Exhibit 10.51

$125,000,000

ATLANTIC COAST AIRLINES HOLDINGS, INC.

6% CONVERTIBLE NOTES DUE 2034

PURCHASE AGREEMENT

February 19, 2004

 

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      February 19, 2004

Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036

Dear Sirs and Mesdames:

     Atlantic Coast Airlines Holdings, Inc., a Delaware corporation (the
“Company”), proposes to issue and sell to Morgan Stanley & Co. Incorporated (the
“Initial Purchaser”) $125,000,000 principal amount of its 6% Convertible Notes
due 2034 (the “Firm Securities”) to be issued pursuant to the provisions of an
Indenture dated as of February 25, 2004 (the “Indenture”) between the Company
and U.S. Bank National Association, as Trustee (the “Trustee”). The Company also
proposes to issue and sell to the Initial Purchaser not more than an additional
$25,000,000 principal amount of its 6% Convertible Notes due 2034 (the
“Additional Securities”) if and to the extent that the Initial Purchaser shall
have determined to exercise the right to purchase such 6% Convertible Notes due
2034 granted to the Initial Purchaser in Section 2 hereof. The Firm Securities
and the Additional Securities are hereinafter collectively referred to as the
“Securities”. The Securities will be convertible into shares of common stock,
par value $.02 per share, of the Company (the “Underlying Securities”).

     The Securities and the Underlying Securities will be offered without being
registered under the Securities Act of 1933, as amended (the “Securities Act”),
only to qualified institutional buyers in compliance with the exemption from
registration provided by Rule 144A under the Securities Act.

     The Initial Purchaser and their direct and indirect transferees will be
entitled to the benefits of a Registration Rights Agreement dated the date
hereof between the Company and the Initial Purchaser (the “Registration Rights
Agreement”).

     In connection with the sale of the Securities, the Company has prepared a
preliminary offering memorandum (the “Preliminary Memorandum”) and will prepare
a final offering memorandum (the “Final Memorandum” and, with the Preliminary
Memorandum, each a “Memorandum”) including or incorporating by reference a
description of the terms of the Securities and the Underlying Securities, the
terms of the offering and a description of the Company. As used herein, the term
“Memorandum” shall include in each case the documents incorporated by reference
therein. The terms “supplement”, “amendment” and “amend” as used herein with
respect to a Memorandum shall include all documents deemed to be incorporated by
reference in the Preliminary

 

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Memorandum or Final Memorandum that are filed subsequent to the date of such
Memorandum with the Securities and Exchange Commission (the “Commission”)
pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).

     1. Representations and Warranties. The Company represents and warrants to,
and agrees with, the Initial Purchaser that:

     (a) (i) Each document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in either Memorandum complied or will
comply when so filed in all material respects with the Exchange Act and the
applicable rules and regulations of the Commission thereunder and (ii) the
Preliminary Memorandum at its date did not contain and the Final Memorandum, in
the form used by the Initial Purchaser to confirm sales as of its date and on
the Closing Date (as defined in Section 4), will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set forth
in this paragraph do not apply to statements or omissions in either Memorandum
based upon information relating to the Initial Purchaser furnished to the
Company in writing by such Initial Purchaser expressly for use therein.

     (b) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in each Memorandum and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole.

     (c) Each subsidiary of the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has the corporate power and authority to own its property and
to conduct its business as described in each Memorandum and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; all of the issued shares of capital stock of
each

 

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subsidiary of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and are owned directly by the Company, free and
clear of all liens, encumbrances, equities or claims.

     (d) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Memorandum.

     (e) The shares of common stock of the Company outstanding prior to the
issuance of the Securities have been duly authorized and are validly issued,
fully paid and non-assessable and not subject to any preemptive or similar
rights.

     (f) This Agreement has been duly authorized, executed and delivered by the
Company.

     (g) The Securities have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and delivered
to and paid for by the Initial Purchaser in accordance with the terms of this
Agreement, will be valid and binding obligations of the Company, enforceable in
accordance with their terms, subject to the effects of applicable bankruptcy,
insolvency and similar laws affecting creditors’ rights generally and equitable
principles of general applicability, and will be entitled to the benefits of the
Indenture and the Registration Rights Agreement pursuant to which such
Securities are to be issued.

     (h) The Underlying Securities issuable upon conversion of the Securities
have been duly authorized and reserved and, when issued upon conversion of the
Securities in accordance with the terms of the Securities, will be validly
issued, fully paid and non-assessable, and the issuance of the Underlying
Securities will not be subject to any preemptive or similar rights.

     (i) Each of the Indenture and the Registration Rights Agreement has been
duly authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, subject to the
effects of applicable bankruptcy, insolvency and similar laws affecting
creditors’ rights generally and equitable principles of general applicability
and except as rights to indemnification and contribution under the Registration
Rights Agreement may be limited under applicable law.

