMBINED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1998

The following pro forma adjustments have been applied to the unaudited
statement of operations for the six months ended June 30, 1998, for Heafner and
for the five months ended May 20, 1998 and May 31, 1998, for ITCO and CPW,
respectively, to reflect the ITCO Merger, the CPW Acquisition and the Financing
Transactions (Note 2) as if they had all occurred on January 1, 1997.

(a) To reflect CPW vendor rebate programs.

(b) To reflect the reduction in selling, general and administrative
expenses of ITCO corporate offices and other administrative expenses to be
eliminated upon the ITCO Merger.

39
<PAGE> 43
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS -- (CONTINUED)

<TABLE>
<CAPTION>
ACQUISITIONS
------------
<S> <C>
Amortization of ITCO goodwill............................... $1,250(A)
To eliminate ITCO historical goodwill....................... (285)
To eliminate ITCO other intangibles amortization............ (78)
Amortization of CPW goodwill................................ 810(A)
Amortization of CPW non-compete covenants and other deferred
payments.................................................. 1,700(B)
------
Total..................................................... $3,397
======
</TABLE>

- ---------------
(A) ITCO and CPW goodwill is being amortized over 15 years and is assumed to be
non-deductible for tax reporting purposes.

(B) The noncompete covenants and other deferred payments are being amortized
over the terms of the related agreements with the related amortization
expense assumed to be deductible for tax reporting purposes.

(d) To eliminate nonrecurring restructuring charge directly
attributable to the Transactions.

(e) Interest Expense -- To reflect adjustments to record the
following:

<TABLE>
<CAPTION>
ACQUISITIONS FINANCING
------------ ---------
<S> <C> <C>
To record interest expense on notes payable to CPW
stockholders for noncompete agreements............... $247
Increase interest expense related to Notes issued in
Offering at an assumed interest rate of 10.0% per
annum................................................ $4,167
Increase in interest expense related to New Credit
Facility at an assumed interest rate of 7.5% per
annum................................................ 1,802
Increase in amortization of deferred financing costs
incurred related to the Offering of $4,710........... 196
Increase in amortization of deferred financing costs
incurred related to the New Credit Facility of
$1,727............................................... 144
To eliminate historical interest expense for long-term
debt to be repaid from the Offering proceeds......... (4,030)
To eliminate Heafner historical amortization expense on
discount on long term debt to be repaid from the
Offering proceeds.................................... (66)
To eliminate historical amortization of deferred
financing costs on Heafner's existing credit facility
to be repaid......................................... (182)
---- ------
Total................................................ $247 $2,031
==== ======
</TABLE>

(f) Income Taxes -- To reflect adjustments to record the following:

<TABLE>
<CAPTION>
ACQUISITIONS FINANCING
------------ ---------
<S> <C> <C>
Income tax provision attributable to ITCO Merger and
CPW Acquisition adjustments.......................... $192
Income tax benefit attributable to Financing
adjustments.......................................... $(808)
---- -----
Total................................................ $192 $(808)
==== =====
</TABLE>

The income tax benefit has been adjusted to reflect the income tax effects
of pro forma adjustments based upon an assumed 40% tax rate.

40
<PAGE> 44
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS -- (CONTINUED)

Net deferred tax assets and liabilities related to the temporary
differences between the financial statement carrying amount and the tax basis of
the acquired assets and liabilities has been recorded at an assumed income tax
rate of 40% for the years in which those differences are expected to be
recovered or settled.

(g) EBITDA -- Represents net income (loss) before extraordinary item
plus income taxes, depreciation, amortization and interest expense. EBITDA
is presented because it is a widely accepted financial indicator of a
company's ability to service or incur indebtedness. However, EBITDA should
not be considered an alternative to net income as a measure of operating
results or to cash flows from operations as a measure of liquidity in
accordance with generally accepted accounting principles. EBITDA as
calculated and presented here may not be comparable to EBITDA as calculated
and presented by other companies.

(h) Ratio of Earnings to Fixed Charges -- In calculating the ratio of
earnings to fixed charges, earnings consist of income before income taxes
plus fixed charges. Fixed charges consist of interest expense (which
includes amortization of deferred financing costs) whether expensed or
capitalized and one-third of rental expense, deemed representative of that
portion of rental expense estimated to be attributable to interest. For the
periods shown for Heafner and combined pro forma earnings were insufficient
to cover fixed charges by $2,113 and $136, respectively.

NOTE 4: PRO FORMA ADJUSTMENTS -- CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997

The following pro forma adjustments have been applied to the accompanying
historical statements of operations for Heafner, Winston, ITCO and CPW to
reflect the ITCO Merger, the CPW Acquisition and the acquisition of Winston
(Note 1) and the Financing Transactions (Note 2) as if they had all occurred on
January 1, 1997:

(a) To reflect CPW vendor rebate programs.

(b) Selling, general, and administrative expenses -- To reflect
adjustments to record the following:

<TABLE>
<CAPTION>
ACQUISITIONS
------------
<S> <C>
Additional depreciation expense in connection with the
write-up of Winston property and equipment to fair
value..................................................... $ 287
Elimination of duplicate corporate selling, general and
administrative expenses of ITCO corporate offices and
other administrative expenses to be eliminated upon the
ITCO Merger............................................... (3,800)
Full year effect of a reduction of selling, general and
administrative expenses related to the elimination of ITCO
field staff personnel made during fiscal 1997............. (2,720)
-------
Total............................................. $(6,233)
=======
</TABLE>

41
<PAGE> 45
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS -- (CONTINUED)

<TABLE>
<CAPTION>
ACQUISITIONS
------------
<S> <C>
Amortization of Winston goodwill prior to May 7, 1997....... $ 812
Amortization of ITCO goodwill............................... 3,001(A)
To eliminate ITCO historical goodwill amortization.......... (684)
To eliminate amortization of other intangibles -- ITCO...... (187)
Amortization of CPW goodwill................................ 1,944(A)
Amortization of CPW non-compete covenants and other deferred
payments.................................................. 2,780(B)
------
Total..................................................... $7,666
======
</TABLE>

- ---------------
(A) ITCO and CPW goodwill is being amortized over 15 years and is assumed to be
non-deductible for tax reporting purposes.

(d) Interest Expense -- To reflect adjustments to record the
following:

<TABLE>
<CAPTION>
ACQUISITIONS FINANCING
------------ ---------
<S> <C> <C>
To record interest expense on notes payable to CPW
stockholders for noncompete agreements............... $ 592
To eliminate historical interest expense related to
Winston prior to May 7, 1997......................... (306)
Increase interest expense related to Notes issued in
Offering at an assumed interest rate of 10.0% per
annum................................................ $10,000
Increase in interest expense related to New Credit
Facility at an assumed interest rate of 7.5% per
annum................................................ 3,604
Increase in amortization of deferred financing costs
incurred related to the Offering of $4,710........... 471
Increase in amortization of deferred financing costs
incurred related to the New Credit Facility of
$1,727............................................... 345
To eliminate historical interest expense for long-term
debt to be repaid from the Offering proceeds......... (8,065)
To eliminate Heafner historical amortization expense on
discount on long term debt to be repaid from the
Offering proceeds.................................... (106)
To eliminate historical amortization of deferred
financing costs on Heafner's existing credit facility
to be repaid......................................... (291)
------ -------
Total................................................ $ 286 $ 5,958
====== =======
</TABLE>

(e) Income Taxes -- To reflect adjustments to record the following:

<TABLE>
<CAPTION>
ACQUISITIONS FINANCING
------------ ---------
<S> <C> <C>
Income tax provision attributable to ITCO Merger and
CPW Acquisition adjustments.......................... $2,227
Income taxes of Winston prior to May 7, 1997........... (4)
Income tax benefit attributable to Financing
adjustments.......................................... $(2,375)
------ -------
Total................................................ $2,223 $(2,375)
====== =======
</TABLE>

42
<PAGE> 46
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS -- (CONTINUED)

The income tax provision (benefit) has been adjusted to reflect the
income tax effects of pro forma adjustments based upon an assumed 40% tax
rate.

Net deferred tax assets and liabilities related to the temporary
differences between the financial statement carrying amount and the tax
basis of the acquired assets and liabilities has been recorded at an
assumed income tax rate of 40% for the years in which those differences are
expected to be recovered or settled.

(f) EBITDA -- Represents net income plus income taxes, depreciation,
amortization and interest expense. EBITDA is presented because it is a
widely accepted financial indicator of a company's ability to service or
incur indebtedness. However, EBITDA should not be considered an alternative
to net income as a measure of operating results or to cash flows from
operations as a measure of liquidity in accordance with generally accepted
accounting principles. EBITDA as calculated and presented here may not be
comparable to EBITDA as calculated and presented by other companies.

(g) Ratio of Earnings to Fixed Charges -- In calculating the ratio of
earnings to fixed charges, earnings consist of income before income taxes
plus fixed charges. Fixed charges consist of interest expense (which
includes amortization of deferred financing costs) whether expensed or
capitalized and one-third of rental expense, deemed representative of that
portion of rental expense estimated to be attributable to interest. For the
periods shown for Heafner, Winston, ITCO and combined pro forma earnings
were insufficient to cover fixed charges by $253, $18, $1,891 and $3,688
respectively.

43
<PAGE> 47

SELECTED HISTORICAL FINANCIAL DATA

HEAFNER

The following table sets forth selected historical consolidated financial
data of Heafner for the periods indicated. The selected historical financial
data as of and for the years ended December 31, 1993 through 1997 are derived
from the historical consolidated financial statements of Heafner as of and for
the years ended December 31, 1993 through 1997 which have been audited by Arthur
Andersen LLP, independent certified public accountants. The consolidated
financial statements of Heafner for each of the years in the three-year period
ended December 31, 1997 are included elsewhere in this Prospectus. The selected
historical financial data for the six months ended June 30, 1997 and 1998 have
been derived from financial statements that are included elsewhere herein which
are unaudited but which, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments except as otherwise described
therein, necessary for fair presentation of the financial position and results
of operations for such period. The following selected historical consolidated
financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of Heafner and the related notes included
elsewhere herein.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1993 1994 1995 1996 1997(a) 1997(a) 1998(b)
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales.................. $157,603 $161,786 $169,031 $190,535 $311,839 $127,377 $243,179
Costs of goods sold........ 131,837 134,625 140,811 158,880 233,941 99,677 182,131
-------- -------- -------- -------- -------- -------- --------
Gross profit............... 25,766 27,161 28,220 31,655 77,898 27,700 61,048
Selling, general and
administrative
expenses................. 24,384 25,420 26,584 29,660 74,441 26,128 57,262
Special charges............ -- -- -- -- -- -- 1,409
-------- -------- -------- -------- -------- -------- --------
Income from operations..... 1,382 1,741 1,636 1,995 3,457 1,572 2,377
Interest and other expense,
net...................... 227 520 946 944 3,710 1,687 4,490
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations before benefit
for income taxes and
extraordinary charge..... 1,155 1,221 690 1,051 (253) (115) (2,113)
Benefit for income taxes... -- -- -- -- (239) (49) (837)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) from
operations before
extraordinary charge..... 1,155 1,221 690 1,051 (14) (66) (1,276)
Extraordinary charge....... -- -- -- -- -- -- 2,198
-------- -------- -------- -------- -------- -------- --------
Net income (loss).......... 1,155 1,221 690 1,051 (14) (66) (3,474)
Pro forma provision for
income taxes............. 482 520 325 439 -- -- --
-------- -------- -------- -------- -------- -------- --------
Pro forma net income
(loss)................... $ 673 $ 701 $ 365 $ 612 $ (14) $ (66) $ (3,474)
======== ======== ======== ======== ======== ======== ========
CASH FLOWS DATA:
Net cash provided by (used
in) operating
activities............... $ 4,474 $ 4,525 $ (363) $ 4,008 $ 6,703 $ (280) $ (4,874)
Net cash used in investing
activities............... (2,390) (1,350) (2,200) (7,626) (46,459) (44,983) (53,246)
Net cash provided by (used
in) financing
activities............... (1,929) (2,702) 2,630 3,711 41,252 46,386 59,497
Depreciation and
amortization............. 1,380 1,232 1,062 1,331 5,399 1,551 4,029
Capital expenditures....... 1,422 1,687 2,205 7,865 4,908 2,849 1,905
</TABLE>

44
<PAGE> 48

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

(a) In May 1997, Heafner acquired Winston. The transaction was accounted for
using the purchase method of accounting.

(b) In May 1998, the ITCO Merger and the CPW Acquisition occurred. Each
transaction was accounted for using the purchase method of accounting.

(c) EBITDA represents net income plus income taxes, depreciation and
amortization and interest expense. EBITDA for the six months ended June 30,
1998 includes $321,000 related to amortization of deferred financing charges
that is included as amortization expense for cash flow purposes and interest
expense in the consolidated statements of operations. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service or incur indebtedness. However, EBITDA should not be considered
an alternative to net income as a measure of operating results or to cash
flows from operations as a measure of liquidity in accordance with generally
accepted accounting principles. EBITDA as calculated and presented here may
not be comparable to EBITDA as calculated and presented by other companies.

(d) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense (which includes amortization of deferred financing costs
and debt issuance cost) and one-third of rental expense, deemed
representative of that portion of rental expense estimated to be
attributable to interest. For the year ended December 31, 1997 and the six
months ended June 30, 1997 and 1998, earnings were insufficient to cover
fixed charges by $253,000, $115,000 and $2.1 million.

45
<PAGE> 49

WINSTON

The following table sets forth selected historical financial data of
Winston for the periods indicated. The selected historical data as of and for
the years ended September 30, 1993 through 1996 are derived from the historical
consolidated financial statements of Winston as of and for the years ended
September 30, 1993 through 1996 which have been audited by Deloitte & Touche
LLP, independent certified public accountants. The selected historical financial
data for the six months ended March 31, 1996 and 1997 have been derived from
financial statements that are included elsewhere herein which are unaudited but
which, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for such period. The consolidated financial
statements of Winston for each of the years in the three year period ended
September 30, 1996 are included elsewhere in this Prospectus. The following
selected historical financial information should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of Winston and the related notes
included elsewhere herein.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------- -----------------
1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales..................... $147,053 $134,921 $135,593 $143,070 $68,634 $67,846
Cost of goods sold............ 82,965 78,876 78,783 83,542 40,029 39,023
-------- -------- -------- -------- ------- -------
Gross profit.................. 64,088 56,045 56,810 59,528 28,605 28,823
Selling, general and
administrative expenses.... 63,489 56,323 56,068 58,388 28,632 29,159
-------- -------- -------- -------- ------- -------
Income (loss) from
operations................. 599 (278) 742 1,140 (27) (336)
Interest and other expense.... 313 385 535 675 363 447
-------- -------- -------- -------- ------- -------
Income (loss) before income
taxes...................... 286 (663) 207 465 (390) (783)
Income taxes (benefit)........ 7 -- 3 11 -- --
Minority interest in earnings
of subsidiary(a)........... 221 (16) -- -- -- --
-------- -------- -------- -------- ------- -------
Net income (loss)............. $ 58 $ (647) $ 204 $ 454 $ (390) $ (783)
======== ======== ======== ======== ======= =======
CASH FLOWS DATA:
Net cash provided by (used in)
operating activities....... $ 4,994 $ (1,050) $ (216) $ 1,158 $ (262) $(1,715)
Net cash used in investing
activities................. (1,818) (1,274) (514) (1,603) (158) (624)
Net cash provided by (used in)
financing activities....... (2,050) (136) 879 868 71 1,794
Depreciation and
amortization............... 2,868 2,753 2,338 2,130 1,088 1,144
Capital expenditures.......... 1,501 1,394 2,319 2,149 989 888
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............... $ (1,572) $ (3,288) $ (1,021) $ (575) $ (810) $(1,404)
Total assets.................. 41,802 37,714 39,587 38,844 36,359 36,886
Total debt(d)................. 2,581 3,658 7,568 8,279 7,181 10,070
Stockholders' equity.......... 6,620 4,201 4,405 4,359 4,015 3,576
OTHER DATA:
EBITDA(b)..................... $ 3,467 $ 2,475 $ 3,080 $ 3,270 $ 1,061 $ 808
Ratio of earnings to fixed
charges(c)................. 1.1x -- 1.1x 1.1x -- --
</TABLE>

46
<PAGE> 50

- ---------------
(a) Prior to June 1, 1994, Winston had a 79% ownership in a subsidiary, Winston
Indemnity, Ltd., which was a captive insurance company based in Bermuda and
provided workers' compensation insurance solely for Winston employees. The
consolidated financial statements for the years ended September 30, 1993 and
1994 include the accounts of Winston and its 79% owned subsidiary. All
significant intercompany transactions and balances have been eliminated.

(b) EBITDA represents net income plus income taxes, depreciation and
amortization and interest expense, net and minority interest in earnings of
subsidiary. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service or incur indebtedness. However,
EBITDA should not be considered an alternative to net income as a measure of
operating results or to cash flows from operations as a measure of liquidity
in accordance with generally accepted accounting principles. EBITDA as
calculated and presented here may not be comparable to EBITDA as calculated
and presented by other companies.

(c) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense (which includes amortization of deferred financing costs
and debt issuance cost) and one-third of rental expense, deemed
representative of that portion of rental expense estimated to be
attributable to interest. For the year ended September 30, 1994 and the six
month periods ended March 31, 1996 and 1997, earnings were insufficient to
cover fixed charges by $663,000, $390,000 and $783,000, respectively.

(d) Excludes all related party debt and certain amounts representing ledger
balance financing arrangements with vendors that are included in accounts
payable.

47
<PAGE> 51

ITCO

The following table sets forth selected historical consolidated financial
data of ITCO for the periods indicated. The selected historical data are derived
from the historical consolidated financial statements of ITCO as of and for the
years ended October 2, 1993, October 1, 1994 and September 30, 1995 which have
been audited by Deloitte & Touche LLP, independent certified public accountants.
The remaining selected historical data is derived from the historical
consolidated financial statements of ITCO for the period from inception
(November 13, 1995) to September 30, 1996 and for the year ended September 30,
1997 which have been audited by Ernst & Young LLP, independent auditors. The
consolidated financial statements of ITCO for each of the years in the three
year period ended September 30, 1997 are included elsewhere in this Prospectus.
The selected historical financial data for the eight months ended May 31, 1997
and the period ended May 20, 1998 have been derived from financial statements
that are included elsewhere herein which are unaudited but which, in the opinion
of management, include all adjustments, consisting only of normal recurring
adjustments except as otherwise described therein, necessary for a fair
presentation of the financial position and results of operations for such
period. The following selected historical consolidated financial information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of ITCO and the related notes included elsewhere herein.

<TABLE>
<CAPTION>
EIGHT
MONTHS PERIOD
FISCAL YEAR ENDED ENDED
---------------------------------------------------- MAY 31, MAY 20,
1993 1994 1995 1996(a) 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Sales...................... $204,586 $252,526 $294,113 $290,982 $351,996 $225,804 $232,277
Cost of goods sold......... 178,561 221,034 257,040 253,629 301,970 194,203 198,701
-------- -------- -------- -------- -------- -------- --------
Gross profit............... 26,025 31,492 37,073 37,353 50,026 31,601 33,576
Selling, general and
administration
expenses................. 23,531 29,134 34,177 36,946 47,867 31,097 29,957
-------- -------- -------- -------- -------- -------- --------
Income from operations..... 2,494 2,358 2,896 407 2,159 504 3,619
Interest and other
expense.................. 802 1,105 2,147 3,659 4,050 2,280 1,961
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes.................... 1,692 1,253 749 (3,252) (1,891) (1,776) 1,658
Income taxes (benefit)..... 707 545 121 (1,296) (452) (700) 811
Cumulative effect of change
in accounting for income
tax(b)................... -- 408 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).......... $ 985 $ 1,116 $ 628 $ (1,956) $ (1,439) $ (1,076) $ 847
======== ======== ======== ======== ======== ======== ========
CASH FLOWS DATA:
Net cash provided by (used
in) operating
activities............... (1,642) (6,065) 108 6,470 8,603 12,465 6,486
Net cash used in investing
activities............... (3,302) (3,270) (668) (16,150) (742) (587) (240)
Net cash provided by (used
in) financing
activities............... 4,850 9,668 867 11,434 (7,760) (11,765) (6,897)
Depreciation and
amortization............. 1,298 1,394 1,313 2,179 2,493 1,683 1,616
Capital expenditures....... 3,563 3,520 869 1,133 1,188 1,033 711
BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital............ $ 4,006 $ 5,717 $ 5,062 $ 24,869 $ 16,402 $ 12,714 $ 9,012
Total assets............... 72,897 89,433 98,287 124,218 123,320 116,557 131,274
Total debt................. 19,805 29,717 30,651 47,163 39,482 37,780 32,556
Stockholders' equity
(deficit)................ 9,811 10,927 11,555 (1,751) (4,103) (3,427) (3,218)
</TABLE>

48
<PAGE> 52

<TABLE>
<CAPTION>
EIGHT
MONTHS PERIOD
FISCAL YEAR ENDED ENDED
---------------------------------------------------- MAY 31, MAY 20,
1993 1994 1995 1996(A) 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(c).................. $ 4,547 $ 4,816 $ 5,107 $ 2,411 $ 4,312 $ 2,252 $ 5,626
Ratio of earnings to fixed
charges(d)............... 1.8x 1.4x 1.2x -- -- -- 1.4x
</TABLE>

- ---------------
(a) On November 13, 1995, ITCO changed ownership. The operations data disclosed
for the year ended September 30, 1996 include operational information from
November 13, 1995 to September 30, 1996.

(b) Effective October 3, 1993, ITCO adopted prospectively SFAS No. 109. SFAS No.
109 requires a change from the deferred method as required under APB Opinion
No. 11 to the asset and liability method of accounting for income taxes. The
cumulative effect of the change in accounting for income taxes was $408,000.

(c) EBITDA represents net income plus income taxes, depreciation and
amortization and interest expense less the cumulative effect of change in
accounting for income taxes. EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to service or incur
indebtedness. However, EBITDA should not be considered an alternative to net
income as a measure of operating results or to cash flows from operations as
a measure of liquidity in accordance with generally accepted accounting
principles. EBITDA as calculated and presented here may not be comparable to
EBITDA as calculated and presented by other companies.

(d) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense (which includes amortization of deferred financing costs
and debt issuance cost) and one-third of rental expense, deemed
representative of that portion of rental expense estimated to be
attributable to interest. For the years ended September 30, 1996 and 1997,
and the eight months ended May 31, 1997, earnings were insufficient to cover
fixed charges by $3.3 million, $1.9 million and $1.8 million, respectively.

49
<PAGE> 53

CPW

The following table sets forth selected historical financial data of CPW
for the periods indicated. The selected historical data are derived from the
unaudited financial statements of CPW as of and for the years ended October 31,
1993 and 1994. The selected historical data are derived from the historical
financial statements of CPW as of and for the years ended October 31, 1995
through 1997 which have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The financial statements of CPW for each of the
years in the three-year period ended October 31, 1997 are included elsewhere in
this Prospectus. The selected historical financial data for the six months ended
April 30, 1997 and 1998 have been derived from financial statements that are
included elsewhere herein which are unaudited but which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for such period. The following selected historical
financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of CPW and the related notes included elsewhere herein.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR APRIL 30,
-------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- -------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................ $38,290 $61,091 $107,683 $122,930 $122,410 $56,589 $67,578
Cost of goods sold................... 29,694 49,148 88,363 101,355 98,289 45,295 49,013
------- ------- -------- -------- -------- ------- -------
Gross profit......................... 8,596 11,943 19,320 21,575 24,121 11,294 18,565
Selling, general and administrative
expenses........................... 7,470 11,119 17,786 18,660 20,087 9,580 13,963
------- ------- -------- -------- -------- ------- -------
Income from operations............... 1,126 824 1,534 2,915 4,034 1,714 4,602
Interest and other expense........... 77 96 265 162 223 113 324
------- ------- -------- -------- -------- ------- -------
Income before income taxes........... 1,049 728 1,269 2,753 3,811 1,601 4,278
Income taxes......................... 369 329 537 1,070 1,531 638 1,710
Minority interest(a)................. 267 144 6 3 -- -- --
------- ------- -------- -------- -------- ------- -------
Net income........................... $ 413 $ 255 $ 726 $ 1,680 $ 2,280 $ 963 $ 2,568
======= ======= ======== ======== ======== ======= =======
CASH FLOWS DATA:
Net cash provided by (used in)
operating activities............... $ 1,380 $ 1,808 $ (2,223) $ 4,645 $ 4,578 $ 1,795 $(1,473)
Net cash used in investing
activities......................... (110) (1,790) (846) (995) (2,782) (2,033) (1,847)
Net cash provided by (used in)
financing activities............... (759) 1,648 967 (3,768) (971) 288 3,358
Depreciation and amortization........ 116 216 338 404 484 203 328
Capital expenditures................. 108 1,639 788 655 3,489 2,586 745
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital...................... $ 1,716 $ 1,375 $ 4,217 $ 4,827 $ 4,883 $ 3,093 $ 6,446
Total assets......................... 12,212 28,303 38,784 45,724 46,674 41,103 55,427
Total debt(d)........................ 1,270 4,236 9,819 6,359 5,452 6,735 9,758
Stockholders' equity................. 962 1,217 2,336 4,016 6,296 4,980 8,865
OTHER DATA:
EBITDA(b)............................ $ 1,241 $ 1,044 $ 1,905 $ 3,202 $ 4,450 $ 1,888 $ 4,833
Ratio of earnings to fixed
charges(c)......................... 4.2x 2.6x 1.9x 3.3x 3.9x 3.3x 5.6x
</TABLE>

- ---------------
(a) CPW's consolidated financial statements include the consolidation of its
majority interests in Speed Merchant of San Jose, a California partnership,
and Arthur Enterprises, a California corporation. All significant
intercompany transactions and balances are eliminated in consolidation.

50
<PAGE> 54

(b) EBITDA represents net income plus income taxes, depreciation and
amortization and interest expense, net and minority interest. EBITDA is
presented because it is a widely accepted financial indicator of a company's
ability to service or incur indebtedness. However, EBITDA should not be
considered an alternative to net income as a measure of operating results or
to cash flows from operations as a measure of liquidity in accordance with
generally accepted accounting principles. EBITDA as calculated and presented
here may not be comparable to EBITDA as calculated presented by other
companies.

(d) Excludes all related party debt.

51
<PAGE> 55

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

The following discussion and analysis of the results of operations,
financial condition and liquidity of the Company, Heafner, Winston, ITCO, and
CPW should be read in conjunction with the financial statements and the
"Unaudited Pro Forma Condensed Combined Financial Data" and the related notes
thereto included elsewhere in this Prospectus.

OVERVIEW

Most of the Company's sales consist of passenger and light truck tires,
which in 1997 would have represented approximately 78.6% of its pro forma net
sales. The remainder of such sales would have been derived from automotive
service (7.7%), custom wheels (6.8%), automotive service equipment (3.1%) and
parts and other products (3.8%). The Company sells its products to a variety of
markets, both in terms of end-use and geography. The Company's distribution
channels consist of (i) Eastern wholesale, (ii) Western retail tires and
automotive service and (iii) Western wholesale. In 1997, on a pro forma basis,
net sales through such channels accounted for approximately 65.7%, 20.0% and
14.3%, respectively. The Company believes that the diversity of its markets
helps stabilize the Company's sales and earnings.

In connection with the Transactions completed on May 20, 1998, the Company
has recorded a non-recurring extraordinary charge of $3.7 million for the
write-off of unamortized financing expenses and discounts and to pay prepayment
penalties. The Company has also recorded a non-recurring restructuring charge to
operations of $1.4 million, and is establishing reserves of $5.2 million related
to costs to be incurred in consolidation of distribution, retail, and corporate
office facilities, severance obligations, and other related exit costs. Cash
payments during the 12 months following the consummation of the Transactions
from these items are estimated to be approximately $5.0 million.

The Company has identified a number of areas in which it expects to realize
annual cost savings as a result of the Transactions. For example, the Company
anticipates cost reductions based on elimination of duplicate corporate
expenses, warehouse consolidations and maximizing efficiency of its truck fleet,
inventory management systems and customer service functions. In addition, the
Company expects to realize improvements as a result of lower purchase prices on
tires and other products as supplier programs are coordinated and the Company's
combined purchasing power is utilized. Although management believes that cost
savings in these areas are achievable, there can be no assurance that any such
cost reductions or savings will be achieved. The amount of any such potential
cost reductions or savings is not yet reasonably determinable.

RESULTS OF OPERATIONS -- COMPANY AND HEAFNER

The Issuer acquired Winston on May 7, 1997 and CPW on May 20, 1998. The
ITCO Merger occurred on May 20, 1998. Therefore, results for 1998 include the
operations of ITCO and CPW only after May 20, 1998. Results for 1997 exclude
results of ITCO and CPW, and include the operations of Winston after May 7,
1997. Results for 1996 and 1995 include solely the results of the Issuer without
ITCO, CPW, or Winston.

52
<PAGE> 56

The following table sets forth each category of statements of operations
data as a percentage of net sales:

<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED DEC. 31, ENDED JUNE 30,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................. 83.3 83.4 75.0 78.3 74.9
Gross profit....................................... 16.7 16.6 25.0 21.7 25.1
Selling, general and administrative expenses....... 15.7 15.6 23.9 20.5 23.5
Income from operations............................. 1.0 1.0 1.1 1.2 1.6
Interest and other expense......................... 0.6 0.4 1.2 1.3 2.4
Income (loss) from operations before benefit for
income taxes..................................... 0.4 0.6 (0.1) (0.1) (0.8)
Income taxes....................................... 0.0 0.0 (0.1) 0.0 (0.3)
Net income (loss) before extraordinary charge...... 0.4 0.6 0.0 (0.1) (0.5)
Extraordinary charge............................... -- -- -- -- 0.9
Net income (loss).................................. 0.4 0.6 0.0 (0.1) (1.4)
Pro forma provision for income taxes............... 0.2 0.3 0.0 -- --
Pro forma net income (loss)........................ 0.2 0.3 0.0 (0.1) (1.4)
</TABLE>

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997

Net sales were $243.2 million for the six months ended June 30, 1998, an
increase of $115.8 million, or 90.9%, from $127.4 million in the corresponding
period in 1997. The inclusion of sales for Winston (6 months versus 2), ITCO (1
month), and CPW (1 month) accounted for $96.8 million, or 83.6%, of the increase
in sales in 1998. Most of the remaining increase was due to strong wholesale
distribution sales in the first six months of 1998, which grew by more than
15.0% during the period over the first six months of 1997. Strong market
conditions and additional market share gains contributed to this increase.

Gross profit was $61.0 million for the six months ended June 30, 1998, an
increase of $33.3 million, or 120.4%, from $27.7 million in the six months ended
June 30, 1997. As a percentage of net sales, gross profit was 25.1% and 21.7%,
respectively, for the six months ended June 30, 1998 and 1997. The increase in
gross profit dollars was also due to the inclusion of the acquired operations,
which accounted for $28.6 million, or 85.8%, of the gross dollar increase. Most
of the increase in gross margin percents was due to the higher percentage of
retail to total sales in the 1998 period. Retail sales generally result in
higher margins than distribution sales. Both the Issuer and Winston improved
their gross margins by more than 1.0% during the six-month period ended June 30,
1998.

Selling, general and administrative expenses were $57.3 million in the six
months ended June 30, 1998, an increase of $31.1 million, or 119.2%, from $26.1
million in the corresponding 1997 period. As a percentage of net sales, these
expenses were 23.5% and 20.5%, respectively, for the six months ended June 30,
1998 and 1997. The inclusion of Winston and the New Businesses accounted for
$28.3 million, or 90.9%, of the increase in selling, general and administrative
expenses in the six-month period ended June 30, 1998. The increase in selling,
general and administrative costs as a percent of sales was primarily due to the
higher percentage of retail operations in 1998, which generally have higher
selling, general and administrative expense percentages than distribution
operations.

Interest and other expense increased from $1.7 million in the first six
months of 1997 to $5.9 million in the corresponding 1998 period. Interest
expense increased by $2.6 million in the 1998 period as a result of increased
borrowings incurred in connection with the Winston acquisition and, to a lesser
extent, the Transactions. The Company intends to close 13 duplicate distribution
centers and will incur costs relating to lease commitments, asset writedowns,
severance and employee related costs and other costs to shut down these
facilities. The Company recorded a special charge of $1.4 million, which was
taken into account in determining income from operations, in connection with
these costs.

53
<PAGE> 57

The results of operations for the six months ended June 30, 1998 also
include a non-recurring extraordinary charge of $3.7 million ($2.2 million net
of taxes) for the write-off of unamortized financing expenses and discounts and
the payment of prepayment penalties.

The net loss for the six months ended June 30, 1998 was ($3.5) million, or
(1.4%) of net sales compared to a net loss of ($0.1) million, or (0.1%) of net
sales for the six months ended June 30, 1997 as a result of the factors
discussed above.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Net sales were $311.8 million for 1997, an increase of $121.3 million, or
63.7%, from $190.5 million in 1996. The increase was primarily due to the
acquisition of Winston on May 7, 1997. Winston sales included in reported 1997
results totaled $101.1 million, or 83.3% of the total sales increase for the
year. Wholesale distribution sales for Heafner in 1997 totaled $210.8 million,
an increase of $20.3 million, or 10.7%, from 1996 sales. This increase resulted
primarily from additional market share gains in the Southeast.

Gross profit was $77.9 million in 1997, an increase of $46.2 million, or
146.1%, from $31.7 million in 1996. As a percentage of net sales, gross profit
was 25.0% and 16.6%, respectively. Gross profit increased primarily due to the
acquisition of Winston. Excluding Winston's gross profits included in 1997
results, gross profit would have been $35.1 million, or 16.7% of net sales.
Retail sales generally result in higher gross profit margins than sales from
wholesale distribution.

Selling, general and administrative expenses were $74.4 million in 1997, an
increase of $44.8 million, or 151.0%, from $29.7 million in 1996. As a
percentage of net sales, these expenses were 23.9% and 15.6%, respectively.
Excluding the results of Winston subsequent to May 7, 1997, selling, general and
administrative expenses in Heafner's wholesale distribution business were $32.7
million, or 15.5%, of wholesale sales. Although as a percentage of sales these
costs were slightly lower in 1997 on an absolute basis, the increase of $3.0
million reflects Heafner's investment in both field and corporate personnel,
programs and customer service capabilities as it prepared for higher levels of
activity in 1998 and beyond.

Interest and other expense increased from $0.9 million in 1996 to $3.7
million in 1997 due to additional debt incurred in connection with the
acquisition of Winston.

Income taxes were $(0.2) million in 1997 as a result of the change in the
status of Heafner as of May 7, 1997 from a Subchapter S corporation to a
Subchapter C corporation.

A net loss of $(14,000), or 0.0% of net sales, in 1997 represented a
decrease of $1.1 million from net income in 1996 of $1.1 million, or 0.6% of net
sales, in 1996 as a result of the factors discussed above.

The effective income tax rate for 1997, on a pro forma basis, was 0.0%,
compared to an effective tax rate for 1996, on a pro forma basis, of 41.8%, due
to taxable income being $0.0 million for the four-month period in which Heafner
was an S corporation.

Pro forma net loss of $(14,000), or 0.0% of net sales, in 1997 represented
a decrease of $0.6 million from net income in 1996 of $0.6 million, or 0.3% of
net sales, in 1996 as a result of the factors discussed above.

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

Net sales were $190.5 million for 1996, an increase of $21.5 million, or
12.7%, from $169.0 million in 1995. The increase came primarily as a result of
additional market share gains combined with an increase in custom wheel and
accessories sales of $5.0 million.

Gross profit was $31.7 million in 1996, an increase of $3.4 million, or
12.2%, from $28.2 million in 1995. This increase was due to the higher level of
sales experienced during the year. As a percentage of net sales, gross profit
was 16.6% and 16.7%, respectively.

Selling, general and administrative expenses were $29.7 million in 1996, an
increase of $3.1 million, or 11.6%, from $26.6 million in 1995. As a percentage
of net sales, these expenses were 15.6% and 15.7%, respectively. Although
slightly lower as a percentage of sales, the dollar increase reflected Heafner's
decision
54
<PAGE> 58

to begin significant investments primarily in personnel designed to upgrade its
ability to handle increased business in the Southeast and its overall capacity
to grow its business in future years.

Interest and other expense remained flat at $0.9 million in 1995 and 1996
with slightly increased interest expense of $150,000 being offset by an increase
of $150,000 in other income.

Income taxes were not applicable in both periods due to Heafner's tax
status as a Subchapter S corporation.

Net income in 1996 of $1.1 million, or 0.6% of net sales, represented an
increase of $0.4 million, or 52.3%, from net income in 1995 of $0.7 million, or
0.4% of net sales, due to the factors discussed above.

The effective income tax rate for 1996, on a pro forma basis, was 41.8%,
compared to an effective tax rate for 1995, on a pro forma basis, of 47.1%, as a
result of the impact of permanent differences as a percent of book income being
greater in 1995 than in 1996.

Pro forma net income for 1996 increased by $0.2 million, or 67.9%, over pro
forma net income for 1995, due to the factors discussed above.

RESULTS OF OPERATIONS -- WINSTON

Winston was acquired by Heafner on May 7, 1997. Results subsequent to that
date are included with those of the Company above.

The following table sets forth each category of statements of operations
data as a percentage of net sales:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS
SEPTEMBER 30, ENDED MARCH 31,
----------------------- ----------------
1994 1995 1996 1996 1997
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................. 58.5 58.1 58.4 58.3 57.5
Gross profit....................................... 41.5 41.9 41.6 41.7 42.5
Selling, general and administrative expenses....... 41.7 41.4 40.8 41.7 43.0
Income (loss) from operations...................... (0.2) 0.5 0.8 0.0 (0.5)
Interest and other expense......................... 0.3 0.3 0.5 0.6 0.7
Net income (loss).................................. (0.5) 0.2 0.3 (0.6) (1.2)
</TABLE>

SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS ENDED MARCH 31, 1996

Net sales were $67.8 million for the six months ended March 31, 1997, a
decrease of $0.8 million, or 1.1%, from $68.6 million in the corresponding
period in 1996. The decrease in net sales was due principally to the reduction
in tire sales by 3.6% in 1997 from 1996 levels, which Winston believes was due
in part to softness in the California marketplace. Mechanical service revenue
for the six months increased by 2.2%, offsetting a portion of the overall
decrease. Tire sales revenue represented 57% and 58% of the total revenues in
the 1997 and 1996 periods, respectively.

Gross profit was $28.8 million for the six months ended March 31, 1997, an
increase of $0.2 million, or 0.8%, from $28.6 million in the six months ended
March 31, 1996. As a percentage of net sales, gross profit was 42.5% and 41.7%,
respectively. The increase in gross profit amounts and percentages in the 1997
period was due to the shift in Winston's business from tires to mechanical
service revenue, which generate higher gross profit margins.

Selling, general and administrative expenses were $29.2 million in the six
months ended March 31, 1997, an increase of $0.5 million, or 1.8%, from $28.6
million in the corresponding 1996 period. As a percentage of net sales, these
expenses were 43.0% and 41.7%, respectively. Selling, general and administrative
expenses were basically unchanged during the two periods, reflecting salary and
other cost controls instituted by Winston.

55
<PAGE> 59

Interest and other expense was relatively flat at $0.4 million in the six
months ended March 31, 1997 and 1996.

Income taxes were not applicable for either period due to Winston's status
as a Subchapter S corporation.

The net loss for the six months ended March 31, 1997 was $(0.8) million, or
(1.2)% of net sales, compared to a net loss of $(0.4) million, or (0.6)% of net
sales, for the six months ended March 31, 1996 as a result of the factors
discussed above.

YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995

Net sales were $143.1 million for fiscal 1996, an increase of $7.5 million,
or 5.5%, from $135.6 million in fiscal 1995. The increase reflected an increase
in retail and wholesale tire sales of $4.7 million combined with improved
mechanical service revenue of $2.8 million. Tire sale revenue represented 59.7%
and 59.5% of the total revenues in the 1996 and 1995 periods, respectively.

Gross profit was $59.5 million in fiscal 1996, an increase of $2.7 million,
or 4.8% from $56.8 million in fiscal 1995. As a percentage of net sales, gross
profit was 41.6% and 41.9%, respectively. Gross profit margins decreased
slightly as Winston priced products and services more competitively in
connection with Winston's increased selling efforts.

Selling, general and administrative expenses were $58.4 million in fiscal
1996, an increase of $2.3 million, or 4.1% from $56.1 million in fiscal 1995. As
a percentage of net sales, these expenses were 40.8% and 41.4%, respectively.
Selling, general and administrative expenses increased in dollar amounts due to
normal increases in salaries and other costs. However, these cost increases were
more than offset by increased revenues and therefore selling, general and
administrative expenses as a percentage of net sales decreased.

Interest and other expense increased from $0.5 million in fiscal 1995 to
$0.7 million in fiscal 1996 due to slightly higher levels of average inventory
during the year.

Income taxes were not applicable for both periods due to Winston's tax
status as a Subchapter S corporation.

Net income was $0.5 million, or 0.3% of net sales, in fiscal 1996, an
increase of $0.3 million, or 122.6%, from net income of $0.2 million, or 0.2% of
net sales, in fiscal 1995 due to the factors discussed above.

YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994

Net sales were $135.6 million for fiscal 1995, an increase of $0.7 million,
or 0.5%, from $134.9 million fiscal 1994. This nominal increase in net sales
reflected the continuing effects of the slowdown in sales which began in 1993 as
the result of the investigation of Winston for alleged unfair selling practices
by the California Bureau of Automotive Repair. Tire sale revenue represented
59.5% and 59.9% of the total net sales in the 1995 and 1994 periods,
respectively.

Gross profit was $56.8 million in fiscal 1995, an increase of $0.8 million,
or 1.4%, from $56.0 million in fiscal 1994. As a percentage of net sales, gross
profit was 41.9% and 41.5%, respectively.

Selling, general and administrative expenses were $56.1 million in fiscal
1995, a decrease of $0.3 million, or 0.5%, from $56.3 million in fiscal 1994. As
a percentage of net sales, these expenses were 41.4% and 41.7%, respectively.
The reduction in selling, general and administrative expenses reflected salary
and other cost controls instituted by Winston.

Interest and other expense increased from $0.4 million in fiscal 1994 to
$0.5 million in fiscal 1995 due to an increase in inventory stocking levels at
the end of fiscal 1995 in preparation for higher sales levels leading into the
next fiscal year.

Income taxes were not applicable for either period due to Winston's tax
status a Subchapter S corporation.

56
<PAGE> 60

Net income was $0.2 million, or 0.2% of net sales, in fiscal 1995, an
increase of $0.9 million from a net loss of $(0.6) million, or (0.5%) of net
sales, in fiscal 1994 due to the factors discussed above.

RESULTS OF OPERATIONS -- ITCO

The ITCO Merger took place on May 20, 1998. Results subsequent to that date
are included with those of the Company above. ITCO acquired the assets of ITCO
Holdings in a transaction accounted for as a purchase at the close of business
on November 30, 1995. Therefore, the reported results for fiscal 1996 only
include the 10-month period from December 1, 1995 to September 30, 1996.

The following table sets forth each category of statements of operations
data as a percentage of net sales:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED EIGHT
SEPTEMBER 30, MONTHS
----------------------- ENDED PERIOD ENDED
1995 1996 1997 MAY 31, 1997 MAY 20, 1998
----- ----- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold....................... 87.4 87.2 85.8 86.0 85.5
Gross profit............................. 12.6 12.8 14.2 14.0 14.5
Selling, general and administrative
expenses............................... 11.6 12.7 13.6 13.8 12.9
Income from operations................... 1.0 0.1 0.6 0.2 1.6
Interest and other expense............... 0.7 1.2 1.1 1.0 0.9
Income (loss) before income taxes........ 0.3 (1.1) (0.5) (0.8) 0.7
Income taxes............................. 0.1 (0.4) (0.1) (0.3) 0.3
Net income (loss)........................ 0.2 (0.7) (0.4) (0.5) 0.4
</TABLE>

PERIOD ENDED MAY 20, 1998 COMPARED TO EIGHT MONTHS ENDED MAY 31, 1997

Net sales were $232.3 million for the period ended May 20, 1998, an
increase of $6.5 million, or 2.9%, from $225.8 million for the eight months
ended May 31, 1997. The increase was due to increased sales of $8.9 million in
the March-May 1998 period as a result of aggressive marketing by ITCO of its
products, offset partially by strong economic activity and related sales in the
prior year's November-December 1996 period.

Gross profit was $33.6 million for the period ended May 20, 1998, an
increase of $2.0 million, or 6.2%, over the eight months ended May 31, 1997. As
a percentage of net sales, gross profit was 14.5% and 14.0%, respectively, for
the periods ended May 20, 1998 and May 31, 1997. Gross profit margins improved
in the current period as a result of the concentration by ITCO on achieving
higher margins on all product lines and emphasizing sales of certain higher
margin tire product lines.

Selling, general and administrative expenses were $30.0 million in the
period ended May 20, 1998, a decrease of $1.1 million, or 3.7%, from $31.1
million for the eight months ended May 31, 1997. As a percentage of net sales,
these expenses were 12.9% and 13.8%, respectively, for the periods ended May 20,
1998 and May 31, 1997. The entire reduction in selling, general and
administrative expenses for the 1998 period as a percentage of sales was due to
certain headcount reductions instituted during the latter half of the prior
fiscal year, offset only slightly by increased spending on sales and operations
management personnel in the current period. In fiscal 1997, ITCO reduced field
headcounts by approximately 125 persons.

Interest and other expense decreased to $2.0 million in the period ended
May 20, 1998 from $2.3 million in the comparable period in 1997.

Income taxes increased to an expense of $0.8 million for the period ended
May 20, 1998 from a credit of $0.7 million in the comparable 1997 period as a
result of improved pre-tax earnings and provisions for permanent timing
differences on the expected fiscal 1998 earnings.

Net income was $0.8 million, or 0.4% of net sales, for the period ended May
20, 1998, an increase of $1.9 million from a net loss of $(1.1) million, or
(0.5)% of net sales, for the first eight months of fiscal 1997 due to the
factors discussed above.

57
<PAGE> 61

YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO PERIOD ENDED SEPTEMBER 30, 1996

Sales were $352.0 million for fiscal 1997, an increase of $61.0 million, or
21.0%, from $291.0 million fiscal 1996. However, fiscal 1996 included only 10
months of operating results. If 1996 results were restated for a full 12 months
of operations, sales in fiscal 1997 increased by $10.5 million, or 3.1%. This
increase, as adjusted, was due to the full-year sales effect from companies
acquired during fiscal 1996 of $17.5 million, partially offset by a decline in
the sale of custom wheels, and a change in the recording of truck tire sales to
national fleets. The change in truck tire sales accounting reduced sales by $4.0
million, with no effect on earnings.

Gross profit was $50.0 million in fiscal 1997, an increase of $12.7
million, or 33.9%, from $37.4 million in fiscal 1996. Giving effect to a full 12
months in fiscal 1996, gross profit rose in fiscal 1997 by $6.8 million, or
15.7%. As a percentage of sales, gross profit rose from 12.7% in the adjusted
fiscal 1996 period to 14.2% in fiscal 1997. This improvement in gross margin as
a percentage of sales in fiscal 1997 was primarily due to changes in customer
automatic pricing programs at the warehouse level which generated higher
individual customer margins and therefore allowed for the achievement of higher
overall margins on product sales.

Selling, general and administrative expenses were $47.9 million in fiscal
1997, or 13.6% of net sales, an increase of $10.9 million, or 29.6%, from $36.9
million in fiscal 1996. On a full-year basis, fiscal 1996 selling, general and
administrative expenses would have been $40.8 million, or 12.0%, of restated
sales. Increases in these expenses were primarily caused by the full-year effect
in fiscal 1997 of the 1996 acquisition of companies with higher operating
expense ratios.

Interest and other expense increased from $4.0 million in fiscal 1996 on a
12 month basis to $4.1 million in fiscal 1997.

Income taxes decreased from a credit of $1.3 million in fiscal 1996 to a
credit of $0.5 million in fiscal 1997 as a result of the reduced pre-tax loss
amount.

A net loss of $(1.4) million, or (0.4)% of net sales, in fiscal 1997
represented an improvement of $0.5 million, or 26.4%, from a net loss of $(2.0)
million, or (0.7)% of net sales, for fiscal 1996 due to the factors discussed
above.

PERIOD ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995

Sales were $291.0 million for fiscal 1996, a decrease of $3.1 million, or
1.1%, from $294.1 million fiscal 1995. Restating fiscal 1996 on a 12 month
basis, sales would have reflected an increase of $47.3 million, or 16.1%. This
increase was primarily due to the partial-year inclusion of sales from companies
acquired during fiscal 1996.

Gross profit was $37.4 million in fiscal 1996, an increase of $0.3 million,
or 0.8%, from $37.1 million in fiscal 1995. Full-year gross profit in fiscal
1996 would have been $43.3 million, or 12.7%, of sales in restated fiscal 1996
versus 12.6% in fiscal 1995. Gross profit increased in full-year fiscal 1996,
coinciding with the overall increase in sales levels.

Selling, general and administrative expenses were $36.9 million in fiscal
1996, an increase of $2.8 million, or 8.1%, from $34.2 million in fiscal 1995.
As a percentage of sales, these expenses were 12.7% and 11.6%, respectively. On
a full-year basis, fiscal 1996 selling, general and administrative expenses
would have been $40.8 million, or 12.0% of net sales. The increase of $6.6
million in full-year fiscal 1996 expense was due primarily to expenses of
companies acquired during fiscal 1996, and, to a lesser extent, to increased
investment in sales personnel, drivers, and warehouse facilities during 1996.

Interest and other expense increased from $2.1 million in fiscal 1995 to
$3.7 million fiscal 1996 and $4.0 million for fiscal 1996 on a full-year basis.
The primary cause for the increase was increased debt incurred as a part of the
acquisition of ITCO Holdings by ITCO.

Income taxes decreased from $0.1 million in fiscal 1995 to a credit of $1.3
million in fiscal 1996 as a result of the pre-tax loss incurred in fiscal 1996.

58
<PAGE> 62

A net loss of $(2.0) million, or (0.7)% of net sales, was experienced in
fiscal 1996 as compared to net income of $0.6 million, or 0.2% of net sales, in
fiscal 1995 due to the factors discussed above.

RESULTS OF OPERATIONS -- CPW

CPW was acquired by Heafner on May 20, 1998. Results subsequent to that
date are included with those of the Company above.

