ATLANTIC COAST AIRLINES INC, S-3/A, 1997-12-01

ATLANTIC COAST AIRLINES INC
S-3/A, 1997-12-01
AIR TRANSPORTATION, SCHEDULED

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 1, 1997

REGISTRATION NO. 333-35429

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 1

TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ATLANTIC COAST AIRLINES, INC.

(Exact name of registrant as specified in its charter)

DELAWARE 13-3621051
(State of Incorporation) (I.R.S. Employer
Identification No.)
515-A SHAW ROAD
DULLES, VIRGINIA 20166
(703) 925-6000

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

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

MR. KERRY B. SKEEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ATLANTIC COAST AIRLINES, INC.
515-A SHAW ROAD
DULLES, VIRGINIA 20166
(703) 925-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

COPIES TO:

RONALD O. MUELLER, ESQ. STEPHEN A. RIDDICK, ESQ.
GIBSON, DUNN & CRUTCHER LLP PIPER & MARBURY L.L.P.
1050 CONNECTICUT AVENUE, N.W. 36 SOUTH CHARLES STREET
WASHINGTON, D.C. 20036 BALTIMORE, MD 21201
(202) 955-8500 (410) 539-2530

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [x]

If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement from the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.

================================================================================
<PAGE> 2

PROSPECTUS

December 1, 1997

ATLANTIC COAST AIRLINES, INC.

$57,500,000

7% CONVERTIBLE SUBORDINATED NOTES DUE 2004

AND

SHARES OF COMMON STOCK

ISSUABLE UPON CONVERSION THEREOF

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

This Prospectus relates to the resale from time to time by the holders
(the "Selling Securityholders") of up to $57,500,000 aggregate principal amount
of 7% Convertible Subordinated Notes Due 2004 (the "Notes") of Atlantic Coast
Airlines, Inc., a Delaware corporation (the "Company"), and the resale of
shares of Common Stock, par value $.02 per share (the "Common Stock") of the
Company issuable upon the conversion thereof (the "Conversion Shares").

The Notes are convertible at the option of the holder into shares of
Common Stock of the Company, at any time after 60 days following the latest
date of issuance thereof and prior to maturity, unless previously redeemed or
repurchased, at a conversion price of $18.00 per share (equivalent to a
conversion rate of 55.56 shares per $1,000 principal amount of Notes), subject
to adjustment in certain events. Interest on the Notes is payable
semi-annually on April 1 and October 1 of each year, commencing on October 1,
1997.

The Notes are not redeemable by the Company until July 1, 2000.
Thereafter, the Notes will be redeemable, at any time, on at least 15 days'
notice at the option of the Company, in whole or in part, at the redemption
prices set forth herein, plus accrued interest. Upon a Change of Control (as
defined), each holder of the Notes may require the Company to repurchase all or
a portion of such holder's Notes at 100% of the principal amount thereof,
together with accrued interest to the repurchase date. The Notes are unsecured
and subordinated in right of payment in full to all existing and future Senior
Indebtedness (as defined) of the Company. See "Description of the Notes."

The Notes were originally issued by the Company in a private placement
on July 2 and July 18, 1997 to the Initial Purchasers (as defined) and were
simultaneously sold by the Initial Purchasers in transactions exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), in the United States to persons reasonably believed to be "qualified
institutional buyers" as defined in Rule 144A under the Securities Act.

The Selling Securityholders may offer Notes or Conversion Shares from
time to time to purchasers directly or through underwriters, dealers or agents.
Such Notes or Conversion Shares may be sold at market prices prevailing at the
time of sale or at negotiated prices. Each Selling Securityholder will be
responsible for payment of any and all commissions to brokers, which will be
negotiated on an individual basis.

The Notes have been designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") Market. The Common
Stock is listed on the National Association of Securities Dealers Automated
Quotations National Market ("Nasdaq") under the trading symbol "ACAI." On
November 25, 1997, the last reported sale price of the Common Stock as
reported on Nasdaq was $24.25 per share. The Conversion Shares have been
approved for quotation on Nasdaq. For a description of certain federal income
tax consequences to the holders of the Notes, see "Certain Federal Income Tax
Consequences."

The Company will not receive any of the proceeds from the resale of any
Notes or Conversion Shares by the Selling Securityholders. Expenses of
preparing and filing the registration statement to which this Prospectus
relates and all post-effective amendments will be borne by the Company. See
"Plan of Distribution" for a description of the indemnification arrangements
between the Company and the Selling Securityholders.

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<PAGE> 3

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES AND
THE COMMON STOCK OFFERED HEREBY.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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

The date of this Prospectus is December 1, 1997

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AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is
required to file periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and at Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material
can also be obtained from the SEC at prescribed rates from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
Electronic filings made by the Company through the SEC's Electronic Data
Gathering, Analysis and Retrieval System are publicly available through the
SEC's web site (http://www.sec.gov). Copies of other materials concerning the
Company can be inspected at the offices of the Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006.

This Prospectus is part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company with the SEC under the Securities Act with
respect to the securities offered hereby. As permitted by the rules and
regulations of the SEC, this Prospectus omits certain information contained in
the Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the SEC. Each such statement shall be deemed qualified in its
entirety by such reference.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The following documents have been filed by the Company with the SEC
pursuant to the Exchange Act and are hereby incorporated by reference:

1. Annual Report on Form 10-K for the fiscal year ended December
31, 1996, and the Company's amendments to that Form 10-K for the fiscal
year ended December 31, 1996 on Forms 10-K/A (File Number 1-11998);

2. Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997, and the Company's amendment to that Form 10-Q for the
quarterly period ended March 31, 1997 on Form 10-Q/A (File Number
1-11998);

3. Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1997, and the Company's amendment to that Form 10-Q for the
quarterly period ended June 30, 1997 on Form 10-Q/A (File Number
1-11998); and

4. Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1997 (File Number 1-11998);

5. Current Reports on Form 8-K dated January 23, 1997, September
25, 1997 and October 24, 1997 (File Number 1-11998); and

6. The description of the Company's Common Stock in
Registration Statement on Form S-1, effective July 20, 1993
(Registration Number 33-62206) and any amendments or reports filed for
the purpose of updating such description.

All documents filed by the Company with the SEC pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the Notes and Common
Stock offered hereby shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date any such document is filed.

Any statements contained in a document incorporated by reference in
this Prospectus shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained in this Prospectus (or
in any other subsequently filed document which also is incorporated by
reference in this Prospectus) modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to constitute a part of
this Prospectus except as so modified or superseded.

No person has been authorized in connection with the offering made
hereby to give any information or make any representation not contained in this
Prospectus and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or any other person.
This Prospectus does not

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constitute an offer to sell or solicitation of any offer to buy any of the
securities offered hereby in any jurisdiction in which it is unlawful to make
such offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
the information contained herein is correct as of any date subsequent to the
date hereof.

The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon the written or oral request of such
person, a copy of any or all of the documents incorporated herein by reference
(other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should
be directed to General Counsel, Atlantic Coast Airlines, Inc., 515-A Shaw Road,
Dulles, Virginia, 20166. Telephone inquiries may be directed to General
Counsel's Office at (703) 925-6000.

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PROSPECTUS SUMMARY

The following information is qualified in its entirety by the more
detailed information and financial statements (including the notes thereto)
appearing elsewhere in this Prospectus and in the documents incorporated by
reference herein. Except as otherwise indicated, (i) all references to the
"Company" refer to Atlantic Coast Airlines, Inc. ("ACAI") and its wholly-owned
subsidiary, Atlantic Coast Airlines ("ACA"), unless the context otherwise
requires. This Prospectus, including statements incorporated by reference,
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this Prospectus.

THE COMPANY

Atlantic Coast Airlines, Inc. is a regional airline serving 41
destinations in 17 states in the Eastern United States as of August 15, 1997,
with 463 scheduled non-stop flights system-wide every weekday. The Company
markets itself as "United Express" and is the only code-sharing regional
airline for United Airlines, Inc. ("United") operating as United Express in the
Eastern United States. The Company caters primarily to business travelers and
operates primarily from United's East Coast hub at Washington-Dulles
International Airport ("Washington-Dulles"), which serves the Northern Virginia
and Washington, D.C. markets. As of August 15, 1997, the Company operated a
fleet of 60 turboprop aircraft that consisted of two aircraft types and had an
average age of less than five years. The Company has an agreement to acquire 12
Canadair Regional Jets, Series 200 ER ("CRJs"), with deliveries commencing in
July 1997 and continuing through 1998 and options to acquire up to 36
additional CRJs. As of August 15, 1997, the Company had taken delivery of two
CRJs. The Company utilized the two CRJs for training and ad hoc charters
before the commencement of revenue service in November 1997.

As of August 15, 1997, the Company operated more flights daily from
Washington-Dulles than any other airline, with 198 scheduled departures from
Washington-Dulles each weekday. During 1996, the Company accounted for more
passenger boardings at Washington-Dulles than any airline except United, and
the Company and United together accounted for approximately 65% of passenger
boardings from Washington-Dulles. During 1996, approximately 65% of the
Company's traffic was point-to-point local travel or connections with other
Company flights, 32% connected with United flights and 3% connected with
flights of other carriers. The Company had operating revenues of $182.5 million
and net income of $19.2 million in 1996, compared to $157.0 million and $12.9
million, respectively, in 1995.

The Company's principal executive offices are located at 515-A Shaw
Road, Dulles, Virginia, 20166. Its telephone number is (703) 925-6000.

RECENT DEVELOPMENTS

In September 1997, United Airlines and the Air Line Pilots Association
("ALPA") representing United's pilots entered into an agreement (the "ALPA
Agreement") under which, subject to certain conditions, regional jets may be
flown as "United Express" by regional airlines that have code-sharing
arrangements with United. On November 18, 1997, United's ALPA members approved
the ALPA Agreement. On November 20, 1997, after receiving United's verbal
consent, the Company commenced limited regional jet service as "United Express"
flights on certain routes.

On November 21, 1997, the Company exercised options to acquire 12
additional CRJs. Of the 12 options exercised, six are firm and six are subject
to certain conditions.

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THE OFFERING

<TABLE>
<S> <C>
Securities Offered . . . . . . . . . . $57,500,000 aggregate principal amount of 7% Convertible Subordinated Notes
due 2004 (the "Notes"), and the Common Stock issuable upon conversion
thereof (the "Conversion Shares").

Interest Payment Dates . . . . . . . . April 1 and October 1, commencing October 1, 1997.

Maturity Date . . . . . . . . . . . . July 1, 2004.

Conversion . . . . . . . . . . . . . . The Notes are convertible into shares of Common Stock at any time after 60
days following the latest date of the issuance thereof and prior to
maturity, unless previously redeemed or repurchased, at a conversion price
of $18.00 per share, subject to certain adjustments. See "Description of
Notes--Conversion of Notes."

Redemption at the Option of the
Company . . . . . . . . . . . . . . The Notes are not redeemable by the Company until July 1, 2000. Thereafter,
the Notes will be redeemable, at any time, on at least 15 days' notice at
the option of the Company, in whole or in part, at the redemption prices set
forth herein, plus accrued interest. See "Description of Notes--Optional
Redemption by the Company." The Notes are not entitled to any sinking fund.

Repurchase at the Option of
Holders upon Change in
Control . . . . . . . . . . . . . . In the event a Change in Control (as defined) occurs, each holder of Notes
may require the Company to repurchase all or a portion of such holder's
Notes at 100% of the principal amount thereof, together with accrued
interest to the repurchase date. If a Change in Control were to occur, there
could be no assurance that the Company would have sufficient funds to pay
the repurchase price for all Notes tendered by the holders thereof or that
the Company would be permitted to repurchase the Notes under its
then-existing credit arrangements. See "Description of Notes--Repurchase at
Option of Holders upon Change in Control" and "Risk Factors--Limitation on
Repurchase of Notes upon Change in Control."

Subordination . . . . . . . . . . . . The Notes are unsecured and subordinated in right of payment in full to all
existing and future Senior Indebtedness. See "Description of Notes--
Subordination of Notes." As defined, Senior Indebtedness includes the
Company's long-term debt and capital leases and any outstanding balance on
its line of credit. As of June 30, 1997, the Company had $18.9 million of
indebtedness outstanding that would have constituted Senior Indebtedness. As
of June 30, 1997, the maximum amount the Company could borrow under its line
of credit was $15.0 million. The Indenture does not limit the amount of
additional indebtedness, including Senior Indebtedness, that the Company can
create, incur, assume or guarantee, nor does the Indenture limit the amount
of indebtedness that any subsidiary can create, incur, assume or guarantee.

Use of Proceeds . . . . . . . . . . . The Company will not receive any proceeds from the resale of the Notes or the
Conversion Shares by the Selling Securityholders as provided herein.

Trading . . . . . . . . . . . . . . . The Notes are eligible for trading in the PORTAL market. The Common Stock is
traded on Nasdaq under the symbol "ACAI."
</TABLE>

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RISK FACTORS

In addition to the other information contained in this Prospectus and
in the documents incorporated herein by reference, prospective purchasers of
the Notes and the Conversion Shares should carefully consider the following
factors in evaluating an investment in the Notes or the Conversion Shares:

RISK FACTORS RELATED TO THE COMPANY

Relationship with United. The Company is dependent on its
code-sharing relationship with United for a substantial portion of its
business. Through the Company's code-sharing and related agreements with United
(the "United Express Agreements"), the Company has shared marketing identity
with United, is permitted to identify its flights with the "UA" flight
symbol in United's "Apollo" and other computerized reservation systems
("CRSs"), awards and redeems credits in United's "Mileage Plus" frequent flyer
program and obtains a number of ancillary services from United. The United
Express Agreements impose a number of requirements and limitations on the
Company's business. Among other things, these agreements require that the
Company comply with detailed operating performance standards, maintain minimum
flight frequency levels and meet certain other conditions, and restrict the
Company's flexibility to engage in certain activities or take certain actions.
The United Express Agreements prohibit the Company from entering into similar
arrangements with other carriers without United's prior consent but do not
prohibit United from competing, or from entering into agreements with other
airlines that would compete, on routes served by the Company. The United
Express Agreements also require the Company to obtain United's consent to
operate aircraft with seating capacity of more than 30 passengers (including
the CRJs) under the "United Express" name. Under the United Express Agreements,
United has a right of first refusal with respect to any proposal by the Company
to dispose of its assets or aircraft and with respect to issuance by the
Company of shares of its Common Stock if, as a result of the issuance, certain
of the Company's stockholders and their permitted transferees do not own at
least 50% of the Company's Common Stock after such issuance.

