<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1997
REGISTRATION NO. 333-20211
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SECURITIES AND EXCHANGE COMMISSION
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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EAGLE USA AIRFREIGHT, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C>
TEXAS 76-0094895
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
3214 LODESTAR
HOUSTON, TEXAS 77032
(281) 821-0300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JAMES R. CRANE
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD
EAGLE USA AIRFREIGHT, INC.
3214 LODESTAR
HOUSTON, TEXAS 77032
(281) 821-0300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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<TABLE>
<S> <C>
Copies to:
GENE J. OSHMAN STEVEN K. COCHRAN
BAKER & BOTTS, L.L.P. THOMPSON & KNIGHT, P.C.
3000 ONE SHELL PLAZA 1700 PACIFIC AVENUE, SUITE 3300
HOUSTON, TEXAS 77002-4995 DALLAS, TEXAS 75201-1700
(713) 229-1234 (214) 969-1700
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE 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
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 FEBRUARY 12, 1997
PROSPECTUS
, 1997
1,547,758 SHARES
LOGO
COMMON STOCK
All of the 1,547,758 shares of Common Stock of Eagle USA Airfreight, Inc.
offered hereby are being sold by a shareholder of the Company. See "Principal
and Selling Shareholders." The Company will not receive any of the proceeds from
the sale of the shares by the Selling Shareholder.
The Common Stock is included on the Nasdaq National Market under the symbol
"EUSA". The last reported sales price of the Common Stock on the Nasdaq National
Market on February 10, 1997 was $28 1/2 per share. See "Price Range of Common
Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE UNDERWRITING PROCEEDS TO
TO THE DISCOUNTS AND THE SELLING
PUBLIC COMMISSIONS(1) SHAREHOLDER(2)
<S> <C> <C> <C>
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Per Share........................................ $ $ $
Total(3)......................................... $ $ $
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</TABLE>
(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses estimated at $270,000, which will be paid by the
Selling Shareholder.
(3) The Company has granted to the Underwriters an option, exercisable within 30
days hereof, to purchase up to an aggregate of 232,164 additional shares at
the Price to the Public less Underwriting Discounts and Commissions for the
purpose of covering over-allotments, if any. If the Underwriters exercise
such option in full, the total Price to the Public and the Underwriting
Discounts and Commissions will be $ and $ , respectively,
the Proceeds to the Selling Shareholder will be unchanged from the amount
set forth above, and the Company will receive proceeds of $ . See
"Underwriting."
The shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including the right to reject orders in whole or in part. It is
expected that delivery of the shares will be made in New York, New York, on or
about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ALEX. BROWN & SONS
INCORPORATED
THE ROBINSON-HUMPHREY
COMPANY, INC.
<PAGE> 3
[MAP OF COMPANY'S TERMINAL LOCATIONS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ
NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in and incorporated by reference into this Prospectus.
Unless otherwise indicated, all information contained in or incorporated by
reference into this Prospectus (i) assumes that the Underwriters' over-allotment
option will not be exercised and (ii) has been adjusted to reflect the
two-for-one split of the Common Stock effected in August 1996. The term "Eagle"
refers to Eagle USA Airfreight, Inc., and the term the "Company" refers to Eagle
and its subsidiaries, unless the context otherwise requires.
THE COMPANY
The Company is a leading provider of air freight forwarding and other
transportation and logistics services. Since opening its first terminal in
Houston, Texas in 1984, the Company has expanded its network of terminals to
include locations in 50 cities throughout the United States and one recently
opened terminal in Canada. From fiscal 1992 to fiscal 1996, the Company has
experienced rapid growth in revenues from $25.7 million to $185.4 million, and
in operating income from $67,000 to $17.8 million. The Company believes that it
has grown to be one of the largest air freight forwarders in the United States
as measured by domestic forwarding revenues largely due to its ability to work
closely with its customers to provide customized freight shipping services on a
price-competitive basis.
Historically, the Company has grown through the internal expansion of its
air freight forwarding customer base and terminal network. Over the last several
years, the Company has developed a nationwide terminal system by expanding its
terminal locations from 14 in September 1993 to 51 in December 1996,
significantly expanded its services to include local pick-up and delivery, truck
brokerage and various "value added" logistics services and developed an advanced
logistics information system. The Company has also expanded its international
air freight forwarding operations and is in the process of establishing
arrangements with cargo agents in international locations. As a result, it has
expanded the scope of its potential customers and has enhanced its ability to
compete for high-revenue national accounts with multiple shipping locations. The
Company's increasing shipment volumes have enabled it to command from air
carriers priority access to freight capacity at peak times and at discount
rates. The Company believes that it has also benefited from increased emphasis
on "just-in-time" manufacturing and production practices, outsourcing of
transportation logistics functions and continuing concentration of
transportation suppliers by major shipping customers. The increasingly complex
demands of freight transportation and the need for cost-effective distribution
networks have placed a premium on the services of those forwarders, such as the
Company, that can offer reliable service over a broad network at competitive
prices.
The Company currently has customers that are engaged in a variety of
industries. The average shipment weight during fiscal 1996 was 576 pounds,
ranging in size from small packages of documents to 37,000 pound deliveries of
printed materials. Although the Company imposes no size or weight restrictions
on shipments, it focuses on shipments of over 50 pounds. As a result, it does
not directly compete for most of its business with overnight courier or small
parcel companies, such as Federal Express Corporation and United Parcel Service
of America, Inc. Such companies typically use their own captive airplane fleets,
which on occasion serve as a source of cargo space for the Company's forwarding
operations.
The Company's freight forwarding operations involve obtaining shipment
orders from customers, determining the best means to transport the shipments to
their destination and arranging and monitoring all aspects of the shipments.
Typically, the transportation is provided by a commercial air carrier. The
Company neither owns nor operates aircraft and, consequently, places no
restrictions on delivery schedules or shipment size or weight. The Company has
recently begun a regularly scheduled dedicated charter of one cargo airplane to
service a specific high-volume transportation lane. On occasion, the Company
charters cargo aircraft for use in other transportation lanes as needed. The
Company draws on its logistics expertise to provide forwarding services that are
tailored to meet the goals of the customer. The Company arranges for, and in
many cases provides, pick-up and delivery service between the carrier and the
location of the shipper or recipient. If delivery schedules permit, the Company
will typically use lower-cost, overland truck transportation services,
3
<PAGE> 5
including those obtained through its truck brokerage operations. The Company
also provides other ancillary services, such as computer-based shipping systems,
electronic data interchange, custom shipping reports, computerized tracking of
shipments, customs brokerage, warehousing, cargo assembly and protective packing
and crating.
An important factor in the Company's growth and ongoing operations is its
information systems. These include its recently upgraded logistics information
system -- Worldport -- and its management information and accounting systems.
Worldport permits on-line entry and retrieval of shipment, pricing, scheduling,
booking and tracking data and interfaces with the Company's management
information and accounting systems. The Company's information systems provide
accurate, up-to-date information on the status of shipments, both internally (to
ensure on-time delivery and efficient operations) and to customers (through
whatever medium they request), and allow the Company's management to monitor its
operations and financial results. The Company has recently begun an upgrade of
the information systems used by its local pick-up and delivery operations,
including barcode and signature scanners that allow for enhanced tracking of
shipments and real-time access by shippers of receipt signatures for proof of
delivery information. In addition, the Company offers to certain of its
customers Eagle-Ship, a dedicated personal computer, printer and barcode
scanner, that allows the customer's shipping dock personnel to automate their
shipping process with multiple shippers.
The business strategy of the Company includes the following principal
elements:
Continued Rapid Expansion of Core Domestic Freight Forwarding Business. The
Company plans to expand its domestic freight forwarding business by continuing
to (i) provide high-quality customized freight forwarding and related
transportation and logistics services, (ii) expand its network of terminals and
(iii) capitalize on economies of scale. The Company currently plans to open
terminals in approximately 10 additional locations during the remainder of
fiscal 1997 and up to 30 additional locations by the end of fiscal 1999.
Expansion of Local Pick-up and Delivery and Centralized Truck Brokerage.
The Company has local pick-up and delivery operations at 33 of its 51 terminal
locations and plans to initiate these services in approximately 12 additional
locations in fiscal 1997. The Company plans to initiate local pick-up and
delivery operations in substantially all of its domestic locations by the end of
fiscal 1999. In addition, the Company has initiated a centralized truck
brokerage service to more efficiently utilize truck transportation where it can
be used as an effective alternative to air shipment for less urgent forwarding
business. By integrating these services with its freight forwarding business,
the Company is able to avoid having to contract with third parties, thereby
enhancing the Company's ability to monitor, maintain quality control of and
retain a greater portion of the profit generated by shipments.
Development of International Freight Forwarding. The Company intends to
continue to expand its international freight forwarding services. The Company is
in the process of establishing a network of agents in international locations,
primarily in Europe and the Far East, and plans to emphasize the marketing of
international services through a separate sales force.
Attractive Incentive-Based Compensation. The Company provides a broad-based
compensation plan to its sales force and most of its operations personnel in
order to attract, retain and incentivize the highest quality employees
available, generally paying what it believes is significantly more than the
industry average. The Company places no upside limitations on compensation of
its sales personnel. The Company believes its compensation plan and philosophy
have helped it to retain experienced sales and management personnel. The
Company's management from the terminal manager level and above has an average of
over 14 years of transportation experience.
Enhancement of Advanced Information Systems. The Company believes the
ability to provide accurate up-to-date information on the status of shipments
and results of operations will become increasingly important. Consequently, the
Company upgraded its information systems in December 1996, and plans to continue
to invest substantial management and financial resources in the development of
its information systems. Based upon its analysis of systems generally available
to air freight forwarders, the Company believes
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<PAGE> 6
that its systems are superior to those of other domestic air freight forwarders
and provide the Company with a competitive advantage.
The Company's principal executive offices are located at 3214 Lodestar,
Houston, Texas 77032, and its telephone number is (281) 821-0300.
THE OFFERING
Common Stock offered by the Selling
Shareholder...................... 1,547,758 shares (1)
Common Stock outstanding........... 17,570,421 shares (1)(2)
Use of proceeds.................... The Company will not receive any of the
proceeds from the sale of the shares by
the Selling Shareholder. If the
Underwriters' over-allotment option is
exercised (see "Underwriting"), any net
proceeds received by the Company from the
proceeds of shares sold thereunder will
be used for general corporate purposes.
Nasdaq National Market symbol...... EUSA
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(1) Excludes 232,164 shares of Common Stock subject to the Underwriters'
over-allotment option.
(2) Excludes (i) 2,725,152 shares of Common Stock reserved for issuance pursuant
to the Company's Long-Term Incentive Plan (the "Incentive Plan"), of which
2,171,845 shares were issuable upon exercise of stock options outstanding as
of December 31, 1996 (including vested options for 212,835 shares), and (ii)
200,000 shares of Common Stock reserved for issuance pursuant to the
Company's 1995 Nonemployee Director Stock Option Plan (the "Nonemployee
Director Plan"), of which 60,000 shares were issuable upon exercise of stock
options outstanding as of December 31, 1996 (none of which were vested).
Under the treasury stock method of computation and at a $28.50 per share
price for shares repurchased (the last sale price for the Common Stock on
February 10, 1997, as reported on the Nasdaq National Market), the issued
options would represent 960,008 Common Stock equivalents.
5
<PAGE> 7
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------
1992 1993 1994 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues..................................................... $25,711 $ 47,425 $ 83,276 $126,214 $185,445
Cost of transportation....................................... 15,407 28,504 49,764 72,366 103,312
------- -------- -------- -------- --------
Gross profit................................................. 10,304 18,921 33,512 53,848 82,133
Personnel costs.............................................. 7,631 11,465 19,165 27,939 41,619
Other selling, general and administrative expenses........... 2,606 5,066 8,461 13,704 22,665
------- -------- -------- -------- --------
Operating expenses........................................... 10,237 16,531 27,626 41,643 64,284
------- -------- -------- -------- --------
Operating income............................................. 67 2,390 5,886 12,205 17,849
Nonoperating income.......................................... 30 27 76 319 934
------- -------- -------- -------- --------
Income before income taxes................................... 97 2,417 5,962 12,524 18,783
Provision for income taxes................................... 40 132 492 1,335 6,357
------- -------- -------- -------- --------
Net income................................................... $ 57 $ 2,285 $ 5,470 $ 11,189 $ 12,426
======= ======== ======== ======== ========
Pro forma net income(1)...................................... -- $ 1,462 $ 3,554 $ 7,507 $ 11,481
Pro forma net income per share............................... -- -- -- $ 0.51 $ 0.66
Weighted average number of shares outstanding................ -- -- -- 14,782 17,521
OPERATING DATA:
Gross margin................................................. 40.1% 39.9% 40.2% 42.7% 44.3%
Operating margin............................................. 0.3% 5.0% 7.0% 9.7% 9.6%
Same terminal revenue growth(2).............................. 17.0% 63.0% 44.0% 29.1% 29.3%
Air freight terminals at end of period....................... 8 14 27 37 47
Local delivery terminals at end of period.................... -- -- -- 11 28
Freight forwarding shipments................................. 82,293 178,545 291,956 382,583 524,685
Average weight (lbs.) per freight forwarding shipment........ N/A 506 520 608 576
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-------------------------------------------------------
1992 1993 1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................... $ 31 $ 1,025 $ 3,510 $ 6,852 $ 41,487
Total assets.................................................. 5,154 9,884 16,612 24,468 71,729
Long-term indebtedness........................................ 78 18 11 8,474 0
Shareholders' equity.......................................... 573 2,032 5,031 1,699 50,442
</TABLE>
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N/A -- Not available.
(1) From October 1, 1992 until the termination of its S Corporation status,
Eagle operated as an S Corporation under Subchapter S of the Internal
Revenue Code of 1986, as amended, and comparable provisions of certain state
tax laws. On December 4, 1995, prior to the closing of the Company's initial
public offering (the "IPO"), Eagle's status as an S Corporation was
terminated. The amounts shown reflect a pro forma charge in lieu of income
taxes which represents the estimated federal income taxes that would have
been reported under Statement of Financial Accounting Standards ("FAS") No.
109 "Accounting for Income Taxes" had Eagle been a C Corporation during each
of the periods presented. See Notes 1 and 4 of Notes to Consolidated
Financial Statements included elsewhere in this Prospectus.
(2) Percentage increase in revenues for those terminals open as of the beginning
of the prior period.
6
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RISK FACTORS
Before purchasing any shares of Common Stock offered by this Prospectus,
prospective investors should carefully consider the following factors relating
to the Company and this Offering, together with the other information and
financial statements appearing elsewhere in and incorporated by reference into
this Prospectus.
DEPENDENCE ON KEY PERSONNEL
The Company's founder, James R. Crane, serves as President and Chairman of
the Board. The Company believes that its future success will be highly dependent
upon its ability to attract and retain skilled managers and other personnel,
including Mr. Crane, the Company's other executive officers and its regional
managers. The loss of the services of any such managers and personnel could have
a material adverse effect on the Company.
COMPETITION
Competition within the freight industry is intense. Although the industry
is highly fragmented, the Company competes most often with a relatively small
number of forwarders with nationwide networks and the capability to provide the
breadth of services offered by the Company and with fully integrated carriers,
including Burlington Air Express, Inc. and Emery Air Freight Corporation. The
Company also encounters competition from passenger and cargo air carriers,
trucking companies and others. As the Company expands its international
operations, it expects to encounter increased competition from those forwarders
that have a predominantly international focus, including Air Express
International Corporation, Expeditors International of Washington, Inc., Fritz
Companies Inc. and Harper Group, Inc., as well as from its competitors for
domestic forwarding. Many of these competitors have substantially greater
financial resources than the Company. The Company also encounters competition
from regional and local air freight forwarders, cargo sales agents and brokers,
surface freight forwarders and carriers and associations of shippers organized
for the purpose of consolidating their members' shipments to obtain lower
freight rates from carriers. See "Business -- Competition."
ABILITY TO MANAGE GROWTH
The Company has experienced significant growth in the past through
increases in sales at existing terminals and opening new terminals. The Company
anticipates that its growth strategy in the future will include internal growth
in its domestic and international freight forwarding, local pick-up and delivery
and truck brokerage business, and could also include acquisitions. The Company's
ability to continue its growth will depend on a number of factors, including
existing and emerging competition, the ability to open new terminals, the
ability to maintain profit margins in the face of competitive pressures, the
continued recruitment, training and retention of operating employees, the
strength of demand for its services and the availability of capital to support
such growth and the ability to identify, negotiate and fund acquisitions when
appropriate. International operations are likely to involve increased costs and
risks including those related to foreign regulation, intensified competition,
currency fluctuations and exchange controls. There can be no assurance that the
Company will be successful in implementing any of its business strategy and
plans for future growth. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General" and "Business -- Business
Strategy."
DEPENDENCE ON CARRIERS
The Company's ability to serve its customers depends on the availability of
air cargo space, including space on passenger and cargo airlines that service
the relevant transportation lanes. Shortages of cargo space are most likely to
develop around holidays and in especially heavy transportation lanes. In
addition, available cargo space could be reduced as a result of decreases in the
number of passenger airlines serving particular transportation lanes at
particular times, which could occur as a result of economic conditions,
transportation strikes, regulatory changes and other factors beyond the control
of the Company. Although the Company does not believe that the lack of cargo
space has had a significant impact on its ability to book cargo space to date,
future operating results could be adversely affected by significant shortages of
suitable cargo space and associated increases in rates charged by passenger
airlines for cargo space.
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INDEPENDENT OWNER/OPERATORS
From time to time, third parties, including the Internal Revenue Service
("IRS") and state authorities, have sought to assert, and at times have been
successful in asserting, that independent owner/operators in the transportation
industry, including those of the type utilized in connection with the Company's
local pick-up and delivery operations, are "employees," rather than "independent
contractors." Although the Company believes that the independent owner/operators
utilized by it are not employees, there can be no assurance that the IRS and
state authorities or others will not challenge this position, or that federal
and state tax or other applicable laws, or interpretations thereof, will not
change. If they do, the Company could incur additional employee benefit related
expenses and could be liable for additional taxes, penalties and interest for
prior periods and additional taxes for future periods. See
"Business -- Employees."
CONTROL BY PRINCIPAL SHAREHOLDER
As of December 31, 1996, James R. Crane owned 10,177,378 shares of Common
Stock, representing approximately 57.9% of the outstanding shares of Common
Stock. As a result, Mr. Crane individually will be in a position to control the
Company through his ability to determine the outcome of elections of the
Company's directors and to prevail in matters submitted to a vote of
shareholders. See "Principal and Selling Shareholders."
VULNERABILITY TO ECONOMIC CONDITIONS; DEPENDENCE ON PRINCIPAL CUSTOMERS
The Company's future operating results may be dependent on the economic
environments in which it operates. Demand for the Company's services could be
adversely affected by economic conditions in the industries of the Company's
customers. A number of the Company's principal customers are in the personal
computer, electronics and related industries, and in particular, Compaq Computer
Corporation ("Compaq") accounted for 13.5% and 8.8% of the Company's revenues
for the fiscal years ended September 30, 1995 and 1996, respectively. Compaq has
recently solicited bids for a multi-year contract involving its domestic
airfreight shipping business from several companies, including the Company, and
it is expected that Compaq will name one or more of these companies as its
shippers in the near future. There can be no assurance as to what, if any,
portion of such business the Company will receive. Adverse conditions in the
industries of the Company's customers or the loss of a significant customer,
including Compaq, could negatively impact the Company. The Company expects that
demand for the Company's services (and consequently its results of operations)
will continue to be sensitive to domestic and, increasingly, global economic
conditions and other factors beyond its control.
PICK-UP AND DELIVERY CLAIMS EXPOSURE
At September 30, 1996, the Company utilized the services of approximately
450 drivers in connection with its local pick-up and delivery operations and
from time to time such drivers are involved in accidents. Although most of these
drivers are independent contractors, there can be no assurance that the Company
will not be held liable for the actions of such drivers. The Company currently
carries, or requires of its independent owner/operators, liability insurance of
$1 million for each such accident. However, there can be no assurance that
claims against the Company will not exceed the amount of coverage. If the
Company were to experience a material increase in the frequency or severity of
accidents, liability claims or workers' compensation claims, or unfavorable
resolutions of claims, the Company's operating results and financial condition
could be materially affected. In addition, significant increases in insurance
costs could reduce the Company's profitability.
PERMITS AND LICENSING
The Company's operations are subject to various state, local, federal and
foreign regulations that in many instances require permits and licenses. Certain
federal officials have announced that they are considering implementing
increased security measures with respect to air cargo. There can be no assurance
as to what, if any, regulations will be adopted or, if adopted, as to their
ultimate effect on the Company. Failure of the
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<PAGE> 10
Company to maintain required permits or licenses, or to comply with applicable
regulations, could result in substantial fines or revocation of the Company's
operating authorities. See "Business -- Regulation."
SHARES ELIGIBLE FOR FUTURE SALE
Substantially all of the shares of Common Stock currently held by the
Company's Chairman of the Board are eligible for sale in the public market
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), subject to the restrictions of Rule 144. In addition, all of
such shares as well as 775,914 shares of Common Stock held by the other
executive officers could be sold in the public market through the exercise of
registration rights. The Company and its executive officers and directors have
agreed that, for a period of 90 days after the date of this Prospectus, they
will not, without the prior written consent of the representatives of the
Underwriters, sell or otherwise dispose of any of their shares of Common Stock
other than, in the case of executive officers and directors of the Company,
certain permitted private sales, and, in the case of the Company, for shares
issued in connection with employee benefit plans and acquisitions. Such consent
may be given at any time and without prior public notice. In addition, shares
that may be purchased upon the vesting of options issued under the Incentive
Plan and Nonemployee Director Plan will be eligible for sale pursuant to
registration statements on Form S-8. As of December 31, 1996, 2,231,845 shares
of Common Stock were issuable upon the exercise of outstanding options awarded
under the Incentive Plan and the Nonemployee Director Plan, of which 212,835
shares of Common Stock were issuable upon the exercise of vested options. In
addition, options to purchase 866,270 shares of Common Stock vest during the
remainder of fiscal 1997. The exercise prices of substantially all of the
options that are currently vested or will vest during the remainder of fiscal
1997 are substantially below the current market price of the Common Stock. Sales
of substantial amounts of Common Stock by the current shareholders or by option
holders could adversely affect the prevailing market price of the Common Stock
and impair the Company's ability to raise capital by issuing equity securities.
See "Description of Capital Stock -- Registration Rights of Certain Holders" and
"Underwriting."
CERTAIN ANTI-TAKEOVER EFFECTS
The Company's Articles of Incorporation authorize the Board of Directors to
set the terms of and issue Preferred Stock without shareholder approval. The
Board of Directors could use the Preferred Stock as a means to delay, defer or
prevent a takeover attempt that a shareholder might consider to be in the
Company's best interest. In addition, certain provisions of the Company's
Articles of Incorporation and Bylaws might impede a takeover of the Company. See
"Description of Capital Stock."
FORWARD LOOKING STATEMENTS
The statements contained in or incorporated by reference into this
Prospectus, including, but not limited to, those relating to the future
availability of cargo space; the Company's plans for international air freight
forwarding services; the future expansion and results of the Company's terminal
network; plans for local delivery services and truck brokerage; future
improvements in the Company's information systems and logistic systems and
services; future marketing results; construction of new facilities; the effect
of litigation; future costs of transportation; future operating expenses; future
margins; future dividend plans; future acquisitions; ability to continue growth
and implement growth and business strategy; the ability of expected sources of
liquidity to support working capital and capital expenditure requirements; the
tax benefit of any stock option exercises; and any other statements regarding
future growth, future cash needs, future terminals, future operations, business
plans and future financial results; and any other statements which are not
historical facts are forward-looking statements. When used in this document, the
words "anticipate," "estimate," "expect," "may," "project," and similar
expressions are intended to be among the statements that identify forward-
looking statements. Such statements involve risks and uncertainties, including,
but not limited to, those relating to the Company's dependence on its ability to
attract and retain skilled managers and other personnel; the intense competition
within the freight industry; the uncertainty of the Company's ability to manage
and continue its growth and implement its business strategy; the Company's
dependence on the availability of cargo space to serve its customers; the
potential for liabilities if certain independent owner/operators that serve
9
<PAGE> 11
the Company are determined to be employees; effects of regulation; results of
litigation; the Company's vulnerability to general economic conditions and
dependence on its principal customers; the control by the Company's principal
shareholder; the Company's potential exposure to claims involving its local
pick-up and delivery operations; the Company's future financial and operating
results, cash needs and demand for its services; and the Company's ability to
maintain and comply with permits and licenses; as well as other factors detailed
in "Risk Factors" and elsewhere in this Prospectus and in the Company's filings
with the Securities and Exchange Commission. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual outcomes may vary materially from those indicated.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
shares by the Selling Shareholder. All such proceeds will be received by the
Selling Shareholder. See "Principal and Selling Shareholders." If the
Underwriters' over-allotment option is exercised (see "Underwriting"), any net
proceeds received by the Company from the proceeds of shares sold thereunder
will be used for general corporate purposes.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been included on the Nasdaq National Market
under the symbol "EUSA" since November 30, 1995, the effective date of the IPO.
The following table summarizes the high and low last reported closing sales
prices of the Common Stock for each quarterly period indicated:
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Fiscal Year Ended September 30, 1996:
1st Quarter (from November 30, 1995)...................... $13 1/8 $ 9 1/8
2nd Quarter............................................... 15 1/2 12 1/4
3rd Quarter............................................... 19 13 3/4
4th Quarter............................................... 26 17 1/4
Fiscal Year Ended September 30, 1997:
1st Quarter............................................... $27 3/4 $25 1/4
2nd Quarter through February 10, 1997..................... 28 1/2 25 1/4
</TABLE>
DIVIDEND POLICY
The Company expects to retain all available earnings generated by its
operations for the development and growth of its business and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. Any future determination as to dividend policy will be made, subject to
Texas law, in the discretion of the Board of Directors of the Company and will
depend on a number of factors, including future earnings, capital requirements,
financial condition and business prospects of the Company and such other factors
as the Board of Directors may deem relevant. The Company's credit facility
limits dividend payments after the date of completion of the IPO to 25% of the
Company's cumulative net income from such date. From October 1992 to shortly
prior to the Company's IPO, the Company was an S Corporation and distributed to
its shareholders all of its taxable income. Prior to the IPO, the Company paid
distributions consisting of cash and notes of $2.7 million and $14.6 million in
fiscal 1996 and 1995, respectively.
10
<PAGE> 12
CAPITALIZATION
The following table sets forth the total debt and capitalization of the
Company as of September 30, 1996.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1996
-------
(IN
THOUSANDS)
<S> <C>
Total debt (including current maturities).................................. $ 0
Shareholders' equity:
Preferred Stock, par value $0.001 per share;
10,000,000 shares authorized; no shares
issued and outstanding................................................ --
Common Stock, par value $0.001 per share;
30,000,000 shares authorized, 17,492,139
shares issued and outstanding (1)..................................... 17
Additional paid in capital................................................. 39,124
Retained earnings.......................................................... 11,301
-------
Total shareholders' equity....................................... 50,442
-------
Total capitalization....................................................... $50,442
=======
</TABLE>
- ---------------
(1) Excludes (i) 2,803,434 shares of Common Stock reserved for issuance pursuant
to the Incentive Plan, of which 2,133,127 shares were issuable upon exercise
of stock options outstanding at September 30, 1996 (including vested options
for 234,232 shares), and (ii) 200,000 shares of Common Stock reserved for
issuance pursuant to the Nonemployee Director Plan, of which 60,000 shares
were issuable upon exercise of stock options outstanding at September 30,
1996 (none of which were vested).