The following table sets forth each category of statements of operations
data as a percentage of net sales:

<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
OCTOBER 31, APRIL 30,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................. 82.1 82.4 80.3 80.0 72.5
Gross profit....................................... 17.9 17.6 19.7 20.0 27.5
Selling, general and administrative expenses....... 16.5 15.2 16.4 17.0 20.7
Income from operations............................. 1.4 2.4 3.3 3.0 6.8
Interest and other expense......................... 0.2 0.1 0.2 0.2 0.5
Income before income taxes......................... 1.2 2.3 3.1 2.8 6.3
Income taxes....................................... 0.5 0.9 1.2 1.1 2.5
Net income......................................... 0.7 1.4 1.9 1.7 3.8
</TABLE>

SIX MONTHS ENDED APRIL 30, 1998 COMPARED TO SIX MONTHS ENDED APRIL 30, 1997

Net sales were $67.6 million for the six months ended April 30, 1998, an
increase of $11.0 million, or 19.4%, from $56.6 million in the corresponding
period in 1997. The increase was due to aggressive sales efforts by CPW during
the 1998 period, combined with sales of $6.4 million from two small retail
acquisitions completed in February and April 1998.

Gross profit was $18.6 million for the six months ended April 30, 1998, an
increase of $7.3 million, or 64.4%, from $11.3 million in the six months ended
April 30, 1997. As a percentage of net sales, gross profit was 27.5% and 20.0%,
respectively, for the six months ended April 30, 1998 and 1997. Gross profit
margins increased significantly during the period ended April 30, 1998 primarily
due to improved receipts from vendor rebate programs. Increased retail sales,
with their corresponding higher margins, also contributed somewhat to the
overall margin improvements.

Selling, general and administrative expenses were $14.0 million in the six
months ended April 30, 1998, an increase of $4.4 million, or 45.8%, from $9.6
million in the corresponding 1997 period. As a percentage of net sales, these
expenses were 20.7% and 17.0%, respectively, for the six months ended April 30,
1998 and 1997. Approximately three-quarters of the increase in selling, general
and administrative expenses resulted from two retail store acquisitions in
February 1998.

Net interest expense increased to $0.3 million for the six months ended
April 30, 1998 from $0.1 million in the comparable period in 1997.

Income taxes increased to $1.7 million for the six months ended April 30,
1998 from $0.6 million in the comparable 1997 period as a result of the
increased earnings levels.

Net income was $2.6 million, or 3.8% of net sales, for the six months ended
April 30, 1998, an increase of $1.6 million, or 166.7%, from net income of $1.0
million, or 1.7% of net sales, for the six months ended April 30, 1997 due to
the factors discussed above.

59
<PAGE> 63

YEAR ENDED OCTOBER 31, 1997 COMPARED TO YEAR ENDED OCTOBER 31, 1996

Net sales were $122.4 million for fiscal 1997, a decrease of $0.5 million,
or 0.4%, from $122.9 million fiscal 1996. The decrease was primarily due to
efforts on the part of CPW to focus during fiscal 1997 on more profitable
product lines, particularly high performance and light truck tires.

Gross profit was $24.1 million in fiscal 1997, an increase of $2.5 million,
or 11.8%, from $21.6 million in fiscal 1996. As a percentage of sales, gross
profit was 19.7% and 17.6%, respectively. Gross profit increased primarily due
to favorable pricing programs provided by CPW's vendors during the year, along
with the product mix change in fiscal 1997 towards higher margin product lines.

Selling, general and administrative expenses were $20.1 million in fiscal
1997, an increase of $1.4 million, or 7.6%, from $18.7 million in fiscal 1996.
As a percentage of sales, these expenses were 16.4% and 15.2%, respectively.
Selling, general and administrative expenses increased due to a decision to
expand CPW's "just-in-time" delivery service in many of its major markets.

Interest and other expense remained flat at $0.2 million in fiscal 1996 and
1997.

Income taxes increased from $1.1 million in fiscal 1996 to $1.5 million
fiscal 1997 as a result of the higher levels of pre-tax earnings.

Net income was $2.3 million, or 1.9% of net sales in fiscal 1997, an
increase of $0.6 million, or 35.7%, from net income of $1.7 million, or 1.4% of
net sales, in fiscal 1996 due to the factors discussed above.

YEAR ENDED OCTOBER 31, 1996 COMPARED TO YEAR ENDED OCTOBER 31, 1995

Net sales were $122.9 million for fiscal 1996, an increase of $15.2
million, or 14.2%, from $107.7 million fiscal 1995. The increase was due to an
acquisition early in fiscal 1996.

Gross profit was $21.6 million in fiscal 1996, an increase of $2.3 million,
or 11.7%, from $19.3 million in fiscal 1995. As a percentage of sales, gross
profit was 17.6% and 17.9%, respectively. Gross profit margins decreased
primarily due to lower margin product lines from a company acquired in late
fiscal 1995 compared with CPW's normal profitability on its product mix.

Selling, general and administrative expenses were $18.7 million in fiscal
1996, an increase of $0.9 million, or 4.9%, from $17.8 million in fiscal 1995.
As a percentage of sales, these expenses were 15.2% and 16.5%, respectively.
Selling, general and administrative expenses decreased as a percent of sales due
to CPW's ability to incorporate the sales and operations of an acquisition in
late fiscal 1995 without any significant increase in selling, general and
administrative expenses.

Interest and other expense decreased from $0.3 million in fiscal 1995 to
$0.2 million in fiscal 1996 due to the repayment of sums borrowed in connection
with the acquisition in late fiscal 1995.

Income taxes increased from $0.5 million in fiscal 1995 to $1.1 million in
fiscal 1996 as a result of the increase in pre-tax earnings.

Net income was $1.7 million, or 1.4% of net sales, for fiscal 1996, an
increase of $1.0 million, or 131.4%, from net income of $0.7 million, or 0.7% of
net sales, in fiscal 1995 due to the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

The Company required approximately $148.1 million of financing in
connection with the Transactions for (i) the consummation of the ITCO Merger,
(ii) the completion of the CPW Acquisition, (iii) the repayment of existing
credit facilities (treating amounts outstanding under the Old Credit Facility
and under the ITCO Facility as repaid and borrowed under the New Credit Facility
on the Closing Date) and subordinated debt, and (iv) the payment of related fees
and expenses. The Company obtained the necessary funds from, among other
sources, (i) the issuance and sale of the Notes in the Offering and (ii)
outstanding borrowings under the New Credit Facility. See "Transactions," "Use
of Proceeds," and "Capitalization."

60
<PAGE> 64

The Transactions had a significant impact on the capitalization of the
Company. At June 30, 1998, the combined indebtedness of the Company was $170.9
million compared to $64.7 million for Heafner on a stand-alone basis at December
31, 1997. Financing committed by the lenders under the New Credit Facility is
$100.0 million under a revolving line of credit, approximately $55.3 million of
which was drawn as of September 30, 1998. See "Unaudited Pro Forma Condensed
Combined Financial Data" and "Capitalization."

Heafner's principal sources of cash during the six months ended June 30,
1998, and the years ended 1997, 1996 and 1995 were from operations, borrowings
under credit facilities and the issuance of long-term subordinated debt and
preferred stock in connection with the acquisition of Winston. Cash generated
(used) from operating activities totaled $(4.9) million, $6.7 million, $4.0
million and $(.4) million, respectively, during each of those periods. Cash used
in the 1998 period was primarily due to the net loss of $(3.5) million combined
with increases in accounts receivable of $8.3 million that resulted from
increased sales levels during the period. Cash generated in 1997 was primarily
due to improved vendor payment programs which resulted in an increase to
accounts payable of $9.6 million. Cash generated in 1996 was primarily due to
reductions in inventory levels of $5.0 million due to increased concentration on
inventory management. Cash used in 1995 was due to increases in inventory levels
of $6.1 million being offset by increased accounts payable of $7.4 million.

Cash used in investing activities during the six months ended June 30, 1998
and the years ended 1997, 1996, and 1995 totaled $53.2 million, $46.5 million,
$7.6 million, and $2.2 million, respectively. Cash was used primarily for the
acquisition of ITCO and CPW in the six months ended June 30, 1998 and for the
acquisition of Winston in 1997. Capital expenditures, including for the
construction of a mixing warehouse in 1996, were the primary uses of investment
cash during 1996 and 1995.

Cash generated by financing activities during the six months ended June 30,
1998 and the years ended 1997, 1996, and 1995 totaled $59.5 million, $41.3
million, $3.7 million, and $2.6 million, respectively. Cash generated during the
six months ended June 30, 1998 was from the issuance of $100.0 million of Old
Notes, offset by pay-downs in other long-term debt of the Company. Cash
generated in 1997 was from borrowings under the Company's revolving credit
facility, the issuance of $12.0 million in senior term loan and $16.0 million in
senior subordinated debt, and sale of $11.5 million of preferred stock. The
senior term loan and senior subordinated debt were repaid in 1998 with proceeds
from the Old Notes. Cash generated by financing activities in 1996 and 1995 came
primarily from borrowings under the Company's revolving credit facility and
vendor loans.

Capital expenditures during the six months ended June 30, 1998 and the
years ended 1997, 1996, and 1995 amounted to $1.9 million, $4.9 million, $7.9
million and $2.2 million, respectively. Capital spending during the six months
ended June 30, 1998 was primarily for new equipment in retail operations.
Expenditures during 1997 and 1996 were primarily for the construction and
purchase of warehouse distribution locations, including Heafner's primary
"mixing" warehouse in Lincolnton, North Carolina. Historically, the majority of
capital spending by Heafner has been for the construction or purchase of
additional distribution facilities, or for maintenance of existing fixed assets.

The Company intends to make capital expenditures in excess of $30.0 million
over the next five years, principally for the renovation and addition of retail
facilities and for general corporate expenditures. It is estimated that
approximately $9.0 million of such capital expenditures will be made in 1998. On
an ongoing basis, the Company estimates its maintenance level of annual capital
expenditures to be approximately $4.0 million. In addition, the Company
anticipates making further acquisitions of retail and wholesale operations that
may become available and that meet the Company's overall strategic guidelines.
Such acquisition spending may be incremental to the capital expenditures
forecast above. See "Business -- Business Strategy."

The New Credit Facility will mature on May 20, 2003. Interest on loans
under the New Credit Facility bear interest at a floating rate based upon
federal funds or Eurodollar rates plus an applicable margin. Loans under the New
Credit Facility are guaranteed by all material subsidiaries of the Issuer and
secured by inventory and accounts receivable of the Company. See "Risk
Factors -- Substantial Leverage; Restrictive Covenants," and "Description of New
Credit Facility."

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The Company has entered into interest rate swap agreements from time to
time to manage exposure to fluctuations in interest rates. As of June 30, 1998,
interest rate swap agreements were in place covering notional amounts of
approximately $25.0 million of indebtedness expiring at various dates through
October 2000, at an average interest rate of 8.53%. The Company does not
anticipate entering into additional swap agreements or hedging arrangements at
this time.

The Company plans to evaluate the arrangements under which it uses certain
distribution facilities it owns, and expects to enter into sale-and-leaseback
arrangements with respect to certain of the sites, and to sell and vacate
others.

The Company anticipates that its principal use of cash going forward will
be to meet working capital and debt service requirements and to make capital
expenditures. In addition, the Company expects to pay $5.0 million relating to
consolidation of warehouse and office facilities, severance obligations and
other exit costs over the next 12 months. In connection with the CPW
Acquisition, the Company also expects to pay an aggregate of $10.0 million to
the CPW Stockholders for certain non-compete covenants and other contingent
payments over the next five years. Based upon current and anticipated levels of
operations, the Company believes that its cash flow from operations, together
with amounts available under the New Credit Facility, will be adequate to meet
its anticipated requirements. There can be no assurance, however, that the
Company's business will continue to generate sufficient cash flow from
operations in the future to be applied to meet these requirements or to service
its debt, and the Company may be required to refinance all or a portion of its
existing debt, or to obtain additional financing. These increased borrowings may
result in higher interest payments. In addition, there can be no assurance that
any such refinancing would be possible or that any additional financing could be
obtained. The inability to obtain additional financing could have a material
adverse effect on the Company.

Certain minority stockholders of the Company have been granted redemption
rights commencing in 2004, subject to certain conditions, which if exercised
would obligate the Company to redeem the shares of capital stock held by such
stockholders at agreed valuations (based upon a multiple of EBITDA formula). See
"Transactions" and "Certain Relationships and Related Party
Transactions -- Warrants" and "-- Preferred Stock." There can be no assurance
that sufficient funds will be available to redeem the shares of capital stock
held by such stockholders if the Company is required to do so or whether the
terms of the Company's outstanding indebtedness at such time (including the
Indenture) will permit such redemption.

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BUSINESS

HISTORY AND DEVELOPMENT OF THE BUSINESS

General. The Company believes that it has become over the last five years
one of the leading tire distributors and retailers in the United States in terms
of sales and number of tires distributed. The Company's development over the
last five years has been marked by the addition of five warehouses in the
Southeast, increased emphasis on its private-label brand strategy, development
of electronic data interlinks with its customers and suppliers and by the
construction of a new mixing warehouse close to its North Carolina headquarters.
With its acquisition of Winston in 1997, the Company entered the retail tire
distribution market in California, becoming one of the nation's largest tire
retailers in terms of number of outlets. With the acquisitions of the New
Businesses in 1998, the Company expanded its West Coast distribution network and
solidified its position in the Southeastern wholesale tire distribution market.
The Company's wholesale and retail operations are divided among four principal
corporate entities: the Issuer (organized in 1935), Winston (founded in 1962 and
acquired by the Company in 1997), ITCO (founded in 1962 and acquired by the
Company in 1998) and CPW (founded in 1971 and acquired by the Company in 1998).

Heafner. Founded in 1935, Heafner believes that it is one of the largest
tire distributors and retailers in the country, based on tires distributed and
number of outlets at December 1997, and believes that it is a significant
distributor of mechanical service equipment to the automotive service and repair
industry in the United States. With over 30 distribution facilities, Heafner
distributes private-label, house and flag brands of passenger, light truck,
truck and specialty tires, wheels, mechanical service equipment and related
products to the automotive replacement market in over 18 states. Excluding sales
by Winston, Heafner generated net sales of $210.8 million and sold more than 3.3
million tires in 1997. Heafner's products include flag brands manufactured by
Michelin (including the B.F. Goodrich and Uniroyal brands), private-label
products such as Regul tires, Winston tires and Pacer custom wheels, and house
brand products such as Monarch tires (manufactured by Kelly-Springfield, a
division of Goodyear). Heafner also distributes alignment service equipment
manufactured by Hunter Engineering Company and tire changers and balancers built
by Hennessey Industries, Inc. (a division of the Danaher Corporation), both
leading manufacturers in their respective fields. Tire sales represented
approximately 76.0% of Heafner's fiscal 1997 net sales.

Winston. On May 7, 1997, Heafner entered the retail tire business with its
acquisition of Winston. Founded in 1962, Winston has grown to become the fourth
largest independent tire dealer in the country in 1997, based on the number of
company-owned retail stores. Winston sold more than 1.1 million tires as well as
other automotive products in 1997 through its chain of 176 retail stores in
California and Arizona for net sales in excess of $145.0 million. Each Winston
store offers customers multiple choices of flag brands, including Michelin
(including the B.F. Goodrich and Uniroyal brands), Pirelli and, beginning in
June 1998, Goodyear, as well as the Winston tire private-label brand and related
automotive products and services, including Quaker State oil products and Monroe
and Raybestos ride control products. Tire sales represented approximately 57.9%
of Winston's fiscal 1997 net sales.

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ITCO. Heafner acquired ITCO on May 20, 1998. Founded in 1962, ITCO is one
of the largest wholesale distributors of tires, custom wheels, equipment and
tire dealer supplies in the Southeast in terms of sales and number of tires
distributed, with net sales for fiscal 1997 of approximately $352.0 million.
ITCO shipped more than 4.8 million passenger and light truck tires and 175,000
medium truck tires in fiscal 1997. ITCO's products include flag brand tires such
as Michelin (including the B.F. Goodrich and Uniroyal brands), Bridgestone,
Firestone and Dunlop and private-label brand tires manufactured by Michelin,
Bridgestone/Firestone, Kelly-Springfield and Dunlop, custom wheels manufactured
by Ultra and private-branded under the ICW name and supplies and equipment
manufactured by Ingersoll-Rand and Hennessey. Tire sales represented
approximately 85.5% of ITCO's net sales in fiscal 1997.

CPW. Heafner acquired CPW on May 20, 1998. Started in 1971 as a
performance automotive shop, CPW is now primarily a wholesale distributor
specializing in replacement market sales of tires, parts, wheels and equipment.
CPW also operates a network of 40 retail stores in California and Arizona. Of
CPW's retail stores, 35 sell flag brand high performance as well as regular
grade tires, wheels and related automotive products, while the remaining five
retail stores sell only automotive parts. CPW's net sales for fiscal 1997 were
approximately $122.0 million. CPW shipped more than 1.5 million passenger and
light truck tires in fiscal 1997. CPW's flag brand tire offerings include
Michelin, Dunlop, B.F. Goodrich, Uniroyal and Pirelli. Its private-label brand
tire offerings include Lee, Centennial, Mickey Thompson, Starfire, Cooper and
Nankang. CPW believes that it is one of the largest distributors of high
performance tires in California. CPW also sells parts, wheels, and equipment
built by nationally recognized manufacturers. Tire sales represented
approximately 72% of CPW's total sales for fiscal 1997. Sales of high
performance tires represented approximately 40% of CPW's total net sales for the
same period.

GENERAL

Following the acquisition of the New Businesses, the Company believes that
it is one of the largest independent suppliers of tires to the replacement tire
market in the United States in terms of sales and number of tires distributed.
The Company's wholesale distribution operations accounted for approximately
82.5% of the Company's total net sales, on a pro forma basis, in 1997. With over
65 distribution centers servicing 20 states, the Company believes that it is the
largest independent distributor of new replacement tires in terms of number of
tires shipped in the Southeast and in California. Through this distribution
network, the Company's wholesale divisions supplied 9.7 million tires in 1997
and currently serve an average of 20,000 customers each month. Through its
retail division, the Company also operates over 215 retail tire and automotive
service outlets in California and Arizona which sold over 1.2 million tires in
1997. The Company's Winston subsidiary, which operates 176 of the Company's
retail tire and automotive service outlets, was the fourth largest independent
tire dealer in the United States in 1997 based on number of locations. The
Company generally stocks over 18,000 stock keeping units ("SKUs") of tires in
its distribution centers. The Company supplies premium, economy and
private-label brands of tires manufactured by the major tire manufacturers,
including Michelin (which manufactures the B.F. Goodrich and Uniroyal brands),
Kelly-Springfield (a division of Goodyear), Dunlop, Bridgestone/Firestone and
Pirelli. The Company's private-label tires are sold under the Winston and Regul
trademarks. In addition to its tire sales, the Company believes that it is a
significant independent distributor and retailer of aftermarket wheels,
automotive replacement parts and accessories and automotive service equipment.

The Company believes that the combination of Heafner and the New Businesses
represents a distinct opportunity to broaden product offerings, strengthen
manufacturer relationships, develop new competencies in its organization and
strengthen the Company's presence in the Southeast and the West. The Company
believes that the ITCO Merger will enable the Company's Eastern wholesale
division to provide more cost-effective service and will increase its
distribution capacity, positioning the Company for expansion into new geographic
areas. The Company believes that the acquisition of CPW and its distribution
facilities will establish a broader supply network with more frequent delivery
capabilities for the Company's Winston retail stores, improving the Company's
ability to restock inventory and obtain customer-requested products on a more
timely basis. In addition, the Company expects to realize significant cost
savings and operating efficiencies and improvements that will contribute to its
goal of increasing future profitability.

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On a pro forma basis, the Company generated net sales, EBITDA and a net
loss of $830.7 million, $28.1 million and $4.4 million, respectively, in fiscal
1997. In 1997, on a pro forma basis, sales of tires accounted for approximately
78.6% of the Company's total net sales, sales of automotive service, 7.7%, sales
of custom wheels, 6.8%, sales of automotive service equipment, 3.1%, and sales
of parts and other products, 3.8%.

INDUSTRY OVERVIEW

Purchasers in the United States spent approximately $18.1 billion on new
replacement tires in 1997. Of that amount, passenger tires accounted for
approximately 59% of sales, light truck tires accounted for approximately 15%,
truck tires accounted for approximately 21% and farm, specialty and other types
of tires accounted for approximately 5%. The number of new replacement tires
shipped in the United States for passenger cars and light trucks increased from
164.6 million tires in 1986 to 208.1 million tires in 1997, a compound annual
growth rate of approximately 2.2%. The Company believes that the factors that
have contributed to this growth include increases in both the number and average
age of cars as well as passenger miles driven in the United States.

Consumers of new replacement tires in the United States obtain them from
several principal sources, including independent tire dealers,
manufacturer-owned retail stores, mass merchandisers such as Sears and Wal-Mart,
auto supply chain stores and wholesale clubs and discounters. Independent tire
dealers, which represent the largest customer base served by the Company, are
the largest point of sale suppliers of new replacement passenger tires to the
United States market. Independent tire dealers accounted for approximately 59.5%
of retail sales of domestic replacement passenger tires in 1997.

Independent tire dealers obtain their inventory of new replacement tires
through three principal sources: tire manufacturers, independent wholesale
distributors (such as the Company) and dealer-owned warehouses. Other sources
include discount or price clubs and tire outlet chains. Industry estimates
indicate that independent wholesale distributors provided approximately
one-third of the passenger and light truck new replacement tires supplied to
independent tire dealers, and approximately 25% of all passenger and light truck
new replacement tires reaching the consumer market, in 1997. The Company
believes that, in recent years, certain tire manufacturers have reduced their
supply to small independent tire dealers due to the inefficiencies of supplying
a small amount of product to a large number of locations. At the same time,
manufacturers have increased their supplies to independent wholesale
distributors, such as the Company, who are able to deliver tires to a large
number of independent tire dealers with greater efficiency.

The replacement tire market for passenger cars and light trucks consists of
three primary types of tires: "flag" brands, which are premium tires made by the
major tire manufacturers; associate or "house" brands, which are primarily
economy brand tires made by the major tire manufacturers; and private-label
brands, which are brands made by tire manufacturers generally for independent
tire wholesale distributors and retailers. In 1997, flag brands constituted
approximately 50.0% of the United States passenger and light truck replacement
tire markets in 1997, private-label brands constituted approximately 29.9% of
those markets and house brands made up approximately 20.1% of those markets.

COMPETITIVE STRENGTHS AND BUSINESS STRATEGY

Leading Market Positions. The Company believes that it is one of the
nation's largest buyers of new replacement passenger and light truck tires,
purchasing in excess of 10.9 million tires in 1997, representing approximately
5.2% of the total tires shipped to the U.S. replacement tire market. Through its
Eastern and Western wholesale divisions, the Company also believes that it is
the leading wholesale distributor of tires in terms of number of tires shipped
to the replacement tire market in the Southeast and in California, with over 65
distribution centers servicing 20 states. In addition, through its retail
division, the Company currently operates over 215 retail tire and automotive
service outlets in California and Arizona, including 176 tire and automotive
service outlets operated by Winston. Winston was the fourth largest independent
tire dealer in the
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United States in 1997 based on number of locations. The Company intends to
strengthen and expand its existing network of distribution centers and retail
outlets by pursuing a strategy of selective expansion and acquisition focusing
on geographic areas it does not currently serve.

Strong Relationships with Major Tire Manufacturers. The Company has
established strong relationships with the major tire manufacturers, including
Michelin (which manufactures the B.F. Goodrich and Uniroyal brands),
Kelly-Springfield (a division of Goodyear), Dunlop, Bridgestone/Firestone and
Pirelli. The Company has conducted business with its major tire suppliers for a
combined average of 26 years. In terms of replacement tires purchased, the
Company believes that it is the largest U.S. customer of Dunlop, one of the
largest U.S. customers of Michelin (which manufactures the B.F. Goodrich and
Uniroyal brands) and one of the largest U.S. customers of Bridgestone/Firestone.
The Company recently negotiated an arrangement with Goodyear for the placement
of Goodyear flag-branded products in the Company's Winston retail stores. The
Company's network of retail points of sale offers tire manufacturers a desirable
platform for their branded products and allows the Company to relay important
feedback from tire consumers to the manufacturers. The Company believes that
this combination of factors improves tire manufacturers' access to the
replacement tire market and, in turn, enhances the Company's relationship with
its suppliers.

Private-Label Brands. The Company offers two private-label brands of
tires, Regul (manufactured by Michelin and Kelly-Springfield) and Winston
(manufactured by Kelly-Springfield), which are supplied exclusively by the
Company. In general, private-label brands allow the independent wholesale
distributor and its retail dealer customer to realize higher gross profit
margins than are obtainable through sales of flag or house brands. Sales of
private-label tires account for a significant portion of the Company's total net
sales ($101.0 million on a pro forma basis in 1997). The Company also sells
other private-label products, including ICW and Pacer custom wheels and Magnum
automotive lifts. The Company intends to continue to build the brand identity of
its private-label products through advertising, promotions and continued
emphasis on the quality of those products, and plans to introduce its
private-label brand tires as leading value-priced products in the new markets it
serves.

Supply Practices and Customer Service. The Company distributes tires and
other products to dealers and other customers generally on a same-day basis and,
in certain markets, makes multiple deliveries in a single day. By offering
reliable, timely and frequent deliveries and using sophisticated inventory
management systems, the Company's wholesale divisions assist customers in
reducing investment in inventories while still enabling them to provide a full
range of products. In addition, the integration of the New Businesses will allow
the Company to implement the best inventory management practices of its existing
businesses and those of the New Businesses on a company-wide basis as it
continues to emphasize value-added customer service and supply practices in all
aspects of its business. The Company believes that its strong inventory
management systems and retail expertise will allow it to successfully integrate
the New Businesses, expand its customer base and provide a strong platform for
future expansion.

OPERATIONS

Wholesale Divisions. The Company's Eastern and Western wholesale divisions
accounted for approximately 82.5% of the Company's net sales, on a pro forma
basis, in 1997. With over 65 distribution centers servicing 20 states, the
Company believes that it is the largest independent distributor of replacement
tires in the Southeast and in California. Through this distribution network, in
1997 the Company supplied 9.7 million tires and provided service to an average
of 20,000 active customers in each month.

The Company's distribution network provides daily delivery to its tire
dealer customers in most areas and, in major markets, provides delivery two to
four times a day. The Company has been able to offer reliable, timely and
frequent deliveries to its customers by utilizing its inventory management
systems that link its distribution facilities to its major customers and
electronic data links directly with Michelin and Kelly-Springfield, its two
largest suppliers. This level of just-in-time service is intended to allow the
Company's customers to reduce investment in inventories while still enabling
them to provide a full range of products to consumers. The Company believes that
software and on-line programs, such as the Company's "HeafNet" electronic
interlink service, will play an increasingly important role for its distribution
customers. See

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"-- Information Systems and Technology." The Company's fleet of approximately
650 trucks also facilitates frequent deliveries to its distribution customers.

In order to improve efficiency in its Southeastern operations, the Company
utilizes a large "mixing" warehouse located in Lincolnton, North Carolina where
products are sorted for shipments to customers located outside the territories
typically served by the distribution network. The mixing warehouse also enables
the Company to make volume purchases from suppliers when advantageous and ship
the resulting inventory to distribution centers within its network. The Company
believes that this mixing and accessibility of inventory enables the Company's
customers to expand sales opportunities without the burden and expense of large
investments in inventory.

As an additional service to its customers, the Company may pass through to
its distribution customers all or a portion of credits from tire manufactures
for advertising or special promotions on tires or other products. These credits
assist the Company's customers in budgeting for their advertising and similar
operating expenses. The Company also participates in and sponsors dealer
conferences among its customers in order to keep them informed of industry
trends and new product offerings. In addition, as the Company's retail expertise
grows, the Company intends to continue to make this expertise available to its
independent tire retailer customers in order to enhance customer relations.

Retail Division. The Company's retail division operates over 215 retail
tire and service outlets in California and Arizona, including 176 tire and
automotive service outlets operated by Winston. Winston was the fourth largest
independent tire dealer in the United States in 1997 based on number of
locations. The Company believes that the strength of the Winston retail
franchise in California may make it suitable for expansion in the West. The
Company's CPW subsidiary, which began as a performance automotive shop in 1971,
currently operates 40 of the Company's retail stores in California and Arizona.
Of these retail stores, 35 sell flag brand high performance as well as regular
grade tires, wheels and related automotive products, while the remaining five
sell only automotive parts.

The following chart shows the geographical distribution of the Company's
retail locations:

<TABLE>
<CAPTION>
REGION WINSTON CPW TOTAL
- ------ ------- --- -----
<S> <C> <C> <C>
Southern California................................. 124 9 132
Sacramento/California Central Valley................ 29 5 34
Northern California................................. 20 15 35
Arizona............................................. 3 11 14
--- -- ---
Totals.................................... 176 40 216
</TABLE>

Through Winston's retail locations, the average size of which is
approximately 4,400 square feet, the Company also provides automotive repair and
service, such as wheel alignment, oil changes and brake repair. These services
accounted for approximately 42.1% of Winston's total net sales in 1997.

Winston provides its customers with a guarantee on all products and
services and believes that its emphasis on customer service distinguishes it
from many of its competitors. Winston also conducts an eight-week training
course for its store managers and mechanics and routinely monitors the
performance of its customer service representatives. Through its strong consumer
protection program, which includes sending "mystery shoppers" to store
locations, Winston seeks to ensure that services and sales tactics comply with
California consumer protection regulations covering the automotive services
industry. Winston's programs have been highlighted by the California Bureau of
Automotive Repair in its publications as examples of how compliance with such
regulations can and should be achieved.

PRODUCTS

The Company sells a broad selection of tires, custom wheels, automotive
service equipment and related products manufactured by the leading
manufacturers. The Company's products include flag brand tires manufactured by
Michelin, including the B.F. Goodrich and Uniroyal brands, private-label
products such as Regul tires, Winston tires and Pacer custom wheels, and house
brand products such as Monarch tires,

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manufactured by Kelly-Springfield (a division of Goodyear). The Company
generally stocks over 18,000 SKUs of tires in its distribution centers. The
Company also distributes alignment service equipment manufactured by Hunter
Engineering Company and tire changers and balancers built by Hennessey
Industries, Inc. (a division of the Danaher Corporation), both leading
manufacturers in their respective fields. The Company sells many other products,
including tires for the medium truck, farm and industrial markets, automotive
service equipment, wheel weights and tubes. In addition, through CPW's
operations, the Company supplies over 200,000 SKUs of automotive parts and
accessories. Through Winston's retail tire and automotive service outlets, the
Company offers other automotive products such as Quaker State oil products and
Monroe and Raybestos ride control products. The Company believes that products
sold by the New Businesses will complement Heafner's existing product line and,
in the case of CPW, increase the Company's sales of high-performance tires and
automotive parts and accessories. Although the Company anticipates some
consolidation of product lines following completion of the Transactions, it
intends to continue to provide its customers with a broad choice of flag and
private-label products. In 1997, on a pro forma basis sales of tires accounted
for approximately 78.6% of the Company's total net sales, sales of automotive
service, 7.7%, sales of custom wheels, 6.8%, sales of automotive service
equipment, 3.1%, and sales of parts and other products, 3.8%.

SUPPLIERS

The Company purchases its products in finished form from all major tire
manufacturers and other suppliers. In 1997, the Company purchased in excess of
10.9 million tires, representing approximately 5.2% of the total U.S.
replacement tire market. Approximately 90% of the Company's total tire purchases
(in units) in 1997 were supplied by Michelin, Kelly-Springfield, Dunlop and
Bridgestone/Firestone. Michelin and Kelly-Springfield, a division of Goodyear,
are the Company's two largest tire suppliers, supplying 35% and 34%,
respectively, of all tires sold by the Company in 1997. In addition, the Company
has recently negotiated an arrangement with Goodyear for the placement of
Goodyear flag-branded products in the Company's Winston retail stores.

Of the total 1997 U.S. new replacement passenger tire market, Michelin
(including the B.F. Goodrich and Uniroyal brands) accounted for 15.5%,
Bridgestone/Firestone accounted for 13.0% and the leader, Goodyear, accounted
for 16.0%. Of the total 1997 U.S. replacement light truck tire market, Michelin
(including the B.F. Goodrich and Uniroyal brands) accounted for 18.5%,
Bridgestone/Firestone accounted for 12.5% and Goodyear accounted for 13.0%. Of
the Company's principal private-label brands, Winston tires are manufactured
exclusively by Kelly-Springfield and Regul tires are manufactured by both
Michelin and Kelly-Springfield.

There are a number of worldwide manufacturers of wheels and other
automotive products and equipment. Most of the wheels purchased by the Company
are private-label custom brands, such as Pacer and ICW, and are produced by a
variety of manufacturers. The Company purchases equipment and other products
from multiple sources, including industry leaders such as Hunter Engineering
Company and Hennessey Industries, Inc. (a division of the Danaher Corporation).

With the exception of a long-term contract (the "Kelly-Springfield Supply
Agreement") with Kelly-Springfield, a division of Goodyear, the Company's supply
arrangements with its major suppliers generally are pursuant to oral or written
arrangements, which are renegotiated annually. Although there can be no
assurance that these arrangements will be renewed, or renewed on favorable
terms, the Company has conducted business with its major tire suppliers for a
combined average of 26 years and believes that it has strong relationships with
all of its major suppliers. See "Risk Factors -- Reliance on Vendors."

The Company purchases certain private-label and house brand tires,
including the Winston and Monarch products, from Kelly-Springfield, a division
of Goodyear. Purchases are made pursuant to the Kelly-Springfield Supply
Agreement at prices specified from time to time in the manufacturer's pricing
schedule. Pursuant to the agreement, the Company must purchase all of its
requirements of Winston brand tires from Kelly-Springfield during the term of
the agreement, but may purchase such tires from other manufacturers if
Kelly-Springfield is unable or unwilling to meet its supply obligations under
the agreement. The initial term of the Kelly-Springfield Supply Agreement
expires on May 7, 2007 and the agreement is automatically

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renewable for successive three-year terms thereafter. The supply agreement may
be terminated by either party upon twelve months' advance notice.
Kelly-Springfield is the sole holder of the Issuer's Preferred Stock (as
defined). See "Certain Relationships and Related Transactions -- Preferred
Stock."

CUSTOMERS

Wholesale. Through its Eastern and Western wholesale divisions, the
Company distributes tires and related automotive products principally to
independent tire dealers. The Company's other customers include national retail
chains, service stations, general automotive repair facilities, auto parts
stores, automobile dealers and specialty automotive repair facilities. The
Company generally requires payment from its customers within 30 days, although
it may tailor programs for its larger customers. In 1997, the Company's
wholesale divisions served an average of more than 20,000 customers in each
month. The Company's largest customer accounted for less than 0.5% of the
Company's pro forma net sales for 1997 and the Company's top 25 customers
accounted for less than 5% of the Company's pro forma net sales for 1997.

Retail. The Company's retail operations attract a variety of individual
consumers in the areas they serve. Through the Winston retail chain, the Company
also offers accounts to its corporate retail customers. Winston's corporate
accounts represent approximately 9.2% of its tire business.

COMPETITION

The Company believes that the principal competitive factors in its business
are reputation, breadth of product offering, delivery frequency, price and
service. The Company believes that it competes effectively in all aspects of its
business due to its ability to offer a broad selection of flag and private-label
branded products, its competitive prices and its ability to provide quality
services in a timely manner.

SEASONALITY AND INVENTORY

The Company's wholesale distribution and retail service operations
typically experience their highest levels of sales from March through October of
each fiscal year, with the period from November through February generally
experiencing the lowest levels of sales. The Company's inventories generally
fluctuate with anticipated seasonal sales volumes. The Company believes it
maintains levels of inventory that are adequate to meet its customers' needs on
short notice. The average of beginning- and end-of-year inventories of the
Company in 1997 was $108.5 million.

INFORMATION SYSTEMS AND TECHNOLOGY

The Company believes that software and on-line programs will play an
increasingly important role in linking the Company to its distribution and
retail customers and improving the Company's management of inventories of tires,
wheels and related products.

The Company is able to offer reliable, timely and frequent deliveries to
its customers by utilizing its inventory-management systems that link directly
to its major customers and among its distribution facilities and electronic data
interlinks directly with Michelin and Kelly-Springfield, its two largest
suppliers. Heafner supplies a number of customers with its proprietary "HeafNet"
system, which allows customers to electronically access Heafner's warehouses to
locate, price and order inventory. Heafner believes this system allows its
customers to respond more quickly and efficiently to retail customers' requests
for products. The

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Company intends to implement a company-wide inventory management system based on
the strongest attributes of Heafner's, CPW's and ITCO's existing systems in
order to improve the operation of its overall distribution network.

The Company also intends to make available certain interactive software
programs focused on the retail customer that are currently offered by CPW to
independent tire dealers in the West to the Company's retail stores in the West
and independent tire dealer customer base in the Southeast. For example, CPW
currently is a distributor of a software product called Wheel Wizard that allows
customers to view a wide assortment of wheels in combination with the make and
color of their automobiles. The Company believes that interactive software
programs such as these enhance its ability to market wheels by providing retail
dealers devices that take up little floor space, are relatively easy to use and
are customer oriented.

YEAR 2000 COMPLIANCE

Portions of some of the accounting and operational systems and software
used by the Company in its business identify years with two digits instead of
four. If not corrected, these information technology systems may recognize the
year 2000 as the year 1900, which might cause system failures or inaccurate
reporting of data that disrupts operations. The Company has completed an
internal assessment of all of the business applications and related software
used in its information technology systems, including those of the New
Businesses, in order to identify where "Year 2000" problems exist. As a result
of this review, the Company believes that all of its information technology
systems and software either are Year 2000 compliant or can be brought into
compliance by October of 1999, although there can be no assurance that any
required remediation will be completed in a timely manner.

In addition, the Company is contacting non-information technology vendors
to ensure that any of their products currently used in the Company's business
adequately address Year 2000 issues. Areas being reviewed include warehouse
equipment, telephone and voice mail systems, security systems and other office
and site support systems. Although there can be no assurance, the Company
believes based on its review that Year 2000 problems in its non-information
technology systems will not cause a material disruption in the Company's
business.

The Company also may be vulnerable to business interruptions caused by
unremedied Year 2000 problems of its significant suppliers of products or
services. The Company has initiated formal communications with significant
suppliers, including the country's major tire manufacturers, to determine the
extent to which the Company's operations may be affected by such third parties'
Year 2000 non-compliance. Each of the major tire manufacturers has informed the
Company that it anticipates no disruption of tire supply or provision of
significant business information as a result of Year 2000 problems. The
Company's wholesale and retail customer base is highly fragmented, with no
single customer accounting for a significant portion of the Company's business.
Accordingly, although it has not attempted to survey its customers, the Company
believes that no significant risk exists in connection with Year 2000 problems
on the part of any of its customers.

The Company does not expect the historical and estimated costs associated
with bringing the Company's information technology and non-information
technology systems into Year 2000 compliance, including software modification,
equipment replacement and payments to outside solution providers, to be
material. However, if Year 2000 issues in the Company's information technology
and non-information technology systems are not remedied in a timely manner, or
if Year 2000 problems on the part of the Company's customers and suppliers exist
and are not remedied in a timely manner, there can be no assurance that
significant business interruptions or increased costs having a material adverse
effect on the business, financial condition or results of operations of the
Company will not occur in connection with the change in century. Risks of Year
2000 non-compliance on the part of the Company or any of its significant
suppliers could include interruptions in supply from tire manufacturers,
disruption of the Company's internal and external distribution network, reduced
customer service capabilities, breakdown of inventory control and fulfillment
systems and impairment of essential information technology systems used by
management. The Company has not established nor does it plan to establish a
contingency plan for Year 2000 compliance issues.

70
<PAGE> 74

EMPLOYEES

The Company employs approximately 3,230 people as of June 30, 1998, of whom
approximately 1,600 were employed in its wholesale divisions and approximately
1,630 were employed in its retail division. None of the Company's employees is
represented by unions. The Company believes its employee relations are
satisfactory.

LEGAL PROCEEDINGS

The Company's Winston subsidiary was named as a defendant in a class action
lawsuit filed on June 10, 1998 in Los Angeles County Superior Court on behalf of
certain Winston employees alleging improper calculation of compensation payable
to such employees in violation of certain California wage regulations and unfair
business practices statutes. The suit seeks administrative penalties,
restitution and other unspecified damages. The Company believes that Winston's
operations, including its wage practices, fully comply with applicable
California and federal legal requirements and that the plaintiffs' claims are
without merit. The Company is vigorously defending the matter in coordination
with its liability insurers. The Company believes that these insurers will be
responsible for defending some of the claims involved in the lawsuit, and that a
portion of any potential losses may be covered under applicable insurance
policies.

The Company has also been named as a defendant in various other claims and
lawsuits arising in the normal course of business. The Company believes that the
facts do not support the plaintiffs' claims and intends to vigorously contest
each of them. To the Company's knowledge, except as described in the previous
paragraph, it is not currently a party to any litigation that would have a
material adverse effect on the Company.

PROPERTIES

The principal properties of the Company are geographically situated to meet
sales and operating requirements. All of the properties of the Company are
considered to be both suitable and adequate to meet current operating
requirements. The Company is reviewing its properties to determine whether
certain facilities could be consolidated into other locations following
completion of the Transactions. At present, the Company plans to close 11 to 13
distribution warehouses in the Southeast and is considering closing two
distribution warehouses in California in order to eliminate redundancies within
its Eastern and Western wholesale divisions. Although there can be no assurance
that it will be successful in doing so, the Company believes that, in particular
with respect to its distribution centers, it may obtain cost savings and
synergies by closing or consolidating certain facilities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Distribution Centers. The following table sets forth certain information
regarding the Company's warehouse and distribution facilities as of June 30,
1998:

<TABLE>
<CAPTION>
OWNED/
LOCATION COMPANY LEASED
- -------- ------- ------
<S> <C> <C>
Alabama:
Birmingham............................................. Heafner Leased
Cullman................................................ ITCO Leased
Mobile................................................. Heafner Leased
Montgomery............................................. ITCO Leased
Arizona:
Mesa................................................... CPW Leased
Arkansas:
Little Rock............................................ Heafner Leased
Texarkana.............................................. Heafner Owned
</TABLE>

71
<PAGE> 75

<TABLE>
<CAPTION>
OWNED/
LOCATION COMPANY LEASED
- -------- ------- ------
<S> <C> <C>
California:
Fresno................................................. CPW Owned
Hayward................................................ Winston Leased
Moorpark............................................... CPW Leased
Rancho Cucamonga....................................... Winston Leased
Sacramento............................................. CPW Leased
San Jose(a)............................................ CPW Leased
Santa Fe Springs....................................... CPW Leased
Florida:
Fort Myers............................................. ITCO Leased
Jacksonville........................................... ITCO Leased
Medley................................................. ITCO Leased
Orlando................................................ Heafner Leased
Orlando................................................ ITCO Leased
Pensacola.............................................. Heafner Owned
Tallahassee............................................ Heafner Owned
Tampa.................................................. ITCO Leased
West Palm Beach........................................ ITCO Leased
Georgia:
Atlanta................................................ Heafner Leased
Augusta................................................ Heafner Leased
Rome................................................... ITCO Leased
Savannah............................................... ITCO Leased
Tucker................................................. ITCO Leased
Warner Robins.......................................... ITCO Leased
Kentucky:
Lexington.............................................. Heafner Leased
Louisville............................................. Heafner Leased
Maryland:
Baltimore.............................................. ITCO Leased
Landover............................................... ITCO Leased
Salisbury.............................................. ITCO Owned
Mississippi:
Jackson................................................ Heafner Leased
Missouri:
Springfield............................................ Heafner Leased
North Carolina:
Asheville.............................................. Heafner Owned
Burlington............................................. ITCO Leased
Charlotte.............................................. Heafner Owned
Charlotte.............................................. ITCO Owned
Fayetteville........................................... ITCO Leased
Greensboro............................................. Heafner Leased
Lincolnton............................................. Heafner Owned
Lumberton.............................................. Heafner Owned
Raleigh................................................ Heafner Owned
Wilmington............................................. ITCO Leased
</TABLE>

72
<PAGE> 76

<TABLE>
<CAPTION>
OWNED/
LOCATION COMPANY LEASED
- -------- ------- ------
<S> <C> <C>
Wilson(a).............................................. ITCO Leased
Winston-Salem.......................................... Heafner Leased
Oklahoma:
Oklahoma City.......................................... CPW Leased
South Carolina:
Charleston............................................. ITCO Leased
Columbia............................................... Heafner Leased
Columbia............................................... ITCO Leased
Florence............................................... Heafner Leased
Mauldin................................................ Heafner Owned
Mauldin................................................ ITCO Owned
Tennessee:
Chattanooga............................................ Heafner Leased
Johnson City........................................... ITCO Leased
Knoxville.............................................. Heafner Owned
Knoxville.............................................. ITCO Leased
Memphis (two properties)............................... Heafner Leased
Nashville.............................................. Heafner Leased
Nashville.............................................. ITCO Leased
Virginia:
Harrisonburg........................................... ITCO Leased
Norfolk................................................ Heafner Owned
Norfolk................................................ ITCO Leased
Richmond............................................... Heafner Owned
Richmond............................................... ITCO Leased
Roanoke................................................ Heafner Owned
Wytheville............................................. ITCO Leased
</TABLE>

- ---------------
(a) Includes corporate office space.

Retail Stores. As of June 30, 1998, the Company operated over 215 retail
tire and service outlets in California and Arizona, including 176 tire and
automotive service outlets operated by Winston. All but one of these retail
outlets are leased. The Company intends to consolidate the management of all
retail stores under its retail division.

Corporate and Executive Offices. In addition to its principal executive
offices, the Company currently has corporate offices in four other locations. In
connection with the ITCO Merger, ITCO's corporate offices are expected to be
consolidated into Heafner's corporate offices in Lincolnton, North Carolina. All
of the Company's corporate and executive offices are leased.

<TABLE>
<CAPTION>
LOCATION COMPANY USE
- -------- ------- -----------------
<S> <C> <C>
Charlotte, North Carolina....................... Heafner Executive offices
Lincolnton, North Carolina...................... Heafner Corporate offices
Burbank, California............................. Winston Corporate offices
San Jose, California............................ CPW Corporate offices
Wilson, North Carolina.......................... ITCO Corporate offices
</TABLE>

73
<PAGE> 77

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding the directors
and executive officers of the Issuer as of June 30, 1998. Directors hold their
positions until the annual meeting of the stockholders at which their term
expires or until their respective successors are elected and qualified.
Executive officers hold their positions until the annual meeting of the Board of
Directors or until their respective successors are elected and qualified.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ann H. Gaither............................. 66 Chairperson
William H. Gaither......................... 42 President, Chief Executive Officer and
Director
Donald C. Roof............................. 46 Senior Vice President, Chief Financial
Officer and Treasurer
J. Michael Gaither......................... 46 Senior Vice President/Strategic Planning,
General Counsel and Secretary
Daniel K. Brown............................ 45 Senior Vice President/Sales and Marketing
Thomas J. Bonburg.......................... 49 President, Retail Division
Arthur C. Soares........................... 49 President, Western Wholesale Division
Richard P. Johnson......................... 50 President, Eastern Wholesale Division
Joseph P. Donlan........................... 52 Director
V. Edward Easterling, Jr................... 38 Director
Victoria B. Jackson........................ 43 Director
William M. Wilcox.......................... 71 Director
</TABLE>

Ann H. Gaither -- Chairperson. Ms. Gaither joined the Issuer in 1972 and
succeeded her father as Chief Executive Officer in 1984. She served as President
of the Issuer from 1986 until 1989 and has served as Chairperson since 1988. Ms.
Gaither currently serves on the Board of Directors of C200, a national women's
business owners organization, and is a Commissioner on the North Carolina
Department of Transportation Board. Ms. Gaither is the mother of William H.
Gaither, the President, Chief Executive Officer and a Director of the Issuer.

William H. Gaither -- President, Chief Executive Officer and Director. Mr.
Gaither joined the Issuer in 1978 as a management trainee, subsequently serving
as an Assistant Manager in various locations. In 1986, Mr. Gaither was named
Executive Vice President, a position he held until 1989. He has served as
President of the Issuer since 1989. Mr. Gaither also has served as the Chief
Executive Officer of the Issuer since 1996 and has been a Director of the Issuer
since 1986. He holds a B.A. from Davidson College. Mr. Gaither is the son of Ann
H. Gaither, the Chairperson of the Issuer.

Donald C. Roof -- Senior Vice President, Chief Financial Officer and
Treasurer. Mr. Roof has served as the Issuer's Senior Vice President, Chief
Financial Officer and Treasurer since April 1997. Prior to that time, from 1987
to November 1996, he served in a variety of positions with Yale
International/Spreckels Industries, a global industrial manufacturing and food
processing company. From 1990 to 1994, Mr. Roof was Treasurer and Chief
Financial Officer of Yale International/Spreckels Industries, and from 1994 to
1996, Senior Vice President and Chief Financial Officer. He received his B.B.A.
from Eastern Michigan University.

J. Michael Gaither -- Senior Vice President/Strategic Planning, General
Counsel and Secretary. Mr. Gaither has served in his present capacity since
joining the Issuer in 1991. Prior to that time, he was a lawyer in private
practice for several years. He holds a B.A. from Duke University and received
his J.D. from the University of North Carolina-Chapel Hill. Mr. Gaither also
serves on the Board of Directors of Ridgeview, Inc.

Daniel K. Brown -- Senior Vice President/Sales and Marketing. Mr. Brown
joined the Issuer in 1975 and held various field sales assignments before
becoming Marketing Manager in 1979. He advanced to

74
<PAGE> 78

Director of Marketing and to Vice President of Marketing during the 1980's and
was named Vice President of Sales and Marketing in 1991. In 1997 he was named
Senior Vice President of Sales and Marketing with responsibility for vendor
relations and program negotiations as well as the sales and marketing activities
for the Company. Mr. Brown holds a B.A. from Western Carolina University.

Thomas J. Bonburg -- President, Retail Division. Mr. Bonburg joined
Winston in 1990 as President, Chief Executive Officer and Vice Chairman. He
served in those positions until Winston was acquired by the Issuer in May 1997.
Mr. Bonburg served as President of Winston from May 1997 until October 1997, and
as Senior Vice President of the Issuer from October 1997 until the consummation
of the Transactions. Prior to joining Winston, he held senior management
positions with Autoworks/Crown Auto, Northern Automotive and Pep Boys. Mr.
Bonburg holds a B.S. from Ohio State University and an M.B.A. from the
University of Southern California.

Arthur C. Soares -- President, Western Wholesale Division. Mr. Soares is
the founder and principal owner of CPW, and currently serves as its Chairman,
President and Chief Executive Officer. Mr. Soares started CPW in 1971 with a
single retail outlet, which grew over the years to its current level of
operations. He holds a B.A. from Santa Clara University.

Richard P. Johnson -- President, Eastern Wholesale Division. Mr. Johnson
joined ITCO as President and Chief Operating Officer in February 1997. He served
with Albert Fisher Distribution as Senior Vice President from 1991 to 1994, and
as President and Chief Operating Officer from 1994 to 1996. Prior to that time,
Mr. Johnson held a variety of management positions with Leprino Foods, Sargento
Cheese and Kraft Foods. He holds an A.A. from Palm Beach College.