The Company's code-sharing agreement with United terminates on March
31, 1998, but is subject to earlier termination if the Company fails to comply
with its requirements. The Company believes that it is currently in compliance
with the United Express Agreements, but there can be no assurance that such
compliance will or can be maintained or that the United Express Agreements will
be renewed. Any termination or failure to renew the United Express Agreements,
any materially adverse modification of the United Express Agreements or any
substantial decrease in the number of routes served by the Company under the
United Express Agreements would have a material adverse effect on the Company's
business. As a result of the United Express Agreements, the Company's business
is sensitive to events and risks affecting United. If United's business
declines or is disrupted for a material period of time, or if United reduces
its operations at its Washington-Dulles hub, determines to serve passengers
over the Company's routes itself or enters into agreements with another carrier
that serves the Company's routes, the Company's business and profitability
could be materially adversely affected.

Impact of Regional Jet Acquisitions on Relationship with United. The
impact of the Company's purchase of regional jets on the United Express
Agreements presently is not clear. In September 1997, United and ALPA
representing United's pilots entered into the ALPA Agreement, under which,
subject to certain conditions, regional jets may be flown as "United Express"
flights by regional airlines that have code-sharing arrangements with United.
On November 18, 1997, United's ALPA members approved the ALPA Agreement. On
November 20, 1997, after receiving United's verbal consent, the Company
commenced limited regional jet service as "United Express" flights on certain
routes. See "Recent Developments."

The United Express Agreements require the Company to obtain United's
consent to operate aircraft (including the CRJs) with seating capacity of more
than 30 persons under the "United Express" name. The Company received United's
verbal consent to commence limited CRJ service as United Express flights on
certain routes as of November 20, 1997. There can be no assurance, however,
that United will consent to the Company's continued operation of its CRJs on
these routes, that United will consent to the Company's operation of any
additional CRJs on any additional routes, that United will not impose
significant limitations or restrictions on any such consent, or that any such
consent, if granted, will be granted in a timely manner. In August 1997,
United agreed to reimburse the Company for its estimated aircraft lease and
associated flight crew expenses for its CRJs that were delivered but are not in
operation during the period from September 11, 1997 through December 31, 1997.

In the event that United does not consent to the operation of any
number of the Company's regional jets under the United Express Agreements, the
Company may pursue an alternative arrangement whereby United would provide
most of the same services relating to the those CRJs as United currently
provides for the Company's aircraft operating under the United
Express Agreements. These services would include passenger reservations and
airport passenger handling. This contemplated alternative arrangement would
also allow the Company's non-United Express CRJ passengers to participate in
United's Mileage Plus frequent flyer program. Pending agreement with United
regarding operation of any number of CRJs as United Express, or in the event
such an agreement is not reached with respect to any number of CRJs, non-United
Express CRJs would be flown under the Company's name, and these flights would
be designated in published flight guides and CRSs by the Company's own
two-letter flight designator code instead of United's flight designator code.
In the event that the Company is unable to enter such an alternative
arrangement with United, the Company anticipates that it may enter into
agreements with other parties to provide the ground support and other services
needed to operate non-United Express CRJs. Such agreements could take the form
of a code-sharing arrangement or an aircraft, crew, maintenance and insurance
("ACMI") arrangement. To the extent that the Company does not contract with
third parties for such services, the Company anticipates that it would provide
at least some of them directly.

There can be no assurance that the Company will reach any agreement
with United for such services or that such agreements, if reached, will be
reached in a timely manner. In addition, such agreements will not encompass all
of the services currently provided by United under the United Express
Agreements and may include terms for the provision of certain services that are
not as favorable as similar terms under the United Express Agreements. The
Company also may experience delays between the time such agreements are reached
and the time the services to be provided under such agreements can be provided
in an efficient and effective manner, which may result in delays in initiating
non-United Express regional jet flight service.

Furthermore, in the event that the Company does not operate any number
of CRJs as United Express, its non-United Express CRJ operations may not be
coordinated with United's flight schedules and will not carry United's
two-letter flight designator code in ticket distribution networks, and the
Company will not participate with United in cooperative advertising and
marketing agreements. Therefore, in CRS ticket distribution systems and other
media that display airline schedules, no on-line (code share) flights will
appear between these CRJ flights and United's flights. There can be no
assurance that travelers will perceive such operations as favorably as the
Company's current "United Express" operations or that demand for such flights
will be commensurate with demand for "United Express" flights.

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Limited Experience Operating Jet Aircraft. The Company presently has
very limited in-service experience operating jet aircraft. On August 19,
the Company successfully completed several training, operational and
administrative requirements mandated by the Federal Aviation Administration
("FAA"). Accordingly, the Company has received FAA approval to commence CRJ
service. The addition of the CRJs to the Company's fleet will result in
increased lease obligations and operating, maintenance, airport, personnel,
training and other expenses. There can be no assurance that, if the Company
significantly underestimates the amount of these costs or overestimates the
amount of revenues it expects to generate from its CRJ service, such increased
expenses or revenue shortfall would not have a material adverse effect on the
Company's results of operations and financial condition.

If the Company operates any number of the CRJs under the Company's name
rather than under the United Express name, the Company will be prohibited from
providing non-United Express CRJ service on any of its United Express routes.
The Company intends to operate the CRJs on United Express routes the Company
currently serves with turboprop aircraft and in markets not currently served by
the Company. There can be no assurance that the Company will be able to
identify appropriate new markets for its CRJ service or that it will be able to
operate CRJs profitably in these new markets or in existing markets, and there
can be no assurance that United will consent to the Company's operation of CRJs
in any new or existing market chosen by the Company. With neither cooperative
advertising and marketing with United nor designation of the Company's
non-United Express CRJ flights in published flight guides and CRSs as United
flights, the Company may experience difficulty with respect to customer
acceptance of the Company's CRJ services as a viable travel option and may
incur advertising and marketing expenses in excess of what it would incur under
the United Express program. The Company is also likely to experience lower load
factors and yields as it enters new markets which, when combined with increased
promotional expenses, could result in start-up losses. If the Company generates
start-up losses in its regional jet program, the Company anticipates that such
losses would be funded from cash on hand or cash flow from operations, which
could adversely affect the Company's ability to meet other cash needs and could
potentially slow the Company's implementation of its regional jet program.

The Company commenced limited CRJ scheduled service on November 20,
1997, with four CRJs in service. In the event that CRJs are removed from
scheduled service for scheduled maintenance, repairs or other reasons, any
resulting interruption in service could have a material

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adverse effect on the Company's reputation and profitability. If the Company
chooses to operate the CRJs in new markets, the limited number of aircraft to
be operated initially by the Company in its regional jet operations may involve
financial risks not present for carriers operating more regional jets than the
Company will initially operate, because such other carriers would be able to
spread their fixed costs over a greater number of regional jets. The Company's
initial selection of appropriate markets for CRJ service is made even more
important by the limited number of regional jets to be initially placed into
service.

Financial Performance. The Company has a limited operating history
and has had variable financial results, including operating losses in two of
its five full years of operation. Although the Company's operations achieved
profitability for the 1995 and 1996 fiscal years, there can be no assurance
that these results can or will be sustained. From time to time in the past,
the Company received loans to finance its operations, and in conjunction with
its restructuring in 1994 received an equity infusion, from British Aerospace.
If the Company requires additional working capital, there can be no assurance
that such funding can be obtained from British Aerospace or others.

Dependence on Limited Number of Fleet Types. As of August 15, 1997,
the Company operated 60 turboprop aircraft and had taken delivery of two CRJs.
The Company's operational fleet presently is comprised of two models produced
by one manufacturer, British Aerospace. In addition, the Company has
commitments with Bombardier, Inc. to acquire at total of 12 CRJs, with options
to acquire up to 36 additional CRJs. As a result, if British Aerospace's or
Bombardier, Inc.'s business declines, the Company could be materially adversely
affected by potential delays in scheduled deliveries and other factors. Any
interruption of service as a result of unscheduled or unanticipated maintenance
requirements or as a result of FAA restrictions on the use of any aircraft
flown by the Company could have a material adverse effect on the Company's
operations and profitability.

As a result of British Aerospace's May 29, 1997 announcement that it
will cease manufacture of the British Aerospace Jetstream J-41 ("J-41"), both
types of turboprop aircraft operated by the Company will be out of production.
The Company has long-term lease commitments for both aircraft types and will
continue to rely on British Aerospace and other vendors for ongoing support.
The fact that both the British Aerospace Jetstream J-32 ("J-32") and J-41 will
be out of production could over time materially adversely affect the Company in
such areas as product support, spare parts availability and maintenance costs.
The announcement regarding the J-41 could also adversely impact the Company's
ability to obtain third party financing of its J-41s. On July 2, 1997, the
Company and British Aerospace amended their agreement, dated February 23, 1997
(the "BA J-41 Agreement"), whereby the Company had agreed to acquire additional
J-41s. This amendment includes, among other things, British Aerospace asset
value support for certain proposed third party J-41 refinancings. In July
1997, the Company closed third party leases for three of the four J-41 aircraft
delivered under the BA J-41 Agreement. There can be no assurance, however,
that the financing terms agreed in the amendment to the BA J-41 agreement will
be sufficient to facilitate the refinancing of any additional aircraft or any
particular number of aircraft.

Dependence on Northern Virginia Market. Because most of the Company's
revenue passengers take flights that depart from or arrive at
Washington-Dulles, the Company is largely dependent upon providing service
between the Northern Virginia market and other markets in the Northeastern and
Eastern United States. Any reduction in the Company's share of the Northern
Virginia market or a reduction in passenger traffic, particularly United
passenger traffic, to or from Washington-Dulles, as a result of economic or
demographic factors or other events, could have a material adverse effect on
the Company.

Financial Leverage. The Company has substantial indebtedness. As of
August 15, 1997, the Company had outstanding $60.2 million in long-term debt
and capital leases, having an annual debt service and capital lease expense of
$5.2 million, and outstanding operating leases requiring minimum annual lease
payments of $37.0 million. The Company's long-term debt and operating and
capital leases require significant periodic cash payments and there can be no
assurance that the Company's operations will generate sufficient cash flow to
make such payments. In addition, the Company's acquisition of additional
aircraft, including the CRJs, will result in increased leverage in the form of
additional operating lease obligations. Moreover, the Indenture does not limit
the amount of additional indebtedness, including Senior Indebtedness, that the
Company can create, incur, assume or guarantee, nor does the Indenture limit
the amount of indebtedness that any subsidiary can create, incur, assume or
guarantee. The Company's leverage may impair its ability to obtain additional
financing, may make the Company more vulnerable to the cyclical and seasonal
nature of the airline industry, may restrict the Company's ability to

9
<PAGE> 11

exploit new business opportunities and may limit the Company's flexibility in
responding to changing business conditions.

Fuel. Fuel costs represent a major component of operating expense for
all airlines and are volatile. Based on consumption for 1996, each one cent per
gallon increase in the Company's cost of fuel translates into an increase of
approximately $200,000 in annual aviation fuel expense. The operation of
regional jets will significantly increase the Company's fuel costs. The price
of aviation fuel varies directly with market conditions and is influenced by
factors outside of the control of the Company, such as economic and political
factors, the actions of OPEC in setting targets for the production and pricing
of crude oil and applicable fuel taxes. The Company relies on an affiliate of
United to supply the majority of its fuel and has no guaranteed long-term
sources of supply. Although the Company has not entered into any fuel hedging
arrangements, the Company may seek to limit its exposure to changes in fuel
costs by entering into such arrangements in the future. There can be no
assurance that any such arrangements will effectively minimize the impact of
increases in fuel costs on the Company's results of operations. The Company
intends to follow industry trends in seeking to raise fares in response to
significant fuel price increases. However, the Company's ability to pass on
increased fuel costs through fare increases may be limited by economic and
competitive conditions. Accordingly, a reduction in the availability of fuel or
an increase in the price of fuel could have a material adverse effect on the
Company's cash flow and results of operations.

Pilot Turnover. Over the past year, the Company has experienced a
higher rate of pilot turnover than in the past, which the Company attributes in
part to increased competition from larger carriers for qualified pilots. There
can be no assurance that the Company will be able to recruit and train the
number of pilots necessary to conduct its operations in the future. To satisfy
its needs, the Company may experience higher recruitment, training and
compensation costs, all of which could have a material adverse effect on its
profitability.

Slots. As of August 15, 1997, the Company utilized 18
arrival/departure slots at LaGuardia, 11 slots at New York-JFK and six slots at
White Plains, NY airports, which slots are required by governmental authorities
for operation at these facilities. Airlines may acquire slots by governmental
grant, by lease or purchase from other airlines or by loan when another airline
does not use a slot but desires to retain its authority over the slot. All
leased and loaned slots are subject to regular renewal and termination
provisions. Slots at White Plains, NY are subject to both local and federal
regulation.

The Company holds government grants on eight slots at LaGuardia and
owns three slots at White Plains, NY. The Company leases from other airlines 10
slots at LaGuardia, six of which expire in 2002 and four of which expire in the
fourth quarter of 1997. The Company also leases from other airlines 11 slots at
New York-JFK that expire in the fourth quarter of 1997 and three slots at White
Plains, NY that terminate on 90 days' notice. The Company believes, based on
past experience, that as slots expire, it will be able to either renew such
slots or find substitute slots at comparable prices.

