CELADON GROUP INC, 10-K, 1997-09-12

CELADON GROUP INC
10-K, 1997-09-12
ARRANGEMENT OF TRANSPORTATION OF FREIGHT & CARGO

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JUNE 30, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 0-23192

CELADON GROUP, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 13-3361050
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

9503 EAST 33RD STREET
INDIANAPOLIS, IN 46236
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (317) 972-7000

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK ($0.033 PAR VALUE)

Indicate by check mark whether the Registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
---- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ ]

As of August 27, 1997, the aggregate market value of the Common Stock held by
non-affiliates of the Registrant (4,023,138 shares) was approximately
$50,792,117 (based upon the closing price of such stock on August 27, 1997). The
number of shares outstanding of the Common Stock ($0.033 par value) of the
Registrant as of the close of business on August 27, 1997 was 7,622,580.

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CELADON GROUP, INC
FORM 10-K

TABLE OF CONTENTS
Page
----
PART I

ITEM 1. Business..........................................................3
ITEM 2. Properties.......................................................14
ITEM 3. Legal Proceedings................................................15
ITEM 4. Submission of Matters to a Vote of Security Holders..............15

PART II

ITEM 5. Market for Registrant's Common Stock and Related
Stockholder Matters............................................16
ITEM 6. Selected Financial Data..........................................17
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................18
ITEM 8. Financial Statements and Supplementary Data......................27
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures...........................59

PART III

ITEM 10. Directors and Executive Officers of the Registrant...............60
ITEM 11. Executive Compensation...........................................64
ITEM 12. Security Ownership Principal Stockholders
and Management.................................................72
ITEM 13. Certain Relationships and Related Transactions...................74

PART IV

ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................................77

SIGNATURES....................................................................83

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PART I

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information in Items 1, 2, 3, 7
and 8 of this Form 10-K include information that is forward looking, such as the
Company's opportunities to increase revenue from its truckload and flatbed
services, its exposure to fluctuations in foreign currencies, its anticipated
liquidity and capital requirements and the results of legal proceedings. The
matters referred to in forward looking statements could be affected by the risks
and uncertainties involved in the Company's business. These risks and
uncertainties include, but are not limited to, the effect of economic and market
conditions, the availability of drivers and fuel and the Company's successful
wind-down of its freight forwarding division, as well as certain other risks
described in Item 1 under "Competition" and "Regulation", and in Item 3 in
"Legal Proceedings" and in Item 7 in "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Subsequent written and oral
forward looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the cautionary statements in
this paragraph and elsewhere in this Form 10-K.

ITEM 1. BUSINESS

GENERAL

Celadon Group, Inc. (collectively with its subsidiaries, the "Company"), is
an international transportation company primarily offering full truckload and
flatbed trucking services. The Company specializes in providing long-haul, full
truckload service between the United States and Mexico. In fiscal 1997, the
Company's truckload division transported approximately 114,000 full truckload
shipments, of which approximately 62,800 were shipments to and from the United
States - Mexican border. The flatbed division moved approximately 32,400 loads,
primarily within the United States.

The Company, a Delaware corporation headquartered in Indianapolis, Indiana,
was formed on July 24, 1986 through the combination of two companies, Celadon
Trucking Services, Inc. and Celadon Logistics, Inc., both owned by the same
principal stockholders. The Company was traditionally engaged primarily in the
long-haul, full truckload business. The Company expanded its trucking presence
in Mexico during May 1995 by making an investment in Servicio de Transportacion
Jaguar, S.A. de C.V. ("Jaguar"), formerly known as Transportes RQF, S.A. de
C.V., a Mexican company formed to provide trucking services. In June 1995, the
Company acquired Cheetah Transportation Company and CLK, Inc., including its
subsidiary Cheetah Brokerage, Inc. (collectively "Cheetah"). Cheetah provides
flatbed trucking and brokerage services principally in the United States.

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TRUCKING

The Company's trucking strategy is driven by a keen focus on service,
technology, and logistics.

Service. The Company specializes in providing premium truckload service
principally to and from the United States-Mexican border. The Company targets
large service-sensitive customers with time-definite delivery requirements and
develops programs tailored to customer specific needs within the United States
and Mexico. Service to these customers is enhanced by the Company's strategy of
team-driver service, a high trailer-to-tractor ratio, the use of well
maintained, late-model tractors and trailers, and 24-hour a day, seven-day a
week dispatch and reporting services. In order to supplement its premium
cross-border service, the Company has also developed strategic relationships
with several key Mexican companies, and in May 1995, further strengthened its
position with the investment in Servicio de Transportacion Jaguar, S.A. de C.V.
("Jaguar"), formerly known as Transportes RQF, S.A. de C.V. These relationships
allow the Company to more effectively monitor shipper-to-consignee movements
between the United States and Mexico, balance its northbound and southbound
freight flows, and increase the productivity and utilization of its trailers.

Technology. The Company has invested in technological applications to
provide a strong platform for enhanced service and future growth. In particular,
the Company has integrated information systems with a QUALCOMM'r', Inc.
("QUALCOMM'r'") satellite communication system (installed in all of the
Company's over the road fleet, including Jaguar). This technology provides
numerous competitive advantages in the area of customer service, driver
satisfaction, time-definite service, and reduced maintenance costs.
Additionally, management believes the linkage of the Company's trucking system
with Jaguar may provide it with a distinct advantage over many of its
competitors, especially in the area of logistics management.

Logistics. Although the Company no longer operates a separate Logistics
division, the Company continues to provide logistics services to its customers.
The Company attempts to differentiate itself by offering to its truckload and
flatbed customers value-added services, including a full service approach to
managing, tracking and reporting the transportation of goods across borders and
within the United States for its transportation customers. This expertise
permits its transportation customers to rely on the Company to provide many
services that were previously performed by the customer. Moreover, the Company's
relationships with Jaguar, and several of the other Mexican trucking companies,
allow the Company to offer full service logistics management of cross-border
shipments. The Company's logistic management service provides an opportunity for
the Company to realize greater revenue per truck mile as well as an opportunity
to differentiate itself when competing for new customer contracts.

TRUCKLOAD DIVISION

The truckload division, which includes Jaguar, accounted for approximately
92%, 87%, and 100% of the Company's operating income from continuing operations
(before corporate expenses) for fiscal 1997, 1996, and 1995, respectively. The
truckload division, based in Indianapolis, Indiana, operates a fleet, which as
of June 30, 1997 consisted of 1,297 tractors and 4,169 trailers based in the

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United States, using non-union, Company-employed drivers. The truckload division
derived approximately 64% of its revenue in fiscal 1997 from shipments
transported to and from the United States-Mexican border. In order to maintain
and strengthen its position in this market, the Company maintains a high
trailer-to-tractor ratio compared to the industry average, enabling it to
provide trailer availability in Mexico for northbound freight; in addition to
the Indianapolis, Indiana headquarters it operates eight terminal locations,
including facilities in Laredo and El Paso, Texas, which are the two largest
inland freight gateway cities between the United States and Mexico; and it
provides services between the United States and Mexico through operating
arrangements and utilization of approximately 17 unaffiliated Mexican truckload
carriers. In addition, through Jaguar, the Company operated 49 tractors at June
30, 1997 and had terminal facilities in Mexico City and Nuevo Laredo, Mexico.

Chrysler Corporation ("Chrysler") is the Company's largest customer and
accounted for approximately 47% of the truckload division's revenue in fiscal
1997. The Company transports Chrysler original equipment automotive parts
primarily between the United States and Mexico and Chrysler after-market
replacement parts and accessories within the United States.

FLATBED DIVISION

The flatbed division was purchased on June 29, 1995 for approximately $5
million. The flatbed division operates under the name of Cheetah Transportation
Company ("Cheetah") and is headquartered in Mooresville, N.C. Cheetah operates
through a network of agents and approximately 290 independent owner-operators to
provide flatbed services to a wide range of customers. The segment's largest
customer is the U.S. Government. Flatbed services are typically characterized by
unique, special purpose freight such as military vehicles, large machinery, pipe
and steel coils. Special permitting for the transportation of high-wide or
overweight loads is occasionally required.

INDUSTRY OVERVIEW

The full truckload market in the United States is defined by the quantity
of goods, generally over 10,000 pounds, shipped by a single customer and is
divided into several segments by the type of trailer carrying goods. These
segments include dry van, temperature-controlled, flatbed, and tank carriers.

The full truckload market is further segmented by the level of service and
pricing demanded by customers. The Company primarily competes in the dry van and
flatbed, service-sensitive segment of this market. Shippers of high value and
time-sensitive goods tend to be more concerned with the service capability of
the carrier rather than simply obtaining the lowest priced transportation. In
many cases, carriers choose either to provide premium service and charge rates
consistent with that service or to compete primarily on the basis of price. In
general, the trucking industry experienced a slowdown as a consequence of the
United States economy in the spring of 1995 and continuing through the first
half of 1996.

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The Company transports general commodity goods in the United States, to and
from destinations in Canada (primarily eastern Canada), and to and from the
United States-Mexican border. The volume of truckload freight shipped between
the United States and Mexico had increased significantly during the three years
leading up to the December 20, 1994 Mexico peso devaluation, primarily as a
result of significant market-oriented economic reform in Mexico and increasing
North American economic interdependence. Subsequent to the peso devaluation,
imports into Mexico of United States manufactured consumer goods declined, while
exports increased as a result of the weaker peso, which improved the Company's
balance of northbound freight movements.

According to current United States and Mexican law, tractors registered in
the United States or Mexico may be operated only in their country of
registration, whereas trailers are permitted to cross the border. Thus, most
cross-border shipments between the United States and Mexico are shipped to drop
off points near the United States-Mexican border where either a Mexican or
United States company picks them up and transports them into Mexico or the
United States, as the case may be.

The Company focuses on transporting freight for customers with long-haul,
time-sensitive delivery requirements. These requirements often include the need
to have cargo transported by two-person driver teams rather than solo drivers
and in certain high volume dedicated traffic lanes relay teams of solo drivers.
The use of driver teams or relay teams permits freight to be moved with fewer
interruptions, allowing shipments to move more quickly and increasing the
utilization of tractors. The need to have shipments move as rapidly as possible
has increased with the rise of just-in-time inventory control. Competition in
this segment of the market is generally based more on the ability of the carrier
to consistently deliver the shipments on time, rather than on the basis of
price.

OPERATIONS

The following table sets forth certain unaudited operating data relating to
the trucking revenue and operations of the Company for the periods and at the
dates indicated:

<TABLE>
<CAPTION>
Fiscal year ended June 30,
--------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Truckload:(2)

Operating ratio(1)........................................ 92.1% 96.5% 89.1%
Average miles per trip.................................... 1,172 1,230 1,199
Average revenue per revenue mile.......................... $1.19 $1.15 $1.17
Empty miles as a percent of revenue miles ................ 9.1% 9.1% 9.7%
Total tractors operated at period end .................... 1,346 1,213 923
Total trailers operated at period end .................... 4,179 3,973 2,738

Flatbed:(3)

Operating ratio(1)........................................ 95.1% 95.8%
Average miles per trip.................................... 482 553
Average revenue per revenue mile.......................... $1.50 $1.38
Total tractors operated at period end .................... 288 201
Total trailers operated at period end .................... 308 221
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(1) Represents operating expenses as a percentage of operating revenue.
(2) Prior to 1996 excludes data related to Jaguar which was acquired in the fourth quarter of fiscal 1995.
(3) Reflects the operations of Cheetah which was acquired in June 1995.

<PAGE>

In order to maximize its equipment utilization, the Company seeks
customers that regularly ship multiple loads from locations along the Company's
primary existing traffic lanes. Customer shipping patterns are regularly
monitored and, as they expand or change, the Company attempts to obtain
additional customers that will complement the new traffic lane.

The Company's primary traffic lane is between the Midwest United States
and the Mexican border, principally through Laredo and El Paso, Texas. To
facilitate its operation in its primary traffic lane, the Company provides
service between the United States and Mexico utilizing Jaguar and approximately
17 other Mexican carriers. In fiscal 1994, the Company entered into a five-year
marketing and operating arrangement with Transportadora Hercel, S.A. de C.V.
("Hercel") for the purpose of coordinating the movement of equipment, the follow
up on sales leads and marketing opportunities and the settlement of amounts due
between Celadon and Hercel. In June 1996, this agreement was amended allowing
the Company to conduct business with multiple Mexican carriers.

In May 1995, the Company made an investment in Servicio de
Transportacion Jaguar, S.A. de C.V. ("Jaguar"), a previously inactive entity.
Jaguar operated 49 tractors at June 30, 1997 and has terminals in Mexico City
and Nuevo Laredo, Mexico. For its investment, the Company acquired 75% of the
stock of Jaguar.

In June 1995, the Company acquired all of the issued and outstanding
Common Stock of Cheetah Transportation Company ("Cheetah") and CLK, Inc.
("CLK"). CLK, through its wholly owned subsidiary Cheetah Brokerage Company,
operates as a freight broker. Operating since 1984, Cheetah is located in
Mooresville, N.C. and provides primarily flatbed services exclusively through
owner operators. At June 30, 1997, Cheetah's fleet of owner operators totaled
approximately 290. The principal products handled by Cheetah include equipment,
building materials, and wire cable. The Company's strategy is to provide its
truckload customer base with flatbed services in the continental United States
and, through the operations of Jaguar, to and from United States and Mexico.

CUSTOMERS

The principal types of freight transported by the Company include
automotive parts, paper products, manufacturing parts, semi-finished products,
appliances, and toys. The Company's customers frequently ship in the North-South
trade lanes. The Company's truckload division currently services in excess of
5,000 trucking customers. Its largest customer is Chrysler, which accounted for
approximately 47%, 54%, and 45% of the Company's truckload revenue for fiscal
1997, 1996, and 1995, respectively. Of the total revenue received in fiscal 1997
from Chrysler, approximately 30% was derived from the Company's transportation
of after-market replacement parts and accessories within the United States and
approximately 70% was derived from shipments of original equipment automotive
parts between the Unites States and Mexico. Chrysler business is covered by two
agreements, one of which covers the United States-Mexico business and the other
of which covers domestic business. The international contract was extended for
three years and now expires on December 31, 1999. The contract applicable to
domestic business has expired but is being used as the basis to provide service
while a new contract is negotiated. No other customer accounted for more than 5%
of the Company's trucking revenue during any of its three most recent fiscal
years.

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REVENUE EQUIPMENT

The Company's fleet is comprised of premium tractors manufactured by
Freightliner, Kenworth, and Peterbilt to the Company's specifications, which the
Company believes helps it to attract and retain drivers in the truckload
division and minimize maintenance and repair costs. The Company leases or owns
all of its tractors and trailers in its truckload division and utilizes
independent owner-operators in its flatbed division. The flatbed division,
Cheetah, does not own or lease a significant amount of revenue equipment.

As of June 30, 1997, the average age of the Company's tractors was
approximately 2.4 years. The Company utilizes a comprehensive maintenance
program to minimize downtime, enhance the resale value of its revenue equipment,
and control its maintenance costs. Centralized purchasing of spare parts and
tires, and centralized control of on-road repairs are also used to control
costs. The Company generally replaces its tractors every five years, although it
retains some older tractors for use on shorter haul routes where they can be
operated more efficiently. The Company further reduces exposure to declines in
the resale value of the Company's equipment by entering into agreements with
certain manufacturers providing for pre-established resale values.

The following table shows by type and model year the Company's,
including Jaguar, revenue equipment at June 30, 1997:

Model Year ............................ Tractors Trailers
---------- -------- --------

1998 ............................ 17 0
1997 ............................ 141 10
1996 ............................ 340 1,601
1995 ............................ 421 976
1994 ............................ 223 297
1993 ............................ 168 272
1992 ............................ 12 149
1991 ............................ 11 51
1990 ............................ 4 157
Pre-1990 ............................ 9 666
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Total ............................ 1,346 4,179
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Approximately 560 of the tractors are subject to operating leases and
the remainder either are owned by the Company or subject to capital leases.
Approximately 59% of the Company's trailers are 48 foot units, and the remainder
are 53 foot units which have become the standard for the larger United States
truckload carriers but which currently may be operated legally in Mexico only in
limited circumstances. The Company believes that its 3.1-to-1 trailer-to-tractor
ratio is higher than the average industry ratio. The Company maintains a high
trailer-to-tractor ratio in order to provide trailer availability in Mexico and
to allow it to leave extra trailers with its high volume shippers to load and
unload at their convenience. As of June 30, 1997, approximately 80% of the
Company's trailers had an "air ride" system. As of June 30, 1997, the Company
had on order 58 tractors and 300 trailers for delivery in fiscal 1998.
Management believes that there are presently adequate sources of secured
equipment financing together with its existing credit facility and cash flow
from operations to provide sufficient funds to purchase the tractors and
trailers presently on order. Additional growth in the tractor and trailer fleet
beyond the Company's existing orders will require additional sources of
financing. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

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COMPUTER CONTROL SYSTEM

The Company utilizes a computerized management control system at its
Indianapolis facility to monitor all aspects of its operations. This system
provides the Company with current information regarding drivers, shipment status
and location. The computer and communication system enables tracking and
monitoring with Jaguar and certain other Mexican carriers.

The Company completed a technology upgrade program during fiscal 1995.
As part of this program, all of the Company's over the road tractors have been
equipped with a QUALCOMM'r' satellite tracking and communications system. By
tracking the location of revenue equipment and providing two-way communications
with drivers, the QUALCOMM'r' system simplifies equipment control and permits
timely and efficient communication of critical operating data, such as shipment
orders, loading instructions, routing, mileage operated, payroll, safety,
traffic and maintenance information. The QUALCOMM'r' system permits transmission
of load assignments directly to the on-board display unit, and will even signal
a driver when an assignment is available, so he or she may sleep in the tractor
pending an assignment. The QUALCOMM'r' system is integrated with the Company's
operations and payroll systems. This fully integrated computer network allows
the Company's dispatchers to be able to better match revenue equipment to
available loads and schedule regular maintenance and fueling at Company
terminals, thereby minimizing empty miles and improving productivity through
better equipment utilization. Dispatchers in Indianapolis schedule, monitor, and
coordinate shipments on a 24-hour a day, seven-day a week basis.

During 1996, additional features were added to the system including the
QTOP'r' computer system which enables computerized analysis of dispatching
options and consideration of maintenance intervals, driver home-time and other
factors. This implementation caused a disruption in ongoing operations with a
significant adverse impact on functional performance. Further enhancements are
planned to fully realize the benefits of the Company's technology investment.
"See Managements Discussion and Analysis of Financial Condition and Results of
Operations."

The Company recognizes the potential problems for many computer systems
and the users relating to the Year 2000. The preponderance of the Company's
systems are purchased from outside vendors. The Company has assessed its primary
systems and believes that virtually all of the systems are Year 2000 compliant.
Those installed systems which are not currently able to fully function in the
Year 2000 either have new versions which are Year 2000 compliant and which the
Company is preparing to install on the system, or the vendor has committed to
a Year 2000 compliant release in sufficient time to allow installation and
testing prior to critical cutover dates. Consequently, the Company presently
does not anticipate either a significant amount of incremental expense or a
disruption in service associated with the Year 2000 and its impact on the
Company's computer systems.

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FUEL

Fuel is a significant expense, and the Company has little or no control
over the market price. The Company utilizes several techniques to manage its
fuel expense. The Company purchases fuel in bulk for storage at the Company's
terminals. The Company utilizes fuel efficient equipment and has equipped
approximately 46% of its fleet with 300-gallon and 400-gallon fuel capacity with
the balance of the fleet maintaining the standard 280-gallon capacity. This
extra capacity permits the Company to maximize the use of bulk-purchased fuel
stored at the Company's terminals. Additionally, the Company purchases fuel
futures contracts from time to time for its projected fuel needs. Although the
Company has in the past been able to assess fuel surcharges to customers,
shortages of fuel or increases in fuel prices such as those experienced in March
and April 1996, which were not passed along by the Company to its customers
until early May 1996, have an adverse effect on the Company's profitability.

The Company's storage of fuel at its terminals is subject to
governmental laws and regulations with respect to the protection of the
environment. The Company believes that its fuel storage operations and
facilities have been and are being operated in compliance in all material
respects with all applicable environmental and health and safety laws and
regulations, many of which provide for substantial fines and criminal sanctions
for violations. However, such storage of fuel by the Company at its terminals
entails risks in these areas, and there can be no assurance that material costs
or liabilities will not be incurred in the future. For example, the Company
could be required to take remedial measures in connection with its storage of
fuel at its terminals. Although the Company maintains insurance against
liability for environmental cleanup and compliance costs, there can be no
assurances that such amounts would be adequate in the event of an accident.

DRIVERS

At June 30, 1997, the Company employed 1,576 drivers including those on
vacation and inactive status. Drivers are selected in accordance with specific
guidelines, relating primarily to safety records, driving experience, and
personal evaluations, including a physical examination and mandatory drug
testing. All drivers attend an orientation program and ongoing driver efficiency
and safety programs. On a periodic basis, the Company measures the length of
Company service of the driver work force. Compared to the first quarter of
fiscal 1997, the percentage of drivers with less than one year of service
dropped from 56% to 44% by the end of June 1997. As of June 30, 1997, the
average length of time that the Company's Truckload Division drivers had been
employed by the Company was approximately 2.25 years.

The truckload industry, and thus the Company, is subject to occasional
driver shortages. In the fourth quarter of the 1996 fiscal year and periodically
throughout fiscal 1997, some driver shortages were experienced by the Company as
a consequence of fleet growth. Management believes the Company's ability to
avoid severe driver shortages results from the measures it takes to attract and
retain highly qualified drivers and promote safe operations. The Company tracks
each driver's location on its computer system, allowing him or her to return
home on an average of once every two weeks. The Company also purchases or leases
premium quality tractors and equips them with optional comfort and safety
features, such as air ride suspension and seats, stereo systems, air
conditioners, and oversized sleeper cabs. Drivers are compensated on the basis
of miles driven and number of stops or deliveries made, plus bonuses relating to
performance and compliance with the Company's safety policies. The Company has
modified its pay structure from time-to-time to retain

<PAGE>

and recruit experienced drivers while maintaining a competitive pay structure.
The changes reflect the value assigned to longer service and experienced
employees. Drivers also are eligible to participate in the Company's 401(k)
profit sharing plan, employee stock ownership plan, employee stock purchase plan
and health insurance plans. None of the Company's drivers are represented by a
collective bargaining unit.

As of June 30, 1997, approximately 21% of the Company's tractors were
operated as two- person teams. Two-person driver teams permit freight to be
moved with fewer interruptions and more profitably. The Company has attempted to
increase its number of two-person tractor driving teams by increasing
compensation to team drivers relative to solo drivers, and is attempting to
further increase its number of two-person driving teams by purchasing a number
of "condo unit" tractors designed to afford team members a higher degree of
privacy and comfort. Use of two-person teams is balanced against the number of
available trucks. In certain circumstances, the Company has split two-person
teams to improve utilization of available equipment.

COMPETITION

The full truckload industry is extremely competitive and fragmented.
Competition in the premium long-haul, time-sensitive portion of the market is
based primarily on service and price, although the Company primarily competes on
the level of service it provides to its customers rather than price. The Company
primarily competes with other long-haul truckload carriers and, to a lesser
extent, with medium-haul truckload carriers and railroads. The Company believes
there is a large number of other full long-haul truckload carriers with which it
competes, many of which have greater financial resources, operate more revenue
equipment, and carry a larger volume of freight than the Company.

FREIGHT FORWARDING

The Company entered the international freight forwarding business
through the acquisition in fiscal 1991 of International Freight Holding
Corporation and its subsidiaries (collectively, "Randy International"), which
had been in operation since 1969 and whose services included ocean freight
forwarding and customs brokerage. Effective October 31, 1994, the Company formed
a partnership pursuant to the Partnership Agreement with Jacky Maeder, Ltd., a
freight forwarding company wholly owned by Swissair, for the purpose of
combining the respective United States freight forwarding operations of Randy
International and Jacky Maeder, Ltd.

