EAGLE USA AIRFREIGHT INC, 424B1, 1998-01-29

EAGLE USA AIRFREIGHT INC
424B1, 1998-01-29
ARRANGEMENT OF TRANSPORTATION OF FREIGHT & CARGO

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<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-44005
Registration No. 333-45109

PROSPECTUS
JANUARY 27, 1998

1,750,000 SHARES

[EAGLE USA AIRFREIGHT, INC. LOGO]

COMMON STOCK

All of the 1,750,000 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 January 27, 1998 was $27 3/4 per share. See "Price Range of Common
Stock."

SEE "RISK FACTORS" BEGINNING ON PAGE 8 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>
- ------------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS TO
TO THE DISCOUNTS AND THE SELLING
PUBLIC COMMISSIONS(1) SHAREHOLDER(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................................... $27.75 $1.39 $26.36
Total(3)........................................ $48,562,500 $2,432,500 $46,130,000
- ------------------------------------------------------------------------------------------------------------
</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 $255,000, which will be paid by the
Selling Shareholder if the Underwriters' overallotment option is not
exercised and by the Company if the Underwriters' overallotment option is
exercised.

(3) The Company has granted to the Underwriters an option, exercisable within 30
days hereof, to purchase up to an aggregate of 262,500 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 $55,846,875 and $2,797,375, respectively,
the Proceeds to the Selling Shareholder will be unchanged from the amount
set forth above, and the Company will receive proceeds of $6,919,500. 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 January 30, 1998.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY DEAN WITTER
WILLIAM BLAIR & COMPANY
GERARD KLAUER MATTISON & CO., INC.
<PAGE> 2

[MAP OF THE COMPANY'S TERMINAL LOCATIONS]

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

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 UNDER
REGULATION M. SEE "UNDERWRITING."

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<PAGE> 3

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 assumes that the Underwriters' over-allotment
option will not be exercised. 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 60 cities throughout North America. From fiscal 1993 to
fiscal 1997, the Company has experienced rapid growth in revenues from $47.4
million to $291.8 million, and in operating income from $2.4 million to $25.7
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 60 in September 1997,
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 management expects to focus increased
time and resources on these operations. 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 1997 was 521 pounds,
ranging in size from small packages of documents to 60,000 pound deliveries of
trade show exhibit 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 regularly scheduled dedicated charters of four cargo airplanes
under short-term leases to service specific high-volume transportation lanes. 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
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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 integrated information
systems -- Worldport -- which include logistics information, 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 is in the process of upgrading 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 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 Company's web site now allows
customers to obtain shipment tracking information via the Internet.

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 15 additional locations during the remainder of
fiscal 1998 and up to another 15 additional locations by the end of fiscal 1999.

Development of International Freight Forwarding. The Company intends to
continue to expand its international freight forwarding services and expects
that these operations will be the focus of an increasing portion of management
time and Company resources. The Company plans to expand its overseas presence
through a variety of means that may include exclusive or nonexclusive agency
agreements, direct equity positions within selected overseas agencies, and
strategic acquisitions. 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. The Company has recently signed letters of intent for two
acquisitions that would expand the Company's capabilities in South America and
Europe. See "Recent Developments" below. The Company is also designing an
exclusive international information management system which is expected to
utilize Internet-based technology to facilitate its global operations and
communications network.

Expansion of Local Pick-up and Delivery and Centralized Truck Brokerage.
The Company has local pick-up and delivery operations at 43 of its 60 terminal
locations as well as at one location without air freight forwarding operations.
The Company plans to initiate these services in approximately 20 additional
locations in fiscal 1998. 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.

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.
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<PAGE> 5

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 has invested, and plans to continue to invest, substantial management
and financial resources in the development and upgrading 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 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.

RECENT DEVELOPMENTS

On January 5, 1998, the Company announced the signing of a letter of intent
to acquire Eagle Transfer, Inc. ("Eagle Companies"), a privately-held
international freight forwarder based in Miami, Florida. Eagle Companies is a
full-service forwarder whose services include customs clearing services, ocean
forwarding and airfreight import and export. Eagle Companies' operations focus
on Argentina, Brazil and Chile and other South American countries. Sales for
Eagle Companies totaled approximately $19 million in the twelve-month period
ended December 31, 1997. Despite the similarity in names, the Company and Eagle
Companies have had no prior affiliation.

On January 16, 1998, the Company reported that it has signed a letter of
intent to acquire S. Boardman (Air Services) Limited and Subsidiaries ("S.
Boardman"), a privately-held full service freight forwarder based in London,
England. S. Boardman serves the international freight forwarding market from
three facilities in London, Manchester and Birmingham, England. For the
twelve-month period ended March 31, 1997, total revenues for S. Boardman were
approximately $25 million and revenues excluding customs, duties and value added
taxes were approximately $13 million.

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<PAGE> 6

THE OFFERING

Common Stock offered by the
Selling Shareholder...... 1,750,000 shares (1)

Common Stock outstanding... 18,269,061 shares (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
- ------------------------------

(1) Excludes 262,500 shares of Common Stock subject to the Underwriters'
over-allotment option.

(2) Excludes (i) 2,149,059 shares of Common Stock reserved for issuance pursuant
to the Company's Long-Term Incentive Plan (the "Incentive Plan") as of
December 31, 1997 (which is proposed to be increased by 3 million shares at
the Company's 1998 Annual Meeting), of which 2,018,830 shares were issuable
upon exercise of stock options outstanding as of December 31, 1997
(including vested options for 621,095 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 75,000 shares were issuable upon exercise of stock options outstanding
as of December 31, 1997 (60,000 of which were vested). Under the treasury
stock method of computation and at a $27 3/4 per share price for shares
repurchased (the last sale price for the Common Stock on January 27, 1998 as
reported on the Nasdaq National Market), the issued options would represent
approximately 731,329 Common Stock equivalents.

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<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------
1993 1994 1995 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues................................................. $ 47,425 $ 83,276 $126,214 $185,445 $291,767
Cost of transportation................................... 28,504 49,764 72,366 103,312 163,616
-------- -------- -------- -------- --------
Gross profit............................................. 18,921 33,512 53,848 82,133 128,151
Personnel costs.......................................... 11,465 19,165 27,939 41,619 67,813
Other selling, general and administrative expenses....... 5,066 8,461 13,704 22,665 34,639
-------- -------- -------- -------- --------
Operating expenses....................................... 16,531 27,626 41,643 64,284 102,452
-------- -------- -------- -------- --------
Operating income......................................... 2,390 5,886 12,205 17,849 25,699
Nonoperating income...................................... 27 76 319 934 1,693
-------- -------- -------- -------- --------
Income before income taxes............................... 2,417 5,962 12,524 18,783 27,392
Provision for income taxes............................... 955 2,408 5,017 7,302 10,594
-------- -------- -------- -------- --------
Net income(1)............................................ $ 1,462 $ 3,554 $ 7,507 $ 11,481 $ 16,798
======== ======== ======== ======== ========
Basic earnings per share(2).............................. -- -- -- -- $ 0.94
Diluted earnings per share(2)............................ -- -- -- -- $ 0.90
Pro forma basic net income per share(2)(3)............... -- -- $ 0.55 $ 0.69 --
Pro forma diluted net income per share(2)(3)............. -- -- $ 0.51 $ 0.66 --
OPERATING DATA:
Gross margin............................................. 39.9% 40.2% 42.7% 44.3% 43.9%
Operating margin......................................... 5.0% 7.0% 9.7% 9.6% 8.8%
Same terminal revenue growth(4).......................... 63.0% 44.0% 29.1% 29.3% 48.7%
Air freight terminals at end of period................... 14 27 37 47 60
Local delivery locations at end of period................ -- -- 11 28 44
Freight forwarding shipments............................. 178,545 291,956 382,583 524,685 832,704
Average weight (lbs.) per freight forwarding............. 506 520 608 576 521
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------------------------------------------
1993 1994 1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $ 1,025 $ 3,510 $ 6,852 $ 41,487 $ 60,638
Total assets............................................. 9,884 16,612 24,468 71,729 106,871
Long-term indebtedness................................... 18 11 8,474 0 0
Shareholders' equity..................................... 2,032 5,031 1,699 50,442 80,504
</TABLE>

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

(1) Net income for fiscal 1993, 1994, 1995 and 1996 includes a pro forma charge
of $823, $1,916, $3,682 and $945, respectively, which represents the
estimated federal income taxes that would have been reported had Eagle been
a C Corporation prior to December 4, 1995.

(2) Earnings per share information previously reported has been restated herein
to comply with the provisions of Statement of Financial Accounting Standard
No. 128.

(3) The computation for the year ended September 30, 1996 also includes the
number of shares that the Company's Chairman of the Board received upon the
closing of the initial public offering in connection with the Company's
acquisition of interests in subsidiaries. Historical net income per share is
not provided for fiscal 1994 and 1993, as such inclusion is considered to be
irrelevant.

(4) Percentage increase in revenues for those terminals open as of the beginning
of the prior period.

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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 the continuing efforts of Mr. Crane and the Company's other executive
officers, key employees and regional managers, as well as its ability to attract
and retain other skilled managers and personnel. 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, 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, including BAX Global, 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 Circle International 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, primarily through increases
in sales at existing terminals and opening new terminals. The Company also has
recently completed the acquisition of the assets of a Columbus, Ohio
transportation provider and has announced the signing of letters of intent for
two additional acquisitions. 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 additional 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 and management 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.
Acquisitions involve risks, including those relating to the integration of
acquired business, retention of prior levels of business, retention of
employees, diversion of management attention, amortization of acquired
intangible assets, unexpected liabilities and other problems. There can be no
assurance that the Company will be successful in implementing any of its
business strategy or plans for future growth. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" 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

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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.

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

Upon completion of this Offering, James R. Crane will own approximately
47.0% (46.4% if the underwriters' over-allotment option is exercised in full) 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 significantly
influence the outcome of elections of the Company's directors and other matters
submitted to a vote of shareholders. Such ownership of Common Stock may have the
effect of delaying or preventing a change of control of the Company. 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 5.8% and 8.8% of the Company's revenues for
the fiscal years ended September 30, 1997 and 1996, respectively. Adverse
conditions in the industries of the Company's customers or the loss of a
significant customer 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 December 31, 1997, the Company utilized the services of approximately
700 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.