Joseph P. Donlan -- Director. Mr. Donlan has been a director since May
1997. He is currently a Senior Manager of Brown Brothers Harriman & Co., where
he has served in a variety of capacities beginning in 1970 when he joined Brown
Brothers' commodities lending group. He was promoted to run this group in 1976,
and in 1981 was named Senior Credit Officer and a member of Brown Brothers'
Credit Committee, on which he continues to serve. In 1996 he co-founded the 1818
Mezzanine Fund. He is a 1968 graduate of Georgetown University and received an
M.B.A. from Rutgers University in 1970. Mr. Donlan also serves on the Board of
Directors of National Auto Finance, Incorporated.

V. Edward Easterling, Jr. -- Director. Mr. Easterling has been a director
since June 1998. He is currently a principal of Wingate Partners, a private
equity investment firm based in Dallas, Texas. Prior to joining Wingate in 1994,
he was part of the investment and executive management group that acquired 12
troubled thrifts in Texas and created American Federal Bank in 1988. Previously,
Mr. Easterling was Vice President and Treasurer of Swift Independent Packing
Company and Treasurer of Valley View Capital Corporation. He received a B.B.A.,
a B.A. in Psychology, and an M.B.A. from Southern Methodist University. Mr.
Easterling also serves as Chairman of the Board of Directors for NSG
Corporation.

Victoria B. Jackson -- Director. Ms. Jackson has been a director since
June 1997. She has been with DSS/Pro Diesel, a diesel parts manufacturer,
remanufacturer and distribution company based in Nashville, Tennessee since 1977
and currently serves as its President and Chief Executive Officer. She received
an M.B.A. from the Owen Graduate School of Management at Vanderbilt University
and a B.A. in Business Administration and A.A. from Belmont University. Ms.
Jackson also serves on the Boards of Directors of AmSouth Bancorporation,
Hussman Econometrics Advisors, Inc. and Whitman Corporation.

William M. Wilcox -- Director. Mr. Wilcox has been a director since March
1998. Mr. Wilcox served for over 41 years with both B.F. Goodrich and Uniroyal
Goodrich. At B.F. Goodrich, he served in various capacities, including Executive
Vice President/Sales. He retired from Uniroyal Goodrich after serving as
President, Company Brands and President, Sales Worldwide.

75
<PAGE> 79

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth information concerning the compensation for
services in all capacities to the Issuer for the years ended December 31, 1997,
1996 and 1995 of those persons who (i) served during the fiscal year ended
December 31, 1997 as the Chief Executive Officer of the Issuer and (ii) were, at
December 31, 1997, the other four most highly compensated executive officers of
the Issuer who earned more than $100,000 in salary and bonus in fiscal 1997
(collectively, the "Named Executive Officers").

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
-------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION ENDED ($) ($) ($)(A) (#)(B) ($)
- --------------------------- -------- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William H. Gaither.......... 12/31/97 318,000 49,000 25,000 62,500 41,741(c)
President, Chief Executive 12/31/96 303,387 -- -- -- 25,604(d,e)
Officer and Officer 12/31/95 273,586 -- -- -- --
Donald C. Roof.............. 12/31/97 161,253(f) 60,000 25,000 25,000 --
Senior Vice President,
Chief Financial Officer
and Treasurer
J. Michael Gaither.......... 12/31/97 191,883 60,000 15,000 25,000 --
Senior Vice President, 12/31/96 155,652 26,000 15,000 -- 23,761(e)
General Counsel and 12/31/95 148,896 26,000 -- -- 6,169(e)
Secretary
Daniel K. Brown............. 12/31/97 164,499 51,000 15,000 25,000 24,935(e)
Senior Vice President/ 12/31/96 112,335 39,599 15,000 -- 28,073(e)
Sales and Marketing 12/31/95 106,480 50,199 -- -- 16,378(e)
Thomas J. Bonburg(g)........ 12/31/97 96,952(g) 75,000 -- 37,500 --
President, Retail Division
</TABLE>

- ---------------
(a) This column includes nothing for perquisites and other personal benefits
because in no case did the aggregate amount of such perquisites and other
personal benefits exceed the reporting threshold (the lesser of $50,000 or
10% of total annual salary and bonus), but includes amounts for the annual
contribution for deferred compensation for such Named Executive Officer for
the year.

(b) This column includes stock options granted pursuant to the Option Plan (as
defined). Ten percent of the options have vested and are exercisable within
60 days. The remaining options vest as described in "-- Stock Option Plan,"
below.

(d) Consists of directors' fees paid during 1996 of $10,000.

(e) Consists of taxable amounts reported in connection with vendor-sponsored
trips.

(f) Mr. Roof joined the Issuer in April 1997. Salary represents payments to Mr.
Roof during the period of his employment in fiscal 1997. On an annualized
basis, Mr. Roof's salary for fiscal 1997 would have been $215,000.

(g) Mr. Bonburg was the Chief Executive Officer of Winston, which was acquired
by the Issuer on May 7, 1997.

76
<PAGE> 80

OPTION/SAR GRANTS IN 1997

No stock appreciation rights were granted during the twelve months ended
December 31, 1997. The following table sets forth information concerning the
grant of stock options to each of the Named Executive Officers during the twelve
months ended December 31, 1997.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED ANNUAL
NUMBER OF OPTIONS EXERCISE RATES OF STOCK
SECURITIES GRANTED TO OR PRICE APPRECIATION
UNDERLYING EMPLOYEES BASE FOR OPTION
TERM(B) OPTIONS IN FISCAL PRICE EXPIRATION ------------------------
NAME GRANTED(A) YEAR ($/SH) DATE 5%($) 10%($)
- ------- ----------- ---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
William H. Gaither........ 62,500 24.4% $1.10 5/28/07 $43,237 $109,570
Donald C. Roof............ 25,000 9.8 1.10 5/28/07 17,295 43,828
J. Michael Gaither........ 25,000 9.8 1.10 5/28/07 17,295 43,828
Daniel K. Brown........... 25,000 9.8 1.10 5/28/07 17,295 43,828
Thomas J. Bonburg......... 37,500 14.6 1.10 5/28/07 25,942 65,742
</TABLE>

- ---------------
(a) The securities underlying the options, which were granted pursuant to the
Option Plan, are shares of the Issuer's Class A Common Stock. Pursuant to
the Option Plan, 10% of the options granted to each of the Named Executive
Officers have vested and are exercisable within 60 days. The remaining
options will vest as set forth in "-- Stock Option Plan", below.

(b) The potential realizable value columns illustrate the value that might be
realized upon exercise of the options immediately prior to the expiration of
their term, assuming the specified compound rates of appreciation of the
Class A Common Stock over the term of the options. These amounts represent
certain assumed rates of appreciation only, assuming a fair market value on
the date of grant of $1.10 per share. Because the Class A Common Stock is
privately held, a per-share fair market value on the date of grant of the
options equal to $1.10 was assumed based on the per-share amount paid to
certain selling shareholders in May 1997. Actual gains on the exercise of
the options are dependent on the future performance of the Class A Common
Stock. There can be no assurance that the potential values reflected in this
table will be the actual values realized. All amounts have been rounded to
the nearest whole dollar.

No options to purchase common stock were exercised by the Named Executive
Officers during the 12 months ended December 31, 1997.

STOCK OPTION PLAN

In 1997, the Issuer adopted The J.H. Heafner Company 1997 Stock Option Plan
(the "Option Plan"), which is designed to motivate designated employees,
officers, directors and independent contractors of the Company by encouraging
them to acquire a proprietary interest in the Company. The Board of Directors of
the Issuer, acting through a committee of at least two members of the Board (the
"Plan Committee"), administers the Option Plan, selects eligible participants,
determines the number of shares subject to each option granted under the Option
Plan and sets other terms and conditions applicable to participants in the
Option Plan. Giving effect to the Reclassification, an aggregate of 275,000
shares of Class A Common Stock are reserved for issuance under the Option Plan.

The Option Plan provides for the grant of options to purchase shares of
Class A Common Stock to designated employees, officers, directors and
independent contractors of the Company. The Plan Committee has sole authority to
select those individuals to whom options may be granted and to determine the
number of shares of Class A Common Stock to be subject to options granted. The
purchase price for shares of Class A Common Stock to be subject to options
granted is fixed by the Committee, but cannot be less than their fair market
value (as determined in good faith by the Board of Directors) if the
corresponding option is intended to qualify as an incentive stock option under
the Internal Revenue Code. All options granted under the Option Plan are subject
to the terms and conditions of a Stock Option Agreement ("Option Agreement")
entered into by each option recipient.

77
<PAGE> 81

The Option Agreement entered into by each option recipient generally
requires the recipient to be bound by the terms of a stockholder agreement
between certain management stockholders and the Issuer in the event he or she
elects to exercise options. Options generally vest in installments of 10%, 20%,
30% and 40% of the total number of underlying shares on the first, second, third
and fourth anniversaries of the date of grant, respectively. Options are not
transferable by the recipient other than by will or by the laws of descent and
distribution and are exercisable during the recipient's lifetime only by the
recipient. Under the terms of the Option Plan, options terminate no later than
the tenth anniversary of the date of grant. Options are also subject to
adjustment to avoid dilution in the event of a change in the capital structure
of the Issuer.

If an option recipient dies or his or her employment with the Company is
terminated for permanent disability or for any other reason (other than for
cause, as defined in the Option Agreement), the recipient or his or her personal
representative may exercise the option within 180 days after the date of
termination to the extent the option has vested on the date of termination or
otherwise would have vested in the 12 months thereafter, beyond which time the
options lapse. If an option recipient's employment with the Company is
terminated for cause, the recipient may exercise the option within 30 days after
the date of termination to the extent the option has vested on the date of
termination, beyond which time the options lapse.

In the event that (i) any person or entity not controlled by the Issuer's
stockholders acquires more than 50% of the shares of the common stock of the
Issuer, (ii) all or substantially all of the assets of the Issuer are sold,
(iii) the majority of the Board of Directors no longer comprises persons
currently serving on the Board (or persons designated by the current Board
majority), (iv) Ann H. Gaither, William H. Gaither, Susan G. Jones and Thomas R.
Jones collectively own less than 50% of the combined voting power of the then
outstanding shares of common stock of the Issuer or (v) the Issuer issues common
stock in a public offering (each such event a "change in control"), then all
options outstanding under the Option Plan will become fully vested and
immediately exercisable immediately prior to such event. To the extent not
exercised, all options outstanding under the Option Plan expire upon a change in
control.

As of December 31, 1997, options to purchase an aggregate of 256,000 shares
of common stock of the Issuer (which, upon the Reclassification, became
exercisable for an equal number of shares of Class A Common Stock) at $1.10 per
share were outstanding under the Option Plan.

RESTRICTED STOCK PLAN

In 1997, the Issuer adopted The J.H. Heafner Company 1997 Restricted Stock
Plan (the "Restricted Stock Plan"), which is designed to motivate designated
employees, officers, directors and independent contractors of the Company by
encouraging them to acquire a proprietary interest in the Company. The Board of
Directors of the Issuer, acting through the Plan Committee, administers the
Restricted Stock Plan, selects eligible participants, determines the number of
shares to be awarded to each participant and sets other terms and conditions
applicable to participants in the Restricted Stock Plan. As of December 31,
1997, an aggregate of 225,000 shares of Class A Common Stock (giving effect to
the Reclassification) had been issued to participants in the Restricted Stock
Plan for a purchase price of $1.10 per share. The shares issued pursuant to the
Restricted Stock Plan were issued in exchange for promissory notes given by the
participants. The principal of the notes is forgiven over time by the Issuer
depending upon the attainment of certain earnings targets.

The Restricted Stock Plan enables designated employees, officers, directors
and independent contractors of the Company to purchase shares of Class A Common
Stock. The Plan Committee has sole authority to select those individuals to whom
the opportunity to participate in the Restricted Stock Plan may be offered and
to determine the number of shares of Class A Common Stock to be issued. The
purchase price for shares of Class A Common Stock issued pursuant to the
Restricted Stock Plan is fixed by the Plan Committee, which has the authority to
impose additional terms and conditions in connection with issuances to
participants. All shares that have been issued under the Restricted Stock Plan
are subject to the terms and conditions of a Securities Purchase and
Stockholders' Agreement ("Restricted Stock Agreement") entered into by each
option recipient.

The Restricted Stock Agreement prohibits the transfer of stock issued
pursuant to the Restricted Stock Plan except for transfers (i) to the Issuer
upon the termination of employment of a participating stockholder,

78
<PAGE> 82

(ii) to other management employees of the Company who have executed and
delivered agreements substantially similar to the Restricted Stock Agreement,
(iii) by will or by the laws of descent or distribution or (iv) if and to the
extent repurchase rights in favor of the Issuer on termination of employment
have not been exercised, to third parties (subject to rights of first refusal in
favor of the Issuer and the other holders of restricted stock). The Issuer has
the right to repurchase all of a participating stockholder's shares upon the
termination of such stockholder's employment with the Company due to cause (as
defined in the Restricted Stock Agreement) or death. A participating stockholder
may require the Issuer to repurchase all of such stockholder's shares if that
stockholder terminates his employment for good reason (as defined in the
Restricted Stock Agreement). In all cases, the repurchase price for shares of
stock subject to the Restricted Stock Agreement is the higher of the original
purchase price and a price derived from the Net Equity Value of the Issuer (as
defined in the Restricted Stock Agreement) at the time of repurchase.

COMPENSATION OF DIRECTORS

During the year ended December 31, 1997, directors who were not members of
the Gaither family or nominees of The 1818 Mezzanine Fund, L. P. or Wingate
Partners II, L.P. were paid a fee of $2,500 for each Board meeting attended. The
Issuer intends to continue this compensation policy for directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal 1997, William H. Gaither, Donald C. Roof, J. Michael Gaither
and Daniel K. Brown served on an executive committee of the Issuer which
reviewed and recommended executive compensation for the Named Executive Officers
and other executives of Heafner. All compensation recommendations of the
executive committee were reviewed by and subject to the approval of the Board of
Directors of the Issuer. In June 1998, the Board of Directors of the Issuer
designated a Compensation Committee consisting of Ann H. Gaither, William M.
Wilcox and Victoria B. Jackson to review, modify and recommend executive
compensation arrangements for the Named Executive Officers and certain other key
executives of the Company.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Articles of Incorporation of the Issuer provide for the release of any
person serving as a director of the Issuer from liability to the Issuer or its
stockholders for damages for breach of fiduciary duty and for the
indemnification by the Issuer of any person serving as a director, officer,
employee or agent or other authorized person to the fullest extent permissible
under the North Carolina Business Corporation Act. In addition, the Issuer has
purchased a directors' and officers' insurance policy covering the Issuer, its
officers and directors for liabilities that they may incur as a result of any
action, or failure to act, by such officers and directors in their capacity as
such.

EMPLOYMENT AGREEMENTS; SEVERANCE

The Issuer has entered into employment agreements with each of Messrs.
William H. and J. Michael Gaither, Roof, Brown and Bonburg, providing for annual
base salaries of approximately $354,444, $222,459.96, $241,335.96, $191,004 and
$250,000, respectively, for the current year. Mr. Bonburg's employment agreement
provides for an annual base salary of $250,000 for calendar year 1999.

The employment agreements with Messrs. William H. and J. Michael Gaither,
Roof and Brown provide for fixed bonus payments ranging from 15% to 30% of
annual base salary, with additional incentive bonus payments to be made in the
discretion of the Board of Directors of the Issuer. Fixed bonus payments made to
William H. Gaither are reduced by the amount received by him under the Issuer's
Board-designated discretionary compensation plan.

The employment agreement with Mr. Bonburg provides for additional base
salary payments of $50,000 on June 30, 1998 and $150,000 on December 31, 1998
and for additional incentive bonus payments based on the attainment of specified
performance targets. The June 30, 1998 payment of $50,000 has been made to Mr.
Bonburg. Payment of the additional base salary and incentive bonus is contingent
on Mr. Bonburg's continued employment with the Company.

The employment agreements may be terminated at any time by the Issuer. Upon
termination of employment with the Issuer on account of death or disability, for
cause, or without good reason (as defined in

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<PAGE> 83

each employment agreement), the employee is entitled to receive his base salary
and target bonus payable for 12 months after the date of termination (base
salary, additional base salary and incentive bonus, in the case of Mr. Bonburg).
Upon termination of employment by the Issuer without cause or by the employee
with good reason, the employee is entitled to receive an additional payment
equal to base salary and target bonus for one year (base salary and additional
base salary through December 31, 1999, in the case of Mr. Bonburg). In the event
of a termination by the Issuer as a result of or in anticipation of a change in
control (as defined in the employment agreements) or a constructive termination,
each of the employment agreements provides that the employee is entitled to
receive his base salary and target bonus for a period of 24 months from the date
of termination or constructive termination, as the case may be.

The employment agreements with Messrs. William H. and J. Michael Gaither,
Roof and Brown expire on May 6, 1999, subject to automatic one-year extensions
unless either party gives 120 days' notice not to renew. The employment
agreement with Mr. Bonburg expires on December 31, 1999. All of the employment
agreements contain non-compete, non-solicitation and confidentiality provisions.

In conjunction with the CPW Acquisition, the Company entered into
employment agreements with each of Arthur C. Soares, the current President and
Chief Executive Officer, and Ray C. Barney, the current Executive Vice President
and Chief Operating Officer, of Speed Merchant.

Mr. Soares' employment agreement provides for a two year term and an annual
base salary of $250,000, a stay-put bonus of $2,000,000 ($1,250,000 payable at
the end of the first year and $750,000 at the end of the second year after the
Closing Date), a "synergy" bonus payable at the end of the first year based on
the attainment of specified performance targets for CPW and an annual incentive
and performance bonus to be determined in good faith by the Board of Directors
of the Issuer. Mr. Barney's employment agreement provides for a three-year term
and an annual base salary of $140,000, a stay-put bonus of $600,000 ($200,000 at
the end of each of the first three years after the Closing Date), a "synergy"
bonus payable at the end of the first year based on the attainment of specified
performance targets for CPW and an annual incentive and performance bonus to be
determined in good faith by the Board of Directors of the Issuer. Both
employment agreements contain non-compete, non-solicitation and confidentiality
provisions.

The employment agreements with Messrs. Soares and Barney are terminable at
any time by the Company. Upon termination of employment for any reason
(including death or permanent disability) the employee (or his heirs, as the
case may be) is entitled to receive the employee's base salary and incentive
bonus earned through the date of termination and the synergy bonus for the first
year of the employment term. Upon termination of employment by the Company
without cause or by the employee with good reason (as defined in the employment
agreements), the employee is entitled to receive an additional payment equal to
the employee's base salary through the end of the term of employment and the
incentive bonus payable for the first year. Payment of the stay-put bonus is
contingent upon the employee's continued employment with the Company except in
the case of death, permanent disability or termination by the employer without
cause or by the employee for good reason.

In connection with the consummation of the Transactions, the Company
entered into an employment agreement with Richard P. Johnson, who serves as
President, Eastern Wholesale Division of the Company. Mr. Johnson is paid an
annual base salary of $250,000, a fixed bonus and an annual incentive bonus to
be determined in the discretion of the Board of Directors of the Issuer. Upon
termination of Mr. Johnson's employment by the Company without cause, or by Mr.
Johnson for good reason, or upon a change of control (as defined in the
employment agreement), Mr. Johnson is entitled to a severance payment ranging
from 12 to 24 months' salary and bonus (depending on the date of termination)
from and after the date of termination. The employment agreement contains
non-compete, non-solicitation and confidentiality provisions.

EXECUTIVE BONUS PLAN

The Company awards annual cash bonuses to up to 20 of its top executives.
Bonuses are payable only if the Company attains specified annual performance
targets, and can range from up to 5% of salary for executives in the lowest
bonus bracket to up to 60% of salary for those in the highest. The executive
bonus plan may be altered in the discretion of the Board of Directors of the
Issuer.

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<PAGE> 84

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Issuer's Common Stock as of June 30, 1998 (giving effect to the
Reclassification and the other Transactions) of (i) each person known by the
Issuer to own beneficially more than 5% of the Class A Common Stock, (ii) each
person known by the Issuer to own beneficially more than 5% of the Class B
Common Stock, (iii) each director of the Issuer, (iv) the Named Executive
Officers and (v) all directors and executive officers of the Issuer as a group.

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF PERCENT OF
NAME AND ADDRESS OF BENEFICIALLY CLASS A COMMON CLASS B COMMON
BENEFICIAL OWNER(a) OWNED STOCK(b) STOCK(b)
- ------------------- ---------------- -------------- --------------
<S> <C> <C> <C>
Ann H. Gaither............................... 1,992,293(c) 53.9%
1,066,538(c,
William H. Gaither........................... d) 28.8
Susan Jones.................................. 475,919 12.9
The 1818 Mezzanine Fund, L.P................. 1,034,000(e) 21.9
Wingate Partners II, L.P..................... 1,301,264(f) 92.9%
Donald C. Roof............................... 27,500(g) 1.4
J. Michael Gaither........................... 27,500(h) 1.4
Daniel K. Brown.............................. 27,500(i) 1.4
Thomas J. Bonburg............................ 41,250(j) 2.0
Joseph P. Donlan............................. 1,034,000(e) 21.9
V. Edward Easterling, Jr..................... 1,301,264(k) 92.9%
Victoria B. Jackson.......................... 5,000(l) *
Richard P. Johnson........................... 27,110(f) 1.9
Arthur C. Soares............................. --
William M. Wilcox............................ 5,000(l) *
All directors and executive officers of
Issuer as a group (11 persons)............. 4,253,691(m) 98.7 1.9
</TABLE>

- ---------------
* Indicates less than 1% of the outstanding Class A Common Stock or Class B
Common Stock, as the case may be.

(a) Unless otherwise indicated, the address for each person listed in the table
is in care of The J.H. Heafner Company, Inc., 2105 Water Ridge Parkway,
Suite 500, Charlotte, North Carolina 28217.

(b) Shares beneficially owned, as recorded in this table, are expressed as a
percentage of the shares of Class A Common Stock outstanding or Class B
Common Stock outstanding, as the case may be. For purposes of computing the
percentage of outstanding shares held by each person or group of persons
named in this table, any securities which such person or group of persons
has the right to acquire within 60 days of the date hereof are deemed to be
outstanding for purposes of computing the percentage ownership of such
person or persons, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person. Shares of Class A
Common Stock possess 20 votes per share and shares of Class B Common Stock
possess one vote per share. As of June 30, 1998, 3,691,000 shares of Class A
Common Stock and 1,400,667 shares of Class B Common Stock were issued and
outstanding.

(c) Excludes 475,919 shares of Class A Common Stock that Ann H. Gaither and
William H. Gaither have the power to vote pursuant to a voting trust
agreement among certain members of the Gaither family.

(d) Includes 6,250 shares of Class A Common Stock issuable upon the exercise of
options which are exercisable within 60 days.

(e) Represents shares issuable upon the exercise of Warrants (as defined). Mr.
Donlan is the co-manager of The 1818 Mezzanine Fund, L.P. and in that
capacity will have authority to vote and exercise investment power over the
shares. See "Certain Relationships and Related Transactions -- Warrants."

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<PAGE> 85

(f) Represents shares of Class B Common Stock issued in exchange for shares of
ITCO Logistics as part of the consideration for the ITCO Merger. Share
numbers for Wingate Partners II, L.P. include shares of Class B Common Stock
held by its affiliate, Wingate Affiliates II, L.P. See "Transactions."

(g) Includes 2,500 shares of Class A Common Stock issuable upon the exercise of
options which are exercisable within 60 days.

(h) Includes 2,500 shares of Class A Common Stock issuable upon the exercise of
options which are exercisable within 60 days.

(i) Includes 2,500 shares of Class A Common Stock issuable upon the exercise of
options which are exercisable within 60 days.

(j) Includes 3,750 shares of Class A Common Stock issuable upon the exercise of
options which are exercisable within 60 days.

(k) Represents shares of Class B Common Stock owned by Wingate Partners II, L.P.
and its affiliate, Wingate Affiliates II, L.P. Mr. Easterling is a general
partner of Wingate Affiliates II, L.P., and an indirect general partner of
Wingate Partners II, L.P., and, accordingly, may be deemed to be the
beneficial owner of such shares.

(l) Consists of 5,000 shares of Class A Common Stock issuable upon the exercise
of options which are exercisable within 60 days.

(m) Includes (i) 27,110 shares of Class B Common Stock and (ii) 4,221,581 shares
of Class A Common Stock, of which 1,034,000 are shares issuable upon the
exercise of Warrants to The 1818 Mezzanine Fund, L.P., of which Mr. Donlan
is co-manager and will, in that capacity, have voting and investment power
over the shares.

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<PAGE> 86

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

WARRANTS

In connection with the incurrence of subordinated debt to finance the
acquisition of its Winston subsidiary on May 7, 1997, the Issuer issued warrants
(the "Warrants") to purchase shares of its common stock to The 1818 Mezzanine
Fund, L. P. (the "Fund"). Joseph P. Donlan, a member of the Issuer's Board of
Directors, is a Senior Manager of Brown Brothers Harriman & Co., the Fund's
general partner. Mr. Donlan and Robert R. Gould, a Partner of Brown Brothers
Harriman & Co., are co-managers of the Fund and in that capacity exercise voting
and investment power over the Fund's shares. The Warrants were initially
exercisable for a total of 977,590 shares of common stock of the Issuer. Giving
effect to a subsequent issuance of shares of restricted stock and grant of stock
options to certain key management employees and the Reclassification, the
Warrants are exercisable for 1,034,000 shares of Class A Common Stock. The
Warrants may be exercised at any time, in whole or in part, but in no event
after the earlier of (i) May 7, 2007, (ii) the date of an initial public
offering of Class A Common Stock yielding gross proceeds of at least $25 million
or representing at least 20% of the Class A Common Stock on a fully-diluted
basis or (iii) the merger or consolidation with or into another entity by the
Issuer or the sale of all or substantially all of the assets of the Company.

The number of shares issuable upon the exercise of the Warrants is subject
to adjustment from time to time to reflect stock dividends, splits, combinations
and reclassifications. In addition, the Warrants provide for upward adjustment
of the number of issuable shares if the Issuer issues Class A Common Stock at a
price per share that is less than its current fair market value (as determined
by reference to closing prices of the Class A Common Stock on a national
exchange or, if the Class A Common Stock is not publicly traded, in good faith
by the Board of Directors of the Issuer or a nationally recognized investment
banking firm, if requested by the holders of 33% of the Class A Common Stock on
a fully-diluted basis).

The Warrants provide that the holders of a majority in interest of the
Warrants issued on May 7, 1997 have the right, exercisable (i) upon a Change of
Control (as defined in the Warrants) or (ii) at any time after May 7, 2004, to
require the Issuer to redeem the Warrants, provided, that no such right may be
exercised after the consummation of an initial public offering of the Class A
Common Stock yielding gross proceeds of at least $25 million or representing at
least 20% of the Class A Common Stock on a fully-diluted basis. If the requested
redemption right is exercised, the Issuer must redeem all of the outstanding
Warrants at an agreed redemption price (calculated based on an EBITDA multiple
of the Issuer at the time of redemption) unless otherwise prevented by law. The
Issuer has no right to call for the redemption of the Warrants.

The Issuer and the Fund are also parties to a Note and Warrant Purchase
Agreement and Registration Rights Agreement, each dated as of May 7, 1997, which
contain provisions restricting the transferability of the Warrants (including a
right of first offer in favor of the Issuer) and grant registration rights with
respect to shares of Class A Common Stock issuable upon exercise of the
Warrants.

PREFERRED STOCK

In connection with entering into the Kelly-Springfield Supply Agreement,
Kelly-Springfield purchased from the Issuer 7,000 newly issued shares of the
Issuer's Series A Cumulative Redeemable Preferred Stock, par value $.01 (the
"Series A Preferred Stock") and 4,500 newly issued shares of the Issuer's Series
B Cumulative Redeemable Preferred Stock, par value $.01 (the "Series B Preferred
Stock" and, together with the Series A Preferred Stock, the "Preferred Stock"),
for an aggregate purchase price of $11.5 million. Kelly-Springfield is the sole
holder of the Preferred Stock. The Preferred Stock has a stated value and
liquidation preference equal to $1,000 per share, except the liquidation
preference of the Series B Preferred Stock is reduced from time to time based
upon purchases of certain types of tires by the Company from Kelly-Springfield.

Kelly-Springfield is entitled to receive monthly dividends on the
liquidation preference of the Series A Preferred Stock at a rate of 4% per
annum, which may be increased if annual tire purchases fall below certain
levels. The Issuer is not required to pay dividends on the Series B Preferred
Stock unless annual tire purchases by the Company from Kelly-Springfield fall
below certain levels.
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<PAGE> 87

Subject to the limitations summarized below, beginning in December 2002 and
ending in June 2007, the Issuer is required to redeem 700 shares of Series A
Preferred Stock per year on a semi-annual basis at 100% of the liquidation
preference of such shares plus all accrued and unpaid dividends. Subject to the
same limitations, the Issuer is required to redeem all of the outstanding shares
of Series B Preferred Stock in June 2007 at the same redemption price. Unless
restricted by the limitations summarized below, the Issuer also is required to
redeem the Preferred Stock if the Kelly-Springfield Supply Agreement is
terminated or, at the request of Kelly-Springfield, if a change of control of
the Issuer occurs. The Preferred Stock also is redeemable at any time at the
Issuer's option.

So long as any amounts are outstanding under the Issuer's existing credit
facility or subordinated notes, or any amending or replacing agreement for such
debt, or any commitments to lend exist under such debt, the Issuer is prohibited
from making any payment in respect of any mandatory or optional redemption of
the Preferred Stock, or declaring, making or paying any dividend or distribution
in respect of the Preferred Stock if any event of default or default under any
such debt or any event which, upon notice or lapse of time, or both, would
constitute an event of default has occurred or is continuing or would result
therefrom and has not been cured or waived in accordance with such debt.

SHARE REPURCHASES

In February 1997, the Issuer offered to repurchase shares of common stock
from members of the Gaither family not actively involved in the operation of the
Issuer at a price equal to $.8058 per share ($2,644 per share without giving
effect to a 3,281-for-1 stock split that occurred on May 7, 1997). Pursuant to
the offer, the Issuer repurchased (and subsequently canceled and retired)
3,359,744 shares of common stock from such family members (1,024 shares without
giving effect to the stock split) for an aggregate purchase price of $2.7
million. In 1986, the Issuer repurchased from Carolyn H. Williams (and
subsequently canceled and retired) all of her shares of common stock in the
Issuer in exchange for a promissory note in the original principal amount of
$1.4 million. Carolyn H. Williams is the sister of Ann H. Gaither, the
Chairperson of the Issuer. The note is payable in annual installments of
$124,600 (including interest at a rate per annum of 7.5%) through January 2006.
The outstanding principal amount of the note at June 30, 1998 was approximately
$730,000.

RELATED PARTY LEASES; LOAN GUARANTEE

The Issuer leases corporate office space in Lincolnton, North Carolina from
Ann H. Gaither, the Chairperson of the Issuer, and her sister, Carolyn H.
Williams, for an annual rent equal to approximately $87,000. The Issuer leases
its Winston-Salem, North Carolina distribution center from Ann H. Gaither, the
Chairperson of the Issuer, for an annual rent equal to approximately $55,200.
The Issuer leases the data processing and human resources buildings adjacent to
its corporate headquarters in Lincolnton, North Carolina from Evangeline
Heafner, Ann H. Gaither's mother, for an annual rent equal to approximately
$37,000. The expiration dates of these leases are September 30, 2002, August 1,
2003 and December 30, 2002, respectively. The Company believes that these leases
are on terms no less favorable to the Company than could have been obtained from
an independent third party.

Pursuant to a guaranty dated March 31, 1997, the Issuer has agreed to
guarantee all obligations of William H. Gaither, President and Chief Executive
Officer of the Issuer, under a mortgage loan in an aggregate principal amount
not to exceed $890,000.

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<PAGE> 88

DESCRIPTION OF NEW CREDIT FACILITY

The following is a summary description of the principal terms of the New
Credit Facility. The description set forth below does not purport to be complete
and is qualified in its entirety by reference to the agreements setting forth
the principal terms and conditions of the New Credit Facility. Copies of such
agreements (other than schedules and exhibits) are available from the Company
upon request.

The Issuer and certain of its subsidiaries (the "Borrowers") entered into
the New Credit Facility on the Closing Date. At September 30, 1998,
approximately $55.3 million was outstanding and an additional $30.9 million was
available for additional borrowings under the New Credit Facility. It is
expected that the New Credit Facility will be syndicated among the several
lenders parties thereto (collectively, the "Lenders"), with BankBoston, N.A., as
Agent, and Fleet Capital Corporation and First Union National Bank, as Co-Agents
(together, the "Agents"). The New Credit Facility provides for a senior secured
revolving credit facility, which may be borrowed in the aggregate principal
amount of up to $100 million (of which up to $10 million may be utilized in the
form of commercial and standby letters of credit).

Guaranties and Security. All obligations of the Borrowers under the New
Credit Facility are guaranteed (the "Credit Facility Guaranties") by certain
subsidiaries of the Company which are not direct obligors thereunder (the
"Credit Facility Guarantors"). The Borrowers' obligations under the New Credit
Facility, and the Credit Facility Guarantors' obligations under their respective
Credit Facility Guaranties, are secured by all of the inventory and accounts
receivable (and proceeds thereof) of the Borrowers and the Credit Facility
Guarantors (collectively, the "Collateral"). Future subsidiaries of the Company
may be required to become Credit Facility Guarantors or Borrowers under the New
Credit Facility.

Availability and Maturity. Provided that no event of default exists, loans
made pursuant to the New Credit Facility may be drawn, repaid and reborrowed
from time to time until May 2003, subject to the satisfaction of certain
conditions on the date of any such borrowing. The New Credit Facility will be
permanently reduced by an amount equal to any Net Available Cash (as defined in
the Indenture), and the Company will be required to prepay the New Credit
Facility to the extent necessary at the time of any such permanent reduction.
The New Credit Facility will mature and become due and payable in May 2003,
except that the Borrowers and the Agent may agree to extend the New Credit
Facility for up to an additional five years.

Interest. Indebtedness under the New Credit Facility bears interest, at
the Company's option, (i) at the "Base Rate" (a floating rate per annum equal to
the greater of the federal funds rate plus 0.5% or the rate announced by the
Agent from time to time as its base or prime lending rate) plus the Applicable
Margin or (ii) at the "Eurodollar Rate" (a fixed rate per annum based on LIBOR)
for one, two, three, six or (subject to the Lenders' agreement) twelve months
plus the Applicable Margin. The "Applicable Margin" for Base Rate Loans will be
0.25% and the Applicable Margin for Eurodollar Rate Loans will be 1.75%, subject
in each case to performance based step-downs based on the Company's ratio of
Funded Debt to EBITDA (as defined). Overdue sums under the New Credit Facility
will bear interest at a default rate equal to the applicable interest rate plus
2% per annum.

Certain Fees. The Company is required to pay to the Lenders a commitment
fee equal to 0.375% per annum on the committed undrawn amount of the New Credit
Facility, subject to performance based step-downs based upon the Company's ratio
of Funded Debt to EBITDA, letter of credit fees equal to the Applicable Margin
applicable to Eurodollar Rate Loans on a per annum basis and a fronting fee of
0.125% per annum to be paid to the issuer of letters of credit. The Company has
also agreed to pay certain other fees and expenses of the Lenders and the Agent.

Covenants. The New Credit Facility requires the Company to meet certain
financial tests, including minimum Net Worth and minimum Loan Availability (as
defined therein). The New Credit Facility also contains covenants which, among
other things, restrict the ability of the Company to incur additional
indebtedness; enter into guaranties; make loans and investments (provided that
the Company will be permitted to make investments in respect of new acquisitions
up to $25 million in any fiscal year and $40 million during the term of the
agreement); make capital expenditures in excess of $12 million in any fiscal

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<PAGE> 89

year; declare dividends; engage in mergers, consolidations and asset sales;
enter into transactions with affiliates; create or suffer to exist liens and
encumbrances; enter into sale/leaseback transactions; modify material agreements
or constitutive documents; and change the business it conducts. The covenants
also require the Company to provide periodic financial reports to the Lenders;
observe certain practices and procedures with respect to the Collateral; comply
with applicable laws; maintain and preserve the properties and corporate
existence of the Company and its subsidiaries; and maintain insurance.

Events of Default. The New Credit Facility contains customary events of
default, including payment defaults, breaches of representations and warranties,
covenant defaults, cross-default and cross-acceleration, bankruptcy, asserted
invalidity of any loan documents, failure of security interests, material
judgments, ERISA liabilities, the failure of the Issuer directly or indirectly
to own 100% of any Borrower or Credit Facility Guarantor under the New Credit
Facility (except to the extent such Borrower is merged into the Issuer or one of
its wholly owned subsidiaries) or the occurrence of a Change of Control (as
defined in the New Credit Facility).

Although no definitive plan or arrangement for repayment of borrowings
under the New Credit Facility has been made, the Company anticipates such
borrowings will be repaid with internally generated funds (including those of
the New Businesses) and from other sources which may include the proceeds of
future bank refinancings, asset sales or the public or private sale of debt or
equity securities. No decision has been made concerning the method the Company
will use to repay the borrowings under the New Credit Facility. Such decision
will be made based on the Company's review from time to time of the advisability
of particular actions, as well as prevailing interest rates, financial and other
economic conditions and such other factors as the Company may deem appropriate.

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<PAGE> 90

DESCRIPTION OF THE NEW NOTES

GENERAL

The New Notes will be issued pursuant to the Indenture, dated as of May 15,
1998 (the "Indenture"), between the Issuer and First Union National Bank, as
Trustee (the "Trustee"), which has been filed as an exhibit to the Exchange
Offer Registration Statement of which this Prospectus constitutes a part. The
following is a summary of the material provisions of the Indenture and the
Notes. The following summary is subject to, and is qualified in its entirety by
reference to, all the provisions of the Indenture, including the definitions of
certain terms therein and those terms made a part thereof by the Trust Indenture
Act of 1939, as amended.

On May 20, 1998, the Issuer issued $100.0 million aggregate principal
amount of Old Notes under the Indenture. The terms of the New Notes are
identical in all material respects to the Old Notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
Old Notes for New Notes. The Trustee will authenticate and deliver New Notes for
original issue only in exchange for a like principal amount of Old Notes. Any
Old Notes that remain outstanding after the consummation of the Exchange Offer,
together with the New Notes, will be treated as a single class of securities
under the Indenture.

The New Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge shall be made for any registration of transfer or exchange of New
Notes, but the Issuer may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.

TERMS OF THE NEW NOTES

The Notes will be unsecured senior obligations of the Issuer, limited to
$100.0 million aggregate principal amount, and will mature on May 15, 2008. The
New Notes will bear interest at the rate per annum shown on the cover page
hereof from May 20, 1998, or from the most recent date to which interest has
been paid or provided for, payable semiannually to Holders of record at the
close of business on the May 1 or November 1 immediately preceding the interest
payment date on May 15 and November 15 of each year, commencing November 15,
1998. The Issuer will pay interest on overdue principal at 1% per annum in
excess of such rate, and it will pay interest on overdue installments of
interest at such higher rate to the extent lawful.

OPTIONAL REDEMPTION

Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Issuer prior to May 15, 2003. Thereafter, the
Notes will be redeemable, at the Issuer's option, in whole or in part, at any
time or from time to time, upon not less than 30 nor more than 60 days' prior
notice mailed by first-class mail to each Holder's registered address, at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on May
15 of the years set forth below:

<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------ ----------
<S> <C>
2003...................................................... 105.000
2004...................................................... 103.333
2005...................................................... 101.667
2006 and thereafter....................................... 100.000%
</TABLE>

In addition, at any time and from time to time prior to May 15, 2001, the
Issuer may redeem in the aggregate up to 35% of the original principal amount of
the Notes with the proceeds of one or more Public Equity Offerings following
which there is a Public Market, at a redemption price (expressed as a percentage
of principal amount) of 110.0% plus accrued interest to the redemption date
(subject to the right of Holders of

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record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least $65.0 million aggregate
principal amount of the Notes must remain outstanding and be held, directly or
indirectly, by Persons other than the Issuer and its Affiliates, after each such
redemption.

In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.

SUBSIDIARY GUARANTIES

The obligations of the Issuer pursuant to the Notes, including the
repurchase obligation resulting from a Change of Control, are fully and
unconditionally guaranteed, jointly and severally, on a senior unsecured basis,
by each of the Subsidiary Guarantors, all of which are directly or indirectly
wholly-owned by the Issuer. Each Subsidiary Guaranty will be limited in amount
to an amount not to exceed the maximum amount that can be guaranteed by the
applicable Subsidiary Guarantor without rendering the Subsidiary Guaranty, as it
relates to such Subsidiary Guarantor, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. If a Subsidiary Guaranty were to be rendered
voidable, it could be subordinated by a court to all other indebtedness
(including guarantees and other contingent liabilities) of the applicable
Subsidiary Guarantor, and, depending on the amount of such indebtedness, a
Subsidiary Guarantor's liability on its Subsidiary Guaranty could be reduced to
zero. See "Risk Factors -- Fraudulent Conveyance Statutes".

Upon the sale or other disposition of a Subsidiary Guarantor or the sale or
disposition of all or substantially all the assets of a Subsidiary Guarantor (in
each case other than to the Issuer or an Affiliate of the Issuer) permitted by
the Indenture, such Subsidiary Guarantor will be released and relieved from all
its obligations under its Subsidiary Guaranty.

RANKING

The indebtedness evidenced by the Notes constitutes a senior unsecured
obligation of the Issuer, ranks pari passu in right of payment with all existing
and future senior indebtedness of the Issuer and is senior in right of payment
to all future subordinated indebtedness of the Issuer. The Subsidiary Guaranties
rank pari passu in right of payment with all existing and future senior
indebtedness of the Subsidiary Guarantors and are senior in right of payment to
all future subordinated indebtedness of the Subsidiary Guarantors. The Notes are
effectively subordinated to all existing and future secured indebtedness of the
Issuer and the Subsidiary Guarantors, including indebtedness under the New
Credit Facility, to the extent of the value of the assets securing such
indebtedness.

As of June 30, 1998, the Issuer and the Subsidiary Guarantors had
outstanding, either directly or through guarantees, approximately $170.9 million
of indebtedness, all of which was senior indebtedness and approximately $66.1
million of which was secured. In addition, at September 30, 1998, the Company
could have borrowed an additional $30.9 million under the New Credit Facility,
all of which would have been secured.

A portion of the operations of the Issuer are conducted through its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiaries, and claims of preferred stockholders (if any) of
such subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of the Issuer,
including holders of the Notes. The Notes, therefore, are effectively
subordinated to creditors (including trade creditors) and preferred stockholders
(if any) of subsidiaries of the Issuer (other than the Subsidiary Guarantors).
At June 30, 1998, the total liabilities of the Issuer's subsidiaries (all of
whom are Subsidiary Guarantors, with immaterial exceptions) was approximately
$205.6 million, including trade payables. Although the Indenture limits the
incurrence of Indebtedness and preferred stock of certain of
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the Issuer's subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the Indenture does not impose any limitation on the
incurrence by such subsidiaries of liabilities that are not considered
Indebtedness or Preferred Stock under the Indenture. See "-- Certain
Covenants -- Limitation on Indebtedness."

BOOK-ENTRY, DELIVERY AND FORM

The Old Notes were initially issued in the form of a Global Note (the "Old
Global Note"). The New Notes will initially be issued in the form of a Global
Note (the "New Global Note"). The Old Global Note was deposited on the date of
the closing of the sale of the Old Notes, and the New Global Note will be
deposited with, or on behalf of, the Depository and registered in the name of
the Depository or its nominee on the date of closing of the Exchange Offer.
Except as set forth below, the New Global Note may be transferred, in whole and
not in part, only to the Depository or another nominee of the Depository.
Investors may hold their beneficial interests in the New Global Note directly
through the Depository if they have an account with the Depository or indirectly
through organizations which have accounts with the Depository.

Notes that are issued as described under "-- Certificated Notes" will be
issued in definitive form. Upon the transfer of a Note in definitive form, such
Note will, unless the New Global Note has previously been exchanged for Notes in
definitive form, be exchanged for an interest in the New Global Note
representing the principal amount of Notes being transferred.

The Depository has advised the Issuer as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depository's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.

Upon the issuance of the New Global Note, the Depository will credit, on
its book-entry registration and transfer system, the principal amount of the New
Notes represented by such New Global Note to the accounts of participants. The
accounts to be credited shall be designated by the Trustee. Ownership of
beneficial interests in the New Global Note will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests in the New Global Note will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by the
Depository (with respect to participants' interest) and such participants (with
respect to the owners of beneficial interests in the New Global Note other than
participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the New Global Note.

So long as the Depository, or its nominee, is the registered holder and
owner of the New Global Note, the Depository or such nominee, as the case may
be, will be considered the sole legal owner and holder of the related Notes for
all purposes of such Notes and the Indenture. Except as set forth below, owners
of beneficial interests in the New Global Note will not be entitled to have the
Notes represented by the New Global Note registered in their names, will not
receive or be entitled to receive physical delivery of certificated Notes in
definitive form and will not be considered to be the owners or holders of any
Notes under the New Global Note. The Issuer understands that under existing
industry practice, in the event an owner of a beneficial interest in the New
Global Note desires to take any action that the Depository, as the holder of the
New Global Note, is entitled to take, the Depository would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.

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Payment of principal of and interest on Notes represented by the New Global
Note registered in the name of and held by the Depository or its nominee will be
made to the Depository or its nominee, as the case may be, as the registered
owner and holder of the New Global Note.

The Issuer expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the New Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. The Issuer also expects
that payments by participants to owners of beneficial interests in the New
Global Note held through such participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants. The Issuer will not have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the New Global Note for any Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between the Depository and
its participants or the relationship between such participants and the owners of
beneficial interests in the New Global Note owning through such participants.

Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, the New Global Note may not be transferred except as a whole
by the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.

Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the New Global Note among participants of
the Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Issuer will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.

CERTIFICATED NOTES

The Notes represented by the New Global Note are exchangeable for
certificated Notes in definitive form of like tenor as such Notes in
denominations of U.S. $1,000 and integral multiples thereof if (i) the
Depository notifies the Issuer that it is unwilling or unable to continue as
Depository for the New Global Note or if at any time the Depository ceases to be
a clearing agency registered under the Exchange Act and a successor Depository
is not appointed by the Issuer within 90 days, (ii) the Issuer in its discretion
at any time determines not to have all of the Notes represented by the New
Global Note or (iii) an Event of Default has occurred and is continuing. Any
Note that is exchangeable pursuant to the preceding sentence is exchangeable for
certificated Notes issuable in authorized denominations and registered in such
names as the Depository shall direct, subject to certain ownership certification
requirements imposed by Regulation S under the Securities Act. Subject to the
foregoing, the New Global Note is not exchangeable, except for a New Global Note
of the same aggregate denomination to be registered in the name of the
Depository or its nominee.

SAME-DAY PAYMENT

The Indenture requires that payments in respect of Notes (including
principal, premium and interest) be made by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address.

REGISTRATION RIGHTS

Holders of New Notes are not entitled to any registration rights with
respect to the New Notes. The Company has agreed for a period of 180 days from
the consummation of the Exchange Offer to make available a prospectus meeting
the requirements of the Securities Act to any broker-dealer for use in
connection with any resale of any New Notes. The Registration Statement of which
this Prospectus is a part constitutes the Exchange Offer Registration Statement
which is the subject of the Registration Rights Agreement. Upon the closing of
the Exchange Offer, subject to certain limited exceptions, Holders of untendered
Old Notes will not retain any rights under the Registration Rights Agreement.

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CHANGE OF CONTROL

Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Issuer
repurchase, pursuant to the offer procedure described below, such Holder's Notes
at a purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date):

(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that for purposes of this clause (i) such person shall
be deemed to have "beneficial ownership" of all shares that any such person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than 50%
of the total voting power of the Voting Stock of the Issuer; (for the
purposes of this clause (i), such other person shall be deemed to
beneficially own any Voting Stock of a specified corporation held by a
parent corporation, if such other person is the beneficial owner (as
defined in this clause (i)), directly or indirectly, of more than 50% of
the voting power of the Voting Stock of such parent corporation);

(ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Issuer was approved by
(x) a vote of 66 2/3% of the directors of the Issuer then still in office
who were either directors at the beginning of such period or whose election
or nomination for election was previously so approved or (y) Permitted
Holders holding a majority of the aggregate voting power of the Voting
Stock of the Company held by all Permitted Holders) cease for any reason to
constitute a majority of the Board of Directors then in office;

(iii) the adoption of a plan relating to the liquidation or
dissolution of the Issuer; or

(iv) the merger or consolidation of the Issuer with or into another
Person or the merger of another Person with or into the Issuer, or the sale
of all or substantially all the assets of the Issuer to another Person
(other than a Person that is controlled by the Permitted Holders), and, in
the case of any such merger or consolidation, the securities of the Issuer
that are outstanding immediately prior to such transaction and which
represent 100% of the aggregate voting power of the Voting Stock of the
Issuer are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation.

Within 30 days following any Change of Control, the Issuer shall mail a
notice to each Holder with a copy to the Trustee (the "Change of Control Offer")
stating: (1) that a Change of Control has occurred and that such Holder has the
right to require the Issuer to purchase such Holder's Notes at a purchase price
in cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest on the relevant interest
payment date); (2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income, cash
flow and capitalization after giving effect to such Change of Control); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Issuer, consistent with the covenant described hereunder, that a Holder must
follow in order to have its Notes purchased.

The Issuer will not be required to make a Change of Control Offer following
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Issuer and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.

The Issuer shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes
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pursuant to this covenant described hereunder. To the extent that the provisions
of any securities laws or regulations conflict with the provisions of the
covenant described hereunder, the Issuer shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the covenant described hereunder by virtue thereof.

The Change of Control purchase feature is a result of negotiations between
the Issuer and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Issuer would decide to do so in the future. Subject to the limitations
discussed below, the Issuer could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Issuer's capital structure or credit ratings. Restrictions on the
ability of the Issuer to incur additional Indebtedness are contained in the
covenants described under "-- Certain Covenants -- Limitation on Indebtedness",
"-- Limitation on Liens" and "-- Limitation on Sale/Leaseback Transactions."
Such restrictions can only be waived with the consent of the holders of a
majority in principal amount of the Notes then outstanding. Except for the
limitations contained in such covenants, however, the Indenture will not contain
any covenants or provisions that may afford holders of the Notes protection in
the event of a highly leveraged transaction.