     (j) The execution and delivery by the Company of, and the performance by
the Company of its obligations under, this Agreement, the

 

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Indenture, the Registration Rights Agreement and the Securities will not
contravene any provision of applicable law or the certificate of incorporation
or by-laws of the Company or any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, the
Indenture, the Registration Rights Agreement or the Securities, except such as
may be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Securities.

     (k) There has not occurred any material adverse change, or any development
involving a prospective material adverse change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole, from that set forth in the Preliminary
Memorandum.

     (l) There are no legal or governmental proceedings pending or threatened to
which the Company or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject other than
proceedings accurately described in all material respects in each Memorandum and
proceedings that are not reasonably likely to have a material adverse effect on
the Company and its subsidiaries, taken as a whole, or on the power or ability
of the Company to perform its obligations under this Agreement, the Indenture,
the Registration Rights Agreement or the Securities or to consummate the
transactions contemplated by the Final Memorandum.

     (m) The Company and its subsidiaries (i) are in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants (“Environmental Laws”),
(ii) have received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole.

 

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     (n) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
permit, license or approval, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect on the Company and its subsidiaries,
taken as a whole.

     (o) The Company is not, and after giving effect to the offering and sale of
the Securities and the application of the proceeds thereof as described in the
Final Memorandum will not be, required to register as an “investment company” as
such term is defined in the Investment Company Act of 1940, as amended.

     (p) Neither the Company nor any affiliate (as defined in Rule 501(b) of
Regulation D under the Securities Act, an “Affiliate”) of the Company has
directly, or through any agent, (i) sold, offered for sale, solicited offers to
buy or otherwise negotiated in respect of, any security (as defined in the
Securities Act) which is or will be integrated with the sale of the Securities
in a manner that would require the registration under the Securities Act of the
Securities or (ii) offered, solicited offers to buy or sold the Securities by
any form of general solicitation or general advertising (as those terms are used
in Regulation D under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act.

     (q) It is not necessary in connection with the offer, sale and delivery of
the Securities to the Initial Purchaser in the manner contemplated by this
Agreement to register the Securities under the Securities Act or to qualify the
Indenture under the Trust Indenture Act of 1939, as amended.

     (r) The Securities satisfy the requirements set forth in Rule 144A(d)(3)
under the Securities Act.

     (s) No material labor dispute with the employees of the Company or any of
its subsidiaries exists, except as described in the Memorandum, or, to the
knowledge of the Company, is imminent; and the Company is not aware of any
existing, threatened or imminent labor disturbance by the employees of any of
its principal suppliers, manufacturers or contractors that could have a material
adverse affect on the Company and its subsidiaries, taken as a whole.

 

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     (t) Each of the Company and its subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
“Authorization”) of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals as are necessary to own, lease, license and operate
its respective properties and to conduct its business, except to the extent the
failure to have any such Authorization or to make any such filing or notice
would not, singly or in the aggregate, reasonably be expected to have a material
adverse effect on the Company and its subsidiaries, taken as a whole, and
neither the Company nor any of the subsidiaries has received notification of any
revocation or modification of any such Authorization or has reason to believe
that any such Authorization will not be renewed in the ordinary course, except
where such revocation, modification or non-renewal would not reasonably be
expected to, singularly or in the aggregate, have a material adverse effect on
the Company and its subsidiaries, taken as a whole. Each such Authorization is
valid and in full force and effect and each of the Company and its subsidiaries
is in compliance with all the terms and conditions thereof and with the rules
and regulations of the authorities and governing bodies having jurisdiction with
respect thereto; and no event has occurred (including, without limitation, the
receipt of any notice from any authority or governing body) which allows or,
after notice or lapse of time or both, would allow, revocation, suspension or
termination of any such Authorization or results or, after notice or lapse of
time or both, would reasonably be expected to result in any other material
impairment of the rights of the holder of any such Authorization; except to the
extent such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, reasonably be expected to
have a material adverse effect on the Company and its subsidiaries, taken as a
whole.

     2. Agreements to Sell and Purchase. Upon the basis of the representations
and warranties herein contained, but subject to the conditions hereinafter
stated, the Company hereby agrees to sell to the Initial Purchaser, and the
Initial Purchaser agrees to purchase from the Company $125,000,000 principal
amount of Firm Securities at a purchase price of 97.5% of the principal amount
thereof (the “Purchase Price”) plus accrued interest, if any, to the Closing
Date.