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<PAGE> 10

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 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."

INTERNATIONAL OPERATIONS

The Company's international operations are directly related to, and their
future performance is dependent upon, the volume of international trade,
particularly trade between the United States and foreign nations. Such trade is
influenced by many factors, including economic and political conditions in the
United States and abroad, major work stoppages, exchange controls, currency
fluctuations, wars and other armed conflicts and United States and foreign laws
relating to tariffs, trade restrictions, foreign investment and taxation. There
can be no assurance that trade-related events beyond the control of the Company,
such as a failure of various nations to reach or adopt international trade
agreements and an increase in bilateral or multilateral trade restrictions, may
not have a material adverse effect on the Company's results of operations.

SHARES ELIGIBLE FOR FUTURE SALE

Substantially all of the shares of Common Stock currently held by the
Selling Shareholder 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 could be sold
in the public market through the exercise of registration rights. However, the
Selling Shareholder has agreed, for a period of one year, and the Company and
its other executive officers and directors have agreed, for a period of 90 days
after the date of this Prospectus, that 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 the Selling
Stockholder, executive officers and directors of the Company, certain permitted
private sales and gifts 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 pursuant to 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, 1997, 2,093,830 shares of Common Stock were
issuable upon the exercise of outstanding options awarded under the Incentive
Plan and the Nonemployee Director Plan, of which 681,095 shares of Common Stock
were issuable upon the exercise of vested options. In addition, options to
purchase 430,440 shares of Common Stock vest during the remainder of fiscal
1998. 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 Texas law, 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 overseas presence and plans for
international air freight forwarding services and agreements for international
cargo; the future expansion and

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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; any seasonality of the Company's business;
future dividend plans; future acquisitions, including the completion of the
acquisition of Eagle Companies or S. Boardman and any effects, benefits,
results, terms or other aspects of the acquisition; retention of employees or
management; use of offering proceeds; 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," "plans," "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 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 other 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.

11
<PAGE> 12

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
Company's initial public offering. 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)...................... $131/8 $ 91/8
2nd Quarter............................................... 151/2 121/4
3rd Quarter............................................... 19 133/4
4th Quarter............................................... 26 171/4
Fiscal Year Ended September 30, 1997:
1st Quarter............................................... $273/4 $251/4
2nd Quarter............................................... 331/2 251/4
3rd Quarter............................................... 313/8 18
4th Quarter............................................... 361/8 241/8
Fiscal Year Ending September 30, 1998:
1st Quarter............................................... 353/4 251/2
2nd Quarter through January 27, 1998...................... 301/2 271/2
</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 Company's initial
public offering to 25% of the Company's cumulative net income from such date.
From October 1992 to shortly prior to the Company's initial public offering, the
Company was an S Corporation and distributed to its shareholders all of its
taxable income. Prior to its initial public offering, the Company made
distributions of cash and/or notes to its pre-initial public offering
shareholders in an estimated amount of $2.7 million and $14.6 million in fiscal
1996 and 1995, respectively. A final payment on the notes of approximately
$635,000 was made during the fiscal year ended September 30, 1997.

12
<PAGE> 13

CAPITALIZATION

The following table sets forth the total debt and capitalization of the
Company as of September 30, 1997.

<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1997
--------------
(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, 18,267,861 shares issued and
outstanding(1)......................................... 18
Additional paid in capital.................................. 52,387
Retained earnings........................................... 28,099
-------
Total shareholders' equity........................ 80,504
-------
Total capitalization........................................ $80,504
=======
</TABLE>

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

(1) Excludes (i) 2,207,966 shares of Common Stock reserved for issuance pursuant
to the Incentive Plan as of September 30, 1997, of which 2,034,600 shares
were issuable upon exercise of stock options outstanding at September 30,
1997 (including vested options for 623,702 shares), and (ii) 200,000 shares
of Common Stock reserved for issuance pursuant to the Nonemployee Director
Plan, of which 75,000 shares were issuable upon exercise of stock options
outstanding at September 30, 1997 (60,000 of which were vested). The Company
expects to submit at its 1998 Annual Meeting of Shareholders a proposal to
increase the number of authorized shares of Common Stock to 100,000,000 and
a proposal to increase the number of shares under the Incentive Plan by
3,000,000.

13
<PAGE> 14

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, 1997. 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,
----------------------------------------------------
1993 1994 1995 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues............................. $ 47,425 $ 83,276 $126,214 $185,445 $291,767
Cost of transportation............... 28,504 49,764 72,366 103,312 163,616
-------- -------- -------- -------- --------
Gross profit......................... 18,921 33,512 53,848 82,133 128,151
Personnel costs...................... 11,465 19,165 27,939 41,619 67,813
Other selling, general and
administrative expenses........... 5,066 8,461 13,704 22,665 34,639
-------- -------- -------- -------- --------
Operating expenses................... 16,531 27,626 41,643 64,284 102,452
-------- -------- -------- -------- --------
Operating income..................... 2,390 5,886 12,205 17,849 25,699
Nonoperating income.................. 27 76 319 934 1,693
-------- -------- -------- -------- --------
Income before income taxes........... 2,417 5,962 12,524 18,783 27,392
Provision for income taxes........... 955 2,408 5,017 7,302 10,594
-------- -------- -------- -------- --------
Net income(1)........................ $ 1,462 $ 3,554 $ 7,507 $ 11,481 $ 16,798
======== ======== ======== ======== ========
Basic earnings per share(2).......... -- -- -- -- $ 0.94
Diluted earnings per share(2)........ -- -- -- -- $ 0.90
Pro forma basic net income per
share(2)(3)....................... -- -- $ 0.55 $ 0.69 --
Pro forma diluted net income
share(2)(3)....................... -- -- $ 0.51 $ 0.66 --
OPERATING DATA:
Gross margin......................... 39.9% 40.2% 42.7% 44.3% 43.9%
Operating margin..................... 5.0% 7.0% 9.7% 9.6% 8.8%
Same terminal revenue growth(4)...... 63.0% 44.0% 29.1% 29.3% 48.7%
Air freight terminals at end of
period............................ 14 27 37 47 60
Local delivery locations at end of
period............................ -- -- 11 28 44
Freight forwarding shipments......... 178,545 291,956 382,583 524,685 832,704
Average weight (lbs.) per freight
forwarding shipment............... 506 520 608 576 521
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------------------------------
1993 1994 1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $1,025 $ 3,510 $ 6,852 $41,487 $ 60,638
Total assets.............................. 9,884 16,612 24,468 71,729 106,871
Long-term indebtedness.................... 18 11 8,474 0 0
Shareholders' equity...................... 2,032 5,031 1,699 50,442 80,504
</TABLE>

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

(2) Earnings per share information previously reported has been restated herein
to comply with the provisions of Statement of Financial Accounting Standard
No. 128.

(4) Percentage increase in revenues for those terminals open as of the beginning
of the prior period.

14
<PAGE> 15

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 52.1% to $291.8 million in the fiscal year ended
September 30, 1997 from $126.2 million in the fiscal year ended September 30,
1995, and its operating income increased at a compound annual rate of 45.1% to
$25.7 million in fiscal 1997 from $12.2 million in fiscal 1995. 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, 1995, it has added 23 terminals, increasing the
total to 60 at September 30, 1997. At that date, 13 of these 60 terminals had
been open less than 12 months.

The Company plans to continue to expand its terminal network by opening
terminals in approximately 15 additional cities in fiscal 1998. 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,
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 it captures margins which were previously paid
to third parties. 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, the Company paid no federal income tax. For financial
reporting purposes, for periods prior to the Company's initial public offering,
Eagle recorded a provision for state income taxes for all states in which it
operated. The Company also has recorded for fiscal 1996 and 1995 the federal
income tax liability for each of its subsidiaries, which had paid federal income
taxes. Shortly prior to the initial public offering in December 1995, 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 initial public offering, Eagle declared
distributions payable both in cash and in the form of special distribution notes
in an amount equal to all of Eagle's undistributed S Corporation earnings up
through such closing. The final payment of these notes was made in fiscal 1997.
The Company has no plans to pay any dividends or distributions in the
foreseeable future.

15
<PAGE> 16

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
initial public offering 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.

The Company has adopted Statement of Financial Accounting Standard No. 128
(SFAS 128), "Earnings Per Share". Adoption of SFAS 128 has resulted in the
retroactive restatement of earnings per share and pro forma net income per share
presented herein. Basic earnings per share excludes dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share includes
potential dilution that could occur if securities to issue common stock were
exercised. See Note 12 of Notes to Consolidated Financial Statements.

FIRST QUARTER 1997 RESULTS

The following table presents certain statement of income data for the
periods indicated and balance sheet data as of the date indicated.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
1996 1997
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................................................. $ 67,586 $ 97,645
Cost of transportation.................................... 38,071 53,607
-------- --------
Gross profit.............................................. 29,515 44,038
Personnel costs........................................... 14,288 23,255
Other selling, general and administrative costs........... 8,029 11,434
-------- --------
Operating expenses........................................ 22,317 34,689
-------- --------
Operating income.......................................... 7,198 9,349
Nonoperating income....................................... 273 305
-------- --------
Income before income taxes................................ 7,471 9,654
Provision for income taxes................................ 2,957 3,764
-------- --------
Net income................................................ $ 4,514 $ 5,890
======== ========
Basic earnings per share.................................. $ 0.26 $ 0.32
Diluted earnings per share................................ $ 0.24 $ 0.31
Basic weighted average common shares outstanding.......... 17,527 18,259
Diluted weighted average common and common equivalent
shares outstanding..................................... 18,468 19,049
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $ 67,144
Total assets............................................. 103,926
Long-term indebtedness................................... 0
Shareholders' equity..................................... 87,299
</TABLE>

16
<PAGE> 17

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,
-------------------------------
1995 1996 1997
<S> <C> <C> <C>
Revenues.................................................. 100.0% 100.0% 100.0%
Cost of transportation.................................... 57.3 55.7 56.1
----- ----- -----
Gross profit.............................................. 42.7 44.3 43.9
Personnel costs......................................... 22.1 22.5 23.2
Other selling, general and administrative expenses...... 10.9 12.2 11.9
----- ----- -----
Operating expenses........................................ 33.0 34.7 35.1
----- ----- -----
Operating income.......................................... 9.7% 9.6% 8.8%
===== ===== =====
Net income................................................ 6.0% 6.2% 5.8%
</TABLE>

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

Revenues increased 57.3% to $291.8 million in fiscal 1997 from $185.4
million in fiscal 1996 primarily due to increases in the number of shipments and
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. The number
of shipments increased 58.7% (in part attributable to an increased number of
smaller shipments during the UPS strike) and the total weight of cargo shipped
increased 43.5% over fiscal 1996. For those terminals open as of the beginning
of fiscal 1996, revenues increased approximately 48.7% to $253.4 million in
fiscal 1997 from $170.5 million in fiscal 1996. Revenues for fiscal 1997 were
comprised of $273.7 million of forwarding revenues, $17.1 million of local
pick-up and delivery revenues and $1.0 million of other freight forwarding
revenues. Total local pick-up and delivery revenues for the Company's Eagle
Freight Services subsidiary for fiscal 1997 were $65.0 million, an amount that
includes $47.9 million of intercompany sales to Eagle (which were eliminated
upon consolidation) and $17.1 million in services to third-party
(non-forwarding) customers.