The U.S. Department of Transportation ("DOT") has in the past
reallocated slots and reserves the right to withdraw slots. Various amendments
to the slot system, proposed from time to time by the FAA, members of Congress
and others, could, if adopted, significantly affect operations at airports
where the Company currently holds slots or expand slot controls to other
airports. Certain of such proposals could restrict the number of flights at
certain airports, limit the ownership transferability of slots, increase the
risk of slot withdrawal or otherwise decrease the value of slots. There can be
no assurance that the Company will be able to renew or obtain replacement slots
for its leased slots, that it will be able to retain its government-granted
slots or that it will be able to offset any decrease in revenues resulting from
a loss of any slots it currently utilizes.

Labor Negotiations. The Company's existing collective bargaining
agreement with the ALPA was amended on February 26, 1997 and is effective for
three years. The Company's contract with the Association of Flight Attendants
became amendable on April 30, 1997 and negotiations regarding amendment began
in August 1997. The Company has been in negotiations under federal mediation
with the Aircraft Mechanics Fraternal Association ("AMFA") since December 1994
to negotiate the terms of an initial contract. In addition, the Company is
involved in litigation with AMFA over certain work rule changes and whether the
union has the right to strike. There can be no assurance that these labor
issues will be settled without wage increases, work rule changes or other
provisions that could have a material adverse effect on the Company's
operations or financial performance.

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<PAGE> 12

Seasonality. The Company generally experiences lower demand from
December through February. Because the Company's services and marketing efforts
are focused on business travelers, this seasonality of demand is somewhat
greater than for airlines that carry a larger proportion of leisure travelers.
In addition, the Company's principal area of operations experiences adverse
weather during this period, causing a greater percentage of the Company's and
other airlines' flights to be canceled. These seasonal factors have combined
in the past to reduce the Company's traffic, profitability and cash generation
for this three month period as compared to the remainder of the year.

RISK FACTORS RELATED TO THE NOTES

Subordination. The Notes are unsecured and subordinated in right of
payment in full to all existing and future Senior Indebtedness of the Company.
Under the Indenture, the Notes are subordinated to the Company's long-term debt
and capital leases, and any amounts outstanding under its line of credit. As a
result of such subordination, in the event of any insolvency, liquidation or
reorganization of the Company or upon acceleration of the Notes due to an Event
of Default (as defined in the Indenture), the assets of the Company will be
available to pay obligations on the Notes and any other subordinated
indebtedness of the Company only after all Senior Indebtedness has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on
any or all of the Notes and any other subordinated indebtedness of the Company
then outstanding. The Indenture does not prohibit or limit the incurrence of
Senior Indebtedness or the incurrence of other indebtedness and other
liabilities by the Company. The incurrence of such indebtedness could adversely
affect the Company's ability to pay its obligations under the Notes. As of June
30, 1997, the Company had $18.9 million of indebtedness outstanding that would
have constituted Senior Indebtedness.

Absence of Public Market for the Notes. The Initial Purchasers have
informed the Company that they are making and currently intend to continue
making a market in the Notes. They are not obligated to do so and any such
market making may be discontinued at any time without notice, in the sole
discretion of the Initial Purchasers. Accordingly, there can be no assurance as
to the development or liquidity of any market for the Notes. The Notes are
currently eligible for trading by qualified buyers in the PORTAL market. The
Company does not intend to apply for listing of the Notes on any securities
exchange or for quotation through Nasdaq.

The liquidity of, and trading market for, the Notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.

Limitation on Repurchase of Notes upon Change in Control. Upon the
occurrence of a Change in Control, as defined, each holder of Notes may require
the Company to repurchase all or a portion of such holder's Notes. If a Change
in Control were to occur, there could be no assurance that the Company would
have sufficient financial resources or would be able to arrange financing to
pay the repurchase price for all Notes tendered by holders thereof. The
Company's ability to repurchase the Notes in such event may be limited by law,
the Indenture or the terms of other agreements relating to borrowings that
constitute Senior Indebtedness, as such indebtedness or agreements may be
entered into, replaced, supplemented or amended from time to time. The Company
may be required to refinance Senior Indebtedness in order to make any such
payment. If the Company is prohibited from repurchasing the Notes, its failure
to repurchase the Notes would constitute an Event of Default under the
Indenture, which may, in turn, constitute a further default under certain of
the Company's existing agreements relating to borrowings and the terms of other
indebtedness that the Company may enter into from time to time. In such
circumstances, the subordination provisions in the Indenture would prohibit
payments to the holders of the Notes. Furthermore, the Company may not have the
financial ability to repurchase the Notes in the event that maturity of any
Senior Indebtedness is accelerated as a result of a default under the
applicable loan or similar agreement. See "Description of Notes--Repurchase at
Option of Holders upon Change in Control."

RISK FACTORS RELATED TO THE INDUSTRY

Competition. The airline industry is highly competitive and industry
earnings are volatile. The domestic airline industry has undergone major
structural changes since the enactment of the Airline Deregulation Act of 1978
(the "Deregulation Act"). Since that time, there has been substantial
consolidation and integration of both major and regional carriers, including
the acquisition or association of most regional carriers by or with major
carriers. Deregulation has made possible the rapid entry of competitors,
including discount carriers and some

11
<PAGE> 13

major carriers, into the Company's markets, and competitors are able to adjust
fares rapidly to improve their competitive position.

From 1990 to 1992, the airline industry experienced unprecedented
losses due to high fuel costs, general economic conditions, intense price
competition and other factors. Airlines compete on the basis of pricing,
scheduling (frequency and flight times), on-time performance, frequent flyer
programs and other services. The airline industry is susceptible to price
discounting, which involves the offering of discount or promotional fares to
passengers. Any such fares offered by one airline are normally matched by
competing airlines, which often results in lower industry yields without a
corresponding increase in traffic levels.

Most of the Company's markets are highly competitive. The Company
currently competes on some routes with both major and regional carriers and
with discount carriers. All the major carriers and some of the regional
carriers and discount carriers have greater financial resources than the
Company, and some of the Company's competitors have lower unit costs than the
Company. There can be no assurance that other carriers, including United, will
not institute additional competing services on one or more of the Company's
routes or will not reduce fares on one or more routes that compete with the
Company's routes, either of which could have a material adverse effect on the
Company's business or profitability.

Commuter turboprop air traffic has been impacted in the past by public
perception that such air travel is not as safe as jet air travel. The Company's
operations are subject to the risk that one or more events could occur within
the industry that would adversely affect the public's perception of commuter
air services and, therefore, the demand for such services, or would result in
increased costs due to more stringent regulation. In addition, there can be no
assurance that the types of aircraft that comprise the Company's fleet will not
experience mechanical or other safety-related problems that would adversely
affect the public's perception of travel on such aircraft or of commuter air
services generally, and therefore result in decreased demand or increased costs
due to more stringent regulation.

Government Regulation. The Company is subject to regulation by the
DOT, the FAA and certain other governmental agencies. The DOT has extensive
authority to issue certificates authorizing carriers to engage in air
transportation, establish consumer protection regulations, prohibit certain
pricing practices, mandate conditions of carriage and make ongoing
determinations of a carrier's fitness, willingness and ability to provide air
transportation. The DOT can also bring proceedings for the enforcement of its
regulations under the applicable federal statutes, which proceedings may result
in civil penalties, revocation of operating authority or criminal sanctions.
The Company holds a certificate of public convenience and necessity, issued by
the DOT, that authorizes it to conduct air transportation of persons, property
and mail between all points in the United States, its territories and
possessions. This certificate requires that the Company maintain DOT-prescribed
minimum levels of insurance, comply with all applicable statutes and
regulations and remain continuously "fit" to engage in air transportation.

Based on conditions in the industry, or as a result of Congressional
directives or statutes, the DOT from time to time proposes and adopts new
regulations or amends existing regulations. The Company incurs substantial
expense in complying with current regulations and cannot predict what
additional requirements may be imposed in the future or the cost of complying
with such requirements.

The Company believes that it is in compliance with all requirements
currently necessary to maintain in good standing its operating authority
granted by the DOT and the FAA and that it has taken adequate steps to
implement in a timely manner all regulatory changes that have been approved for
future implementation. Any modification, suspension or revocation of the
Company's DOT or FAA authorizations or certificates could have a material
adverse effect on the Company and its business operations.

The FAA regulates the safety-related activities of air carriers. The
Company is subject to the FAA's jurisdiction with respect to aircraft
maintenance and operations, equipment, ground facilities, flight dispatch,
communications, training, weather observation, flight personnel and other
matters affecting air safety. To ensure compliance with its regulations, the
FAA requires that airlines under its jurisdiction, such as the Company, obtain
an operating certificate and operations specifications for the particular
aircraft and types of operations conducted by such airlines. The Company
possesses an Air Carrier Certificate issued by the FAA and related authorities
authorizing it to conduct operations with turboprop equipment. On August 19,
1997, the Company received FAA approval to commence revenue operations with
CRJs. The Company's authority to conduct operations is subject to

12
<PAGE> 14

suspension, modification or revocation for cause. The FAA has authority to
bring proceedings to enforce its regulations, which proceedings may result in
civil or criminal penalties or revocation of operating authority.

The FAA also has authority to issue maintenance directives and other
mandatory orders relating to, among other things, inspection of aircraft,
installation of new safety-related items (such as collision and windshear
avoidance systems) and the mandatory removal and replacement of aircraft parts
that have failed or may fail in the future. Depending upon the scope of the
FAA's order, these requirements may cause the Company to incur substantial,
unanticipated expenses.

The FAA requires air carriers to adopt and enforce procedures designed
to safeguard property, ensure airport security and screen passengers to protect
against terrorist acts. The FAA, from time to time, imposes additional security
requirements on air carriers and airport authorities based on specific threats
or world conditions, or as otherwise required. The Company incurs substantial
expense in complying with current security requirements and it cannot predict
what additional security requirements may be imposed in the future or the cost
of complying with such requirements.

The Airport Noise and Capacity Act of 1990 ("ANCA") requires the
phase-out of the operation of certain aircraft. Neither the Company's turboprop
aircraft nor the CRJs are subject to the phase-out provisions of ANCA. While
ANCA generally preempts airports from imposing unreasonable local noise rules
that restrict air carrier operations, airport operators may implement
reasonable and nondiscriminatory local noise abatement procedures, which
procedures could impact the ability of the Company to serve certain airports,
particularly in off-peak hours. Certain local noise rules adopted prior to ANCA
were grandfathered under the statute.

The Company is obligated to collect a U.S. transportation excise tax
of 10% of passenger ticket revenue. This tax, known as the aviation trust tax
or the "ticket tax", is used to defray the cost of FAA operations and other
aviation programs. Recently the federal statute authorizing the ticket tax
expired on two separate occasions--from January 1, 1996 through August 26,
1996, and from January 1, 1997 through March 6, 1997. Consistent with industry
practice, the Company did not collect the ticket tax during these periods. The
ticket tax was most recently reinstated effective March 7, 1997, with an
expiration date of September 30, 1997. Beginning on October 1, 1997, a revised
formula for determining the ticket tax takes effect. Under this revised
formula, the ticket tax will be comprised of a percentage of passenger ticket
revenue plus a flat fee for each segment of each flight, and will be adjusted
annually. For the period from October 1, 1997 through September 30, 1998, the
ticket tax will equal nine percent of passenger ticket revenue plus $1 per
segment. The Company does not anticipate that this change to the ticket tax
will have a materially adverse impact on its operations.

Additional laws and regulations have been proposed from time to time
that could significantly increase the cost of airline operations by imposing
additional requirements or restrictions on carriers' operations. Management
cannot predict what laws and regulations will be adopted, if any, or how they
will affect the Company.

Industry Operating Leverage. The airline industry is characterized by
a high degree of operating leverage. Because of high fixed costs, the expenses
of each flight do not vary proportionately with the number of passengers
carried, but revenues generated from a particular flight are directly related
to the number of passengers carried and the fare structure of the flight.
Accordingly, a decrease in the number of passengers carried that is not offset
by higher fares, or a decrease in fares that is not offset by an increase in
the number of passengers carried, would result in a decrease in profits that is
disproportionately greater than the corresponding decrease in passengers or in
fares.

Cyclical Nature of Business. The airline industry is highly sensitive
to general economic conditions, in large part due to the discretionary nature
of a substantial percentage of both business and leisure travel. During periods
of recession many airlines reduce fares in an effort to stimulate traffic.
Overall economic and competitive conditions in the airline industry have
contributed to a number of bankruptcies and liquidations among airlines. A
worsening of current economic conditions, or an extended period of recession
nationally or regionally, could have a material adverse effect on the Company's
operations.

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<PAGE> 15

RATIO OF EARNINGS TO FIXED CHARGES

The Company's ratio of earnings to fixed charges for each of the
periods indicated is as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,

1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----

<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges . . . . . . . . 2.88 2.73 2.84 2.09 * 1.01 .47
</TABLE>

* Earnings for the year ended December 31, 1994 were insufficient to cover
fixed charges by approximately $25,136,000.

The ratio of earnings to fixed charges is computed by dividing fixed
charges into earnings. Earnings is defined as pretax income from continuing
operations adjusted by adding fixed charges and excluding interest capitalized
during the period. Fixed charges consist of interest and financing charges,
the estimated interest component of rent expense and preferred stock dividends.

USE OF PROCEEDS

The Company will not receive any proceeds from the resales of the Notes
or the Conversion Shares by the Selling Securityholders.

THE COMPANY

BACKGROUND

Atlantic Coast Airlines, Inc. is a regional airline serving 41
destinations in 17 states in the Eastern United States as of August 15, 1997,
with 463 scheduled non-stop flights system-wide every weekday. The Company
markets itself as "United Express" and is the only code-sharing regional
airline for United Airlines, Inc. ("United") operating as United Express in the
Eastern United States. The Company caters primarily to business travelers and
operates primarily from United's East Coast hub at Washington-Dulles
International Airport ("Washington-Dulles"), which serves the Northern Virginia
and Washington, D.C. markets. As of August 15, 1997, the Company operated a
fleet of 60 turboprop aircraft that consisted of two aircraft types and had an
average age of less than five years. The Company has an agreement to acquire
12 Canadair Regional Jets, Series 200 ER ("CRJs"), with deliveries commencing
in July 1997 and continuing through 1998 and options to acquire up to 36
additional CRJs. As of August 15, 1997, the Company had taken delivery of two
CRJs. The Company is currently utilizing the two CRJs for training and ad hoc
charters prior to commencement of revenue operations in December 1997.