11
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated statement of income and balance sheet
data have been derived from the Company's audited financial statements for the
five fiscal years ended September 30, 1996. This information should be read in
conjunction with the Consolidated Financial Statements and related notes and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------
1992 1993 1994 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues........................................................ $25,711 $47,425 $83,276 $126,214 $185,445
Cost of transportation.......................................... 15,407 28,504 49,764 72,366 103,312
------- ------- ------- -------- --------
Gross profit.................................................... 10,304 18,921 33,512 53,848 82,133
Personnel costs................................................. 7,631 11,465 19,165 27,939 41,619
Other selling, general and administrative expenses.............. 2,606 5,066 8,461 13,704 22,665
------- ------- ------- -------- --------
Operating expenses.............................................. 10,237 16,531 27,626 41,643 64,284
------- ------- ------- -------- --------
Operating income................................................ 67 2,390 5,886 12,205 17,849
Nonoperating income............................................. 30 27 76 319 934
------- ------- ------- -------- --------
Income before income taxes...................................... 97 2,417 5,962 12,524 18,783
Provision for income taxes...................................... 40 132 492 1,335 6,357
------- ------- ------- -------- --------
Net income...................................................... $ 57 $ 2,285 $ 5,470 $ 11,189 $ 12,426
======= ======= ======= ======== ========
Pro forma net income(1)......................................... -- $ 1,462 $ 3,554 $ 7,507 $ 11,481
Pro forma net income per share.................................. -- -- -- $ 0.51 $ 0.66
Weighted average number of shares outstanding................... -- -- -- 14,782 17,521
OPERATING DATA:
Gross margin.................................................... 40.1% 39.9% 40.2% 42.7% 44.3%
Operating margin................................................ 0.3% 5.0% 7.0% 9.7% 9.6%
Same terminal revenue growth(2)................................. 17.0% 63.0% 44.0% 29.1% 29.3%
Air freight terminals at end of period.......................... 8 14 27 37 47
Local delivery terminals at end of period....................... -- -- -- 11 28
Freight forwarding shipments.................................... 82,293 178,545 291,956 382,583 524,685
Average weight (lbs.) per freight forwarding shipment........... N/A 506 520 608 576
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------------------------------------
1992 1993 1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................. $ 31 $ 1,025 $ 3,510 $ 6,852 $ 41,487
Total assets.................................................... 5,154 9,884 16,612 24,468 71,729
Long-term indebtedness.......................................... 78 18 11 8,474 0
Shareholders' equity............................................ 573 2,032 5,031 1,699 50,442
</TABLE>
- ---------------
N/A -- Not available.
(1) From October 1, 1992 until the termination of its S Corporation status,
Eagle operated as an S Corporation under Subchapter S of the Internal
Revenue Code of 1986, as amended, and comparable provisions of certain state
tax laws. On December 4, 1995, prior to the closing of the Company's IPO,
Eagle's status as an S Corporation was terminated. The amounts shown reflect
a pro forma charge in lieu of income taxes which represents the estimated
federal income taxes that would have been reported under FAS No. 109
"Accounting for Income Taxes" had Eagle been a C Corporation during each of
the periods presented. See Notes 1 and 4 of Notes to Consolidated Financial
Statements included elsewhere in this Prospectus.
(2) Percentage increase in revenues for those terminals open as of the beginning
of the prior period.
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition
and results of operations should be read in conjunction with the Company's
consolidated financial statements and the notes thereto appearing elsewhere in
this Prospectus.
GENERAL
During the past two fiscal years, the Company's revenues increased at a
compound annual rate of 49.3% to $185.4 million in the fiscal year ended
September 30, 1996 from $83.3 million in the fiscal year ended September 30,
1994, and its operating income increased at a compound annual rate of 76.8% to
$17.8 million in fiscal 1996 from $5.9 million in fiscal 1994. The Company's
recent growth has been generated almost exclusively by increasing the number of
terminals operated by the Company and growth in revenue produced by existing
terminals. Since October 1, 1994, the Company has added 20 terminals, increasing
the total to 47 at September 30, 1996. At that date, 10 of these 47 terminals
had been open less than 12 months.
The Company plans to continue to expand its terminal network and to open
terminals in approximately 14 additional cities in fiscal 1997, four of which
have been opened as of the date of this Prospectus. Such plans, however, are
subject to change based on a variety of factors. The expansion of the Company's
terminals is expected to occur primarily in the United States, although the
Company plans to selectively pursue opportunities to expand outside of the
United States, particularly in Canada and Mexico. The Company may complement its
internal expansion with selective acquisitions.
The opening of a new terminal generally has an initial negative impact on
the Company's profitability due to operating losses of the new terminal. The
opening of a new terminal generally does not require significant capital
expenditures. Additionally, personnel costs are contained at the time of the
opening of a new terminal because commissions are generally not paid until
salesmen achieve minimum sales levels and until managers achieve terminal
profitability. Although future new terminals may be opened in cities smaller
than those in which the Company's more mature terminals are located, the Company
believes the results of new terminals should benefit from a ready base of
business provided by its existing customers.
The Company intends to continue to expand its international freight
forwarding business. International shipments typically generate higher revenues
per shipment than domestic shipments. The Company anticipates that the costs of
transportation for international freight will be higher than for domestic
freight as a percentage of such revenues, resulting in lower gross margins than
domestic shipments; however, the Company does not expect its operating expenses
to increase in proportion to such revenues. The Company also intends to continue
the growth of its local pick-up and delivery operations. By providing local
pick-up and delivery services with respect to shipments for which it is the
freight forwarder, the Company has been able to increase its gross margin with
respect to such shipments because its costs to provide such services are less
than the third-party charges it previously paid. However, the Company's local
pick-up and delivery services provided to other (non-forwarding) customers
generate a lower gross margin than the Company's domestic forwarding operations
due to their higher transportation costs as a percentage of revenues.
Effective October 1, 1992, Eagle elected to be treated as an S Corporation
under Subchapter S of the Internal Revenue Code and comparable provisions of
certain state tax laws. From October 1, 1992 until the termination of its S
Corporation status, Eagle paid no federal income tax. For financial reporting
purposes, for periods prior to the Company's IPO, Eagle recorded a provision for
state income taxes for all states in which it operated. The Company also has
recorded for fiscal 1995 and 1996 the federal income tax liability for each of
its subsidiaries, which had paid federal income taxes. On December 4, 1995,
shortly prior to the closing of the IPO, Eagle's status as an S Corporation was
terminated, and for periods thereafter Eagle has been liable for federal income
taxes and state income taxes in certain states. Prior to the closing of the IPO,
Eagle declared distributions payable both in cash and in the form of promissory
notes in an amount equal to all of Eagle's undistributed S Corporation earnings
up through such closing. The Company has no plans to pay any dividends or
distributions in the foreseeable future.
13
<PAGE> 15
On October 1, 1994, the Company purchased a 50% interest in Eagle Freight
Services, Inc. and C&D Freight Services of California, Inc. from a third party
and, during fiscal 1995 purchased a 50% interest in Freight Services Management,
Inc. from the Company's Chairman of the Board and initiated operation of Eagle
USA Transportation Services, Inc. and Eagle USA Import Brokers, Inc. (the "Eagle
Subsidiaries"). The remaining interests in the Eagle Subsidiaries were purchased
from the Company's Chairman of the Board immediately prior to the closing of the
IPO in December 1995. Because Eagle controlled the Eagle Subsidiaries, results
for fiscal 1995 and 1996 reflect the operations of all of the Eagle Subsidiaries
as if they had been 100% owned by the Company as of the beginning of the period
presented.
FIRST QUARTER FISCAL 1997 RESULTS
The following table presents certain statement of income data for the
periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------
1995 1996
<S> <C> <C>
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $40,698 $67,586
Cost of transportation...................................... 23,129 38,071
------- -------
Gross profit................................................ 17,569 29,515
Personnel costs............................................. 8,627 14,288
Other selling, general and administrative costs............. 4,683 8,029
------- -------
Operating expenses.......................................... 13,310 22,317
Operating income............................................ 4,259 7,198
Nonoperating income......................................... 32 273
------- -------
Income before income taxes.................................. 4,291 7,471
Provision for income taxes.................................. 803 2,957
------- -------
Net income.................................................. $ 3,488 $ 4,514
======= =======
Pro forma net income (1).................................... $ 2,543 --
Net income per share (1).................................... $ 0.16 $ 0.24
Weighted average number of shares outstanding............... 16,148 18,468
</TABLE>
- ---------------
(1) The amounts shown for the period ended December 31, 1995 include a pro forma
charge of $945 which represents the estimated federal taxes that would have
been reported had Eagle been a C Corporation prior to December 4, 1995.
RESULTS OF OPERATIONS
The following table presents certain statement of income data as a
percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
---------------------
1994 1995 1996
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Cost of transportation...................................... 59.8 57.3 55.7
----- ----- -----
Gross profit................................................ 40.2 42.7 44.3
Personnel costs........................................... 23.0 22.1 22.5
Other selling, general and administrative expenses........ 10.2 10.9 12.2
----- ----- -----
Operating expenses.......................................... 33.2 33.0 34.7
----- ----- -----
Operating income............................................ 7.0% 9.7% 9.6%
===== ===== =====
Pro forma net income........................................ 4.3% 6.0% 6.2%
</TABLE>
14
<PAGE> 16
FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1995
Revenues increased 46.9% to $185.4 million in fiscal 1996 from $126.2
million in fiscal 1995 primarily due to increases in the number of shipments and
the total weight of cargo shipped, which resulted from an increase in the number
of terminals open during such period, an increase in penetration in existing
markets and the addition of significant national account customers. For those
terminals open as of the beginning of fiscal 1995, revenues increased
approximately 29.3% to $151.6 million in fiscal 1996 from $117.2 million in
fiscal 1995. Revenues for fiscal 1996 were comprised of $173.4 million of
forwarding revenues, $11.5 million of local pick-up and delivery revenues and
$500,000 of other freight forwarding revenues. Total local pick-up and delivery
revenues for the Company's Eagle Freight Services and C&D Freight Services of
California subsidiaries for fiscal 1996 were $31.7 million, an amount that
includes $20.2 million of inter-company sales to Eagle (which were eliminated
upon consolidation) and $11.5 million in services to third party (non-
forwarding) customers.
Cost of transportation decreased as a percentage of revenues to 55.7% in
fiscal 1996 from 57.3% in fiscal 1995. The decrease was primarily attributable
to the continued expansion of the local pick up and delivery operations,
enabling the Company to capture margins previously paid to third parties, and to
a lesser extent was attributable to the January 1, 1996 expiration of the
Federal Air Cargo Transportation Excise Tax, which was reinstated on August 27,
1996. Cost of transportation increased in absolute terms by 42.8% to $103.3
million in fiscal 1996 from $72.4 million in fiscal 1995 as a result of
increases in air freight shipped. Gross margin increased to 44.3% in fiscal 1996
from 42.8% in fiscal 1995. Gross profit increased 52.5% to $82.1 million in
fiscal 1996 from $53.9 million in fiscal 1995.
Operating expenses increased as a percentage of revenues to 34.7% in fiscal
1996 from 33.0% in fiscal 1995. Operating expenses increased in absolute terms
by 54.4% to $64.3 million in fiscal 1996 from $41.6 million in fiscal 1995.
Personnel costs increased slightly as a percentage of revenues to 22.5% in
fiscal 1996 from 22.1% in fiscal 1995, and increased in absolute terms by 49% to
$41.6 million due to increased staffing needs associated with the opening of 10
new terminals, expanded operations at existing terminals and increased revenues,
which resulted in an increase in commissions. Such costs include all
compensation expenses, including those relating to sales commissions and
salaries and to headquarters employees and executive officers. Other selling,
general and administrative expenses increased as a percentage of revenues to
12.2% in fiscal 1996 from 10.9% in fiscal 1995, and increased in absolute terms
by 65.4% to $22.7 million in fiscal 1996 from $13.7 million in fiscal 1995. In
fiscal 1996, selling expenses increased by 0.1% and other general and
administrative expenses increased 1.2% compared to fiscal 1995. The increases in
selling, general and administrative expenses were due to overall increases in
the level of the Company's activities in fiscal year 1996.
Operating income increased 46.2% to $17.8 million in fiscal 1996 from $12.2
million in fiscal 1995. For those terminals open as of the beginning of fiscal
1995, operating income increased approximately 36.0% to $11.1 million in fiscal
1996 as compared to $8.1 million in fiscal 1995. For purposes of determining the
operating income of each terminal, the Company includes an allocation for
corporate overhead charges.
Non-operating income increased to approximately $934,000 in fiscal 1996
from approximately $319,000 in fiscal 1995 due to increased amounts of
short-term investments as a result of the cash proceeds from the Company's IPO.
Income before income taxes increased 50.0% to $18.8 million in fiscal 1996
from $12.5 million in fiscal 1995. Provision for income taxes for fiscal 1996
was $6.4 million compared to provision for income taxes of $1.3 million for
fiscal 1995. Provision for income tax for fiscal 1996 included federal taxes for
the portion of the year following the IPO when Eagle became a C corporation. For
fiscal 1996 and 1995, provision for income taxes included state income taxes and
federal income taxes paid by the Eagle Subsidiaries. Pro forma net income
increased 52.9% to $11.5 million in fiscal 1996 from $7.5 million in fiscal
1995. Pro forma net income per share increased 29.4% to $0.66 per share in
fiscal 1996 from $0.51 per share in fiscal 1995, even with the significant
increase in shares outstanding as a result of the IPO.
15
<PAGE> 17
FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1994
Revenues increased 51.5% to $126.2 million in fiscal 1995 from $83.3
million in fiscal 1994 primarily due to increases in the number of shipments and
the total weight of cargo shipped, which resulted from an increase in the number
of terminals open during such period and an increase in penetration of existing
markets. For those terminals open as of the beginning of fiscal 1994, revenues
increased 29.1% to $100.1 million in fiscal 1995 as compared to $77.5 million in
the prior fiscal year. Revenues for fiscal 1995 were comprised of $120.6 million
of forwarding revenues and $5.7 million of local pick-up and delivery revenues.
The Company had no local pick-up and delivery operations prior to the beginning
of fiscal 1995. Total local pick-up and delivery revenues for the Company's
Eagle Freight Services and C&D Freight Services of California subsidiaries for
fiscal 1995 were $15.0 million, an amount that includes $9.3 million of
intercompany sales to Eagle (which were eliminated upon consolidation) and $5.7
million in services to third party (nonforwarding) customers.
Cost of transportation decreased as a percentage of revenues to 57.3% in
fiscal 1995 from 59.8% in fiscal 1994, although increasing in absolute terms by
45.4% to $72.4 million from $49.8 million. The decrease as a percentage of
revenues was primarily attributable to the acquisition and expansion of the
Company's local pick-up and delivery operations and to a lesser extent to
increased volume discounts from major carriers. Gross margin increased to 42.7%
in fiscal 1995 from 40.2% in fiscal 1994. Gross profit increased 60.6% to $53.8
million in fiscal 1995 from $33.5 million in fiscal 1994.
Operating expenses decreased as a percentage of revenue to 33.0% in fiscal
1995 from 33.2% in fiscal 1994, but increased in absolute terms by 50.7% to
$41.6 million from $27.6 million. Containment of growth in personnel costs was
the reason for the improved operating margins, partially offset by the growth in
other selling, general and administrative expenses. Personnel costs decreased as
a percentage of revenues to 22.1% in fiscal 1995 from 23.0% in fiscal 1994,
although increasing in absolute terms to $27.9 million from $19.2 million. The
decrease as a percentage of revenues resulted from the Company's restructuring
of its compensation system at the end of fiscal 1994 by replacing a portion of
compensation previously paid as commissions to managers with grants under the
Company's Incentive Plan, discontinuing contributions to the Company's defined
contributions money purchase pension plan and reducing bonuses to executive
officers. Other selling, general and administrative expenses increased as a
percentage of revenues to 10.9% in fiscal 1995 from 10.2% in fiscal 1994,
primarily as a result of bad debts in fiscal 1995 related to a bankrupt
customer, and increased in absolute terms by 61.2% to $13.7 million from $8.5
million, primarily due to increased operations and an increase in the number of
locations.
Operating income increased 106.8% to $12.2 million in fiscal 1995 from $5.9
million in fiscal 1994. For those terminals open as of the beginning of fiscal
1994, operating income from such terminals increased 53.2% to $7.7 million in
fiscal 1995 as compared to $5.0 million in the prior fiscal year.
Non-operating income increased to $318,663 in fiscal 1995 from $75,885 in
fiscal 1994 due to increased amounts of short-term investments.
Income before income taxes increased 108.3% to $12.5 million (9.7% of
revenues) in fiscal 1995 from $6.0 million (7.0% of revenues) in fiscal 1994 as
revenues increased at a faster rate than costs. Provision for income taxes for
fiscal 1995 was $1,335,000 compared to $492,000 for fiscal 1994 and consisted of
charges for state income taxes and for federal income taxes paid by the Eagle
Subsidiaries. Pro forma net income increased 111.2% to $7.5 million in fiscal
1995 from $3.6 million in fiscal 1994.
16
<PAGE> 18
QUARTERLY RESULTS AND SEASONALITY
The following unaudited financial information sets forth the Company's
results of operations for the interim periods presented.
<TABLE>
<CAPTION>
1994 FISCAL QUARTER ENDED 1995 FISCAL QUARTER ENDED
------------------------------------- -------------------------------------
DEC 31 MAR 31 JUN 30 SEP 30 DEC 31 MAR 31 JUN 30 SEP 30
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $17,203 $17,416 $24,574 $24,083 $30,605 $28,456 $32,547 $34,606
Gross profit......... 6,766 6,792 9,942 10,012 12,927 12,048 14,155 14,718
Operating income..... 721 715 2,152 2,298 4,010 2,384 3,050 2,761
<CAPTION>
1996 FISCAL QUARTER ENDED
-------------------------------------
DEC 31 MAR 31 JUN 30 SEP 30
<S> <C> <C> <C> <C>
Revenues............. $40,698 $39,051 $48,240 $57,456
Gross profit......... 17,569 17,794 21,224 25,546
Operating income..... 4,259 3,330 4,515 5,745
</TABLE>
Historically, the Company's operating results have been subject to a
limited degree to seasonal trends when measured on a quarterly basis. The second
quarter has traditionally been the weakest and the fourth quarter has
traditionally been the strongest. This pattern is the result of, or is
influenced by, numerous factors including climate, national holidays, consumer
demand, economic conditions and a myriad of other similar and subtle forces. In
addition, this historical quarterly trend has been influenced by the growth and
diversification of the Company's terminal network. The Company cannot accurately
forecast many of these factors, nor can the Company estimate accurately the
relative influence of any particular factor and, as a result, there can be no
assurance that historical patterns, if any, will continue in future periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and short-term investments increased $28.0 million to
$30.1 million at September 30, 1996 from $2.1 million at September 30, 1995. At
September 30, 1996, the Company had working capital of $41.5 million and a
current ratio of 3.0 compared to working capital of $6.9 million and a current
ratio of 1.5 at September 30, 1995. The Company's working capital has increased
primarily as a result of the proceeds of the IPO, profitable growth associated
with the expansion of the Company's operations and the resultant increase in
accounts receivable and payable. Capital expenditures for the fiscal year ended
September 30, 1996 were approximately $7.2 million. The Company believes that
cash flow from operations, its $10 million credit facility and the remaining
proceeds from the IPO will be adequate to support its normal working capital and
capital expenditures requirements for at least the next 12 months.
Other than its IPO, the Company's cash generated from operations has been
its primary source of liquidity, although it has from time to time made limited
use of bank borrowing and lease purchase arrangements. The Company has a $10
million revolving credit facility with NationsBank of Texas, N.A. As of December
31, 1996, no amounts were outstanding under this credit facility. The borrowing
base under the credit facility is equal to 80% of eligible accounts receivable
and was approximately $27.0 million as of November 30, 1996. Borrowings under
the credit facility bear interest, at the Company's option, at the bank's prime
rate or LIBOR plus an interest margin based on leverage ratios. The credit
facility expires and borrowings under the credit facility are due in January
1998. Borrowings under the credit facility are collateralized by substantially
all of the Company's inventory and accounts receivable. The credit facility's
covenants restrict the incurrence of other debt in an amount exceeding $1
million, include restrictions on liens, investments and acquisitions, require
the maintenance of minimum net worth, a fixed charge coverage ratio and a
leverage ratio and restrict the payment of dividends to 25% of the Company's
cumulative net worth generated after the date of the IPO.
In January 1997, the Company entered into a five year operating lease
agreement with two unrelated parties for financing the construction of its
Houston terminal, warehouse and headquarters facility. Estimated costs of the
Houston facility are $8.0 million. Under the terms of the lease agreement,
average monthly lease payments are approximately $59,000 (including monthly
interest costs based upon the LIBOR rate plus 200 basis points) beginning
October 1, 1997 through January 1, 2002 with a balloon payment due on January 1,
2002. The Company has an option, exercisable at any time during the lease term,
to acquire the facility for an amount equal to the lease balance at the time the
option is exercised. If the Company decides to terminate its obligation under
the lease, the Company is subject to a deficiency payment computed as the amount
equal to 80% of the lease balance minus the then current fair market value of
the facility.
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The Company made distributions of cash and/or notes to its pre-IPO
shareholders of $14.6 million and $2.7 million during the fiscal years ended
September 30, 1995 and 1996, respectively. Prior to the closing of the IPO, the
Company paid a series of distributions of cash and notes in an amount estimated
to equal all of its previously undistributed S Corporation earnings.
As of September 30, 1996, the Company had outstanding non-qualified stock
options to purchase an aggregate of 2,193,127 shares of Common Stock at exercise
prices equal to the fair market value of the underlying Common Stock on the
dates of grant (prices ranging from $1.25 to $20.25). At the time a non-
qualified stock option is exercised, the Company will generally be entitled to a
deduction for federal and state income tax purposes equal to the difference
between the fair market value of the common stock on the date of exercise and
the option price. As a result of exercises for the year ended September 30, 1996
of non-qualified stock options to purchase an aggregate of 296,566 shares of
Common Stock, the Company is entitled to a federal income tax deduction of
approximately $8.2 million. Assuming an effective tax rate of 40%, the Company
expects to realize a tax benefit of approximately $3.4 million in fiscal 1996;
accordingly, the Company recorded such an increase in other current assets and
additional paid-in capital pursuant to the provisions of FAS No. 109,
"Accounting for Income Taxes." Any exercises of non-qualified stock options in
the future at exercise prices below the then fair market value of the common
stock may also result in tax benefits for the difference between such amounts,
although there can be no assurance as to whether or not such exercises will
occur, the amount of any deductions or the Company's ability to fully utilize
such tax deductions.
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BUSINESS
GENERAL
The Company is a leading provider of air freight forwarding and other
transportation and logistics services. Since opening its first terminal in
Houston, Texas in 1984, the Company has expanded its network of terminals to
include locations in 50 cities throughout the United States and one recently
opened terminal in Canada. From fiscal 1992 to fiscal 1996, the Company has
experienced rapid growth in revenues from $25.7 million to $185.4 million, and
in operating income from $67,000 to $17.8 million. The Company believes that it
has grown to be one of the largest air freight forwarders in the United States
as measured by domestic forwarding revenues largely due to its ability to work
closely with its customers to provide customized freight shipping services on a
price-competitive basis.
Historically, the Company has grown through the internal expansion of its
air freight forwarding customer base and terminal network. Over the last several
years, the Company has developed a nationwide terminal system by expanding its
terminal locations from 14 in September 1993 to 51 in December 1996,
significantly expanded its services to include local pick-up and delivery, truck
brokerage and various "value added" logistics services and developed an advanced
logistics information system. The Company has also expanded its international
air freight forwarding operations and is in the process of establishing
arrangements with cargo agents in international locations. As a result, it has
expanded the scope of its potential customers and has enhanced its ability to
compete for high-revenue national accounts with multiple shipping locations. The
increasingly complex demands of freight transportation and the need for
cost-effective distribution networks have placed a premium on the services of
those forwarders, such as the Company, that can offer reliable service over a
broad network at competitive prices. The Company's increasing shipment volumes
have enabled it to command from air carriers priority access to freight capacity
at peak times and at discount rates. The Company believes that it has also
benefited from increased emphasis on "just-in-time" manufacturing and production
practices, outsourcing of transportation logistics functions and continuing
concentration of transportation suppliers by major shipping customers.
The Company currently has over 8,000 customers, which are engaged in a
variety of industries. The average shipment weight during fiscal 1996 was 576
pounds, ranging in size from small packages of documents to 37,000 pound
deliveries of printed materials. Although the Company imposes no size or weight
restrictions on shipments, it focuses on shipments of over 50 pounds. As a
result, it does not directly compete for most of its business with overnight
courier or small parcel companies, such as Federal Express Corporation and
United Parcel Service of America, Inc. Such companies typically use their own
captive airplane fleets, which on occasion serve as a source of cargo space for
the Company's forwarding operations.
The Company's freight forwarding operations involve obtaining shipment
orders from customers, determining the best means to transport the shipments to
their destination and arranging and monitoring all aspects of the shipments.
Typically, the transportation is provided by a commercial air carrier. The
Company neither owns nor operates aircraft and, consequently, places no
restrictions on delivery schedules or shipment size or weight. The Company has
recently begun a regularly scheduled dedicated charter of one cargo airplane to
service a specific high-volume transportation lane. On occasion, the Company
charters cargo aircraft for use in other transportation lanes as needed. The
Company draws on its logistics expertise to provide forwarding services that are
tailored to meet the goals of the customer. The Company arranges for, and in
many cases provides, pick-up and delivery service between the carrier and the
location of the shipper or recipient. If delivery schedules permit, the Company
will typically use lower-cost, overland truck transportation services, including
those obtained through its truck brokerage operations. The Company also provides
other ancillary services, such as computer-based shipping systems, electronic
data interchange, custom shipping reports, computerized tracking of shipments,
customs brokerage, warehousing, cargo assembly and protective packing and
crating.
An important factor in the Company's growth and ongoing operations is its
information systems. These include its recently upgraded logistics information
system -- Worldport -- and its management information and accounting systems.
Worldport permits on-line entry and retrieval of shipment, pricing, scheduling,
booking and tracking data and interfaces with the Company's management
information and accounting
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systems. The Company's information systems provide accurate, up-to-date
information on the status of shipments, both internally (to ensure on-time
delivery and efficient operations) and to customers (through whatever medium
they request), and allow the Company's management to monitor its operations and
financial results. The Company has recently begun an upgrade of the information
systems used by its local pick-up and delivery operations, including barcode and
signature scanners that allow for enhanced tracking of shipments and real-time
access by shippers of receipt signatures for proof of delivery information. In
addition, the Company offers to certain of its customers Eagle-Ship, a dedicated
personal computer, printer and barcode scanner, that allows the customer's
shipping dock personnel to automate their shipping process with multiple
shippers.
INDUSTRY OVERVIEW
As business requirements for efficient and cost-effective distribution
services have increased, so has the importance and complexity of effectively
managing freight transportation. Businesses increasingly strive to minimize
inventory levels, perform manufacturing and assembly operations in different
locations and distribute their products to numerous destinations. As a result,
companies frequently desire expedited or time-definite shipment services.
Time-definite shipments are required to be delivered at a specific, typically
less expedited, time, which may result in lower rates than expedited shipments.
To assist in addressing these tasks, many businesses turn to freight forwarders.
A freight forwarder procures shipments from customers, makes arrangements for
transportation of the cargo on a carrier and may arrange both for pick-up from
the shipper to the carrier and for delivery of the shipment from the carrier to
the recipient.