Cost of transportation increased as a percentage of revenues to 56.1% in
fiscal 1997 from 55.7% in fiscal 1996. The increase was the result of several
factors. For the period October 1996 to May 1997, several of the Company's
transportation providers implemented a fuel surcharge which was not in effect
during fiscal 1996. Increased revenues from international freight (which
generally have lower gross margins than domestic shipments), which were $20.9
million in fiscal 1997 as compared to $9.8 million in fiscal 1996, also
contributed to the higher cost of transportation as a percentage of revenues.
Additionally, the reinstatement on March 7, 1997 of the Federal Air Cargo
Transportation Excise Tax (the "Federal Excise Tax"), which had previously
expired January 1, 1997, negatively impacted cost of transportation as a
percentage of revenues for the year. In fiscal 1996, the Federal Excise Tax
expired January 1, 1996 and was not reinstated until August 27, 1996. These
factors were additionally offset by the continued expansion of the Company's
local pick-up and delivery operations, which enabled the Company to capture
margins previously paid to third parties. Cost of transportation increased in
absolute terms by 58.4% to $163.6 million in fiscal 1997 from $103.3 million in
fiscal 1996 as a result of increases in air freight shipped. Gross margins
decreased to 43.9% in fiscal 1997 from 44.3% in fiscal 1996. Gross profit
increased 56.0% to $128.2 million in fiscal 1997 from $82.1 million in fiscal
1996.

Operating expenses increased as a percentage of revenues to 35.1% in fiscal
1997 from 34.7% in fiscal 1996. Operating expenses increased in absolute terms
by 59.4% to $102.5 million in fiscal 1997 from $64.3 million in fiscal 1996.
Personnel costs increased as a percentage of revenues to 23.2% in fiscal 1997
from 22.5% in fiscal 1996, and increased in absolute terms by 62.9% to $67.8
million due to increased staffing needs associated with the opening of 13 new
terminals and to a lesser extent with respect to the UPS strike, expanded
operations at existing terminals and increased revenues, which resulted in an
increase in commissions and expanded corporate infrastructure. Such personnel
costs include all compensation expenses,
17
<PAGE> 18

including those relating to sales commissions and salaries to headquarters
employees and executive officers. Other selling, general and administrative
expenses decreased as a percentage of revenues to 11.9% in fiscal 1997 from
12.2% in fiscal 1996, and increased in absolute terms by 52.8% to $34.6 million
in fiscal 1997 from $22.7 million in fiscal 1996. In fiscal 1997, selling
expenses decreased by 0.2% and other general and administrative expenses
decreased by 0.1% compared to fiscal 1996. The absolute increases in selling,
general and administrative expenses were due to overall increases in the level
of the Company's activities in fiscal year 1997.

Operating income increased 44.0% to $25.7 million in fiscal 1997 from $17.8
million in fiscal 1996 for the reasons indicated above. Non-operating income
increased to approximately $1.7 million in fiscal 1997 from approximately
$934,000 in fiscal 1996 due to increased amounts of short-term investments as a
result of the cash proceeds from the Company's initial and secondary public
offerings and a one-time payment of $375,000, in reimbursement of internal costs
related to the February 1997 secondary public offering (see "-- Liquidity and
Capital Resources").

Income before income taxes increased 45.8% to $27.4 million in fiscal 1997
from $18.8 million in fiscal 1996. Provision for income taxes for fiscal 1997
was $10.6 million compared to provision for income taxes of $6.4 million for
fiscal 1996. A portion of the increase in provision for income taxes was from
the termination of Eagle's S Corporation status shortly prior to the initial
public offering on December 6, 1995. Net income increased 35.2% to $16.8 million
in fiscal 1997 from net income of $12.4 million in fiscal 1996 and increased
46.3% from pro forma net income of $11.5 million in fiscal 1996. Diluted net
income per share increased 36.4% to $0.90 in fiscal 1997 from $0.66 pro forma
diluted net income per share in fiscal 1996.

The Company's fiscal 1997 results were affected by the United Parcel
Service ("UPS") strike occurring during a two-week period in the fourth quarter
of fiscal 1997 as the Company shipped freight that would have ordinarily been
shipped by UPS. The Company estimates that the UPS strike resulted in
approximately $6 million in incremental revenue which generated approximately 5%
after tax profit on such revenue. The strike had a slightly positive impact on
gross profit margin as the increased traffic from the strike carried higher
yields on a per-pound basis. The strike, however, resulted in higher operating
expenses (primarily personnel costs) which offset these higher yields. The
Company does not expect to retain any of the business it gained through the UPS
strike, as the two companies generally occupy separate niches within the freight
transportation marketplace.

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
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 subsidiary 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 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 42.7% in fiscal
1995. Gross profit increased 52.5% to $82.1 million in fiscal 1996 from $53.9
million in fiscal 1995.

18
<PAGE> 19

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 ten
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 absolute
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 the reasons indicated above. 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 initial public offering.

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 initial public offering 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 diluted 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 initial public
offering.
<TABLE>
<CAPTION>
1995 FISCAL QUARTER ENDED 1996 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............... $30,605 $28,456 $32,547 $34,606 $40,698 $39,051 $48,240 $57,456
Gross profit........... 12,927 12,048 14,155 14,718 17,569 17,794 21,224 25,546
Operating Income....... 4,010 2,384 3,050 2,761 4,259 3,330 4,515 5,745

<CAPTION>
1997 FISCAL QUARTER ENDED
-------------------------------------
DEC 31 MAR 31 JUN 30 SEP 30
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............... $67,586 $61,489 $71,301 $91,392
Gross profit........... 29,515 26,683 31,320 40,634
Operating Income....... 7,198 4,025 6,352 8,124
</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 decreased $2.3 million to
$27.8 million at September 30, 1997 from $30.1 million at September 30, 1996. At
September 30, 1997, the Company had working capital of $60.6 million and a
current ratio of 3.30 compared to working capital of $41.5 million and a current
ratio of 2.95 at September 30, 1996. The Company's working capital has increased
primarily as a result of the proceeds from the Company's secondary public
offering, 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, 1997 were
approximately $6.5 million. The Company believes that cash flow from operations,
its $10 million credit facility and the remaining proceeds from its public
offerings will be adequate to support its normal working capital and capital
expenditures requirements for at least the next 12 months.

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Other than its initial and 1997 public offerings, 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 September 30, 1997, 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 $40.4 million
as of November 30, 1997. 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 in January 1998. The
Company is considering implementing other financing alternatives following
expiration of the credit facility. 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 of 2 to 1 and a leverage ratio not greater than 2.25
to 1 and restrict the payment of dividends to 25% of the Company's cumulative
net worth generated after the date of the initial public offering. 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.

On January 10, 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 (the Houston facility).
Estimated costs of the Houston facility are $8.0 million. Under the terms of the
lease agreement, average monthly lease payments are estimated to be
approximately $59,000 (including monthly interest costs based upon LIBOR rate
plus 200 basis points) beginning upon the completion of the construction of the
facility and continuing for a term of 52 months with a balloon payment equal to
the outstanding lease balance (initially equal to the cost of the facility) due
at the end of the lease term. The Company has an option, exercisable at any time
during the lease term, and under certain circumstances may be obligated, to
acquire the facility for an amount equal to the outstanding lease balance. In
the event the Company does not exercise the purchase option, and is not
otherwise required to acquire the facility, it is subject to a deficiency
payment computed as the amount equal to the outstanding lease balance minus the
then current fair market value of the Houston facility. The Company expects that
the amount of any such deficiency payment would be expensed. As of September 30,
1997, the lease balance was approximately $4 million. Construction of the
facility is estimated to be completed in February 1998.

The Company made distributions of cash and/or notes to its pre-IPO
shareholders in an estimated amount of $2.7 million and $14.6 million during the
fiscal years ended September 30, 1996 and 1995. Prior to the closing of the
initial public offering, 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. A final payment on the notes of approximately $635,000 was
made during the fiscal year ended September 30, 1997 resulting in a total in
such cash and note payments of approximately $17.9 million.

As of September 30, 1997, the Company had outstanding non-qualified stock
options to purchase an aggregate of 2,109,600 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 $35.125). 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 years ended September 30,
1997 and 1996 of non-qualified stock options to purchase an aggregate of 452,489
and 296,566 shares of Common Stock, the Company is entitled to a federal income
tax deduction of approximately $10.2 million and $8.2 million. Assuming an
effective tax rate of 40%, the Company expects to realize a tax benefit of
approximately $4.1 million and $3.4 million in fiscal 1997 and 1996,
respectively; 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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<PAGE> 21

In February 1997, the Company completed an underwritten secondary public
offering of 1,779,922 shares of its Common Stock at a price to the public of
$28.25 per share. The Company sold 232,164 of these shares, and the net proceeds
received by the Company after deducting underwriting discounts and commissions
were $6.2 million and will be used for general corporate purposes. The Company
did not receive any of the proceeds from the sale of the 1,547,758 of these
shares sold by Daniel S. Swannie, a former executive officer and director of the
Company. Pursuant to an agreement between the Company and Mr. Swannie entered
into in connection with the offering, Mr. Swannie reimbursed the Company for all
of its out-of-pocket expenses incurred in connection with the offering and made
a payment to the Company of $375,000 for the Company's estimated internal costs
relating to the offering. The 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.