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<PAGE> 16

HISTORY

ACAI acquired the Atlantic Coast division of WestAir Commuter
Airlines, Inc. and commenced operations in October 1991. From 1991 through the
first quarter of 1994, the Company grew rapidly by assuming routes from
Washington-Dulles that previously had been served by United and by another
United Express carrier, and by establishing mini-hub operations in Newark, New
Jersey and Orlando, Florida. During this period, the Company's operations grew
from 29 aircraft serving 33 destinations from Washington-Dulles to 62 aircraft
serving 54 cities along the East Coast. The Company also increased the number
of aircraft types it operated from two to four. In the first quarter of 1994,
the Company recorded an $8.3 million operating loss, which the Company believes
resulted primarily from (i) high operating costs caused by its mixed aircraft
fleet, (ii) the depression of yields in the Northeast and Florida as a result
of Continental Airlines' introduction of CAL Lite, and (iii) changes in
United's flight schedule that resulted in a reduction in the number of United
flights from Washington-Dulles and discontinuation of a significant portion of
United's northbound routes from Orlando.

In the second quarter of 1994, the Company commenced a plan of
restructuring to reduce the number of aircraft types in its fleet from four to
two, eliminate unprofitable routes and operations and change its capital
structure. Since the Company implemented the restructuring plan in 1994, it has
experienced a significant improvement in operating performance and financial
condition. The Company believes that its improved financial results are
attributable to the benefits realized from the 1994 restructuring plan, the
Company's renewed emphasis on and improvements in yield management, increased
passenger demand and a generally improved economic environment for airlines.

STRATEGY

The Company's long-term corporate objective is to achieve sustained
earnings growth by:

- Implementing its new regional jet fleet and growing its
Washington-Dulles hub;

- Capitalizing on and promoting its relationship and identity
with United Airlines;

- Continuing to reduce operating and financial costs;

- Continuing to emphasize operational safety; and

- Satisfying the needs of the high-yield business traveler.

A central element of the Company's growth strategy is the expansion of
its aircraft fleet, primarily through the addition of regional jets. Regional
jets have greater flying range and capacity and, depending on stage length,
operate at lower unit costs than the Company's turboprop aircraft. In addition,
regional jets fly faster and provide a higher degree of passenger comfort than
the Company's turboprops. Accordingly, the introduction of the CRJs to the
Company's fleet will permit expansion of the Company's business into new
markets and expansion of the Company's customer base.

The Company intends to capitalize on and promote its code-sharing
relationship with United, which has contributed significantly to the Company's
growth. The Company has a shared market identity with United, lists its flights
under United's two-letter flight designator code in airline CRSs and other
published schedules and awards United's "Mileage Plus" frequent flyer miles to
its passengers. The Company coordinates its schedules with United, particularly
at Washington-Dulles, and participates with United in cooperative advertising
and marketing agreements. In most cities served by the Company, United provides
all airport facilities and related ground support services. The Company also
participates in United's "Apollo" reservation system and other major CRSs, uses
the United Express logo and has exterior aircraft paint schemes similar to
those of United.

In September 1997, United and ALPA representing United's pilots entered
into the ALPA Agreement, under which, subject to certain conditions, regional
jets may be flown as "United Express" flights by regional airlines that have
code-sharing arrangements with United. On November 18, 1997, United's ALPA
members approved the ALPA Agreement. On November 20, 1997, after receiving
United's verbal consent, the Company commenced limited regional jet service as
"United Express" flights on certain routes. See "Recent Developments."

In the event that United does not consent to the operation of any
number of the Company's regional jets under the United Express Agreements, the
Company may pursue an alternative arrangement whereby United would provide
most of the same services relating to the those CRJs as United currently
provides for the Company's aircraft operating under the United Express
Agreements. These services would include passenger reservations and
airport passenger handling. This contemplated alternative arrangement would
also allow the Company's non-United Express CRJ passengers to participate in
United's Mileage Plus frequent flyer program. Pending agreement with United
regarding operation of any number of CRJs as United Express, or in the event
such an agreement is not reached with respect to any number of CRJs, non-United
Express CRJs would be flown under the Company's name, and these flights would
be designated in published flight guides and CRSs by the Company's own
two-letter flight designator code instead of United's flight designator code.
In the event that the Company is unable to enter such an alternative
arrangement with United, the Company anticipates that it may enter into
agreements with other parties to provide the ground support and other services
needed to operate non-United Express CRJs. Such agreements could take the form
of a code-sharing arrangement or an ACMI arrangement. To the extent that the
Company does not contract with third parties for such services, the Company
anticipates that it would provide at least some of them directly.

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<PAGE> 17

The Company continues to seek opportunities to reduce unit costs and
improve performance. Specific cost reduction initiatives include refinancing
of certain used J-41 aircraft leases, construction of a maintenance hangar at
Washington-Dulles and installation of flight management equipment. In July
1997, following British Aerospace's announcement that it would no longer
manufacture the J-41 as part of its product line, the Company and British
Aerospace amended the BA J-41 Agreement. Pursuant to this amendment, British
Aerospace will provide certain asset value support that the Company believes
may allow the Company to secure third party financing on certain previously
leased J-41s. Third party financings of J-41s completed to date have resulted
in reduced payment obligations, shorter lease terms and improved return
conditions, and the Company believes that, depending on market economic
conditions, any additional third party financings of previously leased J-41s
will have similar results. The exact number of aircraft that are ultimately
refinanced and the dates on which such refinancings close remain under
negotiation and are subject to market conditions. There can be no assurance
that (i) the asset value support offered by British Aerospace will be
sufficient to enable the Company to refinance any additional J-41 aircraft or
(ii) the Company or British Aerospace will be willing to provide additional
asset value or enhancements to support the Company's refinancing efforts.

For over three years, the Company has worked with the FAA to develop
enhanced pilot training and cockpit decision-making procedures under two
programs: the Advanced Qualification Program ("AQP") and the Crew Resource
Management Program ("CRM"). AQP and CRM focus training curriculums on
individual technical skills and crew interaction scenarios. The FAA has given
the Company a $500,000 grant to study how CRM can be integrated with standard
operational procedures such as crew briefings and checklists. The Company
anticipates that it will continue to enhance and improve these programs in
cooperation with the FAA.

The Company is also in the process of installing in its aircraft an
enhanced navigational aid using global positioning satellite ("GPS")
technology. Once implemented, the Company anticipates that GPS will reduce both
aircraft block hours and pilot workloads. On July 18, 1997, the FAA approved
the Company's use of GPS on certain routes.

The Company seeks to attract and retain business travelers in order to
maintain and improve its yields. The Company's affiliation with United's
Mileage Plus frequent flyer program is important in attracting repeat business
customers. The Company believes that flight frequency and product quality are
equally important in attracting business travelers because approximately 65% of
its passengers presently do not connect to or from a United flight. In 34 of
the Company's non-stop markets, the Company has at least four weekday
departures. Currently, in the high-density Boston-New York-Washington corridor,
the Company has as many as 14 daily departures in some markets.

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<PAGE> 18

DESCRIPTION OF THE NOTES

The Notes were issued under an indenture dated as of July 2, 1997 (the
"Indenture"), between the Company and First Union National Bank of Virginia, as
Trustee (the "Trustee"). A copy of the form of Indenture and the related
registration rights agreement between the Company and the Initial Purchasers
(the "Registration Rights Agreement") is available from the Trustee upon
request by a registered holder of Notes. The following summaries of certain
provisions of the Notes, the Indenture and the Registration Rights Agreement do
not purport to be complete and are subject to, and qualified in their entirety
by reference to, all the provisions of the Notes, the Indenture and the
Registration Rights Agreement, including the definitions therein of certain
terms that are not otherwise defined in this Offering Memorandum. Wherever
particular provisions or defined terms of the Indenture (or of the form of Note
which is a part thereof) or the Registration Rights Agreement are referred to,
such provisions or defined terms are incorporated herein by reference.

GENERAL

The Notes represent unsecured general obligations of the Company
subordinate in right of payment to certain other obligations of the Company as
described under "-- Subordination of Notes," and convertible into Common Stock
as described under "-- Conversion of Notes." The Notes will mature on July 1,
2004, unless earlier redeemed at the option of the Company or repurchased by
the Company at the option of the holder upon a Change in Control.

The Indenture does not contain any financial covenants or any
restrictions on the payment of dividends, the incurrence of Senior Indebtedness
or the issuance or repurchase of securities of the Company. The Indenture
contains no covenants or other provisions to afford protection to holders of
Notes in the event of a highly leveraged transaction or a change in control of
the Company except to the extent described under "-- Repurchase at Option of
Holders upon Change in Control."

The Notes bear interest at the annual rate of seven percent, payable
on April 1 and October 1, commencing on October 1, 1997, to holders of record
at the close of business on the March 15 and September 15, respectively (other
than with respect to a Note or portion thereof called for redemption on a
redemption date, or repurchased in connection with a Change in Control on a
Repurchase Date (as defined below) during the period from the Record Date to
(but excluding) the next succeeding Interest Payment Date (in which case
accrued interest shall be payable to the extent required to the holder of the
Note or portion thereof redeemed or repurchased) or converted after the Record
Date and before the next succeeding Interest Payment Date except to the extent
that, at the time such Note or portion thereof is submitted for conversion,
such Note or portion thereof was required to be accompanied by funds equal to
the amount of interest payable on such succeeding Interest Payment Date on the
principal amount so converted. See "-- Conversion of Notes." Interest may, at
the Company's option, be paid by check mailed to such holders, provided that a
holder of Notes with an aggregate principal amount in excess of $5,000,000 will
be paid by wire transfer in immediately available funds at the election of such
holder. Interest is computed on the basis of a 360-day year comprised of twelve
30-day months.

Principal and premium, if any, are payable, and the Notes may be
presented for conversion, registration of transfer and exchange, without
service charge, at the office of the Company maintained for such purpose in
Richmond, Virginia, which shall initially be the office or agency of the
Trustee.

The Indenture and the Registration Rights Agreement are governed by
and construed under the laws of the Commonwealth of Virginia.

BOOK ENTRY, DELIVERY AND FORM

The Notes were issued in fully registered form, without coupons, in
denominations of $1,000 principal amount and multiples thereof.

Global Note, Book-Entry Form. Notes held by qualified institutional
buyers, as defined in Rule 144A under the Securities Act ("QIBs"), are
evidenced by a global Note (the "Global Note") which is deposited with, or

17
<PAGE> 19

on behalf of, The Depository Trust Company, New York, New York ("DTC") and
registered in the name of Cede & Co. ("Cede") as DTC's nominee.

A QIB may hold its interests in the Global Note directly through DTC
if such QIB is a participant in DTC, or indirectly through organizations which
are participants in DTC (the "Participants"). Transfers between Participants
will be effected in the ordinary way in accordance with DTC rules and will be
settled in same-day funds. The laws of some states require that certain persons
take physical delivery of securities in definitive form. Consequently, the
ability to transfer beneficial interest in the Global Note to such persons may
be limited.

QIBs who are not Participants may beneficially own interests in the
Global Note held by DTC only through Participants, including Euroclear and
Cedel, or certain banks, brokers, dealers, trust companies and other parties
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly ("Indirect Participants"). So long as Cede, as
the nominee of DTC, is the registered owner of the Global Note, Cede for all
purposes will be considered the sole holder of the Global Note. Except as
provided below, owners of beneficial interests in the Global Note are not
entitled to have certificates registered in their names, will not receive or be
entitled to receive physical delivery of certificates in definitive form and
are not considered holders thereof.

Payment of interest on and the redemption price of the Global Note
will be made to Cede, the nominee of DTC, as the registered owner of the Global
Note, by wire transfer of immediately available funds on the applicable payment
date therefor. Neither the Company, the Trustee nor any paying agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.

The Company has been informed by DTC that, with respect to any payment
of interest on, or the redemption price of, the Global Note, DTC's practice is
to credit Participants' accounts on the applicable payment date therefor with
payments in amounts proportionate to their respective beneficial interests in
the Notes represented by the Global Note, as shown on the records of DTC
(adjusted as necessary so that such payments are made with respect to whole
Notes only), unless DTC has reason to believe that it will not receive payment
on such payment date. Payments by Participants to owners of beneficial
interests in Notes represented by the Global Note held through such
Participants will be the responsibility of such Participants, as is now the
case with securities held for the accounts of customers registered in "street
name."

Holders who desire to convert their Notes into Common Stock pursuant
to the terms of the Notes should contact their brokers or other Participants or
Indirect Participants to obtain information on procedures, including proper
forms and cut-off times, for submitting such requests.

Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in Notes represented by the Global Note to pledge
such interest to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing such interest.

Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised the Company that it will take any action permitted
to be taken by a holder of Notes (including, without limitation, the
presentation of Notes for exchange as described below), only at the direction
of one or more Participants to whose account DTC interests in the Global Note
are credited and only in respect of the principal amount of the Notes
represented by the Global Note as to which such Participant or Participants has
or have given such direction.

DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). DTC holds securities for its Participants. DTC also
facilitates the clearance and settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic book-entry changes to accounts of its Participants, thereby
eliminating

18
<PAGE> 20

the need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations such as the Initial Purchasers. Certain of
such Participants (or their representatives), together with other entities, own
DTC. Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a Participant, either directly or indirectly. The
rules applicable to DTC and its Participants are on file with the Securities
and Exchange Commission.

Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among Participants of DTC,
it is under no obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. If DTC is at any time
unwilling or unable to continue as depositary and a successor depositary is not
appointed by the Company within 90 days, the Company will cause Notes to be
issued in definitive form in exchange for the Global Note. None of the Company,
the Trustee nor any of their respective agents will have any responsibility for
the performance by DTC, its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations, including maintaining, supervising or reviewing the records
relating to, or payments made on account of, beneficial ownership interests in
Global Notes.