In March 1995, the Company broadened its United Kingdom freight
forwarding business through the acquisition of Guestair, Ltd.

During fiscal 1995, the freight forwarding division reported a loss
from operations of $7.0 million. This loss was partially attributable to the
write-off of $2.0 million in computer costs related to the conversion of
substantially all of its United States freight forwarding operations to an
integrated system, and $0.8 million of costs associated with the formation of
Celadon/Jacky Maeder Company. The balance of the loss ($4.2 million) was
principally attributed to lower gross profit.

<PAGE>

During December, 1995 the Board of Directors of Celadon Group, Inc.
authorized the disposal of the Company's freight forwarding business. In
connection with the Company's plan of disposition effective February 1, 1996,
the U.S. customer list together with certain assets and liabilities of Celadon's
U.S. freight forwarding business, operating under the name Celadon/Jacky Maeder
Company, were sold to the Harper Group, Inc.'s primary operating subsidiary,
Circle International, Inc. Pursuant to the terms of the transaction, the total
purchase price for these assets and liabilities would be paid in cash and would
equal the net revenue derived from such customer list during the twelve-month
period following February 1, 1996. The Harper Group, Inc. made an initial down
payment of $9.5 million at closing with the balance of the purchase price, if
any, to be paid in quarterly installments as earned by the Harper Group, Inc.
There were no additional payments by Harper Group, Inc. to the Company based on
reported net revenues during the measurement period.

The Company concluded the sale of the United Kingdom freight forwarding
operation to a subsidiary of the Fritz Companies, in June 1996.

Also in May 1996, the Company became the sole owner of the freight
forwarding operations conducted in the New York area by acquiring the minority
interest of Swissair. This step was taken to facilitate the ultimate disposition
of this operation. On December 18, 1996, the Company sold certain assets
consisting primarily of customer lists of its wholly owned freight forwarding
operations conducted in the New York area to NG Enterprises Inc. (NGE), a
company controlled by Norman G. Grief the former President and Chief Executive
Officer of Randy International, Inc. In connection with the sale, the Company
received a 49% interest in NGE, was relieved of its obligation to Norman G.
Grief under his employment contract, agreed to provide a five year interest
bearing revolving credit loan up to $1.9 million secured by the assets of NGE
and agreed to an option exercisable by NGE to acquire the Company's 49% interest
in NGE for $300,000 initially, which amount would increase by $30 thousand
annually. No gain or loss was recognized on the sale. On July 11, 1997, the
Company transferred its 49% interest in NGE to NGE and the business conducted by
NGE was sold to Union-Transport Corporation, a wholly owned subsidiary of
Union-Transport, Inc. a global logistics company. In that transaction,
Union-Transport Corporation assumed, with the Company's consent, certain of the
obligations of NGE to the Company.

In the second quarter of fiscal 1997, there was a dispute between the
Company and its partner in the discontinued freight forwarding operation
concerning final liquidation of the partnership. The dispute was resolved by the
Company acquiring, in February, 1997, the other partner's 30% interest in the
remaining assets and liabilities of the partnership.

LOGISTICS

In the past, the Company coordinated and expedited the worldwide
movement of cargo for special projects such as trade shows and specialized plant
moves in its Logistics division.

In the quarter ended June 30, 1996, the Company continued its program
to concentrate on its core business in truckload and flatbed trucking services
by reducing unrelated activities. In March 1994, the Company had started the
operation of a package delivery business. This business operated in the
Logistics division, under the name Celadon Express, Inc. ("Express") and was
sold in June

<PAGE>

1996. In May 1995, the Company's Logistics division had commenced the operation
of Celsur, Inc. ("Celsur"), a warehousing, logistics and distribution business
operating in South America. On July 3, 1996, Celsur was sold to the former
President of Celadon Group, Inc. for $3.1 million. The sales price was paid with
100,000 shares of the Company's Common Stock valued at $725,000, and an interest
bearing promissory note for $2.4 million which was paid in full when due on
October 3, 1996. Following the sale of the two subsidiaries, the Company
determined that it would discontinue offering logistics services as a separate
product line.

REGULATION

The Company's continuing operations are regulated and licensed by
various federal, state, and foreign agencies, including the Department of
Transportation ("DOT") and the Quebec, Ontario, and Manitoba Ministries of
Transportation and Communications. The trucking 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.

Interstate motor carrier operations are subject to safety requirements
prescribed by DOT. Such matters as weight and equipment dimensions are also
subject to federal and state regulations. The Company operates in the United
States throughout the 48 contiguous states pursuant to operating authority
granted by the ICC and in Canada throughout the provinces of Quebec, Ontario,
and Manitoba pursuant to operating authority granted by the Quebec, Ontario, and
Manitoba Ministries of Transportation and Communications.

PERSONNEL

At June 30, 1997, the Company employed 2,057 persons, of whom 1,576
were drivers, 110 were truck maintenance personnel and 371 were administrative
personnel. None of the Company's drivers or other employees is represented by a
union. In the opinion of management, the Company's relationship with its drivers
and other employees is satisfactory.

CARGO LIABILITY, INSURANCE, AND LEGAL PROCEEDINGS

The Company is a party to routine litigation incidental to its
business, primarily involving claims for personal injury or property damage
incurred in the transportation of freight. In its trucking division, the Company
assumes responsibility from its customers for the safe delivery of the cargo.
Other carriers of the Company's shipments are liable to the Company in the same
manner and to the same extent as the Company is liable to its customers. The
Company currently is self-insuring to $15,000 per occurrence for liability
resulting from physical damage claims and $50,000 per occurrence for personal
injury and property damage claims, $150,000 for workers' compensation and
$10,000 per occurrence for cargo loss. Management believes its uninsured
exposure is conservative for the industry. Consequently, the Company does not
believe that the litigation and claims experienced will have a material impact
on the Company's financial position or results of operations.

<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted for financial
statements issued for periods ending after December 15, 1997. This statement
establishes standards for computing and presenting earnings per share (EPS). It
requires dual presentation of basic and diluted EPS on the face of the income
statement and a reconciliation between the computations. The Company has not yet
determined the impact of Statement 128 on its reported earnings per share.

In June 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosures about Segments of an Enterprise and Related Information, which
is effective for fiscal years beginning after December 15, 1997. This statement
establishes requirements for reporting information about operating segments.
This statement may require a change in the way the Company's segments are
presently reported; however, the extent of the change, if any, has not been
determined.

ITEM 2. PROPERTIES

TRUCKING

The Company as well the truckload division is headquartered in
Indianapolis, Indiana within four buildings located on 30 acres of property
leased by the Company. Dispatch, customer service, maintenance, truck washing,
fuel storage and administrative functions for the truckload division are
centralized at this location. Additionally, the facility includes driver
training space, lounge and sleeping areas for drivers and a large parking area.
The Company also owns 10 acres of property in Laredo, Texas on which a facility
was built in July 1992. The Laredo facility includes administrative functions,
lounge and sleeping facilities for drivers, parking, fuel storage, and truck
washing facilities. Routine maintenance of the Company's tractors and trailers
is primarily performed at these facilities. The Company's flatbed operation is
located in Mooresville, North Carolina.

The Company also maintains seven other regional terminals in Belleville,
Michigan; Ontario, Canada; El Paso, Denton and Houston, Texas; Chicago, Illinois
and Fontana, California for parking and customer support. In addition, the
Company maintains terminal locations in Nuevo Laredo and Mexico City, Mexico.
All of these facilities currently are leased. The Company believes that as
current leases expire, it will be able to renew them or find comparable
facilities without incurring any material adverse effect on service to customers
or its operating results.

<PAGE>

ITEM 3. LEGAL PROCEEDINGS

See discussion under "Cargo Liability, Insurance, and Legal Proceedings."

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Celadon Group, Inc. held its regular Annual Meeting of shareholders on
December 17, 1996. Proxies representing 6,662,886 shares of Common Stock or
87.41% of the total outstanding shares voted as follows:

Proposal I - (Elections of Directors)

Voted For Vote Withheld
--------- -------------
Stephen Russell 6,647,648 15,238
Paul A. Biddelman 6,647,898 14,988
Michael Miller 6,645,898 16,988
Kilin To 6,647,898 14,988
Joel E. Smilow 6,647,898 14,988

Proposal II - (Ratification of appointment of Ernst & Young LLP as Auditors)

For Against Abstain Non-Vote
--- ------- ------- --------
6,644,814 13,838 4,234 0

<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Since January 21, 1994, the date of the initial public offering of the
Company's Common Stock, the Common Stock has been quoted through the National
Association of Security Dealers, Inc. National Market (the "Nasdaq National
Market") under the symbol "CLDN". The following table sets forth the high and
low reported sales price for the Common Stock as quoted through the Nasdaq
National Market for the periods indicated.

FISCAL 1996

Quarter ended September 30, 1995 $18.75 $ 8.38

Quarter ended December 31, 1995 $12.25 $ 7.75

Quarter ended March 31, 1996 $12.25 $ 8.75

Quarter ended June 30, 1996 $13.875 $ 7.75

FISCAL 1997

Quarter ended September 30, 1996 $9.50 $ 5.75

Quarter ended December 31, 1996 $11.25 $ 8.47

Quarter ended March 31, 1997 $12.75 $ 10.00

Quarter ended June 30, 1997 $11.75 $ 10.25

On August 27, 1997, there were approximately 1,300 holders of the Company's
Common Stock, and the closing price of the Company's Common Stock was $12.625.

DIVIDEND POLICY

Although the Company has paid cash dividends on its the Common Stock from
time to time, it has not paid any dividends on its Common Stock in 1996 and 1997
and has no present intention of paying cash dividends on its Common Stock in the
foreseeable future. Moreover, pursuant to its credit agreements, the Company and
certain of its subsidiaries may pay cash dividends only up to certain specified
levels and if certain financial ratios are met.

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The statement of operations data and balance sheet data presented below have
been derived from the Company's consolidated financial statements and related
notes thereto. The information set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and related
notes thereto.

</TABLE>
<TABLE>
<CAPTION>
Fiscal year ended June 30,
------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands except per share data)

<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenue:
Truckload.............................. $167,609 $148,167 $ 116,360 $94,746 $ 76,558
Flatbed ............................... 23,426 18,377 --- --- ---
--------- ---------- ---------------------------- -------
Total operating revenue......... $191,035 $166,544 $ 116,360 $94,746 $76,558
======== ======== ========= ======= =======

Operating income:
Truckload.............................. $13,253 $ 5,205 $12,690 $11,740 $ 7,999
Flatbed ............................... 1,145 768 --- --- ---
--------- ---------- ---------- ------- -------
Total from operating divisions.... 14,398 5,973 12,690 11,740 7,999

Corporate expenses........................ 1,963 4,236 3,511 3,410 2,837
Interest expenses......................... 4,944 3,672 3,171 4,342 4,250

Equity loss in unconsolidated affiliate... --- --- --- --- 343
Gain on sale of investment in
unconsolidated affiliate............... --- --- --- (189) ---
Other expense (income).................... (37) 72 103 (6) 21
--------- -------- ---------- -------- --------
Income (loss) from continuing operations
before income taxes................... 7,528 (2,007) 5,905 4,183 548
Provision for income taxes (benefit)...... 3,024 (411) 3,690 1,711 252
--------- -------- ------ -------- ------

Income (loss) continuing operations....... 4,504 (1,596) 2,215 2,472 296
Income (loss) discontinued operations..... --- (15,203) (2,606) 731 (288)
-------- -------- --------- ------ ------
Net income (loss)...................... 4,504 (16,799) (391) 3,203 8
Preferred stock dividends and
redemption premium (1)................. --- --- --- 262 317
-------- -------- --------- ------- ------
Net income (loss) attributable to
common stockholders.................... $4,504 $(16,799) $(391) $2,941 $(309)
====== ======== ===== ====== =====
Earnings (loss) per common share:
Continuing operations.................. $.59 $(.20) $.31 $.46 $(.01)
Discontinued operations................ --- (1.93) (.36) .15 (.09)
----------- ----------- -------- -------- -----
Net income (loss) (2).................. $.59 $(2.13) $(. 05) $.61 $(.10)
===== ====== ======= ======= =====
Dividends per common share (3)............ $--- $--- $ --- $--- $.02
===== ====== ======= ======= =====
Weighted average number of common
shares and common share equivalents

outstanding............................ 7,653 7,879 7,192 4,853 3,263

</TABLE>
17

<PAGE>

Fiscal year ended June 30,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:

Working capital (deficit)........... $ 12,753 $ 17,291 $ 23,801 $ 17,491 $ (305)
Total assets........................ 139,194 141,921 151,624 99,265 80,227
Long-term debt...................... 62,194 57,822 39,557 29,234 44,028
Redeemable preferred stock.......... --- --- --- --- 2,000
Redeemable common stock............. --- --- 3,614 --- ---
Stockholders' equity................ 45,805 41,962 57,839(5) 42,079(4) 1,538

</TABLE>

- ---------------
(1) Represents (i) dividends and redemption premium on the Series I
Preferred Stock which was redeemed in fiscal 1994, (ii) dividends on
the Series F 12% Convertible Preferred Stock which was converted into
Common Stock in fiscal 1993, and (iii) dividends on previously redeemed
issuances of preferred stock.

(2) Calculation of fully-diluted net income (loss) per common share for all
periods are anti-dilutive. All share and per share amounts have been
adjusted to reflect the one-for-3.3 reverse stock split in January
1994.

(3) See "Dividend Policy" under Part II Item 5 of this Annual Report.

(4) Includes the effect of the net proceeds ($29.9 million) from the
Company's initial public offering and the conversion of the senior
subordinated debt ($7.6 million) to Common Stock.

(5) Includes the effect of the net proceeds ($15.9 million) from the
issuance of Common Stock in a public offering.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RECENT DEVELOPMENTS

On July 11, 1997, the Company transferred its 49% interest in N.G.
Enterprises Inc. (NGE) to NGE and agreed to the substitution of Union-Transport
Corporation (UTC) and its parent Union- Transport, Inc. (UTI), a large,
closely-held global logistics company, as the obligor under certain outstanding
commitments of NGE to the Company. Under the revised agreements, the outstanding
obligations will be amortized as to both principal and interest over a three
year period with the initial installments due October 1, 1997. The maximum
principal loan amount outstanding with UTC and UTI will be $2,025,000. No gain
or loss was recognized upon the transfer of the ownership interest or
substitution of the obligor.

<PAGE>

On August 25, 1997, the Company acquired the net assets of the
transportation services unit of the General Electric Industrial Control Systems
(GEICS) business and a five-year contract to continue providing transportation
service to GEICS, which represents approximately one-half of the current
business volume of the transportation services unit. The total acquisition price
was $8.5 million payable as $5.5 million in cash at closing and a $3.0 million
note plus assumption of certain liabilities and lease obligations.

<PAGE>

RESULTS OF OPERATIONS

The following table includes certain information with respect to the
operating revenue, operating income, identifiable assets, and operating margin
of the Company's truckload and flatbed operations for the periods indicated. The
flatbed division was acquired in June 1995. In general, revenue from the flatbed
division has a lower operating profit than revenue from the truckload division
as the flatbed division utilizes mainly independent owner operators. For
operating revenue, the percentage of consolidated revenue columns indicate the
respective division's revenue as a percentage of the Company's consolidated
revenue for each period. Operating income by division reflects revenue less
direct costs and does not reflect an allocation of corporate expenses or
interest expense. For operating margin, the percentage of a division's revenue
columns represent operating income of a particular division as a percentage of
revenue of such division for each period. See Note 2 of "Notes to Consolidated
Financial Statements" appearing elsewhere in this Annual Report.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating revenue as a percentage of total
operating revenue:
Truckload............................................ 87.7% 89.0% 100.0%
Flatbed.............................................. 12.3 11.0 ---
------- -------- -------
Total operating revenue.......................... 100.0% 100.0% 100.0%
======= ======= =======
Operating income as a percentage of total operating income
(before corporate expenses):
Truckload............................................ 92.0% 87.1% 100.0%
Flatbed.............................................. 8.0 12.9 ---
------- ------- -------
Total from operating divisions................... 100.0% 100.0% 100.0%
======= ======= =======
Identifiable assets as a percentage of total assets:
Truckload............................................ 85.7% 75.9% 57.3%
Flatbed.............................................. 5.9 5.0 0.4
Corporate............................................ 4.0 4.6 5.6
--- --- ---
Continuing operations............................ 95.6 85.5 63.3
---- ---- ----
Logistics............................................ --- 2.7 2.1
International Freight Holding Corp................... 4.4 11.8 34.6
--- ---- ----
Discontinued operations.......................... 4.4 14.5 36.7
--- ---- ----
Total assets..................................... 100.0% 100.0% 100.0%
======= ======= =======
Operating income as a percentage of division's revenue:
Truckload............................................ 7.9% 3.5% 10.9%
Flatbed ............................................. 4.9 4.2 ---
Corporate expenses as a percentage of total
operating revenue.................................. (1.0) (2.6) (3.0)
Total operating income less corporate expenses
as a percentage of total operating revenue......... 6.5% 1.1% 7.9%

</TABLE>

<PAGE>

FISCAL YEAR ENDED JUNE 30, 1997 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1996

REVENUE. Consolidated revenue from continuing operations of the Company
increased by $24.5 million, or 14.7%, to $191.0 million for the year ended June
30, 1997 ("fiscal 1997") from $166.5 million for the year ended June 30, 1996
("fiscal 1996"). Revenue from the truckload division which includes the
Company's Mexican subsidiary, Jaguar, increased by $19.4 million, or 13.1%, to
$167.6 million in fiscal 1997 from $148.2 million in fiscal 1996. This increase
was attributable principally to higher demand for the Company's transportation
services between the United States and Mexico as well as domestic markets
coupled with a 4% increase in overall rates per mile. The number of tractors
operated by the truckload division increased to 1,346, including 49 operated by
Jaguar, at June 30, 1997 from 1,213 at June 30, 1996.

Revenue for Jaguar increased by $0.8 million, or 17.8%, to $5.3 million
for fiscal 1997 from $4.5 million for fiscal 1996. Jaguar operated 49 tractors
at the end of fiscal 1997 and 1996.

Revenue for the flatbed division which operates under the name of Cheetah
Transportation Company (Cheetah) increased by $5.0 million, or 27.2%, to $23.4
million for fiscal 1997 from $18.4 million for fiscal 1996. The increase is
primarily due to the number of owner-operated tractors in Cheetah's network
which increased to 288 at June 30, 1997 from 201 at June 30, 1996.

OPERATING INCOME. The truckload division operating income increased by
$8.1 million, or 156% to $13.3 million in fiscal 1997 from $5.2 million in
fiscal 1996. The operating ratio, which relates expenses to revenue, decreased
to 92.1% in fiscal 1997 from 96.5% in fiscal 1996. The decrease in the operating
ratio is principally related to the rate increase noted above and an 11%
increase in capacity and improved efficiency without a corresponding increase in
fixed costs. Total miles per tractor increased 1.6% in 1997 compared with 1996
and empty miles (deadhead) fell to 8.4% from 9.1%, an improvement of 8%. Also,
costs associated with unfavorable litigation settlements and equipment repairs
were abnormally high in 1996 by approximately $1.8 million and were only
partially offset by gains on equipment sales in 1996. Improved cost controls
generally also contributed to the improved operating ratio in 1997. Driver wages
per mile decreased 2% and fuel cost per mile increased 2% reflecting an increase
of 4.3 cents per gallon of fuel purchased or 4%.

The flatbed division operating income was $1.1 million in fiscal 1997
representing an operating ratio of 95.1% an improvement of .7% over the 1996
operating ratio of 95.8%. The operating ratio of the flatbed division is
typically higher than the truckload division due to reliance on independent
owner operators to provide the transportation service. Increases in capacity by
expanding the owner-operator network without correspondingly increasing
overhead results in an improved operating ratio. In 1997, the flatbed division
payments to owner-operators of $18.3 million, an increase of $4.0 million on
higher volume are included in rent and purchased transportation expense and
payments to brokers of $1.8 million, an increase of $0.4 million, are included
in selling expense.

<PAGE>

Corporate expenses decreased from $4.2 million in fiscal 1996 to $2.0
million in fiscal 1997. The decrease is primarily due to senior management
changes implemented at the end of the June 1996 quarter which resulted in $0.8
million in one time costs for separations in 1996 as well as lower fixed expense
levels in 1997 and a net recovery in 1997 of $0.3 million for claims against
Burlington Motor Carrier relating to terminated acquisition negotiations.

INTEREST EXPENSE. Interest expense in fiscal 1997 was $4.9 million,
compared to $3.7 million in fiscal 1996. The increase was the result of higher
borrowings which include not only bank borrowings but also borrowings under
capital leases relating to equipment and increased interest rates.

INCOME TAXES. Income taxes increased from a tax benefit of 20.5% of
pre-tax loss in 1996 to 40% of pre-tax income in 1997. The change in the
effective tax rate for 1997 reflects the Company's higher pretax income and the
impact of nondeductible expenses as a percentage of pretax income.

FISCAL YEAR ENDED JUNE 30, 1996 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1995

REVENUE. Consolidated revenue from continuing operations of the Company
increased by $50.1 million, or 43.0%, to $166.5 million for the year ended June
30, 1996 ("fiscal 1996") from $116.4 million for the year ended June 30, 1995
("fiscal 1995"). Revenue from the truckload division which includes the
Company's Mexican subsidiary (Jaguar) increased by $31.8 million, or 27.3%, to
$148.2 million in fiscal 1996 from $116.4 million in fiscal 1995. This increase
was attributable principally to higher demand for the Company's transportation
services between the United States and Mexico as well as domestic markets,
offset partially by a 2% decrease in rates per mile. The number of tractors
operated by the truckload division increased to 1,213, including 49 operated by
Jaguar, at June 30, 1996 from 923 at June 30, 1995.

During fiscal 1996, Jaguar, which was acquired in May 1995, reported
revenues of $4.5 million and at the end of fiscal 1996 Jaguar operated 49
tractors.

Revenue for the flatbed division which operates under the name of Cheetah
Transportation Company (Cheetah) was $18.4 million in fiscal 1996. The division
was acquired in June of 1995 and accordingly no prior year results are
presented. As of June 1996, the Cheetah owner-operator network included
approximately 201 tractors.

OPERATING INCOME. The truckload division operating income decreased by
$7.5 million, or 59% to $5.2 million in fiscal 1996 from $12.7 million in fiscal
1995. The operating ratio, which relates expenses to revenue, increased to 96.5%
in fiscal 1996 from 89.1% in fiscal 1995. The increase in the operating ratio is
principally related to a decrease in equipment utilization and higher salaries
and wages, principally driver pay, resulting from an increase in pay rates at
the beginning of fiscal 1996 and higher fuel costs particularly in the second
half of fiscal 1996. Also, operating efficiency was

<PAGE>

adversely affected in the fourth quarter of fiscal 1996 as a result of the
disruption caused by installing a new computerized operating system at the
truckload division. These factors were partially offset by a gain on the sale of
revenue equipment.

The flatbed division operating income was $0.8 million in fiscal 1996
representing an operating ratio of 95.8%. The operating ratio of the flatbed
division is typically higher than the truckload division due to reliance on
independent owner-operators to provide the transportation service. In 1996, the
flatbed division payment to owner-operators contributed $14.3 million to the
increase in rent and purchased transportation expense and payments to brokers of
$1.4 million are included in selling expense.

Corporate expenses increased from $3.5 million in fiscal 1995 to $4.2
million in fiscal 1996, primarily due to increased administration compensation,
including $0.8 million recorded in the fourth quarter for executive officer
separation costs, and professional fees.