Companies requiring some form of expedited or time-definite handling
generally have two principal alternatives to transport freight: they may use an
air freight forwarder or ship via a fully integrated carrier. Air freight
forwarders arrange for transportation, often tailoring the routing of each
shipment to meet the price and service requirements of the customer. Fully
integrated carriers provide pick-up and delivery service, primarily through
their own captive fleets of trucks and aircraft. Since air freight forwarders
select from various transportation options in routing customer shipments, they
are often able to serve their customers less expensively and with greater
flexibility than integrated carriers. In addition to the high fixed expenses
associated with owning, operating and maintaining fleets of aircraft, trucks and
related equipment, integrated carriers often have significant restrictions on
delivery schedules and shipment weight, size and type. Air freight forwarders,
however, generally handle shipments of any size and can offer customized
shipping options, thus offering an effective alternative for shippers of
freight.
Most air freight forwarders, like the Company, focus on the shipment of
heavy cargo and do not directly compete for the majority of their business with
integrated shippers of primarily small parcels such as Airborne Freight
Corporation, DHL Worldwide Express, Inc., Federal Express Corporation, United
Parcel Service of America, Inc. and the United States Postal Service, certain of
which on occasion serve as a source of cargo space to forwarders. However,
certain integrated carriers, such as Burlington Air Express, Inc. and Emery Air
Freight Corporation, focus on shipment of heavy cargo in competition with
forwarders. Additionally, most air freight forwarders do not generally compete
with the major commercial airlines, which to a certain extent depend on
forwarders to procure shipments and supply freight to fill cargo space on their
scheduled flights.
According to a survey by the Colography Group, Inc., domestic air freight
transportation revenues totaled $21.8 billion in 1995, which represented a 6.8%
increase over 1994 levels. Of these revenues, $17.0 billion was attributable to
integrated shippers, most of which were small parcel shipments, while $4.8
billion was attributable to nonintegrated carriers, including air freight
forwarders.
The domestic air freight forwarding industry is highly fragmented. Many
industry participants are capable of meeting only a portion of their customers'
required transportation service needs. Some national domestic air freight
forwarders rely on networks of terminals operated by franchisees or agents. The
Company believes that the development and operation of Company-owned terminals
and staff under the supervision of the Company's management have enabled it to
provide a higher degree of financial and operational control and service
assurance than that offered by franchise-based networks.
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Many customers are increasingly demanding more than the simple movement of
freight from their transportation suppliers. To meet these needs, suppliers,
such as the Company, seek to customize their services, by, among other things,
providing information on the status of materials, components and finished goods
through the logistics pipeline and providing performance reports on and proof of
delivery for each shipment. The growing emphasis of some manufacturers on
"just-in-time" manufacturing and production practices has also added to the
demand for rapid deliveries that are available through air freight. As a result
of these developments, many companies are concluding that they perform freight
transportation management and logistics functions less effectively than
third-party providers, such as the Company, and are relying increasingly on
partial or complete outsourcing of these functions. At the same time, major
shippers are seeking to utilize fewer firms to service their transportation
management and logistics needs. The Company believes that the continuing trend
toward outsourcing and the continuing concentration of transportation suppliers
by major shippers offer significant opportunities for those forwarders, such as
the Company, with an extensive, well-managed network and an advanced logistics
information system.
BUSINESS STRATEGY
The Company's business strategy includes the following principal elements:
Continued Rapid Expansion of Core Domestic Freight Forwarding Business
The Company plans to expand its domestic freight forwarding business by
continuing to (i) provide high-quality customized freight forwarding and related
transportation and logistics services, (ii) expand its network of terminals and
(iii) capitalize on economies of scale. The Company's services are customized to
address each client's individual shipping requirements, without restrictions on
shipment weight, size or type. Once the requirements for an individual shipment
have been established, the Company proactively manages the execution of the
shipment to ensure the fulfillment of the customer's service requirements, even
if it means taking a loss on an individual shipment in order to provide complete
customer satisfaction. In conjunction with providing customized service, the
Company plans to continue to expand its terminal network, which has increased
from 14 terminals on September 30, 1993 to 51 as of December 31, 1996. The
Company currently plans to open terminals in approximately 10 additional
locations during the remainder of fiscal 1997 and up to 30 additional locations
by the end of fiscal 1999. Such plans, however, are subject to change based on a
variety of factors. The expansion of the Company's terminals is expected to
occur primarily in the United States, although the Company plans to selectively
pursue opportunities to expand outside of the United States, particularly in
Canada and Mexico. The Company may complement its internal expansion with
selective acquisitions. The Company believes that such expansion will make it
more attractive to national shippers and to local shippers in the new markets,
while giving the Company additional control and enabling it to capture more
profit on shipments to the new cities, where the third-party agents previously
used are replaced by Company personnel at the new terminals. As the Company
expands its terminal network and grows its customer and shipment base, it will
continue to seek increasing advantages from economies of scale, such as cargo
space buying power with airlines and enhancing sophisticated information
systems.
Expansion of Local Pick-up and Delivery and Truck Brokerage
The Company provides local pick-up and delivery service and truck brokerage
service in connection with its activities as a freight forwarder. By integrating
these services with its freight forwarding business, the Company is able to
avoid having to contract with third parties, thereby enhancing the Company's
ability to monitor, maintain quality control of and retain a greater portion of
the profit generated by shipments. The Company intends to continue the expansion
of its local pick-up and delivery service to substantially all of its terminal
locations and to increase the business beyond that generated by air freight
customers. The Company has local pick-up and delivery services at 33 of its 51
terminal locations and plans to initiate these services in approximately 12
additional locations in fiscal 1997. The Company plans to initiate local pick-up
and delivery operations in substantially all of its domestic locations by the
end of fiscal 1999, although such plans are subject to change based on a variety
of factors. By providing the local pick-up and delivery services with respect to
shipments for which it is the freight forwarder, the Company has been able to
increase its gross
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margin with respect to such shipments because its own costs to provide such
services are less than the third-party charges the Company previously paid. In
addition, the Company has initiated a centralized truck brokerage service to
more efficiently utilize truck transportation where it can be used as an
effective alternative to air shipment for less urgent forwarding business. By
providing for its own truck brokerage, the Company is able to achieve greater
efficiencies and utilize significant purchasing power over providers.
Development of International Freight Forwarding
The Company intends to continue to expand its international freight
forwarding services. The Company is in the process of establishing a network of
agents in international locations, primarily Europe and the Far East, and may
also consider acquisitions as part of its international expansion strategy.
Although the Company expects lower gross margins on international business than
domestic business, it expects that, by focusing on high-revenue shipments for
existing customers in conjunction with leveraging the business through its
existing domestic terminal network and overhead structure, operating margins for
its international business will be consistent with those for its domestic
business. The Company expects to emphasize the marketing of international
services through a separate sales force in strategically designated domestic
locations including Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles,
Miami, New York, San Francisco and Seattle. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General."
Attractive Incentive-Based Compensation
As a service organization, the Company recognizes the importance of hiring
and retaining the highest quality employees available. Consequently, it pays its
entire sales force and most of its operations personnel what it believes is
significantly more than the industry average and offers a broad-based
compensation plan to these employees that has generally remained unchanged from
year to year. Sales personnel are paid a gross commission on shipments sold
while operations personnel and management are paid bonuses based on the
profitability of their terminal, as well as the profitability of the Company. To
ensure quality control and the profitability of accounts, the station manager
retains the final approval on all accounts. The Company places no upside
limitations on compensation of its sales personnel. The Company believes this
compensation plan and philosophy give it a competitive advantage and have helped
it to attract, retain and incentivize top quality personnel while providing for
proper checks and balances between its growth and profitability goals. The
Company's management from the terminal manager level and above has an average of
over 14 years of transportation experience.
Enhancement of Advanced Information Systems
The Company believes the ability to provide accurate up-to-date information
on the status of shipments, both internally (to ensure on-time delivery and
efficient operations) and to customers (through whatever medium they request),
will become increasingly important. Consequently, the Company most recently
upgraded its information systems in December 1996, and plans to continue to
invest substantial management and financial resources in the development of its
information systems. Based upon its analysis of systems generally available to
air freight forwarders, the Company believes that its systems are superior to
those of other domestic freight forwarders and provide the Company with a
competitive advantage. The Company's recently upgraded logistics system,
Worldport, provides a comprehensive source of information for managing the
logistics of its sourcing and distribution activities. Specifically, the
Worldport system permits the Company to track the flow of a particular shipment
from purchase order through the transportation process to the point of delivery.
Through the system, the Company can also access accurate financial information
for the entire Company, a particular terminal, a particular customer or a given
shipment. The expansion of the Company's local pick-up and delivery service is
expected to further improve the Company's logistics system by ultimately
enabling data with respect to a shipment to be remotely input from point of
pick-up through point of delivery. The Company has initiated the use of remote
hand-held barcode and signature scanners for use by its pick-up and delivery
personnel that allow for enhanced tracking of shipments and immediate viewing by
shippers of receipt signatures. In addition, the Company's systems include
Eagle-Ship, which allows the Company's major customers to automate their
shipping process and consolidate shipping systems of multiple vendors into
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a single platform using equipment provided by the Company, thereby simplifying
the customer's information and vendor management functions.
OPERATIONS
Domestic Air Freight Forwarding Services
The Company's freight forwarding operations involve obtaining shipment
orders from customers, determining the best means to transport the shipment to
its destination and arranging and monitoring all aspects of the shipment.
Typically, the transportation is provided by a commercial air carrier. In
addition, the Company prepares all required shipping documents and delivers
shipments to the transporting carrier. For much of its customer traffic, the
Company makes arrangements for three separate transportation segments -- pick-up
from the shipper to the Company's terminal in the origin city, shipment via air
or overland carrier and delivery from the Company's terminal in the destination
city to the recipient. Local transportation services are performed either by
independent cartage companies or, increasingly, by the Company's Eagle Freight
Services subsidiary as described below under "-- Local Delivery Services." If
delivery schedules permit, the Company will typically use lower-cost, overland
truck transportation services, including those obtained through its truck
brokerage operations. As part of its routine services, the Company also provides
handling, packing and containerizing services, arranges for the tracking of
shipments, provides physical breakbulk and arranges for insurance.
The Company neither owns nor operates any aircraft and, consequently,
places no restrictions on delivery schedules or shipment size. It arranges for
transportation of its customers' shipments via commercial airlines and, to a
lesser extent, air cargo carriers. Most of the Company's shipments can be
accommodated by either narrow-body or wide-body aircraft. The Company selects
the carrier for a shipment on the basis of route, departure time, available
cargo capacity and cost. The Company has recently begun a regularly-scheduled
dedicated charter of one cargo airplane to service a specific high-volume
transportation lane. On occasion, the Company charters cargo aircraft for use in
other transportation lanes, as needed.
Due to the high volume of freight controlled by the Company, it is able to
obtain discounted rates from airlines and is often able to reserve space at
times when available space is limited. As a result, the Company can provide
shipment options not directly available to its customers. Occasionally, the
Company is able to consolidate shipments to further reduce its costs of
transportation. The Company's rate schedule generally offers increasing
discounts for shipment options with later scheduled delivery times. The
Company's rates are also based on shipment weight and generally decrease as the
weight of the shipment increases.
The Company offers its customers five major delivery schedule options: (i)
next flight out -- immediate pick-up and placement of the shipment on the next
available flight; (ii) next day AM priority -- shipments that take precedence
for delivery by the morning of the following day; (iii) next day PM -- shipments
delivered by the afternoon of the following day; (iv) second day -- shipments
delivered by the afternoon of the second following day; and (v)
economy -- shipments typically delivered by the afternoon of the third through
fifth day after shipment. The Company draws on its logistics expertise to
provide forwarding services that are customized to meet the needs of the
customer and, in addition to regularly scheduled service, offers customized
schedules to do so. In addition, the Company's services are customized to
address each client's individual shipping requirements, without restrictions on
shipment weight, size or type. Once the requirements for an individual shipment
have been established, the Company proactively manages the execution of the
shipment to ensure the fulfillment of the customer's service requirements.
During the fiscal year ended September 30, 1996, the Company's principal
forwarding customers included shippers of computers and other electronic and
high-technology equipment, printed and publishing materials, automotive parts,
trade show exhibit materials, telecommunications equipment, machinery and
machine parts and apparel. Shipments that are relatively less time-sensitive or
for which expedited delivery is not economical are often shipped second day or
economy. These options enhance the Company's opportunity to achieve savings by
the use of truck transportation, the consolidation of shipments and the
increased air cargo options afforded by the additional time for shipment. During
the fiscal year ended September 30, 1996, average shipment weight was
approximately 576 pounds, ranging in size from small packages of documents to
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37,000 pound deliveries of printed materials. Although the Company imposes no
size or weight restrictions on shipments, it focuses on shipments of over 50
pounds. As a result, it does not directly compete for most of its business with
overnight courier or small parcel companies, such as Federal Express Corporation
and United Parcel Service of America, Inc. Such companies typically use their
own captive airplane fleets, which on occasion serve as a source of cargo space
for the Company's forwarding operations.
When acting as a forwarder, the Company is legally responsible to its
customer for the safe delivery of the customer's cargo to its ultimate
destination, subject to a contractual limitation on liability to the lesser of
$0.50 per pound or $50 for domestic flights and the greater of $50 or $20 per
kilogram ($9.07 per pound) for international flights. However, because an air
freight forwarder's relationship to an airline is that of a shipper to a
carrier, the airline generally has the same responsibility to the Company as the
Company has to its customers. Additionally, shippers may purchase insurance on
shipments. The Company may have sole carrier liability for a shipment prior to
or after delivery to the carrier, and in certain other cases. The Company's
claims expenses have generally been limited, totaling $126,000, $324,000 and
$468,000 for the fiscal years ended 1994, 1995 and 1996, respectively.
Local Delivery Services
Through its Eagle Freight Services subsidiary, the Company provides
same-day local pick-up and delivery services, both for shipments for which it is
acting as an air freight forwarder as well as for third-party customers
requiring pick-up and delivery within the same metropolitan area. The Company
believes that Eagle Freight Services provides an important complement to its air
freight forwarding services by allowing for quality control over the critical
pick-up and delivery segments of the transportation process as well as allowing
for prompt, updated information on the status of a customer's shipment at each
step in such process. During fiscal year 1996, the Company used a portion of the
proceeds from its IPO to begin an upgrade of the information systems used by
Eagle Freight Services. Such improvements included bar code and signature
scanners that allow for enhanced tracking of shipments and real-time access by
shippers of receipt signatures for proof of delivery information.
As of September 30, 1996, local delivery services were offered in 28 of the
47 cities in which the Company's terminals were located, with 17 of such
locations being established during fiscal 1996. Such cities are generally the
sites of the Company's busiest forwarding operations. The Company currently
intends to initiate local pick-up and delivery services in approximately 12
additional locations in fiscal 1997, although such plans may change based on
several factors. On-demand pick-up and delivery services are available 24 hours
a day, seven days a week. In most locations, delivery drivers are independent
contractors who operate their own vehicles.
During the fiscal years ended September 30, 1995 and 1996, Eagle Freight
Services had revenues of $15.0 and $31.7 million, respectively. Approximately
$9.3 million and $20.2 million of such revenues in the fiscal years ended
September 30, 1995 and 1996, respectively, was attributable to the Company's air
freight forwarding operations, which was approximately 39% and 63%,
respectively, of the total cost of providing local pick up and delivery for the
Company's freight forwarding customers. The remaining $5.7 million and $11.5
million, respectively, of Eagle Freight Service's revenues in such years was
attributable to local delivery services for third party (non-forwarding)
customers.
Truck Brokerage
In April 1995, the Company established Eagle Transportation Services, the
Company's truck brokerage subsidiary, to provide additional logistical support
to its forwarding operations and, to a lesser extent, to provide truckload
service to selected customers. Eagle Transportation Services locates and secures
capacity when overland transportation is the most efficient means of meeting
customer delivery requirements, especially in cases of air freight customers
choosing the economy delivery option. The use of Eagle Transportation Services
enables the Company to meet delivery requirements without having to rely on
third-party truck brokerage services. Additionally, by providing for its own
truck brokerage, the Company has been able to achieve greater efficiencies and
utilize purchasing power over providers. Eagle Transportation Services
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does not own any trucks, but instead utilizes carriers or independent
owner-operators of trucks and trailers on an as-needed basis. The Company
utilizes its relationships with a number of independent trucking companies to
obtain truck and trailer space. If space is not available through such
companies, the Company utilizes electronic bulletin boards to communicate with
independent truckers as to the Company's needs. The average length of haul was
approximately 1,350 and 1,245 miles, during the fiscal years ended September 30,
1995 and 1996, respectively. Eagle Transportation Services is operated out of
the Company's Houston offices. As with local pickup and delivery services, the
Company views Eagle Transportation Services primarily as a means of maintaining
quality control and enhancing customer service of its core air freight
forwarding business as well as a means of capturing a portion of profits that
would otherwise be earned by third parties. The Company may expand its truck
brokerage operations selectively in the future beyond providing support to its
air freight operations, to providing truck brokerage services to customers that
do not utilize the Company's air freight services.
International Air Freight Forwarding Services
The Company continues to expand its international forwarding operations.
The Company is in the process of establishing arrangements with independent
cargo agents in international locations. The Company plans for these foreign
service agents to provide breakbulk, delivery and customs brokerage services for
cargo generated by the Company's domestic locations as well as arranging for
overseas sales of cargo bound for the United States. The Company expects to
emphasize the marketing of international services through a separate sales force
in strategically designated domestic locations including Atlanta, Boston,
Chicago, Dallas, Houston, Los Angeles, Miami, New York, San Francisco and
Seattle.
To support its international operations, the Company intends to seek a
customs brokers license from the United States Department of the Treasury. In
addition, the Company plans to pursue certification from the Federal Maritime
Commission as an NVOCC (Non-Vessel Owning Common Carrier) in order to handle
international ocean shipments. Prior to obtaining such license and
certification, the Company will rely upon third parties to meet its customs
brokerage and ocean freight needs.
Information Systems
A primary component of the Company's business strategy is the continued
development of advanced information systems. The Company has invested
substantial management and financial resources in the development of its
information systems in an effort to provide accurate and timely information to
its management and customers. The Company believes the ability to provide
accurate up-to-date information on the status of shipments, both internally (to
ensure on-time delivery and efficient operations) and to customers (through
whatever medium they request), will become increasingly important. Based upon
its analysis of systems generally available to air freight forwarders, the
Company believes that its systems are superior to those of other domestic air
freight forwarders and provide the Company with a competitive advantage.
The Company has developed and continues to upgrade its information systems.
These include its Worldport logistics information system, an upgraded and
enhanced version of the Company's former CUES system, and its management
information and accounting systems. A central computer located at the Company's
headquarters in Houston, Texas is accessible from computer terminals located at
all of its facilities, and from computer terminals located at the facilities of
many of the Company's customers through the use of a toll-free dial-in program
developed by the Company. The Worldport system provides a comprehensive source
of information for managing the logistics of the Company's sourcing and
distribution activities. Specifically, the Worldport system permits the Company
to track the flow of a particular shipment from purchase order through the
transportation process to the point of delivery. Through the system, the Company
can also access daily financial information for the entire Company, a particular
terminal, a particular customer or a given shipment. Worldport permits on-line
entry and retrieval of shipment, pricing, scheduling, booking and tracking data
and interfaces with the Company's management information and accounting systems.
Electronic data interchange connections to selected airlines permit instant
retrieval by the Company, and by those of its customers interfacing with
Worldport, of information on the status of shipments in the custody of those
airlines. Worldport's electronic data interchange also allows for status
updates,
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electronic invoicing, funds exchange and file exchange. Worldport provides the
Company's sales force with margin information on customers and shipments,
thereby enhancing the Company's ability to bid aggressively for future
forwarding business and to avoid committing to unprofitable shipments. Worldport
can provide the Company's management and customers with reports customized to
meet their information requirements. The Company believes that its systems have
been instrumental in the productivity of its personnel and the quality of its
operations and service, and have resulted in substantial reductions in paperwork
and expedited the entry, processing, retrieval and dissemination of critical
information, both internally and to customers. The Company is currently
upgrading its Internet web site and intends to ultimately allow customers to
obtain shipment tracking information via the Internet.
The expansion of the Company's local pick-up and delivery service is
expected to further improve the Company's logistics system by enabling data with
respect to a shipment to be input remotely from point of pick-up through point
of delivery. The Company has purchased and is field testing the use of remote
hand-held bar code and signature scanners for use by its pick-up and delivery
units. Worldport is expected to be integrated with these scanners to
automatically apply the proof of delivery information to the system. This
information is then made immediately available to all on-line locations as well
as customer dial-in facilities, allowing for enhanced tracking of shipments and
immediate viewing by shippers of receipt signatures.
The Company's systems also include Eagle-Ship (formerly, ASAM), which
allows its customers to automate their shipping process and consolidate their
shipping systems. Eagle-Ship was developed by, and through January 2001 is
licensed to the Company from, ASAM International, which is restricted from
making the system available to most other major air freight forwarders during
that time. For customers using Eagle-Ship, the Company provides a dedicated
personal computer, printer and bar code scanner that allow the customer's
shipping dock personnel to process and weigh boxes, record the shipment, produce
customized box labels and print an Eagle house airway bill or bill of lading.
Eagle-Ship also provides customers with weight analysis, tariff reporting,
assistance in consolidation of like orders and price comparison among shipping
options.
Eagle-Ship enables the Company's customers to process shipments for many
carriers with one personal computer and to compare the cost and service options
of various carriers, consolidate Eagle-Ship label printing and generate reports
that profile the customer's shipping activity. Eagle-Ship is designed to run
shipping systems for United Parcel Service of America, Inc., Federal Express
Corporation, Airborne Freight Corporation and Emery Air Freight Corporation, and
can be customized to run the systems of up to 99 other air and truck carriers.
The Company believes that Eagle-Ship gives it a competitive advantage among a
growing number of customers that are resistant to the proliferation of dedicated
shipper systems because of the cost, complexity and dock space required to
maintain a separate personal computer for each carrier, and that the use of
Eagle-Ship should lead to increased use of the Company's services by helping to
ensure that customers will allocate dock space to Eagle-Ship rather than
multiple systems from other carriers. Although Eagle-Ship does provide customers
with assistance in selecting competitors for the Company's shipping services,
the Company believes that much of such information, such as that relating to
Federal Express Corporation, is used in the delivery of documents and small
packages, which constitute a small portion of the Company's cargoes, and that,
overall, Eagle-Ship will demonstrate to customers the advantages of the
Company's services in comparison to its more direct competitors. As of September
30, 1995 and 1996, the Company had installed 17 and 31, respectively, Eagle-Ship
personal computers for its customers. The Company believes that Eagle-Ship
enhances its ability to market to national accounts.
Logistics Services
Many customers are increasingly demanding more than the simple movement of
freight from their transportation suppliers. To meet these needs, suppliers,
such as the Company, seek to customize their services, by, among other things,
providing information on the status of materials, components and finished goods
through the logistics pipeline and providing performance reports on and proof of
delivery for each shipment.
26
<PAGE> 28
The Company utilizes its logistics expertise to maximize the efficiency and
performance of its forwarding and other transportation services to its
customers. In addition, the Company provides transportation consulting services
and makes available its expertise and resources to assist customers in balancing
their transportation needs against budgetary constraints by developing logistics
plans for its customers. The Company staffs and manages the shipping department
of certain of its customers that outsource their transportation function and may
seek to provide outsourcing services to other customers in the future. The
Company also provides other ancillary services, such as electronic data
interchange, custom shipping reports, computerized tracking of shipments,
customs brokerage, air charters, warehousing, cargo assembly and protective
packing and crating.
The Company has recently established Eagle Exhibitor Services, an internal
group that focuses on the special needs of exhibitors in the trade show
industry. In addition to air freight forwarding and charter services, this group
provides special exhibit handling, by-appointment delivery, caravan service and
short-term warehousing.
MARKETING AND CUSTOMERS
The Company currently has customer accounts that include large
manufacturers and distributors of computers and other electronic and
high-technology equipment, printed and publishing materials, automotive parts,
trade show exhibit materials, telecommunications equipment, machinery and
machine parts and apparel. Adverse conditions in the industries of the Company's
customers or loss of a significant customer could negatively impact the Company.
See "Risk Factors -- Vulnerability to Economic Conditions; Dependence on
Principal Customers."
The Company markets its services through an organization consisting of
approximately 140 full-time salespersons supported by the sales efforts of
senior management, its five regional managers and its terminal managers.
Managers at each office are responsible for customer service and coordinate the
reporting of customers' requirements and expectations with the regional
managers. Company employees are available 24 hours a day to respond to customer
inquiries. The Company expects to implement a program whereby it will establish
separate sales forces for each of its domestic forwarding, international
forwarding and local pick-up and delivery business units.
The Company has increased its emphasis on obtaining high-revenue national
accounts with multiple shipping locations. These accounts typically impose
numerous requirements on those competing for their freight business, such as
electronic data interchange and proof of delivery capabilities, the ability to
generate customized shipping reports and a nationwide network of terminals.
These requirements often limit the competition for these accounts to integrated
carriers and a very small number of forwarders. The Company believes that its
recent growth and development has enabled it to more effectively compete for and
obtain these accounts.
TERMINALS
The Company conducts its air freight forwarding operations through 50
terminals, located at or near airports throughout the United States and one
recently opened terminal in Canada. Terminals are managed by a station manager
who is assisted by an operations manager. Beginning in 1991, the Company
established a management system in which regional managers oversee the Company's
operations, with each regional manager being responsible for the Company's
operations within a designated region. There are currently five regional
managers. The Company's headquarters are located in its Houston, Texas terminal.
All corporate office space is leased under agreements that expire in 1998. The
Company's terminal locations range in size from approximately 1,000 to 52,000
square feet of space each and typically consist of offices, warehouse space,
bays for loading and unloading and facilities for packing. In addition, the
Company has five locations that are limited to sales and administrative
activities. Currently, other than its Newark terminal, all of such properties
are leased, although the Company may purchase or construct facilities if it
believes it can do so on a more attractive basis. The Company has purchased a
site near its Houston terminal and plans to construct a new terminal, warehouse
and headquarters facility during 1997. Generally, each terminal location lease
is for a
27
<PAGE> 29
term of three to six years and expires between 1997 and 2002. From time to time,
the Company may expand or relocate certain terminals to accommodate growth.