The New Credit Facility contains and future indebtedness of the Issuer may
contain prohibitions on the occurrence of certain events that would constitute a
Change of Control or require such indebtedness to be repurchased upon a Change
of Control. Moreover, the exercise by the holders of their right to require the
Issuer to repurchase the Notes could cause a default under such indebtedness,
even if the Change of Control itself does not, due to the financial effect of
such repurchase on the Issuer. There can be no assurance that in the event of a
Change of Control the Issuer will be able to obtain the consents from such
lenders needed to consummate a Change of Control Offer without causing such a
default. Finally, the Issuer's ability to pay cash to the holders of Notes
following the occurrence of a Change of Control may be limited by the Issuer's
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases. The
potential inability of the Company to obtain sufficient funds to consummate a
repurchase of Notes or other indebtedness in connection with a Change of Control
could have the effect of deterring certain mergers, tender offers or other
takeover attempts involving the Company and could adversely affect the market
price of the Company's securities or its ability to obtain additional financing.
The provisions under the Indenture relative to the Issuer's obligation to make
an offer to repurchase the Notes as a result of a Change of Control may be
waived or modified with the written consent of the holders of a majority in
principal amount of the Notes.

CERTAIN COVENANTS

The Indenture contains covenants including, among others, the following:

Limitation on Indebtedness. (a) The Issuer shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Issuer may Incur Indebtedness if, on the date of
such Incurrence and after giving effect thereto, the Consolidated Coverage Ratio
exceeds 2 to 1 if such Indebtedness is Incurred prior to May 15, 2000 or 2.25 to
1 if such Indebtedness is Incurred thereafter.

(b) Notwithstanding the foregoing paragraph (a), the Issuer and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:

(1) Indebtedness Incurred pursuant to the New Credit Facility;
provided, however, that, after giving effect to any such Incurrence, the
aggregate principal amount of such Indebtedness then outstanding does not
exceed the greater of (i) $100 million less the sum of all principal
payments with respect to such Indebtedness pursuant to paragraph (a)(ii)(A)
of the covenant described under "-- Limitation on Sales of Assets and
Subsidiary Stock" and (ii) the sum of (x) 65% of the book value of the
inventory of the Issuer and its Restricted Subsidiaries and (y) 85% of the
book value of the accounts receivables of the Issuer and its Restricted
Subsidiaries;

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(2) Indebtedness owed to and held by the Issuer or a Restricted
Subsidiary; provided, however, that (i) any subsequent issuance or transfer
of any Capital Stock which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Issuer or a Restricted Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness by
the obligor thereon and (ii) if the Issuer is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all obligations with respect to the Notes;

(3) the Notes and the New Notes;

(4) Vendor Financing, and Refinancing Indebtedness in respect thereof,
in an aggregate amount which does not exceed, when taken together with all
other Indebtedness Incurred pursuant to this clause (4) and then
outstanding, including Vendor Financing outstanding on the Issue Date, $20
million;

(5) Attributable Debt in respect of Sale/Leaseback Transactions, and
Refinancing Indebtedness in respect thereof, in an amount which does not
exceed, when taken together with all other Indebtedness Incurred pursuant
to this clause (5) and then outstanding, $15 million; provided that such
Sale/ Leaseback Transactions comply with the covenant described under
"-- Limitation on Sale/Leaseback Transactions";

(6) Indebtedness outstanding (or Incurred pursuant to commitments
outstanding) on the Issue Date (other than Indebtedness described in clause
(1), (2), (3), (4) or (5) of this covenant);

(7) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Subsidiary was acquired by the Issuer
(other than Indebtedness Incurred in connection with, or to provide all or
any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by the Issuer); provided,
however, that on the date of such acquisition and after giving effect
thereto, the Issuer would have been able to Incur at least $1.00 of
additional Indebtedness pursuant to paragraph (a) of this covenant;

(8) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3), (6), (7) or this
clause (8); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness of a Subsidiary
Incurred pursuant to clause (7), such Refinancing Indebtedness shall be
Incurred only by such Subsidiary; provided further, however, that
Indebtedness outstanding on the Issue Date pursuant to the ITCO Facility
shall not be Refinanced pursuant to this clause (8) but shall only be
Refinanced pursuant to the Incurrence of Indebtedness under clause (b)(1)
above;

(9) Hedging Obligations consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the Issuer
pursuant to the Indenture;

(10) the Subsidiary Guaranties of the Subsidiary Guarantors; and

(11) Indebtedness of the Issuer in an aggregate principal amount
which, together with all other Indebtedness of the Issuer outstanding on
the date of such Incurrence (other than Indebtedness permitted by clauses
(1) through (10) above or paragraph (a)) does not exceed $15 million.

(c) Notwithstanding the foregoing, the Issuer shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Notes to at least the same extent
as such Subordinated Obligations.

(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Issuer, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.

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Limitation on Restricted Payments. (a) The Issuer shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Issuer or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Issuer is not able to Incur an additional $1.00
of Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted
Payment and all other Restricted Payments since the Issue Date would exceed the
sum of:

(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Notes are
originally issued to the end of the most recent fiscal quarter ending at
least 45 days prior to the date of such Restricted Payment (or, in case
such Consolidated Net Income shall be a deficit, minus 100% of such
deficit);

(B) the aggregate Net Cash Proceeds received by the Issuer from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Issuer and other than an issuance or sale to an employee
stock ownership plan or to a trust established by the Issuer or any of its
Subsidiaries for the benefit of their employees);

(C) the aggregate Net Cash Proceeds received by the Issuer from the
issuance or sale of its Capital Stock (other than Disqualified Stock) to an
employee stock ownership plan (including a 401(k) plan that holds Capital
Stock of the Company) subsequent to the Issue Date; provided, however, that
if such employee stock ownership plan incurs any Indebtedness, such
aggregate amount shall be limited to an amount equal to any increase in the
Consolidated Net Worth of the Issuer resulting from principal repayments
made by such employee stock ownership plan with respect to Indebtedness
incurred by it to finance the purchase of such Capital Stock;

(D) the amount by which Indebtedness of the Issuer is reduced on the
Issuer's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Issuer) subsequent to the Issue Date of any Indebtedness
of the Issuer convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Issuer (less the amount of any cash, or the fair
value of any other property, distributed by the Issuer upon such conversion
or exchange);

(E) an amount equal to the sum of (i) the net reduction in Investments
in a Person resulting from dividends, repayments of loans or advances or
other transfers of assets, in each case to the Issuer or any Restricted
Subsidiary from such Person and (ii) the portion (proportionate to the
Issuer's equity interest in such Subsidiary) of the fair market value of
the net assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, however, that
the foregoing sum shall not exceed, in the case of any Person, the amount
of Investments previously made on or after the Issue Date (and included in
the calculation of Restricted Payments) by the Issuer or any Restricted
Subsidiary in such Person; and

(F) $5 million.

(b) The provisions of the foregoing paragraph (a) shall not prohibit:

(i) any acquisition of any Capital Stock of the Issuer made out of the
proceeds of the substantially concurrent sale of, or made by exchange for,
Capital Stock of the Issuer (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary of the Issuer or an employee
stock ownership plan or to a trust established by the Issuer or any of its
Subsidiaries for the benefit of their employees); provided, however, that
(A) such acquisition of Capital Stock shall be excluded in the calculation
of the amount of Restricted Payments and (B) the Net Cash Proceeds from
such sale shall be excluded from the calculation of amounts under clause
(3)(B) of paragraph (a) above;

(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of the Issuer which is permitted to be Incurred pursuant
to the covenant described under "-- Limitation on Indebtedness"; provided,
however, that such purchase, repurchase, redemption,

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defeasance or other acquisition or retirement for value shall be excluded
in the calculation of the amount of Restricted Payments;

(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that at the time of payment of such
dividend, no other Default shall have occurred and be continuing (or result
therefrom); provided further, however, that such dividend shall be included
in the calculation of the amount of Restricted Payments;

(iv) the repurchase or other acquisition of shares of, or options to
purchase shares of, common stock of the Issuer or any of its Subsidiaries
from employees, former employees, directors or former directors of the
Issuer or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors), (x) upon
death, retirement, severance or termination of employment or service or (y)
pursuant to the terms of the agreements (including employment agreements)
or plans (or amendments thereto) approved by the Board of Directors under
which such individuals purchase or sell or are granted the option to
purchase or sell, shares of such common stock; provided, however, that the
aggregate amount of such repurchases and other acquisitions shall not
exceed $1.0 million in any calendar year; provided further, however, that
such repurchases and other acquisitions shall be excluded in the
calculation of the amount of Restricted Payments;

(v) the payment to The Kelly Springfield Tire Company or its
successors or assigns of dividends on the 7,000 shares of Series A
Cumulative Redeemable Preferred Stock or the 4,500 shares of Series B
Cumulative Redeemable Preferred Stock held by The Kelly Springfield Tire
Company to the extent required to be paid by the Issuer pursuant to the
terms of such stock as in existence on the Issue Date; provided, however,
that such payment shall be excluded in the calculation of the amount of
Restricted Payments; or

(vi) payments to employees of ITCO in respect of certain stock
appreciation rights granted by ITCO and required to be made upon
consummation of the Transactions not to exceed $1.5 million in the
aggregate; provided, however, that such payments shall be excluded from the
calculation of the amount of Restricted Payments.

Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Issuer shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions on its Capital
Stock to the Issuer or a Restricted Subsidiary or pay any Indebtedness owed to
the Issuer, (b) make any loans or advances to the Issuer or (c) transfer any of
its property or assets to the Issuer, except:

(i) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date or the New Credit Facility as in
effect on the Issue Date;

(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Issuer (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Issuer) and outstanding on
such date;

(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (i) or (ii) of this covenant or this clause (iii) or
contained in any amendment to an agreement referred to in clause (i) or
(ii) of this covenant or this clause (iii); provided, however, that the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are not, taken as
a whole, materially less favorable to the Noteholders than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in such
predecessor agreements;

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(iv) any such encumbrance or restriction consisting of customary
provisions restricting (x) assignments, subletting or other transfers
contained in leases, licenses and similar agreements to the extent such
provisions restrict the transfer of the property subject thereto, or (y)
the assignment or other transfer of any lease or other contract;

(v) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary or Permitted Liens to the extent such restrictions restrict the
transfer of the property subject to such security agreements or mortgages
or Permitted Liens; and

(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition.

Limitation on Sales of Assets and Subsidiary Stock. (a) The Issuer shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Issuer or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by the Issuer or such Restricted Subsidiary is in
the form of cash or cash equivalents and (ii) an amount equal to 100% of the Net
Available Cash from such Asset Disposition is applied by the Issuer (or such
Restricted Subsidiary, as the case may be) (A) first, to the extent the Issuer
elects (or is required by the terms of any Indebtedness), to prepay, repay,
redeem or purchase Senior Indebtedness or Indebtedness (other than any
Disqualified Stock) of a Wholly Owned Subsidiary (in each case other than
Indebtedness owed to the Issuer or an Affiliate of the Issuer) within one year
from the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (B) second, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), to the extent the Issuer
elects, to acquire Additional Assets within one year from the later of the date
of such Asset Disposition or the receipt of such Net Available Cash; (C) third,
to the extent of the balance of such Net Available Cash after application in
accordance with clauses (A) and (B), to make an offer to the holders of the
Notes (and to holders of other Senior Indebtedness designated by the Issuer) to
purchase Notes (and such other Senior Indebtedness) pursuant to and subject to
the conditions contained in the Indenture; and (D) fourth, to the extent of any
balance of such Net Available Cash after application in accordance with clauses
(A), (B) and (C), in any manner that does not violate the Indenture; provided,
however, that in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A) or (C) above, the Issuer or such Restricted
Subsidiary shall permanently retire such Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions of this paragraph, the Issuer and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
with this paragraph except to the extent that the aggregate Net Available Cash
from all Asset Dispositions which are not applied in accordance with this
paragraph exceeds $5 million. Pending application of Net Available Cash pursuant
to this covenant, such Net Available Cash shall be invested in Permitted
Investments.

For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Indebtedness of the Issuer or any
Restricted Subsidiary and the release of the Issuer or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by the Issuer or any Restricted
Subsidiary from the transferee that are promptly converted by the Issuer or such
Restricted Subsidiary into cash.

(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Indebtedness) pursuant to clause (a)(ii)(C) above, the
Issuer will be required to purchase Notes tendered pursuant to an offer by the
Issuer for the Notes (and other Senior Indebtedness) at a purchase price of 100%
of their principal amount (without premium) plus accrued but unpaid interest
(or, in respect of such other Senior Indebtedness, such lesser price, if any, as
may be provided for by the terms of such Senior Indebtedness) in accordance with
the procedures (including prorating in the event of oversubscription) set

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forth in the Indenture. If the aggregate purchase price of Notes (and any other
Senior Indebtedness) tendered pursuant to such offer is less than the Net
Available Cash allotted to the purchase thereof, the Issuer shall apply the
remaining Net Available Cash in accordance with clause (a)(ii)(D) above. The
Issuer shall not be required to make such an offer to purchase Notes (and other
Senior Indebtedness) pursuant to this covenant if the Net Available Cash
available therefor is less than $5 million (which lesser amount shall be carried
forward for purposes of determining whether such an offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition).

(c) The Issuer shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Issuer shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.

Limitation on Affiliate Transactions. (a) The Issuer shall not, and shall
not permit any Restricted Subsidiary to, enter into any transaction (including
the purchase, sale, lease or exchange of any property, employee compensation
arrangements or the rendering of any service) with any Affiliate of the Issuer
(an "Affiliate Transaction") unless the terms thereof (1) are no less favorable
to the Issuer or such Restricted Subsidiary than those that could be obtained at
the time of such transaction in arm's-length dealings with a Person who is not
such an Affiliate, (2) if such Affiliate Transaction involves an amount in
excess of $1 million, (i) are set forth in writing and (ii) have been approved
by a majority of the members of the Board of Directors having no personal stake
in such Affiliate Transaction and (3) if such Affiliate Transaction involves an
amount in excess of $7.5 million, have been determined by a nationally
recognized investment banking firm to be fair, from a financial standpoint, to
the Issuer and its Restricted Subsidiaries.

(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any transaction permitted pursuant to the covenant described under
"-- Limitation on Restricted Payments", or explicitly excluded from the
definition of "Restricted Payment", (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors, (iii) the grant of stock options or similar
rights to employees and directors of the Issuer pursuant to plans approved by
the Board of Directors, (iv) loans or advances to employees in the ordinary
course of business in accordance with the past practices of the Issuer or its
Restricted Subsidiaries, but in any event not to exceed $1 million in the
aggregate outstanding at any one time, (v) the payment of reasonable fees to
directors of the Issuer and its Restricted Subsidiaries who are not employees of
the Issuer or its Restricted Subsidiaries, (vi) any Affiliate Transaction
between the Issuer and a Restricted Subsidiary or between Restricted
Subsidiaries; provided, however, that no Affiliate of the Issuer (other than
another Restricted Subsidiary) owns the Capital Stock of any such Restricted
Subsidiary, (vii) the issuance or sale of any Capital Stock (other than
Disqualified Stock) of the Issuer or (viii) the amendment or extension or
renewal of any transaction in effect on the Issue Date on terms no less
favorable to the Issuer and its Restricted Subsidiaries than the terms in effect
on the Issue Date.

Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Issuer shall not sell or otherwise dispose of any Capital
Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
of its Capital Stock except (i) to the Issuer or a Wholly Owned Subsidiary, (ii)
directors' qualifying shares, (iii) if, immediately after giving effect to such
issuance, sale or other disposition, neither the Issuer nor any of its
Subsidiaries own any Capital Stock of such Restricted Subsidiary or (iv) if,
immediately after giving effect to such issuance, sale or other disposition,
such Restricted Subsidiary would no longer constitute a Restricted Subsidiary
and any Investment in such Person remaining after giving effect thereto would
have been permitted to be made under the covenant described under "-- Limitation
on Restricted Payments" if made on the date of such issuance, sale or other
disposition.

Limitation on Liens. The Issuer shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any of its properties (including Capital Stock
of a Restricted Subsidiary), whether owned at the Issue Date or thereafter
acquired, other than

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Permitted Liens, without effectively providing that the Notes shall be secured
equally and ratably with (or prior to) the obligations so secured for so long as
such obligations are so secured.

Limitation on Sale/Leaseback Transactions. The Issuer shall not, and shall
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) the Issuer or such
Subsidiary would be entitled to (A) Incur Indebtedness in an amount equal to the
Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to
the covenant described under "-- Limitation on Indebtedness" and (B) create a
Lien on such property securing such Attributable Debt without equally and
ratably securing the Notes pursuant to the covenant described under
"-- Limitation on Liens", (ii) the net proceeds received by the Issuer or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the fair value (as determined by the Board of Directors) of such
property and (iii) the Issuer applies the proceeds of such transaction in
compliance with the covenant described under "-- Limitation on Sale of Assets
and Subsidiary Stock".

Merger and Consolidation. The Issuer shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "Successor Issuer") shall be
a Person organized and existing under the laws of the United States of America,
any State thereof or the District of Columbia and the Successor Issuer (if not
the Issuer) shall expressly assume, by an indenture supplemental thereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Issuer under the Notes and the Indenture; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Issuer or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Issuer or such Subsidiary at the time of such transaction), no Default
shall have occurred and be continuing; (iii) immediately after giving effect to
such transaction, the Successor Issuer would be able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; (iv) immediately after giving effect to such
transaction, the Successor Issuer shall have Consolidated Net Worth in an amount
that is not less than the Consolidated Net Worth of the Issuer immediately prior
to such transaction; (v) the Issuer shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel addressed to the Trustee with
respect to the foregoing matters; provided, however, that the requirements set
forth in clauses (iii) and (iv) above shall not apply to a merger between the
Issuer and any Wholly Owned Subsidiary; and (vi) the Issuer shall have delivered
to the Trustee an Opinion of Counsel to the effect that the Holders will not
recognize income, gain or loss for Federal income tax purposes as a result of
such transaction and will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
transaction had not occurred.

The Issuer will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person (other
than in a transaction or transactions resulting in a release of such Subsidiary
Guarantor as described under "-- Subsidiary Guaranties" above provided that the
Issuer certifies to the Trustee that the Issuer will comply with the covenant
described under "-- Limitation on Sales of Assets and Subsidiary Stock") unless:
(i) the resulting, surviving or transferee Person (if not such Subsidiary) (the
"Successor Guarantor") shall be a Person organized and existing under the laws
of the United States of America, or any State thereof or the District of
Columbia, and such Person shall expressly assume, by a Guaranty Agreement, in a
form satisfactory to the Trustee, all the obligations of such Subsidiary, if
any, under its Subsidiary Guaranty; (ii) immediately after giving effect to such
transaction or transactions on a pro forma basis (and treating any Indebtedness
which becomes an obligation of the resulting, surviving or transferee Person as
a result of such transaction as having been issued by such Person at the time of
such transaction), no Default shall have occurred and be continuing; and (iii)
the Issuer delivers to the Trustee an Officers' Certificate and an Opinion of
Counsel addressed to the Trustee with respect to the foregoing matters.

The Successor Issuer shall be the successor to the Issuer and shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under the Indenture, but the predecessor Issuer in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes. The Successor Guarantor shall be the
successor to such Subsidiary Guarantor and shall succeed
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to, and be substituted for, and may exercise every right and power of, such
Subsidiary Guarantor under the Indenture, but such predecessor Subsidiary
Guarantor in the case of a conveyance, transfer or lease shall not be released
from the obligation to pay the principal of and interest on the Notes.

Future Guarantors. The Issuer shall cause each domestic Restricted
Subsidiary (other than an Immaterial Subsidiary that is neither a borrower nor a
guarantor under the New Credit Facility) to execute and deliver to the Trustee a
Guaranty Agreement pursuant to which such Restricted Subsidiary will Guarantee
payment of the Notes on the same terms and conditions as those set forth in the
Indenture.

SEC Reports. Notwithstanding that the Issuer may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Issuer
shall file with the SEC (to the extent such filings are accepted by the SEC) and
provide the Trustee and Noteholders with such annual reports and such
information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act and applicable to a U.S. corporation subject to such
Sections, such information, documents and other reports to be so filed and
provided at the times specified for the filing of such information, documents
and reports under such Sections.

DEFAULTS

An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by the Issuer to comply with its obligations under "-- Certain
Covenants -- Merger and Consolidation" above, (iv) the failure by the Issuer to
comply for 30 days after notice with any of its obligations in the covenants
described above under "Change of Control" (other than a failure to purchase
Notes) or under "-- Certain Covenants" under "-- Limitation on Indebtedness",
"-- Limitation on Restricted Payments", "-- Limitation on Restrictions on
Distributions from Restricted Subsidiaries", "-- Limitation on Sales of Assets
and Subsidiary Stock" (other than a failure to purchase Notes), "-- Limitation
on Affiliate Transactions", "-- Limitation on the Sale or Issuance of Capital
Stock of Restricted Subsidiaries", "-- Limitation on Liens", "-- Limitation on
Sale/Leaseback Transactions", "-- Future Guarantors" or "-- SEC Reports", (v)
the failure by the Issuer to comply for 60 days after notice with its other
agreements contained in the Indenture, (vi) Indebtedness of the Issuer, any
Subsidiary Guarantor or any Significant Subsidiary is not paid within any
applicable grace period after final maturity or is accelerated by the holders
thereof because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $10 million (the "cross acceleration provision"), (vii)
certain events of bankruptcy, insolvency or reorganization of the Issuer or a
Significant Subsidiary (the "bankruptcy provisions"), (viii) any final,
non-appealable judgment or decree for the payment of money in excess of $10
million is entered against the Issuer or a Significant Subsidiary, remains
outstanding for a period of 60 days following such judgment and is not
discharged, waived or stayed within 10 days after notice (the "judgment default
provision") or (ix) a Subsidiary Guaranty ceases to be in full force and effect
(other than in accordance with the terms of such Subsidiary Guaranty) or a
Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary
Guaranty. However, a default under clauses (iv), (v) and (viii) will not
constitute an Event of Default until the Trustee or the holders of 25% in
principal amount of the outstanding Notes notify the Issuer of the default and
the Issuer does not cure such default within the time specified after receipt of
such notice.

If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Issuer occurs and is continuing,
the principal of and interest on all the Notes will ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any holders of the Notes. Under certain circumstances, the
holders of a majority in principal amount of the outstanding Notes may rescind
any such acceleration with respect to the Notes and its consequences. Subject to
the provisions of the Indenture relating to the duties of the Trustee, in case
an Event of Default occurs and is continuing, the Trustee will be under no
obligation to exercise any of the rights or powers under the Indenture
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at the request or direction of any of the holders of the Notes unless such
holders have offered to the Trustee reasonable indemnity or security against any
loss, liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder of a Note may pursue
any remedy with respect to the Indenture or the Notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity and (v) the holders of a
majority in principal amount of the outstanding Notes have not given the Trustee
a direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the holders of a majority in principal amount of the
outstanding Notes are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder of a Note or that would involve the Trustee in personal liability.

The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the Notes.
In addition, the Issuer is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Issuer
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Issuer is taking or proposes to take in respect
thereof.

AMENDMENTS AND WAIVERS

Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note affected thereby, no amendment may, among other
things, (i) reduce the amount of Notes whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the amount payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "-- Optional
Redemption", (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes, (vii) make any change in the amendment
provisions which require each holder's consent or in the waiver provisions or
(viii) make any change in any Subsidiary Guaranty that would adversely affect
the Noteholders.

Without the consent of any holder of the Notes, the Issuer, the Subsidiary
Guarantors and the Trustee may amend the Indenture to cure any ambiguity,
omission, defect or inconsistency, to provide for the assumption by a successor
corporation of the obligations of the Issuer or the Subsidiary Guarantors under
the Indenture, to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner such
that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add guarantees with respect to the Notes, to secure the Notes, to add
to the covenants of the Issuer or the Subsidiary Guarantors for the benefit of
the holders of the Notes or to surrender any right or power conferred upon the
Issuer, to make any change that does not adversely affect the rights of any
holder of the Notes or to comply with any requirement of the SEC in connection
with the qualification of the Indenture under the Trust Indenture Act.

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The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.

After an amendment under the Indenture becomes effective, the Issuer is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.

TRANSFER

The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Issuer may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges (other than those contemplated by the Exchange Offer).

DEFEASANCE

The Issuer at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Issuer at any time may terminate its obligations under "Change of
Control" and under the covenants described under "-- Certain Covenants" (other
than the covenant described under "-- Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
"-- Defaults" above and the limitations contained in clauses (iii) and (iv)
under "-- Certain Covenants -- Merger and Consolidation" above ("covenant
defeasance").

The Issuer may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Issuer exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Issuer exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "-- Defaults" above or because of the
failure of the Issuer to comply with clause (iii) or (iv) under "-- Certain
Covenants -- Merger and Consolidation" above. If the Issuer exercises its legal
defeasance option or its covenant defeasance option, each Subsidiary Guarantor
will be released from all of its obligations with respect to its Subsidiary
Guaranty.

In order to exercise either defeasance option, the Issuer must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amounts and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or change in
applicable Federal income tax law).

CONCERNING THE TRUSTEE

First Union National Bank is the Trustee under the Indenture and has been
appointed by the Issuer as Registrar and Paying Agent with regard to the Notes.

The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuer, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
either eliminate such conflict within 90 days, apply to the SEC for permission
to continue or resign.

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The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.

GOVERNING LAW

The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.

ADDITIONAL INFORMATION

Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by contacting the Company at 2105 Water Ridge Parkway, Suite 500,
Charlotte, North Carolina 28217 or by telephone at (704) 423-8989.

CERTAIN DEFINITIONS

"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Issuer or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such Restricted
Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a
Related Business.

"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Certain Covenants -- Limitation
on Restricted Payments", "-- Certain Covenants -- Limitation on Affiliate
Transactions" and "-- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 5% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Issuer or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.

"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Issuer or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Issuer or a
Restricted Subsidiary), (ii) all or substantially all the assets of any division
or line of business of the Issuer or any Restricted Subsidiary or (iii) any
other assets of the Issuer or any Restricted Subsidiary outside of the ordinary
course of business of the Issuer or such Restricted Subsidiary (other than, in
the case of (i), (ii) and (iii) above, (A) a disposition by a Restricted
Subsidiary to the Issuer or by the Issuer or a Restricted Subsidiary to a
Restricted Subsidiary, (B) for purposes of the covenant described under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock"
only, a transaction either permitted by the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments" or excluded from the definition
of "Restricted Payment", (C) any transfer of properties or assets (including
Capital Stock) that

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is governed by, and made in accordance with, the provisions described under
"-- Certain Covenants -- Merger and Consolidation" and (D) any disposition of
assets with a fair market value of less than $250,000).

"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/ Leaseback Transaction (including any period for which such lease has been
extended).

"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.

"Banks" means the Lenders as defined in the New Credit Facility.

"Bank Indebtedness" means all Obligations pursuant to the New Credit
Facility.

"Board of Directors" means the Board of Directors of the Issuer or any
committee thereof duly authorized to act on behalf of such Board.

"Business Day" means each day which is not a Legal Holiday.

"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.

"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.

"Code" means the Internal Revenue Code of 1986, as amended.

"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters (provided that with respect to Indebtedness Incurred under a revolving
credit facility, instead of such historical interest, there shall be included
pro forma interest on the one year projected average balance of such
Indebtedness as determined in good faith by senior management of the Company);
provided, however, that

(1) if the Issuer or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, or both, other than in
either such case Indebtedness Incurred under a revolving credit facility,
EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Indebtedness as
if such Indebtedness had been Incurred on the first day of such period, and
to the application of the proceeds of such Indebtedness, including without
limitation the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged, or the acquisition of assets with the
proceeds of such new Indebtedness, as if such application had occurred on
the first day of such period,

(2) if the Issuer or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the
date of the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for
such period shall be calculated on a pro forma
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basis as if such discharge had occurred on the first day of such period and
as if the Issuer or such Restricted Subsidiary had not earned the interest
income actually earned during such period in respect of cash or Temporary
Cash Investments used to repay, repurchase, defease or otherwise discharge
such Indebtedness,

(3) if since the beginning of such period the Issuer or any Restricted
Subsidiary shall have made any Asset Disposition or disposition of a
Permitted Investment ("Disposition"), the EBITDA for such period shall be
reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Disposition for
such period, or increased by an amount equal to the EBITDA (if negative),
directly attributable thereto for such period and Consolidated Interest
Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness
(other than Indebtedness Incurred under a revolving credit facility) of the
Issuer or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Issuer and its continuing
Restricted Subsidiaries in connection with such Disposition for such period
(or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness (other than Indebtedness Incurred under a revolving credit
facility) of such Restricted Subsidiary to the extent the Issuer and its
continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale),

(4) if since the beginning of such period the Issuer or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or a Permitted Investment or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction requiring
a calculation to be made hereunder, which constitutes all or substantially
all of an operating unit, segment or location of a business, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any
Indebtedness other than under a revolving credit facility) as if such
Investment or acquisition occurred on the first day of such period and

(5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Issuer or any Restricted Subsidiary since the beginning of such period)
shall have made any Disposition, any Investment or acquisition of assets
that would have required an adjustment pursuant to clause (3) or (4) above
if made by the Issuer or a Restricted Subsidiary during such period, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Disposition, Investment or
acquisition occurred on the first day of such period.

For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings relating thereto
and the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Issuer. If
any Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months).

"Consolidated Interest Expense" means, for any period, the total interest
expense of the Issuer and its consolidated Restricted Subsidiaries, plus, to the
extent not included in such total interest expense, and to the extent incurred
by the Issuer or its Restricted Subsidiaries, without duplication, (i) interest
expense attributable to capital leases and the interest expense attributable to
leases constituting part of a Sale/ Leaseback Transaction (provided that
interest expense attributable to leases constituting part of Sale/ Leaseback
Transactions in respect of currently owned warehouses with a value not in excess
of $10 million shall be excluded from this calculation), (ii) amortization of
debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash
interest expenses, (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, (vi) net
costs associated with Hedging Obligations (including amortization of fees),
(vii) Preferred Stock dividends in respect of all

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Preferred Stock held by Persons other than the Issuer or a Wholly Owned
Subsidiary (other than non-cash dividends in respect of Preferred Stock that is
not Disqualified Stock of the Issuer), (viii) interest incurred in connection
with Investments in discontinued operations, (ix) interest accruing on any
Indebtedness of any other Person to the extent such Indebtedness is Guaranteed
by (or secured by the assets of) the Issuer or any Restricted Subsidiary and (x)
the cash contributions to any employee stock ownership plan or similar trust to
the extent such contributions are used by such plan or trust to pay interest or
fees to any Person (other than the Issuer) in connection with Indebtedness
Incurred by such plan or trust.

"Consolidated Net Income" means, for any period, the net income of the
Issuer and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:

(i) any net income of any Person (other than the Issuer) if such
Person is not a Restricted Subsidiary, except that (A) subject to the
exclusion contained in clause (iv) below, the Issuer's equity in the net
income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Issuer or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to a Restricted Subsidiary, to the
limitation contained in clause (iii) below) and (B) the Issuer's equity in
a net loss of any such Person for such period shall be included in
determining such Consolidated Net Income;

(ii) any net income (or loss) of any Person acquired by the Issuer or
a Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;

(iii) any net income of any Restricted Subsidiary to the extent such
Restricted Subsidiary is subject to prohibitions, directly or indirectly,
on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Issuer, except that
the Issuer's equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income;

(iv) any gain or loss realized upon the sale or other disposition of
any assets of the Issuer, its consolidated Subsidiaries or any other Person
(including pursuant to any sale-and-leaseback arrangement) which is not
sold or otherwise disposed of in the ordinary course of business and any
gain or loss realized upon the sale or other disposition of any Capital
Stock of any Person;

(v) extraordinary gains or losses; and

(vi) the cumulative effect of a change in accounting principles.

Notwithstanding the foregoing, for the purposes of the covenant described
under "Certain Covenants -- Limitation on Restricted Payments" only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Issuer or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D).

"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Issuer and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Issuer ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Issuer plus (ii) paid-in
capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.

"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.

"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.

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"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable at the option of the holder) or upon the
happening of any event (i) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, (ii) is convertible or exchangeable at the
holder's option for Indebtedness or Disqualified Stock or (iii) is redeemable or
must be purchased, upon the occurrence of certain events or otherwise, by such
Person at the option of the holder thereof, in whole or in part, in each case on
or prior to the first anniversary of the Stated Maturity of the Notes; provided,
however that any Capital Stock that would not constitute Disqualified Stock but
for provisions thereof giving holders thereof the right to require such Person
to purchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the first anniversary of the Stated
Maturity of the Notes shall not constitute Disqualified Stock if (x) the "asset
sale" or "change of control" provisions applicable to such Capital Stock are not
more favorable to the holders of such Capital Stock than the terms applicable to
the Notes and described under "-- Certain Covenants -- Limitation on Sales of
Assets and Subsidiary Stock" and "-- Certain Covenants -- Change of Control" and
(y) any such requirement only becomes operative after compliance with such terms
applicable to the Notes, including the purchase of any Notes tendered pursuant
thereto; provided further, however, that any class of Capital Stock of such
Person that, by its terms, authorizes such Person to satisfy in full its
obligations with respect to the payment of dividends or upon maturity,
redemption (pursuant to a sinking fund or otherwise) or repurchase thereof or
otherwise by the delivery of Capital Stock that is not Disqualified Stock shall
not be deemed to be Disqualified Stock.

"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Issuer and its consolidated Restricted Subsidiaries, (b) depreciation expense of
the Issuer and its consolidated Restricted Subsidiaries, (c) amortization
expense of the Issuer and its consolidated Restricted Subsidiaries and (d) all
other non-cash charges of the Issuer and its consolidated Restricted
Subsidiaries (excluding any such other non-cash charge to the extent that it
represents an accrual of or reserve for cash expenditures in any future period),
in each case for such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.

"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.

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"Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the Trustee, pursuant to which a Subsidiary Guarantor guarantees the Issuer's
obligations with respect to the Notes on the terms provided for in the
Indenture.

"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.

"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.

"Immaterial Subsidiary" means any Subsidiary with total assets not greater
than $50,000.

"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning.

"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):

(i) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;

(ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/ Leaseback Transactions entered into by such
Person;

(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);

(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (i)
through (iii) above) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no later than the
tenth Business Day following payment on the letter of credit);

(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, the liquidation preference
with respect to, any Preferred Stock (but excluding, in each case, any
accrued dividends);

(vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;

(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and

(viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.

The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.

"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.

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"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (other than leases of equipment to customers in the
ordinary course of business) (including by way of Guarantee or similar
arrangement) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the account
or use of others), or any purchase or acquisition of Capital Stock, Indebtedness
or other similar instruments issued by such Person. For purposes of the
definition of "Unrestricted Subsidiary", the definition of "Restricted Payment"
and the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments", (i) "Investment" shall include the portion (proportionate
to the Issuer's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Issuer at the time that such Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Issuer shall be
deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Issuer's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Issuer's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.

"Issue Date" means the date on which the Notes are originally issued.

"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).

"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Disposition, (ii) all payments made
on any Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law, be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Restricted Subsidiaries as a result of such Asset Disposition and
(iv) the deduction of appropriate amounts provided by the seller as a reserve,
in accordance with GAAP, against any liabilities associated with the property or
other assets disposed in such Asset Disposition and retained by the Issuer or
any Restricted Subsidiary after such Asset Disposition.

"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.

"New Credit Facility" means the Amended and Restated Loan and Security
Agreement to be entered into by and among the Issuer, certain of its
Subsidiaries, the lenders referred to therein, BankBoston, N.A., as Agent, and
Fleet Capital Corporation and First Union National Bank, as Co-Agents, together
with the related documents thereto (including the notes, guarantees and security
documents thereunder), as amended, extended, renewed, restated, supplemented or
otherwise modified (in whole or in part, and without limitation as to amount,
terms, conditions, covenants and other provisions) from time to time, and any
agreement (and related document) governing Indebtedness incurred to Refinance,
in whole or in part, the borrowings and commitments then outstanding or
permitted to be outstanding thereunder or under a successor credit agreement,
whether by the same or any other lender or group of lenders.

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"Permitted Holders" means Ann H. Gaither and William H. Gaither and members
of their immediate families and any spouse, parent or descendant of the
foregoing, any trust the beneficiaries of which include only any of the
foregoing, and any corporation, partnership or other entity all of the Capital
Stock of which (other than directors' qualifying shares) is owned by any of the
foregoing.

"Permitted Investment" means an Investment by the Issuer or any Restricted
Subsidiary in (i) the Issuer, a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Issuer or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Issuer or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Issuer or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Issuer or such Restricted Subsidiary;
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Issuer or any Restricted
Subsidiary or in satisfaction of judgments; (viii) promissory notes issued by
members of management of the Issuer and its Subsidiaries as payments for
restricted shares of Capital Stock of the Issuer not to exceed $500,000 per
year; and (ix) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "-- Certain Covenants -- Limitation on
Sales of Assets and Subsidiary Stock".

"Permitted Liens" means, with respect to any Person,

(a) pledges or deposits by such Person under worker's compensation
laws, unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for the
payment of Indebtedness) or leases to which such Person is a party, or
deposits to secure public or statutory obligations of such Person or
deposits of cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case
Incurred in the ordinary course of business;

(b) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, in each case for sums not yet due or being contested in
good faith by appropriate proceedings or other Liens arising out of
judgments or awards against such Person with respect to which such Person
shall then be proceeding with an appeal or other proceedings for review;

(c) Liens for property taxes not yet subject to penalties for
non-payment or which are being contested in good faith and by appropriate
proceedings;

(d) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business; provided, however, that such letters of
credit do not constitute Indebtedness;

(e) survey exceptions, encumbrances, easements or reservations of, or
rights of others for, licenses, rights-of-way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or
other restrictions as to the use of real property or Liens incidental to
the conduct of the business of such Person or to the ownership of its
properties which were not Incurred to secure Indebtedness and which do not
in the aggregate materially adversely affect the value of said properties
or materially impair their use in the operation of the business of such
Person;

(f) Liens securing Indebtedness, including Indebtedness Incurred
pursuant to clause (b)(4) under "-- Certain Covenants -- Limitation on
Indebtedness," Incurred to finance the construction, purchase or lease of,
or repairs, improvements or additions to, property of such Person;
provided, however, that the
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Lien may not extend to any other property (other than improvements thereon)
owned by such Person or any of its Subsidiaries at the time the Lien is
Incurred, and the Indebtedness (other than any interest thereon) secured by
the Lien may not be Incurred more than 180 days after the later of the
acquisition, completion of construction, repair, improvement, addition or
commencement of full operation of the property subject to the Lien;

(g) Liens to secure Indebtedness permitted under the provisions
described in clauses (b)(1) and (5) under "-- Certain
Covenants -- Limitation on Indebtedness";

(h) Liens existing (or Incurred in connection with Indebtedness
committed on) on the Issue Date;

(i) Liens on property or shares of Capital Stock of another Person at
the time such other Person becomes a Subsidiary of such Person; provided,
however, that such Liens are not created, Incurred or assumed in connection
with, or in contemplation of, such other Person becoming such a Subsidiary;
provided further, however, that such Lien may not extend to any other
property (other than improvements thereon) owned by such Person or any of
its Subsidiaries;

(j) Liens on property at the time such Person or any of its
Subsidiaries acquires the property, including any acquisition by means of a
merger or consolidation with or into such Person or a Subsidiary of such
Person; provided, however, that such Liens are not created, Incurred or
assumed in connection with, or in contemplation of, such acquisition;
provided further, however, that the Liens may not extend to any other
property (other than improvements thereon) owned by such Person or any of
its Subsidiaries;

(k) Liens securing Indebtedness or other obligations of a Subsidiary
of such Person owing to such Person or a Restricted Subsidiary of such
Person;

(l) Liens securing Hedging Obligations so long as such Hedging
Obligations relate to Indebtedness that is, and is permitted to be under
the Indenture, secured by a Lien on the same property securing such Hedging
Obligations;

(m) any interest or title of a lessor in property subject to any
Capital Lease Obligation or operating lease;

(n) any attachment of a judgment Lien that does not give rise to an
Event of Default;

(o) Liens on inventory deemed to arise by reason of the consignment of
inventory in the ordinary course of business of the Issuer and its
Restricted Subsidiaries; and

(p) Liens to secure any Refinancing (or successive Refinancings) as a
whole, or in part, of any Indebtedness secured by any Lien referred to in
the foregoing clauses (f), (h), (i) and (j); provided, however, that (x)
such new Lien shall be limited to all or part of the same property that
secured the original Lien (plus improvements to or on such property) and
(y) the Indebtedness secured by such Lien at such time is not increased to
any amount greater than the sum of (A) the outstanding principal amount or,
if greater, committed amount of the Indebtedness described under clauses
(f), (h), (i) or (j) at the time the original Lien became a Permitted Lien
and (B) an amount necessary to pay any fees and expenses, including
premiums, related to such refinancing, refunding, extension, renewal or
replacement.

Notwithstanding the foregoing, "Permitted Liens" will not include any Lien
described in clauses (f), (i) or (j) above to the extent such Lien applies to
any Additional Assets acquired directly or indirectly from Net Available Cash
pursuant to the covenant described under "-- Certain Covenants -- Limitation on
Sale of Assets and Subsidiary Stock". For purposes of this definition, the term
"Indebtedness" shall be deemed to include interest on such Indebtedness.

"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.

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"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.

"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.

"Public Equity Offering" means an underwritten primary public offering of
common stock of the Issuer pursuant to an effective registration statement under
the Securities Act.

"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of the Issuer has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.

"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.

"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Issuer or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Issuer or (y) Indebtedness of the
Issuer or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.

"Related Business" means any business related, ancillary or complementary
to the businesses of the Issuer and the Restricted Subsidiaries on the Issue
Date.

"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions to the extent payable to the Issuer or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to the extent made to minority
stockholders (or owners of an equivalent interest in the case of a Subsidiary
that is an entity other than a corporation)), (ii) the purchase, redemption or
other acquisition or retirement for value on or subsequent to the Issue Date of
any Capital Stock of the Issuer held by any Person or of any Capital Stock of a
Restricted Subsidiary held by any Affiliate of the Issuer (other than the Issuer
or a Restricted Subsidiary), including the exercise of any option to exchange
any Capital Stock (other than into Capital Stock of the Issuer that is not
Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment of any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition) or (iv) the making of any Investment (other
than a Permitted Investment) in any Person.

"Restricted Subsidiary" means any Subsidiary of the Issuer that is a
Subsidiary on the Issue Date and any other Subsidiary that is not an
Unrestricted Subsidiary.
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"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Issuer or a Restricted Subsidiary
transfers such property to a Person and the Issuer or a Restricted Subsidiary
leases it from such Person.

"SEC" means the Securities and Exchange Commission.

"Senior Indebtedness" of a Person means (i) Indebtedness of such Person,
whether outstanding on the Issue Date or thereafter Incurred, and (ii) accrued
and unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to such Person to the
extent post-filing interest is allowed in such proceeding) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable unless, in the case of (i) and (ii), in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinate in right of
payment to the Notes; provided, however, that Senior Indebtedness shall not
include (1) any obligation of the Issuer to any Subsidiary or of any Subsidiary
Guarantor to the Issuer or any other Subsidiary, (2) any liability for Federal,
state, local or other taxes owed or owing by such Person, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of such Person (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect to
any other Indebtedness or other obligation of such Person or (5) that portion of
any Indebtedness which at the time of Incurrence is Incurred in violation of the
Indenture.

"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Issuer within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.

"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).

"Subordinated Obligation" means any Indebtedness of the Issuer (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect.

"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.

"Subsidiary Guarantor" means each Subsidiary of the Issuer that is a
Subsidiary on the Issue Date (other than certain Immaterial Subsidiaries) and
any other Subsidiary that Guarantees the Issuer's obligations with respect to
the Notes.

"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the
Issuer's obligations with respect to the Notes.

"Temporary Cash Investments" means any of the following:

(i) any investment in direct obligations of the United States of
America or any agency thereof or obligations guaranteed by the United
States of America or any agency thereof,

(ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 360 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided

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profits aggregating in excess of $50,000,000 (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor,

(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above,

(iv) investments in commercial paper, maturing not more than 360 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Issuer) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings
Group,

(v) investments in split dollar life insurance policies on various
officers, directors and shareholders of the Issuer and its Subsidiaries in
the ordinary course of business consistent with past practices, and

(vi) investments in securities with maturities of 12 months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by Standard & Poor's Ratings Group or "A" by Moody's Investors Service,
Inc.

"Unrestricted Subsidiary" means (i) any Subsidiary of the Issuer that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
(other than Subsidiary Guarantors) of the Issuer (including any newly acquired
or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of,
or holds any Lien on any property of, the Issuer or any other Subsidiary of the
Issuer that is not a Subsidiary of the Subsidiary to be so designated; provided,
however, that either (A) the Subsidiary to be so designated has total assets of
$1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such
designation would be permitted under the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments". The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after giving effect to such designation (x) the Issuer
could Incur $1.00 of additional Indebtedness under paragraph (a) of the covenant
described under "-- Certain Covenants -- Limitation on Indebtedness" and (y) no
Default shall have occurred and be continuing. Any such designation by the Board
of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.

"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.

"Vendor Financing" means Indebtedness Incurred to finance the cost to
acquire inventory to the extent such Indebtedness is issued to and held by the
supplier of such inventory.

"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof. The "voting power"
of Voting Stock means the number of votes which such Voting Stock is normally
entitled (without regard to the occurrence of any contingency) to vote in such
an election.

"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Issuer
or one or more Wholly Owned Subsidiaries.

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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of the material United States federal income tax
consequences generally applicable to the exchange of Old Notes for New Notes and
the ownership and disposition of Notes. The federal income tax considerations
set forth below are based upon currently existing provisions of the Code,
applicable Treasury Regulations ("Treasury Regulations"), judicial authority,
and current administrative rulings and pronouncements of the Internal Revenue
Service (the "IRS"). There can be no assurance that the IRS will not take a
contrary view, and no ruling from the IRS has been, or will be, sought on the
issues discussed herein. Legislative, judicial, or administrative changes or
interpretations may be forthcoming that could alter or modify the statements and
conclusions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences discussed below.

As used in this summary, "Note" means either a New Note or an Old Note,
and, where the context so requires, "the Note" or "such Note" includes a Note
for which a relevant Note was exchanged pursuant to the Exchange Offer.

As used in this summary, the term "U.S. Holder" means the beneficial owner
of a Note that is for U.S. federal income tax purposes (i) an individual citizen
or resident of the United States, (ii) a corporation or other entity taxable as
a corporation created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income tax regardless of its source, (iv) a
trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust or (v) a person
whose worldwide income and gain is otherwise subject to U.S. federal income tax
on a net income basis . The term "Non-United States Holder" means an owner of a
Note that is not a U.S. Holder.

The summary is not a complete analysis or description of all potential
federal tax considerations that may relevant to, or of the actual tax effect
that any of the matters described herein will have on, particular U.S. Holders
and Non-United States Holders (collectively, "Holders"), and does not address
foreign, state, local or other tax consequences. This summary does not address
the federal income tax consequences to (a) special classes of taxpayers (such as
S corporations, mutual funds, insurance companies, financial institutions, small
business investment companies, regulated investment companies, real estate
investment trusts, dealers in securities or currencies, broker-dealers and
tax-exempt organizations) who are subject to special treatment under the federal
income tax laws, (b) Holders that hold Notes as part of a position in a
"straddle," or as part of a "hedging," "conversion," or other integrated
investment transaction for federal income tax purposes, (c) Holders that do not
hold the Notes as capital assets within the meaning of section 1221 of the Code,
(d) Holders whose functional currency is not the U.S. dollar or (e) Holders that
did not purchase the Old Notes for cash at original issue. Furthermore, estate
and gift tax consequences are not discussed herein.

BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF THE NOTES IS
STRONGLY URGED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO HIS OR HER
PARTICULAR TAX SITUATION AND AS TO ANY FEDERAL, FOREIGN, STATE, LOCAL OR OTHER
TAX CONSIDERATIONS (INCLUDING ANY POSSIBLE CHANGES IN TAX LAW) AFFECTING THE
PURCHASE, HOLDING AND DISPOSITION OF THE NOTES.

TAX CONSEQUENCES TO U.S. HOLDERS

Interest

Generally, interest paid on the Notes will be taxable to a U.S. Holder as
ordinary income at the time it accrues or is received in accordance with such
U.S. Holder's method of accounting for U.S. federal income tax purposes.

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Tax Consequences of the Exchange Offer

The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be a taxable event for U.S. federal income tax purposes. As a result,
there should be no U.S. federal income tax consequences to the U.S. Holders
exchanging the Old Notes for the New Notes pursuant to the Exchange Offer, and a
U.S. Holder should have the same tax basis and holding period in the New Notes
as the Old Notes.

Disposition of the Notes

Upon the sale, exchange or retirement of a Note, a U.S. Holder will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (except to the extent attributable
to accrued interest, which will be taxable as ordinary interest income) and such
U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis
in a Note will generally equal the U.S. Holder's purchase price for such Note
(net of accrued interest) less any principal payments received by the U.S.
Holders. Gain or loss realized on the sale, exchange or retirement of a Note
generally will constitute capital gain or loss and will constitute long-term
capital gain or loss if the underlying Note has been held by a U.S. Holder for
more than 12 months as of the date of such disposition (the "Disposition Date").
Capital gains of individuals derived with respect to capital assets held for
more than one year are eligible for reduced rates of taxation. The deduction of
capital losses is subject to certain limitations. Prospective investors should
consult their tax advisors regarding the treatment of capital gains and losses.

Backup Withholding

Under section 3406 of the Code and applicable Treasury Regulations, a
noncorporate U.S. Holder of the Notes may be subject to backup withholding at
the rate of 31 percent with respect to "reportable payments," which include
interest paid on or the proceeds of a sale, exchange or redemption of, the
Notes. The payor will be required to deduct and withhold the prescribed amounts
if (i) the payee fails to furnish a correct Taxpayer Identification Number
("TIN") to the payor in the manner required, (ii) the IRS notifies the payor
that the TIN furnished by the payee is incorrect, (iii) there has been a
"notified payee underreporting" described in section 3406(c) of the Code or (iv)
there has been a failure of the payee to certify under penalties of perjury that
the payee is not subject to withholding under section 3406(a)(1)(C) of the Code.
As a result, if any one of the events listed above occurs, the payor will be
required to withhold an amount equal to 31 percent from any interest payment
made with respect to the Notes or any payment of proceeds of a redemption of the
Notes to a noncorporate U.S. Holder. Amounts paid as backup withholding do not
constitute an additional tax and will be credited against the U.S. Holder's
federal income tax liability, so long as the required information is provided to
the IRS. The payor generally will report to the U.S. Holders of the Notes and to
the IRS the amount of any "reportable payments" for each calendar year and the
amount of tax withheld, if any, with respect to payment on those securities.

TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS

Interest paid by the issuer to a Non-United States Holder will not be
subject to United States federal income or withholding tax if such interest is
not effectively connected with the conduct of a trade or business within the
United States (or a permanent establishment therein, if a tax treaty applies) by
such Non-United States Holder and such Non-United States Holder (i) does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Issuer; (ii) is not a controlled foreign corporation
that is related to the Issuer through stock ownership; (iii) is not a bank whose
receipt of interest on a Note is described in Section 881(c)(3)(A) of the Code;
and (iv) certifies, under penalties of perjury, that such Holder is not a United
States person and provides the Issuer or its paying agent with such Holder's
name and address or a securities clearing organization, bank, or other financial
institution that holds customers' securities in the ordinary course of its trade
or business certifies, under penalties of perjury, that such certification and
information has been received by it or a qualifying intermediary from the
Non-United States Holder and furnished the Issuer with a copy thereof.

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If a Non-United States Holder of a Note is engaged in a trade or business
in the United States, and if interest on the Note (or gain realized on its sale,
exchange or other disposition) is effectively connected with the conduct of such
trade or business, the Non-United States Holder, although exempt from the
withholding tax discussed in the preceding paragraph, will generally be subject
to regular United States Income tax on such effectively connected income in the
same manner as if it were a U.S. Holder. See "U.S. Holders" above. Such Holder
will be required to provide to the withholding agent a properly executed IRS
Form 4224 (or, after December 31, 1999, a Form W-8) to claim an exemption from
withholding tax. In addition, if such Non-United States Holder is a foreign
corporation, it may be subject to a 30% branch profits tax (unless reduced or
eliminated by an applicable treaty) of its effectively connected earnings and
profits from the taxable year, subject to certain adjustments. For purposes of
the branch profits tax, interest on, and any gain recognized on the sale,
exchange or other disposition of, a Note will be included in the effectively
connected earnings and profits of such Non-United States Holder if such interest
or gain, as the case may be, is effectively connected with the conduct by the
Non-United States Holder of a trade or business in the United States.

Gain on Disposition

A Non-United States Holder will generally not be subject to United States
federal income tax on gain recognized on a sale, redemption or other disposition
of a Note unless (i) the gain is effectively connected with the conduct of a
trade or business within the United States (or a permanent establishment
therein, if a tax treaty applies) by Non-United States Holder, (ii) in the case
of a Non-United States Holder who is a nonresident alien individual and holds
the Note as a capital asset, such Holder is present in the United States for 183
or more days in the taxable year and certain other requirements are met or (iii)
the Holder is subject to tax pursuant to the provisions of the Code applicable
to certain United States expatriates.

Information Reporting and Backup Withholding

The Issuer will, where required, report to the Non-United States Holders of
Notes and the IRS the amount of any interest paid on the Notes in each calendar
year and the amounts of tax withheld, if any, with respect to such payments.
Copies of those information returns also may be made available, under the
provisions of a specific treaty or agreement, to the taxing authorities of the
country in which the Non-U.S. Holder resides or is incorporated.

In the case of payments of interest to Non-United States Holders, Treasury
regulations provide that the 31% backup withholding tax and certain information
reporting will not apply to such payments with respect to which either the
requisite certification, as described above, has been received or an exemption
has otherwise been established; provided that neither the Issuer nor its payment
agent has actual knowledge that the Non-United States Holder is a United States
person or that the conditions of any other exemption are not in fact satisfied.
Under Treasury regulations, these information reporting and backup withholding
requirements will apply, however, to the gross proceeds paid to a Non-United
States Holder on the disposition of the Notes by or through a United States
office of a United States or foreign broker, unless such Holder certifies to the
broker under penalties of perjury as to its name, address and status as a
foreign person or the Holder otherwise establishes an exemption provided that
the broker does not have actual knowledge that such Holder is a U.S. person or
that the conditions of an exemption are not in fact satisfied. Information
reporting requirements, but not backup withholding, will also apply to a payment
of the proceeds of a disposition of the Notes by or through a foreign office of
a United States broker or foreign brokers with certain types of relationships to
the United States unless such broker has documentary evidence in its file that
the Non-United States Holder of the Notes is not a United States person, and
such broker has no actual knowledge to the contrary, or the Non-United States
Holder establishes an exemption. Neither information reporting nor backup
withholding generally will apply to a payment of the proceeds of a disposition
of the Notes by or through a foreign office of a foreign broker not subject to
the preceding sentence.

The Treasury Department recently adopted regulations regarding the
withholding and information reporting rules discussed above. In general, the
final regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify reliance standards. These regulations will become effective for payments
made after December 31, 1999, subject to certain transition rules.

116
<PAGE> 120

PLAN OF DISTRIBUTION

Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "affiliate" (as defined
in Rule 405 of the Securities Act) of the Company or any Subsidiary Guarantor
(ii) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a distribution
of the New Notes and (iii) it is acquiring the New Notes in the ordinary course
of its business. A Restricted Holder will not be able to participate in the
Exchange Offer and may only sell its Old Notes pursuant to a registration
statement containing the selling security holder information required by Item
507 of Regulation S-K under the Securities Act, or pursuant to an exemption from
the registration requirement of the Securities Act.

Each Participating Broker-Dealer must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such New Notes. Based upon interpretations by the staff of the Commission, the
Company believes that New Notes issued pursuant to the Exchange Offer to
Participating Broker-Dealers may be offered for resale, resold, and otherwise
transferred by a Participating Broker-Dealer upon compliance with the prospectus
delivery requirements, but without compliance with the registration
requirements, of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any Participating Broker-Dealer for use in connection with any such
resale. If the Company is not so notified by any Participating Broker-Dealers
that they may be subject to such requirements or if it is later notified by all
such Participating Broker-Dealers that they are no longer subject to such
requirements, the Company will not be required to maintain the effectiveness of
the Exchange Offer Registration Statement or to amend or supplement this
Prospectus following the consummation of the Exchange Offer or following such
date of notification, as the case may be. The Company believes that during such
period of time, delivery of this Prospectus, as it may be amended or
supplemented, will satisfy the prospectus delivery requirements of a
Participating Broker-Dealer engaged in market-making or other trading
activities.

Based on interpretations by the staff of the Commission, the Company
believes that New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold, and other transferred by a Holder thereof (other than a
Restricted Holder or a Participating Broker-Dealer) without compliance with the
registration and prospectus delivery requirements of the Securities Act.

The Company will not receive any proceeds from any sale of New Notes by
broker-dealers (including Participating Broker-Dealers). New Notes received by
Participating Broker-Dealers for their own accounts pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-the-
counter market, in negotiated transactions, through the writing of options on
the New Notes or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly to purchasers
or to or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating Broker-Dealer and/or the
purchasers of any such New Notes. Any Participating Broker-Dealer that resells
New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.

The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.

By acceptance of the Exchange Offer, each Participating Broker-Dealer that
receives New Notes pursuant to the Exchange Offer hereby agrees to notify the
Company prior to using the Prospectus in
117
<PAGE> 121

connection with the sale or transfer of New Notes, and acknowledges and agrees
that, upon receipt of notice from the Company of the happening of any event that
makes any statement in the Prospectus untrue in any material respect or which
requires the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such Participating Broker-Dealer), such Participating Broker-Dealer
will suspend use of the Prospectus until the Company has amended or supplemented
the Prospectus to correct such misstatement or omission and has furnished copies
of the amended or supplemented prospectus to such Participating Broker-Dealer.

LEGAL MATTERS

The validity of the New Notes will be passed upon on behalf of the Issuer
by Howard, Smith & Levin LLP, New York, New York.

EXPERTS

The consolidated financial statements of Heafner as of December 31, 1996
and 1997 and for each of the three years in the period ended December 31, 1997
included in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts (or, as experts in
accounting and auditing) in giving said reports.

The financial statements of Winston for each of the three years in the
period ended September 30, 1996 included in this Prospectus have been audited by
Deloitte & Touche, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.

The consolidated financial statements of ITCO as of September 30, 1996 and
1997 and for the year ended September 30, 1997 and the period from inception
(November 13, 1995) to September 30, 1996 included in this Prospectus and the
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their respective report thereon appearing elsewhere
herein, and is included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing. The consolidated financial
statements of ITCO Holding Company, Inc. for the year ended September 30, 1995
included in this Prospectus have been audited by Deloitte & Touche, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.

The financial statements of CPW as of October 31, 1996 and 1997 and for
each of the years in the three-year period ended October 31, 1997 included in
this Prospectus have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, as stated in their report appearing herein.

118
<PAGE> 122

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE J.H. HEAFNER COMPANY, INC. -- CONSOLIDATED FINANCIAL
STATEMENTS
Report of Independent Public Accountants.................... F-3
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-4
Consolidated Statements of Operations for the three years
ended December 31, 1997................................... F-5
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1997....................... F-6
Consolidated Statements of Cash Flows for the three years
ended December 31, 1997................................... F-7
Notes to Consolidated Financial Statements.................. F-8

THE J.H. HEAFNER COMPANY, INC. -- UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997..................................... F-21
Condensed Consolidated Statements of Operations for the six
month periods ended June 30, 1998 and 1997................ F-22
Condensed Consolidated Statements of Stockholders' Equity
for the six month period ended June 30, 1998.............. F-23
Condensed Consolidated Statements of Cash Flows for the six
month periods ended June 30, 1998 and 1997................ F-24
Notes to Condensed Consolidated Financial Statements........ F-25

OLIVER & WINSTON, INC. -- FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-30
Statements of Operations and Retained Earnings for the
three-year period ended September 30, 1996................ F-31
Statements of Cash Flows for the three-year period ended
September 30, 1996........................................ F-32
Notes to Financial Statements............................... F-33

OLIVER & WINSTON, INC. -- UNAUDITED CONDENSED FINANCIAL
STATEMENTS
Condensed Balance Sheet as of March 31, 1997................ F-38
Condensed Statements of Operations for the six-month periods
ended March 31, 1997 and 1996............................. F-39
Condensed Statements of Stockholders' Equity for the
six-month periods ended March 31, 1997 and 1996........... F-40
Condensed Statements of Cash Flows for the six-month periods
ended March 31, 1997 and 1996............................. F-41
Notes to Condensed Financial Statements..................... F-42

ITCO LOGISTICS CORPORATION AND SUBSIDIARIES -- CONSOLIDATED
FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-48
Consolidated Balance Sheets as of September 30, 1997 and
1996...................................................... F-49
Consolidated Statements of Operations for the year then
ended September 30, 1997 and for the period from inception
(November 13, 1995) to September 30, 1996................. F-50
Consolidated Statements of Shareholders' Deficit for the
year ended September 30, 1997 and for the period from
inception (November 13, 1995) to September 30, 1996....... F-51
Consolidated Statements of Cash Flows for the year ended
September 30, 1997 and for the period from inception
(November 13, 1995) to September 30, 1996................. F-52
Notes to Consolidated Financial Statements.................. F-53
</TABLE>

F-1
<PAGE> 123

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITCO HOLDING COMPANY AND SUBSIDIARIES -- CONSOLIDATED
FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-62
Consolidated Statements of Earnings for the year ended
September 30, 1995........................................ F-63
Consolidated Statement of Stockholders' Equity for the year
ended September 30, 1995.................................. F-64
Consolidated Statement of Cash Flows for the year ended
September 30, 1995........................................ F-65
Notes to Consolidated Financial Statements.................. F-66

ITCO LOGISTICS CORPORATION AND SUBSIDIARIES -- UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheet as of May 20, 1998..... F-69
Unaudited Consolidated Statement of Operations for the
eight-month periods ended May 20, 1998 and May 31, 1997... F-70
Unaudited Consolidated Statements of Shareholders' Deficit
for the eight-month periods ended May 20, 1998 and May 31,
1997...................................................... F-71
Unaudited Consolidated Statement of Cash Flows for the
eight-month periods ended May 20, 1998 and May 31, 1997... F-72
Notes to Unaudited Interim Consolidated Financial
Statements................................................ F-73

THE SPEED MERCHANT, INC. (FORMERLY THE SPEED MERCHANT, INC.
AND SUBSIDIARY) -- FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-74
Balance Sheets as of October 31, 1996 and 1997 and April 30,
1998 (Unaudited).......................................... F-75
Statements of Income and Retained Earnings for each of the
years in the three-year period ended October 31, 1997 and
for the six-month periods ended April 30, 1997 and 1998
(Unaudited)............................................... F-76
Statements of Cash Flows for each of the years in the
three-year period ended October 31, 1997 and for the
six-month periods ended April 30, 1997 and 1998
(Unaudited)............................................... F-77
Notes to Financial Statements............................... F-78
</TABLE>

F-2
<PAGE> 124

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
The J. H. Heafner Company, Inc. and Subsidiary:

We have audited the accompanying consolidated balance sheets of The J. H.
Heafner Company, Inc. (a North Carolina Corporation) and subsidiary as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements and schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The J. H.
Heafner Company, Inc. and subsidiary as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Charlotte, North Carolina,
March 11, 1998.

F-3
<PAGE> 125

THE J.H. HEAFNER COMPANY, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 2,502,286 $ 1,006,062
Accounts receivable, less allowance for doubtful accounts
of $400,000 and $200,000 in 1997 and 1996,
respectively........................................... 31,809,291 21,843,162
Inventories............................................... 41,529,430 20,399,616
Deferred tax assets....................................... 2,101,624 0
Prepaid expenses and other current assets................. 1,085,381 642,099
------------ -----------
Total current assets................................... 79,028,012 43,890,939
------------ -----------
Property and equipment, at cost:
Land...................................................... 1,639,367 1,115,469
Buildings and leasehold improvements...................... 14,500,615 10,004,829
Machinery and equipment................................... 10,924,751 1,555,149
Furniture and fixtures.................................... 6,335,726 4,400,802
Vehicles and other........................................ 1,720,271 1,788,659
------------ -----------
35,120,730 18,864,908
Less -- Accumulated depreciation.......................... (9,129,642) (6,400,518)
------------ -----------
25,991,088 12,464,390
------------ -----------
Goodwill, net............................................... 34,978,580 0
Deferred tax assets......................................... 1,655,079 0
Other assets................................................ 4,855,519 3,196,046
------------ -----------
$146,508,278 $59,551,375
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 43,456,901 $24,213,345
Accrued expenses.......................................... 12,409,878 2,281,253
Current maturities of long-term debt...................... 2,579,316 483,014
------------ -----------
Total current liabilities.............................. 58,446,095 26,977,612
------------ -----------
Revolving credit facility................................... 31,948,605 13,544,039
------------ -----------
Long-term debt.............................................. 15,161,397 6,975,490
------------ -----------
Other liabilities........................................... 5,687,157 480,716
------------ -----------
Subordinated debt........................................... 14,969,000 0
------------ -----------
Redeemable Preferred stock series A -- 4% cumulative, 7,000
shares authorized, issued and outstanding................. 7,000,000 0
------------ -----------
Redeemable Preferred stock series B -- variable rate
cumulative, 4,500 shares authorized, issued and
outstanding............................................... 4,500,000 0
------------ -----------
Warrants.................................................... 1,137,400 0
------------ -----------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 and $100 per share in 1997
and 1996, respectively; authorized 10,000,000 and 5,000
shares; 3,691,000 and 2,080 shares issued and
outstanding in 1997 and 1996, respectively............. 36,910 208,000
Additional paid in capital................................ 7,255,190 0
Notes receivable from stock sales......................... (247,500) 0
Retained earnings......................................... 614,024 11,365,518
------------ -----------
7,658,624 11,573,518
------------ -----------
$146,508,278 $59,551,375
============ ===========
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-4
<PAGE> 126

THE J.H. HEAFNER COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales......................................... $311,838,506 $190,535,412 $169,031,156
Cost of goods sold................................ 233,940,589 158,880,254 140,810,888
------------ ------------ ------------
Gross profit................................. 77,897,917 31,655,158 28,220,268
General, selling and administrative expenses...... 74,441,386 29,660,119 26,584,266
------------ ------------ ------------
Income from operations....................... 3,456,531 1,995,039 1,636,002
------------ ------------ ------------
Other income (expense):
Interest expense................................ (4,841,790) (1,465,259) (1,308,388)
Interest income................................. 606,409 491,237 334,161
Other income.................................... 525,422 30,116 27,738
------------ ------------ ------------
Income (loss) from operations before benefit for (253,428) 1,051,133 689,513
income taxes....................................
Benefit for income taxes (Notes 1 and 6)........ 239,829 0 0
------------ ------------ ------------
Net (loss) income................................. (13,599) 1,051,133 689,513
Pro forma provision for income taxes (Notes 1 and 0 (439,000) (325,000)
6)..............................................
------------ ------------ ------------
Pro forma net income (loss).................. $ (13,599) $ 612,133 $ 364,513
============ ============ ============
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE> 127

THE J.H. HEAFNER COMPANY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
NOTES
RECEIVABLE
COMMON STOCK ADDITIONAL FROM
--------------------- PAID-IN STOCK RETAINED
SHARES AMOUNT CAPITAL SALES EARNINGS TOTAL
--------- --------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994, as
previously reported............... 2,080 $ 208,000 $ 0 $ 0 $ 9,704,001 $ 9,912,001
Retroactive effect on prior years of
change in accounting principle.... 0 0 0 0 1,727,722 1,727,722
--------- --------- ---------- --------- ----------- -----------
Balance, December 31, 1994,
as restated....................... 2,080 208,000 0 0 11,431,723 11,639,723
Net income.......................... 0 0 0 0 689,513 689,513
Dividends........................... 0 0 0 0 (609,864) (609,864)
--------- --------- ---------- --------- ----------- -----------
Balance, December 31, 1995.......... 2,080 208,000 0 0 11,511,372 11,719,372
Net income.......................... 0 0 0 0 1,051,133 1,051,133
Dividends........................... 0 0 0 0 (1,196,987) (1,196,987)
--------- --------- ---------- --------- ----------- -----------
Balance, December 31, 1996.......... 2,080 208,000 0 0 11,365,518 11,573,518
Net (loss).......................... 0 0 0 0 (13,599) (13,599)
Dividends........................... 0 0 0 0 (1,193,603) (1,193,603)
Repurchase of common shares......... (1,024) (102,400) 0 0 (2,605,292) (2,707,692)
Stock split......................... 3,464,944 (70,940) 70,940 0 0 0
Shares issued for notes
receivable........................ 225,000 2,250 245,250 (247,500) 0 0
Reclassification of S Corporation
retained earnings to additional
paid-in capital (Note 1).......... 0 0 6,939,000 0 (6,939,000) 0
--------- --------- ---------- --------- ----------- -----------
Balance, December 31, 1997.......... 3,691,000 $ 36,910 $7,255,190 $(247,500) $ 614,024 $ 7,658,624
========= ========= ========== ========= =========== ===========
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE> 128

THE J.H. HEAFNER COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income....................................... $ (13,599) $ 1,051,133 $ 689,513
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities, net of
Winston acquisition --
Depreciation and amortization......................... 5,399,363 1,331,460 1,062,301
Deferred taxes........................................ (527,514) 0 0
(Gain) loss on sale of property and equipment......... (114,393) (390,266) 7,626
Loss on investment.................................... 0 0 75,000
Change in assets and liabilities:
Accounts receivable, net........................... (5,758,490) (1,671,892) (3,351,060)
Inventories, net................................... (2,376,988) 4,955,559 (6,143,421)
Prepaid expenses and other current assets.......... 199,722 (136,202) (120,410)
Accounts payable and accrued expenses.............. 9,580,874 (1,145,008) 7,443,579
Other.............................................. 314,255 13,672 (25,726)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING 6,703,230 4,008,456 (362,598)
ACTIVITIES.......................................
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Winston, net of cash acquired.......... (42,194,588) 0 0
Purchase of property and equipment.................... (4,908,021) (7,865,313) (2,205,426)
Proceeds from sale of property and equipment.......... 363,031 1,089,970 761,268
Purchases of real estate held for sale................ 0 (541,860) (513,570)
Other................................................. 281,051 (309,146) (242,565)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (46,458,527) (7,626,349) (2,200,293)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.............. 28,000,000 6,447,000 1,350,000
Net proceeds from revolving credit facility and other 18,404,566 1,429,039 1,887,300
notes..............................................
Proceeds from issuance of preferred stock............. 11,500,000 0 0
Principal payments on long-term debt.................. (10,557,878) (2,505,895) (120,320)
Cash paid for stock repurchase........................ (2,707,692) 0 0
Cash paid for financing costs......................... (2,377,828) 0 0
Cash dividends paid................................... (1,193,603) (1,196,987) (609,864)
Collection (issuance) of notes receivable, net........ 183,956 (461,780) 122,653
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 41,251,521 3,711,377 2,629,769
NET INCREASE IN CASH.................................... 1,496,224 93,484 66,878
Cash, beginning of year................................. 1,006,062 912,578 845,700
----------- ----------- -----------
Cash, end of year....................................... $ 2,502,286 $ 1,006,062 $ 912,578
=========== =========== ===========
Supplemental disclosures of cash flow information--Cash $ 3,585,000 $ 1,428,000 $ 1,288,000
payments for--Interest................................
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
During 1997, the Company received $2,643,000 in accounts
payable credits from a vendor in exchange for a note
payable.
In connection with the issuance of Subordinated Debt
(Note 8), the Company issued detachable warrants,
which resulted in a discount on the Senior
Subordinated Debt in the amount of $1,137,400.
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
<PAGE> 129

THE J.H. HEAFNER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF BUSINESS

The J. H. Heafner Company, Inc. (the Company), a North Carolina
corporation, is engaged in the wholesale distribution of tires and tire
accessories. The Company sells primarily to retail distributors throughout the
southeastern United States. In May 1997, the Company acquired all outstanding
shares of common stock of Oliver and Winston, Inc. (Winston), a California-based
operation of 175 retail tire and automotive service centers in California and
Arizona (Note 2).

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.

ACCOUNTING CHANGE

During 1997, the Company changed its method of determining the cost of
inventories from the last-in, first-out (LIFO) method to the first-in, first-out
(FIFO) method. Under the current economic environment of low inflation, the
Company believes that the FIFO method will result in a better measurement of
operating results and a better matching of costs with product sales. This change
has been applied by retroactively restating the accompanying financial
statements for prior years. The balances of retained earnings for the years
ended December 31, 1996 and 1995, have been adjusted for the effect of applying
retroactively the new method of valuing inventories. The following summarizes
the effect on net income of changing the accounting method for valuing
inventories.

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net income, as previously reported.......................... $1,919,306 $ 384,536
Effect of change in accounting method for inventories....... (868,173) 304,977
---------- ----------
Net income, as restated..................................... $1,051,133 $ 689,513
========== ==========
</TABLE>

For income tax reporting purposes, the income from the change in accounting
method will be recognized on a straight-line basis over a six-year period.

CASH AND CASH EQUIVALENTS

The Company includes cash, demand deposits and highly liquid investments
with maturities of less than three months in cash and cash equivalents in its
consolidated financial statements.

REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK

For its wholesale operations, the Company recognizes revenue upon shipment
from its distribution centers/warehouse to the customer. For its retail
operations, the Company recognizes revenue at the point of sale.

In the normal course of business, the Company extends credit, on open
accounts, to its customers after performing a credit analysis based on a number
of financial and other criteria. The Company performs ongoing credit evaluations
of its customers financial conditions and does not normally require collateral,
however, letters of credit and other security are occasionally required for
certain new and existing customers.

F-8
<PAGE> 130
THE J.H. HEAFNER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995

Allowances are maintained for potential credit losses and such losses have been
within management's expectations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash, accounts receivable, other current assets, accounts payable and
accrued liabilities are reflected in the financial statements at fair value
because of the short-term maturity of those instruments. A reasonable estimate
of the fair values of the Company's notes receivable, for which there are no
quoted market prices, could not be made without incurring excessive costs. The
fair values of the Company's cash value of life insurance and debt are disclosed
in Notes 3 and 7, respectively. The fair value of the Company's interest rate
swaps is disclosed in Note 7.

INVENTORIES

Inventories consist primarily of automotive tires, wheels, parts and
accessories and are valued at the lower of cost, determined on the first-in,
first-out (FIFO) method or market.

PROPERTY AND EQUIPMENT

Depreciation is determined by using a combination of the straight-line
method and declining-balance method based on the following estimated useful
lives:

<TABLE>
<S> <C>
Building and leasehold improvements........................ 10-39 years
Service equipment.......................................... 5-10 years
Furniture and equipment.................................... 5-7 years
Vehicles................................................... 4-5 years
</TABLE>

Expenditures for repairs and maintenance are charged to expense as
incurred. Renewals or improvements of significant items are capitalized. When
assets are sold or otherwise disposed of, the cost and related accumulated
depreciation or amortization are removed from the respective accounts and any
resulting gain or loss is recognized.

DEFERRED FINANCING COSTS

Costs incurred in connection with financing activities (Notes 6, 7 and 8),
are capitalized and amortized using the effective interest method and charged to
interest expense in the accompanying consolidated statements of operations.
Total costs deferred and included in other assets in the accompanying
consolidated balance sheet were $2,378,000 at December 31, 1997.

LONG-LIVED ASSETS

During 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." This statement requires that
long-lived assets and certain identifiable intangible assets to be held and used
by an entity be reviewed for impairment whenever events occur which indicate
that the carrying amount of the asset might not be recoverable. The review
should assess fair value based on estimated future cash flows expected from the
use and disposition of the asset. The asset should be reported at the lower of
carrying amount or fair value less cost to sell. The adoption of SFAS No. 121
did not have a material effect on the Company's results of operations.

F-9
<PAGE> 131
THE J.H. HEAFNER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995

GOODWILL

Goodwill, which represents the excess of the purchase price over the fair
value of the net assets of Winston is being amortized on a straight-line basis
over a period of 15 years. Amortization of goodwill applicable to continuing
operations for 1997 was $1,548,000. The carrying value of goodwill will be
reviewed periodically based on the nondiscounted cash flows and pretax income of
the acquired entity over the remaining amortization period. Should this review
indicate that the goodwill balance will not be recoverable, the Company's
carrying value of the goodwill will be reduced. At December 31, 1997, the
Company believes goodwill of $34,979,000 is fully recoverable.

INCOME TAXES

In connection with the Winston acquisition in May 1997, the Company
terminated its S Corporation status for federal and state income tax purposes.
Accordingly, the Company has adopted the provisions of SFAS 109 "Accounting for
Income Taxes." This statement requires the use of asset and liability method of
accounting for deferred income taxes. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
reporting purposes, at the applicable enacted tax rates.

In connection with the Company's S Corporation termination, the Company
reclassified its undistributed S Corporation earnings of $6,939,000 as of May 7,
1997, to additional paid-in capital.

The pro forma provision for income taxes in the accompanying statements of
operations for the years ended December 31, 1996 and 1995, reflect the pro forma
effect of income taxes as if the Company had been taxed as a C Corporation for
those periods. The pro forma effect of income taxes for the period from January
1, 1997 to May 7, 1997 was not significant.

STOCK OPTION PLAN

The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Accordingly,
compensation expense is being recognized on the date of grant only if the
current market price of the underlying stock exceeds the exercise price. The
Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
which permits entities to recognize, as expense over the vesting period, the
fair value of all stock-based awards on the date of grant, but also allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income disclosures for employee stock option grants made in 1997
and future years as if the fair-value based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provision of APB
Opinion No. 25 and provide the pro forma disclosure provision of SFAS No. 123.

DEFERRED COMPENSATION

The Company has unfunded deferred compensation agreements with certain
officers and other key employees. The agreements provide for monthly payments
beginning at age 58 and continuing for 10 years. The Company also has unfunded
deferred compensation agreements with two former employees. Vested benefits
under these agreements are payable in installments over a 15-year period, upon
death or retirement. The present value of the liability for these benefits
($3,047,000) has been accrued over the term of the active service of the
employees.

F-10
<PAGE> 132
THE J.H. HEAFNER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995

SELF-INSURANCE COVERAGE

Prior to June 1, 1994, Winston (see Note 2) maintained self-insurance for
its worker's compensation program which was terminated on June 1, 1994.
Winston's self insurance reserve which amounted to $2,020,000 at December 31,
1997, has been determined based on a certified estimate from an independent
actuary for claims incurred on or before June 1, 1994. These estimates are
reviewed periodically and are subject to the impact of future changes in such
factors as claim severity and frequency. While management believes that the
amounts are fairly stated, the ultimate liability may be in excess of or less
than the amounts provided, and any adjustments will be reflected in the periods
in which they become known.

DEFERRED SERVICE AND WARRANTY REVENUE

The Company defers a portion of revenue from the sale of service and
warranty contracts. Deferred service revenue is recognized over the estimated
lives of such contracts. Warranty revenue is recognized in proportion to costs
incurred in satisfaction of the terms of such contracts.

Deferred service and warranty revenue is included in other long-term
liabilities in the accompanying consolidated balance sheet to the extent that
the deferred revenue is estimated to be recognized in income beyond the next
fiscal year. Deferred revenue estimated to be recognized in income during the
next fiscal year is included in accrued expenses in the accompanying
consolidated balance sheet.

INTEREST RATE SWAPS

The Company periodically enters into interest rate swap agreements to
manage exposure to fluctuations in interest rates. The swap agreements represent
contracts to exchange floating rate for fixed interest payments periodically
over the life of the agreements without exchange of the underlying notional
amounts. The notional amounts of interest rate agreements are used to measure
interest to be paid or received and do not represent the amount of exposure to
credit loss. The differential paid or received on interest rate agreements is
recognized as an adjustment to interest expense.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain 1996 and 1995 amounts have been reclassified to conform with the
1997 presentation.

2. ACQUISITION:

On May 7, 1997, the Company acquired all outstanding shares of common stock
of Oliver and Winston, Inc. (Winston), a California-based operator of retail
tire and automotive service centers, for approximately $43,133,000, consisting
of $42,447,000 in cash and $686,000 in direct acquisition costs. The acquisition
was funded primarily through proceeds from a revolving credit facility with a
bank ($3,633,000), proceeds from a term loan with a bank ($12,000,000), issuance
of 12% Senior Subordinated Notes ($16,000,000) and issuance of Series A and
Series B preferred stock ($11,500,000).

F-11
<PAGE> 133
THE J.H. HEAFNER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995

The acquisition has been accounted for as a purchase and, accordingly, the
operating results of Winston have been included in the Company's consolidated
financial statements since May 7, 1997.

A summary of the purchase price and preliminary purchase price allocation
follows:

<TABLE>
<S> <C>
Purchase price--
Cash..................................................... $42,447,000
Direct acquisition costs................................. 686,000
----------
Total purchase price.................................. $43,133,000
==========
Preliminary purchase price allocation--
Current assets........................................... $26,426,000
Current liabilities...................................... (26,466,000)
----------
(40,000)
Property, plant and equipment............................ 12,291,000
Goodwill................................................. 36,527,000
Other assets............................................. 1,786,000
Other noncurrent liabilities............................. (7,431,000)
----------
Cash paid for common stock............................... $43,133,000
==========
</TABLE>

In connection with the acquisition, the Company recorded a reserve of
approximately $1.4 million for estimated costs related to employee severance and
other exit activities in accordance with EITF 95-3, "Recognition of Liabilities
in Connection with a Purchase Business Combination." As of December 31, 1997,
the Company had charged approximately $400,000 to this reserve.

Prior to the acquisition, Winston had a fiscal year-end of September 30.
Winston results have been restated to conform with the Company's year-end. The
following unaudited pro forma summary information, which is not covered by the
report of independent accountants, presents information for the years ended
December 31, 1997 and 1996, as if the Winston acquisition occurred as of January
1, 1996 (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net sales................................................... $357,282 $333,605
Net loss.................................................... $ (1,373) $ (2,919)
</TABLE>

The unaudited pro forma information is provided for informational purposes
only and is not necessarily indicative of the actual results that would have
occurred had the acquisition taken place on January 1, 1996, nor is it
indicative of future results of the combined companies.

3. CASH SURRENDER VALUE OF LIFE INSURANCE:

The Company maintains life insurance policies with a face amount of
$14,402,000 for certain key employees and stockholders as well as certain former
employees and stockholders. The carrying amount of the cash value of life
insurance of $1,645,000, net of policy loans of $645,000, approximates its fair
value at December 31, 1997. Net cash surrender value is included in other assets
in the accompanying consolidated balance sheets.

F-12
<PAGE> 134
THE J.H. HEAFNER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995

4. ACCRUED EXPENSES:

Accrued expenses at December 31, 1997 and 1996, consist of:

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Payroll and employee benefits............................... $ 4,006,000 $ 1,936,000
Deferred service and warranty income........................ 2,813,000 0
Other....................................................... 5,591,000 345,000
----------- -----------
$12,410,000 $ 2,281,000
=========== ===========
</TABLE>

5. INCOME TAXES:

Through May 7, 1997, the Company was an S Corporation for federal and state
income tax purposes. Accordingly, all income and losses of the Company through
May 7, 1997, were recognized by the Company's stockholders in their individual
income tax returns. The Company terminated its S Corporation status upon
completion of the Winston acquisition. In accordance with Statement of Financial
Accounting Standards No. 109, the effect of the Company's change in tax status
has been recorded in the income tax provision for the year ended December 31,
1997.

The accompanying financial statements reflect the provision for income
taxes for the year ended December 31, 1997, and a pro forma income tax provision
for the years ended December 31, 1996 and 1995, as if the Company had been
subject to federal and state income taxes for those years.

The following historical and pro forma income tax information summarizes
the components of the Company's income tax provision (benefit) for the year
ended December 31, 1997, and the Company's pro forma income tax provision
(benefit) for each of the years ended December 31, 1996 and 1995, as if the
Company had been subject to federal and state income taxes for those years:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
PRO FORMA
----------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal--
Current provision................................... $ 252,000 $ 304,000 $ 401,000
Deferred (benefit) provision........................ (473,000) 69,000 (125,000)
--------- --------- ---------
(221,000) 373,000 276,000
State--
Current provision................................... 65,000 54,000 71,000
Deferred (benefit) provision........................ (84,000) 12,000 (22,000)
--------- --------- ---------
(19,000) 66,000 49,000
--------- --------- ---------
Total (benefit) provision................... $(240,000) $ 439,000 $ 325,000
========= ========= =========
</TABLE>

F-13
<PAGE> 135
THE J.H. HEAFNER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995

Actual and pro forma income tax expense differed from the amounts computed
by applying the statutory federal income tax rate of 34% as a result of the
following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
PRO FORMA
----------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income tax (benefit) provision computed at the $ (85,000) $ 357,000 $ 234,000
federal statutory rate..............................
Adoption of SFAS No.109 upon termination of S (383,000) 0 0
Corporation status..................................
Amortization of nondeductible goodwill................ 109,000 0 0
State income taxes, net of federal income tax 65,000 54,000 71,000
benefit.............................................
Other................................................. 54,000 28,000 20,000
--------- --------- ---------
Income tax (benefit) provision........................ $(240,000) $ 439,000 $ 325,000
========= ========= =========
</TABLE>

Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax reporting purposes and
(b) operating loss and tax credit carryforwards. The tax effects of the
significant temporary differences which comprise deferred tax assets and
liabilities at December 31, 1997, are as follows:

<TABLE>
<S> <C>
Deferred tax assets--
Accrued expenses and reserves not currently deductible... $1,796,000
Accrued Warranty costs................................... 1,191,000
Self Insurance reserves.................................. 651,000
Other.................................................... 428,000
----------
Gross deferred tax assets............................. 4,066,000
----------
Deferred tax liabilities--
Accounting method change from LIFO to FIFO (Note 1)...... $ (288,000)
Other.................................................... (21,000)
----------
Gross deferred tax liabilities........................ (309,000)
----------
Net deferred tax asset................................ $3,757,000
==========
</TABLE>

6. REVOLVING CREDIT FACILITY:

In May 1997, the Company entered into a $65,000,000 loan and security
agreement with a bank (Security Agreement) which is comprised of a $53,000,000
revolving credit (the Revolver) and a $12 million term loan (Term Loan) (see
Note 7). The Revolver provides for up to the lesser of $53,000,000 or the
Borrowing Base, as defined in the agreement based on 85% of eligible accounts
receivable and 65% of eligible tire inventory and 50% of all other eligible
inventory. The Security Agreement is collateralized by substantially all of the
Company's assets. At December 31, 1997, the maximum loan amount available was
$36,771,000 of which $31,949,000 was outstanding which was comprised of
$28,000,000 of Eurodollar rate revolving credit loans (the Eurodollar Revolving
Loans) and $3,949,000 of base rate revolving credit loans (the Base Rate
Revolving Loans). In addition, the Company had trade letters of credit
outstanding at December 31, 1997, of $1,858,000, which reduces the availability
under the Revolver at December 31, 1997. The Revolver provides for payment in
full on May 7, 2002, and therefore is classified as noncurrent as of December
31, 1997.

F-14
<PAGE> 136
THE J.H. HEAFNER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995

The Eurodollar Revolving Loans bear interest based on the quotient of LIBOR
and one less the percentage in effect under Regulation D of the Board of
Governors of the Federal Reserve System plus the applicable margin (Applicable
Margin) of 2.25% (8.05% at December 31, 1997). The Base Rate Revolving Loans
bear interest at the greater of the bank's base rate in effect at the time of
the loan or the Federal Funds effective rate plus 1/2% plus the Applicable
Margin of 0.25% (8.75% at December 31, 1997).

7. DEBT:

Long-term debt consists of the following:

<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
$12 million term loan with a bank, payable in monthly
principal installments of $142,857 beginning on June 1,
1997, with the final installment for the remaining balance
due on May 7, 2002........................................ $11,000,000 $ 0
Unsecured note payable to a supplier, due in 24 monthly
principal installments commencing January 15, 2000.
Interest accrues at prime and is payable annually
commencing January 15, 1999. Interest payable can be
adjusted downward or eliminated, based on achievement of
annual purchase requirements.............................. 4,000,000 0
Unsecured note payable to a supplier, due in monthly
installments of $4,000 plus interest at 4% through
December 1999, at which time the agreement provides for
monthly installments of $67,000 plus interest through
December 2002............................................. 904,000 0
Unsecured note payable to a former stockholder, due in
annual installments of $124,600 including interest at 7.5%
through January 2006...................................... 794,000 856,000
Special credit terms extended from a supplier. Agreement
requires that the Company at all times carry a stock of
the supplier's tires of value not less than the total
amount outstanding on credit extension. The Company must
also maintain certain purchase levels, as defined in the
agreement................................................. 750,000 0
Note payable to a bank in monthly installments of $63,900
including interest at 8.613% through October 31, 2001,
with a balloon payment of $5,156,151 plus accrued interest
due December 1, 2001. The note is collateralized by first
mortgages on six pieces of land and six buildings......... 0 6,403,000
Other....................................................... 292,000 200,000
----------- ----------
17,740,000 7,459,000
Less--Current maturities.................................... (2,579,000) (483,000)
----------- ----------
$15,161,000 $6,976,000
=========== ==========
</TABLE>

At December 31, 1997, there was $11,000,000 outstanding under the
$12,000,000 Term Loan which was comprised of $10,000,000 in Eurodollar loans
(Eurodollar Term Loans) and $1,000,000 in base rate loans (Base Rate Term
Loans). The Eurodollar Term Loans bear interest based on the quotient of LIBOR
and one less the percentage in effect under Regulation D of the Board of
Governors of the Federal Reserve System plus the Applicable Margin of 2.75%
(8.55% at December 31, 1997). The Base Rate Term Loans bear interest at the
greater of the bank's base rate in effect at the time of the loan or the federal
funds effective rate plus 1/2% plus the Applicable Margin of 0.75% (9.25% at
December 31, 1997). The Applicable Margin is subject to quarterly adjustments
beginning with quarter ending June 30, 1998, in accordance with the Security
Agreements.

F-15
<PAGE> 137
THE J.H. HEAFNER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995

Aggregate maturities required on long-term debt including subordinated debt
(Note 8), at December 31, 1997, are as follows:

<TABLE>
<S> <C>
1998...................................................... $ 2,579,000
1999...................................................... 1,845,000
2000...................................................... 2,539,000
2001...................................................... 5,875,000
2002...................................................... 1,816,000
Thereafter................................................ 19,086,000
-----------
$33,740,000
===========
</TABLE>

Using a discounted cash flow analysis, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements, the
carrying amount of the Company's debt, in the aggregate, at December 31, 1997,
approximates fair value.

DEBT COVENANTS

The Security Agreement and the Subordinated Notes Agreement, contain
certain restrictive covenants which, among other things, require the Company to
maintain minimum levels of net worth and EBITDA. The agreements also contain
certain restrictions on dividends, mergers, capital expenditures, indebtedness
and investments.

INTEREST RATE SWAP AGREEMENTS

The Company uses interest rate swaps (Swaps) to manage interest rate risk
related to its borrowings. At December 31, 1997, the Company had five Swaps in
place, each with a notional amount of $5,000,000, which effectively fix the
variable portion of the interest rates on $25,000,000 of the Company's debt. The
fixed rates paid by the Company range from 5.75% to 6.22% and expire from May
1998 through October 2000. The fair value of the Swaps is the estimated amount
that the Company would pay or receive to terminate the agreement at the
reporting date, taking into account current interest rates. The estimated fair
value of the Swaps at December 31, 1997, results in a payable position of
approximately $145,000 which does not necessarily reflect the potential expense
that would be realized on an actual settlement of the liability.

8. SUBORDINATED DEBT:

In May 1997, the Company issued $16 million of 12% Senior Subordinated Debt
(Subordinated Debt) due on May 7, 2004, with interest payable quarterly. The
Subordinated Debt has a mandatory redemption clause, which states that upon a
change in control or public offering (other than an initial public offering),
the holder has the right to require the Company to redeem all outstanding
Subordinated Debt at a price equal to a percentage, as specified, of the
outstanding principal plus accrued interest. The Company also has the right to
redeem the Subordinated Debt in whole, with 30 days notice, at a price equal to
a percentage, as specified, of the outstanding principal plus accrued interest.
In connection with the issuance of Subordinated Debt, the Company issued
detachable warrants which permit the holder to acquire up to 20.68% of the
Company's common stock at $.01 per share. The warrants became exercisable
immediately upon issuance and expire on May 7, 2007. The warrants may be
exercised in whole or in part, but in no event later than the date of an initial
public offering or a sale transaction. The Company has recorded the warrants at
fair value ($1,137,400), which resulted in a discount on the Subordinated Debt
in the same amount, which is being amortized over the life of the Subordinated
Debt. The unamortized discount at December 31, 1997, is $1,031,000.

F-16
<PAGE> 138
THE J.H. HEAFNER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995

As discussed in Note 13, the Company is in the process of conducting a
$100,000,000 private debt placement, the proceeds of which will be used in part
to retire the Subordinated Debt.

9. EMPLOYEE BENEFITS:

PROFIT SHARING PLAN

The Company and Winston have qualified profit-sharing and 401(k) plans for
all eligible employees. All accounts are funded based on employee contributions
to the plans, with the limits of such contributions determined by the Board of
Directors. The Company matches 50% of the participant's contributions, up to 6%
of their compensation. Winston matches 100% of the first 1% of participant
contributions and 5% of the next 5% of participant contributions. The Company
plan also provides for contributions in such amounts as the Board of Directors
may annually determine for the profit-sharing portion of the plan. The amount
charged to expense during the years ended December 31, 1997, 1996 and 1995, was
$413,000, $346,000 and $274,000, respectively.

POSTRETIREMENT BENEFITS

The Company provides certain life insurance benefits for several key
officers of the Company. On January 1, 1996, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." Under
SFAS No. 106, the cost of the life insurance benefits is accrued over relevant
employee service periods. Previously, these costs were charged to expense when
paid. The Company elected to amortize the expense for years prior to December
31, 1995, over future periods. The effect of the adoption of SFAS No. 106 and
related liability was not significant.

STOCK OPTION PLAN

In 1997, the Company adopted a Stock Option Plan (the Plan) for certain key
employees. The Plan was designed to attract and retain key employees of the
Company. The Plan authorizes the issuance of up to 265,000 shares of voting
common stock to be issued to officers and key employees under terms and
conditions to be set by the Company's Board of Directors. During 1997, 256,000
options were granted to various members of management at a fair value price of
$1.10 per share, as determined by an independent appraisal. The options vest as
specified by the stock option agreements over a period of approximately four
years and are generally exercisable beginning in May 1998. All options expire 10
years from the date of grant. No options have vested and accordingly no options
have been exercised as of December 31, 1997.

The Company has elected to account for stock option grants in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25") and its related interpretations. Pursuant to APB No.
25, compensation expense is recognized for financial reporting purposes using
the intrinsic value method when it becomes probable that the options will be
exercisable. The amount of compensation expense to be recognized is determined
by the excess of the fair value of common stock over the exercise price of the
related option at the measurement date.

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation", which established an alternative
method of expense recognition for stock-based compensation awards to employees
based on fair values. The Company has elected not to adopt SFAS No. 123 for
expense recognition purposes, but is required to provide certain pro forma
disclosures.

F-17
<PAGE> 139
THE J.H. HEAFNER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995

The following information is presented as if the Company had accounted for
its employee stock options under the fair value method prescribed by SFAS No.
123:

<TABLE>
<CAPTION>
1997
--------
<S> <C>
Net loss.................................................... $(14,000)
Pro forma................................................... $(42,000)
========
</TABLE>

For the above information, the fair value of options granted in 1997 were
determined using a Black-Scholes option pricing model with the following
assumptions: a risk-free interest rate of 6.42%, no dividend yield, expected
life of 10 years which equals the lives of the grants, and no expected
volatility.

10. COMMITMENTS AND CONTINGENCIES:

LEASES

The Company leases land, buildings, equipment and vehicles under various
operating leases which expire between 1998 and 2012, including two properties
which are leased from individual stockholders. The Company also has obligations
totaling $1,125,000 related to properties which have been subleased.

Future minimum lease commitments at December 31, 1997 (excluding subleased
properties) are as follows:

<TABLE>
<S> <C>
1998...................................................... $11,379,000
1999...................................................... 9,594,000
2000...................................................... 8,262,000
2001...................................................... 5,911,000
2002...................................................... 4,413,000
Thereafter................................................ 16,755,000
-----------
$56,314,000
===========
</TABLE>

Rent expense under these operating leases was $8,954,000 in 1997,
$2,385,000 in 1996 and $1,984,000 in 1995. Related-party rent expense was
$222,000 for 1997, $369,000 for 1996 and $386,000 in 1995. Obligations under
capital leases are not significant.

PURCHASE COMMITMENTS

In May 1997, the Company entered into a purchase agreement with a supplier
(the Tire Supply Agreement--see Note 11) which expires May 2007. Under the terms
of the agreement, the Company has agreed to purchase all requirements of its
"Winston" brand tires at a negotiated price specified in the agreement.

LEGAL PROCEEDINGS

The Company is involved in various lawsuits arising out of the ordinary
conduct of its business. While the ultimate results of these lawsuits cannot be
predicted with certainty, management does not expect that these matters will
have a material adverse effect on the financial position of the Company.

F-18
<PAGE> 140
THE J.H. HEAFNER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995

11. REDEEMABLE PREFERRED STOCK:

On May 2, 1997, the Company issued 11,500 shares of preferred stock with
par value of $.01 per share to a supplier (the Supplier). Of the 11,500 shares,
7,000 shares are designated Series A Cumulative Redeemable Preferred Stock (the
Series A Preferred Stock) and 4,500 shares are designated Series B Cumulative
Redeemable Preferred Stock (the Series B Preferred Stock).

The Series A and B Preferred Stock each contain a provision whereby upon
the termination of the Tire Supply Agreement (see Note 10), the Company shall
redeem all shares of Preferred Stock outstanding at a price equal to the sum of
the stated value and the applicable premium, as defined, plus all accrued and
unpaid dividends. If at any time a change of control occurs, as defined, the
Supplier may request redemption of all outstanding shares. The Company may not
make payment in respect of any of the above or below redemption requirements, so
long as amounts are outstanding under the Loan and Security Agreement, the
Senior Notes and other agreements entered into in connection therewith,
including any replacement agreement which results in a greater principal amount
outstanding.

SERIES A PREFERRED STOCK

The stated value of Series A Preferred Stock is $1,000 per share. Holders
of Series A Preferred Stock are entitled to receive, when and if declared by the
Board of Directors, cumulative cash dividends at an annual rate of 4%, subject
to adjustment based on the volume of purchases from the Supplier. Additional
dividends will accrue, when and if declared by the Board of Directors, and are
payable on the last business day of January, beginning in 1999. In June 1997,
the Company declared a dividend based on a 4% rate. The Series A Preferred Stock
will be redeemed by the Company, beginning on the last business day of December
2002 and on the last business day of each June and December thereafter, through
June 2007.

SERIES B PREFERRED STOCK

The stated value of Series B Preferred Stock is initially $1,000, to be
adjusted based on Tire Purchase Credits as determined by the number of units
purchased under the Tire Supply Agreement (see Note 10). Dividends on Series B
Preferred Stock are payable, when and if declared by the Board of Directors, at
the prime rate if the Company does not meet certain tire purchase requirements.
The remaining value of Series B Preferred Stock shall be redeemed by the Company
on the last business day of June 2007 at a price equal to the adjusted stated
value plus all accrued and unpaid dividends.

12. COMMON STOCK:

STOCK REPURCHASE AND STOCK SPLIT

At December 31, 1996, the Company had 5,000 shares of $100 par value common
stock authorized with 2,080 shares issued and outstanding. On May 2, 1997, the
Company amended its Articles of Incorporation to authorize 10,000,000 shares of
common stock, and reduce the par value of common stock from $100 to $.01 per
share.

On May 7, 1997, the Board of Directors approved the repurchase and
subsequent cancellation and retirement of 1,024 outstanding shares of common
stock at a price equal to $2,644 per share on a pre-stock split basis. On the
same date, the Board of Directors authorized a 3,281-for-1 stock split on all
outstanding shares of common stock at the close of business on that date.

F-19
<PAGE> 141
THE J.H. HEAFNER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995

STOCK ISSUANCE

On May 28, 1997, the Company issued 225,000 shares of common stock to
certain members of management pursuant to The J. H. Heafner Company 1997
Restricted Stock Plan. The shares were issued at a price of $1.10 per share, as
determined by an independent appraisal, in exchange for notes receivable for the
amounts owed. The notes bear interest at the federal funds effective rate and
are forgivable as to principal in equal amounts over four years upon the Company
achieving certain annual financial targets. These notes have been included as a
component of stockholders' equity in the accompanying consolidated balance
sheet.

13. SUBSEQUENT EVENTS:

MERGER AGREEMENT

On March 10, 1998, the Company entered into an Agreement and Plan of Merger
with ITCO Logistics Corporation and Subsidiaries, a wholesaler of tires and
related accessories in the eastern part of the United States. The total
consideration expected to be paid upon completion of the merger will consist of
$18 million in cash and 1,400,667 newly issued shares of the Company's Class B
Common Stock with an appraised value of approximately $14.9 million.

ACQUISITION AGREEMENT

On March 11, 1998, Company entered into a Stock Purchase Agreement with the
stockholders of The Speed Merchant Inc., a wholesaler and retailer of tires,
parts and accessories located in California and Arizona. The total consideration
to be paid to the stockholders is $45 million in cash, of which $35 million is
payable upon consummation of the acquisition, $7.4 million is payable in
installments over five years in consideration for noncompete agreements, and
$2.6 million is payable in the form of contingent payments to the stockholders.