Certificated Notes. Beneficial holders of an interest in the Global
Note may request that their Notes be issued in certificated form, and may
request at any time that their interest in a Global Note be exchanged for a
Note in certificated form. Certificated Notes may be issued in exchange for
Notes represented by the Global Note if no successor depositary is appointed by
the Company as set forth above under "--Global Note, Book Entry Form."

Restrictions on Transfer; Legends. The Notes are subject to certain
transfer restrictions as described below under "Transfer Restrictions" and
certificates evidencing the Notes bear a legend to such effect.

CONVERSION OF NOTES

The holders of Notes are entitled at any time on or after 60 days
following the latest date of original issuance thereof through the close of
business on the final maturity date of the Notes, subject to prior redemption
or repurchase, to convert any Notes or portions thereof (in denominations of
$1,000 or multiples thereof) into Common Stock, at the conversion price of
$18.00 per share of Common Stock, subject to adjustment as described below.
Except as described below, no adjustment will be made on conversion of any
Notes for interest accrued thereon or for dividends on any Common Stock issued
upon conversion of the Notes.

In the event a Note is called for redemption on or after July 1, 2000
and before October 1, 2000 and the holder elects to convert such Note after it
has been called for redemption, the holder will be entitled to receive interest
on such Note for the period from April 1, 2000 through July 1, 2000 in addition
to any rights such holder may have upon conversion of the Notes. If any Notes
not called for redemption are converted after a Record Date for the payment of
interest and prior to the next succeeding Interest Payment Date, such Notes
must be accompanied by funds equal to the interest payable on such succeeding
Interest Payment Date on the principal amount so converted. No such payment
will be required if the Company exercises its right to redeem such Notes on a
redemption date that is an Interest Payment Date. The Company is not required
to issue fractional shares of Common Stock upon conversion of Notes and, in
lieu thereof, will pay a cash adjustment based upon the market price of the
Common Stock on the last Trading Day (as defined) prior to the date of
conversion. In the case of Notes called for redemption, conversion rights will
expire at the close of business on the fifth business day preceding the date
fixed for redemption, unless the Company defaults in payment of the redemption
price. A Note in respect of which a holder is exercising its option to require
repurchase upon a Change in Control may be converted only if such holder
withdraws its election to exercise its option in accordance with the terms of
the Indenture.

The initial conversion price of $18.00 per share of Common Stock is
subject to adjustment (under formulae set forth in the Indenture) in certain
events, including: (i) the issuance of Common Stock as a dividend or
distribution on Common Stock of the Company; (ii) certain subdivisions and
combinations of the Common Stock; (iii) the issuance to all holders of Common
Stock of certain rights or warrants to purchase Common Stock; (iv) the
distribution to all holders of Common Stock of shares of capital stock of the
Company (other than Common Stock) or evidences of indebtedness of the Company
or assets (including securities, but excluding those rights, warrants,
dividends and distributions referred to above and dividends and distributions
in connection with the liquidation,

19
<PAGE> 21

dissolution or winding up of the Company or paid in cash); (v) dividends or
other distributions consisting exclusively of cash (excluding any cash portion
of distributions referred to in clause (iv) to all holders of Common Stock to
the extent that such distributions, combined together with (A) all other such
all-cash distributions made within the preceding 12 months in respect of which
no adjustment has been made plus (B) any cash and the fair market value of
other consideration payable in respect of any tender offers by the Company for
Common Stock concluded within the preceding 12 months in respect of which no
adjustment has been made, exceeds 10% of the Company's market capitalization
(being the product of the then current market price of the Common Stock times
the number of shares of Common Stock then outstanding on the Record Date for
such distribution); (vi) the purchase of Common Stock pursuant to a tender
offer made by the Company or any of its subsidiaries to the extent that the
same involves an aggregate consideration that, together with (X) any cash and
the fair market value of any other consideration payable in any other tender
offer by the Company or any of its subsidiaries for Common Stock expiring
within the 12 months preceding such tender offer in respect of which no
adjustment has been made plus (Y) the aggregate amount of any such all-cash
distributions referred to in clause (v) above to all holders of Common Stock
within the 12 months preceding the expiration of such tender offer in respect
of which no adjustments have been made, exceeds 10% of the Company's market
capitalization on the expiration of such tender offer and (vii) payment in
respect of a tender offer or exchange offer by a person other than the Company
or any subsidiary of the Company in which, as of the closing date of the offer,
the Board of Directors is not recommending rejection of the offer. If an
adjustment is required to be made as set forth in clause (v) above as a result
of a distribution that is not a quarterly dividend, such adjustment would be
based upon the full amount of the distribution. The adjustment referred to in
clause (vii) above will only be made if the tender offer or exchange offer is
for an amount which increases that person's ownership of Common Stock to more
than 25% of the total shares of Common Stock outstanding and, if the cash and
value of any other consideration included in such payment per share of Common
Stock, exceeds the Current Market Price per share of Common Stock on the
business day next succeeding the last date on which tenders or exchanges may be
made pursuant to such tender or exchange offer. The adjustment referred to in
clause (vii) above will not be made, however, if, as of the closing of the
offer, the offering documents with respect to such offer disclose a plan or an
intention to cause the Company to engage in a consolidation or merger of the
Company or a sale of the Company's assets, as an entirety or substantially as
an entirety.

In addition, the Indenture provides that if the Company implements a
stockholders' rights plan, such rights plan must provide that, upon conversion
of the Notes, the holders will receive, in addition to the Common Stock
issuable upon such conversion, such rights, whether or not such rights have
separated from the Common Stock at the time of such conversion.

No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then
in effect; provided that any adjustment that would otherwise be required to be
made shall be carried forward and taken into account in any subsequent
adjustment. Except as stated above, the conversion price will not be adjusted
for the issuance of Common Stock or any securities convertible into or
exchangeable for Common Stock or carrying the right to purchase any of the
foregoing.

In the case of (i) any reclassification or change of the Common Stock
or (ii) a consolidation, merger or combination involving the Company or a sale
or conveyance to another person of the property and assets of the Company as an
entirety or substantially as an entirety, in each case as a result of which
holders of Common Stock shall be entitled to receive stock, other securities,
other property or assets (including cash) with respect to or in exchange for
such Common Stock, the holders of the Notes then outstanding will be entitled
thereafter to convert such Notes into the kind and amount of shares of stock,
other securities or other property or assets which they would have owned or
been entitled to receive upon such reclassification, change, consolidation,
merger, combination, sale or conveyance had such Notes been converted into
Common Stock immediately prior to such reclassification, change, consolidation,
merger, combination, sale or conveyance assuming that a holder of Notes would
not have exercised any rights of election as to the stock, other securities or
other property or assets receivable in connection therewith.

In the event of a taxable distribution to holders of Common Stock (or
other transaction) which results in any adjustment of the conversion price, the
holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain
other circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations."

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<PAGE> 22

The Company from time to time may, to the extent permitted by law,
reduce the conversion price of the Notes by any amount for any period of at
least 20 days, in which case the Company shall give at least 15 days' notice of
such decrease, if the Board of Directors has made a determination that such
decrease would be in the best interests of the Company, which determination
shall be conclusive. See "Certain Federal Income Tax Considerations." The
Company may, at its option, make such reductions in the conversion price, in
addition to those set forth above, as the Board of Directors deems advisable to
avoid or diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes. See "Certain Federal Income Tax
Considerations."

OPTIONAL REDEMPTION BY THE COMPANY

The Notes are not entitled to any sinking fund. At any time on or
after July 1, 2000, all or any part of the Notes will be redeemable at the
Company's option on at least 15 but not more than 60 days' notice, as a whole
or, from time to time in part, at the following prices (expressed in
percentages of the principal amount), together with accrued interest to, but
excluding, the date fixed for redemption.

If redeemed during the 12-month period beginning July 1:

<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------

<S> <C>
2000 . . . . . . . . . . . . 104%

2001 . . . . . . . . . . . . 103

2002 . . . . . . . . . . . . 102

2003 . . . . . . . . . . . . 101
</TABLE>

and 100% at July 1, 2004; provided that any semi-annual payment of interest
becoming due on the date fixed for redemption shall be payable to the holders
of record on the relevant Record Date of the Notes being redeemed.

If fewer than all the Notes are to be redeemed, the Trustee will
select the Notes to be redeemed in principal amounts of $1,000 or multiples
thereof by lot or, in its discretion, on a pro rata basis. If any Note is to be
redeemed in part only, a new Note or Notes in principal amount equal to the
unredeemed principal portion thereof will be issued. If a portion of a holder's
Notes is selected for partial redemption and such holder converts a portion of
such Notes, such converted portion shall be deemed to be taken from the portion
selected for redemption.

REPURCHASE AT OPTION OF HOLDERS UPON CHANGE IN CONTROL

The Indenture provides that if a Change in Control occurs, each
holder of Notes shall have the right to require the Company to repurchase all
of such holder's Notes, or any portion of the principal amount thereof that is
an integral multiple of $1,000, on the date (the "Repurchase Date") that is 30
days after the date of the Company Notice (as defined below), for cash at a
price equal to 100% of the principal amount thereof (the "Repurchase Price"),
together with accrued and unpaid interest to, but excluding, the Repurchase
Date; provided that any semi-annual payment of interest becoming due on the
Repurchase Date shall be payable to the holders of record on the relevant
Record Date of the Notes being repurchased.

Within 15 days after the occurrence of a Change in Control, the
Company or, at the Company's request, the Trustee, is obligated to mail to all
holders of record of Notes a notice (the "Company Notice") of the occurrence of
such Change in Control and of the repurchase right arising as a result thereof.
The Company must also deliver a copy of the Company Notice to the Trustee. To
exercise the repurchase right, a holder of such Notes must deliver to the
Trustee on or before the Repurchase Date written notice of the holder's
exercise of such right, together with the Notes with respect to which the right
is being exercised, duly endorsed for transfer to the Company.

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<PAGE> 23

A "Change in Control" will be deemed to have occurred at such time
after the original issuance of the Notes as:

(i) any Person (as defined) (including any syndicate or group deemed
to be a "person" under Section 13(d)(3) of the Exchange Act), other than the
Company, any subsidiary of the Company, or any employee benefit plan of the
Company or any such subsidiary, is or becomes the beneficial owner, directly or
indirectly, through a purchase or other acquisition transaction or series of
transactions (other than a merger or consolidation involving the Company), of
shares of capital stock of the Company entitling such Person to exercise in
excess of 50% of the total voting power of all shares of capital stock of the
Company entitled to vote generally in the election of directors;

(ii) there occurs any consolidation of the Company with, or merger of
the Company into, any other Person, any merger of another Person into the
Company, or any sale or transfer of the assets of the Company, as an entirety
or substantially as an entirety, to another Person (other than (a) any such
transaction pursuant to which the holders of the Common Stock immediately prior
to such transaction have, directly or indirectly, shares of capital stock of
the continuing or surviving corporation immediately after such transaction
which entitle such holders to exercise in excess of 50% of the total voting
power of all shares of capital stock of the continuing or surviving corporation
entitled to vote generally in the election of directors and (b) any merger (1)
which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock or (2) which is effected
solely to change the jurisdiction of incorporation of the Company and results
in a reclassification, conversion or exchange of outstanding shares of Common
Stock solely into shares of common stock and separate series of common stock
carrying substantially the same relative rights as the Common Stock); or

(iii) a change in the Board of Directors of the Company in which the
individuals who constituted the Board of Directors of the Company at the
beginning of the one-year period immediately preceding such change (together
with any other director whose election to the Board of Directors of the Company
or whose nomination for election by the stockholders of the Company was
approved by a vote of at least a majority of the directors then in office
either who were directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the directors then in office;

provided, however, that a Change in Control shall not be deemed to
have occurred if either (a) the closing price per share of the Common Stock for
any ten Trading Days within the period of 20 consecutive Trading Days ending
immediately before the Change in Control shall equal or exceed 105% of the
conversion price in effect on each such Trading Day, or (b) (i) at least 90% of
the consideration (excluding cash payments for fractional shares) in the
transaction or transactions constituting the Change in Control consists of
shares of common stock with full voting rights traded on a national securities
exchange or quoted on Nasdaq (or which will be so traded or quoted when issued
or exchanged in connection with such Change in Control) (such securities being
referred to as "Publicly Traded Securities") and as a result of such
transaction or transactions such Notes become convertible solely into such
Publicly Traded Securities and (ii) the consideration in the transaction or
transactions constituting the Change in Control consists of cash, Publicly
Traded Securities or a combination of cash and Publicly Traded Securities with
an aggregate fair market value (which, in the case of Publicly Traded
Securities, shall be equal to the average closing price of such Publicly Traded
Securities during the ten consecutive Trading Days commencing with the sixth
Trading Day following consummation of the transaction or transactions
constituting the Change in Control) is at least 105% of the Conversion Price in
effect on the date immediately preceding the date of consummation of such
Change in Control. The term "beneficial owner" shall be determined in
accordance with Rule 13d-3 promulgated by the Commission under the Exchange
Act.

To the extent applicable, the Company will comply with the provisions
of Rule 13e-4 or any other tender offer rules, and will file a Schedule 13E-4
or any other schedule required under such rules, in connection with any offer
by the Company to repurchase Notes upon a Change in Control.

The Change in Control feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company and,
thus, the removal of incumbent management. The repurchase right is not the
result of management's knowledge of any effort to accumulate any Common Stock
or to obtain control of the Company by means of a merger, tender offer,
solicitation or otherwise, or part of a plan by management to adopt a series of
anti-takeover provisions. Instead, this right is the result of negotiations
between the Company and the Initial Purchasers.

22
<PAGE> 24

The foregoing provisions would not necessarily afford holders of the
Notes protection in the event of a highly leveraged transaction, certain
changes in control of the Company or other transactions involving the Company
that may adversely affect holders.