The Company's terminals as of December 31, 1996 were:
<TABLE>
<CAPTION>
MONTH AND YEAR
LOCATION AIRPORT SERVED OPENED
-------- -------------- --------------
<S> <C> <C>
Houston, Texas*.................. Houston Intercontinental Airport March 1984
Dallas, Texas*................... Dallas Ft. Worth International Airport November 1988
St. Louis, Missouri*............. Lambert St. Louis International Airport February 1989
Atlanta, Georgia*................ Atlanta Hartsfield International Airport October 1989
Los Angeles, California*......... Los Angeles International Airport May 1991
San Francisco, California*....... San Francisco International Airport June 1991
Chicago, Illinois*............... Chicago O'Hare International Airport February 1992
Newark, New Jersey*.............. Newark International Airport May 1992
Boston, Massachusetts............ Boston Logan International Airport February 1993
Charlotte, North Carolina*....... Charlotte Douglas International Airport March 1993
Denver, Colorado*................ Denver International Airport March 1993
San Antonio, Texas*.............. San Antonio International Airport March 1993
El Paso, Texas................... El Paso International Airport September 1993
Orlando, Florida*................ Orlando International Airport September 1993
San Diego, California............ San Diego Lindbergh Field International October 1993
Airport
Seattle, Washington*............. Seattle Tacoma International Airport October 1993
Kansas City, Missouri*........... Kansas City International Airport January 1994
Oklahoma City, Oklahoma.......... Will Rogers International Airport January 1994
Raleigh-Durham, North January 1994
Carolina*...................... Raleigh-Durham Airport
Austin, Texas*................... Robert Mueller Municipal Airport February 1994
Greenville, South Carolina*...... Greenville/Spartanburg Airport March 1994
Cincinnati, Ohio*................ Cincinnati/N. Kentucky International Airport April 1994
Minneapolis, Minnesota*.......... Minneapolis St. Paul International Airport May 1994
Memphis, Tennessee*.............. Memphis International Airport July 1994
Detroit, Michigan*............... Detroit Metro Airport September 1994
Portland, Oregon*................ Portland International Airport September 1994
Baltimore, Maryland/ September 1994
Washington, D.C.*.............. Baltimore/Washington International Airport
Phoenix, Arizona*................ Phoenix Sky Harbor International Airport November 1994
Cleveland, Ohio*................. Cleveland Hopkins International Airport December 1994
Philadelphia, Pennsylvania*...... Philadelphia International Airport December 1994
McAllen, Texas*.................. McAllen Miller International Airport January 1995
Albuquerque, New Mexico.......... Albuquerque International Airport June 1995
Las Vegas, Nevada................ McCarran International Airport July 1995
Indianapolis, Indiana*........... Indianapolis International Airport July 1995
Sacramento, California*.......... Sacramento Metro Airport July 1995
San Juan, Puerto Rico............ Luis Munoz Marin International Airport August 1995
Pittsburgh, Pennsylvania*........ Pittsburgh International Airport September 1995
Milwaukee, Wisconsin............. Mitchell International Field December 1995
New Orleans, Louisiana*.......... New Orleans International Airport January 1996
Miami, Florida*.................. Miami International Airport March 1996
Hartford, Connecticut............ Bradley International Airport April 1996
Salt Lake City, Utah............. Salt Lake City International Airport May 1996
Honolulu, Hawaii................. Honolulu International Airport May 1996
Columbus, Ohio*.................. Port Columbus International Airport June 1996
Tulsa, Oklahoma.................. Tulsa International Airport July 1996
Omaha, Nebraska.................. Eppley Airport July 1996
Tucson, Arizona.................. Tucson International Airport July 1996
Richmond, Virginia............... Richmond International Airport October 1996
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
MONTH AND YEAR
LOCATION AIRPORT SERVED OPENED
-------- -------------- --------------
<S> <C> <C>
Laredo, Texas.................... Laredo International Airport October 1996
Anchorage, Alaska................ Anchorage International Airport October 1996
Toronto, Ontario................. Pearson International Airport December 1996
</TABLE>
- ---------------
* Includes Eagle Freight Services local pick-up and delivery operations.
COMPETITION
Competition within the freight industry is intense. Although the industry
is highly fragmented, with a large number of participants, the Company competes
most often with a relatively small number of forwarders with nationwide networks
and the capability to provide the breadth of services offered by the Company and
with fully integrated carriers focusing on heavy cargo, including Burlington Air
Express, Inc. and Emery Air Freight Corporation. The Company also encounters
competition from passenger and cargo air carriers, trucking companies and
others. As the Company expands its international operations, it expects to
encounter increased competition from those forwarders that have a predominantly
international focus, including Air Express International Corporation, Expeditors
International of Washington, Inc., Fritz Companies Inc. and Harper Group, Inc.,
as well as from its competitors for domestic forwarding. Many of the Company's
competitors have substantially greater financial resources than the Company. The
Company also encounters competition from regional and local air freight
forwarders, cargo sales agents and brokers, surface freight forwarders and
carriers and associations of shippers organized for the purpose of consolidating
their members' shipments to obtain lower freight rates from carriers. The
Company believes that quality of service, including reliability, responsiveness,
expertise and convenience, scope of operations, information technology and price
are the most important competitive factors in its industry.
EMPLOYEES
The Company had approximately 960 full-time employees at September 30,
1996, including 137 sales personnel. None of the Company's employees are
currently covered by a collective bargaining agreement. The Company has
experienced no work stoppages and considers its relations with its employees to
be good. The Company also has contracts with approximately 450 independent
owner/operators of local delivery services as of September 30, 1996. The
independent owner/operators own, operate and maintain the vehicles they use in
their work for the Company and may employ qualified drivers of their choice.
Company-owned vehicles are driven by 94 employee drivers as of September 30,
1996. See "Risk Factors -- Independent & Owner/Operators and -- Pick-up and
Delivery Claims Exposure."
The Company pays its entire sales force and most of its operations
personnel what it believes is significantly more than the industry average and
offers a broad-based compensation plan to these employees that has generally
remained unchanged from year to year. Sales personnel are paid a gross
commission on shipments sold while operations personnel and management are paid
bonuses based on the profitability of their terminals, as well as the
profitability of the Company. To ensure quality control and the profitability of
accounts, the terminal manager retains the final approval on all accounts.
REGULATION
The Company's air freight forwarding business is subject to regulation, as
an indirect air cargo carrier, under the Federal Aviation Act by the Department
of Transportation, although air freight forwarders are exempted from most of
such Act's requirements by the Economic Aviation Regulations promulgated
thereunder. The Company's foreign air freight forwarding operations are subject
to similar regulation by the regulatory authorities of the respective foreign
jurisdictions. The air freight forwarding industry is subject to regulatory and
legislative changes which can affect the economics of the industry by requiring
changes in operating practices or influencing the demand for, and the costs of
providing, services to customers.
The Company's local pick-up and delivery operations are subject to various
state and local regulations and, in many instances, require permits and licenses
from state authorities. In addition, certain of the
29
<PAGE> 31
Company's local pick-up and delivery operations are regulated by the Surface
Transportation Board. These state and federal authorities have broad power,
including the power to approve certain mergers, consolidations and acquisitions,
and the power to regulate the delivery of certain types of shipments and
operations within certain geographic areas, and the Surface Transportation Board
has the power to regulate motor carrier operations, approve certain rates,
charges and accounting systems and require periodic financial reporting.
Interstate motor carrier operations are also subject to safety requirements
prescribed by the Federal Department of Transportation. In some potential
locations for the Company's delivery operations, state and local permits and
licenses may be difficult to obtain.
The Company's truck brokerage operations require it to be regulated as a
property broker by the Surface Transportation Board for which the Company has
obtained a property broker license and surety bond. The Company's current
domestic customs brokerage agents are, and any such future internal customs
brokerage operations will be, subject to the licensing requirements of the
United States Department of the Treasury and are regulated by the United States
Customs Service. The Company's foreign customs brokerage agents are licensed in
and subject to the regulations of their respective countries. The Federal
Maritime Commission will regulate the Company's expected ocean forwarding
operations.
In the United States, the Company is subject to Federal, state and local
provisions relating to the discharge of materials into the environment or
otherwise for the protection of the environment. Similar laws apply in many
foreign jurisdictions in which the Company may operate in the future. Although
current operations have not been significantly affected by compliance with these
environmental laws, governments are becoming increasingly sensitive to
environmental issues, and the Company cannot predict what impact future
environmental regulations may have on its business. The Company does not
anticipate making any material capital expenditures for environmental control
purposes during the remainder of the current or succeeding fiscal years.
Certain federal officials are considering implementing increased security
measures with respect to air cargo. There can be no assurance as to what, if
any, regulations will be adopted or, if adopted, as to their ultimate effect on
the Company. The Company does not believe that costs of regulatory compliance
have had a material adverse impact on its operations to date. However, failure
of the Company to comply with the applicable regulations or to maintain required
permits or licenses could result in substantial fines or revocation of the
Company's operating permits or authorities. There can be no assurance as to the
degree or cost of future regulations on the Company's business.
LEGAL PROCEEDINGS
From time to time the Company is a party to various legal proceedings
arising in the ordinary course of business. The Company is not currently a party
to any material litigation and is not aware of any litigation threatened against
it that could have a material adverse effect on its business.
30
<PAGE> 32
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The following table sets forth certain information concerning the
directors, executive officers and other key employees of the Company as of the
date of this Prospectus:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Directors and Executive Officers:
James R. Crane...................... 43 Chairman of the Board of Directors,
President and Chief Executive
Officer
Donald P. Roberts................... 44 Chief Marketing Officer; Director
Douglas A. Seckel................... 45 Chief Financial Officer, Secretary and
Treasurer; Director
Neil E. Kelley...................... 37 Director
William P. O'Connell................ 57 Director
Frank J. Hevrdejs................... 51 Director
Other Key Employees:
Dan DiGregorio...................... 42 Vice President of Management
Information Systems
Wayne Tompkins...................... 45 Senior Vice President of Operations
</TABLE>
Set forth below is a description of the backgrounds of each of the
directors, executive officers and other key employees of the Company:
James R. Crane, age 43, has served as President and a director of the
Company since he founded the Company in March 1984. Prior to the organization of
the Company, Mr. Crane had been employed by other air freight forwarders. Mr.
Crane has a total of 14 years experience in the transportation industry.
Donald P. Roberts, age 44, has served as Chief Marketing Officer of the
Company since October 1994 and has served as a director of the Company since May
1995. Mr. Roberts served as Regional Sales Manager of the Company between
January 1985 and October 1994. From 1980 to 1984, he served in various sales
positions with McLean Trucking and ANR Trucking. Mr. Roberts has a total of 21
years experience in the transportation industry.
Douglas A. Seckel, age 45, has served as Chief Financial Officer of the
Company since April 1989, has served as Secretary and Treasurer of the Company
since May 1991 and has served as a director of the Company since May 1995. From
1984 through 1989, he served as finance director for the City of Bellaire,
Texas. Mr. Seckel and Mr. Crane are first cousins.
Neil E. Kelley, age 37, has served as a director of the Company since
September 1995. Mr. Kelley has served as an Executive Director of the Vitol
Group of Companies, an international oil supply, trading and refining company,
since 1990. In addition, Mr. Kelley is Chairman of Vitol Gas & Electric and
North Atlantic Refining Limited, subsidiary companies of the Vitol Group. Mr.
Kelley is also an outside director of Quantum Energy Technologies, an energy
technology development company based in Cambridge, Massachusetts.
William P. O'Connell, age 57, has served as a director of the Company since
May 1995. Mr. O'Connell has served as the President and Chief Executive Officer
of AIM, Inc., a materials handling systems and equipment company, since 1988.
Frank J. Hevrdejs, age 51, has served as a director of the Company since
December 1995. Mr. Hevrdejs is a co-founder and a principal of The Sterling
Group, Inc., a private financial organization engaged in the acquisition and
ownership of operating businesses since 1982. He has served as President of The
Sterling
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<PAGE> 33
Group from 1982 to 1989 and from 1994 to the present. Since 1989, he has served
as Chairman of First Sterling Ventures Corp. Mr. Hevrdejs also serves as a
director for Mail-Well Holdings, Inc. and Sterling Chemical Holdings, Inc.
Dan DiGregorio, age 42, has served as Vice President of Management
Information Systems since October 1996. Previously, Mr. DiGregorio served as a
director of Worldwide Technical Support for Air Express International Corp.
since 1986 and has over 20 years experience related to management information
systems in international and domestic airfreight forwarding operations.
Wayne Tompkins, age 45, has served as Senior Vice President of Operations
since October 1996. Mr. Tompkins joined the Company in January 1996 and served
as the manager of the Company's San Francisco terminal during a transitional
period before assuming his current position. Prior to joining the Company, he
served as President of Red Arrow Freight Lines Inc. from 1994 to 1995 and served
in various senior management positions at Roadway Express Inc. from 1976 to
1993. Mr. Tompkins has over 20 years of transportation experience.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board. The Company's Board of Directors is currently composed
of six directors, three of whom are employees of the Company. All of the current
directors serve until the next annual shareholders' meeting or until their
successors have been duly elected and qualified. The Company's 1997 Annual
Meeting of Shareholders will be held on February 21, 1997. Each of the current
directors has been nominated for re-election to the Board of Directors at the
1997 Annual Meeting. Shareholders of record as of December 27, 1996 are entitled
to vote at the 1997 Annual Meeting. The purchasers of Shares in this Offering
will, therefore, not be entitled to vote at the 1997 Annual Meeting.
The Board of Directors has an Audit Committee which consists of Messrs.
O'Connell and Kelley. The function of the Audit Committee is to meet with the
internal financial staff of the Company and the independent public accountants
engaged by the Company to review (i) the scope and findings of the annual audit,
(ii) quarterly financial statements, (iii) accounting policies and procedures
and the Company's financial reporting, and (iv) the internal controls employed
by the Company. The Audit Committee also recommends to the Board of Directors
the independent public accountants to be selected to audit the Company's annual
financial statements, and reviews the fees charged for audits and for any
nonaudit engagements. The Committee's findings and recommendations are reported
to management and the Board of Directors for appropriate action.
The Board of Directors has a Compensation Committee which consists of
Messrs. O'Connell and Kelley whose function is to consider and act upon
management's recommendations to the Board of Directors on salaries, bonuses and
other forms of compensation for the Company's executive officers and certain
other key employees. The Compensation Committee has been appointed by the Board
of Directors to administer the Company's stock option plans.
32
<PAGE> 34
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information concerning (i) the only
persons known by the Company, based on statements filed by such persons with the
Securities and Exchange Commission, to own beneficially in excess of 5% of the
Common Stock as of December 31, 1996 and (ii) the shares of Common Stock
beneficially owned, as of December 31, 1996, by each of the Company's directors
and executive officers and by all directors and executive officers collectively.
Except as indicated, each individual has sole voting power and sole investment
power over all shares listed opposite his name, subject to community property
laws where applicable.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
----------------------- NUMBER OF ----------------------
NUMBER OF SHARES BEING NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES PERCENT(2) OFFERED SHARES PERCENT
<S> <C> <C> <C> <C> <C>
Directors and Executive Officers:
James R. Crane....................... 10,177,378 57.9% -- 10,177,378 57.9%
Donald P. Roberts.................... 609,938(3) 3.4% -- 609,938(3) 3.4%
Douglas Seckel....................... 165,976 * -- 165,976 *
William P. O'Connell................. 20,000(4) * -- 20,000(4) *
Neil E. Kelley....................... 20,000(4) * -- 20,000(4) *
Frank J. Hevrdejs.................... 20,000(4) * -- 20,000(4) *
Directors and Executive Officers as a
Group (6 persons).................... 11,013,292(5) 61.8% -- 11,013,292(5) 61.8%
Selling Shareholder:
Daniel S. Swannie.................... 1,547,758 8.8% 1,547,758 -- --
12 Gingerwilde Place
The Woodlands, Texas 77381
Other Five Percent Owners:
Pilgrim Baxter & Associates.......... 1,221,900(6) 7.0% -- 1,221,900(6) 7.0%
</TABLE>
- ---------------
* Less than 1%.
(1) The business address of each director and executive officer is c/o Eagle USA
Airfreight, Inc., 3214 Lodestar, Houston, Texas 77032.
(2) The table includes shares of Common Stock that can be acquired through the
exercise of options within 60 days. The percent of the class owned by each
person has been computed assuming the exercise of all options deemed to be
beneficially owned by that person, and assuming that no options held by any
other person have been exercised.
(3) Includes 200,000 options exercisable within 60 days of December 31, 1996.
(4) Includes 20,000 options exercisable within 60 days of December 31, 1996.
(5) Includes 260,000 options exercisable within 60 days of December 31, 1996.
(6) Based on a filing made with the Securities and Exchange Commission
reflecting ownership of Common Stock as of September 30, 1996. The address
of Pilgrim Baxter & Associates is 1255 Drummers Lane, Suite 300, Wayne,
Pennsylvania 19087.
SELLING SHAREHOLDER
Daniel S. Swannie resigned as an executive officer of the Company on
October 17, 1996 and as a director of the Company on December 27, 1996. Prior to
his resignation, Mr. Swannie had been Chief Operating Officer of the Company
since 1990 and had served as a director of the Company since May 1995. In
connection with this Offering, the Company and Mr. Swannie have entered into an
agreement (the "Swannie Agreement") pursuant to which Mr. Swannie has agreed to
reimburse the Company for all of its out-of-pocket expenses incurred in
connection with this Offering up to a maximum of $400,000 as well as to make a
33
<PAGE> 35
payment to the Company (in lieu of estimated internal costs relating to this
Offering) of $375,000 upon the closing of this Offering and $187,500 in certain
circumstances in which this Offering is terminated. Pursuant to the Swannie
Agreement, the Company has agreed to indemnify Mr. Swannie against certain
liabilities relating to this Offering. The Swannie Agreement also restricts Mr.
Swannie's ability to compete against the Company for a three year term and
places certain other limitations on his ability to act against the interests of
the Company. Mr. Swannie is a party to the Shareholders' Agreement described
under "Description of Capital Stock -- Registration Rights of Certain Holders";
however, his rights under such agreement will terminate at the completion of
this Offering.
34
<PAGE> 36
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30 million shares
of Common Stock, par value $.001 per share, and 10 million shares of Preferred
Stock, par value $.001 per share, issuable in series. As of December 31, 1996,
the issued and outstanding capital stock of the Company consisted of 17,570,421
shares of Common Stock, which number reflects a two-for-one stock split which
occurred August 1, 1996. There were approximately 1,378 shareholders of record
(including brokerage firms and other nominees) of the Company's common stock as
of November 29, 1996. No shares of Preferred Stock are currently outstanding. As
of December 31, 1996, 2,725,152 shares of Common Stock were reserved for
issuance pursuant to the Incentive Plan and 200,000 shares of Common Stock were
reserved for issuance pursuant to the Nonemployee Director Plan.
The following description of certain provisions of the Company's Second
Amended and Restated Articles of Incorporation (the "Articles of Incorporation")
and the Company's Amended and Restated Bylaws (the "Bylaws") are necessarily
general and do not purport to be complete and are qualified in their entirety by
reference to the Articles of Incorporation and Bylaws, which are included as
exhibits to the Registration Statement of which this Prospectus is a part. The
Company was organized in March 1984 and is a Texas corporation.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share with respect to
all matters required by law to be submitted to shareholders of the Company.
Holders of Common Stock have no preemptive rights to purchase or subscribe for
securities of the Company, and the Common Stock is not convertible or subject to
redemption by the Company.
Subject to the rights of the holders of any class of capital stock of the
Company having any preference or priority over the Common Stock, none of which
will be outstanding upon completion of this Offering, the holders of the Common
Stock are entitled to dividends in such amounts as may be declared by the Board
of Directors of the Company from time to time out of funds legally available for
such payments and, in the event of liquidation, to share ratably in any assets
of the Company remaining after payment in full of all creditors and provisions
for any liquidation preferences on any outstanding stock ranking prior to the
Common Stock.
American Securities Transfer & Trust, Inc. is the registrar and transfer
agent for the Common Stock.
PREFERRED STOCK
The Board of Directors, without further action by the shareholders, is
authorized to issue up to 10 million shares of Preferred Stock in one or more
series and to fix and determine as to any series all the relative rights and
preferences of shares in such series, including, without limitation,
preferences, limitations or relative rights with respect to redemption rights,
conversion rights, if any, voting rights, if any, dividend rights and
preferences on liquidation. The Company has no present intention to issue any
Preferred Stock, but may determine to do so in the future.
The issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could adversely affect the voting power of the Common
Stock, discourage an unsolicited acquisition proposal or make it more difficult
for a third party to gain control of the Company. For instance, the issuance of
a series of Preferred Stock might impede a business combination by including
class voting rights that would enable the holder to block such a transaction, or
facilitate a business combination by including voting rights that would provide
a required percentage vote of the shareholders. In addition, under certain
circumstances, the issuance of Preferred Stock could adversely affect the voting
power of the holders of the Common Stock. Although the Board of Directors is
required to make any determination to issue such stock based on its judgment as
to the best interests of the shareholders of the Company, the Board of Directors
could act in a manner that would discourage an acquisition attempt or other
transaction that some, or a majority, of the shareholders might believe to be in
their best interests or in which shareholders might receive a premium for their
stock over the then market price of such stock. The Board of Directors does not
at present intend to seek shareholder approval prior to any issuance of
currently authorized stock, unless otherwise required by law.
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<PAGE> 37
SPECIAL MEETINGS
Special Meetings of the shareholders of the Company may be called by the
chief executive officer, the Board of Directors or by shareholders holding not
less than 50% of the outstanding voting stock of the Company.
VOTING
Holders of Common Stock are entitled to cast one vote per share on matters
submitted to a vote of shareholders and do not have cumulative voting rights.
Each director will be elected annually. Any director may be removed, with or
without cause, at any meeting of shareholders called expressly for that purpose,
by a vote of the holders of a majority of the outstanding shares. Because the
Common Stock does not have cumulative voting rights, the holders of more than
50% of the shares may, if they choose to do so, elect all of the directors and,
in that event, the holders of the remaining shares will not be able to elect any
directors. See "Risk Factors -- Control by Principal Shareholders."
Subject to any additional voting rights that may be granted to holders of
future classes or series of stock, the Company's Articles of Incorporation
require the affirmative vote of holders of a majority of the outstanding shares
entitled to vote thereon to approve any merger, consolidation or share exchange,
sale of all or substantially all of the assets of the Company, dissolution of
the Company or amendment to the Articles of Incorporation for which a vote is
required by the Texas Business Corporation Act.
Approval of any other matter not described above that is submitted to the
shareholders requires the affirmative vote of the holders of a majority of the
shares of Common Stock represented at the meeting. The holders of a majority of
the shares entitled to vote will constitute a quorum at meetings of
shareholders.
The Company's Bylaws provide that shareholders who wish to nominate
directors or to bring business before a shareholders' meeting must notify the
Company and provide certain pertinent information at least 80 days before the
meeting date (or within ten days after public announcement pursuant to the
Bylaws of the meeting date, if the meeting date has not been publicly announced
at least 90 days in advance).
LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION ARRANGEMENTS
The Articles of Incorporation of the Company contain a provision that
limits the liability of the Company's directors as permitted by the Texas
Business Corporation Act. The provision eliminates the personal liability of
directors to the Company and its shareholders for monetary damages for breach of
directors' fiduciary duty of care. The provision does not change the liability
of a director for breach of his duty of loyalty to the Company or to
shareholders, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, an act or omission for which the
liability of a director is expressly provided for by an applicable statute, or
in respect of any transaction from which a director received an improper
personal benefit. Pursuant to the Articles of Incorporation, the liability of
directors will be further limited or eliminated without action by shareholders
if Texas law is amended to further limit or eliminate the personal liability of
directors.
The Company's Bylaws provide for the indemnification of its officers and
directors, and the advancement to them of expenses in connection with
proceedings and claims, to the fullest extent permitted by the Texas Business
Corporation Act. The Company has also entered into indemnification agreements
with each of its directors and certain of its officers that contractually
provided for indemnification and expense advancement and include related
provisions meant to facilitate the indemnitees' receipt of such benefits. In
addition, the Company may purchase directors' and officers' liability insurance
policies for its directors and officers in the future. The Bylaws and such
agreements with directors and officers provide for indemnification for amounts
(i) in respect of the deductibles for such insurance policies, (ii) that exceed
the liability limits of such insurance policies and (iii) that are available,
were available or which become available to the Company or which are generally
available to companies comparable to the Company but which the officers or
directors of the Company determine is inadvisable for the Company to purchase,
given the cost involved of the Company.
36
<PAGE> 38
Such indemnification may be made even though directors and officers would not
otherwise be entitled to indemnification under other provisions of the Bylaws or
such agreements.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
The Shareholders' Agreement dated as of October 1, 1994 among the Company
and James R. Crane, Daniel S. Swannie, Donald P. Roberts and Douglas A. Seckel
(the "Pre-IPO Shareholders") provides registration rights with respect to the
Common Stock held by such shareholders on the date of the agreement as well as
shares otherwise purchased from the Company (the "Registrable Securities").
Pre-IPO Shareholders owning not less than 51% of the then outstanding shares of
Registrable Securities may demand that the Company effect a registration under
the Securities Act for the sale of not less than 5% of the shares of Registrable
Securities then outstanding. The Pre-IPO Shareholders also have limited rights
to require the Company to include their shares of Common Stock in connection
with any registered offering by the Company. All of the Pre-IPO Shareholders
have agreed to waive these registration rights in connection with this Offering,
although the Company is registering Mr. Swannie's shares for this Offering under
a separate agreement. The Company may generally be required to effect three
demand registrations and three additional demand registrations for certain
offerings registered on SEC Form S-3, subject to certain conditions and
limitations. The registration rights will terminate as to any holder of
Registrable Securities at such time as such holder may sell under Rule 144 in a
three-month period all Registrable Securities then held by such holder. The
registration for this Offering does not constitute a registration under the
Shareholders' Agreement. Upon completion of this Offering, Mr. Swannie will
cease to be a party to the Shareholders' Agreement. Registration of shares under
the Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act (except for shares purchased by affiliates
of the Company) immediately upon the effectiveness of such registration.
37
<PAGE> 39
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, Donaldson, Lufkin & Jenrette Securities Corporation, Alex. Brown &
Sons Incorporated and The Robinson-Humphrey Company, Inc. (the "Underwriters")
have severally agreed to purchase 1,547,758 shares of Common Stock from the
Selling Shareholder. The number of shares that each Underwriter has agreed to
purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Alex. Brown & Sons Incorporated.............................
The Robinson-Humphrey Company, Inc. ........................
---------
Total............................................. 1,547,758
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to the approval of certain legal matters by counsel and to certain other
conditions. If any of the shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, all such shares of Common
Stock (other than the shares of Common Stock covered by the over-allotment
option described below) must be so purchased.
The Company and the Selling Shareholder have been advised by the
Underwriters that they propose to offer the Common Stock to the public initially
at the price to the public set forth on the cover page of this Prospectus and to
certain dealers (who may include the Underwriters) at such price less a
concession not to exceed $ per share. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share to
any other Underwriter and certain other dealers. The public offering price,
concession and reallowance may be changed by the Underwriters after the initial
offering.
The Company has granted to the Underwriters an option to purchase up to
232,164 additional shares of Common Stock at the public offering price set forth
on the cover page hereof, less underwriting discounts and commissions, solely to
cover over-allotments. Such option may be exercised at any time until 30 days
after the date of this Prospectus. To the extent that the Underwriters exercise
such option, each of the Underwriters will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment as indicated in the preceding table and the
Company will be obligated, pursuant to such option, to sell such additional
shares of Common Stock to the Underwriters.
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof. The Company has agreed to indemnify the
Selling Shareholder for certain of such liabilities.
Donaldson, Lufkin & Jenrette Securities Corporation and The
Robinson-Humphrey Company, Inc. have, in the past, each provided certain
investment banking and underwriting services to the Company for which they have
received customary compensation.
The Company has agreed that it will not, and the Company has agreed to
cause each executive officer and director of the Company to agree that he will
not, without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation, register or cause the Company to register the sale of,
sell, offer to sell, contract to sell, grant any option to purchase or otherwise
dispose of, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or in any other manner transfer all
or a portion of the economic consequences associated with the ownership of
Common Stock, for a period of 90 days after the date of this Prospectus, other
than (i) shares of Common Stock offered hereby, (ii) shares of Common Stock
issued by the Company upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof, (iii) shares of Common
Stock issued or stock options granted by the Company pursuant to any employee
stock option plan, stock purchase plan or other benefit plan of the Company in
existence on the date hereof, (iv) shares of Common Stock which may be issued by
the Company
38
<PAGE> 40
in connection with certain acquisitions and (v) shares of Common Stock
transferred among family members and to trusts for estate planning purposes.
The Underwriters have advised the Company that they do not intend to
confirm sales of shares of Common Stock offered hereby to accounts over which
they exercise discretionary authority.
In connection with this Offering, certain Underwriters may engage in
passive market making transactions in the Common Stock on the Nasdaq National
Market immediately prior to the commencement of sales in the Offering made
hereby, in accordance with Rule 10b-6A under the Exchange Act. Passive market
making consists of displaying bids on the Nasdaq National Market limited by the
bid prices of independent market makers and purchases limited by such prices and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the Common Stock during a specified prior period
and must be discontinued when such limit is reached. Passive market making may
stabilize the market price of the Common Stock at a level above that which might
otherwise prevail and, if commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock offered
hereby are being passed upon for the Company by Baker & Botts, L.L.P., Houston,
Texas and for the Selling Shareholder by Haynes and Boone, L.L.P., Houston,
Texas. Certain matters relating to this Offering will be passed upon for the
Underwriters by Thompson & Knight, P.C., Dallas, Texas.