PRIVATE PLACEMENT DEBT OFFERING

The Company is proceeding with a plan to offer $100,000,000 of Senior Notes
(Senior Notes) through a private placement debt offering to be completed May
1998. The net proceeds of the offering will be used to repay the Revolver, Term
Loan and the Subordinated Debt (see Notes 6, 7 and 8). The Senior Notes are
unsecured senior obligations of the Company and will include certain
restrictions on incurring additional indebtedness and payment of dividends. In
addition, the Senior Notes will impose certain operational and financial
restrictions on the Company.

14. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION:

Winston is a subsidiary guarantor of the Company's Senior Notes (See Note
13). The following represents summarized financial information for Winston as of
December 31, 1997 and for the period from May 7, 1997 (the acquisition date) to
December 31, 1997.

<TABLE>
<S> <C>
Current assets.............................................. $ 21,852,000
Noncurrent assets........................................... 49,299,000
Current liabilities......................................... 23,124,000
Noncurrent liabilities...................................... 6,358,000
Net sales................................................... 101,058,000
Gross margin................................................ 42,752,000
Net loss.................................................... (779,000)
</TABLE>

F-20
<PAGE> 142

THE J.H. HEAFNER COMPANY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 3,879,161 $ 2,502,286
Accounts receivable, less allowance for doubtful accounts
of $2,704,000 and $400,000............................. 104,235,158 31,809,291
Inventories, net.......................................... 122,646,790 41,529,430
Deferred tax assets....................................... 9,947,921 2,101,624
Prepaid expenses and other current assets................. 2,611,224 1,085,381
------------ ------------
Total current assets................................... 243,320,254 79,028,012
------------ ------------
PROPERTY AND EQUIPMENT, NET................................. 39,572,640 25,991,088
GOODWILL, NET............................................... 107,997,959 34,978,580
OTHER INTANGIBLE ASSETS..................................... 9,768,334 0
OTHER ASSETS................................................ 9,529,336 4,855,519
DEFERRED TAX ASSETS......................................... 1,179,482 1,655,079
------------ ------------
$411,368,005 $146,508,278
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $159,966,307 $ 43,456,901
Accrued expenses.......................................... 35,660,250 12,409,878
Current maturities of long-term debt...................... 5,670,384 2,579,316
------------ ------------
Total current liabilities.............................. 201,296,941 58,446,095
------------ ------------
LONG-TERM DEBT.............................................. 110,889,079 15,161,397
------------ ------------
REVOLVING CREDIT FACILITY................................... 54,305,114 31,948,605
------------ ------------
OTHER LIABILITIES........................................... 13,166,004 5,687,157
------------ ------------
SUBORDINATED DEBT........................................... 0 14,969,000
------------ ------------
REDEEMABLE PREFERRED STOCK SERIES A -- 4% CUMULATIVE, 7,000
SHARES AUTHORIZED, ISSUED AND OUTSTANDING................. 7,000,000 7,000,000
------------ ------------
REDEEMABLE PREFERRED STOCK SERIES B -- VARIABLE RATE
CUMULATIVE, 4,500 SHARES AUTHORIZED, ISSUED AND
OUTSTANDING............................................... 4,500,000 4,500,000
------------ ------------
WARRANTS.................................................... 1,137,400 1,137,400
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A Common Stock -- Par value of $.01 per share;
authorized 10,000,000 shares; 3,691,000 shares issued
and outstanding........................................ 36,910 36,910
Class B Common Stock -- Par value of $.01 per share;
authorized 20,000,000 and 0; 1,400,667 and 0 shares
issued and outstanding................................. 14,007 0
Additional paid-in capital................................ 22,200,307 7,255,190
Notes receivable from stock sales......................... (177,374) (247,500)
Retained earnings (deficit)............................... (3,000,383) 614,024
------------ ------------
19,073,467 7,658,624
------------ ------------
$411,368,005 $146,508,278
============ ============
</TABLE>

See notes to unaudited condensed consolidated financial statements.
F-21
<PAGE> 143

THE J. H. HEAFNER COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET SALES................................................... $243,178,526 $127,377,225
COST OF GOODS SOLD.......................................... 182,130,539 99,677,295
------------ ------------
Gross profit.............................................. 61,047,987 27,699,930
GENERAL, SELLING AND ADMINISTRATIVE EXPENSES................ 57,262,067 26,128,057
SPECIAL CHARGES (NOTE 6).................................... (1,409,000) 0
------------ ------------
Income from operations.................................... 2,376,920 1,571,873
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (4,286,471) (1,672,421)
Interest income........................................... 330,467 298,574
Other expense............................................. (533,569) (313,234)
------------ ------------
LOSS FROM OPERATIONS BEFORE BENEFIT FOR INCOME TAXES AND
EXTRAORDINARY CHARGE...................................... (2,112,653) (115,208)
Benefit for income taxes.................................. 836,518 48,673
------------ ------------
LOSS FROM OPERATIONS BEFORE EXTRAORDINARY CHARGE............ (1,276,135) (66,535)
Extraordinary charge from early extinguishment of debt, net
of income tax benefits of $1,466,000 (Note 7)............. (2,198,272) 0
------------ ------------
NET LOSS.................................................... $ (3,474,407) $ (66,535)
============ ============
</TABLE>

See notes to unaudited condensed consolidated financial statements.
F-22
<PAGE> 144

THE J. H. HEAFNER COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998

<TABLE>
<CAPTION>
COMMON STOCK NOTES
----------------------------------------- RECEIVABLE
CLASS A CLASS B ADDITIONAL FROM
------------------- ------------------- PAID-IN STOCK RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL SALES EARNINGS TOTAL
--------- ------- --------- ------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997.... 3,691,000 $36,910 0 $ 0 $ 7,255,190 $(247,500) $ 614,024 $ 7,658,624
Issuance of shares in
connection with ITCO
Merger....................... 0 0 1,400,667 14,007 14,945,117 0 0 14,959,124
Dividends paid on preferred
stock........................ 0 0 0 0 0 0 (140,000) (140,000)
Forgiveness of management
notes receivables related to
common stock................. 0 0 0 0 0 70,126 0 70,126
Net (loss).................... 0 0 0 0 0 0 (3,474,407) (3,474,407)
--------- ------- --------- ------- ----------- --------- ----------- -----------
Balance, June 30, 1998........ 3,691,000 $36,910 1,400,667 $14,007 $22,200,307 $(177,374) $(3,000,383) $19,073,467
========= ======= ========= ======= =========== ========= =========== ===========
</TABLE>

See notes to unaudited condensed consolidated financial statements.
F-23
<PAGE> 145

THE J. H. HEAFNER COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income......................................... $ (3,474,407) $ (66,535)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities, net of the
ITCO merger, CPW acquisition and the Winston
acquisition --
Depreciation and amortization........................... 4,029,059 1,550,778
Extraordinary charge.................................... 2,198,272 0
Special charge.......................................... 1,409,000 0
Deferred taxes.......................................... (151,648) (335,796)
Loss on sale of property and equipment.................. 281,945 18,263
Change in assets and liabilities:
Accounts receivable, net.............................. (8,307,040) (3,846,843)
Accounts payable and accrued expenses................. (2,229,599) 6,402,230
Inventories, net...................................... (194,744) (5,137,612)
Prepaid expenses and other current assets............. 301,210 (309,658)
Other................................................. 1,263,738 1,445,495
------------ ------------
Net cash used in operating activities............... (4,874,214) (279,678)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of CPW, net of cash acquired.................. (36,086,212) 0
Acquisition of ITCO, net of cash acquired................. (16,138,271) 0
Acquisition of Winston, net of cash acquired.............. 0 (42,194,588)
Purchase of property and equipment........................ (1,905,167) (2,849,433)
Proceeds from sale of property and equipment.............. 883,789 60,804
------------ ------------
Net cash used in investing activities................... (53,245,861) (44,983,217)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................. 100,000,000 28,000,000
Principal payments on long-term debt...................... (28,287,198) (9,221,390)
Cash paid for financing costs............................. (6,384,883) (2,377,828)
Net proceeds (payments) from revolving credit facility and
other notes............................................. (5,690,969) 22,205,630
Proceeds from issuance of preferred stock................. 0 11,500,000
Cash dividends paid....................................... (140,000) (1,012,381)
Cash paid for stock repurchase............................ 0 (2,707,692)
------------ ------------
Net cash provided by financing activities............... $ 59,496,950 $ 46,386,339
------------ ------------
Net increase in cash........................................ $ 1,376,875 $ 1,123,444
Cash, beginning of year..................................... 2,502,286 1,006,062
------------ ------------
Cash, end of year........................................... $ 3,879,161 $ 2,129,506
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest................................ $ 3,516,602 $ 1,130,561
============ ============
Cash payments for income taxes............................ $ 612,528 $ 0
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
In connection with the issuance of subordinated debt in
1997, the Company issued detachable warrants, which
resulted in a discount on the senior subordinated debt
in the amount of $1,137,400.
In May 1998, the Company issued 1,400,667 shares of Class
B Common Stock with an appraised value of $14,959,000.
In connection with the CPW acquisition, the Company
entered into noncompete agreements in the amount of
$7,400,000 and other deferred payments in the amount of
$2,600,000.
</TABLE>

See notes to unaudited condensed consolidated financial statements.
F-24
<PAGE> 146

THE J. H. HEAFNER COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997

1. ORGANIZATION:

The J. H. Heafner Company, Inc. (the Company), a North Carolina
corporation, is engaged in the wholesale distribution of tires and tire
accessories and the operation of retail tire and auto service stores. In May
1997, the Company acquired all outstanding shares of common stock of Oliver and
Winston, Inc. (Winston), a California-based operation of 176 retail tire and
automotive service centers in California and Arizona. In May 1998, the Company,
through a newly formed wholly owned subsidiary, merged with ITCO Logistics
Corporation and Subsidiaries (ITCO), a wholesaler of tires and related
accessories in the eastern part of the United States. Concurrent with the ITCO
merger, the Company acquired all outstanding shares of common stock of The Speed
Merchant, Inc. (CPW), a wholesaler and retailer of tires, parts and accessories
located in California and Arizona.

2. BASIS OF PRESENTATION:

The unaudited condensed consolidated balance sheet as of June 30, 1998, and
the condensed consolidated statements of operations, stockholders' equity and
cash flows for the six months ended June 30, 1998 and 1997, have been prepared
by the Company and have not been audited. In the opinion of management, all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the financial position of the Company, the results of its
operations and cash flows have been made.

Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's consolidated financial statements for the fiscal year ended December
31, 1997.

The results of the operations for the six months ended are not necessarily
indicative of the operating results for the full fiscal year.

3. COMMON STOCK:

On May 12, 1998, the Company's Board of Directors amended the Articles of
Incorporation of the Company to create two classes of common stock. At June 30,
1998, the Company has authorized for issuance 10,000,000 shares that have been
designated Class A Common Stock (the Class A Common Stock) and 20,000,000 shares
that have been designated Class B Common Stock (the Class B Common Stock).

Class A Common Stock and Class B Common Stock have equal rights related to
dividends and distributions and liquidation, dissolution or winding up. However,
Class A Common Stock is entitled to 20 votes per share and Class B Common Stock
is entitled to one vote per share.

Class B Common Stock shall automatically convert into one share of Class A
Common Stock without the requirement of any further action on the part of the
Corporation or it stockholders upon the earliest of (i) an initial public
offering of the Class A Common Stock in connection with the registration of the
Class A Common Stock under the Securities Act of 1933, as amended (ii) the
occurrence of any condition or event which results in the acceleration of the
maturity of the indebtedness evidenced by the Debt Documents, or (iii) an order
for relief under Title 11 of the United States Code is entered against the
Company.

4. ACQUISITIONS:

During the six months ended June 30, 1998, the Company completed the
following business combinations, both of which were accounted for by the
purchase method. Accordingly, results of operations for the acquired businesses
have been included in the condensed consolidated statement of operations from
the May 20, 1998, acquisition date. A preliminary allocation of the purchase
price has been recorded in the

F-25
<PAGE> 147
THE J. H. HEAFNER COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

accompanying condensed consolidated financial statements as of June 30, 1998,
based on management's best estimate of assets acquired and liabilities assumed.

ITCO Merger

On May 20, 1998, a wholly owned subsidiary of the Company merged with ITCO.
The purchase price included $18,000,000 in cash and 1,400,667 newly issued
shares of the Company's Class B Common Stock with an appraised value of
approximately $14,959,000. The excess of the purchase price over the net
tangible assets acquired (goodwill) was $45,016,000, which is being amortized
over 15 years.

A summary of the purchase price and related preliminary purchase allocation
for the ITCO Merger follows (in 000's):

AGGREGATE PURCHASE PRICE

<TABLE>
<S> <C>
Cash paid to holders of ITCO common and preferred stock..... $18,000
Appraised value of Class B Common Stock issued in connection
with the ITCO Merger (1,400,667 shares at $10.68 per
share).................................................... 14,959
Severance, facility closing expenses and other exit costs
incurred in connection with the ITCO Merger............... 4,380
Amount payable upon settlement of ITCO stock appreciation
rights.................................................... 1,390
Financial advisors, accounting, legal and other direct
acquisition costs......................................... 929
-------
Aggregate purchase price.................................. $39,658
=======
</TABLE>

PRELIMINARY ALLOCATION OF PURCHASE PRICE

<TABLE>
<S> <C>
Aggregate purchase price.................................... $39,658
Less net book value of assets acquired.................... (7,152)
-------
Excess of cost over net book value of assets acquired....... 32,506
Adjustments to record assets and liabilities at fair market
value:
Deferred tax asset........................................ (1,944)
Goodwill (historical)..................................... 13,963
Other..................................................... 491
-------
Total adjustments...................................... 12,510
-------
Goodwill.................................................. $45,016
=======
</TABLE>

In connection with the ITCO merger, the Company recorded a $4,380,000
liability for estimated costs related to employee severance, facilities closing
expense and other related exit costs in accordance with EITF 95-3, "Recognition
of Liabilities in Connection with a Purchase Business Combination." No charges
were made against the reserve at June 30, 1998.

CPW Acquisition

On May 20, 1998, the Company acquired all of the outstanding common stock
of CPW for $45,000,000 in cash, of which $35,000,000 was paid on May 20, 1998,
with $7,400,000 payable in installments over five years in consideration for
noncompete agreements and $2,600,000 payable in the form of contingent payments
to CPW stockholders. The excess purchase price over the net tangible assets
acquired was allocated to

F-26
<PAGE> 148
THE J. H. HEAFNER COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

goodwill ($29,156,000) which is being amortized over a 15 year period, and
$10,000,000 to other intangible assets which are being amortized over a two to
five year period.

A summary of the purchase price and related preliminary purchase allocation
for the CPW acquisition follows (in 000's):

AGGREGATE PURCHASE PRICE

<TABLE>
<S> <C>
Cash paid to CPW Stockholders............................... $35,000
Amount payable for non-compete agreement and other deferred
payments.................................................. 10,000
Repayment of long-term indebtedness......................... 976
Severance, facility closing expenses and other costs
incurred in connection with the CPW acquisition........... 862
Financial, accounting, legal and other direct acquisition
costs..................................................... 633
-------
Aggregate purchase price.................................. $47,471
=======
</TABLE>

PRELIMINARY ALLOCATION OF PURCHASE PRICE

<TABLE>
<S> <C>
Aggregate purchase price.................................... $ 47,471
Less -- Net book value of assets acquired................. (9,472)
--------
Excess of cost over net book value of assets acquired....... 37,999
Less adjustments to record assets and liabilities at fair
market value:
Inventory................................................. 1,018
Other current assets...................................... (22)
Noncompete agreement and other deferred payments.......... (10,000)
Other assets.............................................. 267
Deferred tax assets....................................... (1,353)
Accounts payable.......................................... 276
Accrued expenses.......................................... 971
--------
Total adjustments................................. (8,843)
--------
Goodwill.................................................. $ 29,156
========
</TABLE>

In connection with the CPW acquisition, the Company recorded an $862,000
liability for estimated costs related to employee severance, facilities closing
expense and other related exit costs in accordance with EITF 95-3 "Recognition
of Liabilities in Connection with a Purchase Business Combination." No charges
were made against the reserve at June 30, 1998.

The following unaudited pro forma results of operations give effect to the
acquisitions of Winston, ITCO and CPW as if they had occurred on January 1,
1997. These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which would
have resulted had the acquisitions occurred on January 1, 1997, or which may
result in the future.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JUNE 30, JUNE 30,
1998 1997
------------ ------------
<S> <C> <C>
Net sales................................................... $453,266,000 $408,678,000
Loss from continuing operations before extraordinary
charge.................................................... (2,235,000) (4,684,000)
Net loss.................................................... $ (4,433,000) $ (4,684,000)
</TABLE>

F-27
<PAGE> 149
THE J. H. HEAFNER COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Senior Notes, interest due semiannually at 10.0%, commencing
on November 15, 1998, due May 2008........................ $100,000,000 $ --
$12,000,000 term loan with a bank, payable in monthly
principal installments of $142,857 beginning June 1, 1997,
with the final installment for the remaining balance due
on May 7, 2002............................................ -- 11,000,000
Unsecured note payable to a supplier, due in monthly
installments of $4,000 plus interest at 4% through
December 1999 at which time the agreement provides for
monthly installments of $167,000 plus interest through
December 2002............................................. 4,000,000 4,000,000
Installment notes payable to suppliers, due through 1999,
bearing no interest; collateralized by inventories
purchased from these suppliers............................ 2,333,000 --
Other....................................................... 10,226,000 2,740,000
------------ -----------
116,559,000 17,740,000
Less - Current Maturities................................... 5,670,000 2,579,000
------------ -----------
$110,899,000 $15,161,000
============ ===========
</TABLE>

Revolving Credit Facility:

On May 20, 1998, the Company replaced its existing loan and security
agreement with a new credit facility that provides for a senior secured
revolving credit facility (the Revolver), which may be borrowed in the aggregate
principal amount of up to $100,000,000 (of which up to $10,000,000 may be
utilized in the form of letters of credit). At the closing date of the ITCO
merger and CPW acquisition, $48,054,000 was borrowed under the Revolver.

The Revolver has a five-year term expiring in May 2003, extendable by the
Company and the banks for an additional five years. Indebtedness under the new
credit facility bears interest, at the Company's option, (i) at the Base Rate,
as defined, plus the applicable margin or (ii) at the Eurodollar Rate, as
defined, plus the applicable margin. The applicable margin for base rate loans
will be 0.25% and the applicable margin for Eurodollar Rate Loans will be 1.75%,
subject in each case to performance based step-downs.

The Company is required to pay commitment fees on the committed undrawn
amount of the Revolver, and a fronting fee to the issuer of letters of credit.
The Company has also agreed to pay certain other fees and expenses of the
Lenders and the Agent.

The Revolver requires the Company to meet certain financial tests,
including minimum net worth and minimum loan availability and contains certain
covenants which, among other things, restrict the ability of the Company to
incur additional indebtedness; enter into guaranties; make loans and
investments; make capital expenditures; declare dividends; engage in mergers,
consolidations and asset sales; enter into transactions with affiliates; create
liens and encumbrances; enter into sale/leaseback transactions; modify material
agreements; and change the business it conducts.

The Company's obligations under the Revolver, are secured by all of the
inventory and accounts receivable of the Company.

F-28
<PAGE> 150
THE J. H. HEAFNER COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Senior Notes Offering:

On May 15, 1998, the Company sold $100,000,000 of Senior Notes due May 15,
2008, resulting in net proceeds of approximately $97,000,000. The Senior Notes
have an annual coupon of 10% and are redeemable at the Company's option, in
whole or in part, at any time, on or after May 15, 2003, at certain redemption
prices. In addition, the Company may redeem up to 35% of the original principal
amount of the Notes at 110% of par with one or more public equity offerings.
Interest on the Senior Notes is payable semiannually on May 15 and November 15
of each year beginning on November 15, 1998.

The Indenture contains certain covenants that, among other things, limit
the ability of the Company to incur indebtedness, make restricted payments, make
certain distributions, sell assets and subsidiary stock, enter into certain
affiliate transactions, sell or issue of capital stock of restricted
subsidiaries, incur liens, enter into sale/leaseback transactions, and engage in
mergers and consolidations.

Proceeds from the Revolver and the Senior Notes were used to finance the
$18,000,000 cash portion of the ITCO merger and the $35,000,000 cash portion of
the CPW acquisition. Proceeds were also used to repay $86,792,000 of existing
long-term indebtedness of Heafner and ITCO and to pay approximately $8,000,000
of transaction fees and expenses.

6. SPECIAL CHARGES:

In the second quarter of 1998, the Company recorded a special charge of
$1,409,000, related to the restructuring of its southeast wholesale business,
which includes the closing of 13 duplicate distribution centers commencing in
the third quarter. The second quarter charges include lease commitments for
certain distribution centers, asset writedowns, severance and employee related
costs and costs to shut down certain facilities.

7. EXTRAORDINARY CHARGE:

The Company recorded an extraordinary charge in May 1998 related to the
early extinguishment of debt resulting in a noncash write-off of deferred
financing fees and unamortized discounts of subordinated debt of $1,691,000, net
of applicable income tax benefits of $1,128,000. The Company also had
pre-payment penalties associated with the extinguishment of debt that resulted
in a cash charge of $507,000, net of applicable income tax benefits of $338,000.

8. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION:

Winston is a subsidiary guarantor of the Company's Senior Notes (See Note
5). The following represents unaudited summarized financial information for
Winston as of June 30, 1998 and for the six month period then ended.

<TABLE>
<S> <C>
Current assets.............................................. $22,682,000
Noncurrent assets........................................... 48,187,000
Current liabilities......................................... 24,869,000
Noncurrent liabilities...................................... 5,523,000
Net sales................................................... 72,714,000
Gross margin................................................ 31,847,000
Net loss.................................................... (1,299,000)
</TABLE>

F-29
<PAGE> 151

INDEPENDENT AUDITORS' REPORT

To Oliver & Winston, Inc.:

We have audited the accompanying statements of operations and retained
earnings and of cash flows of Oliver and Winston, Inc. (the Company) for each of
the three years in the period ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Company's operations and its cash
flows for each of the three years in the period ended September 30, 1996, in
conformity with generally accepted accounting principles.

/s/ DELOITTE AND TOUCHE LLP

Los Angeles, California
January 15, 1997

F-30
<PAGE> 152

OLIVER & WINSTON, INC.

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales......................................... $143,070,000 $135,593,000 $134,921,000
Cost of sales..................................... 83,542,000 78,783,000 78,876,000
------------ ------------ ------------
Gross profit................................. 59,528,000 56,810,000 56,045,000
Selling, general, and administrative expenses..... 58,388,000 56,068,000 56,323,000
------------ ------------ ------------
Income (loss) from operations................ 1,140,000 742,000 (278,000)
Interest expense, net (Notes 2, 3 and 4).......... 675,000 535,000 385,000
------------ ------------ ------------
Income (loss) before provision for income taxes
and minority interest in net loss of
subsidiary...................................... 465,000 207,000 (663,000)
Provision for income taxes...................... 11,000 3,000
------------ ------------ ------------
Net income (loss) before minority interest in net
loss of subsidiary.............................. 454,000 204,000 (663,000)
Minority interest in net loss of subsidiary (Note
1).............................................. 16,000
------------ ------------ ------------
Net income (loss)................................. 454,000 204,000 (647,000)
Retained earnings, beginning of year.............. 3,207,000 3,003,000 6,450,000
Dividends......................................... (500,000) 0 (2,800,000)
------------ ------------ ------------
Retained earnings, end of year.................... $ 3,161,000 $ 3,207,000 $ 3,003,000
============ ============ ============
</TABLE>

See accompanying notes to financial statements.
F-31
<PAGE> 153

OLIVER & WINSTON, INC.

STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 454,000 $ 204,000 $ (647,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 2,130,000 2,338,000 2,753,000
Provision for losses on accounts receivable............... 293,000 181,000 247,000
Minority interest in net loss of subsidiary............... 0 0 (16,000)
Interest income from note receivable from related party... (140,000) 0 0
Gain on sale of property and equipment.................... (94,000) 0
Change in operating assets and liabilities:
Accounts receivable..................................... (471,000) (114,000) (656,000)
Other receivables....................................... 313,000 (106,000) (1,708,000)
Inventories............................................. 83,000 (3,560,000) (731,000)
Prepaid expenses........................................ 132,000 (12,000) (127,000)
Accounts payable........................................ (1,105,000) 1,722,000 1,075,000
Accrued expenses........................................ 152,000 1,291,000 1,169,000
Self-insurance loss reserves............................ (89,000) (1,533,000) (2,849,000)
Deferred compensation................................... (287,000) 14,000 (58,000)
Warranty and adjustment liability....................... (316,000) (498,000) 814,000
Other liabilities....................................... 103,000 (143,000) (316,000)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES..... 1,158,000 (216,000) (1,050,000)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (2,149,000) (2,319,000) (1,394,000)
Other assets................................................ (9,000) (289,000) 120,000
Proceeds from sale of property and equipment................ 555,000 73,000 0
Certificates of deposit--restricted......................... 0 2,021,000 0
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES................... (1,603,000) (514,000) (1,274,000)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable.................................. 1,000,000 0 0
Repayments of long-term debt................................ (1,006,000) (810,000) (1,364,000)
Net borrowings on line of credit............................ 902,000 1,663,000 2,441,000
Receivables from affiliates................................. 87,000 84,000 (4,000)
Net payments to related parties............................. (115,000) (37,000) (487,000)
(Advances to) repayments from related parties............... 0 (21,000) 2,078,000
Payment of dividends........................................ 0 0 (2,800,000)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES..... 868,000 879,000 (136,000)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH............................. $ 423,000 $ 149,000 $(2,460,000)
Cash, beginning of year..................................... 437,000 288,000 2,748,000
---------- ---------- ----------
Cash, end of year........................................... $ 860,000 $ 437,000 $ 288,000
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year:
Interest.................................................. $ 530,000 $ 451,000 $ 408,000
Income taxes................................................ $ 0 $ 24,000 $ 0
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Effective September 30, 1994, 10,782 shares of Oliver &
Winston, Inc. common stock were issued in exchange for the
$1,028,000 minority interest in Winston Indemnity, Ltd.
(see Note 1)
During 1995, a trade payable was renegotiated into notes
totaling $3,057,000 (see Note 3)
During 1996, the Company declared a $500,000 dividend in
exchange for $436,000 of notes receivable from related
parties and $64,000 of notes payable to related parties.
As a result of discounting the $1,000,000 unsecured note
payable to a vendor during 1996, the Company reclassified
$185,000 from long-term debt to accrued expenses (see Note
3)
</TABLE>

See accompanying notes to financial statements.
F-32
<PAGE> 154

OLIVER & WINSTON, INC.

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

GENERAL

Oliver & Winston, Inc., (the "Company") operates retail tire and automotive
service centers (d/b/a Winston Tire) in California. In addition, in 1994, its
79% owned subsidiary, Winston Indemnity, Ltd., operated as a captive insurance
company based in Bermuda that provided workers' compensation insurance solely
for the Company. The 1994 financial statements include the accounts of the
Company and its 79% owned subsidiary, Winston Indemnity, Ltd. All significant
intercompany transactions and balances have been eliminated.

In October 1994, the Company and the minority stockholders of Winston
Indemnity, Ltd. reached an agreement, effective September 30, 1994 (the
Effective Date), whereby, pursuant to a plan of reorganization, the Company
acquired all of the assets and assumed all of the liabilities of Winston
Indemnity, Ltd. in exchange for 51,348 shares of Oliver & Winston, Inc. common
stock. Simultaneously, under the plan of reorganization, these shares of Oliver
& Winston, Inc. stock were distributed to the stockholders of Winston Indemnity,
Ltd. in proportion to their respective ownership percentages, and Winston
Indemnity, Ltd. was dissolved. The Company received 40,566 of such shares,
representing its 79% interest in Winston Indemnity, Ltd., which were immediately
retired. The minority stockholders of Winston Indemnity, Ltd., consisting of the
same stockholders and with the same proportionate ownership percentages as the
minority ownership of Oliver & Winston, Inc., received 10,782 shares of Oliver &
Winston, Inc. common stock in exchange for their $1,028,000 minority interest.
The accompanying 1994 financial statements give effect to this transaction as if
it had occurred on September 30, 1994.

INCOME TAXES

The Company has elected S Corporation status for federal income tax
purposes. Accordingly, earnings are taxed at the individual shareholder level,
and the Company incurs no federal income tax liability. The Company is, however,
subject to California S Corporation franchise taxes of 1.5% of taxable income.

INVENTORIES

Inventories, consisting of tires and automotive parts, are valued at the
lower of cost or market, in aggregate, cost being determined using the last-in,
first-out (LIFO) method. Net income for the years ended September 30, 1996, 1995
and 1994, would have been $871,000, $638,000 and $(1,040,000), respectively,
using FIFO costs for inventories, compared to $454,000, $204,000 and $(647,000),
respectively, using LIFO cost.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated over their
estimated useful lives using the straight-line method. Generally, estimated
useful lives range from 4 to 20 years for automobiles, machinery, equipment and
buildings.

Leasehold improvements are amortized on the straight-line basis over the
shorter of ten years or the remaining lease terms.

DEFERRED COMPENSATION

The Company has unfunded deferred compensation agreements with certain
officers and other key employees. The agreements provide for monthly payments
beginning at age 58 and continuing for 10 years. The present value of the
estimated cost of these payments, discounted at 7.5%, is accrued over the period
of
F-33
<PAGE> 155
OLIVER & WINSTON, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

active employment of the covered individuals. Operating expense has been charged
with $206,000 in 1996, $208,000 in 1995 and $210,000 in 1994 to provide for the
benefits accrued. In addition, certain executives have agreements which provide
for severance payments.

SELF-INSURANCE RESERVES

Prior to June 1, 1994, the Company was self-insured for workers'
compensation insurance and employee medical insurance. Prior to September 1,
1992, the Company was also self-insured with respect to general liability
insurance.

The self-insurance loss reserves and loss adjustment expenses include an
amount determined from loss reports and individual cases and an amount, based on
the Company's available loss history and industry data, for losses incurred but
not reported. These estimates are reviewed and are necessarily subject to the
impact of future changes in such factors as claim severity and frequency. While
management believes that the amounts are fairly stated, the ultimate liability
may be in excess of or less than the amounts provided, and any adjustments will
be reflected in the periods in which they become known.

REVENUE RECOGNITION

The Company recognizes revenue at the point of sale as it relates to tires
and mechanical services.

DEFERRED SERVICE AND WARRANTY REVENUE

The Company defers a portion of revenue from the sale of service and
warranty contracts. Deferred service revenue is recognized over the estimated
effective lives of such contracts. Warranty revenue is recognized proportionally
to historical costs incurred in satisfaction of the terms of such contracts.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

In connection with the death of the Company's principal stockholder in
1995, the Company has incurred certain costs related to the settlement of
various related estate and corporate matters. Such costs approximated $220,000
in 1996 and are included in selling, general and administrative expense in the
accompanying statement of operations.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

PROSPECTIVE ACCOUNTING CHANGES

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement
is effective for fiscal years beginning after December 15, 1995; however,
earlier application is permitted. Among other provisions, the statement
standardizes the accounting practices for the recognition and measurement of
impairment losses on certain long-lived assets. The Company has decided not to
elect early adoption of the statement; however, the Company anticipates that
adoption of the change will not have a material impact on its financial
statements.

F-34
<PAGE> 156
OLIVER & WINSTON, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

2. RELATED-PARTY TRANSACTIONS:

NOTES RECEIVABLE FROM RELATED PARTY

The notes receivable from related party are unsecured and bear interest at
5.19%. The notes require minimum annual payments of $450,000 with the remaining
balance due on September 30, 1998.

NOTES RECEIVABLE FROM AFFILIATES

Notes receivable from affiliates are due on demand and accrue interest at
prime plus 1.5% per annum. The notes represent advances for the purchase of real
estate to partnerships whose general partner is the estate of the Company's
principal stockholder. The receivables are collateralized by trust deeds on the
real estate.

NOTES PAYABLE TO RELATED PARTY

Notes payable to related parties are due on demand and bear interest at
various rates ranging from 9.5% to 10% per annum. Interest expense related to
these notes totaled $248,000, $244,000 and $267,000 in 1996, 1995, and 1994,
respectively.

MINORITY INTEREST IN SUBSIDIARY

In 1994, stockholders of the Company owned a 21% interest in the Company's
subsidiary (See Note 1).

3. BORROWING ARRANGEMENTS:

The Company has a credit agreement with a bank which provides for maximum
borrowings of $12,000,000 through April 14, 1998, under a revolving line of
credit, a term loan facility and letters of credit.

Borrowings under the above credit agreement are collateralized by
substantially all of the Company's assets. The terms of the credit agreement
contain certain restrictive covenants, including maintenance of minimum working
capital, tangible net worth, current ratio, and debt coverage ratio and provides
for immediate repayment on changes in control under certain circumstances. The
agreement also restricts dividend payments and capital expenditures. At
September 30, 1996, the Company was in violation of certain of these covenants,
for which the bank has waived compliance as of September 30, 1996.

The Company has two notes payable to a tire vendor for $1,700,000 and
$1,357,000. The $1,700,000 note is payable in monthly principal installments of
$56,667 plus interest at 6% through June 1997. At September 30, 1996 and 1995,
$510,000 and $1,190,000, respectively, were outstanding under this note. The
$1,357,000 note accrues interest at prime plus 1% (9.25% at September 30, 1996),
with monthly interest-only payments due through June 1997, at which time the
agreement provides for 36 equal monthly principal payments. The notes are
secured by the related inventories.

In December 1995, the Company signed a $1,000,000 unsecured note payable to
another vendor. The note is payable in monthly principal installments of $4,167
plus interest at 4% through December 1999, at which time the agreement provides
for monthly payments of $66,667 plus interest through December 2000. This note
was discounted at an imputed interest rate of 10.75%, resulting in an
unamortized discount of approximately $185,000 at September 30, 1996. The note
is subject to accelerated repayment if minimum levels of purchases from the
vendor are not maintained.

F-35
<PAGE> 157
OLIVER & WINSTON, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

Future principal payments on long-term debt at September 30, 1996 are as
follows:

4. COMMITMENTS AND CONTINGENCIES:

LEASES

The Company leases land, buildings and equipment under various operating
and capital leases. Future minimum obligations under capital leases are as
follows:

<TABLE>
<S> <C>
1997........................................................ $280,000
1998........................................................ 213,000
1999........................................................ 147,000
2000........................................................ 55,000
2001........................................................ 21,000
Thereafter.................................................. 6,000
--------
Total minimum lease payments................................ 722,000
Less -- Amount representing interest........................ 97,000
--------
Net present value of future minimum lease payments.......... $625,000
========
</TABLE>

As of September 30, 1996, future minimum lease payments and sublease
rentals under the noncancellable operating leases are summarized as follows:

<TABLE>
<CAPTION>
RELATED NONRELATED SUBLEASE
OPERATING LEASES PARTIES PARTIES RENTALS TOTAL
---------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1997..................................... $ 458,000 $ 9,426,000 $ 299,000 $ 9,585,000
1998..................................... 460,000 8,932,000 214,000 9,178,000
1999..................................... 460,000 7,669,000 187,000 7,942,000
2000..................................... 460,000 6,566,000 164,000 6,862,000
2001..................................... 460,000 4,762,000 63,000 5,159,000
Thereafter............................... 1,383,000 17,031,000 63,000 18,351,000
---------- ----------- ----------- -----------
Total minimum lease payment......... $3,681,000 $54,386,000 $ 990,000 $57,077,000
========== =========== =========== ===========
</TABLE>

Rent expense, net of sublease income of $392,000, $393,000 and $365,000
under operating leases was $9,281,000, $9,030,000 and $8,406,000 for the years
ended September 30, 1996, 1995 and 1994, respectively.

LEGAL PROCEEDINGS

F-36
<PAGE> 158
OLIVER & WINSTON, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994

predict the outcome of the claim, in the opinion of management, the disposition
of the claim will not have a material effect on the financial position of the
Company.

On October 26, 1993, the California Bureau of Automotive Repair reached an
agreement with the Company in connection with alleged violations related to the
performance of unnecessary repairs and replacement of unneeded parts. Under the
terms of the agreement, the Company was obligated to pay an aggregate of
$1,400,000 for restitution, civil penalty and investigation costs to the State
of California, the counties of Sacramento and Ventura, and former customers over
a two-year period.

5. PROFIT SHARING PLAN AND 401(K) PLAN:

The Company has a profit sharing plan that covers substantially all
employees of the Company. Contributions are made to the plan annually at the
discretion of the Board of Directors. No contribution to the plan was made for
the years ended September 30, 1996, 1995 and 1994. The Company also has a 401(k)
defined contribution plan that covers full-time employees of the Company who
have completed six months of service. All accounts are funded based on employee
contributions. Employer contributions are determined by the Board of Directors.
No employer contributions were granted in 1996, 1995 or 1994.

F-37
<PAGE> 159

OLIVER & WINSTON, INC.

CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 315,000
Accounts receivable, net of allowance for doubtful
accounts of $317,000 at March 31, 1997................. 2,758,000
Other receivables......................................... 1,611,000
Inventories............................................... 20,222,000
Prepaid expenses.......................................... 542,000
Notes receivable from related party and affiliates........ 558,000
-----------
Total current assets.............................. 26,006,000
-----------
Property and equipment
Land...................................................... 315,000
Building.................................................. 121,000
Leased facilities under capital leases.................... 3,357,000
Leasehold improvements.................................... 8,659,000
Machinery and equipment................................... 21,069,000
-----------
Total............................................. 33,521,000
-----------
Less -- Accumulated depreciation and amortization......... (25,517,000)
-----------
Net property and equipment................................ 8,004,000
-----------
Notes receivable from related party......................... 1,988,000
Other assets................................................ 888,000
-----------
$36,886,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit............................................ $ 6,986,000
Accounts payable.......................................... 8,200,000
Accrued expenses.......................................... 8,663,000
Notes payable to related parties.......................... 2,326,000
Current portion of long-term debt......................... 735,000
Other current liabilities................................. 500,000
-----------
Total current liabilities......................... 27,410,000
-----------
Commitments and contingencies (Notes 4 and 5)
Long-term debt.............................................. 2,349,000
Deferred compensation....................................... 1,789,000
Other liabilities........................................... 1,762,000
Stockholders' equity
Common stock, $.10 par value, 1,000,000 shares authorized;
181,942 shares issued and outstanding in 1996 and
1995................................................... 18,000
Additional paid-in capital................................ 1,180,000
Retained earnings......................................... 2,378,000
-----------
Total stockholders' equity........................ 3,576,000
-----------
$36,886,000
===========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of this balance sheet.
F-38
<PAGE> 160

OLIVER & WINSTON, INC.

CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
NET SALES................................................... $67,846,000 $68,634,000
COST OF SALES............................................... 39,023,000 40,029,000
----------- -----------
Gross profit........................................... 28,823,000 28,605,000
GENERAL, SELLING AND ADMINISTRATIVE EXPENSES................ 29,159,000 28,632,000
----------- -----------
Loss from operations................................... (336,000) (27,000)
INTEREST EXPENSE, NET....................................... (447,000) (363,000)
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES...................... (783,000) (390,000)
Provision for income taxes (Note 1)....................... 0 0
----------- -----------
NET LOSS.................................................... $ (783,000) $ (390,000)
=========== ===========
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-39
<PAGE> 161

OLIVER & WINSTON, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES DOLLARS CAPITAL EARNINGS TOTAL
------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1995....... 181,942 $18,000 $1,180,000 $3,207,000 $4,405,000
Net loss........................ 0 0 0 (390,000) (390,000)
------- ------- ---------- ---------- ----------
Balance, March 31, 1996........... 181,942 $18,000 $1,180,000 $2,817,000 $4,015,000
======= ======= ========== ========== ==========

Balance, September 30, 1996....... 181,942 $18,000 $1,180,000 $3,161,000 $4,359,000
Net loss........................ 0 0 0 (783,000) (783,000)
------- ------- ---------- ---------- ----------
Balance, March 31, 1997........... 181,942 $18,000 $1,180,000 $2,378,000 $3,576,000
======= ======= ========== ========== ==========
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-40
<PAGE> 162

OLIVER & WINSTON, INC.

CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (783,000) $ (390,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 1,144,000 1,088,000
Provision for losses on accounts receivable............ 117,000 146,000
Interest income from note receivable from related
party................................................. (43,000) (82,000)
Gain on sale of property and equipment................. 0 (94,000)
Change in operating assets and liabilities:
Accounts receivable.................................. 120,000 191,000
Other receivables.................................... 378,000 363,000
Inventories.......................................... 396,000 1,344,000
Prepaid expenses..................................... (109,000) 9,000
Accounts payable..................................... (2,567,000) (2,362,000)
Accrued expenses..................................... (222,000) 486,000
Other current liabilities............................ (216,000) (446,000)
Deferred compensation................................ (16,000) (262,000)
Other liabilities.................................... 86,000 (253,000)
---------- ----------
Net cash used in operating activities............. (1,715,000) (262,000)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (888,000) (989,000)
Other assets.............................................. 264,000 381,000
Proceeds from sale of property and equipment.............. 0 450,000
---------- ----------
Net cash used in investing activities............. (624,000) (158,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayment) on line of credit.............. 1,980,000 (893,000)
Net borrowings to related parties and affiliates.......... 3,000 459,000
Proceeds from note payable................................ 300,000 1,000,000
Repayments of long-term debt.............................. (489,000) (495,000)
---------- ----------
Net cash provided by financing activities......... 1,794,000 71,000
---------- ----------
NET DECREASE IN CASH........................................ $ (545,000) $ (349,000)
CASH, BEGINNING OF PERIOD................................... 860,000 437,000
---------- ----------
CASH, END OF PERIOD......................................... $ 315,000 $ 88,000
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year:
Interest............................................... $ 515,000 $ 445,000
Income taxes........................................... $ 0 $ 0
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
As a result of discounting the $1,000,000 unsecured
note payable to a vendor during 1996, the Company
reclassified $185,000 from long-term debt to accrued
expenses (see Note 3)
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-41
<PAGE> 163

OLIVER & WINSTON, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1997 AND 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

GENERAL

Oliver & Winston, Inc., (the Company) operates retail tire and automotive
service centers (d/b/a Winston Tire) in California.

Basis of Presentation

The unaudited condensed balance sheet as of March 31, 1997, and the
condensed statements of operations, stockholders' equity and cash flows for the
six months ended March 31, 1997 and 1996, have been prepared by the Company and
have not been audited. In the opinion of management, all adjustments, consisting
of only normal recurring adjustments, necessary for a fair presentation of the
financial position of the Company, the results of its operations and cash flows
have been made.

The results of the operations for the six months ended are not necessarily
indicative of the operating results for the full fiscal year.

INCOME TAXES

The Company has elected to be treated as an S Corporation status for
federal income tax purposes. Accordingly, earnings are taxed at the individual
shareholder level, and the Company incurs no federal income tax liability. The
Company is, however, subject to California S Corporation franchise taxes of 1.5%
of taxable income.

INVENTORIES

Inventories, consisting of tires and automotive parts, are valued at the
lower of cost or market, in aggregate, cost being determined using the last-in,
first-out (LIFO) method. LIFO inventory cost was approximately $1,000 less than
first-in, first-out (FIFO) cost at March 31, 1997. Net loss for the six months
ended March 31, 1997 and 1996, would have been $548,000 and $602,000,
respectively, using FIFO costs for inventories, compared to $783,000 and
$390,000, respectively, using LIFO cost.

PROPERTY AND EQUIPMENT

Leasehold improvements are amortized on the straight-line basis over the
shorter of ten years or the remaining lease terms.

DEFERRED COMPENSATION

F-42
<PAGE> 164
OLIVER & WINSTON, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

active employment of the covered individuals. Operating expense has been charged
with $98,000 and $107,000 for the six-month period ended March 31, 1997 and
1996, respectively, to provide for the benefits accrued. In addition, certain
executives have agreements which provide for severance payments.

SELF-INSURANCE RESERVES

DEFERRED SERVICE AND WARRANTY REVENUE

The Company deferred revenue of $3,646,000 under these programs at March
31, 1997. Deferred service and warranty revenue is reflected in the balance
sheet of the Company to the extent that the deferred revenue is estimated to be
recognized in income after the next fiscal year. Deferred revenue estimated to
be recognized in income during the next fiscal year is included with accrued
expenses in the accompanying balance sheet.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

In connection with the death of the Company's principal stockholder in
1995, the Company has incurred certain costs related to the settlement of
various related estate and corporate matters. Such costs approximated $110,000
as of March 31, 1996, and are included in selling, general and administrative
expense in the accompanying statement of operations.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of accounts receivable, other receivables, accounts
payable and accrued expenses approximate fair value because of the short
maturity of these instruments. The carrying values of the line of credit and
various loan balances included in long-term debt approximate their fair value
either due to their variable rate nature or due to the short maturity of these
items. The fair value of the notes receivable from related parties and
affiliates and the notes payable to related parties cannot be determined due to
the related party nature of the transactions.

F-43
<PAGE> 165
OLIVER & WINSTON, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

PROSPECTIVE ACCOUNTING CHANGES

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement
requires that long-lived assets and certain identifiable intangible assets to be
held and used by an entity be reviewed for impairment whenever events occur
which indicate that the carrying amount of the asset might not be recoverable.
The review should assess fair value based on estimated future cash flows
expected from the use and disposition of the asset. The asset should be reported
at the lower of the carrying amount or fair value less cost to sell. The
adoption of SFAS No. 121 did not have a material effect on the Company's results
of operations.

2. RELATED-PARTY TRANSACTIONS:

NOTES RECEIVABLE FROM RELATED PARTY

The note receivable from related party is unsecured and bears interest at
5.19%. The note requires minimum annual payments of $450,000 with the remaining
balance due on September 30, 1998. The note was repaid in full in connection
with the acquisition by Heafner (see Note 6).

NOTES RECEIVABLE FROM AFFILIATES

NOTES PAYABLE TO RELATED PARTY

Notes payable to related parties are due on demand and bear interest at
various rates ranging from 9.5% to 10% per annum. Interest expense related to
these notes totaled $114,000 and $127,000 as of March 31, 1997, and 1996,
respectively.

3. BORROWING ARRANGEMENTS:

The Company has a revolving line of credit agreement with a bank which
provides for maximum borrowings of $12,000,000 through April 14, 1998, certain
vendor notes, a term loan and letters of credit.

REVOLVING LINE OF CREDIT

The revolving line of credit provides for borrowings limited to a borrowing
base formula, as defined. Borrowings under the revolving line bear interest at
the bank's prime rate plus 1.5% (10% at March 31, 1997). Outstanding borrowings
under the line of credit were $6,986,000 at March 31, 1997. No amounts were
outstanding under the term loan facility.

The revolving line of credit agreement also provides for the issuance of
letters of credit to a maximum of $7,000,000 which reduce availability under the
revolving line of credit. The Company pays a fee equal to 2% per annum of the
face amount of each letter of credit. At March 31, 1997, letters of credit
totaling $1,525,000 were outstanding under this agreement (see Note 4).

Borrowings under the revolving line of credit agreement are collateralized
by substantially all of the Company's assets. The terms of the credit agreement
contain certain restrictive covenants, including maintenance of minimum working
capital, tangible net worth, current ratio, and debt coverage ratio and provides
for immediate repayment on changes in control under certain circumstances. The
agreement also restricts dividend payments and capital expenditures. At March
31, 1997, the Company was in violation of

F-44
<PAGE> 166
OLIVER & WINSTON, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

certain of these covenants, however the revolving line of credit was paid in
full in connection with the acquisition by Heafner (see Note 6).

VENDOR NOTES

The Company has two notes payable to a tire vendor for $1,700,000 and
$1,357,000. The $1,700,000 note is payable in monthly principal installments of
$57,000 plus interest at 6% through June 1997. At March 31, 1997, $170,000 was
outstanding under this note. The $1,357,000 note accrues interest at prime plus
1% (9.5% at March 31, 1997), with monthly interest-only payments due through
June 1997, at which time the agreement provides for 36 equal monthly principal
payments. The notes are secured by the related inventories.

In December 1995, the Company signed a $1,000,000 unsecured note payable to
another vendor. The note is payable in monthly principal installments of $4,167
plus interest at 4% through December 1999, at which time the agreement provides
for monthly payments of $66,667 plus interest through December 2000. This note
was discounted at an imputed interest rate of 10.75%, resulting in an
unamortized discount of approximately $185,000 at March 31, 1997. At March 31,
1997, $756,000 was outstanding under this note. The note is subject to
accelerated repayment if minimum levels of purchases from the vendor are not
maintained.

TERM LOAN

In December 1996, the Company signed a note payable in the amount of
$300,000 plus interest, secured by a building and land. The note bears interest
at a variable rate equal to two points above the bank's prime rate prevailing 30
days prior to the effective date of rate change. The effective date of rate
change is every three months beginning April 1, 1997. Principal and interest are
payable in 180 monthly installments commencing February 1, 1997, with the
remaining balance due in full on January 1, 2012. Payment amounts are subject to
change based on interest rate in effect at the time. At March 31, 1997, $298,000
was outstanding under this note.

Future principal payments on long-term debt at March 31, 1997, are as
follows:

<TABLE>
<S> <C>
1998..................................................... $ 735,000
1999..................................................... 652,000
2000..................................................... 760,000
2001..................................................... 667,000
2002..................................................... 17,000
Thereafter............................................... 253,000
----------
$3,084,000
==========
</TABLE>

F-45
<PAGE> 167
OLIVER & WINSTON, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

4. COMMITMENTS AND CONTINGENCIES:

LEASES

The Company leases land, buildings and equipment under various operating
and capital leases. Future minimum obligations under capital leases are as
follows:

<TABLE>
<S> <C>
1998........................................................ $263,000
1999........................................................ 169,000
2000........................................................ 103,000
2001........................................................ 34,000
2002........................................................ 4,000
--------
Total minimum lease payments...................... 573,000
Less -- Amount representing interest........................ 70,000
--------
Net present value of future minimum lease payments.......... $503,000
========
</TABLE>

The current portion of the obligation under capital leases at March 31,
1997, is $222,000.

The net book value of leased facilities under capital leases was $246,000
at March 31, 1997.
As of March 31, 1997, future minimum lease payments and sublease rentals under
the noncancellable operating leases are summarized as follows:

<TABLE>
<CAPTION>
RELATED NONRELATED SUBLEASE
OPERATING LEASES PARTIES PARTIES RENTALS TOTAL
- ---------------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
1998.................................... $ 481,000 $ 8,981,000 ($214,000) $ 9,248,000
1999.................................... 481,000 8,600,000 (187,000) 8,894,000
2000.................................... 481,000 7,518,000 (168,000) 7,831,000
2001.................................... 481,000 6,393,000 (79,000) 6,795,000
2002.................................... 464,000 4,551,000 (63,000) 4,952,000
Thereafter.............................. 1,196,000 16,641,000 (68,000) 17,769,000
---------- ----------- --------- -----------
Total minimum lease
payments.................... $3,584,000 $52,684,000 ($779,000) $55,489,000
========== =========== ========= ===========
</TABLE>

Rent expense, net of sublease income of $182,000 and $197,000 under
operating leases was $4,797,000 and $4,606,000 six-month period ended March 31,
1997 and 1996.