INTEREST EXPENSE. Interest expense in fiscal 1996 was $3.7 million,
compared to $3.2 million in fiscal 1995. The increase was the result of higher
borrowings and increased interest rates.

INCOME TAXES. Income taxes decreased from 62.5% of pre-tax income in 1995
to a tax benefit of 20.5% of pre-tax loss in 1996. The decrease in the effective
tax rate for 1996 reflects a decrease in the non-deductible portion of expense
allowances paid to drivers offset by the Company's lower pre-tax income.

DISCONTINUED OPERATIONS

Due to operating losses in the Company's freight forwarding business and
an assessment of the risks associated with the actions necessary to return to
profitability, during December, 1995 the Board of Directors of Celadon
authorized the disposal of the business. In the quarter ended June 30, 1996, the
Company continued its program of concentrating on its core business in truckload
and flatbed trucking, and the decision was made to sell the Company's package
express business headquartered in New York City, as well as the South American
warehousing logistics and distribution business. Both of these businesses were
included in the logistics and other business segment. The remaining logistics
business will no longer be conducted as a separate activity. As a result, the
logistics and other segment is also shown as discontinued operations. Revenues
attributable to discontinued operations prior to discontinuance were $132.4
million in fiscal 1996 and $133.9 million in fiscal 1995.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Since the Company's initial public offering in January, 1994, its primary
capital requirements have been funding the acquisition of revenue equipment for
the trucking division, the acquisitions of Guestair, Ltd. and Cheetah, a 70%
interest in the business previously operated by Jacky Maeder, Ltd., and the
investments in Jaguar and Celsur as well as construction of the Company
headquarters in Indianapolis, IN. These requirements have been met primarily by
internally generated funds, bank financing, equipment leasing arrangements, and
issuances of the Company's securities. Due to the conclusion of the withdrawal
from certain businesses shown as discontinued operations in the financial
statements, the Company's ongoing capital requirements for continuing operations
will be reduced.

As of June 30, 1996, the Company had a Credit Facility aggregating $35.0
million but was not in compliance with the financial ratios specified in its
Credit Facility. As of September 13, 1996, the lenders waived the covenant
defaults, extended the term of the facility to April 1, 1997 and increased the
interest rate charged on outstanding borrowings by .625%. The lenders
subsequently reduced the interest rate by .375% and extended the term of the
facility to November 1, 1999. As of March 1, 1997, the Company reduced its
Credit Facility to $30.0 million based on anticipated future requirements. At
June 30, 1997, $11.5 million was utilized as outstanding borrowings and $2.2
million was utilized for standby letters of credit. The average balance
outstanding during the 1997 fiscal year was $16.6 million and the highest
balance outstanding was $32.4 million when the credit facility limit was $35.0
million.

The current credit facility bears interest at either a margin over LIBOR
or the bank's prime rate, at the option of the Company. The weighted average
interest rate charged on outstanding borrowings was 7.56% at June 30, 1997. The
standby letter of credit portion of the Company's borrowing facility
collaterizes the Company's obligations under insurance policies for liability
coverage relating to its trucking operations.

In September 1996, the Company entered into a sale/leaseback transaction
relating to its new headquarters facility in Indianapolis, IN. The proceeds from
the transaction were used to reduce by approximately $6 million the borrowings
outstanding under its bank credit facility.

The trucking division also has financed its capital requirements by
obtaining lease financing on revenue equipment. At June 30, 1997, the Company
had an aggregate of $53.8 million in capital lease financing at interest rates
ranging from 5.3% to 10.6%, maturing at various dates through 2003. Of this
amount, $11.4 million is due prior to June 30, 1998.

<PAGE>

During the quarter ended December 31, 1996, the Company declared its
option to purchase certain revenue equipment previously financed with operating
leases at the end of the lease term. As a result of this conversion, fixed
assets and capital lease obligations increased $10.4 million. The Company also
completed a sale leaseback of certain revenue equipment previously owned. The
proceeds from the sale and the increase to capital lease obligations was $6.6
million.

As of June 30, 1997, the Company had on order 58 tractors and 300
trailers representing an aggregate capital commitment of $9.4 million. All of
the new equipment has been or will be financed using a combination of operating
and capital leases and the Company's credit facility.

The Company's accounts receivable balance relating to continuing
operations at June 30, 1997 increased $1.4 million to $26.3 million from $24.9
million at June 30, 1996. The truckload division accounted for $0.5 million of
the increase and the flatbed division, which was acquired on June 30, 1995,
accounted for the remaining $0.9 million of the increase. The 36% increase in
accounts receivable for the flatbed division reflects the 27% increase in
revenues for fiscal 1996. Accounts receivable relating to discontinued
businesses included in the balance sheets at June 30, 1996 of $8.7 million were
reduced by $7.2 million to $1.5 million as a result of the winddown of these
businesses. Of the decrease in Accounts Receivable - Other of $2.7 million, $2.5
million related to discontinued businesses being liquidated and the entire
balance of Assets Held for Sale of $2.5 million at June 30, 1996 related to
discontinued businesses, primarily the logistics business in South America.

The Company purchases fuel contracts from time to time for a portion of
its projected fuel needs. At June 30, 1997, the Company had contracts to
purchase for future delivery approximately 22% of its fuel requirements for the
period November 1997 through April 1998. Additionally, the Company held
exchange-traded futures contracts for approximately 32% of anticipated fuel
requirements in fiscal 1998. The Company's fuel hedging program has not
significantly impacted the Company's operating results and has not adversely
impacted the Company's liquidity.

Effective February 1, 1996, the Company sold certain of the Company's
U.S. freight forwarding business assets to a subsidiary of the Harper Group Inc.
This resulted in the receipt of a $9.5 million down payment which was used to
repay $6.5 million of debt associated with the freight forwarding business and
fund ongoing wind-down operations.

On February 7, 1996, the Company's Board of Directors ("the Board")
authorized the purchase of the 200,000 shares of the Company's Common Stock from
Swissair Associated Companies, Ltd. presented as redeemable Common Stock in the
Company's consolidated balance sheet at June 30, 1995. On February 21, 1996,
these shares were purchased at a negotiated price of $13.75 per share. The Board
also authorized the repurchase of up to $2 million of the Company's Common Stock
on the open market from time to time as market conditions warrant.

<PAGE>

In May 1996, the Company became the sole owner of the freight forwarding
operations conducted in the New York area by acquiring the minority interest of
Swissair Associated Companies, Ltd. This step was taken to facilitate the
ultimate disposition of this operation. On December 18, 1996, the Company sold
certain assets consisting primarily of customer lists of the freight forwarding
operations conducted in the New York area to NG Enterprises Inc. (NGE), a
company controlled by Norman G. Grief, the former President and Chief Executive
Officer of Randy International, Inc. In connection with the sale, the Company
received a 49% interest in NGE, was relieved of its obligation to Norman G.
Grief under his employment contract, agreed to provide a five year interest
bearing revolving credit loan up to $1.9 million secured by the assets of NGE
and agreed to an option exercisable by NGE to acquire the Company's 49% interest
in NGE for $300,000 initially, which amount would increase by $30 thousand
annually. No gain or loss was recognized on the sale. On July 11, 1997, the
Company transferred its 49% interest in NGE to NGE and the business conducted by
NGE was sold to Union-Transport Corporation, a wholly owned subsidiary of
Union-Transport, Inc., a global logistics company. In that transaction,
Union-Transport Corporation assumed, with the Company's consent, certain of the
obligations of NGE to the Company.

In June 1996, the Company concluded the sale of the United Kingdom
freight forwarding operation to a subsidiary of the Fritz Companies.

On June 17, 1996, the Company closed the sale of the assets and
liabilities of Celadon Express, Inc., the New York based package delivery
business, to Consolidated Delivery and Logistics, Inc., ("CDL") for a
combination of cash and stock of CDL.

On July 3, 1996, the Company concluded the sale of its South American
warehousing logistics and distribution business for approximately $3.1 million.
The sales price was paid with 100,000 shares of the Company's Common Stock
valued at $7.25 per share, the low trading price on July 3, 1996, and an
interest bearing promissory note for $2.4 million paid in full when due on
October 3, 1996.

Management believes that there are presently adequate sources of secured
equipment financing together with its existing credit facilities and cash flow
from operations to provide sufficient funds to meet the Company's anticipated
working capital requirements, and purchase the tractors and trailers presently
on order. Additional growth in the tractor and trailer fleet beyond the
Company's existing orders will require additional sources of financing.

<PAGE>

SEASONALITY

To date, the Company's revenues have not shown any significant seasonal
pattern. However, because the Company's trucking subsidiary's primary traffic
lane is between the Midwest United States and Mexico, winter generally may have
an unfavorable impact upon the Company's results of operations. Also, business
demands for full truckload service tend to fall during holidays in both the U.S.
and Mexico and the timing of holidays can therefore impact the Company's
operations in any particular period.

INFLATION

Many of the Company's operating expenses, including fuel costs and fuel
taxes, are sensitive to the effects of inflation, which could result in higher
operating costs. The effects of inflation on the Company's businesses during
fiscal 1997, 1996 and 1995 generally were not significant.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See "Index to Consolidated Financial Statements," which is Item 14(a), and
the consolidated financial statements and schedules included as a part of this
Annual Report.

<PAGE>

CELADON GROUP, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Three years ended June 30, 1997 with
Report of Independent Auditors

Contents

Report of Independent Auditors................................................29

Audited Consolidated Financial Statements:

Consolidated Balance Sheets................................................30
Consolidated Statements of Operations......................................31
Consolidated Statements of Cash Flows......................................32
Consolidated Statements of Stockholders' Equity............................33
Notes to Consolidated Financial Statements.................................34

<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Celadon Group, Inc.

We have audited the accompanying consolidated balance sheets of Celadon Group,
Inc. as of June 30, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended June 30, 1997. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Celadon
Group, Inc. at June 30, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

Indianapolis, Indiana
August 26, 1997

<PAGE>

CELADON GROUP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
A S S E T S
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................... $1,845 $5,246
Trade receivables, net of allowance for doubtful accounts of $2,773
and $5,432 in 1997 and 1996, respectively ............................................. 27,736 33,642
Accounts receivable -- other................................................................ 1,616 4,338
Prepaid expenses and other current assets .................................................. 3,972 3,247
Tires in service ..................................................................... 2,987 2,814
Income tax recoverable...................................................................... 4,198 3,926
Assets held for resale ..................................................................... --- 2,548
Deferred income tax assets ................................................................. 1,568 3,404
-------- ---------
Total current assets .................................................................. 43,922 59,165
-------- ---------
Property and equipment, at cost ................................................................. 113,206 95,003
Less accumulated depreciation and amortization. . . ........................................ 29,424 22,715
-------- ---------
Net property and equipment............................................................. 83,782 72,288
-------- ---------
Deposits ....................................................................................... 523 809
Tires in service ................................................................................ 2,057 2,234
Advance to affiliate............................................................................. 1,933 ---
Intangible assets ............................................................................... 750 875
Goodwill, net of accumulated amortization ...................................................... 4,848 4,980
Other assets..................................................................................... 1,379 1,570
-------- ---------
Total assets........................................................................... $139,194 $ 141,921
======== =========

L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y

Current liabilities:
Accounts payable............................................................................ $ 5,284 $ 8,707
Accrued expenses ........................................................................... 14,226 20,122
Bank borrowings and current maturities of long-term debt.................................... 309 4,029
Notes payable............................................................................... --- 1,200
Current maturities of capital lease obligations............................................. 11,376 7,356
Income taxes payable ....................................................................... --- 527
Current maturities of ESOP loan............................................................. --- 185
------- --------
Total current liabilities.............................................................. 31,195 42,126
------- --------
Long-term debt, net of current maturities........................................................ 11,959 26,552
Capital lease obligations, net of current maturities............................................. 42,402 23,473
Deferred income tax liabilities .......................................................... 7,832 7,796
------- --------
Total liabilities...................................................................... 93,388 99,947
------- --------
Minority interest ............................................................................... 12 12
Commitments and contingencies.................................................................... --- ---
Stockholders' equity:
Preferred stock, $1.00 par value, authorized 179,985 shares; issued and outstanding zero
shares...................................................................................... --- ---
Common stock, $0.033 par value, authorized 12,000,000 shares;
issued 7,750,580 shares in 1997 and 1996.................................................... 256 256
Additional paid-in capital.................................................................... 56,281 56,281
Retained earnings (deficit) .................................................................. (9,531) (14,035)
Equity adjustment for foreign currency translation............................................ (252) (355)
Debt guarantee for ESOP....................................................................... --- (185)
Treasury stock, at cost, 128,000 shares and zero shares at June 30, 1997, and 1996,
respectively................................................................................ (960) ---
-------- --------
Total stockholders' equity............................................................. 45,794 41,962
-------- --------
Total liabilities and stockholders' equity............................................. $139,194 $141,921
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

CELADON GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
------- --------- --------
<S> <C> <C> <C>
Operating revenue...................................................... $191,035 $166,544 $116,360
-------- --------- --------
Operating expenses:
Salaries, wages and employee benefits............................... 67,758 64,683 47,351
Fuel................................................................ 30,854 28,037 19,528
Operating costs and supplies........................................ 13,482 12,944 11,246
Insurance and claims................................................ 6,014 6,082 5,271
Depreciation and amortization....................................... 10,135 7,365 5,744
Rent and purchased transportation................................... 35,604 32,107 9,194
Professional and consulting fees.................................... 1,536 2,001 1,292
Communications and utilities........................................ 3,102 2,544 1,793
Permits, licenses and taxes ....................................... 4,174 4,327 3,469
Employee stock ownership plan contribution ......................... 59 100 25
(Gain) on sale of revenue equipment................................. --- (1,085) (490)
Selling expenses.................................................... 3,286 3,123 1,409
General and administrative ......................................... 2,596 2,579 1,349
------- ------- -------
Total operating expenses........................................ 178,600 164,807 107,181
------- ------- -------

Operating income ........................................................ 12,435 1,737 9,179

Other (income) expense:
Interest expense.................................................... 4,944 3,672 3,171
Minority interest in loss........................................... --- --- (5)
Other (income) expense, net ........................................ (37) 72 108
-------- ---------- -------
Income (loss) from continuing operations before income
taxes............................................................ 7,528 (2,007) 5,905
Provision for income taxes (benefit)................................ 3,024 (411) 3,690
-------- --------- -------
Income (loss) from continuing operations......................... 4,504 (1,596) 2,215
-------- --------- -------
Discontinued operations:
Loss from operations of freight forwarding
division (net of tax)............................................ --- (2,306) (3,142)
Loss on disposal of freight forwarding division
(net of tax)..................................................... --- (12,815) ---
Income (loss) from operations of logistics
division (net of tax)............................................ --- (149) 536
Gain on disposal of logistics division (net of tax)................. --- 67 ---
-------- --------- --------
Income (loss) from discontinued operations.......................... --- (15,203) (2,606)
-------- --------- --------
Net income (loss)................................................ $4,504 $(16,799) $(391)
======== ========= ========
Earnings (loss) per Common Share:
Continuing operations............................................... $0.59 $(0.20) $0.31
Discontinued operations............................................. --- (1.93) (0.36)
-------- -------- --------
Net income (loss)................................................ $0.59 $(2.13) $(0.05)
======== ======== ========
Weighted average number of common shares and
common share equivalents outstanding................................ 7,653 7,879 7,192
======== ======== ========

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

CELADON GROUP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30 ,1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Continuing operations:
Cash flows from operating activities:
Net Income (loss) from continuing operations.................................. $ 4,504 $(1,596) $2,215
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization............................................ 10,135 7,365 5,744
Provision for deferred income taxes...................................... 267 2,295 876
Provision for doubtful accounts.......................................... 280 120 90
Net (gain) on sale of property and equipment............................. --- (1,085) (490)
Net (gain) loss other.................................................... --- 73 (5)
Changes in assets and liabilities:
(Increase) in trade receivables...................................... (1,655) (9,328) (3,340)
(Increase) decrease in accounts receivable -- other.................. (442) 5,982 (5,239)
Decrease (increase) in income tax recoverable........................ 1,963 (2,790) (350)
Decrease (increase) in tires in service.............................. 4 (699) (565)
(Increase) in prepaid expenses and other current assets............. (782) (107) (1,023)
Decrease (increase) in other assets.................................. 3,998 (3,031) (4,948)
(Decrease) increase in accounts payable and accrued expenses......... (937) 9,749 1,380
(Decrease) increase in income taxes payable.......................... (145) (539) 522
-------- -------- --------
Net cash provided by (used for) operating activities ............... 17,190 6,409 (5,133)
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment....................................... (1,595) (9,578) (14,081)
Proceeds from sale of property and equipment............................. 14,100 2,602 3,290
Proceeds from sale of investment in unconsolidated affiliate............. --- --- (6,036)
Decrease (increase) in deposits.......................................... 286 388 (195)
-------- -------- --------
Net cash provided by ( used for) investing activities................ 12,791 (6,588) (17,022)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuances of common stock.................................. --- 136 16,127
Proceeds from issuance of redeemable common stock........................ --- --- 3,614
Payment for redemption of redeemable common stock........................ --- (1,550) ---
Purchase of treasury stock for cash...................................... (235) --- ---
Proceeds from bank borrowings and debt................................... --- 41,626 38,625
Payments of bank borrowings and debt..................................... (19,822) (29,951) (43,138)
Principal payments under capital lease obligations....................... (10,903) (7,782) (6,788)
-------- -------- --------
Net cash (used for) provided by financing activities................. (30,960) 2,479 8,440
-------- -------- --------
Net cash (used for) provided by continuing operations................ (979) 2,300 (13,715)
-------- -------- --------
Discontinued Operations:
(Loss) from operations, net of income taxes.............................. --- (15,203) (2,606)
Change in net operating assets........................................... (2,422) 20,836 9,885
-------- -------- -------
Operating activities..................................................... (2,422) 5,633 7,279
Investing activities..................................................... --- 3,286 (1,911)
Financing activities..................................................... --- (7,782) 7,710
-------- --------
Net cash (used for) provided by discontinued operations.............. (2,422) 1,137 13,078
-------- -------- --------
(Decrease) increase in cash and cash equivalents................................ (3,401) 3,437 (637)
Cash and cash equivalents at beginning of year.................................. 5,246 1,809 2,446
-------- -------- --------
Cash and cash equivalents at end of year........................................ $1,845 $5,246 $1,809
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

CELADON GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL FOREIGN TREASUR DEBT STOCK-
NO. OF SHARES PAID-IN RETAINED CURRENCY STOCK- GUARANTEE HOLDERS'
OUTSTANDING AMOUNT CAPITAL EARNINGS TRANSLATION COMMON FOR ESOP EQUITY
------------ ----- ---------- --------- ----------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994.............. 6,552,116 $216 $39,203 $3,155 $(177) $(8) $(310) $42,079

Equity adjustments for foreign
currency translation................ --- --- --- --- (1) --- --- (1)
Issuance of Common Stock in public
offering, net of $763 of issuance
costs............................... 1,154,399 38 15,834 --- --- --- --- 15,872
Exercise of warrant................... 35,851 1 249 --- --- --- --- 250
Exercise of incentive stock options 334 --- 5 --- --- --- --- 5
Retirement of treasury shares......... (1,453) --- (8) --- --- 8 --- ---
Reduction of ESOP guarantee........... --- --- --- --- --- --- 25 25
Net loss ........................... --- --- --- (391) --- --- --- (391)
---------- ------- --------- ------- ------- ------ ------ ---------

Balance at June 30, 1995.............. 7,741,247 255 55,283 2,764 (178) --- (285) 57,839
Equity adjustments for foreign
currency translation................ --- --- --- --- (177) --- --- (177)
Exercise of incentive stock options... 9,333 1 135 --- --- --- --- 136
Retirement of redeemable common stock --- --- 863 --- --- --- --- 863
Reduction of ESOP guarantee........... --- --- --- --- --- --- 100 100
Net loss ........................... --- --- --- (16,799) --- --- --- (16,799)
---------- ------- -------- ---------- ------- ------ ------ --------

Balance at June 30, 1996.............. 7,750,580 256 56,281 (14,035) (355) --- (185) 41,962
Equity adjustments for foreign
currency translation................ --- --- --- --- 103 --- --- 103
Treasury stock purchases.............. (128,000) --- --- --- --- (960) --- (960)
Reduction of ESOP guarantee........... --- --- --- --- --- --- 185 185
Net income............................ --- --- --- 4,504 --- --- --- 4,504
----------- ------- ------- -------- ------ ----- -------- ---------

Balance at June 30, 1997.............. 7,622,580 $256 $56,281 $(9,531) $(252) $(960) $--- $45,794
========= ==== ======= ========= ====== ====== ====== =======
</TABLE>

See accompanying notes to financial statements.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Celadon Group, Inc. (the "Company") was formed on July 24, 1986 through
the combination of two companies, Celadon Trucking Services, Inc. and Celadon
Logistics, Inc., each owned by the same principal stockholders. The Company
entered the freight forwarding business in July 1990 by purchasing International
Freight Holding Corp. ("IFHC") and its subsidiaries (collectively, "Randy
International"). In fiscal year 1996, the Company discontinued its freight
forwarding business and the logistics business. The Company is currently an
international transportation company primarily offering trucking services. The
Company specializes in providing long-haul, full truckload services between the
United States and Mexico. The Company expanded its presence in Mexico during May
1995 by making an investment in Servicio de Transportacion Jaguar, S.A. de C.V.
("Jaguar"), formerly known as Transportes RQF, S.A. de C.V., a Mexican company
formed to provide trucking services. In June 1995, the Company acquired Cheetah
Transportation Company and CLK, Inc., including its subsidiary Cheetah
Brokerage, Inc. (collectively "Cheetah"). Cheetah provides flatbed trucking and
brokerage services principally in the United States.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Presentation

The consolidated financial statements include the accounts of Celadon
Group, Inc. and its subsidiaries, which are wholly owned except for Jaguar in
which the Company has a 75% interest. Discontinued operations relating to
freight forwarding and logistics are set forth in footnote 15. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Unless otherwise noted, all references to annual periods in the footnotes refer
to the respective fiscal years ended June 30.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures at the date of the financial statements and
during the reporting period. Such estimates include provisions for damage and
liability claims, uncollectible accounts receivable and losses associated with
discontinued operations. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

Revenue Recognition

Trucking revenue is recognized as of the date the freight is delivered
by the Company. Amounts payable to drivers for wages and other related trucking
expenses on delivered shipments are accrued.

Tires in Service

Original and replacement tires on tractors and trailers are included in
tires in service and are amortized over 18 to 36 months.

Fuel

Fuel is generally expensed when purchased, except for the fuel supplies
at terminals and in truck tanks, which are classified as prepaid expenses.

Property and Equipment

Property and equipment are stated at cost. Property and equipment under
capital leases are stated at the lower of the present value of minimum lease
payments at the beginning of the lease term or fair value at the inception of
the lease.

Depreciation of property and equipment and amortization of assets under
capital leases is generally computed using the straight-line method and is based
on the estimated useful lives (net of salvage value) of the related assets as
follows:
<TABLE>
<S> <C>
Revenue and service equipment.......................... 4-10 years
Furniture and office equipment......................... 4-15 years
Buildings.............................................. 20 - 40 years
Leasehold improvements................................. Lesser of life of lease or useful
life of improvement
</TABLE>

When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is recognized in income for the period. The cost of maintenance and
repairs, including tractor overhauls, is charged to expense as incurred; costs
incurred to place assets in service and betterments are capitalized and
depreciated over the remaining life of each respective asset.