EXPERTS
The Consolidated Financial Statements as of September 30, 1995 and 1996,
and for each of the three years in the period ended September 30, 1996 included
in this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act with respect to the
shares of Common Stock offered by this Prospectus. This Prospectus constitutes a
part of the Registration Statement and does not contain all of the information
set forth in the Registration Statement, certain portions of which are omitted
from this Prospectus as permitted by the rules and regulations of the
Commission. Statements made in this Prospectus regarding the contents of any
contract, agreement or other document are not necessarily complete. With respect
to each contract, agreement or other document filed with the Commission as an
exhibit to the Registration Statement, reference is made to the exhibit for
further information regarding the contents thereof, and each such statement is
qualified in its entirety by such reference. For further information regarding
the Company and the shares of Common Stock offered hereby, reference is made to
the Registration Statement, including the exhibits and schedules thereto.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's Regional Offices at 7 World Trade Center,
Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, at prescribed rates. The Company's Common Stock
is quoted on the Nasdaq National Market and reports and other information
concerning the Company may also be inspected and copied at the office of the
Nasdaq Stock Market, Inc., 8513 Key West Avenue, Rockville, Maryland 20850. The
Commission maintains an
39
<PAGE> 41
Internet web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission (http://www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
are hereby incorporated herein by reference (Commission File No. 0-27288):
1. Annual Report on Form 10-K for the fiscal year ended September 30,
1996;
2. Current Report on Form 8-K dated January 27, 1997; and
3. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A dated November 27, 1995.
All documents subsequently filed pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act by the Company prior to the termination of the
offering contemplated hereby shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus is delivered, upon the written or oral request of
such person, a copy of any or all of the documents which are incorporated by
reference herein, other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference into such documents). Request should
be directed to Douglas A. Seckel, Chief Financial Officer, Secretary and
Treasurer, at the Company's principal executive offices located at 3214
Lodestar, Houston, Texas 77032.
40
<PAGE> 42
EAGLE USA AIRFREIGHT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheet as of September 30, 1996 and 1995.......................... F-3
Consolidated Statement of Income for the Three Years Ended September 30, 1996......... F-4
Consolidated Statement of Cash Flows for the Three Years Ended September 30, 1996..... F-5
Consolidated Statement of Shareholders' Equity for the Three Years Ended September 30,
1996................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 43
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Eagle USA Airfreight, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of shareholders' equity
present fairly, in all material respects, the financial position of Eagle USA
Airfreight, Inc. and its subsidiaries at September 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1996, in conformity with generally accepted
accounting principles. 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. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
November 22, 1996
F-2
<PAGE> 44
EAGLE USA AIRFREIGHT, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1996 1995
--------- ---------
(IN THOUSANDS, EXCEPT
PAR VALUES)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $26,696 $ 179
Short-term investments.................................... 3,409 1,927
Accounts receivable -- trade, net of allowance for
doubtful accounts of $363 and $461, respectively....... 30,379 17,394
Prepaid expenses and other................................ 2,290 1,647
------- -------
Total current assets.............................. 62,774 21,147
Property and equipment, net................................. 8,333 2,171
Other assets................................................ 622 1,150
------- -------
$71,729 $24,468
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable -- trade................................. $ 2,459 $ 950
Accrued transportation costs.............................. 10,818 7,304
Accrued compensation and employee benefits................ 6,821 4,573
Other accrued liabilities................................. 1,189 1,355
Current portion of long-term indebtedness................. 113
------- -------
Total current liabilities......................... 21,287 14,295
------- -------
Long-term indebtedness (including related party amounts of
$8,209 in 1995)........................................... 8,474
------- -------
Shareholders' equity:
Preferred stock, $0.001 par value, 10,000 shares
authorized.............................................
Common stock, $0.001 par value, 30,000 shares authorized,
17,492 and 6,000 shares issued and outstanding (Note
9)..................................................... 17 6
Additional paid-in capital................................ 39,124 108
Retained earnings......................................... 11,301 1,585
------- -------
50,442 1,699
------- -------
Commitments and contingencies (Note 12)
------- -------
$71,729 $24,468
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE> 45
EAGLE USA AIRFREIGHT, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1996 1995 1994
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues.................................................... $185,445 $126,214 $83,276
Cost of transportation...................................... 103,312 72,366 49,764
-------- -------- -------
82,133 53,848 33,512
-------- -------- -------
Operating expenses:
Personnel costs........................................... 41,619 27,939 19,165
Other selling, general and administrative expenses........ 22,665 13,704 8,461
-------- -------- -------
64,284 41,643 27,626
-------- -------- -------
Operating income............................................ 17,849 12,205 5,886
Interest income............................................. 1,079 335 81
Interest expense............................................ (145) (16) (5)
-------- -------- -------
Income before provision for income taxes.................... 18,783 12,524 5,962
Provision for income taxes.................................. 6,357 1,335 492
-------- -------- -------
Net income.................................................. $ 12,426 $ 11,189 $ 5,470
======== ======== =======
Pro forma information (unaudited):
Net -- income as reported................................. $ 12,426 $ 11,189 $ 5,470
Pro forma charge in lieu of income taxes (Note 4)......... 945 3,682 1,916
-------- -------- -------
Pro forma net income........................................ $ 11,481 $ 7,507 $ 3,554
======== ======== =======
Weighted average common shares outstanding.................. 17,521 14,782
======== ========
Pro forma net income per share (Note 1)..................... $ 0.66 $ 0.51
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 46
EAGLE USA AIRFREIGHT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1996 1995 1994
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers.............................. $ 172,461 $ 121,914 $ 77,901
Cash paid to carriers, suppliers and employees............ (158,483) (112,471) (73,259)
Interest received......................................... 968 284 81
Interest paid............................................. (145) (16) (5)
Income taxes paid......................................... (3,954) (1,150) (358)
--------- -------- --------
Net cash provided by operating activities......... 10,847 8,561 4,360
--------- -------- --------
Cash flows from investing activities:
Purchase of investments................................... (27,714) (10,324) (1,781)
Maturity of investments................................... 26,232 10,056 123
Acquisition of property and equipment..................... (7,189) (1,703) (830)
Disposition of property and equipment..................... 72 7 10
Acquisition of subsidiaries (Note 7)...................... (139)
Increase in other assets.................................. (300)
Advances to affiliates.................................... (737)
Advances to shareholders and employees.................... (67) (684)
Repayments from affiliates................................ 737 563
--------- -------- --------
Net cash used by investing activities............. (8,229) (2,961) (2,478)
--------- -------- --------
Cash flows from financing activities:
Payments on indebtedness.................................. (2,178) (277) (61)
Proceeds from indebtedness................................ 1,800 613
Issuance of common stock, net of related costs............ 34,559
Proceeds from exercise of stock options................... 628
Payments on shareholder distribution notes................ (8,209)
Distributions to shareholders............................. (2,701) (6,420) (2,471)
--------- -------- --------
Net cash (used) provided by financing
activities...................................... 23,899 (6,084) (2,532)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 26,517 (484) (650)
Cash and cash equivalents, beginning of year................ 179 663 1,313
--------- -------- --------
Cash and cash equivalents, end of year...................... $ 26,696 $ 179 $ 663
========= ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 47
EAGLE USA AIRFREIGHT, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1993.................. 6,000 $ 6 $ 2,026 $ 2,032
Distributions to shareholder................... (2,471) (2,471)
Net income..................................... 5,470 5,470
------ --- ------- ------- -------
Balance at September 30, 1994.................. 6,000 6 5,025 5,031
Distributions to shareholder................... (6,420) (6,420)
Special distribution........................... (8,209) (8,209)
Combination of principal shareholder's interest
in the Company's majority-owned
subsidiaries................................. $ 108 108
Net income..................................... 11,189 11,189
------ --- ------- ------- -------
Balance at September 30, 1995.................. 6,000 6 108 1,585 1,699
Issuance of common stock to majority
shareholder for acquisition of subsidiaries
(Note 7)..................................... 223
Issuance of common stock, net of related costs
(Note 5)..................................... 2,300 2 34,557 34,559
Distributions to shareholders.................. (2,701) (2,701)
Conversion from S Corporation to C Corporation
(Note 4)..................................... 457 457
Exercise of stock options...................... 296 628 628
Tax benefit from exercise of stock options..... 3,374 3,374
Two-for-one stock split (issuance of 8,673
shares of common stock) (Note 9)............. 8,673 9 (9)
Net income..................................... 12,426 12,426
------ --- ------- ------- -------
Balance at September 30, 1996.................. 17,492 $ 17 $ 39,124 $ 11,301 $50,442
====== === ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 48
EAGLE USA AIRFREIGHT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PAR VALUES AND PER SHARE AMOUNTS)
NOTE 1 -- ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
Eagle USA Airfreight, Inc. (the Company) was organized in 1984 to provide
ground and air freight forwarding services. The Company maintains operating
facilities throughout the United States. The Company operates in one principal
industry segment.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The consolidated financial statements include the accounts of Eagle USA
Airfreight, Inc. and its subsidiaries. All significant intercompany transactions
have been eliminated.
Revenue and expense recognition
Revenues and expenses related to the transportation of freight are
recognized at the time the freight departs the terminal of origin. This method
approximates recognizing revenues and expenses when the shipment is completed.
Short-term investments
The Company had short-term investments in U.S. Treasury Bills with a
carrying value of $1,927 at September 30, 1995. At September 30, 1996, the
Company had short-term investments in U.S. Treasury Bills and Tax Exempt
Municipal Bonds with a carrying value of $3,409. Securities with a carrying
value of $3,229 at September 30, 1996 mature in less than one year, securities
with a carrying value of $180 mature within three years. Such investments are
"available for sale", since the Company has the intent to utilize the funds as
needed. The investments are stated at amortized cost, which approximated market.
Accordingly, no unrealized holding gains or losses have been recorded by the
Company as of September 30, 1996. The Company's short-term investments in U.S.
Treasury Bills at September 30, 1995 matured during fiscal 1996 with no gain or
loss recognized.
Property and equipment
Property and equipment is stated at cost. Property and equipment is
depreciated using the straight line method over its estimated useful life.
Assets subject to capital leases are amortized using the straight line method
over the terms of the leases or the lives of the assets, if shorter.
Income taxes
The provision for income taxes is computed based upon the pretax income
included in the consolidated statement of income. The asset and liability
approach is used to recognize deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities.
Prior to the Company's initial public offering, the Company had elected to
be treated as an S Corporation for federal income tax purposes. Accordingly, all
income tax liability was the responsibility of the shareholders. As certain
states do not recognize S Corporation status, the Company remained subject to
income taxation in those jurisdictions. Effective December 4, 1995, the
Company's S Corporation status was terminated and the Company became liable for
federal and state income taxes since that date.
F-7
<PAGE> 49
Cash equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to be
cash equivalents. Cash equivalents are carried at cost, which approximates
market value.
Accounting for stock-based compensation
The Company has not elected early adoption of Financial Accounting Standard
No. 123 (FAS 123), "Accounting for Stock-Based Compensation". FAS 123 will be
adopted and implemented by the Company effective October 1, 1996, and will not
have a material effect on the Company's consolidated financial position or
operating results. Upon adoption of FAS 123, the Company will continue to
measure compensation expense for its stock-based employee compensation plans
using the intrinsic-value method prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees", and will provide pro forma disclosures of net
income and earnings per share as if the fair value-based method prescribed by
FAS 123 had been applied in measuring compensation expense.
Impairment of assets
The Company has not elected early adoption of Statement of Financial
Accounting Standard No. 121 (FAS 121), "Accounting for Impairment of Long-Lived
Assets and for Assets to be Disposed Of". FAS 121 will be adopted and
implemented by the Company effective October 1, 1996. The Company does not
believe that the adoption of FAS 121 will have a material effect on the
Company's financial position or results 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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Pro forma net income per share (unaudited)
Pro forma net income per share (unaudited) is computed by using the
weighted average number of common and common stock equivalent shares outstanding
during the period. Common stock equivalents include the number of shares
issuable upon exercise of stock options less the number of shares that could
have been repurchased with the exercise proceeds and related tax benefits using
the treasury stock method.
For purposes of the pro forma net income per share computation, the
two-for-one stock split and the shares issued to the Company's Chairman of the
Board in connection with the acquisition of his interests in the Company's
subsidiaries have been treated as if they had been effective and outstanding as
of the beginning of each period presented.
The number of shares used in the computation were determined as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
----------------
1996 1995
------ ------
<S> <C> <C>
Weighted average number of common shares outstanding........ 16,234 12,000
Common stock equivalents.................................... 939 1,243
Effect of shares issued to the Company's Chairman of the
Board..................................................... 82 446
Number of shares sold by the Company that would have been
necessary to fund pre-IPO S Corporation distributions..... 266 1,093
------ ------
17,521 14,782
====== ======
</TABLE>
F-8
<PAGE> 50
Historical earnings per share is not provided for any of the periods
presented as such inclusion is not considered to be meaningful.
Concentration of credit risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of investments and trade
receivables. The Company places its temporary cash investments in short-term
federal government securities which are guaranteed by the U.S. government and
tax-exempt municipal bonds.
The Company provides services to customers in diverse industries located
primarily in the United States. All sales are denominated in the U.S. dollar.
Management believes that concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the
Company's customer base and their dispersion across many different industries
and geographic regions. One customer accounted for approximately 13.5% of
revenue in fiscal 1995. No customer represented 10% or more of revenues during
fiscal 1996. The Company performs ongoing credit evaluations of its customers to
minimize credit risk.
NOTE 2 -- PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at September 30:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES 1996 1995
------------ ------- -------
<S> <C> <C> <C>
Computer equipment, software and other equipment... 5-7 years $ 7,000 $ 2,504
Vehicles........................................... 3-5 years 1,897 531
Furniture and fixtures............................. 5-7 years 679 442
Land............................................... 731
Leasehold improvements............................. lease terms 706 350
------- -------
11,013 3,827
Less -- accumulated depreciation and
amortization..................................... (2,680) (1,656)
------- -------
$ 8,333 $ 2,171
======= =======
</TABLE>
Computer equipment and software includes $2,594 at September 30, 1996
related to new information systems for which depreciation and amortization are
expected to begin in December 1996.
NOTE 3 -- LONG-TERM DEBT:
As of September 30, 1996, the Company had no indebtedness outstanding.
Indebtedness was comprised of the following at September 30, 1995:
<TABLE>
<S> <C>
Special distribution note to shareholders, interest at 7 1/2%, paid in
December 1995............................................................. $8,209
Equipment note payable to a bank, interest is payable at prime, secured by
equipment, paid in December 1995.......................................... 363
Other....................................................................... 15
------
8,587
Less -- current portion..................................................... 113
------
$8,474
======
</TABLE>
On October 18, 1995 the Company obtained a $10,000 revolving line of credit
facility from a bank. The facility bears interest at variable rates tied to a
bank LIBOR rate, matures in January 1998 and is secured by accounts receivable.
The Company may borrow up to 80% of eligible accounts receivable, must maintain
certain financial ratios and may not declare dividends in excess of 25% of
cumulative net worth generated subsequent to the Company's initial public
offering. The facility is guaranteed by certain of the Company's
F-9
<PAGE> 51
subsidiaries. During fiscal year 1996, the Company borrowed $1,800 pursuant to
such facility. A portion of the proceeds from the initial public offering were
used to repay this indebtedness. No amount is outstanding under the facility at
September 30, 1996.
NOTE 4 -- INCOME TAXES:
Effective October 1, 1992, the Company elected to be treated as an S
Corporation for federal income tax purposes. Accordingly, no federal income tax
expense was recorded for the Company for the years ended September 30, 1994 and
1995 because operating results are reported in the individual income tax returns
of the shareholders. As certain states do not recognize S Corporation status,
the Company was subject to income taxation in those jurisdictions. The federal
income tax expense recorded in the year ended September 30, 1995 relates to the
separate company income generated by the Company's subsidiaries, which are all C
Corporations for federal income tax purposes. The Company became a C Corporation
in December 1995 as a result of the public offering.
The Company's income tax provision was comprised of the following for the
years ended September 30:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ----
<S> <C> <C> <C>
Current:
State.................................................... $1,152 $ 941 $492
Federal.................................................. 5,129 468
------ ------ ----
6,281 1,409 492
------ ------ ----
Deferred:
State.................................................... 11 (67)
Federal.................................................. 65 (7)
------ ------ ----
76 (74)
------ ------ ----
Total............................................ $6,357 $1,335 $492
====== ====== ====
</TABLE>
A reconciliation of the federal statutory tax rate and the Company's
provision for income taxes is as follows for the years ended September 30:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income taxes at the federal statutory rate............ $ 6,386 $ 4,258 $ 2,027
Tax exempt income..................................... (130)
Nondeductible items................................... 245 216 56
State income taxes.................................... 1,163 874 492
S Corporation taxation benefit........................ (1,307) (4,013) (2,083)
------ ------ ------
Provision for income taxes............................ $ 6,357 $ 1,335 $ 492
====== ====== ======
</TABLE>
Deferred tax assets and liabilities as of September 30, 1996 and 1995 were
comprised of the following:
<TABLE>
<CAPTION>
1996 1995
----- ---
<S> <C> <C>
Assets:
Bad debt expense.................................................... $ 150 $28
Amortization........................................................ 34 7
Accruals and other.................................................. 414 39
----- ---
598 74
----- ---
Liabilities:
Depreciation........................................................ (141)
----- ---
(141)
----- ---
$ 457 $74
===== ===
</TABLE>
F-10
<PAGE> 52
Shortly prior to the consummation of the Company's initial public offering
in December 1995, the Company's S Corporation status was terminated.
Accordingly, the Company became liable for federal income taxes on taxable
income generated prospectively from cumulative temporary differences between
income for financial and tax reporting purposes at the date of the termination.
At that time, the Company recorded a net deferred tax asset and a credit to
additional paid-in capital to recognize the effects under FAS 109 of its
conversion to C Corporation status. The Company has agreed to indemnify its
shareholders for any potential losses with respect to additional taxes
(including interest, penalties and legal fees) resulting from the Company's
operations during periods in which it was an S Corporation.
NOTE 5 -- PUBLIC OFFERING:
On December 6, 1995, the Company completed an underwritten public offering
of 2,000 shares of common stock at a price to the public of $16.50 per share. In
connection with the offering, the underwriters fully exercised an over-allotment
option of 300 shares. Proceeds to the Company after deducting underwriting
discounts, commissions and offering costs were approximately $34,559. Such
proceeds have and may continue to be used for general corporate purposes,
including acquisitions and working capital.
NOTE 6 -- BENEFIT PLANS AND STOCK PLANS:
Defined Contribution Plans
The Company maintains a 401(K) profit sharing plan for its employees.
During fiscal 1996, 1995 and 1994, the Company elected to match employee
contributions up to 5% of compensation. In addition, the Company has agreed to
permit employees to contribute certain bonuses, up to the maximum allowable, to
their 401(K) accounts. Such employee contributions, if made, are also matched by
the Company. During fiscal 1996, 1995 and 1994 the Company made contributions of
$970, $513 and $292, respectively.
The Company also sponsored a defined contribution money purchase plan. The
Company's contribution was an amount equal to 4.3% of each participant's annual
compensation in addition to 4.3% of compensation in excess of the social
security wage base. During fiscal 1994, the Company contributed $570 to the
money purchase plan. The Company elected to discontinue its defined contribution
money purchase plan effective October 1, 1994.
Stock Option Plans
In September 1994, the Board adopted the Eagle USA Airfreight, Inc. 1994
Long-Term Incentive Plan (the 1994 Plan) whereby certain employees may be
granted options, appreciation rights or awards related to the Company's common
stock.
Each option has been granted at an exercise price equal to the fair market
value of the common stock on the date of grant. The options generally vest
ratably over a five-year or seven-year period from the date of issuance (or 100%
upon death). The Company has no obligation to repurchase the options granted.
Vested options terminate seven years from the date of grant. Subsequent to
September 30, 1996, the vesting provisions related to 400,000 options were
accelerated.
Additional awards may be granted under the 1994 Plan in the form of cash,
stock or stock appreciation rights. The stock appreciation right awards may
consist of the right to receive payment in cash or common stock. Any award may
be subject to certain conditions, including continuous service with the Company
or achievement of certain business objectives.
On September 29, 1995, the Board adopted the Eagle USA Airfreight, Inc.
1995 Nonemployee Director Stock Option Plan (the Director Plan), whereby the
Company may grant stock options to purchase up to 200 shares of common stock to
its nonemployee directors at the fair market price on the date of grant. The
Board has authorized 3,100 shares to be available for grant pursuant to the 1994
Plan.
F-11
<PAGE> 53
As of September 30, 1996, options to purchase 2,193 shares of common stock
of the Company under both plans were outstanding as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE
OPTIONS PER SHARE
------- ---------------
<S> <C> <C>
Granted September 1994..................................... 895 $2.50
-----
Outstanding at September 30, 1994.......................... 895 2.50
Forfeited during 1995...................................... (55) 2.50
Granted during 1995........................................ 5 8.00
-----
Outstanding at September 30, 1995.......................... 845 2.50 - 8.00
Granted prior to stock split............................... 535 16.50 - 37.50
Effect of stock split (Note 9)............................. 1,237 1.25 - 18.75
Granted.................................................... 22 19.25 - 20.25
Forfeited.................................................. (149) 1.25
Exercised.................................................. (297) 1.25 - 8.25
-----
Outstanding at September 30, 1996.......................... 2,193 1.25 - 20.25
=====
Shares available for grant at end of year.................. 467
=====
Options vested at end of year.............................. 234
=====
</TABLE>
The two-for-one stock split resulted in the issuance of an additional
option for each one outstanding and a 50% reduction in the exercise price for
all outstanding options (Note 9).
NOTE 7 -- RELATED PARTY TRANSACTIONS:
Effective October 1, 1994, the Company acquired 50% of the common stock of
Eagle Freight Services, Inc. (EFS), formerly C&D Freight Services, Inc., and C&D
Freight Services of California, Inc. (C&D) for an aggregate purchase price of
$250 in cash. Effective January 1, 1995, the Company acquired 50% of Freight
Services Management, Inc. (FSMI) for a nominal amount. The acquisitions were
accounted for as purchases. Shortly before the closing of the initial public
offering in December 1995, the Company acquired the remaining 50% of EFS, C&D
and FSMI from the principal shareholder. The operating results of such
subsidiaries have been consolidated with the Company since October 1, 1994 as if
the Company owned 100% of these entities. The Company's results of operations
for fiscal 1994 would not have varied materially from actual results had the
subsidiaries been consolidated during fiscal 1994. EFS and C&D provide same-day
local delivery and distribution management services. FSMI provides outsourcing
of logistics and delivery management services to certain customers of the
Company.
During fiscal 1995, the Company and its principal shareholder formed Eagle
USA Transportation Services, Inc. (ETSI), to provide truck brokerage services
principally to the Company, and Eagle USA Import Brokers, Inc. (EIBI), to
provide certain customs brokerage services in connection with the Company's
international shipments. The Company owned 70% of ETSI and EIBI while the
Company's principal shareholder owned the remaining 30% interests. Effective as
of the dates of formation of ETSI and EIBI, the Company's consolidated accounts
include the accounts of ETSI and EIBI as if they were wholly owned since the
Company controls ETSI and EIBI. The Company acquired the remaining 30% interests
of ETSI and EIBI from the principal shareholder shortly before the closing of
the initial public offering of common stock, in exchange for shares of common
stock of the Company.
The Company issued 223 pre-split shares of common stock to its principal
shareholder to effect 100% ownership of these subsidiaries.
The Company was provided computer services by an affiliate during fiscal
1994. The cost of these services was $166 during the fiscal year ended 1994. The
affiliate became inactive during fiscal 1994. During fiscal 1994, the Company
recognized expense of $2,666, for ground transportation and local pickup and
delivery services provided by C&D Freight Services, Inc.
F-12
<PAGE> 54
On October 1, 1994, the Company's principal shareholder sold a portion of
his shares of the Company to certain officers of the Company.
The Company leases an aircraft owned by an entity that is 50% owned by the
principal shareholder (100% owned in 1995) at a rate of $1.4 per hour for actual
usage. Total lease expense during fiscal 1996 and 1995 related to the aircraft
was $72 and $77, respectively.
NOTE 8 -- LEASES:
The Company has a number of operating lease agreements, principally for
office space and freight operation facilities. These leases are noncancelable
and expire on various dates through 2002. Following is a summary of future
minimum rental payments required under the operating leases that have initial or
remaining noncancelable lease terms in excess of one year:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
- -------------
<S> <C> <C>
1997................................................ $ 3,663
1998................................................ 3,114
1999................................................ 2,095
2000................................................ 1,252
Thereafter.......................................... 742
$10,866
</TABLE>
Rent expense under all noncancelable operating leases during 1996, 1995 and
1994 was $3,062, $1,877 and $1,246, respectively.
NOTE 9 -- SHAREHOLDERS' EQUITY:
On September 29, 1995, the Company's shareholders authorized the issuance
of up to 10,000 shares of Preferred Stock, par $0.001. No shares have been
issued. The shareholders also authorized an increase in the number of common
shares to 30,000 common shares.
On July 8, 1996, the Board authorized a two-for-one stock split, effected
in the form of a stock dividend, payable August 1, 1996 to shareholders of
record on July 24, 1996. All references in the financial statements to earnings
per share information have been retroactively restated to reflect the split. The
stock split resulted in the issuance of approximately 8,673 new shares of common
stock and a reclassification of $9 from retained earnings to common stock
representing the par value of the shares issued.
As of September 30, 1996, the Company had outstanding nonqualified stock
options to purchase an aggregate of 2,193 shares of common stock at exercise
prices equal to the fair market value of the underlying common stock on the
dates of grant (prices ranging from $1.25 to $20.25 per share). At the time a
nonqualified stock option is exercised, the Company will generally be entitled
to a deduction for federal and state income tax purposes equal to the difference
between the fair market value of the common stock on the date of exercise and
the option price. As a result of the exercises for the year ended September 30,
1996 of nonqualified stock options to purchase an aggregate of 296 shares of
common stock, the Company is entitled to a federal income tax deduction of
approximately $8,200. Assuming an effective tax rate of 40%, the Company
realized a tax benefit of approximately $3,373; accordingly, the Company
recorded an increase to additional paid-in capital and a reduction in current
taxes payable pursuant to the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109). Any exercises of
nonqualified stock options in the future at exercise prices below the then fair
market value of the common stock may also result in tax deductions equal to the
difference between such amounts, although there can be no assurance as to
whether or not such exercises will occur, the amount of any deductions or the
Company's ability to fully utilize such tax deductions.
F-13
<PAGE> 55
NOTE 10 -- STATEMENT OF CASH FLOWS:
Following is a reconciliation of net income to net cash provided by
operating activities for the years ended September 30:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net income............................................ $ 12,426 $11,189 $ 5,470
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for bad debts............................... 743 758 479
Depreciation and amortization......................... 1,124 700 383
Deferred income tax expense (benefit)................. 76 (74)
Change in assets and liabilities, net:
Trade accounts receivable.......................... (13,727) (5,109) (5,629)
Prepaid expenses and other assets.................. (272) (720) (132)
Accounts payable and other accrued liabilities..... 10,477 1,817 3,789
-------- ------- -------
Net cash provided by operating activities..... $ 10,847 $ 8,561 $ 4,360
======== ======= =======
</TABLE>
Supplemental information on noncash investing and financing activities:
A note receivable from shareholder of $220 was reduced through a
shareholder distribution in fiscal 1994.
Dividends of $8,209 were declared in fiscal 1995 in the form of
Special Distribution Notes.