LETTERS OF CREDIT

At March 31, 1997, a bank issued letters of credit totaling $1,525,000 to
support reinsurance requirements, workers' compensation and personal injury
exposure.

LEGAL PROCEEDINGS

F-46
<PAGE> 168
OLIVER & WINSTON, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

aggregate of $67,000 related to this matter is included in accrued expenses in
the accompanying balance sheets.

During May 1994, the Company terminated a tire supply agreement with a
vendor. Under the terms of the termination agreement, the Company received
$1,500,000 from the vendor to provide all warranty and adjustment privileges to
purchasers of these tires. The Company believes that this amount approximates
the ultimate cost of providing the related warranty and adjustment privileges.
At March 31, 1997, an aggregate of $103,000 is included in accrued expense and
the warranty and adjustment liability in the accompanying balance sheets as an
estimate of such future cost.

ENVIRONMENTAL

The Company is also subject to a claim pursuant to environmental laws and
regulations that may require the Company to take action to correct the effects
on the environment. While it is not possible at this time to predict the outcome
of the claim, in the opinion of management, the disposition of the claim will
not have a material effect on the financial position of the Company.

5. PROFIT SHARING PLAN AND 401(k) PLAN:

The Company has a profit sharing plan that covers substantially all
employees of the Company. Contributions are made to the plan annually at the
discretion of the Board of Directors. No contribution to the plan was made for
the six-month periods ended March 31, 1997 and 1996. The Company also has a
401(k) defined contribution plan that covers full-time employees of the Company
who have completed six-months of service. All accounts are funded based on
employee contributions. Employer contributions are determined by the Board of
Directors. No employer contributions were granted during the six-month periods
ended March 31, 1997 and 1996.

6. SUBSEQUENT EVENT

On May 7, 1997, the Company's common stock was purchased by The J.H.
Heafner Company, Inc. (Heafner) for approximately $42,447,000. In connection
with the acquisition, the note receivables from a related party were collected
in full and the revolving line of credit and note payable to related parties
were repaid.

F-47
<PAGE> 169

REPORT OF INDEPENDENT AUDITORS

Board of Directors
ITCO Logistics Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of ITCO
Logistics Corporation and its subsidiaries as of September 30, 1997 and 1996 and
the related consolidated statements of operations, shareholders' deficit and
cash flows for the year ended September 30, 1997 and for the period from
inception (November 13, 1995) to September 30, 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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ITCO Logistics Corporation and its subsidiaries at September 30, 1997 and 1996
and the consolidated results of their operations and their cash flows for the
year ended September 30, 1997 and for the period from inception (November 13,
1995) to September 30, 1996 in conformity with generally accepted accounting
principles.

/s/ Ernst & Young LLP
Raleigh, North Carolina
October 31, 1997,
except for Note 13, as to which the date is
January 14, 1998

F-48
<PAGE> 170

ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,855,590 $ 1,753,583
Receivables:
Trade, net of allowance for doubtful accounts of
$664,000 and $758,513................................ 42,557,956 43,545,804
Other including supplier rebates....................... 7,369,671 7,460,392
------------ ------------
51,783,217 52,759,779
Inventories............................................... 43,187,911 41,483,793
Deferred income tax asset................................. 1,174,247 2,127,728
Income tax recoverable.................................... -- 99,146
Prepaid expenses.......................................... 528,310 350,633
------------ ------------
Total current assets........................................ 96,673,685 96,821,079
Property and equipment, net................................. 10,905,001 11,995,317
Intangible assets, net...................................... 14,560,994 15,250,240
Deferred income tax asset................................... 630,875 --
Other assets................................................ 549,924 151,670
------------ ------------
TOTAL ASSETS........................................... $123,320,479 $124,218,306
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 75,146,475 $ 67,396,239
Accrued expenses.......................................... 3,086,404 2,476,382
Current maturities of long-term debt...................... 2,038,463 1,999,754
Current obligations under capital leases.................. -- 79,288
------------ ------------
TOTAL CURRENT LIABILITIES.............................. 80,271,342 71,951,663
Revolving credit agreement.................................. 32,122,667 37,572,884
Long-term debt.............................................. 5,321,135 7,589,980
Deferred income taxes....................................... -- 59,684
------------ ------------
TOTAL LIABILITIES...................................... 117,715,144 117,174,211
Commitments and contingencies
Redeemable preferred stock, Class A, $.01 par value; $1,000
stated value; 16,200 shares authorized; 8,100 shares
issued and outstanding.................................... 9,708,591 8,795,504
Shareholders' deficit:
Common stock, $.01 par value; 250,000 shares authorized;
90,000 shares issued and outstanding................... 900 900
Additional paid in capital................................ 899,100 899,100
Accumulated deficit....................................... (5,003,256) (2,651,409)
------------ ------------
Total shareholders' deficit................................. (4,103,256) (1,751,409)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT............ $123,320,479 $124,218,306
============ ============
</TABLE>

See accompanying notes.
F-49
<PAGE> 171

ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
TEN MONTH
YEAR ENDED PERIOD ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996
------------ ------------
<S> <C> <C>
Sales....................................................... $351,996,122 $290,982,083
Cost of sales............................................... 301,969,811 253,629,352
------------ ------------
Gross profit................................................ 50,026,311 37,352,731
Selling, general and administrative expenses................ 47,867,120 36,945,539
------------ ------------
Income from operations...................................... 2,159,191 407,192
Other income (expense):
Interest expense.......................................... (3,709,869) (3,484,178)
Rental income............................................. 331,559 314,175
Other, net................................................ (671,641) (489,394)
------------ ------------
Total other expense......................................... (4,049,951) (3,659,397)
------------ ------------
Loss before income taxes.................................... (1,890,760) (3,252,205)
Income tax benefit.......................................... 452,000 1,296,300
------------ ------------
Net loss.................................................... $ (1,438,760) $ (1,955,905)
============ ============
</TABLE>

See accompanying notes.
F-50
<PAGE> 172

ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at inception (November 13, 1995)...... $ -- $ -- $ -- $ --
Issuance of Common stock.................... 900 899,100 -- 900,000
Net loss.................................... -- -- (1,955,905) (1,955,905)
Accrued dividends on Preferred Stock, Class -- -- (695,504) (695,504)
A........................................
---- -------- ----------- -----------
Balance at September 30, 1996................. 900 899,100 (2,651,409) (1,751,409)
Net loss.................................... -- -- (1,438,760) (1,438,760)
Accrued dividends on Preferred Stock, Class -- -- (913,087) (913,087)
A........................................
---- -------- ----------- -----------
Balance at September 30, 1997................. $900 $899,100 $(5,003,256) $(4,103,256)
==== ======== =========== ===========
</TABLE>

See accompanying notes.
F-51
<PAGE> 173

ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
YEAR ENDED (NOVEMBER 13, 1995)
SEPTEMBER 30 TO SEPTEMBER 30
1997 1996
------------ ---------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss................................................... $(1,438,760) $(1,955,905)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization on property and 1,621,564 1,511,167
equipment.............................................
Amortization on intangible assets........................ 871,627 668,103
Net loss on disposal of property and equipment........... 28,171 34,409
Deferred income tax...................................... 262,922 (1,230,000)
Changes in assets and liabilities, net of effects from
purchases of business:
Receivables, net...................................... 1,078,569 (11,627,826)
Inventories........................................... (1,704,118) 12,678,926
Prepaid expenses...................................... (177,677) 176,190
Accounts payable...................................... 7,750,236 6,477,969
Accrued expenses...................................... 610,022 237,438
Other liabilities/assets.............................. (398,254) (43,962)
Income tax payable/receivable......................... 99,146 (456,825)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 8,603,448 6,469,684
INVESTING ACTIVITIES
Payments for purchase of property and equipment............ (1,187,836) (1,133,380)
Proceeds from sale of equipment............................ 446,036 335,177
Acquisitions of businesses, net of cash acquired........... -- (15,351,554)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES................. (741,800) (16,149,757)
FINANCING ACTIVITIES
Proceeds from issuance of Common Stock..................... -- 900,000
Proceeds from issuance of Preferred Stock, Class A......... -- 8,100,000
Net payments on revolving credit agreement................. (5,450,217) (481,468)
Proceeds from issuance of long-term debt................... -- 4,250,000
Repayment of long-term debt................................ (2,230,136) (1,277,338)
Principal paid on capital lease obligations................ (79,288) (57,538)
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES... (7,759,641) 11,433,656
----------- -----------
NET INCREASE IN CASH....................................... 102,007 1,753,583
Cash at beginning of period................................ 1,753,583 --
----------- -----------
Cash at end of period...................................... $ 1,855,590 $ 1,753,583
=========== ===========
Interest paid............................................ $ 3,692,913 $ 3,399,150
=========== ===========
Income taxes paid........................................ $ -- $ 434,200
=========== ===========
</TABLE>

See accompanying notes.
F-52
<PAGE> 174

ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997

1. SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

ITCO Logistics Corporation (formerly known as ITCO Acquisition Company,
Inc.) a Delaware corporation was formed on November 13, 1995. At the close of
business on November 30, 1995, ITCO Logistics Corporation through its
wholly-owned subsidiary ITCO Acquisition Company, Inc. of North Carolina,
purchased all the outstanding capital stock of ITCO Holding Company, Inc. ITCO
Acquisition Company, Inc. of North Carolina subsequently merged with and changed
its name to ITCO Holding Company, Inc. The total cost of acquisition was
approximately $21,000,000. The acquisition costs were allocated on the basis of
the estimated fair value of the assets acquired and liabilities assumed which
totaled approximately $13,500,000. Therefore resulting goodwill of approximately
$7,500,000 was recorded. The acquisition was accounted for as a purchase and,
accordingly, the results of operations of ITCO Holding Company, Inc. are
included in the consolidated operations of the ITCO Logistics Corporation from
the date of acquisition.

ITCO Logistics Corporation and subsidiaries (collectively referred to as
the "Company" throughout) are principally engaged in the business of wholesale
distribution of car and truck tires and related accessories generally in the
eastern part of the United States.

PRINCIPLES OF CONSOLIDATION

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

ACCOUNTING PERIODS

The Company uses a four, four, five week accounting period for each quarter
with a 52 week year ending closest to September 30 of each year. Fiscal year
1997 ended September 26, 1997. Fiscal year 1996 was a stub period from inception
(November 13, 1995) to year end which ended September 28, 1996. For purposes of
financial statement presentation, each fiscal year is described as having ended
on September 30.

USE OF ESTIMATES

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

RECLASSIFICATIONS

Certain 1996 financial statements amounts have been reclassified to conform
with 1997 classifications. These reclassifications had no affect on net loss or
shareholders' equity as previously reported.

ACCOUNTS RECEIVABLE

Concentrations of credit risk with respect to trade accounts receivable are
limited due to the number of entities comprising the Company's customer base.
The Company's trade receivables are with companies in the retail and commercial
car and truck tire and accessories lines of business. The Company provides
credit in the normal course of business and performs ongoing credit evaluations
on its customers' financial condition, but generally does not require collateral
to support such receivables. The Company also establishes an allowance

F-53
<PAGE> 175
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997

for doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information. The allowance for doubtful
accounts was $664,000 and $758,513 at September 30, 1997 and 1996, respectively,
which management believes is adequate to provide for credit loss in the normal
course of business.

INVENTORIES

Inventories consist primarily of tires, custom wheels and accessories and
are stated at the lower of cost (first-in, first-out method) or market.

PROPERTY AND EQUIPMENT

Property and equipment is stated on the basis of cost.

Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the related assets. Amortization of leasehold
improvements is provided over the useful life of the asset or the remaining
lease term, whichever is shorter. The estimated useful lives of property and
equipment are:

<TABLE>
<S> <C>
Buildings................................................ 20 to 40 years
Furniture and equipment.................................. 3 to 5 years
Transportation equipment................................. 5 years
</TABLE>

INTANGIBLE AND LONG-LIVED ASSETS

Intangible assets relate primarily to the acquisition of wholesale tire
distribution businesses and costs involved in arranging and obtaining long-term
financing. Amortization is provided on a straight-line basis over the estimated
useful lives ranging from three to forty years.

The carrying values of intangible and long-lived assets are reviewed if
facts and circumstances indicate potential impairment of their carrying amount.
Any impairment in the carrying value of such assets is recorded when identified.

REVENUE RECOGNITION

Revenue from product sales is recognized at the time ownership of goods
transfers to the customer and the earnings process is complete.

ADVERTISING COSTS

The cost of advertising is expensed as incurred. The Company incurred
$627,456 and $291,843 in advertising costs during the year ended September 30,
1997 and for the period from inception (November 13, 1995) to September 30,
1996, respectively.

INCOME TAXES

ITCO Logistics Corporation and its wholly-owned subsidiaries file a
consolidated federal income tax return and separate state income tax returns.
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
Deferred income taxes (benefits) are provided on temporary differences between
the financial statement carrying values and the tax bases of assets and
liabilities.

F-54
<PAGE> 176
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997

SUPPLIERS

The Company currently buys the majority of its tires from four suppliers.
Although there are a limited number of suppliers of particular brands of tires,
management believes that other suppliers could adapt to provide similar tires on
comparable terms.

2. INVENTORIES

Under security agreements with several suppliers, the Company has pledged
all inventories purchased from these suppliers as collateral for amounts owed to
them. At September 30, 1997 and 1996, the Company owed approximately $68,721,860
and $66,047,000 to these suppliers, respectively, which was collateralized by
approximately $33,217,632 and $30,638,000 in inventories for the respective
periods.

3. PROPERTY AND EQUIPMENT

Property and equipment at September 30 consists of the following:

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land........................................................ $ 2,385,891 $ 2,385,891
Buildings................................................... 6,179,593 5,993,596
Furniture and equipment..................................... 2,789,757 2,134,720
Transportation equipment.................................... 1,021,395 2,057,941
Leasehold improvements...................................... 801,594 682,904
Land and buildings under capital leases..................... -- 180,000
----------- -----------
13,178,230 13,435,052
Less accumulated depreciation and amortization.............. 2,273,229 1,439,735
----------- -----------
Property and equipment, net................................. $10,905,001 $11,995,317
=========== ===========
</TABLE>

4. INTANGIBLE ASSETS AND ACQUISITIONS

Intangible assets consist of the following at September 30:

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Goodwill.................................................... $15,491,089 $15,308,708
Noncompete agreements....................................... 554,500 554,500
Other....................................................... 55,135 55,135
----------- -----------
16,100,724 15,918,343
Accumulated amortization.................................... (1,539,730) (668,103)
----------- -----------
Intangible assets, net...................................... $14,560,994 $15,250,240
=========== ===========
</TABLE>

Amortization expense related to these intangible assets totaled $871,627
and $668,103 during the year ended September 30, 1997 and for the period from
inception (November 13, 1995) to September 30, 1996, respectively.

On January 15, 1996, February 12, 1996, and April 29, 1996, the Company
acquired three businesses (Acme, McGriff, and Palmer, respectively), in business
combinations accounted for as purchases for an aggregate purchase price of
approximately $15,300,000. These businesses are principally engaged in the

F-55
<PAGE> 177
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997

wholesale distribution of car and truck tires located in Florida (Acme),
Alabama, Tennessee (McGriff), and Georgia (Palmer). The results of operations of
the three acquired businesses are included in the consolidated operations of the
Company from the respective dates of acquisition. Goodwill of approximately
$5,100,000 associated with the transactions is being amortized using the
straight-line method over fifteen years.

Assuming the acquisitions had been combined as the beginning of the period,
the unaudited consolidated proforma sales and net loss for the ten month period
ended September 30, 1996 would have been $307,682,083 and $(2,495,905),
respectively.

5. REVOLVING CREDIT AGREEMENT

A subsidiary of the Company has a revolving credit agreement which expires
December 1, 1998 and permits borrowings up to $50,000,000, of which $32,122,667
and $37,572,884 were outstanding at September 30, 1997 and 1996, respectively.
Borrowings under the agreement cannot exceed the sum of 85% of the subsidiary's
total outstanding eligible receivable balances, as defined, and 60% of eligible
inventories as defined. Interest is payable at the lesser of prime (8.5% at
September 30, 1997) plus 1.25% or LIBOR (6% at September 30, 1997) plus 3.25%.
All trade accounts receivable and certain eligible inventories as referenced
above are pledged as collateral for the loan. The terms of the agreement require
the subsidiary to maintain specific levels of minimum book net worth, minimum
current ratio, minimum quarterly earnings and applies restrictions on capital
expenditures, cash dividends and other capital distributions as defined. (See
Note 13)

F-56
<PAGE> 178
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997

6. LONG-TERM DEBT

Long-term debt at September 30 consists of the following (ITCO Logistics
Corporation is not an obligor on any of the debt):

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Installment notes payable to suppliers, due through 1998
with interest at 8.25% to 9.5%; collateralized by
inventories purchased from these suppliers................ $ 520,758 $ 1,778,282
Installment notes payable to suppliers, due through 1999,
bearing no interest; collateralized by inventories
purchased from these suppliers (see below)................ 2,750,000 3,081,141
Notes payable to a bank, payable in monthly installments of
$4,712, which includes interest at the lesser of prime
plus .75% or the adjusted certificate of deposit base rate
plus 2.80% but not in excess of 9.85%..................... -- 322,293
Notes payable to a bank, payable in monthly principal and
interest installments of $14,878 through November 2002
with a balloon payment due December 2002 for the remaining
principal and interest; interest payable at prime (8.5% at
September 30, 1997) plus .5%; subject to an interest rate
cap of 10.5% and an interest rate floor of 6% through
November 1997; collateralized by land and a warehouse with
a carrying value of $1,192,179............................ 720,506 823,785
Notes payable to a bank, payable in monthly principal and
interest installments of $17,725 through December 2003
with a balloon payment due December 2003 for the remaining
principal and interest; interest payable at prime (8.5% at
September 30, 1997) plus .75%; subject to an adjustable
interest rate cap ranging from 8.5% to 9.75% and an
interest rate floor of 5% through December 2000;
collateralized by land and a warehouse with a carrying
value of $1,864,796....................................... 1,252,087 1,353,423
Notes payable to a bank, payable in monthly principal and
interest installments of $8,040 through July 2004 with a
balloon payment due July 2004 for the remaining principal
and interest; interest payable at prime (8.5% at September
30, 1997) plus .75%; subject to an adjustable interest
rate cap ranging from 9.5% to 10.25% through July 1999;
collateralized by land and a warehouse with a carrying
value of $865,209......................................... 671,367 701,197
Notes payable to a bank, payable in monthly installments of
$11,905 through May 1999 with a balloon payment due May
1999 for the remaining principal and interest; interest
payable at 8.5%; collateralized by land and a warehouse
with a carrying value of $1,189,796....................... 1,049,286 1,099,317
Notes payable to a finance corporation, payable in monthly
principal installments of $6,301 plus interest payable at
prime (8.5% at September 30, 1997) plus 1.25% through June
2005; secured by an airplane with a carrying value of
$582,773.................................................. 395,594 430,296
----------- -----------
Total....................................................... 7,359,598 9,589,734
Less current maturities..................................... 2,038,463 1,999,754
----------- -----------
Long-term debt.............................................. $ 5,321,135 $ 7,589,980
=========== ===========
</TABLE>

F-57
<PAGE> 179
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997

As part of the Company's normal operating activities, a subsidiary of the
Company obtained a supplier loan which had an aggregate outstanding balance of
$2,750,000 at September 30, 1997. As part of the loan agreements, the subsidiary
is required to purchase an annual minimum amount of inventory from the supplier
in exchange for an interest-free loan. If the subsidiary does not purchase the
minimum level of inventory from the supplier, interest will accrue at prime plus
1%.

The Company estimates that the fair value of notes payable approximates the
carrying value based upon its effective current borrowing rate for debt with
similar terms and remaining maturities. Disclosure about fair value of financial
instruments is based upon information available to management as of September
30, 1997. Although management is not aware of any factors that would
significantly affect the fair value of amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
September 30, 1997.

Principal maturities of long-term debt for years subsequent to September
30, 1997 are as follows:

<TABLE>
<S> <C>
1998....................................................... $2,038,463
1999....................................................... 2,933,922
2000....................................................... 367,064
2001....................................................... 401,316
2002....................................................... 438,770
Thereafter................................................. 1,180,063
----------
Total...................................................... $7,359,598
==========
</TABLE>

7. EMPLOYEE BENEFIT PLANS

A subsidiary of the Company sponsors the ITCO Holding Company 401(k) Plan
(the "401(k) Plan") for substantially all employees. The subsidiary matches 50%
of eligible employees' contributions to the 401(k) Plan up to 4% of that
individual's salary. The subsidiary also pays certain other expenses of the
401(k) Plan as determined by the Board of Directors. Total subsidiary
contributions to the 401(k) Plan amounted to $234,531 and $194,443 for the year
ended September 30, 1997 and for the period from inception (November 13 1995) to
September 30, 1996, respectively.

8. INCOME TAXES

Income tax benefit is comprised of the following at September 30:

<TABLE>
<CAPTION>
1997 1996
--------- -----------
<S> <C> <C>
Current benefit:
Federal................................................... $(638,400) $ (949,800)
State..................................................... (91,600) (152,400)
--------- -----------
Total current benefit....................................... (730,000) (1,102,200)
Deferred benefit:
Federal................................................... 242,300 (166,600)
State..................................................... 35,700 (27,500)
--------- -----------
Total deferred expense (benefit)............................ 278,000 (194,100)
--------- -----------
Total income tax benefit.................................... $(452,000) $(1,296,300)
========= ===========
</TABLE>

F-58
<PAGE> 180
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997

A reconciliation of the federal statutory rate to the pretax loss for the
year ended September 30 are as follows:

<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Statutory rate.............................................. $ 642,900 $1,105,800
Non-deductible goodwill and other certain expenses.......... (116,400) (91,400)
State income tax benefit.................................... 69,000 134,000
Other....................................................... (143,500) 147,900
--------- ----------
Income tax benefit.......................................... $ 452,000 $1,296,300
========= ==========
</TABLE>

Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The balances of deferred
income tax accounts at September 30, are as follows:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net current deferred income tax assets relate to:
Allowance for doubtful accounts........................... $ 271,000 $ 256,800
Inventory capitalization.................................. 675,100 713,700
Accrued expenses.......................................... (27,000) --
Covenant amortization..................................... (23,000) --
Inventory obsolescence.................................... 111,500 --
Self-insurance reserves................................... (106,400) 40,000
Rebate allowance.......................................... 73,000 77,000
Section 481 adjustment.................................... -- (5,000)
---------- ----------
Subtotal.................................................... 974,200 1,082,500
Net operating loss carrybacks/forwards.................... 200,000 1,045,200
---------- ----------
Total....................................................... $1,174,200 $2,127,700
========== ==========
Net non-current deferred income tax assets (liabilities)
relate to:
Depreciation.............................................. $ (68,300) $ (186,400)
Section 481 adjustment.................................... 87,900 87,900
Deferred gain............................................. (1,900) 19,000
Capital leases............................................ -- 19,500
---------- ----------
Subtotal.................................................... 17,700 (60,000)
Net operating loss carrybacks/forwards.................... 613,200 --
---------- ----------
Total....................................................... $ 630,900 $ (60,000)
========== ==========
</TABLE>

At September 30, 1997, the Company had net operating loss carryforwards of
approximately $2 million for income tax purposes. If not used, these
carryforwards begin to expire in 2011.

9. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company has various operating lease agreements for warehouse
facilities, office equipment, transportation equipment and other facilities.

F-59
<PAGE> 181
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997

Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms of one year or more, consist of
the following at September 30, 1997:

<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1998...................................................... $ 4,703,300
1999...................................................... 4,189,224
2000...................................................... 2,875,090
2001...................................................... 1,846,174
2002...................................................... 1,775,712
Thereafter................................................ 5,146,550
-----------
$20,536,050
===========
</TABLE>

Total rent expense was approximately $5,858,923 and $4,777,600 for the year
ended September 30, 1997 and for the period from inception (November 13, 1995)
to September 30, 1996, respectively.

In March 1997, a subsidiary of the Company entered into a master lease
agreement with a major trucking company. The terms of the lease include the
leasing of 213 vehicles for lease terms ranging from 24-78 months. Monthly lease
payments are based on a fixed charge plus a charge for mileage. The lease is
cancelable by either party with a 120 day notice. Rental expense incurred during
1997 from this master lease agreement totaled $842,254.

LITIGATION

The Company is involved in litigation primarily arising in the normal
course of its business. In the opinion of management, the Company's liability,
if any, or the Company's recovery, if any, under any pending litigation would
not materially affect its financial position or results of operations.

10. PREFERRED STOCK

The Company has authorized 50,000 shares of preferred stock, $.01 par
value, of which 16,200 have been designated Class A preferred stock.

The Company's Class A preferred stock is convertible at the discretion of
the Company for 10% Debentures to be used by the Company at the rate of $1,000
principal amount of Debentures for each $1,000 of liquidation preference of
Class A preferred stock being exchanged. Cumulative dividends accrue quarterly
at the rate of 10% per annum per share and are payable in cash or additional
Class A preferred stock at the option of the Company. The Class A preferred
stock has a liquidation preference of $1,000 per share and a par value of $0.01
per share. The Class A preferred stock shall be redeemed on or before the
earlier to occur of (a) December 1, 2005, or (b) 90 days following a change in
control of the Company. The Class A preferred stock may be redeemed at the
option of the Company, at any time as a whole or from time to time in part, at a
cash redemption price per share equal to $1,000 per share plus accrued and
unpaid dividends. The holders of the Class A preferred stock are not entitled to
vote on any matter submitted to a vote of stockholders. Cumulative accrued
dividends on preferred stock at September 30, 1997 were $1,608,591 and is
included in preferred stock. Accrued dividends for the year ended September 30,
1997 and the ten months ended September 30, 1996 were $913,087, or $113 per
share and $695,504, or $86 per share, respectively.

F-60
<PAGE> 182
ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997

11. SHAREHOLDERS' DEFICIT

STOCK APPRECIATION RIGHTS

During 1995, 1996 and 1997, the Company granted 11,850 stock appreciation
rights ("SARs") to officers and directors of the Company with respect to shares
of the Common Stock of ITCO Logistics Corporation ("Parent Company"). The SARs
entitle an optionee to surrender unexercised Parent Company SARs for cash equal
to the excess of the fair market value of the Parent Company shares over the
stated value of the SARs, which is $0.01 per share. The amount payable upon
exercise of the SAR's will be paid by the Company. Any Parent Company SARs that
are available for awards that are not utilized in a given year will be available
for use in subsequent years. The SARs vest 20% per year over five years. Certain
restrictions apply to these granted SARs. The vested SARs may be exercised by
each individual only upon the occurrence of one of the following events: (i) the
consummation of an IPO of the Parent Company Common Stock; (ii) the consummation
of a merger of the Parent Company; (iii) the sale of substantially all of the
Parent Company's assets; or (iv) the sale by the primary shareholder of the
Parent Company of all or any portion of its investment in the Parent Company. No
SARs have been exercised as of September 30, 1997.

12. RELATED PARTY TRANSACTIONS

On November 30, 1995, a subsidiary the Company entered into a financial
advisory agreement with the primary shareholder of the Company whereby the
subsidiary agreed to pay the primary shareholder of the Company a quarterly
management fee of $75,000 over five years beginning November 30, 1995 as
compensation for its continuing financial advisory services. During the year
ended September 30, 1997 and the period from inception (November 13, 1995) to
September 30, 1996, management fees of approximately $300,000 and $250,000,
respectively, (included in selling, general and administrative expenses) were
incurred and paid to the primary shareholder of the Company.

13. SUBSEQUENT EVENTS

On January 14, 1998, a subsidiary of the Company executed an amendment to
the revolving credit agreement described in Note 5. In the amendment, the
subsidiary and a financial institution agreed to amend certain financial
covenants and defined terms in the revolving credit agreement and extend the
term to December 1, 1999, among other items.

14. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT

On March 10, 1998, the Company and J. H. Heafner Company, Inc. ("Heafner")
entered into a merger agreement. On May 20, 1998, a newly formed subsidiary of
Heafner was merged with and into the Company, with the Company surviving the
merger as a wholly owned subsidiary of Heafner (the "ITCO Merger"). The total
consideration paid to the stockholders of the Company in connection with the
ITCO Merger was $18 million in cash plus 1,400,667 newly issued shares of Class
B common stock, $.01 par value of Heafner and $1.1 million paid to the holders
of the Company's stock appreciation rights.

F-61
<PAGE> 183

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
ITCO Holding Company
and Subsidiaries
Wilson, North Carolina

We have audited the accompanying consolidated statements of earnings,
stockholders' equity and cash flows of ITCO Holding Company and subsidiaries
(the "Company") for the year ended September 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of the operations and cash flows of ITCO
Holding Company and subsidiaries for the year ended September 30, 1995 in
conformity with generally accepted accounting principles.

/s/ Deloitte and Touche LLP

Raleigh, North Carolina
December 7, 1995

F-62
<PAGE> 184

ITCO HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED SEPTEMBER 30, 1995

<TABLE>
<S> <C>
SALES....................................................... $294,113,425
Cost of Sales............................................... 257,039,830
------------
Gross profit.............................................. 37,073,595
Selling and Administrative Expenses (Notes 2, 3 and 6)...... 34,177,603
------------
Income from Operations...................................... 2,895,992
Other Income (Expenses):
Interest expense (Notes 2 and 6).......................... (3,045,366)
Interest income........................................... 807,594
Rental income (Note 6).................................... 434,440
Other, net................................................ (343,785)
------------
TOTAL OTHER EXPENSES................................... (2,147,117)
------------
Income Before Taxes......................................... 748,875
Income Taxes (Note 4)....................................... (121,000)
------------
NET INCOME............................................. $ 627,875
============
</TABLE>

See notes to consolidated financial statements.
F-63
<PAGE> 185

ITCO HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED SEPTEMBER 30, 1995

<TABLE>
<CAPTION>
COMMON RETAINED TOTAL
STOCK EARNINGS STOCKHOLDERS' EQUITY
------- ----------- --------------------
<S> <C> <C> <C>
Balance, October 1, 1994......................... $32,118 $10,894,835 $10,926,953
Net income....................................... 627,875 627,875
------- ----------- -----------
Balance, September 30, 1995...................... $32,118 $11,522,710 $11,554,828
======= =========== ===========
</TABLE>

See notes to consolidated financial statements.
F-64
<PAGE> 186

ITCO HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1995

<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Cash received from customers................................ $289,193,721
Cash paid to suppliers and employees........................ (286,707,646)
Interest received........................................... 807,594
Interest paid............................................... (3,001,784)
Income taxes paid........................................... (163,319)
Net cash paid to stockholders and affiliates................ (20,765)
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 107,801
------------
INVESTING ACTIVITIES:
Payments for purchase of property and equipment............. (868,764)
Proceeds from sale of equipment............................. 200,821
------------
NET CASH USED IN INVESTING ACTIVITIES.................. (667,943)
------------
FINANCING ACTIVITIES:
Net increase in short-term borrowings....................... 1,187,061
Proceeds from issuance of long-term debt.................... 1,000,000
Repayment of long-term debt................................. (1,127,681)
Principal paid on capital lease obligations................. (192,562)
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............. 866,818
------------
NET INCREASE IN CASH........................................ 306,676
Cash, beginning of year..................................... 1,283,848
------------
Cash, end of year........................................... $ 1,590,524
============
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES --
Net income.................................................. $ 627,875
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation.............................................. 1,167,109
Provision for deferred income taxes....................... (335,000)
Amortization of noncompete agreements..................... 31,223
Amortization of goodwill.................................. 114,624
Net gain on disposals of property and equipment........... (40,497)
Changes in assets and liabilities:
Receivables, net....................................... (4,583,109)
Inventories............................................ (3,561,870)
Prepaid expenses....................................... 124,705
Other assets........................................... (969,588)
Accounts payable and accrued expenses.................. 7,239,648
Income taxes payable................................... 292,681
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. $ 107,801
============
</TABLE>

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During 1995, the Company reached an agreement with a third party to settle
a dispute regarding unpaid amounts owed by the Company under a noncompete
agreement. As part of the agreement, $125,000 of the unpaid amount was forgiven.
Accordingly, the noncompete asset and related liability were decreased by
$125,000 with no effect on cash.

See notes to consolidated financial statements.
F-65
<PAGE> 187

ITCO HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1995

1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

BASIS OF PRESENTATION

ITCO Holding Company and subsidiaries (the "Company") is principally
engaged in the business of wholesale distribution of car and truck tires, custom
wheels and related accessories. The accompanying consolidated financial
statements include the accounts of the Company and its four wholly-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated.

SIGNIFICANT ACCOUNTING POLICIES

The significant policies are summarized below:

a. Cash and Cash Equivalents--For purposes of the statement of cash flows, the
Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. The Company had no cash
equivalents at September 30, 1995.

b. Inventories--Inventories consist primarily of tires, custom wheels and
accessories and are stated at the lower of cost (first-in, first-out
method) or market.

c. Property and Equipment--Depreciation and amortization are provided using
the declining-balance and straight-line methods. Amortization of leasehold
improvements and assets under capital leases is provided over the useful
life of the asset or the remaining lease term, whichever is shorter. The
estimated useful lives of property and equipment are:

<TABLE>
<S> <C>
Buildings................................................... 20 to 40 years
Furniture and equipment..................................... 3 to 5 years
Transportation equipment.................................... 5 years
Leasehold improvements...................................... 3 to 10 years
Buildings under capital leases.............................. 8 to 20 years
Equipment under capital leases.............................. 3 to 5 years
</TABLE>

d. Revenue Recognition--Revenue from product sales is recognized at the time
ownership of goods transfers to the customer and the earnings process is
complete.

e. Income Taxes--The Company and its wholly-owned subsidiaries file a
consolidated federal and separate state income tax returns. The Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes, in 1994. Deferred income taxes (benefits) are
provided on temporary differences between the financial statement carrying
values and the tax bases of assets and liabilities.

f. Fiscal Year--The Company's fiscal year ends on the Saturday closest to the
end of September. The financial statements for the year ended September 30,
1995 cover a period of 53 weeks.

g. Other Assets--Other assets include intangible assets related to the
Company's 1992 acquisition of Luke Floyd Tire and Douglas Duggin
Incorporated and the Company's 1995 acquisition of Volume Tire Company,
Inc., and are being amortized using the straight line method. The estimated
useful lives of these intangible assets are:

<TABLE>
<S> <C>
Goodwill.................................................... 20 years
Noncompete agreements....................................... 3 to 5 years
</TABLE>

F-66
<PAGE> 188
ITCO HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1995 -- (CONTINUED)

2. RELATED PARTY TRANSACTIONS

The Company has lease agreements with two companies, Viking Development
Company ("Viking") and TAG Development Company ("TAG"), that are owned by a
stockholder/officer of the Company. Such leases provide for the rental of the
Company's headquarters, main warehouse and several other warehouses. Rents paid
to Viking and TAG on operating leases totaled $982,198 during fiscal year 1995.
Principal and interest paid to Viking on capital leases totaled $92,291 in
fiscal year 1995. See also Note 6.

3. EMPLOYEE BENEFIT PLANS

The Company sponsors the ITCO Holding Company 401(k) Plan (the "Plan") for
substantially all employees. The Company matches 50% of eligible employees'
contributions to the Plan up to 4% of that individual's salary. The Company also
pays certain other expenses of the Plan as determined by the Board of Directors.
The Company contributed $183,995 to the Plan and paid $16,946 in administrative
expenses for fiscal year ended in 1995.

The Company sponsors the ITCO Holding Company Employee Stock Ownership Plan
(the "ESOP") a non-contributory employee stock ownership plan for substantially
all employees. The Company makes annual contributions as determined by the Board
of Directors to a trust for the exclusive benefit of participating employees.
The Company also pays certain expenses of the ESOP as determined by the Board of
Directors. The Company contributed $94,650 to the ESOP and paid $12,802 in
administrative expenses for fiscal year ended in 1995.

4. INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.

The provision for income taxes includes the following:

<TABLE>
<S> <C>
Currently payable:
Federal................................................... $ 373,000
State..................................................... 83,000
---------
Total currently payable..................................... 456,000
---------
Deferred expense (benefit):
Federal................................................... (292,000)
State..................................................... (43,000)
---------
Total deferred expense (benefit)............................ (335,000)
---------
Total taxes on income....................................... $ 121,000
=========
</TABLE>

For the year ended September 30, 1995, reported income tax expense differs
from income tax expense that would result from applying the federal statutory
rate to pretax income due primarily to state income taxes net of federal
benefits, certain expenses not deductible for tax purposes and other
miscellaneous adjustments.

F-67
<PAGE> 189
ITCO HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1995 -- (CONTINUED)

5. DEFERRED REVENUE

Deferred revenue consists primarily of non-compete agreements related to
the sale of previous operations and is being amortized over the five year life
of the agreements. The Company recognized income on the amortization of the
agreements of $48,777 for fiscal year 1995.

6. COMMITMENTS AND CONTINGENCIES

CAPITAL AND OPERATING LEASES

The Company has various capital and operating lease agreements for
warehouse facilities, office equipment, transportation equipment and retail
outlets, including several with related parties (Note 2). Rents charged to
operations in fiscal year 1995 was $4,003,975.

The Company subleases four retail locations to unrelated third parties.
These subleases expire from August of 1997 to January of 2000 and provide for
minimum sublease rentals of $188,060 in 1996, $182,120 in 1997, $48,950 in 1998,
$45,500 in 1999 and $45,500 in 2000. Rental income recorded in fiscal 1995 under
these subleases was $434,440.

7. LITIGATION

8. SUBSEQUENT EVENTS

ITCO Acquisition Company of North Carolina, Inc. ("Merger Subsidiary") was
incorporated in the State of North Carolina in November 1995. The Merger
Subsidiary is a wholly-owned subsidiary of ITCO Acquisition Company, Inc.
("Purchaser"), a Delaware corporation. On November 30, 1995, the Purchaser
acquired all of the outstanding capital stock of the Company by means of a
merger of the Merger Subsidiary with and into the Company for an aggregate
purchase price of $18,114,834 (the "Acquisition").

Pursuant to the Acquisition, the Company was released as guarantor of all
loans on behalf of Viking, TAG and a stockholder/officer of the Company; all of
the outstanding capital stock of L&N (an affiliate) was transferred to the
Company; and the Company increased its credit facility from $30,000,000 to
$50,000,000.

The aforementioned stockholder/officer's share of the purchase price was
reduced by the fair market value of assets distributed to such
stockholder/officer and the amounts receivable by the Company from such
stockholder/officer. The total of the purchase price reduction was $1,066,237.
Additionally, the Company and either TAG or Viking entered into new long-term
real estate leases with respect to nine properties currently leased by the
Company.

F-68
<PAGE> 190

ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEET
MAY 20, 1998

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,204,497
Receivables:
Trade, net of allowance for doubtful accounts of
$1,463,486............................................ 42,822,098
Other including supplier rebates....................... 6,093,492
------------
50,120,087
Inventories............................................... 52,988,948
Deferred income tax asset................................. 1,558,631
Prepaid expenses.......................................... 740,590
------------
Total current assets........................................ 105,408,256
Property and equipment, net................................. 10,310,418
Goodwill, net............................................... 13,962,907
Other assets................................................ 1,134,498
Deferred income tax asset................................... 457,991
------------
Total assets................................................ $131,274,070
============

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 86,986,319
Accrued expenses.......................................... 3,555,930
Current maturities of long-term debt...................... 4,828,972
Income tax payable........................................ 1,024,542
------------
Total current liabilities................................... 96,395,763
Revolving credit agreement.................................. 26,254,556
Long-term debt.............................................. 1,471,858
------------
Total liabilities........................................... 124,122,177
Commitments and contingencies
Preferred stock, Class A, $0.01 par value; $1,000 stated
value; 50,000 shares authorized; 8,100 shares issued and
outstanding............................................... 10,370,090
Shareholders' deficit:
Common stock, $0.01 par value; 250,000 shares authorized;
93,000 shares issued and outstanding................... 930
Additional paid in capital................................ 1,599,070
Accumulated deficit....................................... (4,818,197)
------------
Total shareholders' deficit................................. (3,218,197)
------------
Total liabilities and shareholders' deficit................. $131,274,070
============
</TABLE>

See accompanying notes.
F-69
<PAGE> 191

ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD ENDED EIGHT MONTHS
MAY 20, ENDED MAY 31,
1998 1997
------------ -------------
<S> <C> <C>
Sales....................................................... $232,277,464 $225,804,195
Cost of sales............................................... 198,701,340 194,202,890
------------ ------------
Gross profit................................................ 33,576,124 31,601,305
Selling, general and administrative expenses................ 29,956,972 31,097,067
------------ ------------
Income (loss) from operations............................... 3,619,152 504,238
Other income (expense):
Interest expense.......................................... (2,352,238) (2,344,975)
Rental income............................................. 265,137 239,207
Other, net................................................ 125,607 (174,473)
------------ ------------
Total other expense......................................... (1,961,494) (2,280,241)
------------ ------------
Income (loss) before income taxes........................... 1,657,658 (1,776,003)
Income tax (expense) benefit................................ (811,100) 700,000
------------ ------------
Net income (loss)........................................... $ 846,558 $ (1,076,003)
============ ============
</TABLE>

See accompanying notes.
F-70
<PAGE> 192

ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at September 30, 1997.............. $900 $ 899,100 $(5,003,256) $(4,103,256)
Net income............................... -- -- 846,558 846,558
Issuance of common stock................. 30 699,970 -- 700,000
Accrued dividends on Preferred Stock,
Class A............................... -- -- (661,499) (661,499)
---- ---------- ----------- -----------
Balance at May 20, 1998.................... $930 $1,599,070 $(4,818,197) $(3,218,197)
==== ========== =========== ===========
</TABLE>

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at September 30, 1996.............. $900 $ 899,100 $(2,651,409) $(1,751,409)
Net loss................................. -- -- (1,076,003) (1,076,003)
Accrued dividends on Preferred Stock,
Class A............................... -- -- (599,286) (599,286)
---- ---------- ----------- -----------
Balance at May 31, 1997.................... $900 $ 899,100 $(4,326,698) $(3,426,698)
==== ========== =========== ===========
</TABLE>

See accompanying notes.
F-71
<PAGE> 193

ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD ENDED MAY 20, 1998 AND THE
EIGHT MONTHS ENDED MAY 31, 1997

<TABLE>
<CAPTION>
PERIOD ENDED EIGHT MONTHS
MAY 20, ENDED MAY 31,
1998 1997
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 846,558 $ (1,076,003)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization on property and equipment... 1,017,841 1,105,496
Amortization on intangible assets......................... 598,087 577,684
Non-cash charge (Note 3).................................. 670,000 --
Net (gain) loss on disposal of property and equipment..... (182,903) 55,471
Deferred income tax....................................... (211,500) 13,743
Changes in assets and liabilities:
Receivables, net....................................... 1,012,037 4,213,065
Inventories............................................ (9,801,037) 3,733,339
Prepaid expenses....................................... (212,280) (374,594)
Accounts payable....................................... 11,839,844 4,812,251
Accrued expenses....................................... 469,526 427,020
Other liabilities/assets............................... (584,574) (482,335)
Income tax payable/receivable.......................... 1,024,542 (539,920)
----------- ------------
Net cash provided by operating activities................... 6,486,141 12,465,217

INVESTING ACTIVITIES
Expenditures for property and equipment..................... (711,103) (1,032,581)
Proceeds from sale of property and equipment................ 470,748 446,036
----------- ------------
Net cash used in investing activities....................... (240,355) (586,545)

FINANCING ACTIVITIES
Net payments on revolving credit agreement.................. (5,868,111) (8,374,507)
Repayment of long-term debt................................. (1,058,768) (3,316,311)
Proceeds from issue of common stock......................... 30,000 --
Principal paid on capital lease obligations................. -- (74,177)
----------- ------------
Net cash used in financing activities....................... (6,896,879) (11,764,995)
----------- ------------
Net increase in cash........................................ (651,093) 113,677
Cash at beginning of period................................. 1,855,590 1,753,583
----------- ------------
Cash at end of period....................................... $ 1,204,497 $ 1,867,260
=========== ============
Interest paid............................................... $ 2,395,411 $ 2,243,826
=========== ============
Income taxes paid........................................... $ 11,558 $ --
=========== ============
</TABLE>

See accompanying notes.
F-72
<PAGE> 194

ITCO LOGISTICS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MAY 20, 1998

1. SIGNIFICANT ACCOUNTING POLICIES

Organization

ITCO Logistics Corporation and subsidiaries (the "Company") are principally
engaged in the business of wholesale distribution of car and truck tires and
related accessories generally in the eastern part of the United States.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the period ended May 20, 1998 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 1998. For further information, refer to the audited consolidated
financial statements and notes thereto for the year ended September 30, 1997
included elsewhere in this document.

2. MERGER

3. STOCK PURCHASE AGREEMENT

In January 1998, the Company entered into a stock purchase agreement in
which two employees acquired 3,000 shares of common stock at $10.00 per share.
In accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"), the transaction resulted in a non-cash
charge of approximately $670,000 (which is included in selling, general and
administrative expenses), based upon the estimated fair value of the stock at
the date of issuance.

4. INCOME TAXES

The major contributing factor for the difference between the federal
statutory rate and the effective rate for the period ended May 20, 1998 is
non-deductible goodwill.

F-73
<PAGE> 195

INDEPENDENT AUDITORS' REPORT

The Board of Directors
The Speed Merchant, Inc.:

We have audited the accompanying balance sheets of The Speed Merchant, Inc.
as of October 31, 1996 and 1997, and the related statements of income and
retained earnings and cash flows for each of the years in the three-year period
ended October 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Speed Merchant, Inc. as
of October 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended October 31, 1997, in
conformity with generally accepted accounting principles.

/s/ KPMG Peat Marwick LLP

Mountain View, California
December 23, 1997, except as to Note 10,
which is as of January 21, 1998

F-74
<PAGE> 196

THE SPEED MERCHANT, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
OCTOBER 31,
------------------------- APRIL 30,
1996 1997 1998
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 17,139 841,623 879,380
Short-term investments.............................. 409,184 71,451 8,257
Accounts receivable, net of allowance of $118,910,
$251,313, and $234,171, respectively............. 15,250,571 12,509,038 15,327,527
Current portion of related party notes receivable... 447,971 61,658 65,747
Other receivables................................... 434,377 333,221 286,217
Current portion of net investment in direct
financing leases................................. 125,749 294,297 317,712
Inventories......................................... 25,242,274 25,582,340 29,891,817
Prepaid expenses.................................... 182,495 174,327 181,021
Deferred income taxes............................... 349,091 413,226 413,226
----------- ---------- ----------
Total current assets........................ 42,458,851 40,281,181 47,370,904
Net investment in direct financing leases, less
current portion..................................... 260,217 397,103 302,052
Property and equipment, net........................... 2,516,602 5,006,583 6,506,136
Related party notes receivable, less current
portion............................................. 336,318 782,639 835,104
Other assets.......................................... 151,600 206,653 412,336
----------- ---------- ----------
Total assets................................ $45,723,588 46,674,159 55,426,532
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit...................................... $ 1,405,826 -- 2,719,240
Current portion of trade notes payable.............. 1,034,000 603,110 1,433,566
Current portion of long-term obligations............ 48,852 111,113 209,918
Related party note payable.......................... 115,237 158,151 211,896
Accounts payable.................................... 31,548,656 31,132,210 32,980,159
Accrued liabilities................................. 3,117,556 2,909,348 2,829,131
Income taxes payable................................ 361,867 484,132 540,752
----------- ---------- ----------
Total current liabilities................... 37,631,994 35,398,064 40,924,662
Trade notes payable, less current portion............. 3,762,000 3,038,890 2,509,990
Long-term obligations, less current portion........... 108,311 1,699,037 2,885,430
Deferred income taxes................................. 204,901 241,766 241,766
----------- ---------- ----------
Total liabilities........................... 41,707,206 40,377,757 46,561,848
----------- ---------- ----------
Shareholders' equity:
Common stock, $1.00 par value; 1,000,000 shares
authorized; 14,118 shares issued and
outstanding...................................... 405,869 405,869 405,869
Retained earnings................................... 3,610,513 5,890,533 8,458,815
----------- ---------- ----------
Total shareholders' equity.................. 4,016,382 6,296,402 8,864,684
----------- ---------- ----------
Commitments
Total liabilities and shareholders'
equity.................................... $45,723,588 46,674,159 55,426,532
=========== ========== ==========
</TABLE>

See accompanying notes to financial statements.
F-75
<PAGE> 197

THE SPEED MERCHANT, INC.