Initial delivery costs relating to placing tractors and trailers in
service, which are included in revenue and service equipment, are being
amortized on a straight-line basis over the lives of the assets and, in the case
of leased equipment, over the respective lease.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

Intangibles

Intangibles reflect the amounts assigned to various assets of
businesses acquired. Amortization of intangibles is generally computed using the
straight line method for financial reporting purposes and is based on the
estimated useful lives of the related assets. Intangibles consist of customer
lists related to the Cheetah acquisition which are being amortized over an eight
year period. The net intangibles balance was $750 thousand and $875 thousand
with related accumulated amortization of $250 thousand and $125 thousand at June
30, 1997 and 1996, respectively.

Goodwill

Goodwill reflects the excess of cost over net assets of businesses
acquired and is being amortized by the straight-line method over 40 years. The
carrying value of the goodwill is reviewed if the facts and circumstances
suggest that it may be permanently impaired. Such review is based upon the
undiscounted expected future operating profit derived from such businesses and,
in the event such result is less than the carrying value of the goodwill, the
carrying value of the goodwill is reduced to an amount that reflects the
expected future benefit.

Investment in Unconsolidated Affiliate

In December 1996, the Company provided a loan to and acquired a 49%
interest in NG Enterprises, Inc. ("NGE"), a company controlled by Norman G.
Grief, the former President and Chief Executive Officer of Randy International,
Inc. The investment was sold in July 1997. This investment is being accounted
for under the cost basis method of accounting. See Note 13 - "Investment in
Unconsolidated Affiliate"

Insurance Reserves

The Company self insures the per occurrence deductible for (i) personal
injury and property damage claims up to $50,000, (ii) physical damage claims up
to $15,000 per unit, (iii) workers compensation claims up to $150,000 and (iv)
cargo loss up to $10,000 per occurrence, in each case at June 30, 1997 and 1996.
Reserves for known claims and incurred but not reported claims up to these
limits are accrued based upon information provided by insurance adjusters and
actuarial factors. Management considers such reserves adequate. Such amounts are
included in accrued expenses.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

Income Taxes

Income taxes are accounted for using the liability method. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled.

Credit Risk

Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables.
Concentrations of credit risk with respect to trade receivables are generally
limited due to the Company's large number of customers and the diverse range of
industries which they represent. Accounts receivable balances due from Chrysler
Corporation ("Chrysler") totaled $8.7 million or 33% and $7.5 million or 30% of
the total continuing operations gross trade receivables at June 30, 1997 and
1996, respectively. The Company had no other significant concentrations of
credit risk.

Foreign Currency Translation

Foreign financial statements are translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." Assets and liabilities of the Company's foreign
operations are translated into U.S. dollars at year-end exchange rates. Income
statement accounts are translated at the average exchange rate prevailing during
the year. Resulting translation adjustments are reported as a separate component
of stockholders' equity.

Common Stock Dividend Policy

Although the Company has paid cash dividends on the Common Stock from
time to time, it has no present intention of paying cash dividends on the Common
Stock in the foreseeable future. Moreover, pursuant to its credit agreements,
the Company and certain of its subsidiaries may pay cash dividends only up to
certain specified levels and if certain financial ratios are met.

Net Income (Loss) per Common Share

The net income (loss) per common share is based upon the weighted
average number of shares of common stock and common stock equivalents, when
dilutive, outstanding during the period.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

Reclassifications

Certain reclassifications have been made to the 1996 and 1995 financial
statements in order to conform to the 1997 presentation.

Implementation of New Financial Accounting Standards

Effective July 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121
requires that impairments, measured using fair market value, are recognized
whenever events or changes in circumstances indicate that the carrying amount of
long-lived assets may not be recoverable and the future undiscounted cash flows
attributable to the asset are less than its carrying value. Adoption of this
statement did not affect the Company's consolidated results of operations.

Effective July 1, 1996, the Company adopted SFAS No. 123, "Stock Based
Compensation." This statement requires the Company to choose between two
different methods of accounting for stock options. The statement defines a
fair-value-based method of accounting for stock options but allows an entity to
continue to measure compensation cost for stock options using the accounting
prescribed by APB Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees." The Company has elected to continue using the accounting methods
prescribed by APB No. 25 but has included the pro forma disclosures required by
SFAS No. 123 in Note 8.

In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted for
financial statements issued for periods ending after December 15, 1997. This
statement establishes standards for computing and presenting earnings per share
(EPS). It requires dual presentation of basic and diluted EPS on the face of the
income statement and a reconciliation between the computations. The Company has
not yet determined the impact of Statement 128 on its reported earnings per
share.

In June 1997, the Financial Accounting Standards Board issued Statement
No. 131, Disclosures about Segments of an Enterprise and Related Information,
which is effective for fiscal years beginning after December 15, 1997. This
statement establishes requirements for reporting information about operating
segments. This statement may require a change in the way the Company's segments
are presently reported; however, the extent of the change, if any, has not been
determined.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

(2) SEGMENT AND GEOGRAPHICAL INFORMATION; SIGNIFICANT CUSTOMER

The Company's continuing business is operated through two divisions:
truckload and flatbed and the Company generates revenue from its operations in
the United States and Mexico.

The flatbed segment was acquired in June 1995 in a transaction
accounted for as a purchase. Consequently, there is no financial data presented
for this division for periods prior to fiscal 1996.

Information as to the Company's operations by division is summarized
below (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----- ---- ----
<S> <C> <C> <C>
Operating revenue:
Truckload.................................................. $ 167,609 $148,167 $116,360
Flatbed ................................................... 23,426 18,377 ---
---------- --------- --------
Total................................................ $ 191,035 $166,544 $116,360
========= ======== ========
Operating income (loss):
Truckload.................................................. $13,253 $5,205 $12,690
Flatbed ................................................... 1,145 768 ---
-------- -------- ----------
Total from operating divisions....................... 14,398 5,973 12,690
Corporate expenses......................................... 1,963 4,236 3,511
Interest expense........................................... 4,944 3,672 3,171
Other expense (income)..................................... (37) (72) 103
-------- --------- --------
Income (loss) from continuing operations
before income taxes............................... $ 7,528 $(2,007) $ 5,905
======== ======== =======
Total assets:
Truckload.................................................. $119,273 $107,737 $86,884
Flatbed ................................................... 8,271 7,021 645
-------- -------- --------
Total from operating divisions....................... 127,544 114,758 87,529
Corporate.................................................. 5,524 6,553 8,439
Discontinued operations.................................... 6,126 20,610 55,656
-------- -------- --------
Total................................................ $139,194 $141,921 $151,624
======== ======== ========

Capital expenditures (including capital leases):

Truckload.................................................. $35,415 $24,131 $26,248
Flatbed ................................................... 32 18 ---
Corporate.................................................. --- 3 37
-------- -------- --------
Total $35,447 $24,152 $26,285
======== ======== ========
Depreciation and amortization:
Truckload.................................................. $9,826 $7,108 $5,733
Flatbed ................................................... 238 238 ---
Corporate.................................................. 71 19 11
-------- -------- --------
Total................................................ $10,135 $7,365 $5,744
======== ======== ========
</TABLE>

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

Information as to the Company's continuing operations by geographic area is
summarized below (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating revenue:
United States........................ $185,378 $161,605 $ 115,438
Mexico (I)........................... 5,657 4,939 922
-------- -------- ---------
Total ........................ $191,035 $166,544 $116,360
======== ======== ========
Income (loss) before income taxes:
United States........................ $ 7,221 $(2,435) $5,799
Mexico (I)........................... 307 428 106
--------- -------- --------
Total ...................... $ 7,528 $(2,007) $5,905
========= ======== ========
Total assets:
United States........................ $131,398 $118,815 $94,908
Mexico (I)........................... 1,670 2,496 1,060
--------- -------- ---------
Total......................... $133,068 $121,311 $95,968
======== ======== =======
</TABLE>
- ----------
(I) Relates to the Company's trucking operations in Mexico.

Revenue from Chrysler accounted for 47%, 54%, and 45% of the Company's
truckload revenue for 1997, 1996, and 1995, respectively. The Company transports
Chrysler after-market replacement parts and accessories within the United States
and Chrysler original equipment automotive parts primarily between the United
States and the Mexican border, which accounted for 30% and 70%, respectively, of
the Company's revenue from Chrysler in 1997 and 31% and 69%, respectively, in
1996. Chrysler business is covered by two agreements, one of which covers the
United States-Mexican business and the other of which covers domestic business.
The international contract was extended for three years and now expires on
December 31, 1999. The contract applicable to domestic business has expired but
is the basis for service provided while a new contract is negotiated.

(3) PROPERTY, EQUIPMENT AND LEASES

Property, Equipment and Revenue Equipment Under Capital Leases

Property and equipment, at cost, consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenue equipment.................................. $37,790 $40,413
Revenue equipment under capital leases............. 68,365 41,423
Furniture and office equipment..................... 2,798 2,729
Land and buildings................................. 3,986 9,920
Service equipment.................................. 84 362
Leasehold improvements............................. 183 156
--------- -------
$113,206 $95,003
======== =======

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

Revenue and service equipment and revenue equipment under capital
leases include positioning costs which are amortized over the shorter of the
useful lives of the assets or the terms of the leases.

Included in accumulated depreciation was $10.8 million and $7.0 million
in 1997 and 1996, respectively, related to revenue equipment under capital
leases.

Depreciation and amortization expense relating to property and
equipment and revenue equipment under capital leases was $9.9 million in 1997,
$7.0 million in 1996, $5.6 million in 1995.

Lease Obligations

The Company leases certain revenue and service equipment under
long-term lease agreements, payable in monthly installments with interest at
rates ranging from 5.3% to 10.6% per annum, maturing at various dates through
2003.

The Company leases warehouse and office space under noncancellable
operating leases expiring at various dates through September, 2016. Certain
leases contain renewal options.

In September 1996, the Company entered into a sale/leaseback
transaction relating to its new headquarters facility in Indianapolis, IN. The
proceeds from the transaction were used to reduce by approximately $6 million
the borrowings outstanding under its bank credit facility.

Future minimum lease payments relating to capital leases and to
operating leases with initial or remaining terms in excess of one year are as
follows (in thousands):

</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED CAPITAL OPERATING
JUNE 30 LEASES LEASES
---------- ------- ---------
<S> <C> <C>
1998................................................... $15,124 $12,994
1999................................................... 15,592 11,626
2000................................................... 11,167 10,503
2001................................................... 10,222 7,098
2002................................................... 6,859 5,341
Thereafter............................................. 4,800 12,153
-------- -------
Total minimum lease payments.................... 63,764 $59,715
=======
Less amounts representing interest..................... 9,986
-------
Present value of net minimum lease
payments........................................ 53,778
Less current maturities......................... 11,376
-------
Non-current portion............................. $42,402
=======
</TABLE>
41

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

Total rental expense for operating leases is as follows (in thousands):

1997 1996 1995
---- ---- ----
<S> <C> <C> <C>

Revenue, service equipment and purchased transportation........... $34,446 $32,579 $8,856
Office facilities and terminals................................... 1,158 460 338
------- ------- ------

$35,604 $33,039 $9,194
======= ======= ======

</TABLE>

(4) BANK BORROWINGS AND LONG-TERM DEBT

<TABLE>
<CAPTION>
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Outstanding amounts under lines of credit (collateralized

by certain trade receivables and revenue equipment)............... $11,500 $29,500
Long-term notes entered into for the purchase of tractors,
trailers and various equipment.................................... --- 251
Other borrowings.................................................... 459 830
-------- -------
11,959 30,581
Less current maturities............................................. --- 4,029
-------- -------

$11,959 $26,552
======== =======
</TABLE>

Lines of Credit

The Company's line of credit for continuing operations for the periods
presented are as follows (in thousands):
<TABLE>
<CAPTION>
Total Lines of Credit Amount Borrowed Amount Available (ii)
--------------------- --------------- ---------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
(i) $30,000 $35,000 $11,500 $29,500 $16,300 $3,375
</TABLE>

-----------------
(i) Represents the Company's Revolving Line of Credit with NBD Bank,
N.A. and The First National Bank of Boston commencing June 1, 1994
(the "1994 Credit Agreement").

(ii) Represents unused portion of Revolving Line of Credit net of
standby letters of credit not reflected in accompanying
consolidated financial statements of $2,200 thousand and $2,125
thousand at June 30, 1997 and 1996, respectively.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

In June 1994, the Company refinanced the outstanding borrowings under
the 1994 Credit Agreement. During the year ended June 30, 1997, the Credit
Agreement was amended and modified. As amended during fiscal 1997, terms of the
1994 Credit Agreement (Credit Agreement) provide for successive one year
renewals, at the option of the banks, commencing November 1, 1999 with an
automatic conversion to a three year term loan with a five year amortization if
the Credit Agreement is not extended by the banks. Interest is based, at the
Company's option, upon either the bank's prime rate or the London Interbank
Offered Rate ("LIBOR") plus a margin ranging from .625% to 1.625% depending upon
performance by the Company. At June 30, 1997, the interest rate charged on
outstanding borrowings was 7.56%. In addition, the Company pays a commitment fee
of .5% on the unused portion of the Credit Agreement.

Amounts available under the Credit Agreement are determined based upon
the Company's borrowing base, as defined. In addition, there are certain
covenants which restrict, among other things, the payment of cash dividends, and
require the Company to maintain certain financial ratios and certain other
financial conditions. Such borrowings are collateralized by the Company's
truckload trade receivables (approximately $23.1 million at June 30, 1997) and
certain revenue equipment (with a net book value of approximately $12.4 million
at June 30, 1997).

Maturities of long-term debt, assuming the Company exercises the
conversion feature within its Credit Agreement as modified in fiscal 1997, for
the years ending June 30 are as follows (in thousands):

1998........................................ $ ---
1999........................................ 459
2000........................................ 1,725
2001........................................ 2,300
2002........................................ 2,300
Thereafter.................................. 5,175
-------
$11,959
=======

No compensating balance requirements exist at June 30, 1997.

(5) EMPLOYEE BENEFIT PLANS

Employee Stock Ownership Plan

In July 1990, the Company established an Employee Stock Ownership Plan
(the "ESOP") for employees of certain of the Company's subsidiaries. The ESOP
borrowed $1 million from a lending institution which was guaranteed by the
Company. The ESOP used the proceeds to purchase 129,500 shares of the Company's
Common Stock, par value $.033 per share, from stockholders.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

The Company recognizes expense based on an amount equal to the ESOP's cost
of the shares allocated to the participants. The expense is in proportion to
annual principal and interest payments. During 1997, 1996 and 1995, the Company
did not pay the ESOP dividends and made $25 thousand, $100 thousand and $25
thousand, respectively, in Company contributions.

The loan from the lending institution bore interest at the bank's floating
prime rate. The Company paid a 1% annual commitment fee on the outstanding
principal balance of the loan. The loan was secured by the shares purchased by
the ESOP and was guaranteed by the Company. In April 1992, the loan agreement
was amended to require principal payments of $25 thousand per quarter commencing
June 30, 1992, with the remaining balance due April 1994. In April 1994, the
loan agreement was extended with principal payments of $25 thousand per quarter
required commencing June 30, 1995, and the remaining balance was due March 30,
1997. In November, 1996, the ESOP paid the loan in full with proceeds received
by the ESOP from the sale of shares in connection with the Company's common
stock offering in January 1995. Interest costs incurred amounted to
approximately $4 thousand, $24 thousand and $29 thousand during 1997, 1996,
1995, respectively. In connection with such loan, the Company issued to the
lender a warrant to purchase shares of Common Stock. See Note 7 - "Stockholders'
Equity".

401(k) Profit Sharing Plan

In July 1990, the Company established a 401(k) profit sharing plan which
permits employees of the Company to contribute up to 15% of their annual
compensation, up to certain Internal Revenue Service limits. The contributions
made by each employee are fully vested at all times and are not subject to
forfeiture. The Company makes a matching contribution of 25% of the employee's
contribution up to 5% of their annual compensation and may make additional
discretionary contributions. The aggregate Company contribution may not exceed
5% of the employee's compensation. Employees vest in the Company's contribution
to the plan at the rate of 20% per year from the date of contribution.
Contributions made by the Company during 1997, 1996 and 1995 amounted to $155
thousand, $83 thousand and $83 thousand, respectively. No discretionary
contributions were made during 1997, 1996 or 1995.

Employee Stock Purchase Plan

On October 18, 1996, the Company's Board of Directors authorized the sale
of up to 250,000 shares of the Company's Common Stock to the Celadon Group, Inc.
Employee Stock Purchase Plan (the "Plan"), referred to informally by the Company
as the Celadon Hallmark Investment Plan ("CHIP"). The Common Stock, par value
$0.33 per share, may be treasury shares or newly issued shares, at a price equal
to 85% of the fair market value of the shares as of the day of purchase. There
were approximately

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

200 active participants in the Plan as of June 30, 1997. Participation in the
Plan is limited to employees who meet the eligibility requirements set forth in
the Plan and executive officers of the Company may not participate. As of June
30, 1997, 9,692 shares had been purchased under the Plan in open market
transactions for an average price of $11.30 per share. The Company's
contribution to the purchases made was $16 thousand.

(6) SENIOR SUBORDINATED CONVERTIBLE NOTE

In October 1992, the Company issued an $8 million, 9.25% Senior
Subordinated Convertible Note (the "9.25% Note") which was due and payable on
September 30, 1998. On February 28, 1994, the holder converted the 9.25% Note
into 739,371 shares of Common Stock. In connection with the issuance of the
9.25% Note, the Company issued a warrant to purchase 12,121 shares of Common
Stock and entered into a registration rights agreement covering shares issued
from the conversion of the 9.25% Note or warrant. See Note 7 - "Stockholders'
Equity".

(7) STOCKHOLDERS' EQUITY

Common and Preferred Stock

On October 31, 1994, in connection with the formation of Celadon/Jacky
Maeder Company ("CJM"), Swissair Associated Companies, Ltd. ("Swissair")
purchased 200,000 shares of Common Stock, at $18.07 per share. These shares were
classified as redeemable common stock because Swissair could require the Company
to repurchase such shares at $18.07 per share, plus 10% interest and one-half of
the stock appreciation as defined in the agreement, if the Company did not
effect a shelf registration for the benefit of Swissair prior to April 30, 1996.
On February 7, 1996, the Company's Board of Directors ("the Board") authorized
the purchase of the 200,000 shares of the Company's Common Stock from Swissair
Associated Companies, Ltd. On February 21, 1996 these shares were purchased at a
negotiated price of $13.75 per share.

On January 31, 1995, the Company issued 1,000,000 shares of Common Stock
and granted to the underwriters an over-allotment option to issue an additional
154 thousand shares of Common Stock pursuant to an underwritten public offering.
On February 2, 1995 the over-allotment option was exercised by the underwriters
and the Company issued an additional 154,399 shares of Common Stock. The
aggregate proceeds from these issuances of Common Stock were $16.6 million. In
connection with these issuances the Company incurred costs of $763 thousand.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

On February 2, 1995, the Company retired 1,453 shares of Common Stock held
in treasury. In addition, on February 2, 1995 the Company amended its
Certificate of Incorporation by reducing the number of authorized shares of
Common Stock from 17,000,000 shares to 12,000,000 shares.

During fiscal year 1997, the Company purchased on the open market 28,000
shares of the Company's Common Stock at an average price of $8.40 per share and
recorded these shares as treasury stock. In addition, the Company received and
recorded as treasury stock 100,000 shares of the Company's Common Stock valued
at $7.25 per share from the former President of Celadon Group, Inc. as
consideration for a portion of the sales price paid by him to acquire the
Company's South American warehousing, logistics and distribution business
operating under the name of Celsur, Inc.

Stock Options

Stock options and performance awards have been granted to officers and
other executives and key employees. Stock options are granted at exercise prices
equal to the fair market value of the Company's stock at the dates of grant.
Generally, options vest in increments and become fully exercisable three years
from the date of grant and have a term of 10 years. See Note 8 - "Stock
Options."

Warrants

Pursuant to the ESOP loan agreement, the Company issued to the lender a
warrant entitling the holder to purchase, in the aggregate, 2% of the Company's
outstanding Common Stock, subject to adjustment as defined in the agreement, for
a price of $500 thousand. On January 23, 1995, the warrant holder exercised one
half of the warrant by paying to the Company $250 thousand upon the issuance of
35,851 shares by the Company. On October 1, 1996, the Company's Board of
Directors authorized the extension of the expiration date for the warrant issued
pursuant to the ESOP loan agreement to November 1,1997.

In connection with the issuance of the 9.25% Note, the Company issued to
the holder of the 9.25% Note a warrant to purchase 12,121 shares of the Common
Stock at $10.82 per share, subject to certain adjustments for dilution. The
warrant is exercisable through September 30, 1998.

In connection with each of the warrants described above, the Company has
granted certain piggyback and demand registration rights with respect to shares
issued upon the exercise of such warrants.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

(8) STOCK OPTIONS

In January 1994, the Company adopted a Stock Option Plan (the "Plan") which
provides for the granting of stock options, stock appreciations rights and
restricted stock awards to purchase not more than 250,000 shares of Common
Stock, subject to adjustment under certain circumstances, to select management
and key employees of the Company and its subsidiaries. During 1995, the Plan was
amended to increase the number of shares under the Plan from 250,000 to 500,000
shares, which amendment was approved by the shareholders at the 1994 annual
meeting.

In connection with the extension of an employment agreement with the
President and Chief Executive Officer of CJM ( the "CJM Executive") in February
1994, an option to purchase 100,000 shares of Common Stock was granted at an
exercise price of $14.50 per share. In connection with the sale of certain
freight forwarding assets to NG Enterprises Inc., a company controlled by the
CJM Executive, the options were canceled. See Note 15 - Discontinued Operations.

The Company has elected to follow Accounting Principles Board Opinion (APB)
No. 25, "Accounting for Stock Issued to Employees" and related interpretations
in accounting for its stock options. Under APB No. 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
However, SFAS No. 123, "Accounting for Stock-Based Compensation," requires
presentation of pro forma net income and earnings per share as if the Company
had accounted for its employee stock options granted subsequent to June 30,
1995, under the fair value method of that statement. Under SFAS No. 123, total
compensation expense for stock-based awards of $650 thousand and $433 thousand
in 1997 and 1996, respectively, on a pro forma basis, would have been reflected
in income on a pretax basis. For purposes of pro forma disclosure, the estimated
fair value of the options is amortized to expense over the vesting period. Under
the fair value method, the Company's net income and earnings per share would
have been reduced as follows (in thousands):

1997 1996
---- ----
Net Income.............................. $390 $260
Earnings per share...................... .05 .03

Because SFAS No. 123 is applicable only to options granted subsequent to June
30, 1995, and the options have a three-year vesting period, the pro forma effect
will not be fully reflected until fiscal year 1999.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

The weighted-average per share fair value of the individual options granted
during fiscal year 1997 and 1996 is estimated as $5.73 and $6.78, respectively,
on the date of grant. The fair values for both years were determined using a
Black-Scholes option-pricing model with the following weighted average
assumptions:

1997 1996
---- ----

Dividend yield.......................... 0 0
Volatility.............................. 56.2% 60.8%
Risk-free interest rate................. 6.03% 6.73%
Forfeiture rate......................... 10% 36%
Expected life........................... 7 years 7 years

Stock option activity during 1995-1997 is summarized below:

Shares of Weighted
Common Stock Average
Attributable Exercise
to Options Price of Options
----------- ----------------
Unexercised at July 1, 1994 299,650 $14.5584
Granted 239,000 16.3891
Exercised (334) 14.5000
Forfeited (8,566) 14.9378
---------
Unexercised at June 30, 1995 529,750 15.3782
Granted 171,800 10.2698
Exercised (9,333) 14.5000
Forfeited (102,600) 14.3307
---------
Unexercised at June 30, 1996 589,617 13.7468
Granted 98,000 8.9541
Exercised --- ---
Forfeited (257,817) 14.1815
---------
Unexercised at June 30, 1997 429,800 11.9919
=========

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

The following table summarizes information concerning outstanding and
exercisable options at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
--------- ---------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 5 - $10 221,500 8.4071 $ 9.2946 122,672 $ 9.6943
$10 - $15 148,800 7.8223 13.3474 111,506 14.1547
$15 - $20 59,500 7.1667 18.6429 59,500 18.6429
</TABLE>

Shares exercisable at June 30, 1997 and 1996, were 293,678 and 356,029,
respectively.