The exercise of employee stock options resulted in a reduction of the
Company's tax liability and an increase in its additional paid-in capital
of $3,374.
A 2-for-1 stock split was paid on August 1, 1996 and resulted in a
charge of $9 to common stock and retained earnings.
The conversion from S Corporation status resulted in the establishment
of $457 of deferred tax asset and an increase in additional paid-in
capital.
NOTE 11 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following is a summary of the Company's unaudited quarterly financial
information for the years ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
QUARTER ENDED,
------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1996 1996 1996
------------ --------- -------- -------------
<S> <C> <C> <C> <C>
Revenues................................. $ 40,698 $39,051 $ 48,240 $57,456
Operating income......................... 4,259 3,330 4,515 5,745
Income before provision for income
taxes.................................. 4,291 3,625 4,805 6,062
Pro forma net income(1).................. 2,543 2,106 3,114 3,718
Pro forma net income per share(2)........ 0.16 0.11 0.17 0.20
</TABLE>
F-14
<PAGE> 56
<TABLE>
<CAPTION>
QUARTER ENDED,
------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1994 1995 1995 1995
------------ --------- -------- -------------
<S> <C> <C> <C> <C>
Revenues................................. $ 30,605 $28,456 $ 32,547 $34,606
Operating income......................... 4,010 2,384 3,050 2,761
Income before provision for income
taxes.................................. 4,036 2,427 3,153 2,908
Pro forma net income(1).................. 2,450 1,422 1,787 1,848
Pro forma net income per share(2)........ 0.18 0.10 0.12 0.12
</TABLE>
- ---------------
(1) As a result of the initial public offering, Eagle USA's status as an S
Corporation terminated effective December 4, 1995. Pro forma net income used
to compute pro forma net income per share for the first quarter of fiscal
1996 and for each of the four quarters in fiscal 1995 reflected the
incremental estimated federal tax provision that would have been reported
had Eagle USA been a C Corporation during these periods. Pro forma and
actual net income do not vary for the last three quarters of fiscal 1996.
(2) Quarterly pro forma net income per share is computed using the method
outlined in Note 1.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES:
From time to time, the Company is a party to various legal claims and
proceedings arising in the ordinary course of business. The Company is not
currently a party to any material litigation and is not aware of any litigation
threatened against it that could have a material effect on its business.
The Company has agreed to indemnify its shareholders for any possible tax
contingencies relating to years during which the Company was an S Corporation.
F-15
<PAGE> 57
- -----------------------------------------------------
- -----------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 10
Price Range of Common Stock........... 10
Dividend Policy....................... 10
Capitalization........................ 11
Selected Consolidated Financial and
Operating Data...................... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 13
Business.............................. 19
Management............................ 31
Principal and Selling Shareholders.... 33
Description of Capital Stock.......... 35
Underwriting.......................... 38
Legal Matters......................... 39
Experts............................... 39
Available Information................. 39
Incorporation of Certain Documents by
Reference........................... 40
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,547,758 SHARES
[EAGLE USA LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ALEX. BROWN & SONS
INCORPORATED
THE ROBINSON-HUMPHREY
COMPANY, INC.
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 58
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses incurred by the Company
in connection with the issuance and distribution of the securities being
registered hereunder, other than underwriting discounts and commissions, all of
which will be paid by the Selling Shareholder. Except for the SEC registration
fee, the NASD filing fee and the Nasdaq National Market quotation fee, all
expenses are estimated.
<TABLE>
<S> <C>
SEC Registration Fee........................................ 13,957
NASD Filing Fee............................................. 5,106
Nasdaq National Market Quotation Fee........................ 4,644
Printing and Engraving Expenses............................. 105,000
Accounting Fees and Expenses................................ 19,000
Legal Fees and Expenses..................................... 112,500
Transfer Agent and Registrar Fees and Expenses.............. 1,000
Blue Sky Fees and Expenses (including legal fees)........... 5,000
Miscellaneous............................................... 3,793
--------
Total............................................. $270,000
========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporation Act provides that a
corporation may indemnify any director or officer who was, is or is threatened
to be made a named defendant or respondent in a proceeding because he is or was
a director or officer, provided that the director or officer (i) conducted
himself in good faith, (ii) reasonably believed (a) in the case of conduct in
his official capacity, that his conduct was in the corporation's best interests
or (b) in all other cases, that his conduct was at least not opposed to the
corporation's best interests and (iii) in the case of any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. Subject to certain
exceptions, a director or officer may not be indemnified if the person is found
liable to the corporation or if the person is found liable on the basis that he
improperly received a personal benefit. Under Texas law, reasonable expenses
incurred by a director or officer may be paid or reimbursed by the corporation
in advance of a final disposition of the proceeding after the corporation
receives a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification and
a written undertaking by or on behalf of the director or officer to repay the
amount if it is ultimately determined that the director or officer is not
entitled to indemnification by the corporation. Texas law requires a corporation
to indemnify an officer or director against reasonable expenses incurred in
connection with the proceeding in which he is named defendant or respondent
because he is or was a director or officer if he is wholly successful in defense
of the proceeding.
Texas law also permits a corporation to purchase and maintain insurance or
another arrangement on behalf of any person who is or was a director or officer
against any liability asserted against him and incurred by him in such a
capacity or arising out of his status as such a person, whether or not the
corporation would have the power to indemnify him against that liability under
Article 2.02-1.
The Company's Bylaws provide for the indemnification of its officers and
directors, and the advancement to them of expenses in connection with
proceedings and claims, to the fullest extent permitted by the Texas Business
Corporation Act. the Company has also entered into indemnification agreements
with each of its directors and certain of its officers that contractually
provide for indemnification and expense advancement and include related
provisions meant to facilitate the indemnitees' receipt of such benefits. These
provisions cover, among other things: (i) specification of the method of
determining entitlement to indemnification and the selection of independent
counsel that will in some cases make such determination, (ii) specification of
II-1
<PAGE> 59
certain time periods by which certain payments or determinations must be made
and actions must be taken and (iii) the establishment of certain presumptions in
favor of an indemnitee. The benefits of certain of these provisions are
available to an indemnitee only if there has been a change in control (as
defined). In addition, the Company may purchase directors' and officers'
liability insurance policies for its directors and officers in the future. The
Bylaws and such agreements with directors and officers provide for
indemnification for amounts (1) in respect of the deductibles for such insurance
policies, (2) that exceed the liability limits of such insurance policies and
(3) that are available, were available or which become available to the Company
but which the officers or directors of the Company determine is inadvisable for
the Company to purchase, given the cost involved of the Company. Such
indemnification may be made even though directors and officers would not
otherwise be entitled to indemnification under other provisions of the Bylaws or
such agreements.
The above discussion of Article 2.02-1 of the Texas Business Corporation
Act and of the Company's Bylaws is not intended to be exhaustive and is
respectively qualified in its entirety by such statute and the Bylaws.
Reference is made to the form of the Underwriting Agreement, filed as
Exhibit 1.1 hereto, which contains provisions for indemnification of the Selling
Shareholder and the Company, its directors, officers and any controlling persons
by the Underwriters against certain liabilities for information furnished by the
Underwriters.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
-------------- -----------------------
<C> <S>
1.1 -- Form of Underwriting Agreement
*4.1 -- Second Amended and Restated Certificate of Incorporation
of the Company (filed as Exhibit 3.1 to the Company
Registration Statement on Form S-1, Registration No.
33-97606, and incorporated herein by reference).
*4.2 -- Amended and Restated Bylaws of the Company, as amended
(filed as Exhibit 3.2 to the Company's Registration
Statement on Form S-1, Registration No. 33-97606, and
incorporated herein by reference).
5.1 -- Opinion of Baker & Botts, L.L.P.
23.1 -- Consent of Price Waterhouse LLP.
23.2 -- Consent of Baker & Botts, L.L.P. (included in Exhibit
5.1).
+24.1 -- Power of Attorney.
99.1 -- Agreement between the Company and Mr. Daniel S. Swannie
dated as of January 20, 1997.
</TABLE>
- ---------------
* Incorporated by reference as indicated.
+ Previously filed.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has 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 registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnifica-
II-2
<PAGE> 60
tion by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1993, each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, (and, where
applicable, each filing of any employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(2) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(3) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this Offering of such securities at
that time shall be deemed to be the initial bona fide Offering thereof.
II-3
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on the 11th day of February, 1997.
EAGLE USA AIRFREIGHT, INC.
By: /S/ JAMES R. CRANE
------------------------------------
James R. Crane
President and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/S/ JAMES R. CRANE President and Chairman of the February 11, 1997
- ----------------------------------------------------- Board (Principal Executive
James R. Crane Officer)
/S/ DOUGLAS A. SECKEL Chief Financial Officer, February 11, 1997
- ----------------------------------------------------- Secretary, Treasurer and
Douglas A. Seckel Director (Principal
Financial and Accounting
Officer)
/S/ DONALD P. ROBERTS Director February 11, 1997
- -----------------------------------------------------
Donald P. Roberts
* Director February 11, 1997
- -----------------------------------------------------
Neil E. Kelley
* Director February 11, 1997
- -----------------------------------------------------
William P. O'Connell
* Director February 11, 1997
- -----------------------------------------------------
Frank J. Hevrdejs
*By: /s/ DOUGLAS A. SECKEL
------------------------------------------------
Douglas A. Seckel, Attorney-in-Fact
</TABLE>
II-4
<PAGE> 62
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
1.1 -- Form of Underwriting Agreement
*4.1 -- Second Amended and Restated Certificate of Incorporation
of the Company (filed as Exhibit 3.1 to the Company
Registration Statement on Form S-1, Registration No.
33-97606, and incorporated herein by reference).
*4.2 -- Amended and Restated Bylaws of the Company, as amended
(filed as Exhibit 3.2 to the Company's Registration
Statement on Form S-1, Registration No. 33-97606, and
incorporated herein by reference).
5.1 -- Opinion of Baker & Botts, L.L.P.
23.1 -- Consent of Price Waterhouse LLP.
23.2 -- Consent of Baker & Botts, L.L.P. (included in Exhibit
5.1).
+24.1 -- Power of Attorney.
99.1 -- Agreement between the Company and Mr. Daniel S. Swannie
dated as of January 20, 1997.
</TABLE>
- ---------------
* Incorporated by reference as indicated.
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
T&K DRAFT 2/7/97
1,547,758 Shares
EAGLE USA AIRFREIGHT, INC.
Common Stock
UNDERWRITING AGREEMENT
February ___, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ALEX. BROWN & SONS INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
As representatives of the
several underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
The shareholder of Eagle USA Airfreight, Inc., a Texas corporation
(the "Company"), named in Schedule II hereto (the "Selling Shareholder")
proposes to sell 1,547,758 shares of common stock, par value $.001 per share,
of the Company (the "Firm Shares"), to the several underwriters named in
Schedule I hereto (the "Underwriters"), and the Company and the Selling
Shareholder propose to make certain representations and warranties to each of
the Underwriters and enter into such other agreements as provided by this
Agreement. The Company proposes to issue and sell to the several Underwriters
not more than 232,164 additional shares of its Common Stock, par value $.001
per share (the "Additional Shares"), if requested by the Underwriters as
provided in Section 2 hereof. The Firm Shares and the Additional Shares are
herein collectively called the Shares. The shares of common stock of the
Company to be outstanding after giving effect to the sales contemplated hereby
are hereinafter referred to as the Common Stock.
1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions
<PAGE> 2
of the Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively called the "Act"), a registration statement
on Form S-3 including a prospectus relating to the Shares, which may be
amended. The registration statement as amended at the time when it becomes
effective, including a registration statement (if any) filed pursuant to Rule
462(b) under the Act increasing the size of the offering registered under the
Act and information (if any) deemed to be part of the registration statement at
the time of effectiveness pursuant to Rule 430A or Rule 434 under the Act, is
hereinafter referred to as the Registration Statement; and the prospectus
(including any prospectus subject to completion meeting the requirements of
Rule 434(a) under the Act provided by the Company with any term sheet meeting
the requirements of Rule 434(b) as the prospectus provided to meet the
requirements of Section 10(a) of the Act) in the form first used to confirm
sales of Shares is hereinafter referred as the Prospectus.
2. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Selling Shareholder agrees to sell, and each
Underwriter agrees, severally and not jointly, to purchase from the Selling
Shareholder at a price per share of $_______ (the "Purchase Price") the number
of Firm Shares set forth opposite the name of such Underwriter in Schedule I
hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell up to 232,164 Additional Shares and the Underwriters shall have the
right to purchase, severally and not jointly, up to 232,164 Additional Shares
from the Company at the Purchase Price. Additional Shares may be purchased
solely for the purpose of covering over-allotments made in connection with the
offering of the Firm Shares. The Underwriters may exercise their right to
purchase Additional Shares in whole or in part from time to time by giving
written notice thereof to the Company within 30 days after the date of this
Agreement. You shall give any such notice on behalf of the Underwriters and
such notice shall specify the aggregate number of Additional Shares to be
purchased pursuant to such exercise and the date for payment and delivery
thereof. The date specified in any such notice shall be a business day (i) no
earlier than the Closing Date (as hereinafter defined), (ii) no later than ten
business days after such notice has been given and (iii) no earlier than two
business days after such notice has been given. If any Additional Shares are
to be purchased, each Underwriter, severally and not jointly, agrees to
purchase from the Company the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) which bears
the same proportion to the total number of Additional Shares to be purchased
from the Company as the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule I bears to the total number of Firm Shares.
The Company and the Selling Shareholder hereby agree, and the Company
shall, concurrently with the execution of this Agreement, deliver an agreement
executed by each of the directors and executive officers of the Company,
pursuant to which each such person agrees not to offer, sell, contract to sell,
grant any option to purchase, or otherwise dispose of any common stock of the
Company or any securities convertible into or exercisable or exchangeable for
such common stock or in any other manner transfer all or a portion of the
economic consequences associated with the ownership of any such common stock,
except to the Underwriters pursuant to this Agreement, for a period of 90 days
after the date of the Prospectus without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation.
-2-
<PAGE> 3
Notwithstanding the foregoing, during such period (i) the Company may grant
stock options pursuant to the Company's existing stock option plan, (ii) the
Company may issue shares of its common stock upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof, (iii)
the Company may issue shares of common stock in connection with the purchase by
the Company from time to time of any properties, assets or securities from a
third party, and (iv) any natural person may make intra-family transfers or
transfers to trusts for estate planning purposes.
3. Terms of Public Offering. The Selling Shareholder is advised
by you that the Underwriters propose (i) to make a public offering of the
Shares as soon after the effective date of the Registration Statement as in
your judgment is advisable and (ii) initially to offer the Shares upon the
terms set forth in the Prospectus.
4. Delivery and Payment. Delivery to the Underwriters of and
payment for the Firm Shares shall be made at 10:00 A.M., New York City time, on
the third or fourth business day, unless otherwise permitted by the Commission
pursuant to Rule 15c6-1 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder (collectively called the
"Exchange Act") (the "Closing Date"), following the date of the public
offering, at such place as you shall designate. The Closing Date and the
location of delivery of and the form of payment for the Firm Shares may be
varied by agreement among you, the Company and the Selling Shareholder.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at such place as you shall
designate at 10:00 A.M., New York City time, on the date specified in the
applicable exercise notice given by you pursuant to Section 2 (an "Option
Closing Date"). Any such Option Closing Date and the location of delivery of
and the form of payment for such Additional Shares may be varied by agreement
among you and the Company.
Certificates for the Shares shall be registered in such names and
issued in such denominations as you shall request in writing not later than two
full business days prior to the Closing Date or an Option Closing Date, as the
case may be. Such certificates shall be made available to you for inspection
not later than 9:30 A.M., New York City time, on the business day next
preceding the Closing Date or the applicable Option Closing Date, as the case
may be. Certificates in definitive form evidencing the Shares shall be
delivered to you on the Closing Date or the applicable Option Closing Date, as
the case may be, with any transfer taxes thereon duly paid by the Selling
Shareholder, or the Company, as the case may be, for the respective accounts of
the several Underwriters, against payment of the Purchase Price therefor by
wire transfer of Federal (same day) funds to the account specified by the
Selling Shareholder or the Company, as the case may be, to the Underwriters.
5. Agreements of the Company. The Company agrees with you:
(a) To use its commercially reasonable efforts to cause
the Registration Statement to become effective at the earliest
possible time.
-3-
<PAGE> 4
(b) To advise you promptly and, if requested by you, to
confirm such advice in writing, (i) when the Registration Statement
has become effective (if the Registration Statement shall not have
become effective prior to the execution and delivery of this
Agreement) and when any post-effective amendment to it becomes
effective, (ii) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus
or for additional information, (iii) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction, or the initiation of any
proceeding for such purposes, and (iv) of the happening of any event
during the period referred to in paragraph (e) below which makes any
statement of a material fact made in the Registration Statement or the
Prospectus untrue or which requires the making of any additions to or
changes in the Registration Statement or the Prospectus in order to
make the statements therein not misleading in any material respect.
If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, the Company will use
commercially reasonable efforts to obtain the withdrawal or lifting of
such order at the earliest possible time.
(c) To furnish to you, without charge, four signed copies
of the Registration Statement as first filed with the Commission and
of each amendment to it, including all exhibits, and to furnish to you
and each Underwriter designated by you such number of conformed copies
of the Registration Statement as so filed and of each amendment to it,
without exhibits, as you may reasonably request.
(d) Not to file any amendment or supplement to the
Registration Statement, whether before or after the time when it
becomes effective, or to make any amendment or supplement to the
Prospectus (including the issuance or filing of any term sheet within
the meaning of Rule 434) of which you shall not previously have been
advised or to which you shall reasonably object; and to prepare and
file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or supplement to the
Prospectus (including the issuance or filing of any term sheet within
the meaning of Rule 434) which may be necessary or advisable in
connection with the distribution of the Shares by you, and to use its
commercially reasonable best efforts to cause the same to become
promptly effective.
(e) Promptly after the Registration Statement becomes
effective, and from time to time thereafter for such period as in the
opinion of counsel for the Underwriters a prospectus is required by
law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish to each Underwriter and dealer as many copies of
the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(f) If during the period specified in paragraph (e) any
event shall occur as a result of which, in the opinion of counsel for
the Underwriters it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of
the circumstances when the Prospectus is delivered to a purchaser, not
misleading in any material respect, or if it is necessary to amend or
supplement the Prospectus to
-4-
<PAGE> 5
comply with any law, forthwith to prepare and file with the Commission
an appropriate amendment or supplement to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will not
in the light of the circumstances when it is so delivered, be
misleading in any material respect, or so that the Prospectus will
comply with law, and to furnish to each Underwriter and to such
dealers as you shall specify, such number of copies thereof as such
Underwriter or dealers may reasonably request.
(g) Prior to any public offering of the Shares, to
cooperate with you and counsel for the Underwriters in connection with
the registration or qualification of the Shares for offer and sale by
the several Underwriters and by dealers under the state securities or
Blue Sky laws of such jurisdictions as you may request, to continue
such qualification in effect so long as required for distribution of
the Shares and to file such as may be necessary in order to effect
such registration or qualification provided, however, that the Company
shall not be obligated (i) to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified, (ii) to take any action
that would subject it to taxation in any jurisdiction or (iii) to
execute a consent to service of process under the laws of any
jurisdiction (except service of process with respect to the offering
and sale of the Shares).
(h) To make generally available to its stockholders as
soon as reasonably practicable an earnings statement covering a period
of at least twelve months after the effective date of the Registration
Statement (which availability must in any event commence no later than
90 days after the end of such twelve month period) which shall satisfy
the provisions of Section 11(a) of the Act, and to advise you in
writing when such statement has been so made available.
(i) During the period of five years after the date of
this Agreement, (i) to mail as soon as reasonably practicable after
the end of each fiscal year to the record holders of its Common Stock
a financial report of the Company and its subsidiaries on a
consolidated basis (and a similar financial report of all
unconsolidated subsidiaries, if any), all such financial reports to
include a consolidated balance sheet, a consolidated statement of
operations, a consolidated statement of cash flows and a consolidated
statement of stockholders' equity as of the end of and for such fiscal
year, together with comparable information as of the end of and for
the preceding year, certified by independent certified public
accountants, and (ii) to mail and make generally available as soon as
practicable after the end of each quarterly period (except for the
last quarterly period of each fiscal year) to such holders who request
them, a consolidated balance sheet, a consolidated statement of
operations and a consolidated statement of cash flows (and similar
financial reports of all unconsolidated subsidiaries, if any) as of
the end of and for such period, and for the period from the beginning
of such year to the close of such quarterly period, together with
comparable information for the corresponding periods of the preceding
year.
(j) During the period referred to in paragraph (i), to
furnish to you as soon as available a copy of each report or other
publicly available information of the Company mailed to the holders of
Common Stock or filed with the Commission and such other
-5-
<PAGE> 6
publicly available information concerning the Company and its
subsidiaries as you may reasonably request.
(k) To pay all costs, expenses, fees and taxes incident
to (i) the preparation, printing, filing and distribution under the
Act of the Registration Statement (including financial statements and
exhibits), each preliminary prospectus and all amendments and
supplements to any of them prior to or during the period specified in
paragraph (e), (ii) the printing and delivery of the Prospectus and
all amendments or supplements to it during the period specified in
paragraph (e), (iii) the printing or reproduction and delivery of this
Agreement, the Preliminary and Supplemental Blue Sky Memoranda and all
other agreements, memoranda, correspondence and other documents
printed and delivered in connection with the offering of the Shares
(including in each case any disbursements of counsel for the
Underwriters relating to such printing, reproduction and delivery),
(iv) the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of the several states and
Canadian provinces (including in each case the fees and disbursements
of counsel for the Underwriters relating to such registration or
qualification and memoranda relating thereto), (v) filings and
clearance with the National Association of Securities Dealers, Inc. in
connection with the offering, (vi) the listing of the Additional
Shares on the National Association of Securities Dealers Automated
Quotation system ("NASDAQ") National Market, (vii) furnishing such
copies of the Registration Statement, the Prospectus and all
amendments and supplements thereto as may be requested in accordance
with the provisions of this Agreement for use in connection with the
offering or sale of the Shares by the Underwriters or by dealers to
whom Shares may be sold and (viii) the performance by the Company and
the Selling Shareholder of their other obligations under this
Agreement. The Company and the Selling Shareholder may agree as
between themselves and without limiting the rights of the Underwriters
under this Agreement as to the respective amount of such costs,
expenses, fees and taxes for which each of them will be responsible.
(l) To use its commercially reasonable efforts to
maintain the inclusion of such Common Stock in the NASDAQ National
Market (or on a national securities exchange) for a period of five
years after the effective date of the Registration Statement.
(m) To use its commercially reasonable efforts to do and
perform all things required or necessary to be done and performed
under this Agreement by the Company prior to the Closing Date or any
Option Closing Date, as the case may be, and to satisfy all conditions
precedent to the delivery of the Shares.
6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has or will become
effective; no stop order suspending the effectiveness of the
Registration Statement is or will be in effect, and no proceedings for
such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement, when it becomes or
became effective, will or did not contain and, as amended or
supplemented, if applicable, will not contain any
-6-
<PAGE> 7
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, (ii) the Registration Statement and the
Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Act and (iii) the Prospectus
does not contain and, as amended or supplemented, if applicable, will
not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this
paragraph (b) do not apply to statements or omissions in the
Registration Statement or the Prospectus (or any supplement or
amendment to them) based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) Any term sheet and prospectus subject to completion
provided by the Company to the Underwriters for use in connection with
the offering and sale of the Shares pursuant to Rule 434 under the Act
together are not materially different from the prospectus included in
the Registration Statement (exclusive of any information deemed to be
a part thereof by virtue of Rule 434(d)).
(d) Except for those matters amended or included in the
Prospectus, the preliminary prospectus filed as part of the
Registration Statement or filed thereafter as part of a subsequent
amendment or pursuant to Rule 424 of the Act complied when so filed in
all material respects with the Act; and did not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.
(e) The Company and each of its subsidiaries has been
duly incorporated, is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation and has
the corporate power and authority to carry on its business as it is
currently being conducted and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a
foreign corporation authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be
so qualified would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole.
(f) All of the outstanding shares of capital stock of, or
other ownership interests in, each of the Company's subsidiaries have
been duly authorized and validly issued and are fully paid and
non-assessable, and at the Closing will be owned by the Company, free
and clear of any security interest, claim, lien, encumbrance or
adverse interest of any nature.
(g) All the outstanding shares of capital stock of the
Company (including the Shares to be sold by the Selling Shareholder)
have been duly authorized and validly issued and are fully paid,
non-assessable and were not issued in violation of or subject to any
preemptive or other similar rights to subscribe for or purchase the
same; and the Additional Shares, if any, to be issued and sold by the
Company hereunder have been
-7-
<PAGE> 8
duly authorized and, when issued and delivered to the Underwriters
against payment therefor as provided by this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
such Additional Shares will not be subject to any preemptive or
similar rights.
(h) The authorized capital stock of the Company,
including the Common Stock, conforms as to legal matters in all
material respects to the description thereof contained in the
Prospectus.
(i) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or in default in the
performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any
other agreement, indenture or instrument material to the conduct of
the business of the Company and its subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which it
or any of its subsidiaries or their respective property is bound,
except for any such violation or default that would not have a
material adverse effect on the Company and its subsidiaries, taken as
a whole.
(j) The execution, delivery and performance of this
Agreement, compliance by the Company with all the provisions hereof
and the consummation of the transactions contemplated hereby will not
require any consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental
body (except as such may be required under (i) the Act, (ii) the
Exchange Act, or (iii) the securities or Blue Sky laws of the various
states) and will not conflict with or constitute a breach of any of
the terms or provisions of, or a default under, the charter or by-laws
of the Company or any of its subsidiaries or any agreement, indenture
or other instrument to which it or any of its subsidiaries is a party
or by which it or any of its subsidiaries or their respective property
is bound, or violate or conflict with any existing laws,
administrative regulations or rulings or court decrees applicable to
the Company, any of its subsidiaries or their respective property.
(k) Except as otherwise set forth in the Prospectus,
there are no material legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which
any of their respective property is the subject, and, to the best of
the Company's knowledge, no such proceedings are threatened or
contemplated. No contract or document of a character required to be
described in the Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement is not so described
or filed as required.
(l) Neither the Company nor any of its subsidiaries has
violated any existing foreign, federal, state or local law or
regulation relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), nor any federal or state law
relating to discrimination in the hiring, promotion or pay of
employees nor any applicable federal or state wages and hours laws,
nor any provisions of the Employee Retirement Income Security Act or
the rules and regulations promulgated thereunder, which in each case
-8-
<PAGE> 9
might result in any material adverse change in the business,
prospects, financial condition or results of operation of the Company
and its subsidiaries, taken as a whole.
(m) Except as disclosed in the Prospectus, the Company
and each of its subsidiaries has such permits, licenses, franchises
and authorizations of governmental or regulatory authorities
("permits"), including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease and operate its
respective properties and to conduct its business, except where the
failure to have such permits would not have a material adverse effect
on the Company and its subsidiaries, taken as a whole; the Company and
each of its subsidiaries has fulfilled and performed all of its
material obligations with respect to such permits and no event has
occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit, except
where such revocation, termination or impairment would not have a
material adverse effect on the Company and its subsidiaries, taken as
a whole; and, except as described in the Prospectus, such permits
contain no restrictions that are materially burdensome to the Company
or any of its subsidiaries.