The Company's ability to repurchase Notes upon the occurrence of a
Change in Control is subject to limitations. If a Change in Control were to
occur, there could be no assurance that the Company would have sufficient
financial resources, or would be able to arrange financing, to pay the
repurchase price for all Notes tendered by holders thereof. In addition, the
terms of certain of the Company's existing debt agreements prohibit the Company
from purchasing any Notes and also identify certain events that would
constitute a change in control, as well as certain other events with respect to
the Company or certain of its subsidiaries, which would constitute an event of
default under such debt agreements. Any future credit agreements or other
agreements related to other Indebtedness (including other Senior Indebtedness)
to which the Company becomes a party may contain similar restrictions and
provisions. In the event a Change in Control occurs at a time when the Company
is prohibited from repurchasing Notes, the Company could seek the consent of
its lenders to repurchase the Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such a
consent or repay such borrowings, the Company would remain prohibited from
repurchasing Notes. Any failure by the Company to repurchase the Notes when
required following a Change in Control would result in an Event of Default
under the Indenture whether or not such repurchase is permitted by the
subordination provisions of the Indenture. Any such default may, in turn, cause
a default under Senior Indebtedness of the Company. Moreover, the occurrence of
a Change in Control may cause an event of default under Senior Indebtedness of
the Company. As a result, in each case, any repurchase of the Notes would,
absent a waiver, be prohibited under the subordination provisions of the
Indenture until the Senior Indebtedness is paid in full. See "--Subordination
of Notes" below, "Risk Factors--Subordination" and "Risk Factors--Limitation on
Repurchase of Notes upon Change in Control."

SUBORDINATION OF NOTES

The Indebtedness evidenced by the Notes is subordinated to the extent
provided in the Indenture to the prior payment in full of all Senior
Indebtedness. Upon any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization, the payment of the
principal of, or premium, if any, and interest on the Notes is to be
subordinated to the extent provided in the Indenture in right of payment to the
prior payment in full in cash of all Senior Indebtedness. In the event of any
acceleration of the Notes because of an Event of Default (as defined in the
Indenture), the holders of any Senior Indebtedness then outstanding would be
entitled to payment in full in cash of all obligations in respect of such
Senior Indebtedness before the holders of the Notes are entitled to receive any
payment or distribution in respect thereof. The Indenture requires that the
Company promptly notify holders of Senior Indebtedness if payment of the Notes
is accelerated because of an Event of Default.

The Company also may not make any payment upon or in respect of the
Notes if (i) a default in the payment of the principal of, premium, if any,
interest, lease payment or other obligations in respect of Senior Indebtedness
occurs and is continuing beyond any applicable period of grace or (ii) any
other default occurs and is continuing with respect to Designated Senior
Indebtedness (as defined) that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate its maturity and
the Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Company or other person permitted to give such notice under the
Indenture. Payments on the Notes may and shall be resumed (a) in case of a
payment default, upon the date on which such default is cured or waived and (b)
in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received if the maturity of such
Designated Senior Indebtedness has not been accelerated. No new period of
payment blockage may be commenced pursuant to a Payment Blockage Notice unless
and until (i) 365 days have elapsed since the initial effectiveness of the
immediately prior Payment Blockage Notice and (ii) all scheduled payments of
principal, premium, if any, and interest on the Notes that have come due have
been paid in full in cash. No nonpayment default that existed or was continuing
on the date of delivery of any Payment Blockage Notice to the Trustee shall be,
or be made, the basis for a subsequent Payment Blockage Notice.

By reason of the subordination provisions described above, in the
event of the Company's bankruptcy, dissolution or reorganization, holders of
Senior Indebtedness may receive more, ratably, and holders of the Notes

23
<PAGE> 25

may receive less, ratably, than the other creditors of the Company. Such
subordination will not prevent the occurrence of any Event of Default under the
Indenture.

The term "Senior Indebtedness" means the principal of, premium, if
any, interest (including all interest accruing subsequent to the commencement
of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding) and rent
payable on or in connection with, and all fees, costs, expenses and other
amounts accrued or due on or in connection with, Indebtedness (as defined) of
the Company, whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed, guaranteed or in effect guaranteed by the Company
(including all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing), unless in the case of any
particular Indebtedness the instrument creating or evidencing the same or the
assumption or guarantee thereof expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes or expressly provides that such
Indebtedness is "pari passu" or "junior" to the Notes. Notwithstanding the
foregoing, the term Senior Indebtedness shall not include any Indebtedness of
the Company to any Subsidiary (as defined in the Indenture) of the Company.

The term "Indebtedness" means, with respect to any Person (as defined
in the Indenture), and without duplication, (a) the principal of and premium,
if any, and interest on, and fees, costs, enforcement expenses, collateral
protection expenses and other reimbursement or indemnity obligations in respect
to all indebtedness or obligations of the Company to any Person, including but
not limited to banks and other lending institutions, for money borrowed that is
evidenced by a note, bond, debenture, loan agreement, or similar instrument or
agreement (including purchase money obligations with original maturities in
excess of one year and noncontingent reimbursement obligations in respect of
amounts paid under letters of credit); (b) all reimbursement obligations and
other liabilities (contingent or otherwise) of such Person with respect to
letters of credit, bank guarantees or bankers' acceptances, (c) all obligations
and liabilities (contingent or otherwise) in respect of leases of such Person
required, in conformity with generally accepted accounting principles, to be
accounted for as capital lease obligations on the balance sheet of such Person,
(d) all obligations of such Person (contingent or otherwise) with respect to an
interest rate or other swap, cap or collar agreement or other similar
instrument or agreement or foreign currency hedge, exchange, purchase or
similar instrument or agreement, (e) all direct or indirect guaranties or
similar agreements by such Person in respect of, and obligations or liabilities
(contingent or otherwise) of such Person to purchase or otherwise acquire, or
otherwise assure a creditor against loss in respect of, indebtedness,
obligations or liabilities of another Person of the kind described in clauses
(a) through (d), (f) any indebtedness or other obligations, excluding any
operating leases the Company is currently (or may become) a party to, described
in clauses (a) through (d) secured by any mortgage, pledge, lien or other
encumbrance existing on property which is owned or held by such Person,
regardless of whether the indebtedness or other obligation secured thereby
shall have been assumed by such Person and (g) any and all deferrals, renewals,
extensions and refundings of, or amendments, modifications or supplements to,
any indebtedness, obligation or liability of the kind described in clauses (a)
through (f).

The term "Designated Senior Indebtedness" means the Company's
indebtedness outstanding from time to time under its revolving credit facility
and any particular Senior Indebtedness in which the instrument creating or
evidencing the same or the assumption or guarantee thereof (or related
agreements or documents to which the Company is a party) expressly provides
that such Senior Indebtedness shall be "Designated Senior Indebtedness" for
purposes of the Indenture (provided that such instrument, agreement or other
document may place limitations and conditions on the right of such Senior
Indebtedness to exercise the rights of Designated Senior Indebtedness).

Any right of the Company to receive any assets of any of its
subsidiaries upon their liquidation or reorganization (and the consequent right
of the holders of the Notes to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would
still be subordinate to any security interest in the assets of such subsidiary
and any indebtedness of such subsidiary senior to that held by the Company.

As of June 30, 1997, the Company had approximately $18.9 million of
indebtedness outstanding that would have constituted Senior Indebtedness. The
Indenture will not limit the amount of additional indebtedness, including
Senior Indebtedness, which the Company can create, incur, assume or guarantee,
nor will the Indenture limit the amount of indebtedness which any subsidiary
can create, incur, assume or guarantee.

24
<PAGE> 26

In the event that, notwithstanding the foregoing, the Trustee or any
holder of Notes receives any payment or distribution of assets of the Company
of any kind in contravention of any of the subordination provisions of the
Indenture, whether in cash, property or securities, including, without
limitation, by way of set-off or otherwise, in respect of the Notes before all
Senior Indebtedness is paid in full, then such payment or distribution will be
held by the recipient in trust for the benefit of holders of Senior
Indebtedness or their representative or representatives to the extent necessary
to make payment in full of all Senior Indebtedness remaining unpaid, after
giving effect to any concurrent payment or distribution, or provision therefor,
to or for the holders of Senior Indebtedness.

The Company is obligated to pay reasonable compensation to the Trustee
and to indemnify the Trustee against any losses, liabilities or expenses
incurred by it in connection with its duties relating to the Notes. The
Trustee's claims for such payments will be senior to those of holders of the
Notes in respect of all funds collected or held by the Trustee.

EVENTS OF DEFAULT AND REMEDIES

The following are Events of Default under the Indenture: (i) default
in the payment of any interest upon the Notes, continued for 30 days, (ii)
default in the payment of principal or premium, if any, upon the Notes when due
or in the payment of any redemption obligation, (iii) default by the Company or
any subsidiary with respect to its obligation to pay principal of or interest
on indebtedness for borrowed money, which default shall have resulted in
indebtedness aggregating more than $5 million, (iv) default by the Company with
respect to indebtedness for borrowed money, which default results in the
acceleration of such indebtedness in an amount exceeding $5 million, which
indebtedness has not been discharged or such acceleration has not been
rescinded or annulled for a period of 10 days, (v) failure to perform any other
covenant or warranty of the Company, continued for 60 days after written notice
as provided in the Indenture, (vi) final judgments or orders are rendered
against the Company or any of its subsidiaries which require the payment by the
Company or any of its subsidiaries of an amount (to the extent not covered by
insurance) in excess of $5 million and such judgments or orders remain unstayed
or unsatisfied for more than 60 days and are not being contested in good faith
by appropriate proceedings, and (vii) certain events of bankruptcy, insolvency
or reorganization with respect to the Company.

The Indenture provides that if an Event of Default shall have occurred
and be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of and accrued
interest on the Notes to be due and payable immediately, but if the Company
shall cure all defaults (except the nonpayment of principal of, premium, if
any, and interest on any of the Notes which shall have become due by
acceleration) and certain other conditions are met, with certain exceptions,
such declaration may be annulled and past defaults may be waived by the holders
of a majority of the principal amount of the Notes then outstanding. In the
case of certain events of bankruptcy or insolvency, the principal of and
accrued interest on the Notes shall automatically become and be immediately due
and payable.

The holders of a majority in principal amount of the Notes then
outstanding shall have the right to direct the time, method and place of
conducting any proceedings for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.

MODIFICATIONS OF THE INDENTURE

The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Notes at the time outstanding, to modify the Indenture
or any supplemental indenture or the rights of the holders of the Notes, except
that no such modification shall (i) extend the fixed maturity of any Note,
reduce the rate or extend the time of payment of interest thereon, reduce the
principal amount thereof or premium, if any, thereon, reduce any amount payable
upon redemption thereof, change the obligation of the Company to repurchase any
Note upon the occurrence of any Change in Control in a manner adverse to
holders of Notes, impair the right of a holder to institute suit for the
payment thereof, change the currency in which the Notes are payable, or impair
the right to convert the Notes into Common Stock in any material respect, or
modify the provisions of the Indenture with respect to the subordination of the
Notes in a manner adverse to the holders of the Notes in any material respect,
without the consent of the holder of each Note so affected, or (ii) reduce the
aforesaid percentage of Notes the holders of which are required to consent to
any such supplemental indenture, without the consent of the holders of all of
the Notes then outstanding.

25
<PAGE> 27

CONCERNING THE TRUSTEE

First Union National Bank of Virginia, the Trustee under the
Indenture, has been appointed by the Company as the initial paying agent,
conversion agent, registrar and custodian with regard to the Notes. The Company
may maintain deposit accounts and conduct other banking transactions with the
Trustee or its affiliates in the ordinary course of business, and the Trustee
and its affiliates may from time to time in the future provide banking and
other services to the Company in the ordinary course of their business.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following is a general summary, as of the date hereof, of certain
United States federal income tax consequences relevant to holders of the Notes
and the Conversion Shares. This discussion is based on existing provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations promulgated thereunder, judicial decisions and administrative
rulings, all of which are subject to change or alternative construction with
possible retroactive effect. This summary does not discuss other federal taxes
(such as federal estate and gift taxes) or any state, local or foreign tax
considerations, nor does it purport to address all federal income tax
consequences applicable to all categories of investors, some of which may be
subject to special rules, such as Non-U.S. Holders (as defined below), life
insurance companies, tax-exempt organizations, dealers in securities or
currency, banks or other financial institutions, investors whose functional
currency is not the U.S. dollar, or investors that hold the Notes as part of a
hedge, straddle or conversion transaction. In addition, this summary is
generally limited to the Notes and the Common Stock into which the Notes are
convertible which are held as "capital assets" within the meaning of Section
1221 of the Code. The Company will not seek a ruling from the Internal Revenue
Service (the "IRS") with regard to the United States federal income tax
treatment relating to an investment in the Notes (or the Common Stock into
which the Notes are convertible) and, therefore, there can be no assurance that
the IRS will agree with the conclusions set forth below.

For purposes of this summary, the term "U.S. Holder" means a
beneficial owner of a Note or Common Stock that is (i) a citizen or resident of
the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source, and (iv) a trust if
(a) a U.S. court is able to exercise primary supervision over the trust's
administration and (b) one or more U.S. fiduciaries have the authority to
control all of the trust's substantial decisions. The term "Non-U.S. Holder"
shall mean the beneficial owner of a Note or Common Stock other than a U.S.
Holder.

PERSONS CONSIDERING THE PURCHASE OF THE NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE APPLICATION OF UNITED STATES FEDERAL TAX LAWS, AS
WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THEIR
PARTICULAR SITUATIONS. THIS SUMMARY DOES NOT PURPORT TO ADDRESS ALL ASPECTS OF
FEDERAL, STATE, LOCAL OR FOREIGN TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S
DECISION TO PURCHASE THE NOTES.