(9) RELATED PARTY TRANSACTIONS

CJM's main warehouse facility in New York was leased from a corporation
owned by the CJM Executive and another employee of CJM. Rent in the amounts of
$148 thousand and $146 thousand was paid by the Company in each of 1996 and
1995, respectively, under the terms of the lease agreement, which expired in
1996.

Additionally, CJM's Israeli freight forwarding agent, which had a
profit sharing arrangement with the Company, is 30% owned by the CJM Executive.
The gross profits (freight forwarding revenue less direct transportation of
freight forwarding) in each of 1996 and 1995 earned by the Israeli agent were
approximately $302 thousand and $747 thousand, respectively. In connection with
this agency agreement which terminated in June 1997, the Company agreed in
fiscal 1994 to advance up to $500 thousand to its Israeli agent for advancing on
behalf of Israeli customers value added taxes and other prepaid charges incurred
by such agent in its business. As of June 30, 1997, there were no advances
outstanding. In connection with the winddown of the freight forwarding business
segment, CJM and the Company resolved certain disputed items with CJM's Israeli
Freight forwarding agent. As a result, the Company recorded a $727,000 bad debt
write-off expense as a component of the loss on discontinued operations in the
fiscal year ended June 30, 1996.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

The Company's Chief Executive Officer and the Company's former
President, prior to his resignation in July 1996, were parties to a
stockholders' agreement that required the parties thereto to vote their shares
of stock for the election as directors of the Company certain designees of the
other party to the agreement. The Company, the Company's Chief Executive Officer
(the "Company Executive"), and Hanseatic, a significant shareholder, are parties
to a stockholders agreement. This agreement provides that, as long as Hanseatic
or the Company Executive each beneficially own at least five percent of the
outstanding shares of Common Stock, the Company shall use its best efforts to
insure that one member of the Company's board of directors is a designee of
Hanseatic and that another member of the Company's board of directors is a
designee of the Company Executive. In addition, the Company Executive and
Hanseatic have agreed to vote all shares of Common Stock owned by them in favor
of the election of such nominees or, upon the death of the Company Executive,
for the designee of the holder of a majority of the Company Executive's shares
of Common Stock on the date of death.

On July 3, 1996, Leonard R. Bennett, former President, Chief Operating
Officer and a Director of the Company resigned as an Officer and Director of the
Company and all of its subsidiaries. At that time, he also released the Company
from its obligations under his employment contract. The Company entered into a
three year noncompete and consulting agreement with Mr. Bennett which provided
for annual payments of $268,396, which were accrued as of June 30, 1996, and
continuation of certain disability and life insurance benefits. The agreement
can be canceled by either party for cause. Mr. Bennett acquired the Company's
80.5% interest in Celsur Inc. for a total of 100,000 shares of Celadon Group,
Inc. common stock and $2,440,645 in the form of a personal note, bearing
interest at the prime commercial lending rate of The Chase Manhattan Bank, N.A.
New York, New York which was paid in full when due on October 3, 1996. On March
28, 1997, the agreement was terminated and all other obligations of the parties,
except for the non-compete and confidentiality provisions and certain
indemnifications, ceased upon the payment by the Company of $365,565.

On July 3, 1996, Peter Bennett, former Executive Vice President
Administration of Celadon Trucking Services, Inc., ("CTSI"), the Company's
principal operating subsidiary, resigned as an officer and employee of CTSI. The
Company entered into a one year non-compete and consulting contract with Mr.
Bennett providing for an annual payment of $60,000 which was accrued for as of
June 30, 1996. On March 28, 1997, the agreement was terminated and all other
obligations of the parties, except for the non-compete and confidentiality
provisions and certain indemnifications, ceased upon the payment by the Company
of $30,692.

In July 1996, the Company guaranteed eight individual one year bank
loans to eight executives aggregating $270,000. The loans range in amounts from
$9,000 to $54,000, are full recourse to the individual executive and are secured
by a total of 30,000 shares of Celadon Group, Inc. common stock owned by the
executives individually. In February, 1997, one of the original participants
withdrew and was replaced by two additional executives. On July 1, 1997, the
bank loans and the Company's guarantee were extended until January 1, 1998. The
total amounts and ranges noted were not affected.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

(10) HEDGING ACTIVITIES, COMMITMENTS AND CONTINGENCIES

The Company has outstanding commitments to purchase approximately $9.4
million of revenue equipment at June 30, 1997.

Standby letters of credit, not reflected in the accompanying condensed
consolidated financial statements, aggregated approximately $2.2 million at June
30, 1997.

The Company has employment and consulting agreements with various key
employees and former employees providing for minimum combined annual
compensation over the next four years ranging from $1.1 million in 1998 to $0.3
million in 2001.

There are various claims, lawsuits and pending actions against the
Company and its subsidiaries incidental to the operation of its businesses. The
Company believes many of these proceedings are covered in whole or in part by
insurance and that none of these matters will have a material adverse effect on
its consolidated financial position.

The Company, from time-to-time, enters into arrangements to protect
against fluctuations in the price of fuel used by its trucks. As of June 30,
1997, the Company had contracts to purchase fuel for future physical delivery in
the months of November 1997 through April 1998. These contracts represent
approximately 22% of the anticipated fuel requirements in those months.
Additionally, the Company periodically acquires exchange-traded petroleum
futures contracts and various commodity collar transactions. Gains and losses on
transactions, not designated at hedges, are recognized based on market value at
the date of the financial statements. At June 30, 1997, liquidation of
outstanding transactions, not designated as hedges, which extended through June
1998 and covered approximately 32% of the Company's fuel requirements would have
resulted in a $36 thousand loss. The Company has no transactions outstanding as
of June 30, 1997 designated as hedges. The current and future delivery prices of
fuel are monitored closely and transaction positions adjusted accordingly. Total
commitments are also monitored to ensure they will not exceed actual fuel
requirements in any period. During the year ended June 30, 1997, gains of $79
thousand were realized on the physical delivery and futures contracts and shown
as a reduction of fuel expense.

The Company has been assessed approximately $750 thousand by the State
of Texas for Interstate Motor Carrier Sales and Use Tax for the period from
April 1988 through June 1992. The Company disagrees with the State of Texas over
the method used by the state in computing such taxes and intends to vigorously
pursue all of its available remedies. On October 30, 1996, the Company made a
payment of $1.1 million, under protest, which includes interest to the date of
payment and enables the Company to pursue resolution of the matter with the
State of Texas Attorney General. In the March 1997 quarter, the Company filed
its Original Petition against representatives of the State of Texas. The state
responded and denied the Company's claims. As of June 30, 1997, the parties to
the litigation were exchanging discovery requests and documentation. The Company
has accrued an amount that management estimates is due based upon methods they
believe are appropriate. While there can be no certainty as to the outcome, the
Company believes that the ultimate resolution of this matter will not have a
material adverse effect on its consolidated financial position.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

(11) PROVISION FOR INCOME TAXES

The income tax provision for continuing operations in 1997, 1996 and
1995 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ----- ----
<S> <C> <C> <C>
Current (Credit):

Federal......................................... $1,229 $ (1,450) $1,958
State and local................................. 400 (171) 772
Foreign......................................... 104 146 52
------ -------- ------
$1,733 $ (1,475) $2,782
------ -------- ------
Deferred:

Federal....................................... 1,126 954 816
State and local............................... 165 110 92
------ -------- ------
1,291 1,064 908
------ -------- -----
$3,024 $ (411) $3,690
====== ======== ======
</TABLE>
No provision is made for U.S. federal income taxes on undistributed
earnings of foreign subsidiaries of approximately $257 thousand at June 30,
1997, as management intends to permanently reinvest such earnings in the
Company's operations in the respective foreign countries where earned.

The Company's effective tax rate on income (loss) from continuing
operations differs from the statutory federal tax rate of 35% as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate........................... 35.00% 35.00% 35.00%
State taxes, net of federal benefit.................. 4.88 1.96 9.52
Non-deductible officers' life insurance ............. .42 1.04 .56
Non-deductible meals and entertainment............... .38 (11.72) 15.91
Non-deductible goodwill amortization................. .21 (2.34) .18
Other, net........................................... (.72) (3.47) 1.32
------ ------- -------
Effective tax rate.......................... 40.17% 20.47% 62.49%
====== ======= =======

</TABLE>

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1997

The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at June 30, 1997 and 1996
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Continuing Operations:
Deferred tax assets:
Allowance for doubtful accounts ............................... $ 461 $ 404
Insurance reserves............................................. 539 595
Revenue recognition............................................ 378 491
Tires in service............................................... 412 616
Parts and supplies............................................. 488 608
Accrued expense reserves....................................... 750 826
Other ..................................................... 576 536
------ ------
Total deferred tax assets............................ $3,604 $4,076
====== ======
Deferred tax liabilities:
Excess tax depreciation....................................... $ (5,158) $(5,220)
Capital leases .............................................. (5,337) (4,278)
-------- -------
Total deferred tax liabilities....................... $(10,495) $(9,498)
======== ======
Discontinued Operations:
Net current deferred tax assets............................... $ 709 $ 2,428
Net noncurrent deferred tax liabilities....................... (82) (1,398)
-------- -------
$ 627 $ 1,030
======== ======
Net current deferred tax assets $ 1,568 $ 3,404
Net noncurrent deferred tax liabilities................................ (7,832) (7,796)
-------- -------
Total net deferred tax liabilities................... $ (6,264) $(4,392)
======== =======

</TABLE>

As of June 30, 1997, the Company had approximately $5.1 million of
operating loss carryforwards with expiration dates through 2012.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1997

(12) SUPPLEMENTAL CASH FLOW INFORMATION

In 1997, 1996 and 1995, capital lease obligations in the amount of
$33.9 million, $14.9 million and $13.0 million, respectively, were incurred in
connection with the purchase of, or option to purchase, tires in service and
revenue equipment.

For 1997, 1996 and 1995, the Company made interest payments of $4.9
million, $3.3 million and $3.3 million, respectively.

For 1997, 1996 and 1995, the Company made income tax payments of $252
thousand, $880 thousand, and $1.5 million, respectively.

(13) INVESTMENT IN UNCONSOLIDATED AFFILIATE

On December 18, 1996, the Company sold certain assets consisting
primarily of customer lists of its wholly owned freight forwarding operations
conducted in the New York area to NG Enterprises, Inc. (NGE), a company
controlled by Norman G. Grief, the former President and Chief Executive Officer
of Randy International, Inc. In connection with the sale, the Company acquired a
49% interest in NGE, agreed to provide a five year interest bearing revolving
credit loan up to $1.9 million secured by the assets of NGE and agreed to an
option exercisable by NGE to acquire the Company's 49% interests in NGE for
$300,000 initially, which amount will increase by $30 thousand annually. No gain
or loss was recognized on the sale. On July 11, 1997, the Company transferred
its 49% interest in NGE to NGE and the business conducted by NGE was sold to
Union Transport Corporation, a wholly owned subsidiary of Union Transport, Inc.,
a global logistics company. In that transaction, Union Transport Corporation
assumed, with the Company's consent, certain of the obligations of NGE to the
Company.

(14) ACQUISITIONS

Freight Forwarding

On October 31, 1994, the Company entered into a partnership (the
"Partnership Agreement") with Jacky Maeder, Ltd., a freight forwarding company
wholly owned by Swissair Associated Companies Ltd. ("Swissair"), which
partnership combined the respective United States freight forwarding operations
of the Company (Randy International, Ltd.) with Jacky Maeder, Ltd. The
partnership between the two companies operated under the name "Celadon/Jacky
Maeder Company" and was 70% owned by the Company and 30% owned by Jacky Maeder,
Ltd. The Company accounted for this transaction as a purchase. In addition,
Swissair purchased 200,000 shares of the Company's Common Stock at $18.07 per
share. The Company loaned $2.5 million of the proceeds of this share issuance to
Celadon/Jacky Maeder Company.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1997

In connection with the formation of Celadon/Jacky Maeder Company and
the acquisition by the Company of a 70% ownership interest in the business
contributed to the partnership by Jacky Maeder, Ltd. (based upon the fair market
value of such ownership interest) in exchange for a 30% ownership interest in
the business contributed to the partnership by Randy International, the Company
realized a gain of $1.5 million net of $400 thousand for professional fees
associated with the transaction. The Company also incurred a charge to
operations of $822 thousand for costs associated with the formation of
Celadon/Jacky Maeder Company.

In connection with the integration of the Company's United States
freight forwarding business with that of Jacky Maeder, the Company wrote-off
costs of $2 million during December 1995 related to the former Randy
International computer system. This system was abandoned as a result of the
Company's conversion to a single integrated computer system for substantially
all of the United States freight forwarding operations of Celadon/Jacky
Maeder Company.

During March 1995, the Company, through its wholly owned subsidiary,
Randy UK, acquired Guestair, Ltd., a freight forwarding company based in the
United Kingdom for approximately $2.6 million. The Company accounted for this
transaction as a purchase.

In December 1995, the Company discontinued the operations of the
freight forwarding division. See Note 15 - "Discontinued Operations."

Trucking

In May 1995, the Company made an investment of approximately $1.1
million in Servicio de Transportacion Jaguar, S.A. de C.V. ("Jaguar"), formerly
known as Transportes RQF, S.A. de C.V., a previously inactive entity. For its
investment, the Company acquired 75% of the stock of Jaguar. Jaguar is a Mexican
motor freight carrier. The Company has accounted for this transaction as a
purchase.

On June 29, 1995, the Company acquired Cheetah Transportation Company
and CLK, Inc. ("Cheetah"). Cheetah operates in the flatbed segment of the full
truckload market. The purchase price was approximately $5.1 million. The Company
has accounted for this transaction as a purchase.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997

(15) DISCONTINUED OPERATIONS

FREIGHT FORWARDING SEGMENT

During December, 1995 the Board of Directors of Celadon Group, Inc.
authorized the disposal of the Company's freight forwarding business. In
connection with the Company's plan of disposition effective February 1, 1996,
the U.S. customer list together with certain assets and liabilities of the
Company's U.S. freight forwarding business, operating under the name
Celadon/Jacky Maeder Company, were sold to the Harper Group, Inc.'s primary
operating subsidiary, Circle International, Inc. Pursuant to the terms of the
transaction, the total purchase price for these assets and liabilities was to be
paid in cash and equal the net revenue derived from such customer list during
the twelve-month period following February 1, 1996. The Harper Group, Inc. made
an initial down payment of $9.5 million at closing with the balance of the
purchase price to be paid in quarterly installments as earned by the Harper
Group, Inc. There were no additional payments by Harper Group, Inc. to the
Company based on reported net revenues during the measurement period.

In May 1996, the Company became the sole owner of the freight
forwarding operations conducted in the New York area by acquiring the minority
interest of Jacky Maeder, Ltd. This step was taken to facilitate the ultimate
disposition of this operation. On December 18, 1996, the Company sold certain
assets consisting primarily of customer lists of the freight forwarding
operations conducted in the New York area to NG Enterprises, Inc. ("NGE"), a
company controlled by Norman G. Grief, the Former President and Chief Executive
Officer of Randy International, Inc. In connection with the sale, the Company
received a 49% interest in NGE, was relieved of its obligation to Norman G.
Grief under his employment contract, agreed to provide a five year interest
bearing revolving credit loan up to $1.9 million secured by the assets of NGE
and agreed to an option exercisable by NGE to acquire the Company's 49% interest
in NGE for $300,000 initially, which amount would increase by $30 thousand
annually. No gain or loss was recognized on the sale. On July 11, 1997, the
Company transferred its 49% interest in NGE to NGE and the business conducted by
NGE was sold to Union-Transport Corporation, a wholly owned subsidiary of
Union-Transport, Inc. a global logistics company. In that transaction,
Union-Transport Corporation assumed, with the Company's consent, certain of the
obligations of NGE to the Company.

In May 1996, the Company concluded the sale of the United Kingdom
freight forwarding operation to Forwardair Limited a subsidiary of the Fritz
Companies.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
(DOLLAR AMOUNTS IN THOUSANDS)

LOGISTICS SEGMENT

In the quarter ended June 30, 1996, the decision was made to sell
certain businesses previously included in the Logistics division and to
discontinue offering logistics services as a separate activity of the Company.
Consequently in June 1996, the net assets of the Company's package delivery
business headquartered in New York City and operating under the name Celadon
Express was sold.

On July 3, 1996, the Company concluded the sale of its South American
warehousing logistics and distribution business operating under the name of
Celsur, Inc. for approximately $3.1 million. The sales price was paid with
100,000 shares of the Company's common stock, and an interest bearing promissory
note for $2.4 million due October 3, 1996.

At June 30, 1997 and 1996, assets and liabilities included in the
Company's consolidated balance sheet related to the discontinued freight
forwarding operation are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997 1996
---- ----
<S> <C> <C>
Assets:

Cash.................................................. $ 753 $ 3,142
Accounts receivable (net of allowance)................ 1,457 8,436
Accounts receivable other............................. 25 2,558
Prepaid expenses and other current assets............. 167 224
Assets held for resale................................ --- 69
Income tax receivable................................. 2,565 ---
Deferred income tax receivable........................ 568 2,369
Other assets.......................................... 590 ---
------ -------
Total........................................ $6,125 $16,798
====== =======
Liabilities and Equity:
Accounts payable...................................... $1,230 $ 4,805
Accrued expenses...................................... 1,861 6,146
Income taxes payable.................................. --- 105
Deferred income tax liabilities (assets).............. (36) (11)
Equity adjustment for foreign
currency translation............................... --- 25
------- -------
Total........................................ $3,055 $11,070
====== =======
</TABLE>

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1997
(DOLLAR AMOUNTS IN THOUSANDS)

At June 30,1997 and 1996, assets and liabilities included in the
Company's consolidated balance sheet related to the discontinued logistics
segments are as follows (in thousands):

<TABLE>
<CAPTION>
JUNE 30,
1997 1996
---- ----
<S> <C> <C>
Assets:
Cash................................................. $ --- 33
Accounts receivable (net of allowance)............... --- 303
Accounts receivable other............................ --- 632
Income tax receivable................................ --- 329
Assets held for sale................................. --- 2,479 (1)
Deferred income tax receivable....................... --- 36
------ ------
Total........................................... $ --- $3,812
====== ======
Liabilities and Equity:

Accrued expenses..................................... --- $ 214
Income taxes payable................................. --- 276
Deferred income taxes payable........................ --- 206
Equity adjustment for foreign
currency translation............................... --- (2)
------- -------

Total........................................... $ --- $ 694
======= =======
</TABLE>

(1) Represents the net investment in Celsur Inc., the stock of which
was sold on July 3, 1996.
- ------------
The anticipated loss on the disposal of the freight forwarding and logistics
segments have been accounted for as discontinued operations in accordance with
Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations
- - Reporting the Effects of Disposal of a Segment of Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." As such, prior
period financial statements have been reclassified to reflect the
discontinuation of these lines of business.

<PAGE>

CELADON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30,1997

The Company recorded a charge to earnings of $8.2 million during the
three months ending December 31, 1995 representing the expected loss on the
disposal of the freight forwarding segment. In determining the estimated loss on
disposition in the December 31, 1995 quarterly financial statements, management
made certain estimates and assumptions based upon currently available
information. These estimates and assumptions primarily related to the ultimate
sales price to be received from the sale of the U.S. customer list to the Harper
Group, Inc., the net realizable value of the remaining assets to be disposed of,
the liquidation of trade receivables, and the costs associated with the
settlement of certain leases, severance and other obligations. The Company also
recorded an additional $4.6 million loss on disposal, net of tax, in the June
30, 1996 financial statements. This is primarily a result of the reduction in
the payment to be received from the Harper Group, Inc. for revenue attributable
to the U.S. customer list which they acquired. Additionally, based on actual
collection and payment experience and cost to wind-down the operations through
June 30, 1996, the estimated after tax loss on discontinued freight forwarding
operations was increased by $1.2 million to $2.3 million. Revenue of the freight
forwarding segment for the years ended June 30, 1996, 1995 and 1994, were $120.5
million and $126.5 million and $83.2 million, respectively.

In the quarter ended June 30, 1996, the Company also recorded a charge
of $600 thousand relating to the discontinuation of the logistics line of
business. The loss is primarily comprised of the loss on the sale of the net
assets of Celadon Express, Inc. in June 1996, partially offset by the gain on
the sale of the Company's 80.5% ownership interest in Celsur Inc., a warehousing
and logistics operation in Argentina and Brazil. It is not anticipated that
future adjustments to the net assets sold will be material. Revenue for the
logistics segment for the years ended June 30, 1996, 1995 and 1994 were $11.9
million, $7.4 million and $3.0 million, respectively.

(16) SUBSEQUENT EVENTS

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

There were no changes in or disagreements with accountants on accounting or
financial disclosures within the last three fiscal years.

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

On December 17, 1996, five directors were elected to hold office until the
annual meeting of stockholders for fiscal 1998 or until their respective
successors have been elected and qualified. Those directors are Stephen Russell,
Paul A. Biddelman, Michael Miller, Joel E. Smilow and Kilin To.

The directors, executive officers, and other key employees of the Company and
its subsidiaries are as follows:
<TABLE>
<CAPTION>

Name Age Position
---- --- --------
<S> <C> <C>
Stephen Russell 57 Chairman of the Board, President and
Chief Executive Officer of the Company
Ronald S. Roman 52 Senior Executive Vice President - Chief Operating Officer of the
Company
Don S. Snyder 48 Executive Vice President - Chief Financial Officer of the Company
Michael W. Dunlap 35 Vice President - Treasurer of the Company
Paul A. Will 31 Vice President - Secretary and Controller of the Company
Paul Biddelman(1)(2) 51 Director of the Company
Michael Miller(1) 52 Director of the Company
Joel E. Smilow(2) 64 Director of the Company
Kilin To(1)(2) 54 Director of the Company
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee

<PAGE>

Mr. Russell has been Chairman of the Board and Chief Executive Officer
of the Company since its inception in July 1986. He is also a director of
Petroleum Heat and Power Co., Inc., a director of the Interstate Truckload
Carriers Conference, and a member of the North American Transportation Alliance
advisory board. Mr. Russell has been a member of the Board of Advisors of the
Cornell University Johnson Graduate School of Management since 1983.

Mr. Roman has been Senior Executive Vice President - Chief Operating
Officer of the Company since June 1997. He was Executive Vice President - Fleet
Management and Customer Service of Celadon Trucking Services, Inc. from July
1996 to June 1997. From October 1985 to July 1996, Mr. Roman was employed by
North American Van Lines, Inc., an over-the-road household goods and high value
product full truckload transportation company, holding executive positions,
primarily Vice President - Fleet Services, from October 1985 to August 1995.

Mr. Snyder has been Executive Vice President, Chief Financial Officer
of the Company since September 1996. He was Executive Vice President, Chief
Financial Officer and Treasurer from April, 1996 to September, 1996. He served
as Vice President-Controller for Burlington Northern Railroad Company, a company
engaged in the railroad transportation business in the United States, from
December 1987 to December 1995. Mr. Snyder is a certified public accountant.

Mr. Dunlap has been Vice President - Treasurer of the Company since
July 1996. He served as Vice President of Finance for National Freight, Inc., a
regional truckload transportation company, from October 1993 to July 1996. He
served as Vice President - Treasurer for Burlington Motor Carriers, Inc., a
nationwide truckload transportation company from June 1992 to October 1993, and
Corporate Controller for Burlington Motor Carriers, Inc. from October 1990 to
June 1992.