On September 19, 1997, the Company acquired the operating assets and
assumed certain liabilities of Michael Burton Enterprises, Inc., a
transportation and value-added logistics service provider in Columbus, Ohio. The
Company paid approximately $5.6 million in cash and issued 33,362 shares of
Common Stock in this transaction. The acquisition agreement also provides for
three contingent payments of up to $1.8 million each if certain annual sales
goals are achieved. The acquisition was accounted for as a purchase;
accordingly, the purchase price was allocated over the basis of the estimated
fair market value of the net assets acquired. This allocation resulted in
goodwill of approximately $4.8 million and is being amortized over the estimated
useful life of the business acquired. The results of operations for the acquired
operations were included in the consolidated statement of income from the
acquisition date forward.

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BUSINESS

GENERAL

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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 is in the process of upgrading 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
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 Company's web site now allows customers to obtain shipment
tracking information via the Internet.

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.

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. An air 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. Air freight forwarders often tailor 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 Federal Express
Corporation, United Parcel Service of America, Inc., Airborne Freight
Corporation, DHL Worldwide Express, 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 Emery Air Freight Corporation and
BAX Global, Inc., focus on shipments 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 $23.6 billion in 1996, which represented a 8.3%
increase over 1995 levels. Of these revenues, $18.7 billion was attributable to
integrated shippers, most of which were small parcel shipments, while $4.9
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, generally 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 60 as of
September 30, 1997. The Company currently plans to open terminals in
approximately 15 additional locations during the remainder of fiscal 1998 and up
to another 15 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,
Canada and Mexico. The Company may complement its internal expansion with
selective acquisitions and has recently completed an acquisition in Columbus,
Ohio. 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.

DEVELOPMENT OF INTERNATIONAL FREIGHT FORWARDING

The Company intends to continue to expand its international freight
forwarding services and expects that these operations will be the focus of an
increasing portion of management time and Company resources. The Company plans
to expand its overseas presence through a variety of means that may include
exclusive or nonexclusive agency agreements, direct equity positions within
selected overseas agencies, and strategic acquisitions. The Company is in the
process of establishing a network of agents in international locations,
primarily in Europe and the Far East, and may also consider acquisitions as part
of its international expansion strategy. The Company has recently signed letters
of intent for two acquisitions that would expand the Company's capabilities in
South America and Europe. See "-- International Air Freight Forwarding
Services". 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

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margins for its international business will be consistent with those for its
domestic business. The Company is also designing an exclusive international
information management system which is expected to utilize Internet-based
technology to facilitate its global operations and communications network. The
Company expects to emphasize the marketing of international services through a
separate sales force in strategically designated domestic locations including
Atlanta, Chicago, Dallas, Houston, Los Angeles, Miami, Monterrey, New York, San
Francisco and Toronto. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General."

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 43 of its 60
terminal locations, as well as at one location without air freight forwarding
operations. The Company plans to initiate local pick-up and delivery services in
approximately 20 additional locations in fiscal 1998. 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 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.

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. 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 terminal 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 has invested, and
plans to continue to invest substantial management and financial resources in
the development and upgrading 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
integrated information 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

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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 is field testing 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 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 a single platform using equipment provided by
the Company, thereby simplifying the customer's information and vendor
management functions.

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. All of the Company's air 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 begun regularly-scheduled dedicated
charters of four cargo airplanes under short term leases to service specific
transportation lanes. 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 per pound 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 -- 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 -- 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, generally 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, 1997, the Company's principal
forwarding customers included shippers of computers and other electronic and
high-technology equipment, printed and publishing

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<PAGE> 27

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, 1997,
average shipment weight was approximately 521 pounds, ranging in size from small
packages of documents to 60,000 pound deliveries of trade show exhibit material.
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 $652,000, $468,000, and
$324,000 for the fiscal years ended 1997, 1996 and 1995, respectively.

INTERNATIONAL AIR FREIGHT FORWARDING SERVICES

The Company continues to expand its international forwarding operations by
entering into agreements with independent cargo agents at strategic worldwide
locations. These agents provide breakbulk, pick-up and delivery, and customs
brokerage services for cargo generated by the Company's North American based
locations, as well as arranging for overseas sales of cargo bound for North
America. The Company plans to expand its overseas presence through a variety of
means that may include exclusive or nonexclusive agency agreements, direct
equity positions within selected overseas agencies, and strategic acquisitions.
The Company is also emphasizing the marketing of its international services
throughout its North American network, particularly at some of its largest
locations including: Atlanta, Chicago, Dallas, Houston, Los Angeles, Miami,
Monterrey (Mexico), New York, San Francisco, and Toronto (Canada).

To support its international operations, in the third quarter of fiscal
year 1997 the Company received certification from the Federal Maritime
Commission as an NVOCC (Non-Vessel Owning Common Carrier) to facilitate the
handling of ocean shipments. Additionally, the Company intends to pursue a
customs brokerage license from the U.S. Department of the Treasury. The
Company's proposed acquisitions described below could expand the Company's
customs brokerage and ocean forwarding operations. The Company generated $20.9
million in international revenues in the fiscal year ended September 30, 1997,
or an increase of $11.1 million over the previous fiscal year ended September
30, 1996. The Company intends to utilize its relationships with the major U.S.
based air carriers to secure competitive rate and space agreements for its
international cargo. In addition, the Company continues to emphasize the use of
both Eagle Transportation Services and Eagle Freight Services to facilitate the
pick-up, delivery and line-haul for the domestic portion of international
freight shipments. The Company is also developing an exclusive international
information management system which is expected to utilize Internet-based
technology to facilitate its operations and communications network.

On January 5, 1998, the Company announced the signing of a letter of intent
to acquire Eagle Companies, a privately-held international freight forwarder
based in Miami, Florida. Eagle Companies is a full-service forwarder whose
services include customs clearing services, ocean forwarding and airfreight
import and export. Eagle Companies' operations focus on Argentina, Brazil and
Chile and other South American countries. Sales for Eagle Companies totaled
approximately $19 million in the twelve-month period ended December 31, 1997.
Despite the similarity in names, the Company and Eagle Companies have had no
prior affiliation.
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Under the terms of the letter of intent, the Company will acquire
substantially all of the operating assets of Eagle Companies for an undisclosed
sum, consisting of cash, Common Stock and a three-year contingent earnout
payable in Common Stock if certain performance benchmarks are met.

On January 16, 1998, the Company reported that it has signed a letter of
intent to acquire S. Boardman, a privately-held full service freight forwarder
based in London, England. S. Boardman serves the international freight
forwarding market from three facilities in London, Manchester and Birmingham,
England. For the twelve-month period ended March 31, 1997, total revenues for S.
Boardman were approximately $25 million and revenues excluding customs, duties
and value added taxes were approximately $13 million.

The completion of the acquisition of S. Boardman would provide the Company
with its first company-owned overseas facilities. The majority owner of S.
Boardman, Philip Bartlett, together with shareholders David Cantrell, Martin
Jackson and Paul Judge, are expected to continue to head up the acquired
company, which will operate as a subsidiary of the Company.

Under the terms of the letter of intent, the Company will acquire all of
the outstanding stock of S. Boardman. The Company will pay an undisclosed cash
sum and a three-year contingent cash earnout if certain performance benchmarks
are met.

Completion of both the Eagle Companies and the S. Boardman acquisitions
will be subject to further due diligence, approval of the Company's board of
directors, the negotiation and execution of a definitive purchase agreement,
regulatory approvals, and other customary closing conditions. There can be no
assurance that either of the proposed acquisition will be consummated on the
terms described above, or at all.

LOCAL DELIVERY SERVICES

Through its subsidiary Eagle Freight Services, Inc., 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. Eagle Freight Services focuses on obtaining and servicing
those accounts with a relatively high volume of business, which the Company
believes provides a greater potential for profitability than a broader base of
small, infrequent customers. The Company is in the process of upgrading the
information systems used by Eagle Freight Services. Such improvements included
bar code and signature scanners that are currently being field tested and would
allow for enhanced tracking of shipments and access by shippers of receipt
signatures for proof of delivery information. The Company used a portion of the
proceeds from its initial public offering to fund this upgrade during fiscal
years 1997 and 1996.

Eagle Freight Services commenced service in Houston in 1989 and in recent
years has rapidly expanded its operations. On October 1, 1994, the Company
acquired a 50% ownership interest in Eagle Freight Services and acquired the
remaining 50% at the closing of the initial public offering on December 6, 1995.
As of September 30, 1997, local delivery services were offered in 43 of the 60
cities in which the Company's terminals were located, with 15 of such locations
being established during fiscal 1997. 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 20 additional
locations in fiscal 1998, although such plans may change based on several
factors. Eagle Freight Services is currently offered at one location without
airfreight forwarding operations. 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. The Company's
Houston and Columbus operations include a number of Company-owned or leased
trailers, trucks and other ground equipment primarily to service certain
specific customer accounts.

During the fiscal years ended September 30, 1997 and 1996, Eagle Freight
Services had revenues of $65.0 million and $31.7 million, respectively.
Approximately $47.9 million and $20.2 million of such revenues in the fiscal
years ended September 30, 1997 and 1996, respectively, were attributable to the
Company's air

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freight forwarding operations, which were approximately 83% and 63%,
respectively, of the total cost of providing local pick-up and delivery for the
Company's freight forwarding customers. The remaining $17.1 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, Inc.,
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 transportation providers. Eagle Transportation
Services 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 1,061 and 1,245 during the fiscal years ended September 30, 1997
and 1996, respectively. Eagle Transportation Services is operated out of the
Company's Houston offices. As with local pick-up 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.

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.
The Company's integrated information systems (collectively, "Worldport") include
logistics information, 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
those of its customers interfacing with Worldport, of information on the status
of shipments in the custody of those airlines. Worldport's electronic

29
<PAGE> 30

data interchange also allows for status updates, 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's web site allows customers to obtain
shipment tracing 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
operations. Worldport is 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 customers' 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, 1997 and 1996, the Company had installed 62 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

30
<PAGE> 31

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 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 services and
short-term warehousing.

MARKETING AND CUSTOMERS

The Company's customers 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. For the
fiscal year ended September 30, 1997, no customer accounted for greater than 10%
of the Company's revenues. Adverse conditions in the industries of the Company's
customers or loss of a significant customer could negatively impact the Company.