STATEMENTS OF INCOME AND RETAINED EARNINGS

<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
YEARS ENDED OCTOBER 31, APRIL 30,
------------------------------------------ -------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales........................ $107,683,262 $122,930,224 $122,410,452 $56,588,551 $67,578,573
Cost of goods sold........... 88,363,232 101,355,329 98,289,369 45,294,460 49,013,332
------------ ------------ ------------ ----------- -----------
Gross profit............... 19,320,030 21,574,895 24,121,083 11,294,091 18,565,241
Operating expenses........... 17,785,957 18,659,917 20,087,450 9,580,158 13,963,007
------------ ------------ ------------ ----------- -----------
Income from operations..... 1,534,073 2,914,978 4,033,633 1,713,933 4,602,234
Other income (expense):
Interest expense, net...... (298,461) (44,628) (155,477) (83,812) (227,275)
Other income (expense),
net..................... 33,397 (117,459) (67,136) (29,384) (97,358)
------------ ------------ ------------ ----------- -----------
Income before income taxes
and minority interest... 1,269,009 2,752,891 3,811,020 1,600,737 4,277,601
Income taxes................. 537,000 1,070,000 1,531,000 637,493 1,709,319
------------ ------------ ------------ ----------- -----------
Income before minority
interest................ 732,009 1,682,891 2,280,020 963,244 2,568,282
Minority interest............ 6,329 2,818 -- -- --
------------ ------------ ------------ ----------- -----------
Net income................. 725,680 1,680,073 2,280,020 963,244 2,568,282
Retained earnings:
Beginning of year/period... 1,204,760 1,930,440 3,610,513 3,610,513 5,890,533
------------ ------------ ------------ ----------- -----------
End of year/period......... $ 1,930,440 $ 3,610,513 $ 5,890,533 $ 4,573,757 $ 8,458,815
============ ============ ============ =========== ===========
</TABLE>

See accompanying notes to financial statements.
F-76
<PAGE> 198

THE SPEED MERCHANT, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
YEARS ENDED OCTOBER 31, APRIL 30,
--------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 725,680 1,680,073 2,280,020 963,244 2,568,282
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization................. 337,647 403,807 483,746 203,283 327,796
Allowance for doubtful accounts............... 5,114 48,025 132,403 61,925 (17,142)
Minority interest............................. 6,329 2,818 -- -- --
Loss on partnership dissolution............... -- 40,773 -- -- --
Increase in cash value of life insurance...... -- -- (64,615) -- (34,647)
Deferred income taxes......................... 95,000 (11,265) (27,270) -- --
Financing revenue received under leases....... -- (24,924) (102,755) (48,165) (37,375)
Changes in operating assets and liabilities:
Accounts receivable......................... (4,617,842) (3,751,395) 2,609,130 3,108,839 (2,721,842)
Other receivables........................... (1,048,046) 755,238 101,156 326,481 75,318
Inventories................................. (1,706,660) (3,177,815) (340,066) 3,168,693 (3,120,347)
Prepaid expenses............................ (64,911) (19,178) 8,168 (3,902) 9,005
Accounts payable............................ 3,518,485 7,362,351 (416,446) (4,614,279) 1,816,658
Accrued liabilities......................... 410,791 1,267,692 (208,208) (1,309,177) (395,134)
Income taxes payable........................ 114,921 68,439 122,265 (61,692) 56,620
----------- ---------- ---------- ---------- ----------
Net cash (used in) provided by operating
activities.............................. (2,223,492) 4,644,639 4,577,528 1,795,250 (1,472,808)
----------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Change in short-term investments................ -- (409,184) 337,733 384,576 63,194
Purchase of property and equipment.............. (788,369) (224,496) (2,943,468) (2,255,571) (654,048)
Purchase of equipment to be leased.............. -- (430,440) (545,578) (330,718) (90,507)
Purchase of property and equipment in connection
with acquisition.............................. -- -- -- -- (828,104)
Purchase of net current assets in connection
with acquisition.............................. -- -- -- -- (519,750)
Payments received under direct financing
leases........................................ -- 69,398 342,899 148,976 199,518
Other assets.................................... (57,422) -- 26,629 19,703 (17,726)
----------- ---------- ---------- ---------- ----------
Net cash used in investing activities..... (845,791) (994,722) (2,781,785) (2,033,034) (1,847,423)
----------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Borrowings (payments) under line of credit...... 2,469,406 (3,013,497) (1,405,826) (368,887) 2,719,240
Borrowings under long-term obligations, net of
costs......................................... -- -- 1,687,775 1,610,904 990,000
Payments on long-term obligations............... (436,566) (62,246) (82,114) (24,121) (49,999)
Change in related party notes receivable and
payable, net.................................. (132,886) (307,915) (17,094) (87,608) (2,809)
Payments on trade notes payable................. (932,558) (384,000) (1,154,000) (842,000) (298,444)
----------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities.............................. 967,396 (3,767,658) (971,259) 288,288 3,357,988
----------- ---------- ---------- ---------- ----------
Net (decrease) increase in cash................... (2,101,887) (117,741) 824,484 50,504 37,757
Cash, beginning of year/period.................... 2,236,767 134,880 17,139 17,139 841,623
----------- ---------- ---------- ---------- ----------
Cash, end of year/period.......................... $ 134,880 17,139 841,623 67,643 879,380
=========== ========== ========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year/period:
Interest...................................... $ 304,423 200,969 248,920 112,501 208,717
=========== ========== ========== ========== ==========
Income taxes.................................. $ 329,742 1,012,826 1,065,671 699,185 708,188
=========== ========== ========== ========== ==========
Noncash investing and financing activities:
Property and equipment acquired under capital
leases...................................... $ 132,498 -- 15,326 -- 269,840
=========== ========== ========== ========== ==========
Inventories received in exchange for trade
notes payable............................... $ 4,350,000 -- -- -- 600,000
=========== ========== ========== ========== ==========
Property and equipment acquired through
assumption of long-term obligation.......... -- -- -- -- 75,357
=========== ========== ========== ========== ==========
</TABLE>

See accompanying notes to financial statements.
F-77
<PAGE> 199

THE SPEED MERCHANT, INC.

NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995, 1996, AND 1997
(INFORMATION AS OF APRIL 30, 1998 AND FOR THE SIX-MONTH
PERIODS ENDED APRIL 30, 1997 AND 1998, IS UNAUDITED.)

(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

The Speed Merchant, Inc. (the Company), a California corporation, is a
specialty wholesaler and retailer of automobile tires, parts, and accessories
located in California and Arizona. The Company operates under the names of
Competition Parts Warehouse, Performance Leasing, Economy Imports, Main Auto,
Wheel King, and The Speed Merchant. The 1995 and 1996 financial statements
include the Company's majority interest in The Speed Merchant of San Jose, a
California partnership. The partnership was dissolved during 1996.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue upon shipment of product.

Short-Term Investments

Short-term investments consist of money market funds, certificates of
deposit, U.S. Treasury notes, and corporate equity securities. The Company
classifies all instruments with original maturities in excess of three months as
short-term investments. All securities held by the Company are classified as
trading securities and are recorded at fair value. Unrealized holding gains and
losses are included in earnings. Dividends and interest income are recognized
when earned.

Inventories

Merchandise inventories are stated at the lower of cost (first in, first
out) or market.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over estimated useful lives of 5 to 30 years. Leasehold
improvements and equipment under capital leases are amortized over the shorter
of the lease term or estimated useful life of the asset.

Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

F-78
<PAGE> 200
THE SPEED MERCHANT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Concentration of Credit Risk

The Company offers credit terms to customers after an evaluation of a
customer's financial condition. These customers are located throughout
California and Arizona and no one customer accounts for a substantial part of
sales or receivables. The Company generally requires collateral for all large
customers.

Unaudited Balances

The accompanying unaudited financial statements include all adjustments
(consisting of only normal recurring adjustments) that management considers
necessary for a fair presentation of the financial position and results of
operations as of the date and for the periods indicated.

(2) RELATED PARTY NOTES RECEIVABLE AND NOTE PAYABLE

The related party notes receivable consisted of amounts that are due in
monthly installments over 10 years, bear interest at 6.5%, and are secured. The
related party note payable consisted of an amount that is payable on demand and
bears interest at 10%.

(3) NET INVESTMENT IN DIRECT FINANCING LEASES

The Company leases equipment to customers under direct financing leases,
which are carried at the gross investment in the leases less unearned income.
Unearned income is recognized in such a manner as to produce a constant periodic
rate of return on the net investment in the direct financing lease.

The following lists the components of the net investment in direct
financing leases:

<TABLE>
<CAPTION>
OCTOBER 31,
--------------------- APRIL 30,
1996 1997 1998
--------- -------- ---------
<S> <C> <C> <C>
Total minimum lease payments to be received....... $ 495,381 854,677 753,812
Less unearned income.............................. (109,415) (163,277) (134,048)
--------- -------- --------
Net investment in direct financing leases......... $ 385,966 691,400 619,764
========= ======== ========
</TABLE>

As of October 31, 1997, minimum lease payments to be received for each of
the five succeeding fiscal years are as follows: $363,797 in 1998; $280,821 in
1999; $146,434 in 2000; $54,232 in 2001; and $9,393 in 2002.

F-79
<PAGE> 201
THE SPEED MERCHANT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(4) PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
OCTOBER 31,
------------------------- APRIL 30,
1996 1997 1998
----------- ---------- ----------
<S> <C> <C> <C>
Land.......................................... $ -- 455,000 455,000
Building and improvements..................... 43,655 1,793,847 1,741,471
Equipment..................................... 1,725,767 1,870,297 3,230,186
Leasehold improvements........................ 1,118,615 1,122,483 1,261,690
Office equipment, furniture, and fixtures..... 657,991 1,015,860 1,306,257
Transportation equipment...................... 373,988 519,327 678,766
Equipment held for lease...................... -- 71,985 --
----------- ---------- ----------
3,920,016 6,848,799 8,673,370
Accumulated depreciation and amortization..... (1,403,414) (1,842,216) (2,167,234)
----------- ---------- ----------
$ 2,516,602 5,006,583 6,506,136
=========== ========== ==========
</TABLE>

Included in property and equipment as of October 31, 1996 and 1997, and
April 30, 1998, is $257,376, $269,443, and $539,283, respectively, of equipment
under capital leases. Accumulated amortization related to this equipment was
$69,497, $106,612, and $132,569 as of October 31, 1996 and 1997, and April 30,
1998, respectively.

(5) LINE OF CREDIT

The Company has an $8,000,000 line of credit with no borrowings as of
October 31, 1997. Advances on the line of credit bear interest at the prime rate
(8.50% as of October 31, 1997) plus 0.25%. Substantially all assets of the
Company are pledged as collateral for the line of credit.

(6) LONG-TERM OBLIGATIONS/TRADE NOTES PAYABLE

Long-term obligations consisted of the following:

<TABLE>
<CAPTION>
OCTOBER 31,
--------------------- APRIL 30,
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
Note payable to bank; monthly installments of
$15,756 including interest at 8.5% to March
2012; secured by property....................... $ -- 1,568,377 1,539,999
Note payable to bank; monthly installments of
$1,483 including interest at 8.875% to October
2027; secured by property....................... -- 119,776 119,776
Note payable to financial institution; monthly
installments of $16,667 plus variable interest
at the 30-day commercial paper rate plus 2.7% to
April 2003; secured by property................. -- -- 966,667
Other notes payable............................... -- -- 124,636
Capital lease obligations (see Note 7)............ 157,163 121,997 344,270
-------- --------- ---------
157,163 1,810,150 3,095,348
Less current portion.............................. 48,852 111,113 209,918
-------- --------- ---------
$108,311 1,699,037 2,885,430
======== ========= =========
</TABLE>

F-80
<PAGE> 202
THE SPEED MERCHANT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Trade notes payable include notes to various suppliers for inventory
purchases. These notes bear interest at rates ranging from the prime rate to
120% of the prime rate. The interest is forgiven provided the Company meets
certain future minimum purchase requirements. Future minimum payments pursuant
to these agreements are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING
OCTOBER 31,
- ------------------
<S> <C>
1998...................................... $ 603,110
1999...................................... 1,718,890
2000...................................... 180,000
2001...................................... 180,000
2002...................................... 180,000
Thereafter................................ 780,000
----------
Total trade notes payable................. 3,642,000
Less current portion of trade notes
payable................................. 603,110
----------
$3,038,890
==========
</TABLE>

(7) LEASE OBLIGATIONS

The Company leases warehouses, retail facilities, and vehicles under
long-term operating leases that expire at various dates through fiscal 2005. The
Company also leases certain equipment under capital leases.

Future minimum lease payments are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING
OCTOBER 31, CAPITAL LEASES OPERATING LEASES
------------------ -------------- ----------------
<S> <C> <C>
1998........................................... $ 64,390 2,193,943
1999........................................... 48,063 1,617,955
2000........................................... 22,791 1,340,938
2001........................................... 3,892 1,094,728
2002........................................... 1,297 849,518
Thereafter..................................... -- 615,156
-------- ----------
Total.......................................... 140,433 $7,712,238
==========
Less amount representing interest.............. 18,436
--------
Present value of capital lease payments........ 121,997
Less current portion of capital lease
obligations................................. 53,131
--------
$ 68,866
========
</TABLE>

Rent expense was $3,486,000, $3,517,000, $3,491,000, and $2,121,000 for the
years ended October 31, 1995, 1996, and 1997, and for the six-month period ended
April 30, 1998, respectively.

F-81
<PAGE> 203
THE SPEED MERCHANT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(8) INCOME TAXES

The provision for income taxes consisted of the following:

<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
----------------------------------
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Current:
Federal......................................... $350,000 817,265 1,204,170
State........................................... 92,000 264,000 354,100
Deferred:
Federal......................................... 65,000 (7,265) (24,170)
State........................................... 30,000 (4,000) (3,100)
-------- --------- ---------
Total................................... $537,000 1,070,000 1,531,000
======== ========= =========
</TABLE>

Income tax expense differed from the amounts computed by applying the
federal income tax rate of 34% to pretax income as the result of the following:

<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
----------------------------------
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense................... $431,463 935,983 1,295,747
State income taxes, net of federal income tax
benefit......................................... 72,789 169,696 202,268
Other............................................. 32,748 (35,679) 32,985
-------- --------- ---------
$537,000 1,070,000 1,531,000
======== ========= =========
</TABLE>

The tax effects of temporary differences that give rise to significant
components of the deferred tax assets and liabilities as of October 31, 1996 and
1997, are presented below:

<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Deferred tax assets:
Reserves and accruals not currently deductible............ $ 104,231 172,401
Inventories -- costs inventoried for tax purposes......... 155,027 121,490
State income taxes........................................ 89,833 119,335
--------- --------
Total gross deferred tax assets................... 349,091 413,226
Deferred tax liabilities:
Property and equipment -- depreciation differences........ (204,901) (241,766)
--------- --------
Net deferred tax assets........................... $ 144,190 171,460
========= ========
</TABLE>

A valuation allowance against the deferred tax assets was not required as
management believes it is more likely than not the Company will generate
sufficient taxable income to realize the deferred tax assets.

(9) EMPLOYEE BENEFIT PLAN

The Company has a 401(k) tax deferred savings plan to which participants
may contribute up to $9,500 per year. The Company does not make contributions to
the plan.

(10) SUBSEQUENT EVENT

On January 21, 1998, the Company acquired certain assets and liabilities of
Tire Outlet's 10 retail stores in Arizona for approximately $898,000. The
acquired net assets primarily consisted of receivables, inventory, property and
equipment and certain liabilities. The acquisition was accounted for using the
purchase method of accounting.

F-82
<PAGE> 204
THE SPEED MERCHANT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(11) EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)

In April 1998, the Company acquired certain assets of Tires One retail
stores in California and Arizona for approximately $750,000. The acquired assets
consisted primarily of inventory and property and equipment. The acquisition was
accounted for using the purchase method of accounting and the operating results
subsequent to the acquisition date are included in the statement of income.

On May 20, 1998, the Company sold all of its common stock for $45 million.

F-83
<PAGE> 205

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

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE ISSUER OR THE SUBSIDIARY GUARANTORS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE ISSUER OR THE SUBSIDIARY GUARANTORS SINCE SUCH
DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Summary............................... 4
Risk Factors.......................... 15
The Transactions...................... 21
Use of Proceeds....................... 24
The Exchange Offer.................... 25
Capitalization........................ 33
Unaudited Pro Forma Condensed Combined
Financial Data...................... 34
Selected Historical Financial Data.... 44
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 52
Business.............................. 63
Management............................ 74
Principal Stockholders................ 81
Certain Relationships and Related
Transactions........................ 83
Description of New Credit Facility.... 85
Description of the New Notes.......... 87
Certain U.S. Federal Income Tax
Considerations...................... 114
Plan of Distribution.................. 117
Legal Matters......................... 118
Experts............................... 118
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

UNTIL , 1998 (90 DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN SELLING NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES HELD FOR
THEIR OWN ACCOUNT. SEE "PLAN OF DISTRIBUTION."

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
THE J.H. HEAFNER
COMPANY, INC.
OFFER TO EXCHANGE ITS
10% SENIOR NOTES
DUE 2008
FOR ANY AND ALL OF ITS
OUTSTANDING
10% SENIOR NOTES
DUE 2008
-----------------
PROSPECTUS
-----------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 206

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

The J.H. Heafner Company, Inc., ITCO Holding Company, Inc. and ITCO Tire
Company

The Issuer, ITCO Holding Company, Inc. ("ITCO Holding") and ITCO Tire
Company ("ITCO Tire") are North Carolina corporations. Part 5 of the North
Carolina Business Corporation Act (the "NCBCA") permits a North Carolina
corporation to indemnify any individual who was or is a defendant or respondent,
or is threatened to be made a defendant or respondent, to any threatened,
pending, or completed civil, criminal, administrative or investigative action,
suit or proceeding, whether formal or informal, by reason of the fact that such
individual is or was a director, officer, employee or agent of the corporation,
or is or was serving as such with respect to another corporation or entity at
the request of the corporation, provided that such person acted in good faith
and in a manner such person reasonably believed to be (i) in the case of conduct
in such individual's official capacity with the corporation, in the best
interests of the corporation and (ii) in all other cases, not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, without reasonable cause to believe the conduct was unlawful. A
corporation may not indemnify such individual where the action or suit is by or
in the right of the corporation and such individual is adjudged liable to the
corporation or in any other action, suit or proceeding where such individual is
charged with, and found liable of, receiving improper personal benefit. Each of
the Issuer and ITCO Tire, in their respective Articles of Incorporation, and
ITCO Holding, in its By-laws, has provided that its directors and officers will
be indemnified and held harmless to the fullest extent provided by the NCBCA.

Section 55-8-56 of the NCBCA also permits a North Carolina corporation to
purchase insurance for the benefit of any person who is or was a director,
officer, employee or agent of the corporation against any liability incurred by
such person, whether or not the corporation would have the power to indemnify
such person against such liability.

Oliver & Winston, Inc., The Speed Merchant, Inc. and Phoenix Racing, Inc.

Winston, Speed Merchant and Phoenix Racing, Inc. ("Phoenix") are California
corporations. Section 317 of the California General Corporation Law ("CGCL")
permits a California corporation to indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending, or completed
civil, criminal, administrative or investigative action, suit or proceeding by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving as such with respect to the
predecessor corporation or another corporation or entity at the request of the
corporation, provided that such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, without
reasonable cause to believe the conduct was unlawful. Where the action or suit
is by or in the right of the corporation, the corporation may not indemnify such
person for any claim, issue or matter as to which the person shall have been
adjudged liable to the corporation, except as otherwise determined by the court
in which the action or suit was brought. Each of Winston, Speed Merchant and
Phoenix has provided in its By-laws that its directors and officers will be
indemnified and held harmless against all expenses, liability and loss
(including attorneys' fees, judgments, fines, and other amounts actually and
reasonably incurred in connection with the proceeding) to the extent provided by
the CGCL, except that Winston and Speed Merchant have provided in their By-laws
that such directors and officers shall not be indemnified for amounts paid in
settling or otherwise disposing of a pending or threatened action, whether with
or without court approval. The By-laws of Phoenix allow amounts paid in settling
or otherwise disposing of a pending or threatened action to be paid as provided
by the CGCL. Winston's Articles of Incorporation allow Winston to provide
indemnification to its directors and officers for breach of duty of such
directors and officers, though by-law provisions or individual agreements with
such directors and officers, in excess of the indemnification otherwise
permitted by Section 317 of the CGCL, subject to the limits of Section 204 of
the CGCL.

II-1
<PAGE> 207

Section 317(i) of the CGCL also permits a California corporation to
purchase insurance for the benefit of any person who is or was a director,
officer, employee, or agent of the corporation against any liability incurred by
such person, whether or not the corporation would have the power to indemnify
such person against such liability. The By-laws of each of Winston and Speed
Merchant specifically permit each corporation to purchase such insurance.

ITCO Logistics Corporation

ITCO Logistics is a Delaware corporation. Section 145 of the Delaware
General Corporation Law ("DGCL") permits a Delaware corporation to indemnify any
person who was or is a party, or is threatened to be made a party, to any
threatened, pending, or completed civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that such person
is or was a director, officer, employee or agent of the corporation, or is or
was serving as such with respect to another corporation or entity at the request
of the corporation, provided that such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, without reasonable cause to believe the conduct was unlawful. Where
the action or suit is by or in the right of the corporation, the corporation may
not indemnify such person for any claim, issue or matter as to which the person
shall have been adjudged liable to the corporation, except as otherwise
determined by the Delaware Court of Chancery or the court in which the action or
suit was brought. ITCO Logistics has provided in its By-laws that its directors
and officers will be indemnified and held harmless against all expenses,
liability and loss (including attorneys' fees, judgments, fines and amounts paid
in settlement) to the fullest extent provided by the law as it exists or may
hereafter be amended.

Section 145 of the DGCL and the By-laws of ITCO Logistics also permit ITCO
Logistics to purchase insurance for the benefit of any person who is or was a
director, officer, employee, or agent of the corporation against any liability
incurred by such person, whether or not the corporation would have the power to
indemnify such person against such liability.

ITCO Tire Company of Georgia

ITCO Tire Company of Georgia ("ITCO Georgia") is a Virginia corporation.
Sections 13.1-697 and 13.1-702 of the Virginia Stock Corporation Act ("VSCA")
permits a Virginia corporation to indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending, or completed
civil, criminal, administrative or investigative action, suit or proceeding,
whether formal or informal, by reason of the fact that such person is or was a
director, officer, partner, trustee, employee or agent of the corporation, or is
or was serving as such with respect to another corporation or entity at the
request of the corporation, provided that such person acted in good faith and in
a manner such person reasonably believed to be, with respect to conduct in the
course of an official capacity with the corporation, in or, in all other cases,
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, without reasonable cause to believe the conduct
was unlawful. Where the action or suit is by or in the right of the corporation,
the corporation may not indemnify such person for any claim, issue or matter as
to which the person shall have been adjudged liable to the corporation, or in
connection with any other proceeding charging improper personal benefit to him,
whether or not involving action in his official capacity, in which he was
adjudged liable on the basis that personal benefit was improperly received by
him. ITCO Georgia has provided in its By-laws that its directors and officers
will be indemnified and held harmless against all expenses, liability and loss
(including counsel fees, judgments, fines, excise taxes or penalties and amounts
paid in settlement) to the fullest extent provided by the law as it exists or
may hereafter be amended.

Section 13.1-703 of the VSCA and the By-laws of ITCO Georgia also permit
ITCO Georgia to purchase insurance for the benefit of any person who is or was a
director, officer, employee, or agent of the corporation against any liability
incurred by such person, whether or not the corporation would have the power to
indemnify such person against such liability under sections 13.1-697 or
12.1-698.

II-2
<PAGE> 208

Liability Insurance; Indemnification Under Employment Agreements

The Company maintains directors and officers liability insurance policies,
in such amounts as it deems reasonable, against certain liabilities that may be
asserted against, or incurred by, the directors and officers of each registrant
in their capacities as directors or officers of such corporation, including
liabilities under federal and state securities laws.

Each of the Named Executive Officers is indemnified by the Company against
certain liabilities that may be asserted against, or incurred by, such persons
in their capacities as employees pursuant to employment agreements with the
Company more fully described in the Prospectus that forms a part of this
Registration Statement.

II-3
<PAGE> 209

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

<TABLE>
<C> <S>
3.1 Second Amended and Restated Articles of Incorporation of The
J.H. Heafner Company, Inc. (the "Company")
3.2 By-laws of the Company
3.3 Articles of Incorporation of Oliver & Winston, Inc.
3.4 By-laws of Oliver & Winston, Inc.
3.5 Certificate of Incorporation of ITCO Logistics Corporation
3.6 By-laws of ITCO Logistics Corporation
3.7 Articles of Incorporation of ITCO Holding Company, Inc.
3.8 By-laws of ITCO Holding Company, Inc.
3.9 Articles of Incorporation of ITCO Tire Company
3.10 By-laws of ITCO Tire Company
3.11 Articles of Incorporation of ITCO Tire Company of Georgia
3.12 By-laws of ITCO Tire Company of Georgia
3.13 Articles of Incorporation of The Speed Merchant, Inc.
3.14 By-laws of The Speed Merchant, Inc.
3.15 Articles of Incorporation of Phoenix Racing, Inc.
3.16 By-laws of Phoenix Racing, Inc.
4.1 Indenture, dated as of May 15, 1998, among the Company,
First Union National Bank, as Trustee (the "Trustee"), and
Oliver & Winston, Inc., ITCO Logistics Corporation, ITCO
Holding Company, Inc., ITCO Tire Company, ITCO Tire Company
of Georgia, The Speed Merchant, Inc., and Phoenix Racing,
Inc. (collectively, the "Subsidiary Guarantors")
4.2 Form of Global Note (attached as Exhibit A to the Indenture
filed as Exhibit 4.1 to the Registration Statement)
5.1 Opinion of Howard, Smith & Levin LLP as to the Legality of
the New Notes*
9.1 Voting Trust Agreement, dated as of October 15, 1996, by and
among Ann Heafner Gaither, William H. Gaither, Albert C.
Gaither, Susan Gaither Jones, Lawson H. Gaither, Albert
Comer Gaither and Thomas R. Jones, as Stockholders, and Ann
Heafner Gaither and William H. Gaither, as Trustees
10.1 Amended and Restated Loan and Security Agreement, dated as
of May 20, 1998, among the Company, Oliver & Winston, Inc.,
ITCO Holding Company, Inc. and The Speed Merchant, Inc., as
Borrowers, BankBoston, N.A., as Agent (the 'Agent'), Fleet
Capital Corporation and First Union National Bank as
Co-Agents (the "Co-Agents") and the various financial
institutions from time to time party thereto, as Lenders
10.2 Letter, dated May 20, 1998, from the Company, Oliver &
Winston, Inc., ITCO Holding Company, Inc., The Speed
Merchant, Inc., ITCO Tire Company, ITCO Tire Company of
Georgia and Phoenix Racing, Inc. to the Agent and the
Co-Agents
10.3 Guaranties, dated as of May 20, 1998, by each of ITCO Tire
Company, ITCO Tire Company of Georgia, ITCO Logistics
Corporation and Phoenix Racing, Inc. in favor of the Agent
10.4 Subsidiary Security Agreements, dated as of May 20, 1998,
between the Agent and each of ITCO Tire Company, ITCO Tire
Company of Georgia, ITCO Logistics Corporation and Phoenix
Racing, Inc.
10.5 Senior Subordinated Note and Warrant Purchase Agreement,
dated as of May 7, 1997, by and among The J. H. Heafner
Company, Inc. and The 1818 Mezzanine Fund, L.P.
10.6 Registration Rights Agreement, dated as of May 7, 1997, by
and among The J. H. Heafner Company, Inc. and The 1818
Mezzanine Fund, L.P.
10.7 Warrant No. 2 exercisable for 1,034,000 shares of Class A
Common Stock in the name of The 1818 Mezzanine Fund, L.P.
</TABLE>

II-4
<PAGE> 210

<TABLE>
<C> <S>
10.8 Securities Purchase Agreement, dated as of May 7, 1997,
between The J. H. Heafner Company, Inc. and The
Kelly-Springfield Tire and Rubber Company
10.9 Agreement and Plan of Merger, dated March 10, 1998, among
the Company, ITCO Merger Corporation, ITCO Logistics
Corporation and Wingate Partners II, L.P., Armistead
Burwell, Jr., William E. Berry, Richard P. Johnson, Leon R.
Ellin, Wingate Affiliates II, L.P. and Callier Investment
Company (the "ITCO Stockholders")
10.10 Class B Stockholder Agreement, dated as of May 20, 1998,
among the Company and the ITCO Stockholders
10.11 Class B Registration Rights Agreement, dated as of May 20,
1998, among the Company and the ITCO Stockholders
10.12 Escrow Agreement, dated as of May 20, 1998, among the
Company, the ITCO Stockholders and the Chase Manhattan Bank,
as escrow agent
10.13 Stock Purchase Agreement, dated as of March 11, 1998, among
the Company, Arthur C. Soares and Ray C. Barney
10.14 Escrow Agreement, dated as of May 20, 1998, among the
Company, Arthur C. Barney, Ray C. Barney and First Union
National Bank, as escrow agent (the "CPW Escrow Agent")
10.15 Letter of Credit, dated as of May 20, 1998, issued to First
Union National Bank, as CPW Escrow Agent.
10.16 Stock Purchase Agreement, dated as of April 9, 1997, among
the Company and the shareholders of Oliver & Winston, Inc.
10.17 Guaranty, dated March 31, 1997, of the Company
10.18 1998 Michelin North America, Inc. Distributor Agreement,
dated January 1, 1998, by and between Michelin North
America, Inc. and the Company
10.19 The J.H. Heafner Company 1997 Stock Option Plan (the "Stock
Option Plan")
10.20 Form of Stock Option Agreement (incentive stock options)
10.21 Form of Stockholder Agreement (pursuant to the Stock Option
Plan)
10.22 Stockholders' Agreement, dated as of October 15, 1996, by
and among Ann Heafner Gaither, William H. Gaither, Albert C.
Gaither, Susan Gaither Jones, Lawson H. Gaither, Albert
Comer Gaither and Thomas R. Jones.
10.23 The J.H. Heafner Company 1997 Restricted Stock Plan
10.24 Securities Purchase and Stockholders Agreement, dated as of
May 28, 1997, among the Company and various management
stockholders
10.25 Employment and Severance Agreements between the Company and
William H. Gaither, J. Michael Gaither, Donald C. Roof,
Daniel K. Brown and Thomas J. Bonburg
10.26 Employment Agreement, dated as of May 20, 1998, between the
Company and Richard P. Johnson
10.27 Employment Agreement, dated as of May 20, 1998, between the
Company and Arthur C. Soares
10.28 Employment Agreement, dated as of May 20, 1998, between The
Speed Merchant, Inc. and Ray C. Barney
10.29 Lease Agreement, dated October 1, 1992, by and between
Carolyn Heafner, Ann H. Gaither, Albert C. Gaither and the
Company, as amended
10.30 Lease, dated August 1, 1988, by and between Ann Heafner
Gaither and the Company, as amended
10.31 Lease Agreement, dated January 1, 1993, by and between
Evangeline H. Heafner and the Company
11.1 Statement re: Computation of Per Share Earnings
12.1 Statement re: Computation of Ratios
21.1 Chart of Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP*
23.2 Consent of Deloitte & Touche LLP*
</TABLE>

II-5
<PAGE> 211

<TABLE>
<C> <S>
23.3 Consent of Ernst & Young LLP*
23.4 Consent of KPMG Peat Marwick LLP*
23.5 Consent of Arthur Andersen LLP*
23.6 Consent of Howard, Smith & Levin LLP (filed as part of
Exhibit 5.1)*
24.1 Power of Attorney of Directors and Officers (set forth on
signature pages of this Amendment)*
25.1 Statement of Eligibility of Trustee on Form T-1 related to
the Notes
27.1 Financial Data Schedules
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Exchange Agent Agreement
</TABLE>

(b) Financial Data Schedules (filed as exhibit 27.1)

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

* Filed herewith. All other exhibits were filed with the Registration Statement
dated August 18, 1998 or Amendment No. 1 to the Registration Statement dated
October 2, 1998.

ITEM 22. UNDERTAKINGS.

Each undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Securities
Act of 1933 (the "Securities Act"), each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof;

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;

(4) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions described under Item 20 or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless in
the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue;

(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request; and

(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.

II-6
<PAGE> 212

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Charlotte, State of North
Carolina, on October 14, 1998.

THE J. H. HEAFNER COMPANY, INC.

By: /s/ WILLIAM H. GAITHER

------------------------------------
Name: William H. Gaither
Title: President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of William H. Gaither, Donald C. Roof and J.
Michael Gaither and each of them, with full power to act alone, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
/s/ WILLIAM H. GAITHER Director, President and Chief October 14, 1998
- ------------------------------------------------ Executive Officer
William H. Gaither

/s/ DONALD C. ROOF Senior Vice President, Chief October 14, 1998
- ------------------------------------------------ Financial Officer and Treasurer
Donald C. Roof

/s/ ANN H. GAITHER Chairperson of the Board October 14, 1998
- ------------------------------------------------
Ann H. Gaither

/s/ VICTORIA B. JACKSON Director October 14, 1998
- ------------------------------------------------
Victoria B. Jackson

/s/ JOSEPH P. DONLAN Director October 14, 1998
- ------------------------------------------------
Joseph P. Donlan

/s/ WILLIAM M. WILCOX, JR. Director October 14, 1998
- ------------------------------------------------
William M. Wilcox, Jr.

/s/ V. EDWARD EASTERLING, JR. Director October 14, 1998
- ------------------------------------------------
V. Edward Easterling, Jr.

/s/ J. LEWIS MCKNIGHT, JR. Chief Accounting Officer October 14, 1998
- ------------------------------------------------
J. Lewis McKnight, Jr.
</TABLE>

II-7
<PAGE> 213

SIGNATURES

OLIVER & WINSTON, INC.

By: /s/ WILLIAM H. GAITHER

------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer

POWER OF ATTORNEY

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
/s/ WILLIAM H. GAITHER Director and Chief Executive October 14, 1998
- ------------------------------------------------ Officer
William H. Gaither

/s/ THOMAS J. BONBURG Director, President and Chief October 14, 1998
- ------------------------------------------------ Operating Officer
Thomas J. Bonburg

/s/ DONALD C. ROOF Vice President, Chief Financial October 14, 1998
- ------------------------------------------------ Officer and Treasurer
Donald C. Roof

/s/ ANN H. GAITHER Chairperson of the Board October 14, 1998
- ------------------------------------------------
Ann H. Gaither

/s/ J. LEWIS MCKNIGHT, JR. Chief Accounting Officer October 14, 1998
- ------------------------------------------------
J. Lewis McKnight, Jr.
</TABLE>

II-8
<PAGE> 214

SIGNATURES

ITCO LOGISTICS CORPORATION

By: /s/ WILLIAM H. GAITHER

------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer

POWER OF ATTORNEY

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.

/s/ RICHARD P. JOHNSON President and Chief Operating October 14, 1998
- ------------------------------------------------ Officer
Richard P. Johnson

/s/ DONALD C. ROOF Director, Vice President, Chief October 14, 1998
- ------------------------------------------------ Financial Officer and Treasurer
Donald C. Roof

/s/ ANN H. GAITHER Chairperson of the Board October 14, 1998
- ------------------------------------------------
Ann H. Gaither

/s/ J. MICHAEL GAITHER Director, Vice President, General October 14, 1998
- ------------------------------------------------ Counsel and Secretary
J. Michael Gaither

/s/ J. LEWIS MCKNIGHT, JR. Chief Accounting Officer October 14, 1998
- ------------------------------------------------
J. Lewis McKnight, Jr.
</TABLE>

II-9
<PAGE> 215

SIGNATURES

ITCO HOLDING COMPANY, INC.

By: /s/ WILLIAM H. GAITHER

------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer

POWER OF ATTORNEY

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.

/s/ RICHARD P. JOHNSON President and Chief Operating October 14, 1998
- ------------------------------------------------ Officer
Richard P. Johnson

/s/ DONALD C. ROOF Director, Vice President, Chief October 14, 1998
- ------------------------------------------------ Financial Officer and Treasurer
Donald C. Roof

/s/ ANN H. GAITHER Chairperson of the Board October 14, 1998
- ------------------------------------------------
Ann H. Gaither

/s/ J. MICHAEL GAITHER Director, Vice President, General October 14, 1998
- ------------------------------------------------ Counsel and Secretary
J. Michael Gaither

/s/ J. LEWIS MCKNIGHT, JR. Chief Accounting Officer October 14, 1998
- ------------------------------------------------
J. Lewis McKnight, Jr.
</TABLE>

II-10
<PAGE> 216

SIGNATURES

ITCO TIRE COMPANY

By: /s/ WILLIAM H. GAITHER

------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer

POWER OF ATTORNEY

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
/s/ WILLIAM H. GAITHER Director and Chief Executive Officer October 14, 1998
- ---------------------------------------------
William H. Gaither

/s/ RICHARD P. JOHNSON President and Chief Operating Officer October 14, 1998
- ---------------------------------------------
Richard P. Johnson

/s/ DONALD C. ROOF Director, Vice President, Chief October 14, 1998
- --------------------------------------------- Financial Officer and Treasurer
Donald C. Roof

/s/ ANN H. GAITHER Chairperson of the Board October 14, 1998
- ---------------------------------------------
Ann H. Gaither

/s/ J. MICHAEL GAITHER Director, Vice President, General October 14, 1998
- --------------------------------------------- Counsel and Secretary
J. Michael Gaither

/s/ J. LEWIS MCKNIGHT, JR. Chief Accounting Officer October 14, 1998
- ---------------------------------------------
J. Lewis McKnight, Jr.
</TABLE>

II-11
<PAGE> 217

SIGNATURES

ITCO TIRE COMPANY OF GEORGIA

By: /s/ WILLIAM H. GAITHER

------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer

POWER OF ATTORNEY

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.

/s/ RICHARD P. JOHNSON President and Chief Operating Officer October 14, 1998
- ---------------------------------------------
Richard P. Johnson

/s/ DONALD C. ROOF Director, Vice President, Chief October 14, 1998
- --------------------------------------------- Financial Officer and Treasurer
Donald C. Roof

/s/ ANN H. GAITHER Chairperson of the Board October 14, 1998
- ---------------------------------------------
Ann H. Gaither

/s/ J. MICHAEL GAITHER Director, Vice President, General October 14, 1998
- --------------------------------------------- Counsel and Secretary
J. Michael Gaither

/s/ J. LEWIS MCKNIGHT, JR. Chief Accounting Officer October 14, 1998
- ---------------------------------------------
J. Lewis McKnight, Jr.
</TABLE>

II-12
<PAGE> 218

SIGNATURES

THE SPEED MERCHANT, INC.

By: /s/ WILLIAM H. GAITHER

------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer

POWER OF ATTORNEY

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.

/s/ ARTHUR C. SOARES President and Chief Operating Officer October 14, 1998
- ---------------------------------------------
Arthur C. Soares

/s/ DONALD C. ROOF Director, Vice President, Chief October 14, 1998
- --------------------------------------------- Financial Officer and Treasurer
Donald C. Roof

/s/ ANN H. GAITHER Chairperson of the Board October 14, 1998
- ---------------------------------------------
Ann H. Gaither

/s/ J. MICHAEL GAITHER Director, Vice President, General October 14, 1998
- --------------------------------------------- Counsel and Secretary
J. Michael Gaither

/s/ J. LEWIS MCKNIGHT, JR. Chief Accounting Officer October 14, 1998
- ---------------------------------------------
J. Lewis McKnight, Jr.
</TABLE>

II-13
<PAGE> 219

SIGNATURES

PHOENIX RACING, INC.

By: /s/ WILLIAM H. GAITHER

------------------------------------
Name: William H. Gaither
Title: Chief Executive Officer

POWER OF ATTORNEY

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

/s/ ARTHUR C. SOARES President and Chief Operating Officer October 14, 1998
- ---------------------------------------------
Arthur C. Soares

/s/ DONALD C. ROOF Director, Vice President, Chief October 14, 1998
- --------------------------------------------- Financial Officer and Treasurer
Donald C. Roof

/s/ ANN H. GAITHER Chairperson of the Board October 14, 1998
- ---------------------------------------------
Ann H. Gaither

/s/ J. MICHAEL GAITHER Director, Vice President, General October 14, 1998
- --------------------------------------------- Counsel and Secretary
J. Michael Gaither

/s/ J. LEWIS MCKNIGHT, JR. Chief Accounting Officer October 14, 1998
- ---------------------------------------------
J. Lewis McKnight, Jr.
</TABLE>

II-14
<PAGE> 220

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
3.1 Second Amended and Restated Articles of Incorporation of The
J.H. Heafner Company, Inc. (the "Company")
3.2 By-laws of the Company
3.3 Articles of Incorporation of Oliver & Winston, Inc.
3.4 By-laws of Oliver & Winston, Inc.
3.5 Certificate of Incorporation of ITCO Logistics Corporation
3.6 By-laws of ITCO Logistics Corporation
3.7 Articles of Incorporation of ITCO Holding Company, Inc.
3.8 By-laws of ITCO Holding Company, Inc.
3.9 Articles of Incorporation of ITCO Tire Company
3.10 By-laws of ITCO Tire Company
3.11 Articles of Incorporation of ITCO Tire Company of Georgia
3.12 By-laws of ITCO Tire Company of Georgia
3.13 Articles of Incorporation of The Speed Merchant, Inc.
3.14 By-laws of The Speed Merchant, Inc.
3.15 Articles of Incorporation of Phoenix Racing, Inc.
3.16 By-laws of Phoenix Racing, Inc.
4.1 Indenture, dated as of May 15, 1998, among the Company,
First Union National Bank, as Trustee (the "Trustee"), and
Oliver & Winston, Inc., ITCO Logistics Corporation, ITCO
Holding Company, Inc., ITCO Tire Company, ITCO Tire Company
of Georgia, The Speed Merchant, Inc., and Phoenix Racing,
Inc. (collectively, the "Subsidiary Guarantors")
4.2 Form of Global Note (attached as Exhibit A to the Indenture
filed as Exhibit 4.1 to the Registration Statement)
5.1 Opinion of Howard, Smith & Levin LLP as to the Legality of
the New Notes*
9.1 Voting Trust Agreement, dated as of October 15, 1996, by and
among Ann Heafner Gaither, William H. Gaither, Albert C.
Gaither, Susan Gaither Jones, Lawson H. Gaither, Albert
Comer Gaither and Thomas R. Jones, as Stockholders, and Ann
Heafner Gaither and William H. Gaither, as Trustees
10.1 Amended and Restated Loan and Security Agreement, dated as
of May 20, 1998, among the Company, Oliver & Winston, Inc.,
ITCO Holding Company, Inc. and The Speed Merchant, Inc., as
Borrowers, BankBoston, N.A., as Agent (the 'Agent'), Fleet
Capital Corporation and First Union National Bank as
Co-Agents (the "Co-Agents") and the various financial
institutions from time to time party thereto, as Lenders
10.2 Letter, dated May 20, 1998, from the Company, Oliver &
Winston, Inc., ITCO Holding Company, Inc., The Speed
Merchant, Inc., ITCO Tire Company, ITCO Tire Company of
Georgia and Phoenix Racing, Inc. to the Agent and the
Co-Agents
10.3 Guaranties, dated as of May 20, 1998, by each of ITCO Tire
Company, ITCO Tire Company of Georgia, ITCO Logistics
Corporation and Phoenix Racing, Inc. in favor of the Agent
10.4 Subsidiary Security Agreements, dated as of May 20, 1998,
between the Agent and each of ITCO Tire Company, ITCO Tire
Company of Georgia, ITCO Logistics Corporation and Phoenix
Racing, Inc.
</TABLE>

<PAGE> 221

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
10.5 Senior Subordinated Note and Warrant Purchase Agreement,
dated as of May 7, 1997, by and among The J. H. Heafner
Company, Inc. and The 1818 Mezzanine Fund, L.P.
10.6 Registration Rights Agreement, dated as of May 7, 1997, by
and among The J. H. Heafner Company, Inc. and The 1818
Mezzanine Fund, L.P.
10.7 Warrant No. 2 exercisable for 1,034,000 shares of Class A
Common Stock in the name of The 1818 Mezzanine Fund, L.P.
10.8 Securities Purchase Agreement, dated as of May 7, 1997,
between The J. H. Heafner Company, Inc. and The
Kelly-Springfield Tire and Rubber Company
10.9 Agreement and Plan of Merger, dated March 10, 1998, among
the Company, ITCO Merger Corporation, ITCO Logistics
Corporation and Wingate Partners II, L.P., Armistead
Burwell, Jr., William E. Berry, Richard P. Johnson, Leon R.
Ellin, Wingate Affiliates II, L.P. and Callier Investment
Company (the "ITCO Stockholders")
10.10 Class B Stockholder Agreement, dated as of May 20, 1998,
among the Company and the ITCO Stockholders
10.11 Class B Registration Rights Agreement, dated as of May 20,
1998, among the Company and the ITCO Stockholders
10.12 Escrow Agreement, dated as of May 20, 1998, among the
Company, the ITCO Stockholders and the Chase Manhattan Bank,
as escrow agent
10.13 Stock Purchase Agreement, dated as of March 11, 1998, among
the Company, Arthur C. Soares and Ray C. Barney
10.14 Escrow Agreement, dated as of May 20, 1998, among the
Company, Arthur C. Barney, Ray C. Barney and First Union
National Bank, as escrow agent (the "CPW Escrow Agent")
10.15 Letter of Credit, dated as of May 20, 1998, issued to First
Union National Bank, as CPW Escrow Agent.
10.16 Stock Purchase Agreement, dated as of April 9, 1997, among
the Company and the shareholders of Oliver & Winston, Inc.
10.17 Guaranty, dated March 31, 1997, of the Company
10.18 1998 Michelin North America, Inc. Distributor Agreement,
dated January 1, 1998, by and between Michelin North
America, Inc. and the Company
10.19 The J.H. Heafner Company 1997 Stock Option Plan (the "Stock
Option Plan")
10.20 Form of Stock Option Agreement (incentive stock options)
10.21 Form of Stockholder Agreement (pursuant to the Stock Option
Plan)
10.22 Stockholders' Agreement, dated as of October 15, 1996, by
and among Ann Heafner Gaither, William H. Gaither, Albert C.
Gaither, Susan Gaither Jones, Lawson H. Gaither, Albert
Comer Gaither and Thomas R. Jones.
10.23 The J.H. Heafner Company 1997 Restricted Stock Plan
10.24 Securities Purchase and Stockholders Agreement, dated as of
May 28, 1997, among the Company and various management
stockholders
10.25 Employment and Severance Agreements between the Company and
William H. Gaither, J. Michael Gaither, Donald C. Roof,
Daniel K. Brown and Thomas J. Bonburg
10.26 Employment Agreement, dated as of May 20, 1998, between the
Company and Richard P. Johnson
10.27 Employment Agreement, dated as of May 20, 1998, between the
Company and Arthur C. Soares
</TABLE>

<PAGE> 222

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
10.28 Employment Agreement, dated as of May 20, 1998, between The
Speed Merchant, Inc. and Ray C. Barney
10.29 Lease Agreement, dated October 1, 1992, by and between
Carolyn Heafner, Ann H. Gaither, Albert C. Gaither and the
Company, as amended
10.30 Lease, dated August 1, 1988, by and between Ann Heafner
Gaither and the Company, as amended
10.31 Lease Agreement, dated January 1, 1993, by and between
Evangeline H. Heafner and the Company
11.1 Statement re: Computation of Per Share Earnings
12.1 Statement re: Computation of Ratios
21.1 Chart of Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP*
23.2 Consent of Deloitte & Touche LLP*
23.3 Consent of Ernst & Young LLP*
23.4 Consent of KPMG Peat Marwick LLP*
23.5 Consent of Arthur Andersen LLP*
23.6 Consent of Howard, Smith & Levin LLP (filed as part of
Exhibit 5)*
24.1 Power of Attorney of Directors and Officers (set forth on
signature pages of this Amendment)*
25.1 Statement of Eligibility of Trustee on Form T-1 related to
the Notes
27.1 Financial Data Schedules
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Exchange Agent Agreement
</TABLE>

(b) Financial Data Schedules (filed as Exhibit 27.1)

- ---------------
* Filed herewith. All other exhibits were filed with the Registration Statement
dated August 18, 1998.

<PAGE> 1
EXHIBIT 5.1

October 13, 1998

The J.H. Heafner Company, Inc.
2105 Water Ridge Parkway, Suite 500
Charlotte, North Carolina 28217

Ladies and Gentlemen:

In connection with the registration under the Securities Act of 1933,
as amended (the "Act"), pursuant to the Registration Statement (No. 333-61713)
on Form S-4 (the "Registration Statement") filed with the Securities and
Exchange Commission on August 18, 1998, of (a) $100,000,000 aggregate principal
amount of 10% Senior Notes Due 2008 (the "New Notes") of The J.H. Heafner
Company, Inc., a North Carolina corporation (the "Company"), and (b) Subsidiary
Guaranties of the New Notes (the "Subsidiary Guaranties") by Oliver & Winston,
Inc., a California corporation, ITCO Logistics Corporation, a Delaware
corporation, ITCO Holding Company, Inc., a North Carolina corporation, ITCO Tire
Company, a North Carolina corporation, ITCO Tire Company of Georgia, a Virginia
corporation, The Speed Merchant, Inc., a California corporation, and Phoenix
Racing, Inc., a California corporation (collectively, the "Subsidiary
Guarantors"), we have reviewed such corporate records, certificates and other
documents, and such questions of law, as we have considered necessary or
appropriate for the purposes of this opinion.

We have assumed that each of the Company and the Subsidiary Guarantors
is duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and that each of the Company and the Subsidiary
Guarantors has duly authorized, executed and delivered the Indenture, dated as
of May 15, 1998, among the Company, First Union National Bank, as Trustee, and
the Subsidiary Guarantors (the "Indenture").

Upon the basis of such examination and subject to the foregoing
assumptions, we advise you that, in our opinion, when the Registration Statement
has become effective
<PAGE> 2
The J.H. Heafner Company, Inc. - 2 -

under the Act, and the New Notes have been duly executed and authenticated in
accordance with the Indenture and issued in exchange for $100,000,000 aggregate
principal amount of 10% Senior Notes Due 2008 previously issued by the Company,
all in accordance with the exchange offer contemplated by the Registration
Statement, and assuming compliance with the Act, the New Notes will constitute
the valid and binding obligations of the Company, and each Subsidiary Guaranty
of a Subsidiary Guarantor will constitute the valid and binding obligation of
such Subsidiary Guarantor, in each case enforceable against such party in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other laws of general applicability
relating to or affecting creditors' rights, to general equity principles, and to
the qualification that we express no opinion with respect to the waivers
contained in Section 6.12 of the Indenture.

We are members of the bar of the State of New York. We do not purport
to be experts in, and we do not express any opinion on, any laws other than the
law of the State of New York, the Delaware General Corporation Law and the
Federal law of the United States of America.

We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Prospectus. In giving such consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7 of
the Act.

Very truly yours,

/s/ HOWARD, SMITH & LEVIN LLP

<PAGE> 1

Exhibit 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 2 to Registration Statement No.
333-61713 of The J.H. Heafner Company, Inc. of our report dated January 15, 1997
appearing in the Prospectus, which is part of such Registration Statement, and
to the reference to us under the headings "Selected Historical Financial Data"
and "Experts" in such Prospectus.

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California
October 13, 1998

<PAGE> 1

Exhibit 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 2 to Registration Statement
No. 333-61713 of The J.H. Heafner Company, Inc. of our report dated December 7,
1995 appearing in the Prospectus, which is part of such Registration Statement,
and the reference to us under the headings "Selected Historical Financial Data"
and "Experts" in such Prospectus.

/s/ DELOITTE & TOUCHE LLP

Raleigh, North Carolina
October 13, 1998

<PAGE> 1

EXHIBIT 23.3

CONSENT OF ERNST & YOUNG LLP

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 31, 1997 (except for Note 13, as to which
the date is January 14, 1998) with respect to the consolidated financial
statements of ITCO Logistics Corporation and subsidiaries included in Amendment
No. 2 to the Registration Statement (Form S-4 No. 333-61713) and related
Prospectus of J.H. Heafner Company, Inc. for the registration of the
$100,000,000 10% Senior Notes Due 2008.

/s/ ERNST & YOUNG LLP

Raleigh, North Carolina
October 14, 1998

<PAGE> 1

EX. 23.4

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
The Speed Merchant, Inc.:

We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.

/s/ KPMG PEAT MARWICK LLP

Mountain View, California

October 13, 1998

<PAGE> 1
[LETTERHEAD OF ARTHUR ANDERSEN LLP]

EXHIBIT 23.5

Consent of Independent Public Accountants

As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of Amendment No.
2 to Registration Statement No. 333-61713 of the J.H. Heafner Company, Inc.

/s/ ARTHUR ANDERSEN LLP

Charlotte, North Carolina,
October 13, 1998