     On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Initial Purchaser the Additional Securities, and the Initial Purchaser
shall have the right to purchase up to $25,000,000 principal amount of
Additional Securities

 

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at the Purchase Price plus accrued interest, if any, to the date of payment and
delivery. The Initial Purchaser may exercise this right in whole or from time to
time in part by giving written notice not later than 30 days after the date of
this Agreement. Any exercise notice shall specify the principal amount of
Additional Securities to be purchased by the Initial Purchaser and the date on
which such Additional Securities are to be purchased. Each purchase date must be
at least one business day after the written notice is given and may not be
earlier than the closing date for the Firm Securities nor later than ten
business days after the date of such notice. On each day, if any, that
Additional Securities are to be purchased (an “Option Closing Date”), the
Initial Purchaser agrees to purchase the principal amount of Additional
Securities set forth on such written notice.

     The Company hereby agrees that, without the prior written consent of the
Initial Purchaser, it will not, during the period ending 90 days after the date
of the Final Memorandum, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the common stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of common stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the sale of the Securities under this
Agreement or (B) the issuance by the Company of the Underlying Securities in
accordance with the provisions of the Indenture or (C) the issuance of by the
Company of any shares of common stock upon the exercise of an option or warrant
or the conversion of a security outstanding on the date hereof of which the
Initial Purchaser has been advised in writing or (D) any securities or options
to purchase any securities of the Company granted or sold pursuant to any
employee equity compensation plan described in the Memorandum or the documents
incorporated by reference therein.

     3. Terms of Offering. The Initial Purchaser has advised the Company that it
will make an offering of the Securities purchased hereunder on the terms to be
set forth in the Final Memorandum, as soon as practicable after this Agreement
is entered into as in the Initial Purchaser’s judgment is advisable.

     4. Payment and Delivery. Payment for the Firm Securities shall be made to
the Company in Federal or other funds immediately available in New York City
against delivery of such Firm Securities for the account of the Initial
Purchaser at 10:00 a.m., New York City time, on February 25, 2004, or at such
other time on the same or such other date, not later than March 3, 2004, as
shall be designated in writing by the Initial Purchaser. The time and date of
such payment are hereinafter referred to as the “Closing Date.”

 

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     Payment for any Additional Securities shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Securities for the account of the Initial Purchaser at 10:00
a.m., New York City time, on the date specified in the corresponding notice
described in Section 2 or at such other time on the same or on such other date,
in any event not later than 30 days after the Closing Date, as shall be
designated in writing by the Initial Purchaser.

     The Securities shall be in definitive form or global form, as specified by
the Initial Purchaser, and registered in such names and in such denominations as
the Initial Purchaser shall request in writing not later than one full business
day prior to the Closing Date or the applicable Option Closing Date, as the case
may be. The Securities shall be delivered to the Initial Purchaser on the
Closing Date or an Option Closing Date, as the case may be, for the account of
the Initial Purchaser, with any transfer taxes payable in connection with the
transfer of the Securities to the Initial Purchaser duly paid, against payment
of the Purchase Price therefor plus accrued interest, if any, to the date of
payment and delivery.

     5. Conditions to the Initial Purchaser’s Obligations. The obligations of
the Initial Purchaser to purchase and pay for the Firm Securities on the Closing
Date are subject to the following conditions:

     (a) Subsequent to the execution and delivery of this Agreement and prior to
the Closing Date:

          (i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any review
for a possible change that does not indicate the direction of the possible
change, in the rating accorded the Company or any of the Company’s securities or
in the rating outlook for the Company by any “nationally recognized statistical
rating organization,” as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and

          (ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise, or in
the earnings, business or operations of the Company and its subsidiaries, taken
as a whole, from that set forth in the Preliminary Memorandum provided to
prospective purchasers of the Securities that, in your judgment, is material and
adverse and that makes it, in your judgment, impracticable to market the
Securities on the terms and in the manner contemplated in the Final Memorandum.

 

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     (b) The Initial Purchaser shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of the
Company, to the effect set forth in Section 5(a)(i) and to the effect that the
representations and warranties of the Company contained in this Agreement are
true and correct as of the Closing Date and that the Company has complied with
all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before the Closing Date.

     The officer signing and delivering such certificate may rely upon the best
of his or her knowledge as to proceedings threatened.

     (c) The Initial Purchaser shall have received on the Closing Date an
opinion of Gibson, Dunn & Crutcher LLP, outside counsel for the Company, dated
the Closing Date, to the effect set forth in Exhibit A. Such opinion shall be
rendered to the Initial Purchaser at the request of the Company and shall so
state therein.

     (d) The Initial Purchaser shall have received on the Closing Date an
opinion of Richard J. Kennedy, Vice President, General Counsel and Secretary of
the Company, dated the Closing Date, to the effect set forth in Exhibit B. Such
opinion shall be rendered to the Initial Purchaser at the request of the Company
and shall so state therein

     (e) The Initial Purchaser shall have received on the Closing Date an
opinion of Davis Polk & Wardwell, counsel for the Initial Purchaser, dated the
Closing Date, to the effect set forth in Exhibit C.