Mr. Will has been Vice President-Secretary and Controller of the
Company since September 1996. He was Vice President-Controller for Celadon
Trucking Services, Inc. from January 1996 to September 1996 and Controller from
September 1993 to January 1996. He served as Controller for American Hi-Lift, a
company engaged in the business of renting aerial work platform equipment, from
February 1992 to September 1993. Mr. Will is a certified public accountant.

Mr. Biddelman has been a director of the Company since October 1992.
Mr. Biddelman has been Treasurer of Hanseatic Corporation, a private investment
company, since April 1992. He is also a director of Petroleum Heat and Power
Company, Inc., Premier Parks, Inc., Electronic Retailing Systems International,
Inc., Oppenheimer Group, Inc., Star Gas Corporation (the General Partner of Star
Gas Partners L.P.), and Insituform Technologies, Inc.

Mr. Miller has been a director of the Company since February 1992. Mr.
Miller has been Chairman of the Board and Chief Executive Officer of Aarnel
Funding Corporation, a venture capital/real estate company since 1974, a partner
of Independence Realty, an owner and manager of

<PAGE>

real estate properties, since 1989, and President and Chief Executive Officer of
Miller Investment Company, Inc., a private investment company, since 1990.

Mr. Smilow has been a director of the Company since December 1996. Mr.
Smilow served as Chief Executive Officer of Playtex Products, Inc. and its
predecessors ("Playtex") from 1969 until July 10, 1995 and served as Chairman of
Playtex from 1969 until June 1995.

Mr. To has been a director of the Company since 1988. He has been a
managing partner of Sycamore Management, Inc., since 1995. He also had been a
Vice President of Citicorp Venture Capital, Ltd. ("CVC"), a subsidiary of
Citicorp N.A., from 1984 to 1995.

All directors of the Company hold office until the next annual meeting
of stockholders of the Company or until their successors are elected and
qualified or they resign. Mr. Russell and Hanseatic Corporation are parties to a
stockholders agreement pursuant to which they have agreed to vote their shares
of Common Stock for the other's designee. Those designees are Messrs. Russell
and Biddelman. See "Security Ownership of Principal Stockholders and Management"
and "Certain Relationships and Related Transactions--Transactions with Directors
and Stockholders". Executive officers hold office until their successors are
chosen and qualified, subject to their removal by the Board of Directors, to any
employment agreements or their resignation. See "Compensation of Directors and
Executive Officers--Employment Agreements."

Pursuant to Section 145 of the Delaware General Corporation Law, the
Company's Certificate of Incorporation provides that the Company shall, to the
full extent permitted by law, indemnify all directors, officers, incorporators,
employees, or agents of the Company against liability for certain of their acts.
The Company's Certificate of Incorporation provides that, with a number of
exceptions, no director of the Company shall be liable to the Company for
damages for breach of his fiduciary duty as a director.

The Audit Committee consists of Paul A. Biddelman, Michael Miller and
Kilin To. The Audit Committee meets with management and the Company's
independent auditors to determine the adequacy of internal controls and other
financial reporting matters. The Compensation Committee consists of Paul A.
Biddelman, Joel E. Smilow and Kilin To. The Compensation Committee reviews
general policy matters relating to compensation and benefits of employees and
officers of the Company, administers the Company's Employee Stock Purchase Plan
and through October 1996, administered the Company's Stock Option Plan.
Effective November 1, 1996, the full Board of Directors became the
administrators of the Company's Stock Option Plan. The Company does not have a
nominating committee or a committee performing similar functions.

<PAGE>

The Board of Directors of the Company met five times during the fiscal
year ended June 30, 1997. In addition, on four occasions, the Board of Directors
took action pursuant to unanimous written consent. No current director, while he
was an elected Director, failed to attend at least 75% of those meetings plus
any committee meeting of the Board of which he was a member. The Company's Audit
Committee met two times during the year ended June 30, 1997. The Compensation
Committee met three times during the year ended June 30, 1997.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Under the securities laws of the United States, the Company's directors,
officers, and any persons owning more than 10 percent of the Common Stock are
required to report their ownership of Common Stock and any changes in that
ownership, on a timely basis, to the Securities and Exchange Commission. Based
on material provided to the Company, all such required reports were filed on a
timely basis in fiscal 1997. However, the Form 4 for Brian L. Reach for an April
1996 stock option repricing was filed late due to an administrative oversight.
That repricing was disclosed in the fiscal year 1996 Annual Report on Form 10-K
and Proxy statement.

<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the cash compensation paid or accrued by
the Company for services rendered during fiscal 1997, 1996 and 1995 to the Chief
Executive Officer of the Company, each of the three other most highly paid
executive officers of the Company, whose annual cash compensation exceeded
$100,000 and the Vice President of Special Projects who resigned March 21, 1997
and whose cash compensation exceeded $100,000 prior to his resignation,
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE

Long Term
ANNUAL COMPENSATION Compensation
------------------- Awards
------------
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
- --------------------------- ---- -------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Stephen Russell.................... 1997 $482,143 $236,957 --- $ 81,642 (1)(2)(3)
Chairman of the Board 1996 438,711 --- 20,000 110,446 (1)(2)
and Chief Executive Officer 1995 408,103 --- 50,000 130,978 (1)(2)
Ronald S. Roman(6)................. 1997 $137,837 $7,500 35,000 $ 33,125 (3)(4)(5)
Senior Executive Vice President,
Chief Operating Officer
Don S. Snyder(6)(7)................ 1997 $174,015 $ 40,000 --- $ 20,082 (2)(3)(4)(5)
Executive Vice President, 1996 41,350 10,000 35,000 ---
Chief Financial Officer
Michael W. Dunlap.................. 1997 $99,121 $ 20,000 5,000 $ 10,302 (3)(4)(5)
Vice President, Treasurer
Brian L. Reach..................... 1997 $134,818 $ --- --- $ 54,053 (2)(3)(4)(8)
Vice President 1996 170,000 26,315 20,000 2,136 (2)
Special Projects 1995 170,000 29,584 30,000 2,139 (2)
</TABLE>
- ------------
(1) Includes the premiums paid by the Company for term insurance and
split-dollar insurance for which the Company has an assignment against
the cash value for premiums paid, as follows: $69,477 in fiscal 1997,
$99,587 in fiscal 1996 and $120,123 in fiscal 1995.

<PAGE>

(2) Includes the Company's contribution under the Company's 401(k) Profit
Sharing Plan, as follows: Stephen Russell-- $2,375 in fiscal 1997,
$2,375 in fiscal 1996 and $2,371 in fiscal 1995; Don S. Snyder $792 in
fiscal 1997; Brian L. Reach -- $1,603 in fiscal 1997, $2,136 in fiscal
1996, and $2,139 in fiscal 1995.

(3) Includes premiums and reimbursement under an Executive health and
disability benefit program as follows, Stephen Russell -- $9,789 in
fiscal 1997, $8,484 in fiscal 1996 and $8,484 in fiscal 1995; Ronald S.
Roman - $634 in fiscal 1997; Don S. Snyder - $611 in fiscal 1997;
Michael W. Dunlap - $413 in fiscal 1997; Brian L. Reach - $1,300 in
fiscal 1997.

(4) Includes premiums on the employee portion of split dollar life
insurance premiums as follows: Ronald S. Roman - $985 in fiscal 1997;
Don S. Snyder - $694 in fiscal 1997; Michael W. Dunlap - $379 in fiscal
1997; Brian L. Reach $1,425 in fiscal 1997.

(5) Includes relocation related expense reimbursements as follows: Ronald
S. Roman -- $31,506 in fiscal 1997, Don S. Snyder -- $17,985 in fiscal
1997; Michael W. Dunlap -- $9,510 in fiscal 1997.

(6) The Company is a guarantor of personal loans to the executives secured
by shares of common stock of the Company as follows: Ronald S. Roman -
loan $18,000, shares held as collateral 2,000; Don S. Snyder - loan
$54,000, shares held as collateral 6,000.

(7) In connection with Don S. Snyder's relocation, the Company acquired his
personal residence and has incurred $122,325 in cost associated with
the acquisition and marketing of his home in Ft. Worth, Texas pursuant
to his employment contract. Such amount is not included in the above
table.

(8) Brian L. Reach resigned as an officer and employee of the Company,
effective March 21, 1997 and became a consultant to the Company under
the terms of his employment contract. All other compensation includes
$49,725 received during the year ended June 30, 1997 as consulting
fees.

<PAGE>

STOCK OPTIONS

The following table contains information concerning the grant of stock
options to the named Executive Officers.

OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable
Individual Value at Assumed
Number of Grants Annual Rates of
Securities % of Total Stock Price
Underlying Options Appreciation For
Options Granted to Exercise or Option Term (1)
Granted Employees Base Pric Expiration ____________
Name (shares) In Fiscal Year Per Share Date 5% 10%
---- -------- -------------- ---------- --------- --- ---
<S> <C> <C> <C> <C> <C> <C>
Stephen Russell........... --- --- --- --- --- ---
Ronald S. Roman........... 10,000 (2) 10% $7.50 08/30/06 $ 47,200 $119,500
25,000 (3) 26% $9.00 10/01/06 $141,500 $358,500
Don S. Snyder............. --- --- --- --- --- ---
Michael W. Dunlap......... 5,000 (4) 5% $7.50 08/30/06 $ 23,600 $59,750
Brian L. Reach............ --- --- --- --- --- ---
</TABLE>
- ---------------
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%)
on the Company's Common Stock over the term of the options. These numbers
are calculated based on rules promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
growth. Actual gains, if any, on stock option exercises and Common Stock
holdings are dependent on the timing of such exercise and the future
performance of the Company's Common Stock. There can be no assurance that
the rates of appreciation assumed in this table can be achieved or that the
amounts reflected will be received by the option holder.

(2) Options for 3,334 shares became exercisable on August 30, 1997, and options
for 3,333 shares become exercisable on each of August 30, 1998 and August
30, 1999.

(3) Options for 8,334 shares became exercisable on October 1, 1997, and options
for 8,333 shares become exercisable on each of October 1, 1998 and October
1, 1999.

(4) Options for 1,667 shares became exercisable on August 30, 1997, and options
for 1,667 shares become exercisable on August 30, 1998 and options for
1,666 shares become exercisable on August 30, 1999.

<PAGE>

OPTION EXERCISES AND HOLDINGS

The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the last fiscal
year and unexercised options held at June 30, 1997. There were no options
exercised during fiscal 1997.

AGGREGATED OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at June 30, 1997 at June 30, 1997 (1)
---------------------------------- ------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- ---------------------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Stephen Russell 63,334 6,666 $20,000 $10,000
Ronald S. Roman --- 35,000 --- $102,500
Don S. Snyder 23,334 11,666 $35,001 $17,499
Michael W. Dunlap --- 5,000 --- $20,000
Brian L. Reach (2) 60,000 --- $112,500 ---
</TABLE>

(1) Fair market value of underlying securities was $11.50 per share based on
the closing price of the Company's Common Stock on June 30, 1997.
(2) Brian L. Reach resigned as an officer and employee of the Company,
effective March 21, 1997.

DIRECTORS COMPENSATION

FEES

Non-employee directors of the Company receive an annual fee of $15,000,
payable quarterly, for serving as a director of the Company. Such directors
receive $1,250 per quarter for serving on committees. Board members are
reimbursed for their expenses for each meeting attended.

NON EMPLOYEE DIRECTOR STOCK OPTION PLAN

On March 31, 1997, the Board of directors adopted the Celadon Group, Inc.
Non-Employee Director Stock Option Plan, effective as of April 1, 1997 (the
"Director Option Plan"), subject to stockholder approval. The Company intends to
submit the Director Option Plan to the stockholders for approval at the next
annual meeting of stockholders.

<PAGE>

ADMINISTRATION

The Director Option Plan will be administered by a committee (the
"Committee") of the Board of Directors of the Company (the "Board"), appointed
from time to time by the Board. If no Committee exists which has the authority
to administer the Director Option Plan, the functions of the Committee will be
exercised by the Board. The Committee has full authority to interpret the
Director Option Plan and decide any questions under the Director Option Plan and
to make such rules and regulations and establish such processes for
administration of the Director Option Plan as it deems appropriate subject to
the provisions of the Director Option Plan.

AVAILABLE SHARES

If approved by the stockholders, the Director Option Plan authorizes the
issuance of up to 100,000 shares of Common Stock upon the exercise of
non-qualified stock options granted to non-employee directors of the Company.

OPERATION

All non-employee directors of the Company will be eligible to be granted
Options under the Director Stock Option Plan. A non-employee director is a
director serving on the Company's Board who is not an active employee of the
Company and/or a subsidiary or parent company of the Company, as defined in
Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended (the
"Code").

On April 1, 1997, each of the four non-employee directors of the Company on
April 1, 1997 (the "Initial Grant Date") was granted an Option to purchase 4,000
shares of Common Stock, subject to the terms of the Director Option Plan. Each
non-employee director who is first elected to the Board after April 1, 1997 will
be granted, as of the first day of the month coincident with or next following
the date of his or her election, an Option to purchase 8,000 shares of Common
Stock, subject to the terms of the Director Option Plan (such grant or any grant
on the Initial Grant Date is referred to as the "First Grant"). In addition, on
April 1, 1997, each non-employee director who was elected to the Board within
the one (1) year period ending March 31, 1997 was granted an additional Option
to purchase 8,000 shares of Common Stock, subject to the terms of the Director
Option Plan. As of the Initial Grant Date only one non-employee director
qualified for this additional grant. Securities underlying options granted on
the Initial Grant Date totaled 24,000 shares of Common Stock of the Company.

On each April 1 after the non-employee director receives the First Grant,
the non-employee director will be automatically granted an Option to purchase
4,000 shares of Common Stock. The exercise price for the Options will be 100
percent of the fair market value (as defined in the Director Option Plan) of the
Common Stock at the time of the grant of the Options. Grants on the Initial
Grant Date have an exercise price of $10.50 per share.

<PAGE>

Generally, each Option granted under the Director Option Plan will be
exercisable on or after the later of (a) 6 months after the date of grant or (b)
approval of the Director Option Plan by stockholders. Shares purchased pursuant
to the exercise of Options will be paid for at the time of exercise as follows:
(I) in cash; (ii) by delivery of unencumbered shares of Common Stock held for at
least 6 months; or (iii) a combination thereof. Except where an Option expires
earlier, if not previously exercised, each Option will expire upon the tenth
anniversary of the date of the grant thereof.

Options that are exercisable upon a non-employee director's termination of
directorship may be exercised for a period of time up to one (1) year depending
upon the reason for termination but never beyond the remaining term of the
Option.

All Options granted to a non-employee director and not previously
exercisable become vested and fully exercisable immediately upon the occurrence
of a change in control (as defined in the Director Option Plan).

The Director Option Plan provides that it may be amended by the Committee
or the Board at any time, and from time to time, to effect (I) amendments
necessary or desirable in order that the Director Option Plan and the Options
granted thereunder conform to all applicable laws, and (ii) any other amendments
deemed appropriate. Notwithstanding the foregoing, to the extent required by
law, no amendment may be made that would require the approval of the
stockholders of the Company under applicable law or under any regulation of a
principal national securities exchange or automated quotation system sponsored
by the National Association of Securities Dealers unless such approval is
obtained.

A complete copy of the Director Option Plan will be included as an exhibit
to the Proxy Statement mailed to stockholders soliciting proxies for the purpose
of approving the Director Option Plan.

EMPLOYMENT AGREEMENTS

The Company had a four-year employment agreement expiring January 21, 1998
with Stephen Russell, Chairman and Chief Executive Officer of the Company,
providing for an initial annual salary of $395,000, which salary was to be
increased 7.5% annually during the term of the agreement plus a bonus computed
annually. Effective October 1, 1996, the Committee agreed to amend Mr. Russell's
contract to reflect his assumption of increased responsibilities following the
resignation of Leonard R. Bennett, the former President of the Company on July
3, 1996. The amendment provided that Mr. Russell would receive five percent of
profit before tax in excess of $3,000,000 in lieu of the bonus computed under
his original contract. On August 1, 1997, the Compensation Committee of the
Board of Directors renegotiated the general terms of Mr. Russell's current
employment contract. As amended, the employment contract was extended for three
years to January 21, 2001. In lieu of a fixed percentage annual base salary
increase, Mr. Russell will receive an annual base salary increase equal to the
change in the Consumer Price Index and stock options awarded to Mr. Russell on
September 9, 1994 to acquire 25,000 shares of Common Stock at an exercise price
of $20.00 per share were repriced to the closing sale

<PAGE>

price on the NASDAQ National Market August 1, 1997 of $12.00. In replacement of
a bonus based on a stipulated percentage of pretax income above a minimum level,
Mr. Russell will participate in an incentive bonus program designed for all
members of the Company's senior management. Depending upon the Company's
performance compared with goals established by the Compensation Committee
annually, Mr. Russell will earn a bonus as a percentage of his base salary of
between 0% and 105%. The agreement also provides that in the event of
termination: (I) as a result of a change in control of the Company, Mr. Russell,
will receive a lump sum severance allowance in an amount equal to two times his
annual compensation; (ii) without cause or by Mr. Russell for cause, Mr. Russell
will be entitled to receive his salary for the remainder of the term of the
agreement or one year, whichever is greater; and (iii) as a result of the
disability of Mr. Russell, he will be entitled to receive 50% of his salary
during the two-year period commencing on the date of his termination. The
agreement also includes a two-year non-compete covenant commencing on
termination of employment. As consideration for such non-compete covenant, the
Company has agreed to pay Mr. Russell 50% of his salary during the two years
following the termination of the employment agreement.

The Company has an employment agreement with Ronald S. Roman, Senior
Executive Vice President - Chief Operating Officer, expiring September 30, 1999.
The agreement, as amended on June 30, 1997 coincident with Mr. Roman's promotion
to his current position, provides for annual compensation of $130,000, $150,000
and $165,000 for the periods ended June 30, 1997 and 1998 and September 30,
1999, respectively. The contract provides for the granting of an initial option
to acquire 10,000 shares at an exercise price of $7.50 and 25,000 shares of the
Company's Common Stock at an exercise price of $9.00 per share and two
additional grants of a minimum of 10,000 shares annually under the Company's
Stock Option Plan. Additionally, Mr. Roman receives either a company automobile
or a monthly car allowance and the right to participate in any bonus, insurance
or other benefit plan provided to the Company's executives generally. The
agreement contains a one-year non-compete covenant effective from the date
employment is terminated by either party for any reason. As consideration for
such non-compete covenant, on the date of termination by the Company without
cause, Mr. Roman will receive a lump sum severance payment of $165,000.

The Company has an employment agreement with Don S. Snyder, Executive Vice
President, Chief Financial Officer of the Company, expiring April 1, 1998. Such
employment agreement provides for an annual salary of $160,000, which will be
increased at least 5% annually, and an annual bonus of not less than $40,000.
Pursuant to the agreement, upon employment by the Company, Mr. Snyder was
granted options to purchase 35,000 shares of the Company's Common Stock under
the Company's Stock Option Plan, is provided a monthly car allowance and is
entitled to participate in any insurance or other benefit plan provided to the
Company's executives generally. In connection with Mr. Snyder's relocation to
Indianapolis, Indiana, the Company is obligated to acquire Mr. Snyder's personal
residences under certain circumstances. Effective December 1, 1996, the Company
purchased Mr. Snyder's residence in Ft. Worth, Texas. The Company's obligation
concerning Mr. Snyder's Indianapolis, Indiana residence expires on July 1, 1999.
It is undeterminable at this time if the circumstances activating the Company's
obligation will occur. The agreement includes a two-year non-compete covenant
commencing on

<PAGE>

termination of employment. As consideration for such non-compete covenant, in
the event of termination by the Company without cause, Mr. Snyder will receive a
severance payment equal to two times his salary and bonus, payable in biweekly
installments during the two-year non-competition period.

The Company has an employment and consulting agreement with Brian L. Reach,
formerly Vice President Special Projects. The agreement provided for Mr. Reach's
employment, subject to termination by either Mr. Reach or the Company with two
weeks notice, at an annual salary of $170,000 plus benefits available to Company
executives generally. Mr. Reach terminated his employment as Vice President
Special Projects, effective March 21, 1996. Pursuant to the agreement, Mr. Reach
will be retained as a consultant until September 21, 1998, at an annual
compensation rate of $180,000 plus reasonable and necessary out-of-pocket
expenses following his termination as an employee. Mr. Reach's current benefits
were to be continued until such time as he accepted other employment or, if
sooner, the end of the consulting agreement. Mr. Reach accepted other employment
and his Company benefits were discontinued effective July 1, 1997. Mr. Reach
will be permitted to exercise stock options previously granted to him through
March 31, 1998 or when he ceases to be a consultant whichever is the first to
occur. The agreement includes a non-compete covenant.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company and Citicorp Venture Capital, Ltd. ("CVC"), of which Mr. To was
an officer, are parties to a registration rights agreement relating to the
Common Stock owned by CVC. The Company, Mr. Russell and Hanseatic, a corporation
of which Paul A. Biddelman, a director of the Company, is an officer, are all
parties to a stockholders' agreement relating to the election of Mr. Russell and
a Hanseatic designee to the Board of Directors.

For a further description of the foregoing transactions, see "Security
Ownership of Principal Stockholders and Management"and "Certain Relationships
and Related Transactions."

<PAGE>

ITEM 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following table sets forth certain information furnished to the Company
regarding the beneficial ownership of Common Stock (i) by each person who, to
the knowledge of the Company, based upon filings with the Securities and
Exchange Commission, beneficially owns more than five percent of the outstanding
shares of the Common Stock, (ii) by each director of the Company, (iii) by each
of the executive officers named in the Summary Compensation Table, and (iv) by
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF COMMON STOCK AS OF
AUGUST 27, 1997 (1)
------------------------------------------
NAME AND POSITION SHARES %
- --------------------- --------------------- -----------------
<S> <C> <C>
Stephen Russell...................................... 1,005,298(2)(3) 13.2%
Chairman of the Board, President and Chief
Executive Officer of the Company
Ronald S. Roman...................................... 14,668 (3) *
Senior Executive Vice President, Chief Operating Officer
Don S. Snyder........................................ 29,334 (3) *
Executive Vice President, Chief Financial Officer
Michael W. Dunlap.................................... 1,667 (3) *
Vice President - Treasurer
Brian L. Reach(4).................................... 60,000 (3) *
Vice President Special Projects
Paul A. Biddelman.................................... 1,016,723 (3)(5)(6) 13.3%
Director of the Company
Michael Miller....................................... 21,667 (3)(6) *
Director of the Company
Joel E. Smilow....................................... 119,200 (6) 1.6%
Director of the Company
Kilin To............................................. 45,752 (3)(6) *
Director of the Company
Citicorp Venture Capital Ltd......................... 438,358 (7) 5.8%
Hanseatic Corporation................................ 995,056 (5) 13.1%
Wolfgang Traber...................................... 995,056 (5) 13.1%
Columbia Funds Management Company.................... 580,000 (8)(9) 7.6%
Dimensional Fund Advisors, Inc....................... 502,900 (9)(10) 6.6%
All executive officers and directors as a group
(ten persons)..................................... 1,327,754 (11) 17.4%
</TABLE>
- -------------
* Represents beneficial ownership of not more than one percent of the
outstanding Common Stock.

<PAGE>

(1) Based upon 7,622,580 shares of Common Stock outstanding at August 27,
1997.

(2) Excludes 995,056 shares of Common Stock reported as beneficially owned by
Hanseatic Corporation ("Hanseatic") in filings with the Securities and
Exchange Commission, all of which may be deemed to be beneficially owned
by Mr. Russell by virtue of a stockholders agreement among Mr. Russell,
Hanseatic and the Company. Mr. Russell disclaims beneficial ownership of
such shares. Mr. Russell's address is One Celadon Drive, Indianapolis, IN
46236-4207.