The Company markets its services through an organization consisting of
approximately 250 full-time salespersons supported by the sales efforts of
senior management, six regional managers, ten regional sales managers, terminal
managers and a national services center. The Company plans to emphasize the
marketing of international services through a separate sales force. Managers at
each terminal are responsible for customer service and coordinate the reporting
of customers' requirements and expectations with the regional managers and
regional sales managers. In addition, the regional managers are responsible for
the financial performance of the stations in their region. Company employees are
available 24 hours a day to respond to customer inquiries.

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 60
terminals located at or near airports throughout the United States and in Mexico
and 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 six regional managers. As of September
30, 1997, the Company's corporate office occupied approximately 51,000 square
feet of space in facilities located in Houston, Texas. All corporate office
space is leased under agreements that expire in 1998. The Company's 60 terminal
locations typically are located at or near major metropolitan airports and
occupy approximately 1,000 to 52,000 square feet of leased space each and
typically consist of offices, warehouse space, bays for loading and unloading
and facilities for packing. In addition, the Company has locations that are
limited to sales and administrative activities. Currently, other than its
Newark, New Jersey 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

31
<PAGE> 32

its Houston terminal and is constructing a new terminal, warehouse and
headquarters facility expected to be completed in February 1998. Generally, each
terminal location lease is for a term of three to six years and expires between
fiscal 1998 and fiscal 2003. From time to time, the Company may expand or
relocate certain terminals to accommodate growth.

The Company's terminals as of September 30, 1997 were:

<TABLE>
<CAPTION>
MONTH AND
LOCATION AIRPORT SERVED YEAR OPENED
<S> <C> <C>
Houston, Texas* George Bush 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 October 1989
Airport
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 Carolina* Raleigh-Durham Airport January 1994
Austin, Texas* Robert Mueller Municipal Airport February 1994
Greenville, South Carolina* Greenville/Spartanburg Airport March 1994
Cincinnati, Ohio* Cincinnati/N. Kentucky International April 1994
Airport
Minneapolis, Minnesota* Minneapolis St. Paul International May 1994
Airport
Memphis, Tennessee* Memphis International Airport July 1994
Detroit, Michigan* Detroit Metro Airport September 1994
Portland, Oregon* Portland International Airport September 1994
Baltimore, Maryland/Washington, D.C.* Baltimore/Washington International September 1994
Airport
Phoenix, Arizona* Phoenix Sky Harbor International November 1994
Airport
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
</TABLE>

32
<PAGE> 33
<TABLE>
<CAPTION>
MONTH AND
LOCATION AIRPORT SERVED YEAR OPENED
<S> <C> <C>
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
Laredo, Texas Laredo International Airport October 1996
Anchorage, Alaska Anchorage International Airport October 1996
Richmond, Virginia* Richmond International Airport October 1996
Toronto, Ontario* Pearson International Airport December 1996
Monterey, Mexico Aeropuerto Internacional Mariano April 1997
Escobedo
South Bend, Indiana Michiana Regional Airport April 1997
Harrisburg, Pennsylvania* Harrisburg International Airport April 1997
Washington, D.C.** Dulles International Airport April 1997
Boise, Idaho Boise Air Terminal June 1997
Reno, Nevada Reno/Tahoe International June 1997
Nashville, Tennessee* Barryfield Nashville Airport July 1997
Little Rock, Arkansas Little Rock National Airport August 1997
Guadalajara, Mexico Aeropuerto Internacional Miguel Hidalgo September 1997
Mexico City, Mexico Aeropuerto Internacional De La CD. De September 1997
Mexico
</TABLE>

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

* Includes Eagle Freight Services local pick-up and delivery operations.

** Eagle Freight Services location only.

COMPETITION AND INDUSTRY TRENDS

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 Emery Air
Freight Corporation and BAX Global, Inc. 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 Fritz Companies Inc., Expeditors International of Washington Inc.,
Circle International Group, Inc. and Air Express International Corporation, 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 1,850 full-time employees at December 31,
1997, including 250 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 700 independent
owner/operators of local delivery services as of December 31, 1997. 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 151 Company employees as of December 31,
1997. See "Risk Factors -- Independent Owner/ Operators" and "-- Pick-up and
Delivery Claims Exposure."

33
<PAGE> 34

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. 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, terminal managers retain 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 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 Company's 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 (the "FMC"). The FMC licenses ocean freight forwarders. Indirect
ocean carriers (Non-Vessel Operating Common Carriers) are subject to FMC
regulation, under the FMC tariff filing and surety bond requirements, and under
the Shipping Act of 1984, particularly those terms proscribing rebating
practices.

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.

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<PAGE> 35

LEGAL PROCEEDINGS

In December 1997, the U.S. Equal Employment Opportunity Commission ("EEOC")
issued a Commissioner's Charge against the Company and certain of its
subsidiaries (the "Commissioner's Charge") pursuant to Sections 706 and 707 of
Title VII of the Civil Rights Act of 1964, as amended ("Title VII"). The Company
intends to vigorously defend against the allegations contained in the
Commissioner's Charge. In the Commissioner's Charge, the EEOC charged the
Company and certain of its subsidiaries with violations of Section 703 of Title
VII, as amended, the Age Discrimination in Employment Act of 1967, and the Equal
Pay Act of 1963, resulting from (i) engaging in unlawful discriminatory hiring,
recruiting, and promotion practices and maintaining a hostile work environment,
based on one or more of race, national origin, age and gender, (ii) failures to
investigate, (iii) failures to maintain proper records and (iv) failures to file
accurate reports. The Commissioner's Charge states that the persons aggrieved
include all Blacks, Hispanics, Asians and females who are, have been or might be
affected by the alleged unlawful practices. The Company cannot currently predict
with any great degree of certainty, the length of time it will take to resolve
this matter, the likely outcome of this matter or the effect of any such
outcome. An adverse determination of the matters in the Commissioner's Charge
would likely result in a civil action by the EEOC that could seek back pay,
other compensatory damages, and punitive damages for the allegedly aggrieved
persons.

From time to time the Company is a party to various legal proceedings
arising in the ordinary course of business. Except as described above, the
Company is not currently a party to any material litigation and is not aware of
any litigation threatened against it which it believes would have a material
adverse effect on its business.

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<PAGE> 36

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....................... 44 Chairman of the Board of Directors,
President and Chief Executive Officer
Ronald E. Talley..................... 46 Chief Operating Officer
Douglas A. Seckel.................... 46 Chief Financial Officer, Secretary and
Treasurer; Director
John C. McVaney...................... 39 Executive Vice President
Frank J. Hevrdejs.................... 52 Director
Neil E. Kelley....................... 38 Director
William P. O'Connell................. 58 Director
Other Key Employees:
Daniel P. DiGregorio................. 43 Vice President of Management Information
Systems
D. Wayne Tompkins, Jr................ 46 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 44, 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 15 years experience in the transportation industry.

Ronald E. Talley, age 46, was appointed Chief Operating Officer of the
Company in December 1997. He joined the Company in 1990 as a station manager,
and later served as a regional manager. In 1996, he served as a Senior Vice
President of Eagle Freight Services, Eagle Transportation and Eagle Charter, and
most recently, he has served as Senior Vice President of Air and Truck
Operations for the Company. Prior to joining the Company, Mr. Talley served as a
station manager at Holmes Freight Lines from 1982 to 1990. From 1979 to 1982,
Mr. Talley held a variety of management positions with Trans Con Freight Lines.
From 1969 to 1979, Mr. Talley served in several management positions at Roadway
Express.

Douglas A. Seckel, age 46, 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.

John C. McVaney, age 39, was appointed Executive Vice President of the
Company in January 1998. He joined the Company in 1995 as a station manager and
served most recently as Regional Vice President for the Company's southeast
region. From 1992 to 1995, he served as Regional Manager of the northeast United
States and Canada for Nationsway Transport Service, Inc. From 1989 to 1992, Mr.
McVaney served as National Account Manager for St. Johnsbury Trucking Company,
Inc. During 1989, he was the President and sole owner of B&C of New Orleans,
Inc., a trucking company. From 1987 to 1988, Mr. McVaney served as President of
the Lindsay Division of Bulldog Trucking, Inc. and Regional Manager of Standard
Trucking Company.

Frank J. Hevrdejs, age 52, 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 Group from 1982 to 1989 and from 1994 to the present. Since 1989, he
has served as Chairman of First

36
<PAGE> 37

Sterling Ventures Corp. Mr. Hevrdejs also serves as a director for Mail-Well
Holdings, Inc., Sterling Chemical Holdings, Inc., Purina Mills, Inc., Fibreglass
Holdings Inc. and Enduro Systems Inc.

Neil E. Kelley, age 38, has served as a director of the Company since
September 1995. Mr. Kelley is the Vice Chairman and a senior partner of the
Vitol Group of Companies, an international oil supply, trading and refining
company, where he has served as an Executive Director since 1990. In addition,
Mr. Kelley is Chairman of Vitol Gas & Electric LLC and North Atlantic Refining
Limited, subsidiary companies of the Vitol Group and Vice Chairman of Vitol
Holding B.V. 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 58, 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. He
served as President and Chief Executive Officer of Westweld Supply, Inc. from
1990 to 1995. Mr. O'Connell also serves as a director of AIM, Inc. and the
Parnell Group, Inc.

Daniel P. DiGregorio, age 43, 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.

D. Wayne Tompkins, Jr. age 46, has served as Senior Vice President of
Operations since August 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 1998 Annual
Meeting of Shareholders will be held on February 23, 1998. Each of the current
directors has been nominated for re-election to the Board of Directors at the
1998 Annual Meeting. Shareholders of record as of December 30, 1997 are entitled
to vote at the 1998 Annual Meeting. The purchasers of Shares in this Offering
will, therefore, not be entitled to vote at the 1998 Annual Meeting.

The Board of Directors has an Audit Committee which consists of Messrs.
O'Connell, Kelley and Hevrdejs. 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, Kelley and Hevrdejs 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.

The Board of Directors has a Nominating Committee which consists of Messrs.
Kelley, Hevrdejs and Crane.