     (f) The Initial Purchaser shall have received on each of the date hereof
and the Closing Date a letter, dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to the Initial Purchaser, from
KPMG, independent public accountants, containing statements and information of
the type ordinarily included in accountants’ “comfort letters” to underwriters
with respect to the financial statements and certain financial information
contained in or incorporated by reference into each Memorandum; provided that
the letter delivered on the Closing Date shall use a “cut-off date” not earlier
than the date hereof.

     (g) The “lock-up” agreements, each substantially in the form of Exhibit D
hereto, between the Initial Purchaser and certain shareholders, officers and
directors of the Company relating to sales and certain other dispositions of
shares of common stock or certain other securities, delivered to the Initial
Purchaser on or before the date hereof, shall be in full force and effect on the
Closing Date.

 

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     The obligation of the Initial Purchaser to purchase Additional Securities
hereunder is subject to the delivery to the Initial Purchaser on the applicable
Option Closing Date of such documents as it may reasonably request with respect
to the good standing of the Company, the due authorization, execution and
authentication of the Additional Securities to be sold on such Option Closing
Date and other matters related to the execution and authentication of such
Additional Securities.

     6. Covenants of the Company. In further consideration of the agreements of
the Initial Purchaser contained in this Agreement, the Company covenants with
the Initial Purchaser as follows:

     (a) To furnish to the Initial Purchaser in New York City, without charge,
prior to 10:00 a.m. New York City time on the business day next succeeding the
date of this Agreement and during the period mentioned in Section 6(c), 1,100
copies of the Final Memorandum and any supplements and amendments thereto as the
Initial Purchaser may reasonably request.

     (b) Before amending or supplementing either Memorandum, to furnish to the
Initial Purchaser a copy of each such proposed amendment or supplement and not
to use any such proposed amendment or supplement to which the Initial Purchaser
reasonably objects.

     (c) If, during such period after the date hereof and prior to the date on
which all of the Securities shall have been sold by the Initial Purchaser, any
event shall occur or condition exist as a result of which it is necessary to
amend or supplement the Final Memorandum in order to make the statements
therein, in the light of the circumstances when the Final Memorandum is
delivered to a purchaser, not misleading, or if, in the opinion of counsel for
the Initial Purchaser, it is necessary to amend or supplement the Final
Memorandum to comply with applicable law, forthwith to prepare and furnish, at
its own expense, to the Initial Purchaser, either amendments or supplements to
the Final Memorandum so that the statements in the Final Memorandum as so
amended or supplemented will not, in the light of the circumstances when the
Final Memorandum is delivered to a purchaser, be misleading or so that the Final
Memorandum, as amended or supplemented, will comply with applicable law.

     (d) To endeavor to qualify the Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions as the Initial Purchaser shall
reasonably request.

 

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     (e) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this Agreement,
including: (i) the fees, disbursements and expenses of the Company’s counsel and
the Company’s accountants in connection with the issuance and sale of the
Securities and all other fees or expenses in connection with the preparation of
each Memorandum and all amendments and supplements thereto, including all
printing costs associated therewith, and the delivering of copies thereof to the
Initial Purchaser, in the quantities herein above specified, (ii) all costs and
expenses related to the transfer and delivery of the Securities to the Initial
Purchaser, including any transfer or other taxes payable thereon, (iii) the cost
of printing or producing any Blue Sky or legal investment memorandum in
connection with the offer and sale of the Securities under state securities laws
and all expenses in connection with the qualification of the Securities for
offer and sale under state securities laws as provided in Section 6(d) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Initial Purchaser in connection with such qualification and in connection
with the Blue Sky or legal investment memorandum, (iv) the fees and expenses, if
any, incurred in connection with the admission of the Securities for trading in
PORTAL or any appropriate market system, (v) the costs and charges of the
Trustee and any transfer agent, registrar or depositary, (vi) the cost of the
preparation, issuance and delivery of the Securities, (vii) the document
production charges and expenses associated with printing this Agreement and
(viii) all other cost and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section. It is understood, however, that except as provided in this
Section, Section 8, and the last paragraph of Section 10, the Initial Purchaser
will pay all of their costs and expenses, including fees and disbursements of
their counsel, transfer taxes payable on resale of any of the Securities by them
and any advertising expenses connected with any offers they may make.

     (f) Neither the Company nor any Affiliate will sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in the Securities Act) which could be integrated with the sale of the
Securities in a manner which would require the registration under the Securities
Act of the Securities.

     (g) Not to solicit any offer to buy or offer or sell the Securities or the
Underlying Securities by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the

 

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Securities Act) or in any manner involving a public offering within the meaning
of Section 4(2) of the Securities Act.