(3) Includes shares of Common Stock which the directors and executive officers
had the right to acquire through the exercise of options within 60 days of
September 26, 1997, as follows: Stephen Russell - 63,334 shares; Ronald S.
Roman - 11,668 shares; Don S. Snyder - 23,334 shares; Michael W. Dunlap -
1,667 shares; Brian L. Reach - 60,000 shares; Paul A. Biddelman - 21,667
shares; Michael Miller - 21,667 shares; and Kilin To - 21,667 shares.

(4) Brian L. Reach resigned as an officer and employee of the Company,
effective March 21, 1997.

(5) Of such shares, 946,021 shares of Common Stock are held by Hanseatic
Americas LDC, a Bahamian limited duration company in which the sole
managing member is Hansabel Partners LLC, a Delaware limited liability
company in which Hanseatic is the sole managing member. The remaining
shares are held by Hanseatic for discretionary customer accounts, and
include 12,121 shares of Common Stock issuable upon exercise of an
outstanding warrant. Mr. Biddelman is the Treasurer of Hanseatic and
holds shared voting and investment power with respect to the shares held
by Hanseatic. In addition, Mr. Wolfgang Traber is the holder of a majority
of the shares of capital stock of Hanseatic. Excludes 1,005,298 shares of
Common Stock owned by Mr. Russell that are subject to a stockholders
agreement among Mr. Russell, Hanseatic and the Company. The address of
Hanseatic, Mr. Traber and Mr. Biddelman is 450 Park Avenue, New York, New
York 10022.

(6) Excludes shares of Common Stock which the directors, subject to
shareholder approval of the Celadon Group, Inc. Non-Employee Director
Stock Option Plan, had the right to acquire through the exercise of
options within 60 days of September 26, 1997, as follows: Paul A.
Biddelman - 4,000 shares; Michael Miller - 4,000 shares; Joel E. Smilow -
12,000 shares; and Kilin To - 4,000 shares.

(7) The address of Citicorp Venture Capital, Ltd. is 399 Park Avenue, New
York, New York.

(8) Columbia Funds Management Company, a registered investment advisor, is
deemed to have beneficial ownership of 580,000 shares of Celadon Group,
Inc., Common Stock as of June 30, 1997 all of which shares are held by
Columbia Special Fund, Inc. Columbia Funds Management disclaims beneficial
ownership of all such shares. The address of Columbia Funds Management
Company is 1300 SW Sixth Avenue, P. O. Box 1350, Portland, Oregon 97207.
The address of Columbia Special Funds, Inc. Is 1301 S.W. Sixth Avenue P.O.
Box 1350, Portland, Oregon 97207.

(9) This information is based upon Schedules 13G filed with the Securities
and Exchange Commission for the June 30, 1997 reporting period.

(10) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 502,900 shares of
Celadon Group, Inc. Common Stock as of June 30, 1997, all of which shares
are held in portfolios of DFA Investment Dimensions Group Inc., a
registered open-end investment company, or in series of the DFA
Investment Trust Company, a Delaware business trust, or the DFA Group
Trust and DFA Participation Group Trust, investment

<PAGE>

vehicles for qualified employee benefit plans, all of which Dimensional
Fund Advisors Inc. serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares. The address of Dimensional Fund
Advisors Inc. is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.

(11) See footnotes (3) and (6) above.

Except as otherwise indicated, the Company has been advised that the
beneficial holders listed in the table above have sole voting and investment
power regarding the shares shown as being beneficially owned by them. Except as
noted in the footnotes, none of such shares is known by the Company to be shares
with respect to which the beneficial owner has the right to acquire beneficial
ownership.

The Company, Stephen Russell and Hanseatic are parties to a stockholders
agreement which provides that, as long as Hanseatic or Mr. Russell each
beneficially own at least five percent of the outstanding shares of Common
Stock, the Company shall use its best efforts to insure that one member of the
Company's board of directors is a designee of Hanseatic and that another member
of the Company's board of directors is a designee of Mr. Russell. In addition,
Mr. Russell and Hanseatic have agreed to vote all shares of Common Stock owned
by them in favor of the election of such nominees or, upon the death of Mr.
Russell, for the designee of the holder of a majority of Mr. Russell's shares of
Common Stock on the date of death.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH DIRECTORS AND STOCKHOLDERS

Stephen Russell, Chairman and Chief Executive Officer of the Company,
and Leonard R. Bennett, former President and Chief Operating Officer of the
Company, were parties to a voting agreement pursuant to which they agreed to
vote their shares of Common Stock for the other's designee or, upon the death
of Mr. Russell or Mr. Bennett, for the designee of the holder of a majority of
the decedent's shares of Common Stock on the date of death, as director of the
Company. Messrs. Russell and Bennett were the designees pursuant to such
agreement. The agreement was terminated upon Mr. Bennett's resignation from the
Company on July 3, 1996.

On July 3, 1996, Leonard R. Bennett, former President, Chief Operating
Officer and a Director of the Company resigned as an Officer and Director of the
Company and all of its subsidiaries. At that time, he also released the Company
from its obligations under his employment contract. The Company entered into a
three year noncompete and consulting agreement with Mr. Bennett which provided
for annual payments of $268,396 and continuation of certain disability and life
insurance benefits. In addition, on July 3, 1996, Mr. Bennett acquired the
Company's 80.5% interest in Celsur Inc. for a total of 100,000 shares of Celadon
Group, Inc. common stock and $2,440,645 in the form of a personal note, bearing
interest at the prime commercial lending rate of the Chase Manhattan Bank, N.A.
New York, New York. and payable October 3, 1996. The note plus interest was paid
in full on October 3, 1996. Payments

<PAGE>

under the noncompete and consulting agreement, prior to its termination, totaled
$124,583. On March 28, 1997, the agreement was terminated and all other
obligations of the parties, except for the non-compete and confidentiality
provisions and certain indemnifications, ceased upon the payment by the Company
of $365,565.

On July 3, 1996, Peter Bennett, Executive Vice President Administration
of Celadon Trucking Services, Inc., (CTSI), the Company's principal operating
subsidiary, resigned as an officer and employee of CTSI. The Company entered
into a one year noncompete and consulting contract with Mr. Bennett providing
for an annual payment of $60,000. Payments under the contract prior to its
termination totaled $27,692. On March 28, 1997, the agreement was terminated and
all other obligations of the parties, except for the non-compete and
confidentiality provisions and certain indemnifications, ceased upon the payment
by the Company of $30,692.

The Company and CVC, a principal stockholder of the Company, and of
which Kilin To, a director of the Company, was an officer, entered into a
registration rights agreement, dated as of April 7, 1988, in connection with
CVC's purchase of 1,000,000 shares of Series F Convertible Preferred Stock and
warrants (all of which have been converted or exercised, as the case may be, at
a weighted average price of $3.08 per share into shares of Common Stock). Under
the terms of such agreement, CVC and its permitted transferees have the right to
require the Company to file, subject to certain terms and conditions, a
registration statement for any or all of the 476,894 shares of Common Stock
covered by such agreement which are then held by the requesting holders. In
addition, CVC and its permitted transferees have the right to require the
Company to include, subject to certain exceptions, any or all of the shares of
Common Stock covered by such agreement in any registration statement filed by
the Company.

The Company and Hanseatic, a corporation of which Paul Biddelman, a
director of the Company, is an officer, entered into a registration rights
agreement, dated as of October 8, 1992, in connection with Hanseatic's purchase
of a 9.25% Senior Subordinated Convertible Note (the "Hanseatic Note") for an
aggregate purchase price of $8,000,000. The Hanseatic Note was converted in
February 1994 into 739,371 shares of Common Stock (equivalent to a conversion
price of $10.82 per share). In connection with the purchase of the Hanseatic
Note, the Company paid Hanseatic a $160,000 facility fee and issued to Hanseatic
a warrant to purchase, 12,121 shares of Common Stock at any time prior to
September 30, 1998, at an exercise price of $10.82 per share. Until October
1998, Hanseatic and its permitted transferees have the right to require the
Company to file, subject to certain terms and conditions, a registration
statement in respect of any or all of the shares of Common Stock (subject to a
minimum of 363,636 shares) covered by such agreement which are then held by the
requesting holders. In addition, Hanseatic and its permitted transferees have
the right to require the Company to include, subject to certain exceptions, any
or all shares of Common Stock covered by such agreement in any registration
statement filed by the Company. Such "piggyback" rights, terminate on September
30, 2001.

The Company, Hanseatic, Stephen Russell, and Leonard Bennett were
parties to a stockholders' agreement, dated as of October 8, 1992, which was
amended on July 3, 1996 to release Mr. Bennett.

<PAGE>

Since July 1996, the agreement has provided that each party shall vote its
shares of Common Stock for the election as director of one designee of the other
party. See "Security Ownership of Principal Stockholders and Management."

In July 1996, the Company guaranteed eight individual one year bank
loans to eight executives aggregating $270,000. The loans range in amounts from
$9,000 to $54,000, are full recourse to the individual executive and are secured
by a total of 30,000 shares of Celadon Group, Inc. Common stock owned by the
executives individually. In February, 1997, one of the original participants
withdrew and was replaced by two additional executives. On July 1, 1997, the
bank loans and the Company's guarantee were extended until January 1, 1998. The
total amounts and ranges noted were not effected.

<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

PAGE NUMBER OF
ANNUAL REPORT
ON FORM 10-K
-------------
(A) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT

(1) FINANCIAL STATEMENTS

Reports of Independent Auditors 29

Consolidated Balance Sheets as of June 30, 1997 and 1996 30

Consolidated Statements of Operations for the years ended
June 30, 1997, 1996 and 1995 31

Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1996 and 1995 32

Consolidated Statements of Stockholders' Equity for the years
ended June 30, 1997, 1996 and 1995 33

Notes to Consolidated Financial Statements 34

(2) FINANCIAL STATEMENT SCHEDULES

Consolidated Financial Statements Schedules as of and for the years ended June
30, 1997, 1996 and 1995:

Schedule II Valuation and Qualifying Accounts

All other Financial Statements Schedules have been omitted because they are
not required or are not applicable.

<PAGE>

(3) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K).

3.1 -- Certificate of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1 of Form S-1 filed January 20, 1994 (No.
33-72128).
3.2 -- Certificate of Amendment of Certificate of Incorporation dated
February 2, 1995 decreasing aggregate number of authorized shares to
12,179,985, of which 179,985 shares of the par value $1.00 per share
shall be designated "Preferred Stock" and 12,000,000 shares of the
par value of $.033 per share shall be designated "Common Stock",
filed herewith.
3.3 -- By-laws of the Company. Incorporated by reference to Exhibit 3.2 of
Form S-1 filed January 20, 1994 (No. 33-72128).
10.1 -- Amended and Restated Employment Agreement, dated May 13, 1994,
between Norman Greif and Randy International, Ltd., Celadon Group,
Inc. and certain of their affiliates, Incorporated by reference to
Exhibit 10.1 of form 10-K filed October 13, 1994.
10.2 -- Employment Agreement, dated September 24, 1993, between Brian Reach
and the Company. Incorporated by reference to Exhibit 10.2 of Form
S-1 filed January 20, 1994 (No. 33-72128).
10.3 -- 1994 Stock Option Plan of the Company. Incorporated by reference to
Exhibit 10.3 of Form S-1 filed January 20, 1994 (No. 33-72128).
10.4 -- 401(k) Profit Sharing Plan of the Company. Incorporated by reference
to Exhibit 10.4 of Form S-1 filed January 20, 1994 (No. 33-72128).
10.5 -- Employee Stock Ownership Plan and Trust Agreement, effective July 1,
1990. Incorporated by reference to Exhibit 10.5 of Form S-1 filed
January 20, 1994 (No. 33-72128).
10.6 -- ESOP Loan Agreement, dated July 2, 1990, among the International Bank
of Commerce, the Company's Employee Stock Ownership Trust, the
Company, and Celadon Trucking Services, Inc. Incorporated by
reference to Exhibit 10.6 of Form S-1 filed January 20, 1994
(No. 33-72128).
10.7 -- Stock Purchase Agreement, dated June 30, 1990, among Randy
Acquisition Corp., Norman Greif, Wilfred Lembck, John Rocca, and
Ronald Steele, as amended. Incorporated by reference to Exhibit 10.7
of Form S-1 filed January 20, 1994 (No. 33-72128).
**10.8 -- Motor Carrier Transportation Agreement, dated February 1, 1987,
between Chrysler Motors Corporation and the Trucking Division, as
amended. Amendment incorporated by reference to Exhibit 10.8 of Form
10-Q filed November 14, 1996.
10.9 -- Motor Carrier Transportation Agreement, effective as of October 1,
1993, between Chrysler Motors Corporation and Celadon Trucking
Services, Inc., as amended. Amendment incorporated by reference to
Exhibit 10.9 of Form 10-K filed October 14, 1994.
10.10-- Registration Rights Agreement, dated February 14, 1991, between
Unibank A/S and the Company. Incorporated by reference to Exhibit
of Form S-1 filed January 20, 1994 (No. 33-72128).
10.11-- Common Stock Purchase Warrant Agreement, dated February 14, 1991,
between Unibank A/S and the Company. Incorporated by reference to
Exhibit 10.22 of Form S-1 filed January 20, 1994 (No. 33-72128).

<PAGE>

10.12-- International Bancshares Corporation Warrant to Purchase Shares of
Common Stock, as amended. Incorporated by reference to Exhibit 10.23
of Form S-1 filed January 20, 1994 (No. 33-72128).
10.13-- Registration Rights Agreement, dated April 7, 1988, between Citicorp
Venture Capital, Ltd. and the Company. Incorporated by reference to
Exhibit 10.24 of Form S-1 filed January 20, 1994 (No. 33-72128).
10.14-- Stockholders' Agreement, dated April 7, 1988, among Citicorp Venture
Capital, Ltd., the Company, and the Stockholders set forth on
Schedule I thereto. Incorporated by reference to Exhibit 10.25 of
Form S-1 filed January 20, 1994 (No. 33-72128).
10.15-- Voting Agreement, dated as of October 8, 1992, among the Company,
Stephen Russell, and Leonard R. Bennett. Incorporated by reference to
Exhibit 10.27 of Form S-1 filed January 20, 1994 (No. 33-72128).
10.16-- Registration Rights Agreement, dated October 8, 1992, between the
Company and Hanseatic Corporation. Incorporated by reference to
Exhibit 10.30 of Form S-1 filed January 20, 1994 (No. 33-72128).
10.17-- Stockholders' Agreement, dated October 8, 1992, among the Company,
Stephen Russell, Leonard Bennett, and Hanseatic Corporation.
Incorporated by reference to Exhibit 10.31 of Form S-1 filed
January 20, 1994 (No. 33-72128).
10.18-- Warrant Certificate, dated October 8, 1992, to subscribe for and
purchase 12,121 shares of Common Stock of the Company registered in
the name of Deltec Asset Management Corporation, as Custodian for
Hanseatic Corporation. Incorporated by reference to Exhibit 10.33 of
Form S-1 filed January 20, 1994 (No. 33-72128).
10.19-- Lease, dated as of September 13, 1990, between Prime GL Realty
Associates, Inc. and Randy International, Ltd., as amended.
Incorporated by reference to Exhibit 10.34 of Form S-1 filed January
20, 1994 (No.33-72128).
10.20-- Joint Venture Operating Agreement, effective as of September 1, 1993,
between the Company and Grupo Hercel, S.A. de C.V. Incorporated by
reference to Exhibit 10.35 of Form S-1 filed January 20, 1994 (No.
33-72128).
10.21-- Loan and Security Agreement, dated as of June 30, 1992, between Sanwa
General Equipment Leasing, Incorporated and Celadon Trucking
Services, Inc. Incorporated by reference to Exhibit 10.36 of Form S-1
filed January 20, 1994 (No. 33-72128).
10.22-- Guaranty, dated June 30, 1992, of the Company in favor of Sanwa
General Equipment Leasing, Incorporated. Incorporated by reference to
Exhibit 10.37 of Form S-1 filed January 20, 1994 (No. 33-72128).
10.23-- Lease Agreement, dated November 29, 1989, between Porcelli GMC
Trucks, Inc. and Celadon Trucking Services, Inc. Incorporated by
reference to Exhibit 10.38 of Form S-1 filed January 20, 1994 (No.
33-72128).
10.24-- Lease Agreement, dated February 24, 1993, between Central Jersey
Freightliner and Celadon Trucking Services, Inc. Incorporated by
reference to Exhibit 10.39 of Form S-1 filed January 20, 1994 (No.
33-72128).

<PAGE>

10.25-- Lease Agreement, dated October 31, 1991, between Mercedes-Benz Credit
Corp. and Celadon Trucking Services, Inc. Incorporated by reference
to Exhibit 10.40 of Form S-1 filed January 20, 1994 (No. 33-72128).
10.26-- Real Estate Lien Notes made by Celadon Trucking Services, Inc. in
favor of International Bank of Commerce. Incorporated by reference to
Exhibit 10.41 of Form S-1 filed January 20, 1994 (No. 33-72128).
10.27-- Promissory Note, dated June 28, 1990, made by the Company in favor of
American National Bank and Trust Company. Incorporated by reference
to Exhibit 10.42 of Form S-1 filed January 20, 1994 (No. 33-72128).
10.28-- Employment Agreement between the Company and Stephen Russell.
Incorporated by reference to Exhibit 10.43 of Form S-1 filed January
20, 1994 (No. 33-72128).
10.29-- Employment Agreement between the Company and Leonard R. Bennett.
Incorporated by reference to Exhibit 10.44 of Form S-1 filed January
20, 1994 (No. 33-72128).
10.30-- Partnership Agreement dated August 24, between Randy International,
Ltd. and Jacky Maeder, Ltd. Incorporated by reference to Exhibit
10.30 of Form 10-K filed October 13, 1994.
10.31-- Global Alliance and Cooperation Agreement dated August 26, 1994 among
Celadon Group, Inc; Randy International, Ltd., Jacky Maeder AG, Jacky
Maeder, Ltd. and Celadon-Jacky Maeder Company. Incorporated by
reference to Exhibit 10.31 of Form 10-K filed October 13, 1994.
10.32-- Non-Qualified Stock Option Agreement dated May 13, 1994, between
Celadon Group, Inc. and Norman Greif. Incorporated by reference to
Exhibit 10.32 of Form 10-K filed October 13, 1994.
10.33-- $35,000,000 Credit Agreement dated June 1, 1994 between Celadon
Group, Inc., Celadon Trucking Services, Inc. and Randy International
Ltd. and NBD Bank N.A. and The First National Bank of Boston.
Incorporated by reference to Exhibit 10.33 of Form 10-K filed October
13, 1994.
10.34-- First amendment, dated October 31, 1994, to the $35,000,000 Credit
Agreement dated June 1, 1994 between Celadon Group, Inc., Celadon
Trucking Services, Inc. and Randy International, Ltd. and NBD bank
N.A. and the First National Bank of Boston. Incorporated by reference
to Exhibit 10.34 of Form 10-K filed November 30, 1995.
10.35-- Second amendment, dated October 31, 1995, to the $35,000,000 Credit
Agreement dated June 1, 1994 between Celadon Group, Inc., Celadon
Trucking Services, Inc. and Randy International, Ltd. and NBD bank
N.A. and the First National Bank of Boston. Incorporated by reference
to Exhibit 10.35 of Form 10-K filed November 30, 1995.
10.36-- $6,500,000 Credit Agreement dated October 31, 1994 between
Celadon/Jacky Maeder Company and NBD Bank, N.A. and the First
National Bank of Boston. Incorporated by reference to Exhibit 10.36
of Form 10-K filed November 30, 1995.
10.37-- First amendment, dated October 31, 1995, to the $6,500,000 Credit
Agreement dated October 31, 1994 between Celadon/Jacky Maeder Company
and NBD Bank, N.A. Incorporated by reference to Exhibit 10.37 of Form
10-K filed November 30, 1995.

<PAGE>

10.38-- Share Purchase Agreement, dated June 30, 1995, between Charles E.
Holland, Michael Kuykendall and Roger Sanderson. Incorporated by
reference to Exhibit 10.38 of Form 10-K filed November 30, 1995.
10.39-- International Bancshares Corporation Warrant extension letter October
25, 1995. Incorporated by reference to Exhibit 10.39 of Form 10-K
filed November 30, 1995.
10.40-- Employment Agreements dated April 1, 1996 and June 28, 1996 between
Don S. Snyder and the Company. Incorporated by reference to Exhibit
10.40 of Form 10-K filed September 26, 1996.
10.41-- Consulting and Non-Competition Agreement dated July 3, 1996 between
Leonard R. Bennett and the Company. Incorporated by reference to
Exhibit 10.41 of Form 10-Q filed November 14, 1996.
10.42-- Third amendment, dated September 13, 1996, to the $35,000,000 Credit
Agreement dated June 1, 1994 between Celadon Group, Inc., Celadon
Trucking Services, Inc. and Randy International, Ltd. and NBD Bank
N.A. and the First National Bank of Boston. Incorporated by reference
to Exhibit 10.42 of Form 10-Q filed November 14, 1996.
10.43-- Amendment dated July 3, 1996 to Stockholders Agreement dated October
8, 1992 between Leonard R. Bennett, Stephen Russell, Hanseatic
Corporation and the Company. Incorporated by reference to Exhibit
10.43 of Form 10-Q filed November 14, 1996.
10.44-- Agreement dated July 3, 1996 terminating Voting Agreements dated
October 8, 1992 and October 6, 1986 between Leonard R. Bennett,
Stephen Russell and the Company. Incorporated by reference to Exhibit
10.44 of Form 10-Q filed November 14, 1996.
10.45-- 401(K) Profit Sharing Plan and Adoption Agreement of the Company.
Incorporated by reference to Exhibit 10.45 of Form 10-Q filed
February 12, 1997.
10.46-- Settlement Agreement dated March 28, 1997 between Leonard R. Bennett
and the Company. Incorporated by reference to Exhibit 10.46 of Form
10-Q filed May 9, 1997.
10.47-- Fourth amendment, dated March 24, 1997, to the Credit Agreement dated
June 1, 1994 between Celadon Group, Inc., Celadon Trucking Services,
Inc., and NBD Bank N.A. and the First National Bank of Boston.
Incorporated by reference to Exhibit 10.47 of Form 10-Q filed May 9,
1997.
10.48-- International Bancshares Corporation Warrant extension letter dated
October 1, 1996. Filed herewith.
10.49-- Fifth amendment dated June 30, 1997 to the Credit Agreement dated
June 1, 1994 between Celadon Group, Inc. Celadon Trucking Services,
Inc., and NBD Bank N.A. and the First National Bank of Boston. Filed
herewith.
10.50-- Amendment dated February 12, 1997 to Employment Agreement dated
January 21, 1994 between the Company and Stephen Russell. Filed
herewith.
10.51-- Employment Agreements dated October 1, 1996 and June 25, 1997 between
Ronald S. Roman and the Company. Filed herewith.
21 -- Subsidiaries.
23.1 -- Consent of Ernst & Young LLP.
27 -- Financial Data Schedule
- ------------------

<PAGE>

** Confidential treatment for portions of this Exhibit has been granted
pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

.
(4) REPORTS ON FORM 8-K.

No reports on Form 8-K were filed in the quarter ended June 30, 1997.

(5) EXHIBITS.

The exhibits required to be filed with this Annual Report on
Form-10-K pursuant to Item 601 of Regulation S-K are listed under "Exhibits" in
Part IV, Item 14(a)(3) of this Annual Report on Form 10-K, and are incorporated
herein by reference.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934 the Registrant has duly caused this Report to be signed on its behalf by
the undersigned thereunto duly authorized this September 12, 1997.