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<PAGE> 38

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, 1997 and (ii) the shares of Common Stock
beneficially owned, as of December 31, 1997, 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(2)
<S> <C> <C> <C> <C> <C>
Directors and Executive Officers:
James R. Crane....................... 10,342,378 56.6% 1,750,000 8,592,378 47.0%
Douglas Seckel....................... 140,976 * -- 140,976 *
Frank J. Hevrdejs.................... 45,000(3)(4) * -- 45,000(3)(4) *
Neil E. Kelley....................... 26,000(3) * -- 26,000(3) *
William P. O'Connell................. 25,000(3) * -- 25,000(3) *
Ronald E. Talley..................... 24,498(5) * -- 24,498(5) *
John C. McVaney...................... 9,040(6) * -- 9,040(6) *
Directors and Executive Officers as a
Group (7 persons).................... 10,612,892(7) 57.8% -- 8,862,892(7) 48.3%
Other Five Percent Owners:
Pilgrim Baxter & Associates.......... 1,365,900(8) 7.5% -- 1,365,900(8) 7.5%
Edgemont Asset Management
Corporation....................... 1,000,000(9) 5.5% -- 1,000,000(9) 5.5%
</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 25,000 shares issuable upon the exercise of stock options within 60
days of December 31, 1997.

(4) Does not include 1,500 shares of Common Stock owned by Mr. Hevrdejs' spouse
as to which he disclaims beneficial ownership.

(5) Includes 3,000 shares issuable upon the exercise of stock options within 60
days of December 31, 1997.

(6) Consists of 9,040 shares issuable upon the exercise of stock options within
60 days of December 31, 1997. Mr. McVaney was appointed Executive Vice
President of the Company on January 6, 1998, and such shares represent the
shares of Common Stock beneficially owned by him as of such date.

(7) Includes 87,040 shares issuable upon the exercise of stock options within 60
days of December 31, 1997.

(8) Based on a filing made with the Securities and Exchange Commission
reflecting ownership of Common Stock as of September 30, 1997. The address
of Pilgrim Baxter & Associates is 1255 Drummers Lane, Suite 300, Wayne,
Pennsylvania 19087.

(9) Based on a filing made with the Securities and Exchange Commission
reflecting ownership of Common Stock as of September 30, 1997. The address
of Edgemont Asset Management Corporation is 140 East 45th Street, 43rd
Floor, New York, New York 10017.

38
<PAGE> 39

SELLING SHAREHOLDER

In connection with this Offering, the Company and Mr. Crane have entered
into an agreement pursuant to which Mr. Crane has agreed to reimburse the
Company for all of its out-of-pocket expenses incurred in connection with this
Offering unless the Company sells shares of Common Stock pursuant to the
Underwriters' exercise of their overallotment option. Mr. Crane is a party to
the Shareholders' Agreement described under "Description of Capital
Stock -- Registration Rights of Certain Holders," and this Offering constitutes
a registration pursuant to the registration rights granted therein.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company currently 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, 1997, the issued and outstanding capital stock of the Company
consisted of 18,269,061 shares of Common Stock. There were approximately 1,674
shareholders of record (including brokerage firms and other nominees) of the
Company's common stock as of November 26, 1997. No shares of Preferred Stock are
currently outstanding. As of December 31, 1997, 2,149,059 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 Board of Directors has proposed that the Company's Second Amended and
Restated Articles of Incorporation (the "Articles of Incorporation") be amended
to increase the number of authorized shares of Common Stock to 100,000,000 and
that the Incentive Plan be amended to increase the number of shares reserved for
issuance by 3,000,000. These proposed amendments will be submitted to a vote of
the Shareholders of Eagle at the 1998 Annual Meeting in February 1998, and
adoption of the amendments will require the affirmative vote of the holders of
at least a majority of the outstanding shares of Common Stock entitled to vote
at the 1998 Annual Meeting.

The Board of Directors has adopted, subject to shareholder approval at the
1998 Annual Meeting in February 1998, the Company's Employee Stock Purchase
Plan. A maximum of 200,000 shares of Common Stock (subject to certain
antidilution adjustments applicable in certain circumstances) may be purchased
pursuant to this plan by certain full-time employees of the Company. The
purchase price for the stock will be the lesser of 85% of its fair market value
on the first or last trading day of a specified six-month purchase period.

The following description of certain provisions of the Company's 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.

39
<PAGE> 40

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.

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 Shareholder."

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).

BUSINESS COMBINATION LAW

The Company is subject to Part Thirteen (the "Business Combination Law") of
the Texas Business Corporation Act, which took effect September 1, 1997. In
general, the Business Combination Law prevents an "affiliated shareholder"
(defined generally as a person that is or was within the preceding three-year
period the

40
<PAGE> 41

beneficial owner of 20% or more of a corporation's outstanding voting shares) or
its affiliates or associates from entering into or engaging in a "business
combination" (defined generally to include (i) mergers or share exchanges, (ii)
dispositions of assets having an aggregate value equal to 10% or more of the
market value of the assets or of the outstanding common stock or representing
10% or more of the earning power or net income of the corporation, (iii) certain
issuances or transactions by the corporation that would increase the affiliated
shareholder's number of shares of the corporation, (iv) certain liquidations or
dissolutions, and (v) the receipt of tax, guarantee, loan or other financial
benefits by an affiliated shareholder other than proportionately as a
shareholder of the corporation) with an "issuing public corporation" (which
includes the Company) during the three-year period immediately following the
affiliated shareholder's acquisition of shares unless (a) before the date such
person became an affiliated shareholder, the board of directors of the issuing
public corporation approves the business combination or the acquisition of
shares made by the affiliated shareholder on such date or (b) not less than six
months after the date such person became an affiliated shareholder, the business
combination is approved by the affirmative vote of holders of at least
two-thirds of the issuing public corporation's outstanding voting shares not
beneficially owned by the affiliated shareholder or its affiliates or
associates. The Business Combination Law does not apply to a business
combination with an affiliated shareholder that was the beneficial owner of 20%
or more of the outstanding voting shares of the issuing public corporation on
December 31, 1996, and continuously until the announcement date of the business
combination; as a result, the restrictions of the Business Combination Act would
not apply to Mr. Crane who has been the beneficial owner of more than 20% of the
outstanding Common Stock continuously since prior to December 31, 1996. In
discharging the duties of director under the Business Combination Act or
otherwise, a director, in considering the best interests of the Company, may
consider the long-term as well as the short-term interests of the Company and
its shareholders, including the possibility that those interests may be best
served by the continued independence of the Company.

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. 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.

41
<PAGE> 42

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"). Such
registration rights are no longer applicable with respect to Mr. Swannie, Mr.
Roberts and Mr. Seckel. 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. 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 constitutes the first registration under 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.

42
<PAGE> 43

UNDERWRITING

Subject to the terms and conditions of an Underwriting Agreement, dated
January 27, 1998 (the "Underwriting Agreement"), Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), Morgan Stanley & Co. Incorporated, William Blair
& Company, L.L.C. and Gerard Klauer Mattison & Co., Inc. have severally agreed
to purchase 1,750,000 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......... 525,000
Morgan Stanley & Co. Incorporated........................... 525,000
William Blair & Company, L.L.C.............................. 525,000
Gerard Klauer Mattison & Co., Inc........................... 175,000
---------
Total....................................................... 1,750,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.

The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the public offering price set forth on the cover
page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $0.83 per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $0.10 per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Underwriters at any time without notice. The Underwriters
do not intend to confirm sales to any accounts over which they exercise
discretionary authority.

The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of 262,500 additional shares of Common
Stock at the public offering price less underwriting discounts and commissions.
The Underwriters may exercise such option solely to cover overallotments, if
any, made in connection with the offering. To the extent that the Underwriters
exercise such option, each Underwriter will become obligated, subject to certain
conditions, to purchase its pro rata portion of such additional shares based on
such Underwriter's percentage underwriting commitment as indicated in the
preceding table.

The Selling Shareholder intends to use approximately $8.6 million of the
net proceeds from the sale of shares offered by him to repay indebtedness
associated with a margin loan owed by him to DLJ. Accordingly, this Offering is
being made in compliance with the requirements of Rule 2720(c) of the Conduct
Rules of the National Association of Securities Dealers, Inc.

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.

Each of the Company, its executive officers and directors and certain
shareholders of the Company (including the Selling Shareholder) has agreed,
subject to certain exceptions, not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described

43
<PAGE> 44

in clause (i) or (ii) is to be settled by the delivery of Common Stock, or such
other securities, in cash or otherwise), in the case of the Company and its
executive officers, directors and certain shareholders, other than the Selling
Shareholder, for a period of 90 days and, in the case of the Selling
Shareholder, for a period of one calendar year after the date of this Prospectus
without the prior written consent of DLJ, 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 an 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 in connection with certain
acquisitions; (v) shares of Common Stock transferred among family members and to
trusts for estate planning purposes; and (vi) 20,000 shares of Common Stock
which may be gifted by the Selling Stockholder to his alma mater. In addition,
during such period, the Company has also agreed not to file any registration
statement with respect to, and each of its executive officers, directors and
certain shareholders of the Company (including the Selling Shareholder) has
agreed not to make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock without DLJ's prior written
consent, other than those relating to transactions permitted by the foregoing
sentence.

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.

Other than in the United States, no action has been taken by the Company,
the Selling Shareholder or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the offering of the Common Stock and the distribution
of this Prospectus. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.

The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for or purchase shares of Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive market
maker generally may not exceed 30% of its average daily trading volume in the
Common Stock during a specified two month prior period, or 200 shares, whichever
is greater. A passive market maker must identify passive market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may stabilize or maintain the market price of the Common Stock above
independent market levels. Underwriters and dealers are not required to engage
in passive market making and may end passive market making activities at any
time.

In connection with the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. These activities may stabilize or
maintain the market price of the Common Stock above independent market levels.
The Underwriters are not required to engage in these activities, and may end any
of these activities at any time.

DLJ has, in the past, provided certain investment banking and underwriting
services for the Company for which they have received customary compensation.

44
<PAGE> 45

LEGAL MATTERS

Certain legal matters in connection with the shares of Common Stock offered
hereby are being passed upon for the Company and for the Selling Shareholder by
Baker & Botts, 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, 1996 and 1997,
and for each of the three years in the period ended September 30, 1997 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 documents 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 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,
1997;

2. Current Report on Form 8-K dated January 5, 1998;

3. Current Report on Form 8-K dated January 22, 1998; and

4. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A dated November 27, 1995.

45
<PAGE> 46

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.