     (h) While any of the Securities or the Underlying Securities remain
“restricted securities” within the meaning of the Securities Act, to make
available, upon request, to any seller of such Securities the information
specified in Rule 144A(d)(4) under the Securities Act, unless the Company is
then subject to Section 13 or 15(d) of the Exchange Act.

     (i) If requested by the Initial Purchaser, to use its reasonable best
efforts to permit the Securities to be designated PORTAL securities in
accordance with the rules and regulations adopted by the National Association of
Securities Dealers, Inc. relating to trading in the PORTAL Market.

     (j) During the period of two years after the Closing Date or any Option
Closing Date, if later, the Company will not, and will not permit any of its
affiliates (as defined in Rule 144 under the Securities Act) to resell any of
the Securities or the Underlying Securities which constitute “restricted
securities” under Rule 144 that have been reacquired by any of them.

     (k) Not to take any action prohibited by Regulation M under the Exchange
Act in connection with the distribution of the Securities contemplated hereby.

     7. Offering of Securities; Restrictions on Transfer. (a) The Initial
Purchaser represents and warrants that it is a qualified institutional buyer as
defined in Rule 144A under the Securities Act (a “QIB”). The Initial Purchaser
agrees with the Company that (i) it will not solicit offers for, or offer or
sell, such Securities by any form of general solicitation or general advertising
(as those terms are used in Regulation D under the Securities Act) or in any
manner involving a public offering within the meaning of Section 4(2) of the
Securities Act and (ii) it will solicit offers for such Securities only from,
and will offer such Securities only to, persons that it reasonably believes to
be QIBs.

     8. Indemnity and Contribution. (a) The Company agrees to indemnify and hold
harmless the Initial Purchaser, each person, if any, who controls the Initial
Purchaser within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, and each affiliate of the Initial Purchaser
within the meaning of Rule 405 under the Securities Act from and against any and
all losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue

 

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statement of a material fact contained in either Memorandum (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to the Initial Purchaser furnished to the Company in writing by the
Initial Purchaser expressly for use therein.

     (b) The Initial Purchaser agrees to indemnify and hold harmless the
Company, its directors, its officers and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to the Initial Purchaser, but only with reference to
information relating to the Initial Purchaser furnished to the Company in
writing by or on behalf of the Initial Purchaser expressly for use in either
Memorandum or any amendments or supplements thereto.

     (c) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to Section 8(a) or 8(b), such person (the “indemnified party”) shall
promptly notify the person against whom such indemnity may be sought (the
“indemnifying party”) in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by the Initial Purchaser, in the case of parties
indemnified pursuant to Section 8(a), and by the Company, in the case of parties
indemnified pursuant to Section 8(b). The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written

 

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consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.

     (d) To the extent the indemnification provided for in Section 8(a) or 8(b)
is unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then each indemnifying party
under such paragraph, in lieu of indemnifying such indemnified party thereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Initial Purchaser on the other hand from the offering of the
Securities or (ii) if the allocation provided by clause 8(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 8(d)(i) above but also the
relative fault of the Company on the one hand and of the Initial Purchaser on
the other hand in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Initial Purchaser on the other hand in connection with the
offering of the Securities shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Securities (before
deducting expenses) received by the Company and the total discounts and
commissions received by the Initial Purchaser as set forth in the Final
Memorandum, bear to the aggregate offering price of the Securities. The relative
fault of the Company on the one hand and of the Initial Purchaser on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Initial Purchaser and the parties’ relative

 

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intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.

     (e) The Company and the Initial Purchaser agree that it would not be just
or equitable if contribution pursuant to this Section 8(d) were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 8(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in Section 8(d) shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8, the Initial Purchaser shall not be required to contribute any amount
in excess of the amount by which the total price at which the Securities resold
by it in the initial placement of such Securities were offered to investors
exceeds the amount of any damages that the Initial Purchaser has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 8 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.

     (f) The indemnity and contribution provisions contained in this Section 8
and the representations, warranties and other statements of the Company
contained in this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any investigation made
by or on behalf of the Initial Purchaser, any person controlling the Initial
Purchaser or any affiliate of the Initial Purchaser or by or on behalf of the
Company, its officers or directors or any person controlling the Company and
(iii) acceptance of and payment for any of the Securities.