TAXATION OF U.S. HOLDERS

Adjustment to Conversion Price. Section 305 of the Code treats as a
taxable distribution certain actual or constructive distributions of stock with
respect to stock and convertible securities. Applicable Treasury regulations
treat holders of convertible debentures as having received such a constructive
distribution where the conversion price is adjusted to reflect certain
distributions with respect to the stock into which such debentures are
convertible. Thus, under certain circumstances, an adjustment in the conversion
price of the Common Stock may be taxable to the U.S. Holders as a taxable
dividend distribution. Adjustments to the conversion price, however, made
pursuant to a bona fide, reasonable adjustment formula which has the effect of
preventing the dilution of the interest of the U.S. Holders of such securities,
generally will not be considered to result in a constructive distribution of
stock. The Indenture provides that the conversion price will be adjusted upon
the occurrence of certain circumstances. There can be no assurance that some of
the adjustments, more fully described in the Indenture, would not result in a
taxable constructive distribution to the U.S. Holders under Section 301 and 305
of the Code. In such a case, U.S. Holders may recognize income as a result of
an event pursuant to which they receive no cash or property that could be used
to pay the related income tax. Holders of the Notes are advised to consult
their tax advisors with respect the potential of taxable constructive dividend
distributions upon such conversion price modifications.

26
<PAGE> 28

Payments of Interest. The payment of stated interest on the Notes
will be taxable to a U.S. Holder as ordinary interest income at the time it
accrues or is received in accordance with the holder's usual method of
accounting for federal income tax purposes.

Conversion of a Note into Common Stock. In general, a U.S. Holder
will not recognize gain or loss on conversion of a Note solely into Common
Stock of the Company pursuant to the terms of the conversion right of the
Notes, except with respect to cash received in lieu of a fractional share. The
holding period of the Common Stock received by the U.S. Holder upon conversion
of a Note will include the period during which the Note was held prior to the
conversion. The U.S. Holder's aggregate tax basis in the Common Stock received
upon conversion of a Note will equal the U.S. Holder's aggregate tax basis in
the Note exchanged (reduced by the portion allocable to cash received in lieu
of a fractional share). A U.S. Holder generally will recognize capital gain or
loss in connection with any cash received in lieu of a fractional share in an
amount equal to the difference between the amount of cash received and the U.S.
Holder's tax basis in the fractional share. Special federal income tax rules
for the treatment of the conversion of a Note into Common Stock may apply if a
U.S. Holder converts after a record date for the payment of interest but prior
to the next succeeding interest payment date (for instance, the fair market
value of Common Stock received which is attributable to accrued interest will
be taxable as ordinary interest income in certain circumstances). U.S. Holders
should consult their own tax advisors regarding the tax consequences of
converting the Notes into Common Stock.

Disposition of Notes or Common Stock. A U.S. Holder of a Note (or the
Common Stock into which it was converted) generally will recognize capital gain
or loss upon the sale, exchange, retirement or other disposition of the Note
(or the Common Stock) measured by the difference between (i) the amount
realized (except to the extent the amount is attributable to accrued interest
income, which will generally be taxable as ordinary income) and (ii) the U.S.
Holder's tax basis in the Note (or the Common Stock). The gain or loss on such
disposition will be long-term capital gain or loss if the Note (or the Common
Stock) has been held for more than one year at the time of such disposition.

Distributions with Respect to Common Stock. In general, distributions
made by the Company with respect to Common Stock will constitute dividends for
federal income tax purposes and will be taxable to a holder as ordinary income
to the extent of the Company's undistributed current or accumulated earnings
and profits (as determined for federal income tax purposes). Distributions in
excess of the Company's current or accumulated earnings and profits will be
treated first as a nontaxable return of capital reducing the U.S. Holder's tax
basis in the Common Stock, thus increasing the amount of any gain (or reducing
the amount of any loss) which might be realized by such holder upon the sale,
exchange or redemption of such Common Stock. Any such distributions in excess
of the U.S. Holder's tax basis in the Common Stock will be treated as capital
gain to the U.S. Holder (provided the Common Stock is held as a capital asset),
and will be either long-term or short-term capital gain depending upon the
holder's federal income tax holding period for the Common Stock.

To the extent that distributions made by the Company are treated as
dividends, a U.S. Holder of Common Stock that is taxed as a domestic
corporation and that meets the applicable holding period and taxable income
requirements of the Code may be entitled to a deduction under Section 243 of
the Code equal in amount to 70% of the dividends paid out of such earnings and
profits (the "Dividends Received Deduction"). With respect to Common Stock
considered to be "portfolio stock" as defined in Section 246A of the Code, the
Dividends Received Deduction will be reduced to the extent that the Common
Stock constitutes "debt financed portfolio stock." The receipt of a dividend on
the Common Stock determined to be an "extraordinary dividend" may cause the
holder's tax basis in the Common Stock to be reduced by the untaxed portion of
the dividend pursuant to Section 1059 of the Code. If the untaxed portion of
an "extraordinary dividend" exceeds the U.S. Holder's tax basis in the Common
Stock, the excess will be treated as capital gain to the U.S. Holder (provided
the Common Stock is held as a capital asset) and will be either a long-term
capital gain or short-term capital gain, depending upon the U.S. Holder's
federal income tax holding period for the Common Stock. Individuals,
partnerships and other entities not taxable as domestic corporations, and
corporations having a special tax status are not eligible for the Dividend
Received Deduction.

TAXATION OF NON-U.S. HOLDERS

Payments of Interest. The payment of stated interest on a Note by the
Company or any paying agent to a Non-U.S. Holder will qualify for the
"portfolio interest exemption" and, therefore, will not be subject to United

27
<PAGE> 29

States federal income tax or withholding tax, provided that such interest
income is not taxable as effectively connected with a United States trade or
business of the Non-U.S. Holder and provided that the Non-U.S. Holder (i) does
not actually or constructively own 10% or more of the combined voting power of
all classes of stock of the Company entitled to vote, (ii) is not a controlled
foreign corporation related to the Company actually or constructively through
stock ownership, (iii) is not a bank receiving interest on a loan entered into
in the ordinary course of business, and (iv) either (a) provides a Form W-8 (or
suitable substitute form) signed under penalties of perjury that includes its
name and address and certifies as to its non-United States status in compliance
with applicable law and regulations, or (b) deposits the Note with a securities
clearing organization, bank or financial institution that holds customers'
securities in the ordinary course of its trade or business and which holds the
Note and provides a statement to the Company or its agent under penalties of
perjury in which it certifies that such a Form W-8 (or a suitable substitute)
has been received by it from the Non-U.S. Holder or qualifying intermediary and
furnishes the Company or its agent with a copy thereof.

Proposed Treasury regulations (the "Proposed Regulations") would
provide alternative methods for satisfying the certification requirement
described in clause (iv) above. The Proposed Regulations also would generally
require, in the case of Notes held by a foreign partnership, that (a) the
certification described in clause (iv) above be provided by the partners rather
than by the foreign partnership, and (b) the partnership provide certain
information, including a United States taxpayer identification number. A
look-through rule would apply in the case of tiered partnerships. The Proposed
Regulations would generally be effective for payments made after December 31,
1997. There can be no assurance that the Proposed Regulations will be adopted,
or as to the provisions that they will include if and when adopted in temporary
or final form. Non-U.S. Holders of the Notes are advised to consult their tax
advisors with respect to their qualification for the portfolio interest
exemption and the steps necessary to comply with such exemption.

Except to the extent otherwise provided under an applicable tax
treaty, a Non-U.S. Holder generally will be taxed in the same manner as a U.S.
Holder with respect to interest on a Note if such interest income is
effectively connected with a United States trade or business of the Non-U.S.
Holder. Effectively connected interest received by a corporate Non-U.S. Holder
may also, under certain circumstances, be subject to an additional "branch
profits tax" at a 30% rate (or, if applicable, a lower treaty rate). Such
effectively connected interest will generally not be subject to withholding tax
if the Holder delivers IRS Form 4224 to the payor.

Interest income of a Non-U.S. Holder that is not effectively connected
with a United States trade or business and that does not qualify for the
portfolio interest exemption described above will generally be subject to a
withholding tax at a 30% rate (or, if applicable, a lower treaty rate).

Conversion of a Note into Common Stock. In general, no United States
federal income tax or withholding tax will be imposed upon the conversion of a
Note into Common Stock by a Non-U.S. Holder except, with respect to the receipt
of cash in lieu of fractional shares by Non-U.S. Holders upon conversion of a
Note, where any one of the four exceptions described below under "--Disposition
of Notes or Common Stock" is applicable. In addition, under certain
circumstances, the extent to which the fair market value of the Common Stock
received upon conversion is attributable to accrued interest will be treated as
ordinary interest income taxable as described above under "--Payments of
Interest."

Disposition of Notes or Common Stock. A Non-U.S. Holder of the Note
(or the Common Stock into which it was converted) will generally not be subject
to United States federal income tax or withholding tax on any gain realized on
the sale, exchange, retirement or other disposition of the Note (including the
receipt of cash in lieu of fractional shares upon conversion of the Note to
Common Stock), unless (i) the gain is effectively connected with a United
States trade or business of the Non-U.S. Holder, (ii) in the case of a Non-U.S.
Holder who is an individual, such holder is present in the United States for a
period or periods aggregating 183 days or more during the taxable year of the
disposition, and either such holder has a "tax home" in the United States or
the disposition is attributable to an office or other fixed place of business
maintained by such holder in the United States, (iii) the Non-U.S. Holder is
subject to tax pursuant to the provisions of the Code applicable to certain
United States expatriates, or (iv) the Company is a United States real property
holding corporation. The Company does not believe that it is, or is likely to
become, a United States real property holding corporation.

Distributions with Respect to Common Stock. To the extent
distributions made by the Company are treated as dividends (as described above
under "U.S. Holders--Distributions with respect to Common Stock), a

28
<PAGE> 30

Non-U.S. holder will be subject to United States federal withholding tax at a
30% rate (or lower rate provided under an applicable income tax treaty) on
dividends paid (or deemed paid, as described above under "--Adjustment to
Conversion Price") on Common Stock, unless the dividends are taxable as
effectively connected with the conduct of a trade or business in the United
States and the Non-U.S. Holder delivers IRS Form 4224 to the payor. Except to
the extent otherwise provided under an applicable tax treaty, a Non-U.S. Holder
generally will be taxed in the same manner as a U.S. Holder on dividends paid
(or deemed paid) that are effectively connected with the conduct of a trade or
business in the United States by the Non- U.S. Holder. If such Non-U.S. Holder
is a foreign corporation, it may also be subject to a United States branch
profits tax on such effectively connected income at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty.

Under current Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the withholding rules
discussed below and, under the current interpretation of Treasury Regulations,
for purposes of determining the applicability of a tax treaty rate. Under the
Proposed Regulations, however, a Non-U.S. Holder of Common Stock who wishes to
claim the benefit of an applicable treaty rate would be required to satisfy
applicable certification requirements. In addition, under the Proposed
Regulations, in the case of Common Stock held by a foreign partnership, the
certification requirement would generally be applied to the partners of the
partnership and the partnership would be required to provide certain
information, including a United States taxpayer identification number. The
Proposed Regulations also provide look-through rules for tiered partnerships.
It is not certain whether, or in what form, the Proposed Regulations will be
adopted or the provisions they will include if and when adopted in temporary or
final form.

BACKUP WITHHOLDING AND INFORMATION REPORTING

Under current United States federal income tax law, U.S. Holders of
Notes or Common Stock will be subject to information reporting and, under
certain circumstances, may be subject to "backup withholding" at the rate of
31% in respect to payments of principal, interest and dividends made to, and
the proceeds of disposition of Notes or Common Stock by, certain noncorporate
U.S. Holders. Generally, the backup withholding rules will apply only if the
U.S. Holder (i) fails to furnish its taxpayer identification number ("TIN") to
the payor, (ii) furnishes such payor with an incorrect TIN, (iii) is notified
by the IRS that it has failed to report properly interest, dividends or other
"reportable payments" as defined by the Code, or (iv) under certain
circumstances, fails to provide such payor or the U.S. Holder's securities
broker with a certified statement, signed under penalty of perjury, that the
TIN provided is its correct number and that the U.S. Holder is not subject to
backup withholding. Backup withholding will not apply with respect to payments
made to certain U.S. Holders of the Notes, including payments to certain exempt
recipients (such as corporations and exempt organizations).

Payments or distributions to a Non-U.S. Holder with respect to a Note
or Common Stock, and the proceeds from a disposition of a Note or Common Stock
by a Non-U.S. Holder will generally not be subject to backup withholding or to
information reporting requirements unless the Non-U.S. Holder fails to comply
with certain reporting procedures, the payment is received through a United
States office of a broker, or the Non-U.S. Holder fails to establish an
exemption from such tax or information reporting requirements under applicable
provisions of the Code.

Holders of Notes should consult their tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption. The amount of any backup withholding from a
payment to a holder should be allowed as a credit against such person's United
States federal income tax liability and may entitle such person to a refund,
provided that the required information is furnished to the IRS.

29
<PAGE> 31

SELLING SECURITYHOLDERS

The Notes were originally issued by the Company in a private placement on
July 2 and July 18, 1997 to Alex. Brown & Sons, Inc. and The Robinson-Humphrey
Company, Inc. (the "Initial Purchasers") and were simultaneously sold by the
Initial Purchasers, in transactions exempt from the registration requirements
of the Securities Act, to persons reasonably believed by such Initial
Purchasers to be "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act). The Selling Securityholders may from time to time
offer and sell pursuant to this Prospectus any or all of the Notes and
Conversion Shares. The term "Selling Securityholder" includes the holders
listed below and the beneficial owners of the Notes and their transferees,
pledgees, donees or other successors.

The following table sets forth information with respect to the Selling
Securityholders and the respective principal amount of Notes held by each
Selling Securityholder that may be offered pursuant to this Prospectus. Such
information has been obtained from the Selling Securityholders. Except as
otherwise indicated, to the knowledge of the Company, each Selling
Securityholder listed below has sole voting and investment power with respect
to its Notes and Conversion Shares.