46
<PAGE> 47

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, 1997 and
1996...................................................... F-3
Consolidated Statement of Income for the Three Years Ended
September 30, 1997........................................ F-4
Consolidated Statement of Cash Flows for the Three Years
Ended September 30, 1997.................................. F-5
Consolidated Statement of Shareholders' Equity for the Three
Years Ended September 30, 1997............................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 48

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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1997, 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 21, 1997, except for Note 12, as to which the date is January 23, 1998

F-2
<PAGE> 49

EAGLE USA AIRFREIGHT, INC.

CONSOLIDATED BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1997 1996
-------- -------
(IN THOUSANDS,
EXCEPT PAR VALUES)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 25,107 $26,696
Short-term investments.................................... 2,679 3,409
Accounts receivable -- trade, net of allowance for
doubtful accounts of $566 and $363, respectively....... 54,662 30,379
Prepaid expenses and other................................ 4,557 2,290
-------- -------
Total current assets.............................. 87,005 62,774
Property and equipment, net................................. 14,090 8,333
Other assets................................................ 5,776 622
-------- -------
$106,871 $71,729
======== =======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable -- trade................................. $ 7,757 $ 2,459
Accrued transportation costs.............................. 6,062 10,818
Accrued compensation and employee benefits................ 10,454 6,821
Other accrued liabilities................................. 2,094 1,189
-------- -------
Total current liabilities......................... 26,367 21,287
-------- -------
Shareholders' equity:
Preferred stock, $0.001 par value, 10,000 shares
authorized
Common stock, $0.001 par value, 30,000 shares authorized,
18,210 and 17,492 shares issued and outstanding........ 18 17
Additional paid-in capital................................ 52,387 39,124
Retained earnings......................................... 28,099 11,301
-------- -------
80,504 50,442
-------- -------
Commitments and contingencies (Note 11)
-------- -------
$106,871 $71,729
======== =======
</TABLE>

The accompanying notes are an integral part of this statement.

F-3
<PAGE> 50

EAGLE USA AIRFREIGHT, INC.

CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues................................................... $291,767 $185,445 $126,214
Cost of transportation..................................... 163,616 103,312 72,366
-------- -------- --------
128,151 82,133 53,848
-------- -------- --------
Operating expenses:
Personnel costs............................................ 67,813 41,619 27,939
Other selling, general and administrative expenses......... 34,639 22,665 13,704
-------- -------- --------
102,452 64,284 41,643
-------- -------- --------
Operating income........................................... 25,699 17,849 12,205
Interest and other income.................................. 1,693 1,079 335
Interest expense........................................... (145) (16)
-------- -------- --------
Income before provision for income taxes................... 27,392 18,783 12,524
Provision for income taxes................................. 10,594 6,357 1,335
-------- -------- --------
Net income................................................. $ 16,798 $ 12,426 $ 11,189
======== ======== ========
Basic earnings per share (Note 12)......................... $ 0.94
========
Diluted earnings per share (Note 12)....................... $ 0.90
========
Pro forma information:
Net income as reported................................... $ 12,426 $ 11,189
Pro forma charge in lieu of income taxes (Note 4)........ 945 3,682
-------- --------
Pro forma net income....................................... $ 11,481 $ 7,507
======== ========
Pro forma basic net income per share (Note 12)............. $ 0.69 $ 0.55
======== ========
Pro forma diluted net income per share (Note 12)........... $ 0.66 $ 0.51
======== ========
</TABLE>

The accompanying notes are an integral part of this statement.

F-4
<PAGE> 51

EAGLE USA AIRFREIGHT, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers............................ $ 266,037 $ 172,461 $ 121,914
Cash paid to carriers, suppliers and employees.......... (259,760) (158,483) (112,471)
Interest received....................................... 1,580 968 284
Interest paid........................................... (145) (16)
Income taxes paid....................................... (6,936) (3,954) (1,150)
--------- --------- ---------
Net cash provided by operating activities....... 921 10,847 8,561
--------- --------- ---------
Cash flows from investing activities:
Purchase of investments................................. (11,350) (27,714) (10,324)
Maturity of investments................................. 12,080 26,232 10,056
Acquisition of business................................. (5,574)
Acquisition of property and equipment................... (6,524) (7,189) (1,703)
Disposition of property and equipment................... 319 72 7
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........... (11,049) (8,229) (2,961)
--------- --------- ---------
Cash flows from financing activities:
Payments on indebtedness................................ (2,178) (277)
Proceeds from indebtedness.............................. 1,800 613
Issuance of common stock, net of related costs.......... 6,162 34,559
Offering fee paid by selling shareholder................ 375
Proceeds from exercise of stock options................. 2,637 628
Payments on shareholder distribution notes.............. (635) (8,209)
Distributions to shareholders........................... (2,701) (6,420)
--------- --------- ---------
Net cash (used) provided by financing
activities.................................... 8,539 23,899 (6,084)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents...... (1,589) 26,517 (484)
Cash and cash equivalents, beginning of year.............. 26,696 179 663
--------- --------- ---------
Cash and cash equivalents, end of year.................... $ 25,107 $ 26,696 $ 179
========= ========= =========
</TABLE>

The accompanying notes are an integral part of this statement.

F-5
<PAGE> 52

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, 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 8).......... 8,673 9 (9)
Net income................................... 12,426 12,426
------ --- ------- ------- -------
Balance at September 30, 1996.................. 17,492 17 39,124 11,301 50,442
Issuance of common stock, net of related
costs (Note 5)............................ 232 6,162 6,162
Issuance of common stock for acquisition
(Note 3).................................. 33 1,000 1,000
Payment on shareholder distribution notes.... (635) (635)
Exercise of stock options.................... 453 1 2,636 2,637
Tax benefit from exercise of stock options... 4,100 4,100
Net income................................... 16,798 16,798
------ --- ------- ------- -------
Balance at September 30, 1997.................. 18,210 $18 $52,387 $28,099 $80,504
====== === ======= ======= =======
</TABLE>

The accompanying notes are an integral part of this statement.

F-6
<PAGE> 53

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, Mexico and Canada. 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.

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.

Short-term investments

At September 30, 1997 and 1996, the Company had short-term investments in
U.S. Treasury Bills and Tax Exempt Municipal Bonds with a carrying value of
$2,679 and $3,409, respectively. Securities with a carrying value of $4,449 at
September 30, 1997 mature in less than one year. 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, 1997. The Company's short-term investments in U.S.
Treasury Bills at September 30, 1996 matured during fiscal 1997 with no gain or
loss recognized.

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. Substantially 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 or 1997. The Company performs ongoing credit evaluations of
its customers to minimize credit risk.

F-7
<PAGE> 54

EAGLE USA AIRFREIGHT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

Goodwill

Goodwill, which represents the excess of purchase price over the fair value
of net assets acquired, is being amortized on a straight-line basis over the
estimated useful lives of the businesses acquired.

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.

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.

NOTE 2 -- PROPERTY AND EQUIPMENT:

Property and equipment consist of the following at September 30:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES 1997 1996
------------ ------- -------
<S> <C> <C> <C>
Computer equipment, software and other equipment.... 5-7 years $10,934 $ 7,000
Vehicles............................................ 3-5 years 3,960 1,897
Furniture and fixtures.............................. 5-7 years 1,031 679
Land................................................ 731 731
Leasehold improvements.............................. lease terms 2,007 706
------- -------
18,663 11,013
Less -- accumulated depreciation and amortization... (4,573) (2,680)
------- -------
$14,090 $ 8,333
======= =======
</TABLE>

Computer equipment and software includes $1,582 at September 30, 1997
related to new scanning and tracking systems for which depreciation and
amortization are expected to begin in December 1997.

NOTE 3 -- BUSINESS ACQUISITION:

On September 19, 1997, the Company acquired the operating assets of Michael
Burton Enterprises, Inc., a transportation and value-added logistics service
provider in Columbus, Ohio. The Company issued 33 shares of common stock, valued
at $1,000, and paid approximately $5,574 in cash. The acquisition agreement also

F-8
<PAGE> 55

EAGLE USA AIRFREIGHT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

provides for three contingent payments of up to $1,750 each if certain annual
sales goals are achieved over the next three years. The acquisition was
accounted for as a purchase. Accordingly, the purchase price was allocated on
the basis of the estimated fair market value of the net assets acquired,
resulting in goodwill of approximately $4,750. The results of operations for the
acquired business were included in the consolidated statement of income from the
acquisition date forward.

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 by the Company for the year ended September 30, 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 were 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>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Current:
State.................................................... $ 1,525 $1,152 $ 941
Federal.................................................. 8,686 5,129 468
------- ------ ------
10,211 6,281 1,409
------- ------ ------
Deferred:
State.................................................... 67 11 (67)
Federal.................................................. 316 65 (7)
------- ------ ------
383 76 (74)
------- ------ ------
Total............................................ $10,594 $6,357 $1,335
======= ====== ======
</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>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income taxes at the applicable federal statutory rates... $ 9,371 $ 6,386 $ 4,258
Tax exempt income........................................ (158) (130)
Nondeductible items...................................... 330 245 216
State income taxes, net of federal benefit............... 1,051 1,163 874
S Corporation taxation benefit........................... (1,307) (4,013)
------- ------- -------
Provision for income taxes............................... $10,594 $ 6,357 $ 1,335
======= ======= =======
</TABLE>

As of September 30, 1997, the Company had outstanding nonqualified stock
options to purchase an aggregate of 2,110 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 $35.13 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 years ended September 30,
1997 and 1996 of nonqualified stock options to purchase an aggregate of 452 and
297 shares of common stock, the Company is entitled to a federal income tax
deduction of approximately $10,200 and $8,200. Assuming an

F-9
<PAGE> 56

EAGLE USA AIRFREIGHT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

effective tax rate of 40%, the Company realized a tax benefit of approximately
$4,100 and $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 (SFAS 109),
"Accounting for Income Taxes". 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.

Deferred tax assets and liabilities as of September 30, 1997 and 1996 were
comprised of the following:

<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Assets:
Bad debt expense.......................................... $ 221 $ 150
Amortization.............................................. 50 34
Accruals and other........................................ 625 414
----- -----
896 598
----- -----
Liabilities:
Depreciation.............................................. (822) (141)
----- -----
(822) (141)
----- -----
$ 74 $ 457
===== =====
</TABLE>

NOTE 5 -- SHAREHOLDERS' EQUITY:

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.

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.