Celadon Group, Inc.

By: /s/ Stephen Russell
------------------------------
STEPHEN RUSSELL,
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Act of 1934, this Report on
Form 10-K has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/ s/ Stephen Russell Chairman of the Board, President September 12, 1997
- ------------------------------ and Chief Executive Officer
(STEPHEN RUSSELL)

/ s/ Don S. Snyder Executive Vice President and Chief September 12, 1997
- ------------------------------- Financial Officer of the Company
(DON S. SNYDER) (Principal Financial Officer)

/s /Paul A. Will Vice President, Secretary and Controller September 12, 1997
- ------------------------------- (Principal Accounting Officer)
(PAUL A. WILL)

/s/ Paul A. Biddelman Director September 12, 1997
- -------------------------------
(PAUL A. BIDDELMAN)

/s/ Michael Miller Director September 12, 1997
- -------------------------------
(MICHAEL MILLER)

/s/ Joel E. Smilow Director September 12, 1997
- -------------------------------
(JOEL E. SMILOW)

/s/ Kilin To Director September 12, 1997
- -------------------------------
(KILIN TO)

</TABLE>

<PAGE>

SCHEDULE II

CELADON GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>

Balance at Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Additions Deductions Period
- ----------- --------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995:

Allowance for doubtful
accounts $ 812,093 $1,069,487 $360,000(c) $ 911,596 (a) $1,329,984
========== ========== ======== ========== ==========
Reserves for claims
payable as self insurer $1,225,000 $3,237,226 --- $3,142,226 (b) $1,320,000
========== ========== ======== ========== ==========

YEAR ENDED JUNE 30, 1996:

Allowance for doubtful
accounts $1,329,984 $5,124,676 --- $1,023,145 (a) $5,431,515
========== ========== ======== ========== ==========
Reserves for claims
payable as self insurer $1,320,000 $4,387,603 --- $3,737,603 (b) $1,970,000
========== ========== ======== ========== ==========

YEAR ENDED JUNE 30, 1997:

Allowance for doubtful
accounts $5,431,515 $279,514 --- $2,937,675 (a) $2,773,354
========== ======== ======== ========== ==========
Reserves for claims
payable as self insurer $1,970,000 $4,378,375 --- $4,532,425 (b) $1,815,950
========== ========== ======== ========== ==========
</TABLE>
- -------------------

(a) Represents accounts receivable write-offs.
(b) Represents claims paid.
(c) Represents allowances for uncollectible accounts on books of acquired
companies at dates of acquisitions.

STATEMENT OF DIFFERENCES
------------------------

The registered trademark symbol shall be expressed as.......................'r'

<PAGE>

EXHIBIT 10.48
October 1, 1996

Celadon Group, Inc.
888 Seventh Avenue, Suite 402
New York, New York 10106

Gentlemen:

Reference is made to that certain warrant, dated August 1, 1990, as amended by
amendment No. 1 thereto, dated as of September 30, 1992, a letter agreement,
dated December 22, 1993 and a letter agreement, dated October 25, 1995 (the
"Warrant"), entitling International Bancshares Corporation ("IBC") to purchase
shares of common stock, par value $0.033 per share, of Celadon Group, Inc., a
Delaware corporation (the "Company"). Capitalized terms used herein and not
defined herein have the meanings ascribed to them in the warrant.

Your execution of this letter in the space provided below shall indicate the
Company's agreement with IBC that the Exercise Period of the Warrant shall be
amended to expire at 5:00 p.m., New York time, on November 1, 1997. Except as
hereby expressly amended, the terms and provisions of the Warrant remain in full
force and effect.

Very truly yours,

INTERNATIONAL BANCSHARES CORPORATION

By: /s/ Dennis E. Nixon
--------------------------------
Dennis E. Nixon
President

Accepted and Agreed to by
CELADON GROUP, INC.

By:/s/ Stephen Russell
-------------------------
Stephen Russell
Chairman of the Board and
Chief Executive Officer

<PAGE>

EXHIBIT 10.49

FIFTH AMENDMENT TO CREDIT AGREEMENT

THIS FIFTH AMENDMENT TO CREDIT AGREEMENT, dated as of June 30,
1997 (this "Amendment") by and among CELADON GROUP, INC., a Delaware corporation
("CG"), CELADON TRUCKING SERVICES, INC., a New Jersey corporation ("Trucking")
(collectively with CG, referred to as the "Companies" and individually, each a
"Company"), the Banks set forth on the signature pages of the Credit Agreement
referred to below (collectively, the "Banks" and individually, each a "Bank"),
NBD BANK, N.A., a national banking association, assignee of NBD Bank, as
co-agent for the Banks ("Co-Agent A") and BANK BOSTON, N.A., formerly known as
The First National Bank of Boston, a national banking association, as co-agent
for the Banks ("Co-Agent B" and together with Co-Agent A, referred to as the
"Co-Agents").

RECITALS

A. CG, Trucking, the Banks and the Co-Agents are parties to a
Credit Agreement dated as of June 1, 1994, as amended by a First Amendment to
Credit Agreement dated as of October 31, 1994, a Second Amendment to Credit
Agreement dated as of October 31, 1995, letter agreements dated January 31,
1996, February 15, 1996 and June 29, 1996, a Third Amendment to Credit Agreement
dated as of September 13, 1996, letter agreements dated as of November 25, 1996
and December 18, 1996 and a Fourth Amendment to Credit Agreement dated as of
March 24, 1997 (as amended, the "Credit Agreement").

B. The Companies have requested that the Co-Agents and the
Banks extend the Termination Date and make certain other amendments to the
Credit Agreement, and the Co-Agents and the Banks are willing to do so strictly
in accordance with the terms hereof, and provided the Credit Agreement is
amended as set forth herein, and the Companies have agreed to such amendments.

AGREEMENT

Based upon these recitals, the parties agree as follows:

1. Upon satisfaction of the conditions set forth in paragraph
4 hereof, the Credit Agreement shall hereby be amended as of the effective date
hereof as follows:

(a) The definition of "Termination Date" in Section 1.1 shall
be amended by deleting the reference therein to "June 30, 1997" and inserting
"November 1, 1999" in place thereof.

<PAGE>

(b) The definition of "Tangible Net Worth" in Section 1.1
shall be amended by adding the following language at the end thereof: "provided,
however, the net book value of the asset created from the Sales and Solicitation
Agreement between J.B. Hunt and CG shall not be subtracted as an intangible
asset under this clause (b)".

"Fifth Amendment Effective Date" shall mean June 30, 1997.

(d) Sections 5.2(a), (b), (c) and (d) shall be deleted in
their entirety and the following shall be inserted in place thereof:

(a) Tangible Net Worth. Permit or suffer the
Consolidated Tangible Net Worth of the Companies and their
Subsidiaries at any time to be less than an amount equal to
the sum of (A) $36,750,000 plus (B) an amount equal to 50% of
the Consolidated Cumulative Net Income (without reduction for
net loss) of the Companies and their Subsidiaries, to be added
as of the end of each fiscal quarter of the Company commencing
with the fiscal quarter ending September 30, 1997 plus (c) an
amount equal to 80% of the proceeds received in connection
with the offering of any securities of any Company.

(b) Leverage Ratio. Permit or suffer the Leverage
Ratio as of the end of any fiscal quarter of the Companies to
be greater than: (i) as of the fiscal quarter ending in June,
1997 to and including the fiscal quarter ending in March,
1998, 3.30 to 1.0, (ii) as of the fiscal quarter ending in
June, 1998 and as of the fiscal quarter ending in September,
1998, 3.15 to 1.0, (iii) as of the fiscal quarter ending in
December, 1998 and as of the fiscal quarter ending in March,
1999, 2.80 to 1.0, (iv) as of the fiscal quarter ending in
June, 1999 and as of the fiscal quarter ending in September,
1999, 2.6 to 1.0 and (v) as of the fiscal quarter ending in
December 1999 and as of the end of each fiscal quarter
thereafter, 2.50 to 1.0.

(c) Fixed Charge Ratio. Permit or suffer the Fixed
Charge Ratio as of the end of any fiscal quarter of the
Companies to be less than: (i) 1.10 to 1.0 as of the fiscal
quarter ending in June, 1997 to and including the fiscal
quarter ending in March, 1998, (ii) 1.15 to 1.0 as of the
fiscal quarter ending in June, 1998 and (iii) 1.20 to 1.0 as
of the fiscal quarter ending in September, 1998 and as of the
end of each fiscal quarter thereafter, in each case calculated
for the preceding twelve-month period.

<PAGE>

(d) Interest Coverage Ratio. Permit or suffer the
Interest Coverage Ratio as of the end of any fiscal quarter of
the Companies to be less than (i) 1.75 to 1.0 as of the fiscal
quarter ending in June, 1997 to and including the fiscal
quarter ending in March, 1998, (ii) 2.00 to 1.0 as of the
fiscal quarter ending in June, 1998, (iii) 2.25 to 1.0 as of
the fiscal quarter ending in September, 1998, and (iv) 2.50 to
1.0 as of the fiscal quarter ending in December, 1998 and as
of the end of each fiscal quarter thereafter, in each case
calculated for the preceding twelve-month period.

(e) Section 5.2(m) shall be deleted in its entirety.

2. From and after the effective date of this Amendment,
references to the "Credit Agreement" in the Credit Agreement, the Revolving
Credit Notes, the Term Notes, the Security Documents and all other documents
executed pursuant to the Credit Agreement shall be deemed references to the
Credit Agreement as amended hereby.

3. Each Company represents and warrants to the Co-Agents and
the Banks that:

(a) (i) The execution, delivery and performance of this
Amendment by the Company and all agreements and documents delivered pursuant
hereto by the Company have been duly authorized by all necessary corporate
action and do not and will not require any consent or approval of its
stockholders, violate any provision of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently in effect having
applicability to it or of its articles of incorporation or bylaws, or result in
a breach of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which the Company is a
party or by which it or its properties may be bound or affected; (ii) no
authorization, consent, approval, license, exemption of or filing a registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary to the valid
execution, delivery or performance by the Company of this Amendment and all
agreements and documents delivered pursuant hereto and (iii) this Amendment and
all agreements and documents delivered pursuant hereto by the Company are the
legal, valid and binding obligations of the Company enforceable against it in
accordance with the terms thereof.

(b) After giving effect to the amendments contained herein and
effected pursuant hereto, the representations and warranties contained in
Article IV of the Credit Agreement are true and correct on and as of the
effective date hereof with the same force and effect as if made on and as of
such effective date.

(c) No Event of Default (as defined in Article VI of the
Credit Agreement) and no Default shall have occurred and be continuing or will
exist under the Credit Agreement as of the effective date hereof.

<PAGE>

4. This Amendment shall not become effective until:

(a) The Companies shall have paid an extension fee in the
amount of $45,000 to Co-Agent A for the pro rata benefit of the Banks.

(b) The Companies shall have delivered to Co-Agent A such
other documents and instruments as the Co-Agents and the Banks may request.

5. Each Company agrees to pay and save Co-Agents harmless from
liability for the payment of all costs and expenses arising in connection with
this Amendment, including the reasonable fees and expenses of Dickinson, Wright,
Moon, Van Dusen & Freeman, counsel to Co-Agent A, and Bingham, Dana & Gould,
counsel for Co-Agent B, in connection with the preparation and review of this
Amendment and any related documents.

6. The terms used but not defined herein shall have the
respective meanings ascribed thereto in the Credit Agreement. Except as
expressly contemplated hereby, the Credit Agreement, and all related notes,
guaranties, certificates, instruments and other documents, are hereby ratified
and confirmed and shall remain in full force and effect, and each Company
acknowledges that it has no defense, offset or counterclaim thereunder.

7. This Amendment shall be governed by and construed in
accordance with the laws of the State of Michigan.

8. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by signing
any such counterpart.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered as of the day and year first above
written.

CELADON GROUP, INC.

By: /s/ Don S. Snyder
---------------------------
Its: Chief Financial Officer

CELADON TRUCKING SERVICES, INC.

By: /s/ Don S. Snyder
----------------------------
Its: Chief Financial Officer

NBD BANK, N.A., assignee of NBD
Bank, individually and as
Co-Agent A

By: /s/ Scott Morrison
----------------------------
Its: Vice President

BANK BOSTON, N.A., formerly known as
The First National Bank of Boston,
individually and as Co-Agent B

By: /s/ Michael J. Blake
--------------------------
Its: Director

<PAGE>

EXHIBIT 10.50

Amendment, dated as of February 12, 1997, to employment
agreement dated as of January 21, 1994 between Celadon Group, Inc., a Delaware
corporation, and Stephen Russell (the "Employee") (the "Employment Agreement").

The parties wish to amend section 3(b) of the Employment
Agreement as set forth below. Accordingly, the parties agree as follows:

1. The following sentence is added, immediately after the
first sentence of section 3(b) of the Employment Agreement:

"Notwithstanding anything to the contrary in the preceding
sentence, the Employee shall be entitled to receive, for the
fiscal year during the Employment Period ending June 30, 1997,
an incentive bonus, subject to such withholding of taxes and
other amounts that may be required by law, equal to 5% of the
Company's consolidated net income before income taxes and
before deduction for any bonus payable under this Agreement in
excess of $3 million, as determined in accordance with
generally accepted accounting principles at the end of that
fiscal year."

2. The Employment Agreement, as so amended, shall remain in
full force and effect.

3. This amendment may be executed in counterparts, each of
which shall be deemed an original, but both of which together shall constitute
the same agreement.

CELADON GROUP, INC.

By: /s/ Joel E. Smilow
----------------------------
Name: Joel E. Smilow
Title: Chairman
Compensation Committee

EXECUTIVE:

/s/ Stephen Russell
---------------------
Stephen Russell

<PAGE>

EXHIBIT 10.51

EMPLOYMENT AGREEMENT

Employment Agreement, between CELADON TRUCKING SERVICES, INC., a New
Jersey corporation, having its principal office at One Celadon Drive,
Indianapolis, Indiana 46236 (the "Company") and Ronald S. Roman, residing at
13006 Hardisty Road, Fort Wayne, Indiana 46845 (the "Employee").

1. For good consideration, the Company employs the Employee on the
following terms and conditions.

2. Term of Employment: Subject to the provisions for termination set
forth below this agreement will begin on October 1, 1996, unless sooner
terminated in accordance with section 10 below.

3. Salary: The Company shall pay Employee a salary of $130,000 until
June 30, 1997, $140,000 until June 30, 1998 and $150,000 until September 30,
1999. Upon mutual agreement, this agreement will automatically renew itself for
consecutive one year terms and any modification of the terms shall be determined
only by mutual agreement.

Car allowance for the first two years will be the providing of a
1996 Jeep Cherokee Laredo or similar vehicle. In the last year of the contract
a similar vehicle or a car allowance equivalent to a minimum of $5400 per year.
Bonus: During the term of the contract, Ron shall be eligible for any bonus
compensation distribution, as determined by the Corporation, similar to
executives of his level, and be eligible to participate in employee plans that
become available and/or as obtained by the Corporation for its senior
executives. Ron will be eligible for stock options of an additional 25,000
shares at $9.00 per share. These options will be vested in three equal annual
periods. These stock options will be subject to the approval of the Compensation
Committee of the Board of Directors before this contract is considered valid.
The annual salary will be per year, for the services of the Employee, payable at
regular payroll periods.

4. Duties and Position: The Company hires the Employee in the capacity
of Executive Vice President Fleet Management of the Corporation or some
comparable title. The employee's duties may be reasonably modified at the
Company's direction from time to time.

5. Employee to Devote Full Time to Company: The Employee will devote
full time, attention, and energies to the business of the Company and during
this employment, will not engage in any other business activity, regardless of
whether such activity is pursued for profit, gain, or other pecuniary advantage.
Employee is not prohibited from making personal investments in any other
businesses provided those investments do not require active involvement in the
operation of said companies.

<PAGE>

6. Confidentiality of Proprietary Information: Employee agrees, during
or after the term of this employment, not to reveal confidential information, or
trade secrets to any person, firm, corporation, or entity. Should Employee
reveal or threaten to reveal this information, the Company shall be entitled to
an injunction restraining the Employee from disclosing same, or from rendering
any services to any entity to whom said information has been or is threatened to
be disclosed. The right to secure an injunction is not exclusive, and the
Company may pursue any other remedies it has against the Employee for a breach
or threatened breach of this condition, including the recovery of damages from
the Employee.

7. Reimbursement of Expenses: The Employee may incur reasonable
expenses for furthering the Company's business, including expenses for
entertainment, travel, and similar items. The Company shall reimburse Employee
for all business expenses after the Employee presents an itemized account of
expenditures, pursuant to Company policy.

8. Vacation: The Employee shall be entitled to a yearly vacation of 3
weeks at full pay.

9. Disability: If Employee cannot perform the duties because of illness
or incapacity for a period of up to 13 weeks, he shall receive his full salary
from the Corporation, less any disability payments made directly to him. If such
disability shall continue past 13 weeks, during the next 13 weeks, he shall
receive 67% of his normal salary up to a maximum of $10,000 per month in
addition to any disability payments he may receive. The Employee's full
compensation will be reinstated upon return to work. However, if the Employee is
absent from work for any reason for a continuous period of over 6 months, the
Company may terminate the Employee's employment, with applicable severance as
outlined in section 10.

10. Termination of Agreement: The term of employment shall be from the
date of execution of this agreement for a period of three years or until
terminated in accordance with the provisions set forth herein. This Agreement
automatically renews for successive one year periods, unless terminated sooner.
The Corporation and Employee shall provide 60 days' written notice in the event
either party determines not to renew this agreement. This agreement may be
terminated at any time by mutual agreement in writing of the corporation and
Employee. This agreement may be immediately terminated by the Corporation at any
time for cause, including, without limitation, Employee's failure or refusal to
perform his duties and obligations hereunder. If the Company requests, the
Employee will continue to perform his/her duties and be paid his/her regular
salary up to the date of termination. In addition, the Company will pay the
Employee on the date of termination a severance allowance of $150,000 less taxes
and social security required to be withheld.

11. Death Benefit: Should Employee die during the term of employment,
the Company shall pay to Employee's estate any compensation due through the end
of the month in which death occurred in addition to any Company paid life
insurance.

<PAGE>

12. Restriction on Post Employment Compensation: For a period of one
(1) year after the end of employment, the Employee shall not control, consult to
or be employed by any business similar to that conducted by the Company, either
by soliciting any of its accounts or by operating within Employer's general
trading area.

13. Assistance in Litigation: Employee shall upon reasonable notice,
furnish such information and proper assistance to the Company as it may
reasonably require in connection with any litigation in which it is, or may
become, a party either during or after employment.

14. Effect of Prior Agreements: This agreement supersedes any prior
agreement between the Company or any predecessor of the Company and the
Employee, except that this agreement shall not affect or operate to reduce any
benefit or compensation inuring to the Employee of a kind elsewhere provided and
not expressly provided in this agreement.

15. Settlement by Arbitration: Any Claim or controversy that arises out
of or relates to this agreement, or the breach of it, shall be settled by
arbitration in accordance with the rules of the American Arbitration
Association. Judgment upon the award rendered may be entered in any court with
jurisdiction.

16. Limited Effect of Waiver by Company. Should Company waive breach
of any provision of this agreement by the Employee, that waiver will not operate
or be construed as a waiver of further breach by the Employee.

17. Severability: If, for any reason, any provision of this agreement
is held invalid, all other provisions of this agreement shall remain in effect.
If this agreement, is held invalid or cannot be enforced, then to the full
extent permitted by law any prior agreement between the Company (or any
predecessor thereof) and the Employee shall be deemed reinstated as if this
agreement had not been executed.

18. Assumption of Agreement by Company's Successors and Assignees: The
Company's rights and obligations under this agreement will inure to the benefit
and be binding upon the Company's successors and assignees.

19. Oral Modifications Not Binding: This instrument is the entire
agreement of the Company and the Employee. Oral changes shall have no effect.
It may be altered only by a written agreement signed by the party against whom
enforcement of any waiver, change, modification, extension, or discharge is
sought.

<PAGE>

20. If the level of responsibility or the title of the position is
significantly upgraded at any time during the contract period the salary and
benefits will be opened for mutual renegotiation.

Signed this lst day of October, 1996.

/s/ Stephen Russell, Chairman /s/ Ronald S. Roman
- -------------------------------- ---------------------
Company Employee

<PAGE>

Addendum to Employment Agreement
Ronald S. Roman and Celadon Trucking Inc.
June 23, 1997

Paragraph 3 of employment agreement dated October 1, 1997 has been
amended to increase the base salary of year two of the contract to $150,000
effective June 30, 1997 and to change the final year salary to $165,000
effective June 30, 1998. Paragraph 10 regarding severance allowance will be
changed to $165,000. Additionally, expenses to join and maintain membership at
Maple Creek Country Club will be reimbursed by the Corporation for the length of
the contract. Additionally 10,000 stock options subject to Compensation
Committee will be granted effective at the next board meeting for years two and
three of this contract. These changes were negotiated under paragraph 20 -
position upgrade.

Signed this 25th day of June, 1997.

/s/ Stephen Russell /s/ Ronald S. Roman
- ------------------------- -----------------------
Chairman Employee

<PAGE>

CELADON GROUP, INC.

EXHIBIT 21

Subsidiaries

SUBSIDIARY NAME INCORPORATION JURISDICTION
- --------------- --------------------------
Celadon Trucking Services, Inc. NJ

Celadon Real Estate Corp. DE

Celadon Trucking Services
of Indiana, Inc. IN

Celadon Transportation, LLP IN

Celadon Air Mexicana MX

Celadon Acquisition Corp. IN

Celadon Container Services, Inc. MI

Celadon Express, Inc. DE

Celadon Logistics, Inc. DE

Celadon/Jacky Maeder Company NY

Celadon/Jacky Maeder (UK) Ltd. UK

Cheetah Brokerage Co. NE

Cheetah Transportation Co. DE

International Freight Holding Corp. DE

JML Freight Forwarding, Inc. NY

Randy Express, Ltd. NY

Randy International (U.K.) Limited UK

RIL Acquisition Corp. DE

RIL Group, Inc. DE

RIL, Inc. DE

Servicio de Transportacion Jaguar, S.A. de C.V. MX

Skymex, Inc. DE

Wellingmuft Holding Co. NY

147-95 Farmers Blvd., Inc. DE

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-86944) pertaining to the 1994 Stock Option Plan of
Celadon Group, Inc., of our report dated August 26, 1997, with respect to the
consolidated financial statements and schedule of Celadon Group, Inc., included
in the Annual Report on Form 10-K for the year ended June 30, 1997.

/s/ ERNST & YOUNG LLP

Indianapolis, Indiana
September 10, 1997

<PAGE>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the condensed consolidated balance
sheet of Celadon Group, Inc. at June 30, 1997 and the
condensed consolidated statement of operations of
Celadon Group, Inc. for the year then ended and is
qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,845
<SECURITIES> 0
<RECEIVABLES> 30,509
<ALLOWANCES> (2,773)
<INVENTORY> 0
<CURRENT-ASSETS> 43,922
<PP&E> 113,206
<DEPRECIATION> (29,424)
<TOTAL-ASSETS> 139,194
<CURRENT-LIABILITIES> 31,195
<BONDS> 66,046
0
0
<COMMON> 256
<OTHER-SE> 45,538
<TOTAL-LIABILITY-AND-EQUITY> 139,194
<SALES> 0
<TOTAL-REVENUES> 191,035
<CGS> 0
<TOTAL-COSTS> 178,600
<OTHER-EXPENSES> (37)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,944
<INCOME-PRETAX> 7,528
<INCOME-TAX> 3,024
<INCOME-CONTINUING> 4,504
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,504
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59

</TABLE>