     9. Termination. The Initial Purchaser may terminate this Agreement by
notice given to the Company, if after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on, or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the Nasdaq National Market,
the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the
Chicago Board of Trade, (ii) trading of any securities of the Company shall have
been suspended on any exchange or in any over-the-counter market, (iii) a
material disruption in securities settlement, payment or clearance services in
the United States shall have occurred, (iv) any moratorium on commercial banking
activities shall have been declared by Federal or New York State authorities or
(v) there shall have occurred any outbreak or escalation of

 

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hostilities, or any change in financial markets or any calamity or crisis that,
in the judgment of the Initial Purchaser, is material and adverse and which,
singly or together with any other event specified in this clause (v), makes it,
in the judgment of the Initial Purchaser, impracticable or inadvisable to
proceed with the offer, sale or delivery of the Securities on the terms and in
the manner contemplated in the Final Memorandum.

     10. Effectiveness; Effect of Termination. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.

     If this Agreement shall be terminated by the Initial Purchaser because of
any failure or refusal on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, or if for any reason the
Company shall be unable to perform its obligations under this Agreement, the
Company will reimburse the Initial Purchaser for all out-of-pocket expenses
(including the fees and disbursements of their counsel) reasonably incurred by
the Initial Purchaser in connection with this Agreement or the offering
contemplated hereunder. If this Agreement is terminated by reason of the default
of the Initial Purchaser, the Company shall not be obligated to reimburse the
Initial Purchaser on account of such expenses.

     11. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

     12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.

     13. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.

 

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  Very truly yours,
 
   

  ATLANTIC COAST AIRLINES HOLDINGS, INC.
 
   

 
By:

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  Name:

  Title:
 
   
Accepted as of the date hereof
   
 
   
MORGAN STANLEY & CO. INCORPORATED
   
 
   
By:

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Name:
   
Title:
   

 

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EXHIBIT A

OPINION OF GIBSON, DUNN & CRUTCHER LLP

     The opinion of Gibson, Dunn & Crutcher, LLP, to be delivered pursuant to
Section 5(c) of the Purchase Agreement shall be to the effect that:

     A. The Purchase Agreement has been duly authorized, executed and delivered
by the Company.

     B. The shares of common stock of the Company initially issuable upon
conversion of the Securities have been duly authorized and reserved for issuance
and, when issued and delivered in accordance with the provisions of the
Securities and the Indenture, will be validly issued, fully paid and
non-assessable.

     C. The Securities have been duly authorized by the Company and, when
executed and authenticated in accordance with the provisions of the Indenture
and delivered to and paid for by the Initial Purchaser in accordance with the
terms of the Purchase Agreement, will be valid and binding obligations of the
Company, enforceable in accordance with their terms, subject to the effects of
applicable bankruptcy, insolvency and similar laws affecting creditors’ rights
generally and equitable principles of general applicability and will be entitled
to the benefits of the Indenture and the Registration Rights Agreement pursuant
to which such Securities are to be issued.

     D. Each of the Indenture and the Registration Rights Agreement has been
duly authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, subject to the
effects of applicable bankruptcy, insolvency and similar laws affecting
creditors’ rights generally and equitable principles of general applicability
and except that such counsel shall render no opinion regarding rights to
indemnification and contribution under the Registration Rights Agreement.

     E. The execution and delivery by the Company of, and the performance by the
Company of its obligations under, the Purchase Agreement, the Indenture, the
Registration Rights Agreement and the Securities will not contravene any
provision of applicable law or the certificate of incorporation or by-laws of
the Company or, to the best of such counsel’s knowledge, any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
identified in the Company’s most recent SEC filing on Form 10-K as constituting
an agreement material to the Company and its subsidiaries, taken as a whole, or,
to the best of such counsel’s knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any U.S. or New York state governmental body or agency is
required for the

 

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performance by the Company of its obligations under the Purchase Agreement, the
Indenture , the Registration Rights Agreement or the Securities, except such as
may be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Securities and by Federal and state
securities laws with respect to the Company’s obligations under the Registration
Rights Agreement.

     F. The Company is not, and after giving effect to the offering and sale of
the Securities and the application of the proceeds thereof as described in the
Final Memorandum will not be, required to register as an “investment company” as
such term is defined in the Investment Company Act of 1940, as amended.

     G. Based upon the representations, warranties and agreements of the Company
in Sections 1(p), 1(r), 6(f) and 6(g) of the Purchase Agreement and of the
Initial Purchaser in Section 7 of the Purchase Agreement, it is not necessary in
connection with the offer, sale and delivery of the Securities to the Initial
Purchaser under the Purchase Agreement or in connection with the initial resale
of such Securities by the Initial Purchaser in accordance with Section 7 of the
Purchase Agreement to register the Securities under the Securities Act of 1933
or to qualify the Indenture under the Trust Indenture Act of 1939, it being
understood that no opinion is expressed as to any subsequent resale of any
Security or Underlying Security.