On February 18, 1997, the Company completed an underwritten secondary
public offering (the secondary public offering) of 1,548 shares of its common
stock by Daniel S. Swannie, a former executive officer and director of the
Company, at a price to the public of $28.25 per share. The Company did not
receive any of the proceeds from the sale of shares by Mr. Swannie. Pursuant to
an agreement between the Company and Mr. Swannie entered into in connection with
the offering, Mr. Swannie reimbursed the Company for all of its out-of-pocket
expenses incurred in connection with the offering and made a payment to the
Company of $375 for the Company's estimated internal costs relating to the
offering. The 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. In connection with the
secondary public offering on February 21, 1997, the Company sold 232 shares of
common stock to the underwriters pursuant to an over-allotment option at a price
of $28.25 per share. The net proceeds received by the Company after deducting
underwriting discounts and commissions were $6,162 and will be used for general
corporate purposes.

On November 10, 1997, the Board authorized an increase in the number of
common shares to 100,000,000 common shares.

F-10
<PAGE> 57

EAGLE USA AIRFREIGHT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- BENEFIT PLANS AND STOCK PLANS:

Defined Contribution Plans

The Company maintains a 401(K) profit sharing plan for its employees.
During fiscal 1997, 1996 and 1995, 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 1997, 1996 and 1995, the Company made contributions
of $1,574, $970 and $513, respectively.

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. The Board has authorized 3,100 shares to be available for grant pursuant
to the 1994 Plan.

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.

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.

F-11
<PAGE> 58

EAGLE USA AIRFREIGHT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of September 30, 1997, options to purchase 2,110 shares of common stock
of the Company under both plans were outstanding as follows:

<TABLE>
<CAPTION>
EXERCISE
PRICE
OPTIONS PER SHARE
------- ------------
<S> <C> <C>
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
Granted................................................... 437 19.25-35.13
Forfeited................................................. (68) 1.25-25.75
Exercised................................................. (452) 1.25-19.25
-----
Outstanding at September 30, 1997........................... 2,110 $ 1.25-35.13
=====
Shares available for grant at end of year................... 298
=====
Options vested at end of year............................... 684
=====
</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 5).

The following table summarizes information about stock options outstanding
at September 30, 1997:

<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------- ------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE PRICES NUMBER LIFE PRICE NUMBER PRICE
------------------------ ------ --------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$ 1.25-$ 1.25...................... 830 4.0 $ 1.25 264 $ 1.25
$ 4.00-$14.00...................... 742 5.6 12.40 402 12.64
$15.38-$30.63...................... 530 6.3 22.74 18 16.99
$33.00-$35.13...................... 8 7.0 34.52 0 0.00
----- ---- ------ --- ------
$ 1.25-$35.13...................... 2,110 5.16 $10.69 684 8.36
===== ==== ====== === ======
</TABLE>

The Company applies APB25 and related interpretations in accounting for its
stock option plans. Accordingly, no compensation cost has been recognized for
these plans. The weighted average fair values of options granted during 1997 and
1996 were $12.50 and $6.62, respectively. Had compensation cost for the
Company's option plans been determined based upon the fair value at the grant
dates for awards under these plans consistent with the method set forth under
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation", the Company's net income for the year ended September
30, 1997 and pro forma net income for the year ended September 30, 1996 would
have been reduced by $2,490 and $636, respectively. Earnings per share for
fiscal 1997 and pro forma net income per share for fiscal 1996 would have been
reduced by $0.13 and $0.04, respectively.

F-12
<PAGE> 59

EAGLE USA AIRFREIGHT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The fair value of each option granted is estimated on the date of grant
using the Black-Scholes options-repricing model with the following
weighted-average assumptions used for grants in 1997 and 1996, respectively:
expected volatility of 44% and 70%, risk-free interest rates of 6.3% and 6.1%,
zero dividend yield and an expected life of six years. The disclosure
requirements of SFAS 123 are not applicable to options granted in fiscal 1995.
The pro forma effects for 1997 and 1996 are not indicative of the pro forma
effects in future years.

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 affect 100% ownership of these subsidiaries.

The Company utilizes an aircraft owned by an entity that is controlled by
the principal shareholder and is charged $1.4 per hour for actual usage. Total
travel expense during fiscal years ended September 30, 1997, 1996 and 1995
related to the aircraft was $125, $72 and $77, respectively.

F-13
<PAGE> 60

EAGLE USA AIRFREIGHT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- FINANCING ARRANGEMENTS:

The Company has a number of operating lease agreements, principally for
computer equipment, 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>
1998.................................................... $ 5,172
1999.................................................... 4,031
2000.................................................... 2,596
2001.................................................... 1,795
Thereafter.............................................. 833
-------
$14,427
=======
</TABLE>

Rent expense under all noncancelable operating leases during 1997, 1996 and
1995 was $4,773, $3,062 and $1,877, respectively.

On January 10, 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 (the Houston facility).
Estimated costs of the Houston facility are approximately $8 million. Under the
terms of the lease agreement, average monthly lease payments are approximately
$59 (including monthly interest costs based upon LIBOR rate plus 200 basis
points) beginning October 1, 1997 through January 2, 2002 with a balloon payment
equal to the outstanding lease balance (initially equal to the cost of the
facility) due on January 2, 2002. The Company has an option, exercisable at any
time during the lease term to acquire the facility for an amount equal to the
outstanding lease balance. In the event the Company does not exercise the
purchase option, it is subject to a deficiency payment computed as the amount
equal to the outstanding lease balance minus the then current fair market value
of the Houston facility. As of September 30, 1997, the lease balance was
approximately $4,000.

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 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 was outstanding under the facility during the year
ended September 30, 1997.

F-14
<PAGE> 61

EAGLE USA AIRFREIGHT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9 -- 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>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:-
Net income............................................ $ 16,798 $ 12,426 $11,189
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for bad debts............................... 1,447 743 758
Depreciation and amortization......................... 2,092 1,124 700
Deferred income tax expense (benefit)................. 383 76 (74)
Other income.......................................... 694
Change in assets and liabilities, net:
Trade accounts receivable.......................... (24,486) (13,727) (5,109)
Prepaid expenses and other assets.................. (1,086) (272) (720)
Accounts payable and other accrued liabilities..... 5,079 10,477 1,817
-------- -------- -------
Net cash provided by operating activities..... $ 921 $ 10,847 $ 8,561
======== ======== =======
</TABLE>

Supplemental information on noncash investing and financing activities:

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 $4,100 and $3,374 in fiscal 1997 and 1996.

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 resulted in the establishment of
$457 of deferred tax asset and an increase in additional paid-in capital.

NOTE 10 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

The following is a summary of the Company's unaudited quarterly financial
information for the years ended September 30, 1997 and 1996.

<TABLE>
<CAPTION>
QUARTER ENDED,
---------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997 1997
------------ --------- -------- -------------
<S> <C> <C> <C> <C>
Revenues................................ $67,586 $61,489 $71,301 $91,391
Operating income........................ 7,198 4,025 6,352 8,124
Income before provision for income
taxes................................. 7,471 4,726 6,726 8,469
Net income.............................. 4,514 2,948 4,104 5,232
Diluted earnings per share.............. 0.24 0.16 0.22 0.28
</TABLE>

F-15
<PAGE> 62

EAGLE USA AIRFREIGHT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<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 diluted net income per
share(2).............................. 0.16 0.11 0.17 0.22
</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, 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 diluted net income per share is computed using the
method outlined in Note 12.

NOTE 11 -- 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 periods during which the Company was an S Corporation.

NOTE 12 -- EARNINGS PER SHARE

The Company has adopted Statement of Financial Accounting Standard No. 128
(SFAS 128), "Earnings Per Share". Adoption of SFAS 128 has resulted in the
retroactive restatement of earnings per share and pro forma net income per share
amounts presented herein. Basic earnings per share excludes dilution and is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share includes potential dilution that could occur if securities to issue common
stock were exercised.

As a result of the Company's change from an S Corporation to a C
Corporation in December 1995, presentation of pro forma net income per share is
necessary for the years ended September 30, 1996 and 1995. Historical earnings
per share is not provided for those years as such inclusion is not considered to
be meaningful. Shares issued to the Company's Chairman of the Board in
connection with the Company's acquisition of his interests in certain of the
Company's subsidiaries, as well as the Company's two for one stock split, have
been treated as if they had been effective and outstanding as of October 1,
1994, and included in weighted average shares outstanding.

F-16
<PAGE> 63

EAGLE USA AIRFREIGHT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The computation of basic and diluted earnings per share and pro forma basic
and diluted net income per share follows:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1997 1996 1995
<S> <C> <C> <C>
Net income............................................ $16,798
=======
Pro forma net income.................................. $11,481 $ 7,507
=======
Shares used in basic calculation:
Weighted average shares outstanding................. 17,792 16,234 12,000
Effect of shares issued to 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.................................... 273 1,093
------- ------- -------
Total basic shares............................... 17,792 16,589 13,539
Additional shares for diluted computation:
Effect of stock options............................. 890 939 1,243
------- ------- -------
Total diluted shares............................. 18,682 17,528 14,782
======= ======= =======
Basic earnings per share.............................. $ 0.94
=======
Diluted earnings per share............................ $ 0.90
=======
Pro forma basic net income per share................ $ 0.69 $ 0.55
======= =======
Pro forma diluted net income per share.............. $ 0.66 $ 0.51
======= =======
</TABLE>

F-17
<PAGE> 64

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

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........................... 8
Use of Proceeds........................ 12
Price Range of Common Stock............ 12
Dividend Policy........................ 12
Capitalization......................... 13
Selected Consolidated Financial and
Operating Data....................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 15
Business............................... 22
Management............................. 36
Principal and Selling Shareholders..... 38
Description of Capital Stock........... 39
Underwriting........................... 43
Legal Matters.......................... 45
Experts................................ 45
Available Information.................. 45
Incorporation of Certain Documents by
Reference............................ 45
Index to Consolidated Financial
Statements........................... F-1
</TABLE>

- ------------------------------------------------------
======================================================
- ------------------------------------------------------

1,750,000 SHARES

[EAGLE USA AIRFREIGHT, INC. LOGO]

COMMON STOCK
-------------------------

PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

MORGAN STANLEY DEAN WITTER

WILLIAM BLAIR & COMPANY

GERARD KLAUER MATTISON & CO., INC.
JANUARY 27, 1998

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