(n) Except as otherwise set forth in the Prospectus or
such as are not material to the business, prospects, financial
condition or results of operation of the Company and its subsidiaries,
taken as a whole, the Company and each of its subsidiaries has good
and defensible title, free and clear of all liens, claims,
encumbrances and restrictions except liens for taxes not yet due and
payable, to all property and assets described in the Registration
Statement as being owned by it. All leases to which the Company or
any of its subsidiaries is a party are valid and binding and no
default has occurred or is continuing thereunder, which might result
in any material adverse change in the business, prospects, financial
condition or results of operation of the Company and its subsidiaries
taken as a whole, and the Company and its subsidiaries enjoy peaceful
and undisturbed possession under all such leases to which any of them
is a party as lessee with such exceptions as do not materially
interfere with the use made by the Company or such subsidiary.
(o) The Company and each of its subsidiaries maintains
reasonably adequate insurance.
(p) Price Waterhouse LLP are independent public
accountants with respect to the Company as required by the Act.
(q) The financial statements, together with related
schedules and notes forming part of the Registration Statement and the
Prospectus (and any amendment or supplement thereto), present fairly
in all material respects the consolidated financial position, results
of operations and changes in financial position of the Company and its
subsidiaries on the basis stated in the Registration Statement at the
respective dates or for the respective periods to which they apply;
such statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed therein;
and the other financial and statistical information and data set forth
in the Registration Statement and the Prospectus
-9-
<PAGE> 10
(and any amendment or supplement thereto) is, in all material
respects, accurately presented and prepared on a basis consistent with
such financial statements and the books and records of the Company.
(r) The election by the Company, and the consent to such
election by its stockholders (and, if applicable, by the spouses of
such stockholders), to cause the Company to be taxed as an S
corporation as provided in Section 1362 of the Internal Revenue Code
of 1986, as amended (and the predecessor Code) (the "Code"), was valid
and effective at all times from October 1, 1992 through December 4,
1995, and neither the Internal Revenue Service nor any other person or
entity has challenged or indicated a present intention to challenge
the prior status of the Company as an S corporation during any portion
of such period; the Company has incurred no liability for taxes under
Section 1374 or 1375 of the Code during or for any year in such
period; and the Company has validly adopted a fiscal year as provided
in Sections 444 and 1378 of the Code and Revenue Procedure 83-25,
1983-1, C.B. 689.
(s) The Company is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(t) No holder of any security of the Company has any
right that has not been waived to require registration of shares of
Common Stock or any other security of the Company in the Registration
Statement.
(u) The Firm Shares are listed on the NASDAQ National
Market. The Company has filed an application to list the Additional
Shares on the NASDAQ National Market and has received notification
that the listing has been approved, subject to notice of issuance of
the Additional Shares.
(v) Except as otherwise disclosed in the Registration
Statement, as of the date set forth therein, there were no outstanding
subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or liens related to or entitling any
person to purchase or otherwise to acquire from the Company any shares
of the capital stock of, or other ownership interest in, the Company
or any subsidiary thereof.
(w) Except as disclosed in the Prospectus, there are no
material business relationships or related party transactions required
to be disclosed or incorporated by reference therein by Item 404 of
Regulation S-K of the Commission.
(x) The Company and each of its subsidiaries maintains a
system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for
assets is compared with
-10-
<PAGE> 11
the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(y) All material tax returns required to be filed by the
Company and each of its subsidiaries in any jurisdiction have been
filed, other than those filings being contested in good faith, and all
material taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due pursuant to such returns or
pursuant to any assessment received by the Company or any of its
subsidiaries have been paid, other than those being contested in good
faith and for which adequate reserves have been provided or the
failure of which to file or to be paid would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
7. Representations and Warranties of the Selling Shareholder.
The Selling Shareholder represents and warrants to each Underwriter that:
(a) The Selling Shareholder (together with his spouse) is
the lawful owner of the Shares to be sold by him pursuant to this
Agreement and has, and on the Closing Date (and Option Closing Date,
if applicable) will have, good and clear title to such Shares, free of
all restrictions on transfer, liens, encumbrances, security interests
and claims whatsoever, other than pursuant to the Shareholders'
Agreement dated October 1, 1994 (the "Shareholders' Agreement") and
this Agreement.
(b) Upon delivery of and payment for such Shares pursuant
to this Agreement, good and marketable title to such Shares will pass
to the Underwriters, free and clear of all restrictions on transfer,
liens, encumbrances, security interests and claims whatsoever other
than pursuant to the Shareholders' Agreement, which, with respect to
the Firm Shares, will be terminated concurrently therewith.
(c) The Selling Shareholder has, and on the Closing Date
will have, full legal right and authority to enter into this Agreement
and the Custody Agreement between the Selling Shareholder and American
Securities Transfer & Trust, Inc., as Custodian (the "Custody
Agreement"), and to sell, assign, transfer and deliver such Shares in
the manner provided herein and therein, and this Agreement and the
Custody Agreement have been duly authorized, executed and delivered by
the Selling Shareholder and each of this Agreement and the Custody
Agreement is a valid and binding agreement of the Selling Shareholder
enforceable in accordance with its terms, except as rights to
indemnity and contribution hereunder may be limited by applicable law
or public policy grounds, and except as enforcement (i) may be limited
by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and (ii) is subject to general
principles of equity and public policy (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(d) Other than as contemplated by this Agreement, the
Selling Shareholder has not taken, and will not take, directly or
indirectly, any action designed to, or which might reasonably be
expected to, cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale
of the Shares pursuant to the distribution contemplated by this
Agreement, and other than as permitted
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<PAGE> 12
by the Act, the Selling Shareholder has not distributed and will not
distribute any prospectus or other offering material in connection
with the offering and sale of the Shares.
(e) The execution, delivery and performance of this
Agreement by the Selling Shareholder, compliance by the Selling
Shareholder with all the provisions hereof and the consummation of the
transactions contemplated hereby will not require any consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except as such may
be required under (i) the Act, (ii) the Exchange Act of 1934, or (iii)
the securities or Blue Sky laws of the various states) and will not
conflict with or constitute a breach of any of the terms or provisions
of, or a default under, or any agreement, indenture or other
instrument to which the Selling Shareholder is a party or by which the
Selling Shareholder or property of the Selling Shareholder is bound,
or violate or conflict with any laws, administrative regulation or
ruling or court decree applicable to the Selling Shareholder or
property of the Selling Shareholder.
(f) Such parts of the Registration Statement under the
caption "Principal and Selling Shareholders" which specifically relate
to the Selling Shareholder do not, and will not on the Closing Date
(and any Option Closing Date, if applicable), contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of circumstances under which they were made, not
misleading.
(g) At any time during the period described in paragraph
5(e) hereof, if there is any change in the information referred to in
paragraph 7(f) above, except as contemplated in the Prospectus, the
Selling Shareholder will immediately notify you of such change.
(h) To the best knowledge of the Selling Shareholder, the
representations and warranties of the Company contained in Section 6
hereof are true and correct; the Selling Shareholder has reviewed and
is familiar with the Registration Statement as filed with the
Commission and any preliminary prospectuses contained therein and has
no knowledge of any material fact, condition or information not
disclosed in such preliminary prospectus which has adversely affected
or could adversely affect the condition, financial or otherwise, or
the earnings, business affairs, or business prospects of the Company
and its subsidiaries considered as one enterprise; to the best
knowledge of the Selling Shareholder, such preliminary prospectuses do
not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not
misleading.
8. Indemnification. (a) The Company and the Selling
Shareholder, jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments caused
by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or the Prospectus (as amended or
supplemented if the Company shall
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<PAGE> 13
have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or judgments are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriters furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use therein; provided, however, that with
respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus, the indemnification provided for
herein shall not apply to any loss, claim, damage, liability or judgment to the
extent that the same results from the fact that a copy of the Prospectus was
not sent or given to a person to whom any Shares were sold at or prior to the
confirmation of the sale of Shares and if the untrue statement or omission was
corrected in the Prospectus. Notwithstanding the foregoing, the aggregate
liability of the Selling Shareholder pursuant to the provisions of this
paragraph shall be limited to an amount equal to the aggregate purchase price
received by the Selling Shareholder from the sale of the Selling Shareholder's
Shares hereunder. The Company and the Selling Shareholder may agree as between
themselves and without limiting the rights of the Underwriters under this
Agreement as to the respective amount of such liability for which each of them
will be responsible.
(b) In case any action shall be brought against any
Underwriter or any person controlling such Underwriter, based upon any
preliminary prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto and with respect to which indemnity may be
sought against the Company and the Selling Shareholder, such Underwriter shall
promptly notify the Company and the Selling Shareholder in writing and the
Company and the Selling Shareholder shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such indemnified party and
payment of all fees and expenses. Any Underwriter or any such controlling
person shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Underwriter or such controlling person unless
(i) the employment of such counsel shall have been specifically authorized in
writing by the Company, (ii) the Company and the Selling Shareholder shall have
failed to assume the defense and employ counsel within a reasonably prompt
period following the receipt of notification in writing from the Underwriters
or (iii) the named parties to any such action (including any impleaded parties)
include both such Underwriter or such controlling person and the Company or the
Selling Shareholder, as the case may be, and such Underwriter or such
controlling person shall have been advised by such counsel that there may be
one or more legal defenses available to it which are different from or
additional to those available to the Company or the Selling Shareholder, as the
case may be, (in which case the Company and the Selling Shareholder shall not
have the right to assume such different or additional defense on behalf of such
Underwriter or such controlling person, it being understood, however, that the
Company and the Selling Shareholder shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) for all such Underwriters and controlling
persons, which firm shall be designated in writing by Donaldson, Lufkin &
Jenrette Securities Corporation and that the reasonable fees and expenses of
such counsel shall be reimbursed as they are incurred). Neither the Company
nor the Selling Shareholder shall be liable for any settlement of any such
action effected without
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<PAGE> 14
the written consent of such party but if settled with the written
consent of such party, such party agrees to indemnify and hold harmless any
Underwriter and any such controlling person from and against any loss or
liability by reason of such settlement. If at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for reasonable fees and expenses of counsel as contemplated by the second
sentence of this paragraph and such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request within 30
business days after receipt by such indemnifying party of the aforesaid
request, the indemnifying party agrees that it shall pay interest on such
unreimbursed amount from the date of such request at the indemnifying party's
borrowing rate for funds borrowed from its principal lender plus 2% per annum.
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(c) Each Underwriter agrees, severally and not jointly,
to indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement, any person controlling the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, the Selling
Shareholder and each person, if any, controlling such Selling Shareholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
to the same extent as the foregoing indemnity from the Company and the Selling
Shareholder to each Underwriter but only with reference to information relating
to such Underwriter furnished in writing by or on behalf of such Underwriter
through you expressly for use in the Registration Statement, the Prospectus or
any preliminary prospectus. In case any action shall be brought against the
Company, any of its directors, any such officer or any person controlling the
Company or the Selling Shareholder or any person controlling the Selling
Shareholder based on the Registration Statement, the Prospectus or any
preliminary prospectus and in respect of which indemnity may be sought against
any Underwriter, the Underwriter shall have the rights and duties given to the
Company and the Selling Shareholder (except that if the Company and/or the
Selling Shareholder shall have assumed the defense thereof, such Underwriter
shall not be required to do so, but may employ separate counsel therein and
participate in the defense thereof but the fees and expenses of such counsel
shall be at the expense of such Underwriter), and the Company, its directors,
any such officers and any person controlling the Company and the Selling
Shareholder and any person controlling the Selling Shareholder shall have the
rights and duties given to the Underwriter, by Section 8(b) hereof.
(d) If the indemnification provided for in this Section 8
is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities and judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Shareholder on the one hand and the Underwriters on the other hand from
the offering of the Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Shareholder and the
Underwriters in connection with the statements
-14-
<PAGE> 15
or omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Shareholder and the
Underwriters shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
and the Selling Shareholder, and the total underwriting discounts and
commissions received by the Underwriters, bear to the total price to the public
of the Shares, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company and the Selling Shareholder and
the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Company, the Selling Shareholder or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company, the Selling Shareholder and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 8(d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
judgments referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to
this Section 8(d) are several in proportion to the respective number of Shares
purchased by each of the Underwriters hereunder and not joint. The obligations
of the Selling Shareholder to contribute to this Section 8(d) shall be subject
to the limitation contained in paragraph 8(a) above with respect to the maximum
aggregate liability of the Selling Shareholder under or in connection with this
Agreement.
(e) The Selling Shareholder hereby designates Eagle USA
Airfreight, Inc., 3214 Lodestar, Houston, Texas 77032, (a Texas corporation)
as its authorized agent, upon which process may be served in any action, suit
or proceeding which may be instituted in any state or federal court in the
State of New York by any Underwriter or person controlling an Underwriter
asserting a claim for indemnification or contribution under or pursuant to this
Section 8, and the Selling Shareholder and the Company will accept the
jurisdiction of such court in such action, and waive, to the fullest extent
permitted by applicable law, any defense based upon lack of personal
jurisdiction or venue, provided that a copy of any such process shall be sent
or given to the Company and/or the Selling Shareholder, as appropriate, at the
address for notices specified in Section 12 hereof.
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<PAGE> 16
9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this
Agreement are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on the Closing
Date with the same force and effect as if made on and as of the
Closing Date.
(b) The Registration Statement shall have become
effective not later than 5:00 P.M. (and in the case of a Registration
Statement filed under Rule 462(b) of the Act, not later than 10:00
P.M.), New York City time, on the date of this Agreement or at such
later date and time as you may approve in writing, and at the Closing
Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose
shall have been commenced or shall be pending before or contemplated
by the Commission.
(c) (i) Since the date of the latest balance sheet included
in the Registration Statement and the Prospectus, there shall not have
been any material adverse change, or any development involving a
prospective material adverse change, in the condition, financial or
otherwise, or in the earnings except as disclosed in the Prospectus,
affairs, business or prospects, whether or not arising in the ordinary
course of business, of the Company, (ii) except as disclosed in the
Prospectus, since the date of the latest balance sheet included in the
Registration Statement and the Prospectus there shall not have been
any change, or any development involving a prospective material
adverse change, in the capital stock or in the long-term debt of the
Company from that set forth in the Registration Statement and
Prospectus, (iii) the Company and its subsidiaries shall have no
liability or obligation, direct or contingent, which is material to
the Company and its subsidiaries, taken as a whole, other than those
reflected in the Registration Statement and the Prospectus and (iv) on
the Closing Date you shall have received a certificate dated the
Closing Date, signed by James R. Crane and Douglas A. Seckel, in their
capacities as the President and Secretary of the Company, confirming
the matters set forth in paragraphs (a), (b), and (c) of this Section
9.
(d) All the representations and warranties of the Selling
Shareholder contained in this Agreement shall be true and correct on
the Closing Date with the same force and effect as if made on and as
of the Closing Date and you shall have received a certificate to such
effect, dated the Closing Date, from the Selling Shareholder.
(e) You shall have received on the Closing Date an
opinion (satisfactory to you and counsel for the Underwriters), dated
the Closing Date, of Baker & Botts, L.L.P., counsel for the Company,
to the effect that:
(i) each of the Company and Eagle Freight
Services, Inc. ("EFS") has been duly incorporated, is validly
existing as a corporation in good standing under the laws of
its jurisdiction of incorporation and has all corporate power
and authority required to carry on its business as described
in the Prospectus;
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<PAGE> 17
(ii) all of the outstanding shares of capital
stock of, or other ownership interests in, EFS have been duly
and validly authorized and issued and are fully paid and non-
assessable;
(iii) all the outstanding shares of Common Stock
(including the Shares to be sold by the Selling Shareholder)
have been duly authorized and validly issued and are fully
paid, non-assessable and to such counsel's knowledge, none of
the outstanding shares of Common Stock (including the Shares
to be sold by the Selling Shareholder) were issued in
violation of or subject to any preemptive rights or other
similar rights to subscribe for or purchase the same;
(iv) the Additional Shares, if any, to be issued
and sold by the Company hereunder have been duly authorized,
and when issued and delivered to the Underwriters against
payment therefor as provided by this Agreement, will have been
validly issued and will be fully paid and non-assessable, and
the issuance of such shares is not subject to any preemptive
rights or other similar rights to subscribe for or purchase
the same;
(v) this Agreement has been duly authorized,
executed and delivered by the Company and is a valid and
binding agreement of the Company enforceable in accordance
with its terms (except as rights to indemnity and contribution
hereunder may be limited by applicable law or public policy
grounds, and except as enforcement (i) may be limited by
bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and (ii) is subject to
general principles of equity and public policy (regardless of
whether such enforceability is considered in a proceeding in
equity or at law);
(vi) the Registration Statement has become
effective under the Act, and to such counsel's knowledge no
stop order suspending its effectiveness has been issued and no
proceedings for that purpose have been instituted or
threatened by the Commission;
(vii) the statements under the caption "Description
of Capital Stock" in the Prospectus and Item 15 of Part II of
the Registration Statement insofar as such statements
constitute a summary of documents or proceedings referred to
therein, fairly present in all material respects the
information called for with respect to such documents and
proceedings;
(viii) the execution, delivery and performance of
this Agreement by the Company, compliance by the Company with
all the provisions hereof and the consummation by the Company
of the transactions contemplated hereby (i) will not require
any consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other
governmental body of the United States of America or the State
of Texas or, except for any such consent, approval,
authorization, or order, which, if not obtained, would not
prevent or adversely affect in any material respect the
performance of this Agreement or have a material adverse
effect on the Company and its subsidiaries, taken as a whole,
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<PAGE> 18
and except for such as have been made or obtained under the
Act and the Exchange Act and such as may be required under
applicable Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters and the
clearance of such offering with the NASD and (ii) will not
conflict with or constitute a breach of any of the terms or
provisions of, or a default under, (A) the charter or by-laws
of the Company or EFS or to such counsel's knowledge, any
agreement, indenture or other instrument to which the Company
or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or their respective properties are
bound, that is filed as an exhibit to the Registration
Statement or (iii) violate or conflict with any federal
securities laws or, to such counsel's knowledge, any other
existing laws, administrative regulations or rulings or court
decrees of the United States of America or the State of Texas
which rulings or decrees specifically name the Company or are
directed at its property (provided, however, that such counsel
need express no opinion with respect to compliance with any
federal or state securities or antifraud law, rule or
regulation except as otherwise specifically stated in the
opinion of such counsel), except for any such violation,
breach or conflict referred to in clause (ii) or (iii) above
which would not prevent or adversely affect in any material
respect the performance of this Agreement or have a material
adverse effect on the Company and its subsidiaries, taken as a
whole;
(ix) such counsel does not know of any legal or
governmental proceeding pending or threatened to which the
Company or any of its subsidiaries is a party or to which any
of their respective property is subject which is required to
be described in the Registration Statement or the Prospectus
and is not so described, or of any contract or other document
which is required to be described in the Registration
Statement or the Prospectus or is required to be filed as an
exhibit to the Registration Statement which is not described
or filed as required;
(x) the Company is not an "investment company" or
a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended;
(xi) to the best of such counsel's knowledge,
after due inquiry, no holder of any security of the Company
has any right to require registration in the Registration
Statement of shares of Common Stock or any other security of
the Company that has not been waived; and
(xii) the Registration Statement (including any
Registration Statement filed under Rule 462(b) of the Act, if
any) and the Prospectus and any supplement or amendment
thereto (except for (i) the financial statements and schedules
(including the notes thereto and the auditors' reports
thereon) included therein, (ii) the other financial and
statistical information included therein and (iii) the
exhibits thereto as to which no opinion need be expressed)
comply as to form in all material respects with the Act.
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<PAGE> 19
In rendering such opinion, such counsel may rely as to matters
of fact on certificates of officers of the Company and of governmental
officials, in which case their opinion is to state that they are so doing.
Such counsel shall also be entitled to state that its opinion is limited to the
laws of the United States of America and the State of Texas.
Such counsel shall also include, in a separate paragraph of
its opinion, statements to the following effect: Such counsel has participated
in conferences with officers and other representatives of the Company, the
Selling Shareholder, representatives of the independent public accountants of
the Company and your representatives at which the contents of the Registration
Statement and Prospectus and related matters were discussed. Although such
counsel is not passing upon, and does not assume any responsibility for, the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus, such counsel advises you that, on
the basis of the foregoing (relying as to materiality to a large extent upon
officers and other representatives of the Company and your representatives), no
facts have come to the attention of such counsel which lead such counsel to
believe that the Registration Statement (other than (i) the financial
statements and schedules (including the notes thereto and the auditors' reports
thereon) included therein, (ii) the other financial and statistical information
included therein and (iii) the exhibits thereto, as to which such counsel has
not been asked to comment), as of the time it became effective, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus (other than (i) the financial statements
(including the notes thereto and the auditors' report thereon) including
therein and (ii) the other financial and statistical information included
therein, as to which such counsel has not been asked to comment), as of issue
date thereof, contained any untrue statement of a material fact or omitted or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
The opinion of Baker & Botts, L.L.P. described in paragraph (e) above
shall be rendered to you at the request of the Company and shall so state
therein.
(f) You shall have received on the Closing Date an
opinion (satisfactory to you and counsel for the Underwriters), dated
the Closing Date, of Judith Y. Robertson, general counsel for the
Company, to the effect that:
(i) the Company and each of its subsidiaries has
been duly incorporated, is validly existing as a corporation
in good standing under the laws of its jurisdiction of
incorporation and has all corporate power and authority
required to carry on its business as it is currently being
conducted and to own, lease and operate its properties;
(ii) the Company and each of its subsidiaries is
duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing
of property requires such qualification, including each state
in which the Prospectus indicates a Company terminal is
located, except where the failure to be so
-19-
<PAGE> 20
qualified would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole;
(iii) to such counsel's knowledge, neither the
Company nor any of its subsidiaries has violated any
Environmental Laws, nor any federal or state law relating to
discrimination in the hiring, promotion or pay of employees
nor any applicable federal or state wages and hours laws, nor
any provisions of the Employee Retirement Income Security Act
or the rules and regulations promulgated thereunder, which in
each case might result in any material adverse change in the
business, prospects, financial condition or results of
operation of the Company and its subsidiaries, taken as a
whole;
(iv) the Company and each of its subsidiaries has
such permits, licenses, franchises and authorizations of
governmental or regulatory authorities ("permits"), including,
without limitation, under any applicable Environmental Laws,
as are necessary to own, lease and operate its respective
properties and to conduct its business in the manner described
in the Prospectus; to the best of such counsel's knowledge,
after due inquiry, the Company and each of its subsidiaries
has fulfilled and performed all of its material obligations
with respect to such permits and no event has occurred which
allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other
material impairment of the rights of the holder of any such
permit, subject in each case to such qualification as may be
set forth in the Prospectus; and, except as described in the
Prospectus, such permits contain no restrictions that are
materially burdensome to the Company or any of its
subsidiaries;
(g) You shall have received on the Closing Date an
opinion (satisfactory to you and counsel for the Underwriters), dated
the Closing Date, of Haynes and Boone, L.L.P., counsel for the Selling
Shareholder, to the effect that:
(i) this Agreement has been duly authorized,
executed and delivered by the Selling Shareholder and is a
valid and binding agreement of the Selling Shareholder
enforceable in accordance with its terms (except as rights to
indemnity and contribution hereunder may be limited by
applicable law or public policy grounds, and except as
enforcement (i) may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors'
rights generally and (ii) is subject to general principles of
equity and public policy (regardless of whether such
enforceability is considered in a proceeding in equity or at
law);
(ii) the execution, delivery and performance of
this Agreement by the Selling Shareholder, compliance by the
Selling Shareholder with the provisions hereof and the
consummation of the transactions contemplated hereby (i) will
not to such counsel's knowledge require any consent, approval,
authorization or other order of any court, regulatory body,
administrative agency or other governmental body of the United
States of America or the State of Texas or, except for any
such consent, approval, authorization, or order, which, if not
obtained, would not
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<PAGE> 21
prevent or adversely affect in any material respect the
performance of this Agreement or have a material adverse
effect on the Company and its subsidiaries, taken as a whole,
and except for such as have been made or obtained under the
Act and the Exchange Act and such as may be required under
applicable Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters and the
clearance of such offering with the NASD and (ii) will not
conflict with or constitute a breach of any of the terms or
provisions of, or a default under, (A) to such counsel's
knowledge, any agreement, indenture or other instrument to
which the Selling Shareholder is a party or by which the
Selling Shareholder or his properties are bound, that is filed
as an exhibit to the Registration Statement or (iii) violate
or conflict with, to such counsel's knowledge, any existing
laws, administrative regulations or rulings or court decrees
of the United States of America or the State of Texas which
rulings or decrees specifically name the Selling Shareholder
or are directed at his property, except for any such
violation, breach or conflict referred to in clause (ii) or
(iii) above which would not prevent or adversely affect in any
material respect the performance of this Agreement by the
Selling Shareholder;
(iii) the Custody Agreement has been duly
authorized, executed and delivered by the Selling Shareholder
and is a valid and binding agreement of the Selling
Shareholder enforceable in accordance with its terms (except
as enforcement (i) may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors'
rights generally and (ii) is subject to general principles of
equity and public policy (regardless of whether such
enforceability is considered in a proceeding in equity or at
law));
(iv) the Selling Shareholder has full legal right
and, to such counsel's knowledge, any approval required by law
(other than any approval imposed by the applicable state
securities and Blue Sky laws) to sell, assign, transfer and
deliver the Shares to be sold by him in the manner provided in
this Agreement and the Custody Agreement; and
(v) to such counsel's knowledge, the Selling
Shareholder has good and marketable title to the certificate
or certificates for the Shares to be sold by him and upon
delivery thereof, and payment therefor pursuant hereto, each
of the Underwriters will receive good and marketable title,
free and clear of all restrictions on transfer, liens,
encumbrances, security interests and claims whatsoever.
In rendering such opinion, such counsel may rely as to matters of fact
on a certificate of the Selling Shareholder. Such counsel shall also be
entitled to state that its opinion is limited to the laws of the United States
of America and the State of Texas.
The opinion of Haynes and Boone, L.L.P. described in paragraph (g)
above shall be rendered to you at the request of the Selling Shareholder and
shall so state therein.
-21-
<PAGE> 22
(h) You shall have received on the Closing Date an
opinion, dated the Closing Date, of Thompson & Knight, P.C., counsel
for the Underwriters, as to the matters referred to in clauses (iv),
(v) (but only with respect to the Company), (vi) and (vii) (but only
with respect to the statements under the captions "Description of
Capital Stock" and "Underwriting") and in the second to last
subparagraph of the foregoing paragraph (e). In giving such opinion
with respect to the matters covered by such subparagraph such counsel
may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check
or verification except as specified.
(i) You shall have received a letter on and as of the
Closing Date, in form and substance satisfactory to you, from Price
Waterhouse, independent public accountants, with respect to the
financial statements and certain financial information contained in
the Registration Statement and the Prospectus and substantially in the
form and substance of the letter delivered to you by Price Waterhouse
on the date of this Agreement.
(j) The Company and the Selling Shareholder shall not
have failed at or prior to the Closing Date to perform or comply with
any of the agreements herein contained and required to be performed or
complied with by the Company at or prior to the Closing Date.
The several obligations of the Underwriters to purchase any Additional Shares
hereunder are subject to the delivery to you on the applicable Option Closing
Date of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of such Additional
Shares and other matters related to the issuance of such Additional Shares.
10. Effective Date of Agreement and Termination. This Agreement
shall become effective upon the later of (i) execution of this Agreement and
(ii) when oral notification of the effectiveness of the Registration Statement
has been released by the Commission.
This Agreement may be terminated at any time prior to the Closing Date
by you by written notice to the Company and the Selling Shareholder if any of
the following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, except
as disclosed in the Prospectus, any adverse change or development involving a
prospective adverse change in the condition, financial or otherwise, of the
Company and its subsidiaries taken as a whole or the earnings, affairs, or
business prospects of the Company and its subsidiaries taken as a whole,
whether or not arising in the ordinary course of business, which would, in your
judgment, make it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus, (ii) any outbreak or escalation of
hostilities or other national or international calamity or crisis or change in
economic conditions or in the financial markets of the United States or
elsewhere that, in your judgment, is material and adverse and would, in your
judgment, make it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus, (iii) the suspension or material
limitation of trading in securities on the New York Stock Exchange, the
American Stock
-22-
<PAGE> 23
Exchange or the NASDAQ National Market or limitation on prices for securities
on any such exchange or National Market, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your opinion
materially and adversely affects, or will materially and adversely affect, the
business or operations of the Company and its Subsidiaries taken as a whole,
(v) the declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
opinion has a material adverse effect on the financial markets in the United
States.