          In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent auditors of the Company and the Initial
Purchaser’s representatives and their counsel at which the contents of the
Memorandum and related matters were discussed. Because the purpose of such
counsel’s professional engagement was not to establish or confirm factual
matters and because the scope of such counsel’s examination of the affairs of
the Company did not permit us to verify the accuracy, completeness or fairness
of the statements set forth in the Memorandum, such counsel is not passing upon
and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Memorandum except insofar as such
statements specifically relate to us and except to the extent set forth in
clause (G) above.

          In addition, such counsel shall also state that on the basis of the
foregoing, and except for the financial statements and schedules and the notes
thereto, no facts have come to such counsel’s attention that would lead such
counsel to believe that the Memorandum as of the date thereof or as of the
Closing Date contains an untrue statement of a material fact or omitted or
omits, as the case may be, to state a material fact necessary in order to make
the

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statements therein, in the light of the circumstances under which they were
made, not misleading.

          In addition, such counsel shall also state that on the basis of the
foregoing and in reliance thereon, and subject to the assumptions, exceptions,
qualifications and limitations set forth in the letter, such counsel is of the
opinion that (i) insofar as the statements in the Final Memorandum under the
captions “Description of Securities,” “Description of Capital Stock” and “Plan
of Distribution” (but only as to the description of the Purchase Agreement and
the Lock-up Agreement) purport to describe specific provisions of the
Securities, the Stock and the legal matters or documents described therein, such
statements present in all material respects an accurate summary of such
provisions, (ii) insofar as the statements in the Final Memorandum under the
caption “Certain United States Federal Income Tax Considerations” purport to
describe the provisions of the United States federal tax laws referred to
therein, such statements present in all material respects an accurate summary of
such provisions, and (iii) the Exchange Act Reports when they were filed with
the Commission, complied on their face as to form in all material respects with
the requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder.

          With respect to all of the above, such counsel shall express no
opinion or belief concerning the financial statements (and related notes
thereto) and schedules and other information of an accounting or financial
nature included or incorporated by reference in the Memorandum or documents
incorporated by reference therein, or omitted therefrom.

3

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EXHIBIT B

OPINION OF RICHARD J. KENNEDY

     The opinion of Richard J. Kennedy, to be delivered pursuant to Section 5(d)
of the Purchase Agreement shall be to the effect that:

     A. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the jurisdiction of its
incorporation, with the requisite the corporate power and authority to own its
property and to conduct its business as described in the Final Memorandum.

     B. Each subsidiary of the Company has been duly incorporated and is a
validly existing corporation in good standing under the laws of the jurisdiction
of its incorporation, with the requisite corporate power and authority to own
its property and to conduct its business as described in the Final Memorandum;
all of the issued shares of capital stock of each subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable,
and are owned directly by the Company, free and clear of all liens,
encumbrances, equities or claims.

     C. The statements relating to legal matters, documents or proceedings in
“Item 3 — Legal Proceedings” of the Company’s most recent annual report on Form
10-K included or incorporated by reference in the Final Memorandum, fairly
summarize in all material respects such matters, documents or proceedings and
includes all information that is required to be disclosed under Item 103 of
Regulation S-K and such counsel does not know of any other legal or governmental
proceedings pending or to his knowledge threatened to which the Company or any
of its subsidiaries is a party or to which any of the properties of the Company
or any of its subsidiaries is subject proceedings, which such counsel believes
are likely to have a material adverse effect on the power or ability of the
Company to perform its obligations under the Purchase Agreement, the Indenture,
the Registration Rights Agreement or the Securities or to consummate the
transactions contemplated by the Final Memorandum.

 

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EXHIBIT C

OPINION OF DAVIS POLK & WARDWELL

     The opinion of Davis Polk & Wardwell to be delivered pursuant to Section
5(e) of the Purchase Agreement shall be to the effect that:

     A. The Purchase Agreement has been duly authorized, executed and delivered
by the Company.

     B. The Securities have been duly authorized by the Company and, when
executed and authenticated in accordance with the provisions of the Indenture
and delivered to and paid for by the Initial Purchaser in accordance with the
terms of the Purchase Agreement, will be valid and binding obligations of the
Company, enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors’ rights generally
and equitable principles of general applicability, and will be entitled to the
benefits of the Indenture and the Registration Rights Agreement pursuant to
which such Securities are to be issued.

     C. The Underlying Securities issuable upon conversion of the Securities
have been duly authorized and reserved and, when issued upon conversion of the
Securities in accordance with the terms of the Securities, will be validly
issued, fully paid and non-assessable, and the issuance of the Underlying
Securities will not be subject to any preemptive or similar rights.

     D. Each of the Indenture and the Registration Rights Agreement has been
duly authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors’ rights generally
and equitable principles of general applicability, and except as rights to
indemnification and contribution under the Registration Rights Agreement may be
limited under applicable law.