If on the Closing Date or on the applicable Option Closing Date, as
the case may be, any one or more of the Underwriters shall fail or refuse to
purchase the Firm Shares or Additional Shares, as the case may be, which it or
they have agreed to purchase hereunder on such date and the aggregate number of
Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused
to purchase is not more than one-tenth of the total number of Shares to be
purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I bears to the total number of Firm
Shares which all the non-defaulting Underwriters, as the case may be, have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused
to purchase on such date; provided that in no event shall the number of Firm
Shares or Additional Shares, as the case may be, which any Underwriter has
agreed to purchase pursuant to Section 2 hereof be increased pursuant to this
Section 9 by an amount in excess of one-ninth of such number of Firm Shares or
Additional Shares, as the case may be, without the written consent of such
Underwriter. If on the Closing Date or on an Option Closing Date, as the case
may be, any Underwriter or Underwriters shall fail or refuse to purchase Firm
Shares, or Additional Shares, as the case may be, and the aggregate number of
Firm Shares or Additional Shares, as the case may be, with respect to which
such default occurs is more than one-tenth of the aggregate number of Shares to
be purchased on such date by all Underwriters and arrangements satisfactory to
you and the Company for purchase of such Shares are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter and the Company and the Selling Shareholder.
In any such case which does not result in termination of this Agreement, either
you, the Company or the Selling Shareholder shall have the right to postpone
the Closing Date or the applicable Option Closing Date, as the case may be, but
in no event for longer than seven days, in order that the required changes, if
any, in the Registration Statement and the Prospectus or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
any such Underwriter under this Agreement.
11. Agreements of the Selling Shareholder. The Selling
Shareholder agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes with
respect to the Shares to be sold by the Selling Shareholder; and
-23-
<PAGE> 24
(b) To take all commercially reasonable actions in
cooperation with the Company and the Underwriters to cause the
Registration Statement to become effective at the earliest possible
time and to do and perform all things required by this Agreement to be
done and performed by them under this Agreement prior to the Closing
Date.
12. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (a) if to the Company, to Eagle
USA Airfreight, Inc., 3214 Lodestar, Houston, Texas 77032, (b) if to the
Selling Shareholder, to Daniel S. Swannie, 12 Gingerwilde Place, The Woodlands,
Texas 77381, and (c) if to any Underwriter or to you, to you c/o Donaldson,
Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York
10172, Attention: Syndicate Department, or in any case to such other address
as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Selling Shareholder, the Company, its
officers and directors and of the several Underwriters set forth in or made
pursuant to this Agreement shall remain operative and in full force and effect,
and will survive delivery of and payment for the Shares, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf of
any Underwriter or by or on behalf of the Selling Shareholder, the Company, the
officers or directors of the Company or any controlling person of the Company,
(ii) acceptance of the Shares and payment for them hereunder and (iii)
termination of this Agreement.
If this Agreement shall be terminated by the Underwriters (other than
pursuant to Section 10 (ii), (iii) and (iv)) because of any failure or refusal
on the part of the Company or the Selling Shareholder to comply with the terms
or to fulfill any of the conditions of this Agreement, the Company and the
Selling Shareholder agree to reimburse the several Underwriters for all
out-of-pocket expenses (including the fees and disbursements of counsel)
reasonably incurred by them in connection with the proposed offering of the
Shares.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Selling Shareholder,
the Company, the Underwriters, any controlling persons referred to herein and
their respective successors and assigns, all as and to the extent provided in
this Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successors and assigns" shall not include
a purchaser of any of the Shares from any of the several Underwriters merely
because of such purchase.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CHOICE OF LAWS
PROVISIONS THEREOF.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
-24-
<PAGE> 25
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
EAGLE USA AIRFREIGHT, INC.
By:
------------------------------
Title:
SELLING SHAREHOLDER
----------------------------------
Daniel S. Swannie
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
ALEX. BROWN & SONS INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
----------------------------------------
-25-
<PAGE> 26
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF
FIRM SHARES
Underwriters TO BE PURCHASED
------------ ---------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation
Alex. Brown & Sons Incorporated
The Robinson-Humphrey Company, Inc.
___________
Total 1,547,758
</TABLE>
-26-
<PAGE> 27
SCHEDULE II
SELLING SHAREHOLDER
<TABLE>
Number of
Firm Shares
Name Being Sold
---- ----------
<S> <C>
Daniel S. Swannie 1,547,758
</TABLE>
-27-
<PAGE> 1
February 11, 1997
Eagle USA Airfreight, Inc.
3214 Lodestar
Houston, Texas 77032
Gentlemen:
As set forth in the Registration Statement on Form S-3,
Registration No. 333-20211 (the "Registration Statement"), filed by Eagle USA
Airfreight, Inc., a Texas corporation (the "Company"), with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, relating to
1,547,758 shares (the "Shares") of the Company's common stock, par value $.001
per share ("Common Stock"), together with 232,164 additional shares (the
"Additional Shares") of Common Stock subject to the underwriters' over-allotment
option as described in the Registration Statement, certain legal matters in
connection with the Shares and the Additional Shares are being passed upon for
you by us.
We understand that the Shares and any Additional Shares are to
be sold by Mr. Daniel S. Swannie and the Company, respectively, pursuant to the
terms of an Underwriting Agreement (the "Underwriting Agreement") in
substantially the form filed as Exhibit 1.1 to the Registration Statement.
In our capacity as your counsel in the connection referred to
above, we have examined the Second Amended and Restated Articles of
Incorporation and the Amended and Restated Bylaws of the Company, each as
amended to date, the originals, or copies certified or otherwise identified, of
corporate records of the Company, certificates of public officials and of
representatives of the Company, statutes and other instruments and documents as
a basis for the opinions hereinafter expressed.
<PAGE> 2
Eagle USA Airfreight, Inc. -2- February 11, 1997
On the basis of the foregoing, and subject to the assumptions,
limitations and qualifications hereinafter set forth, we are of the opinion
that:
1. The Company is a corporation duly incorporated under
the laws of the State of Texas.
2. The Shares have been duly authorized by all necessary
corporate action on the part of the Company and are validly issued,
fully paid and nonassessable.
3. When offered as described in the Registration
Statement, and upon (a) the taking of action by the duly authorized
Pricing Committee of the Board of Directors of the Company to approve
the Underwriting Agreement and (b) the sale of any Additional Shares
in accordance with the terms and provisions of the Underwriting
Agreement and as described in the Registration Statement, any
Additional Shares will be duly authorized by all necessary corporate
action on the part of the Company, validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement and to the reference to us under "Legal Matters"
in the prospectus forming a part of the Registration Statement.
Very truly yours,
Baker & Botts, L.L.P.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated November 22, 1996
appearing on page F-2 relating to the financial statements of Eagle USA
Airfreight, Inc. which appear in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Houston, Texas
February 11, 1997
<PAGE> 1
EXHIBIT 99.1
AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of this 22nd
day of January, 1997, by and between Eagle USA Airfreight, Inc., a Texas
corporation (the "Company"), and Daniel S. Swannie, an individual resident of
the State of Texas (the "Shareholder").
Recitals
WHEREAS, the Shareholder is the owner of an aggregate of 1,547,758
shares (the "Shares") of the Company's common stock, par value $0.001 per share
("Common Stock"); and
WHEREAS, the Owner desires to dispose of the Shares.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Commission" shall mean the Securities and Exchange Commission.
The terms "register," "registered", and "registration" refer
to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration
or ordering by the Commission of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all reasonable out-of-pocket
registration, qualification and filing fees, NASD fees, exchange
listing fees, printing expenses, "road show" travel and lodging
expenses of the Company, fees and disbursements of outside counsel and
independent accountants for the Company, blue sky fees and expenses, and
other reasonable and customary out-of-pocket expenses incurred by the
Company and the Shareholder incident to such registration, including
without limitation all costs and expenses required to be paid or
reimbursed by the Company pursuant to the Underwriting Agreement (as
defined herein) (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company, and
excluding the Internal Cost Payment).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at
the time.
1
<PAGE> 2
2. Registration.
2.1 Registration of the Shares. Subject to the terms
hereof, the Company agrees that it will register on one occasion the
Shares pursuant to the Securities Act. It is contemplated that the
Shares so registered shall be offered and sold in accordance with and
subject to the terms of an underwriting agreement (the "Underwriting
Agreement") to be negotiated among the Shareholder, the Company and the
managing underwriter(s) selected for such underwriting by the Company
and the Shareholder. Pursuant to such registration, it is presently
contemplated that all of the Shares will be offered and sold by the
underwriter(s) on a firm commitment basis, with an additional 232,164
shares of Common Stock (the "Company Shares") subject to an option
granted by the Company to the underwriter(s) for the purpose of covering
over-allotments, if any. Notwithstanding the foregoing, the Shareholder
shall have the right to terminate or withdraw the registration prior to
the effectiveness of such registration; provided, however, that in such
event, the Shareholder shall reimburse the Company in the manner
provided in Section 2.2 below as promptly as reasonably practicable for
all Registration Expenses and pay to the Company the portion of the
Internal Cost Payment (defined below) as required by Section 2.2(b)(ii),
incurred through the date of notice of such termination in connection
with such terminated registration.
2.2 Expenses of Registration.
(a) Subject to Section 2.5, all Registration Expenses
incurred by the Company or the Shareholder in connection with the
registration pursuant to Section 2.1 shall be borne by the Shareholder;
provided, however, that the maximum amount of Registration Expenses that
the Shareholder shall, under any circumstance, be liable to pay or
reimburse to the Company shall be, in the aggregate, $400,000, excluding
any out-of-pocket fees and expenses incurred by the Shareholder
(including without limitation, fees and expenses of counsel to the
Shareholder); and provided, further, that the Shareholder shall only be
obligated to reimburse the Company for 50% of the costs and expenses
incidental to any use of the Company airplane by the underwriters (but
100% of the cost of any use solely by Company personnel), as evidenced
by any employees or representatives of the underwriters or potential
underwriters traveling thereon. Subject to the foregoing, upon the
request of the Company, the Shareholder shall pay at the Closing
(defined below) any Registration Expenses for which there has been the
presentation of either bills, receipts or other appropriate evidence of
expense or a good faith estimate of accrued but unbilled costs and
expenses (with any remaining Registration Expenses to be paid by the
Shareholder within five business days of the invoice from time to time
by the Company); provided, however, that all such bills,
2
<PAGE> 3
receipts and/or estimates shall be presented to the Shareholder within
90 days of the first Closing (defined below). Notwithstanding anything
to the contrary contained in this Agreement, the Company shall use
commercially reasonable efforts to minimize the Registration Expenses to
the extent reasonably practicable.
(b) In addition but subject in all respects to the
foregoing and Section 2.5 below, the Shareholder shall pay to the
Company as charges in lieu of estimated internal costs relating to the
offering covered by such registration (i) $375,000 upon the closing of
the sale of the Shares (the "Closing") to the underwriter(s) in
accordance with the terms of the Underwriting Agreement and (ii)
$187,500 in the event that no such Closing occurs but that the
Underwriters have begun the "road show" relating to the sale of the
Shares (the payment made pursuant to either (i) or (ii) being referred
to as the "Internal Cost Payment"). All underwriting discounts, selling
commissions and stock transfer taxes applicable to (i) the Shares shall
be paid by the Shareholder and (ii) the Company Shares shall be paid by
the Company (neither of which shall constitute Registration Expenses).
2.3 Company's Obligations in Registration. In connection
with the registration contemplated by this Agreement, the Company will:
(a) Prepare and file with the Commission a registration
statement with respect to the Shares and use its commercially reasonable
best efforts to cause such registration statement to become and remain
effective until the distribution described in such registration
statement has been completed; and
(b) Furnish to each underwriter such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such
underwriter may reasonably request in order to facilitate the public
sale of the shares by such underwriter, and promptly furnish to each
underwriter and the Shareholder notice of any stop-order or similar
notice issued by the Commission or any state agency charged with the
regulation of securities, and notice of any NASDAQ or securities
exchange listing; and
(c) Furnish prospectuses, including preliminary
prospectuses and amendments and supplements thereto, to the Shareholder
in accordance with applicable securities laws; and
(d) Apply to register or otherwise qualify the Shares
under all applicable blue sky laws of any state.
3
<PAGE> 4
2.4 Indemnification.
(a) To the extent permitted by law, the Company will
indemnify and hold harmless the Shareholder against all expenses,
claims, losses, damages or liabilities (or actions in respect thereof)
to the extent to which he is subject, including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, to
the extent such expenses, claims, losses, damages or liabilities (or
proceedings in respect thereof) arise out of or are based on any untrue
statement (or alleged untrue statement) of a material fact contained in
any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or arise out of or are based
on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading, or any violation by the Company of the Securities Act or any
rule or regulation promulgated under the Securities Act applicable to
the Company in connection with any such registration, qualification or
compliance, and the Company will reimburse the Shareholder for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage,
liability or action, provided, however, that the indemnity contained
herein shall not apply to amounts paid in settlement of any claim, loss,
damage, liability or expense if settlement is effected without the
consent of the Company (which consent shall not unreasonably be
withheld); provided, further, that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in
conformity with any material specifically relating to the Shareholder in
the section "Principal and Selling Shareholders" in such prospectus or
any other written information furnished to the Company expressly for
inclusion in such registration by the Shareholder specifically for use
therein; and provided, further, that the Company shall not be liable for
any loss, claim, damage, liability or judgment to the extent that the
same results from any untrue statement or omission or alleged untrue
statement or omission (i) made in any preliminary prospectus and a copy
of the final prospectus was not sent or given to a person to whom any
Shares were sold at or prior to the confirmation of the sale of the
Shares if the untrue statement or omission was corrected in the final
prospectus, or (ii) based upon any information relating to any
underwriters furnished in writing to the Company by or on behalf of any
underwriter through the managing underwriter(s) expressly for use in the
registration statement or prospectus.
(b) To the extent permitted by law, the Shareholder will
indemnify and hold harmless the Company, each of such person's
officers and directors
4
<PAGE> 5
and each person controlling such persons within the meaning of Section
15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) to the extent to which such
person or entity is subject, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or arising out of or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will
reimburse the Company, such other persons, such directors, officers or
control persons for any legal or other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity
with any material specifically relating to the Shareholder in the
section "Principal and Selling Shareholders" in such prospectus or any
other written information furnished to the Company by the Shareholder
expressly for inclusion in such registration; provided, however, that
the indemnity contained herein shall not apply to amounts paid in
settlement of any claim, loss, damage, liability or expense if
settlement is effected without the consent of the Shareholder (which
consent shall not be unreasonably withheld); provided, further, that the
Shareholder shall not be liable for any loss, claim, damage, liability
or judgment to the extent that the same results from any untrue
statement or omission or alleged untrue statement or omission (i) made
in any preliminary prospectus and a copy of the final prospectus was not
sent or given to a person to whom any Shares were sold at or prior to
the confirmation of the sale of the Shares if the untrue statement or
omission was corrected in the final prospectus, or (ii) based upon any
information relating to any underwriters furnished in writing to the
Company by or on behalf of any underwriter through the managing
underwriter(s) expressly for use in the registration statement or
prospectus. Notwithstanding the foregoing, the liability of the
Shareholder under this subsection (b) shall be limited in an amount
equal to the net proceeds from the sale of the Shares sold by the
Shareholder under the registration.
(c) Each party entitled to indemnification under this
Section 2.4 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly
after such Indemnified Party has actual knowledge of any action or
proceeding commenced against, or written demand made on any such party
in respect of which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall
5
<PAGE> 6
not unreasonably be withheld), and the Indemnified Party may participate
in such defense at such party's expense, and provided further that the
failure of any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under this
Agreement unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action,
and provided further, that the Indemnifying Party shall not assume the
defense for matters as to which there is a conflict of interest or as to
which the Indemnifying Party is asserting separate or different
defenses, which defenses are inconsistent with the defenses of the
Indemnified Party. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation. No Indemnified
Party shall consent to entry of any judgment or enter into any
settlement without the consent of each Indemnifying Party.
(d) If the indemnification provided for in this Section 2.4
is unavailable to an Indemnified Party in respect of any losses,
claims, damages or liabilities referred to therein, then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the
Company on the one hand and the Shareholder on the other in connection
with the statements or omissions which resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and
the Shareholder on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of material
fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Shareholder and
the parties' relevant intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
Company and the Shareholder agree that it would not be just and
equitable if contribution pursuant to this Section 2.4(d) were based
solely upon the number of entities from whom contribution was requested
or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 2.4(d). The
amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages and liabilities referred to above in this
Section 2.4(d) shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person
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who was not guilty of such fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act).
2.5 Company Right to Terminate Registration. The Company
shall have the right to delay, terminate or withdraw any registration
initiated under this Section 2 prior to the effectiveness of such
registration; provided, however, that in the event the Company elects to
terminate such registration, it shall be responsible for all
Registration Expenses relating to the Shares, and the Shareholder shall
have no obligation to pay the Internal Cost Payment. Notwithstanding the
foregoing, the Company shall be deemed to have satisfied all of its
obligation to register the Shares hereunder and shall be entitled to
terminate this Agreement (and shall remain entitled to payments relating
to Registration Expenses and the Internal Cost Payment) if the
Shareholder and the Underwriter disagree as to pricing or other terms of
the Underwriting Agreement or the Shareholder otherwise determines not
to sell all of his Shares pursuant to the registration contemplated
hereby.
2.6 Noncompetition and Related Matters.
(a) Shareholder agrees that for a period of three years
from the effective date of this Section 2.6, he shall not, directly or
indirectly, as an owner, operator, employee, representative,
shareholder, officer, director, partner, venturer, equityholder,
consultant, advisor or in any other capacity, within a one hundred (100)
mile radius of any location where the Company (directly or through
agents or others) is operating or at the effective date of this Section
2.6, is planning to operate, (i) engage in any business activity in
competition with the business in which the Company is engaged at the
time of the effective date of this Section 2.6 or any business activity
which the Company is planning, as of the effective date of this Section
2.6, to pursue, (ii) solicit such business from, or provide such
services to, any of the customers or accounts of the Company, or (iii)
become the employee of, or otherwise render services to or on behalf of,
any enterprise which competes directly or indirectly with the business
of the Company. Notwithstanding the foregoing, the Shareholder may
purchase or otherwise acquire up to (but not more than) one percent of
any class of securities of any enterprise (but without otherwise
participating in the activities of such enterprise), whether or not such
enterprise is in competition with the Company, if such securities are
listed on any national or regional securities exchange or have been
registered under Section 12(g) of the Securities Exchange Act of 1934.
Shareholder recognizes and acknowledges that, in the course of his
duties with the Company and as a result of the position of trust he has
held, he has obtained private and confidential information and
proprietary data relating to the Company. Shareholder agrees that for a
period of three years from the effective date of this Section 2.6, he
will not, either directly or indirectly, disclose or use
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confidential information acquired during his relationship with the
Company except with the prior written consent of the Chief Executive
Officer of the Company or unless compelled to do so by process of law. None of
the foregoing obligations and restrictions applies to any part of the Company's
confidential information that the Shareholder demonstrates was or became
generally available to the public other than as a result of a disclosure by the
Shareholder in violation of this Section 2.6.
(b) Shareholder agrees that he shall not, directly or indirectly,
during the period commencing on the effective date of this Section 2.6 and
ending two years from such effective date, (i) take any action to solicit or
divert any business or customers away from the Company, (ii) induce customers,
suppliers, agents or other persons under contract or otherwise associated or
doing business with the Company to terminate, reduce or diminish any such
association or business with or from the Company and/or (iii) induce any person
in the employment of the Company or any consultant to the Company to (A)
terminate such employment or consulting arrangement or (B) accept employment or
enter into any consulting arrangement with anyone other than the Company.
(c) Shareholder agrees that he shall not, during the period
commencing on the effective date of this Section 2.6 and ending two years from
such effective date (i) criticize or disparage the Company or any affiliate in
a manner intended or reasonably calculated to result in significant public
embarrassment to, or material injury to the reputation of, the Company or any
affiliate in any community in which the Company or any affiliate is engaged in
business; or (ii) commit damage to the property of the Company or any affiliate
or otherwise engage in any misconduct which is injurious to the business or
reputation of the Company or any affiliate. The Company agrees that, during
the period commencing on the effective date of this Section 2.6 and ending two
years from such effective date, neither it nor its affiliates will (i)
criticize or disparage the Shareholder in a manner intended or reasonably
calculated to result in significant public embarrassment to, or material injury
to the reputation of, the Shareholder in any community in which the Shareholder
resides or is engaged in business; or (ii) commit damage to the property of the
Shareholder or otherwise engage in any misconduct which is injurious to the
business or reputation of the Shareholder.
(d) Shareholder agrees that a violation of the provisions of this
Section 2.6 would cause irreparable and continuing injury to the Company and
its affiliates, for which they would have no adequate remedy at law, and that,
for such reason, among others, the Company shall (subject to compliance with
Section 2.6(h) with respect to alleged violations of Sections 2.6(b) and
2.6(c)) be entitled, as a matter of course, to a temporary restraining order
and a
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temporary and permanent injunction restraining any further violation of any
such provision. Such right to injunctive relief shall be in addition to, and
not in limitation of, any other rights and remedies the Company may have
against Shareholder, including without limitation the right to recover damages
for any breach or threatened breach, including without limitation the recovery
of damages from Shareholder. Shareholder specifically agrees that such
limitations as to the period of time, geographic area and type and scope of
restriction on his activities specified herein are reasonable and necessary for
the protection of the goodwill or other business interests of the Company and
its affiliates.
(e) If any provision of this Section 2.6 is found by a court of
competent jurisdiction to be unreasonably broad, oppressive or unenforceable,
such court (i) shall narrow the scope of this Section 2.6 in order to ensure
that the application thereof is not unreasonably broad, oppressive or
unenforceable, and (ii) to the fullest extent permitted by law, shall enforce
this Agreement as though reformed.
(f) In consideration for Shareholder's execution of this
Agreement, in addition to the other consideration provided by the Shareholder
herein, Shareholder shall be entitled to the registration of his Shares as
provided hereby. For purposes of this Section 2.6, references to the Company
shall include the Company and any of its direct or indirect subsidiaries. The
provisions in this Section 2.6 shall apply notwithstanding any other provision
of this Agreement to the contrary.
(g) The provisions of this Section 2.6 shall be effective only
upon the Closing. Once effective, the provisions of this Section 2.6 shall
survive the termination of this Agreement regardless of the date, cause or
manner of such termination.
(h) Notwithstanding any of the foregoing to the contrary, in the
event of any alleged breach of any of the covenants contained in Sections
2.6(b) or 2.6(c) hereof, the claiming party shall promptly notify the other
party of such alleged breach and submit the matter as promptly as practicable
to J.A.M.S./Endispute in Houston, Texas (which shall be deemed mutually
acceptable to the parties) or, at the option of the claiming party, to another
mutually acceptable mediator in either case for resolution within 30 days of
the date of such notice. If the claiming party does not select
J.A.M.S./Endispute and the parties cannot agree upon another mediator on or
before the expiration of 15 days following the date of such notice, another
mediator shall be selected as follows: The Company and the Shareholder shall
each select one mediator, who will, in turn, jointly select a third mediator to
mediate the alleged breach. The costs of such mediation shall be borne equally
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by the parties. Following such mediation, the Company and the
Shareholder each agree that they will not bring any further action or
proceeding relating to the alleged breach in question unless (i) the
mediation has not resolved the dispute and (ii) the mediator has made a
determination in writing that the claims of the claiming party have substantial
merit. The Company and Shareholder agree that any action or proceeding filed
alleging a breach of Sections 2.6(b) and/or 2.6(c) shall be subject to
immediate dismissal unless both (i) and (ii) above have been satisfied, with
all costs and expenses incurred by the parties associated with the filing and
dismissal of such action or proceeding to be borne by the filing party.
3. Miscellaneous.
3.1 Shareholders' Agreement. Upon the closing of the sale of the
Shares in accordance with the terms of the Underwriting Agreement, the terms,
conditions and provisions of that certain Shareholders' Agreement dated October
1, 1994, by and among the Company, the Founder and the Purchasers (as such
terms are defined therein), which are applicable to the Shareholder, shall
terminate and be of no further force and effect with respect to the
Shareholder. The Shareholder waives all rights it has under such Shareholders'
Agreement with respect to the registration effected pursuant to the terms
hereof. The Company has received, or will have received prior to Closing, all
applicable waivers under the terms of the Shareholders' Agreement from the
parties thereto, other than the Shareholder, which waivers permit the
Shareholder to undertake the sale of the Shares and all other transactions
contemplated hereunder without any violation by the Shareholder of the terms
thereof.
3.2 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Texas.
3.3 Amendment. This Agreement, or any provision hereof, may be
amended, waived, discharged or terminated only upon the written consent of the
Company and the Shareholder.
3.4 Notices. All notices or other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered in person, transmitted by
telecopier or mailed by registered or certified first class mail, postage
prepaid, return receipt requested to the parties hereto at the address set
forth below the party's signature to this Agreement (as the same may be changed
from time to time by notice similarly given) or the last known business or
residence address of such other person as may be designated by either party
hereto in writing.
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3.5 Delays or Omissions. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to any party
to this Agreement shall impair any such right, power or remedy of such party
nor shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this agreement, must be in
writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement or by law or otherwise
afforded to any party to this Agreement, shall be cumulative and not
alternative.
3.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
3.7 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision.
3.8 Survivability. The provisions of Sections 2 and 3.1 of this
Agreement shall survive any sale of the Shares and termination of this
Agreement.
3.9 Termination. Unless earlier terminated by mutual agreement of
the parties, the term of this Agreement shall expire on April 15, 1997.
3.10 No Assignment. The benefits and obligations of this Agreement
may not be assigned to any other party without the prior written consent of the
other party hereto; provided that the rights and benefits of the Shareholder
shall inure to the benefit of his heirs and personal representatives.
3.11 Payment of Legal Expenses. If any legal action or other
proceeding is brought for the enforcement of this Agreement or because of an
alleged dispute, breach, default or misrepresentation in connection with this
Agreement or the transactions contemplated hereby, the successful or prevailing
party or parties shall be entitled to recover reasonable attorneys' fees and
other costs incurred in connection with such action or proceeding, in addition
to any other relief to which it or they may be entitled.
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IN WITNESS WHEREOF, the undersigned or each of their respective duly
authorized officers or representatives have executed this agreement effective
upon the date first set forth above.
COMPANY:
Eagle USA Airfreight, Inc.,
a Texas corporation
By: /s/ JAMES R. CRANE
------------------------------------
Its: President, Chief Executive Officer
and Chairman of the Board
------------------------------------
Address:
Eagle USA Airfreight, Inc.
3214 Lodestar
Houston, Texas 77032
Attention: Chief Executive Officer
SHAREHOLDER:
/s/ DANIEL S. SWANNIE
----------------------------------
Daniel S. Swannie
Address:
Daniel S. Swannie
12 Gingerwilde Place
The Woodlands, Texas 77381
CONSENT OF SPOUSE
I am the spouse of Daniel S. Swannie. On behalf of myself, my heirs,
legatees and assigns, I hereby join in and consent to the terms of this
Agreement and agree to be bound by the terms hereof to the extent of my
interest in the subject matter hereof.
/s/ LYNDA SWANNIE
----------------------------------
Name: Lynda Swannie
----------------------------------
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