     E. The statements relating to legal matters, documents or proceedings
included in the Final Memorandum under the captions “Description of Securities,”
“Description of Capital Stock,” “Plan of Distribution” and “Transfer
Restrictions,” fairly summarize in all material respects such matters, documents
or proceedings.

     F. Nothing has come to the attention of such counsel to cause such counsel
to believe that (except for the financial statements and financial schedules and
other financial and statistical data, as to which such counsel need not express
any belief) the Final Memorandum when issued contained, or as of the date such
opinion is delivered contains, any untrue statement of a material fact or
omitted or

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omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

     With respect to the matters referred to in the paragraph above, Davis Polk
& Wardwell may state that their beliefs are based upon their participation in
the preparation of the Final Memorandum (and any amendments or supplements
thereto) and review and discussion of the contents thereof (including the review
of, but not participation in the preparation of, the incorporated documents),
but are without independent check or verification except as specified.

     G. Based upon the representations, warranties and agreements of the Company
in Sections 1(p), 1(r), 6(f) and 6(g) of the Purchase Agreement and of the
Initial Purchaser in Section 7 of the Purchase Agreement, it is not necessary in
connection with the offer, sale and delivery of the Securities to the Initial
Purchaser under the Purchase Agreement or in connection with the initial resale
of such Securities by the Initial Purchaser in accordance with Section 7 of the
Purchase Agreement to register the Securities under the Securities Act of 1933
or to qualify the Indenture under the Trust Indenture Act of 1939, it being
understood that no opinion is expressed as to any subsequent resale of any
Security or Underlying Security.

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EXHIBIT D

[FORM OF LOCK-UP LETTER]

February  , 2004

Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036

Dear Sirs and Mesdames:

     The undersigned understands that Morgan Stanley & Co. Incorporated (“Morgan
Stanley”) proposes to enter into a Purchase Agreement (the “Purchase Agreement”)
with Atlantic Coast Airlines Holdings Inc., a Delaware corporation (the
“Company”), providing for the offering (the “Offering”) by Morgan Stanley, of
$125,000,000 principal amount of Convertible Debt Securities of the Company (the
“Securities”). The Securities will be convertible into shares of Common Stock
par value $0.02 of the Company (the “Common Stock”).

     To induce Morgan Stanley to continue their efforts in connection with the
Offering, the undersigned hereby agrees that, without the prior written consent
of Morgan Stanley, it will not, during the period commencing on the date hereof
and ending 90 days after the date of the final offering memorandum relating to
the Offering (the “Final Memorandum”), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (a) the sale of any
Securities to Morgan Stanley pursuant to the Purchase Agreement or (b)
transactions relating to shares of Common Stock or other securities acquired in
open market transactions after the completion of the Offering; (c) the transfer
of shares of Common Stock as a bona fide gift or gifts, provided that the donee
or donees thereof agree to be bound in writing by the restrictions set forth
herein; or (d) transfers of shares of Common Stock or Common Stock equivalents
to a trust where the beneficiaries of the trust

 

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are drawn solely from a group consisting of the undersigned and immediate family
members of the undersigned provided that (i) the trust agrees to enter into a
lock-up letter substantially in the form of this letter and (ii) the undersigned
shall not be required to, and shall not voluntarily, file a report on Form 4
under Section 16(a) of the Securities Exchange Act of 1934 reporting a reduction
in beneficial ownership of shares of Common Stock during the restricted period
referred in the foregoing sentence. Immediate family member of a person means
the spouse, lineal descendants, father, mother, brother, sister, father-in-law,
mother-in-law, brother-in-law and sister-in-law of such person

     In addition, the undersigned agrees that, without the prior written consent
of Morgan Stanley, it will not, during the period commencing on the date hereof
and ending 90 days after the date of the Final Memorandum, make any demand for
or exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock. The undersigned also agrees and consents to the entry of stop transfer
instructions with the Company’s transfer agent and registrar against the
transfer of the undersigned’s shares of Common Stock except in compliance with
the foregoing restrictions.

     The undersigned understands that the Company and Morgan Stanley are relying
upon the agreement set forth in this letter (the “Lock-Up Agreement”) in
proceeding toward consummation of the Offering. The undersigned further
understands that this Lock-Up Agreement is irrevocable and shall be binding upon
the undersigned’s heirs, legal representatives, successors and assigns.

     Notwithstanding anything to the contrary herein, this Lock-Up Agreement
shall terminate on March 15, 2004, in the event the closing of the Offering has
not been consummated on or before such date. Whether or not the Offering
actually occurs depends on a number of factors, including market conditions. Any
Offering will only be made pursuant to a Purchase Agreement, the terms of which
are subject to negotiation between the Company and Morgan Stanley.

     This Lock-Up Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to principles of conflict
of laws.

     

  Very truly yours,
 
   

 

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  (Name)
 
   

 

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  (Address)