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PERCENT OF TOTAL
SELLING SECURITYHOLDERS OF NOTES OWNED OUTSTANDING NOTES
----------------------- -------------- -----------------
<S> <C> <C>
AAM/Zazove Institutional
Income Fund, L.P. $725,000 1.26%

Allstate Insurance Company $1,500,000 2.61%

Arkansas PERS $1,050,000 1.83%

Boston College Endowment
Fund (1) $110,000 *

BT Alex Brown $2,442,000 4.25%

Calamos Strategic Income Fund $50,000 *

Castle Convertible Fund, Inc. $500,000 *

Chrysler Corporation Master
Retirement Trust $1,495,000 2.6%

Delaware PERS $895,000 1.56%

Forest Fulcrum Fund L.P. $625,000 1.09%

Forest Global Convert Fund Ser
A-5 $600,000 1.04%

Forum Capital Markets, L.P. $150,000 *

General Motors Investment
Management Corporation $1,500,000 2.61%

General Motors Investment
Management Corporation (2) $1,875,000 3.26%

Hartford Fire Insurance
Company (3) $250,000 *

Hawaiian Airlines Pension Plan
for Salaried Employees $25,000 *

Hawaiian Airlines Pilots
Retirement Plan $165,000 *

Hawaiian Airlines Pension
Plan-IAM $110,000 *

Highbridge International LDC
(4) $3,075,000 5.35%

Hughes Aircraft Company
Master Retirement Trust $710,000 1.23%

ICI American Holdings Trust $355,000 *

Kapiolani Medical System $225,000 *

LLT Limited (5) $25,000 *

Laterman Strategies 90's LLC $466,000 *

Laterman & Co., L.P. $264,000 *

Maril & Co. $100,000 *

McMahan Securities Co., L.P. $435,000 *

Motors Insurance Corp. (6) $2,250,000 *

Museum of Fine Arts, Boston $70,000 *

NALCO Chemical Retirement
Trust $170,000 *

NATWEST Securities Limited $12,360,000 21.50%

New Hampshire State
Retirement System (7) $310,000 *

Offshore Strategies Ltd. $1,020,000 1.77%

Partner Reinsurance Company
Ltd $150,000 *

Promutual (8) $260,000 *

Putnam Convertible Income-
Growth Trust (9) $2,800,000 4.87%
</TABLE>

30
<PAGE> 32

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PERCENT OF TOTAL
SELLING SECURITYHOLDERS OF NOTES OWNED OUTSTANDING NOTES
----------------------- -------------- -----------------
<S> <C> <C>
Putnam Convertible
Opportunities and Income Trust
(10) $220,000 *

Skyline Asset Management,
L.P. (11) $7,446,000 12.95%

Societe Generale Securities
Corp. $1,600,000 2.78%

Speer, Leeds & Kellogg $580,000 1.01%

Starvest Discretionary $350,000 *

State of Connecticut Combined
Investment Funds $1,020,000 1.77%

State of Oregon Equity $4,100,000 7.13%

Swiss Bank Corporation-
London Branch $500,000 *

TQA Arbitrage Fund, L.P. $375,000 *

TQA Leverage Fund, L.P. $175,000 *

TQA Vantage Fund, Ltd. $375,000 *

TQA Vantage Plus Fund, Ltd. $175,000 *

Zeneca Holdings Trust $355,000 *
</TABLE>

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

* Less than one percent.

(1) Voting and investment power shared with The Putnam Advisory Company,
Inc., which acts as investment adviser to Boston College Endowment Fund.

(2) Sole voting and investment power is held by Salomon Brothers Asset
Management Inc. ("SBAM"), which acts as investment adviser to General
Motors Investment Management Corporation.

(3) Voting and investment power shared with The Putnam Advisory Company,
Inc., which acts as investment adviser to Hartford Fire Insurance
Company.

(4) Voting and investment power is shared with Highbridge Capital
Management, Inc., trading manager of Highbridge International LDC.

(5) Voting and investment power is shared with Forest Investment Management,
L.P.

(6) Sole voting and investment power is held by Salomon Brothers Asset
Management Inc. ("SBAM"), which acts as investment adviser to Motors
Insurance Corp. SBAM disclaims beneficial ownership of these Notes.

(7) Voting and investment power shared with The Putnam Advisory Company,
Inc., which acts as investment adviser to New Hampshire State Retirement
System.

(8) Voting and investment power shared with The Putnam Advisory Company,
Inc., which acts as investment adviser to Promutual.

(9) Voting and investment power shared with The Putnam Advisory Company,
Inc., which acts as investment adviser to Putnam Convertible
Income-Growth Trust.

(10) Voting and investment power shared with The Putnam Advisory Company,
Inc., which acts as investment adviser to Putnam Convertible
Opportunities and Income Trust.

(11) Notes are held in 13 separate accounts. Skyline Asset Management, L.P.
has sole investment power over each of these accounts and sole voting
power over nine of these accounts.

None of the Selling Securityholders has, or within the past three years has
had, any position, office or other material relationship with the Company or
any of its predecessors or affiliates. Because the Selling Securityholders
may, pursuant to this Prospectus, offer all or some portion of the Notes or the
Conversion Shares, no estimate can be given as to the amount of the Notes or
the Conversion Shares that will be held by the Selling Securityholders upon
termination of any such sales. In addition, the Selling Securityholders
identified above may have sold, transferred or otherwise disposed of all or a
portion of their Notes, in transactions exempt from the registration
requirements of the Securities Act, since the date on which they provided the
information regarding their Notes. See "Plan of Distribution." If required,
additional Selling Securityholders may be identified and information with
respect to these Selling Securityholders may be provided in a Prospectus
Supplement.

31
<PAGE> 33

PLAN OF DISTRIBUTION

The Notes and the Conversion Shares are being registered to permit
public secondary trading of such securities by the holders thereof from time to
time after the date of this Prospectus. The Company has agreed, among other
things, to bear all fees and expenses incident to its obligation to register
the Notes and the Conversion Shares.

The Company will not receive any of the proceeds from the offering of
Notes and the Conversion Shares by the Selling Securityholders. The Company has
been advised by the Selling Securityholders that the Selling Securityholders may
sell all or a portion of the Notes and Conversion Shares held by them and
offered hereby from time to time on any exchange or trading market on which the
securities are listed on terms to be determined at the times of such sales. The
Selling Securityholders may also make private sales directly or through a broker
or brokers. Alternatively, any of the Selling Securityholders may from time to
time offer the Notes or Conversion Shares held by them through underwriters,
dealers or agents, who may receive compensation in the form of underwriting
discounts, commissions or concessions from the Selling Securityholders and the
purchasers of the Notes or Conversion Shares for whom they may act as agent.
The aggregate proceeds to the Selling Securityholders from the sale of the Notes
or Conversion Shares offered by them hereby will be the purchase price of such
Notes or Conversion Shares less discounts and commissions, if any.

The Notes and the Conversion Shares may be sold from time to time in
one or more transactions at fixed offering prices, which may be changed, or at
varying prices determined at the time of sale or at negotiated prices. Such
prices will be determined by the holders of such securities or by agreement
between such holders and underwriters or dealers who may receive fees or
commissions in connection therewith.

The outstanding Common Stock is listed for trading on Nasdaq and the
Conversion Shares have been approved for quotation on Nasdaq. The Initial
Purchasers have advised the Company that they are making and currently intend
to continue making a market in the Notes. They are not obligated to do so,
however, and any such market making may be discontinued at any time without
notice, in the sole discretion of the Initial Purchasers. The Company does not
intend to apply for listing of the Notes on any securities exchange or for
quotation through Nasdaq. Accordingly, no assurance can be given as to the
development of liquidity of any trading market that may develop for the Notes.
See "Risk Factors -- Absence of Public Market for Notes."

In order to comply with the securities laws of certain states, if
applicable, the Notes and Conversion Shares will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in
certain states the Notes and Conversion Shares may not be sold unless they have
been registered or qualified for sale in the applicable state or an exemption
from the registration or qualification requirement is available and is complied
with.

The Selling Securityholders and any broker and any broker-dealers,
agents or underwriters that participate with the Selling Securityholders in the
distribution of the Notes of the Conversion Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event any
commissions received by such broker-dealers, agents or underwriters and any
profit on the resale of the Notes or the Conversion Shares purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.

In addition, any securities covered by this Prospectus that qualify
for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold
under Rule 144 or Rule 144A rather than pursuant to this Prospectus. There can
be no assurance that any Selling Securityholder will sell any or all of the
Notes or Conversion Shares described herein. Any Selling Securityholder may
transfer, devise or gift such securities by other means not described herein.

The Notes were originally sold to Alex. Brown & Sons Incorporated and
The Robinson-Humphrey Company, Inc. in July 1997 in a private placement. The
Company agreed to indemnify and hold Alex. Brown & Sons Incorporated and The
Robinson-Humphrey Company, Inc. harmless against certain liabilities under the
Securities Act that could arise in connection with the initial sale of the
Notes. The Company and the Selling Securityholders are obligated to indemnify
each other against certain liabilities arising under the Securities Act.

32
<PAGE> 34

The Company will use its best efforts to cause the registration
statement to which this Prospectus relates to become effective as promptly as
is practicable and to keep that registration statement effective for a period
of two years from the effective date thereof. The Company is permitted to
suspend the use of this Prospectus in connection with the sales of Notes and
Conversion Shares by holders upon the happening of an event or if there exists
any fact that makes any statement of material fact made in this Prospectus
untrue or that requires the making of additions to or changes in this
Prospectus in order to make the statements herein not misleading, until such
time as the Company advises the Selling Securityholders that use of the
Prospectus may be resumed, in which case the period of time during which the
Company is required to maintain the effectiveness of the registration statement
shall be extended. Expenses of preparing and filing the registration statement
and all post-effective amendments will be borne by the Company.

Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Notes or the Conversion Shares may not
simultaneously engage in market-making activities with respect to the Notes or
Conversion Shares for a restricted period before the commencement of the
distribution. In addition to and without limiting the foregoing, each Selling
Securityholder any other person participating in a distribution will be subject
to applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Rules 102, 103 and 104, which
provisions may limit the timing of purchases and sales of any of the Notes or
Conversion Shares by the Selling Securityholders or any other such person. All
of the foregoing may affect the marketability of the Notes or Conversion Shares
and brokers' and dealers' ability to engage in market-making activities with
respect to the Notes or Conversion Shares.

LEGAL MATTERS

The validity of the Notes and the Conversion Shares will be passed
upon for the Company by Gibson, Dunn & Crutcher LLP, Washington, D.C. Legal
matters in connection with the offering will be passed on for the Selling
Securityholders by Piper & Marbury L.L.P., Baltimore, Maryland.

EXPERTS

The consolidated financial statements and schedule of the
Company in its Annual Report on Form 10-K as of December 31, 1996, 1995 and
1994, incorporated by reference in this Registration Statement, have been
audited by BDO Seidman, LLP independent certified public accountants, as set
forth in their report thereon included therein and incorporated herein
by reference in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.

33
<PAGE> 35

<TABLE>
<S> <C>
- ------------------------------------------------------- -------------------------------------------------------
No dealer, salesman or any other person has been
authorized to give any information or to make any
representations other than those contained in this $57,500,000
Prospectus, and, if given or made, such information
or representations must not be relied upon as
having been authorized by the Company or the
Selling Securityholders. Neither the delivery of
this Prospectus nor any sale made hereunder shall,
under any circumstances, imply that there has been 7% CONVERTIBLE
no change in the affairs of the Company or that the SUBORDINATED
information herein is correct as of any time NOTES
subsequent to the date as of which such information DUE 2004
is given. This Prospectus does not constitute an
offer to sell or the solicitation of any offer to AND
buy any of the securities offered hereby to anyone
in any jurisdiction in which such offer or SHARES OF COMMON STOCK
solicitation is not authorized or in which the ISSUABLE UPON CONVERSION THEREOF
person making such offer or solicitation is not --------------
qualified to do so or to anyone to whom it is
unlawful to make such offer or solicitation. PROSPECTUS
offered hereby to any person in any jurisdiction in
which it is unlawful to make such an offer or --------------
solicitation.

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

TABLE OF CONTENTS
Page
----

Available Information . . . . . . . . . . . 3
Incorporation of Certain
Information by Reference. . . . . . . . . . 3
Prospectus Summary . . . . . . . . . . . . 5 DECEMBER 1, 1997
Risk Factors . . . . . . . . . . . . . . . 7
Ratio of Earnings to Fixed Charges . . . . 14
Use of Proceeds . . . . . . . . . . . . . . 14
The Company . . . . . . . . . . . . . . . . 14
Description of Notes . . . . . . . . . . . 17
Certain Federal Income Tax Considerations . 26
Selling Securityholders . . . . . . . . . . 30
Plan of Distribution . . . . . . . . . . . 32
Legal Matters . . . . . . . . . . . . . . . 33
Experts . . . . . . . . . . . . . . . . . . 33

======================================================= =======================================================
</TABLE>

<PAGE> 36

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth all expenses payable by the Company in
connection with the offering of the Notes and the Conversion Shares being
registered, other than discounts and commissions. The Selling Securityholders
will not share any portion of these expenses.

<TABLE>
<S> <C>
Registration Fee . . . . . . . . . . . . . . . . $ 17,272.72

Nasdaq Fee . . . . . . . . . . . . . . . . . . . 17,500.00

Printing Expenses . . . . . . . . . . . . . . . . 77,886.48

Legal Fees and Expenses . . . . . . . . . . . . . 30,000.00

Accounting Fees and Expenses . . . . . . . . . . 42,776.00

Transfer Agent and Registrar Fees . . . . . . . . 5,000.00

Miscellaneous . . . . . . . . . . . . . . . . . . 5,000.00
--------------

Total . . . . . . . . . . . . . . . . . . . . . . $ 195,435.20
==============
</TABLE>

ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Delaware General Corporation Law provides for indemnification of
directors, officers, employees and agents, subject to certain limitations (Del.
Code, Title 8 Sec. 145). Article VIII of the Company's Certificate of
Incorporation provides that each person who was or is made a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of the Company), by reason of the fact
that he is or was serving as a director or officer of the Company (or is or was
serving at the request of the Company in a similar capacity with another
entity, including employee benefit plans), shall be indemnified and held
harmless by the Company to the fullest extent authorized by the Delaware
General Corporation Law. The right of indemnification includes the right to be
paid by the Company the expenses incurred in defending any such action, suit or
proceeding in advance of its final disposition. If required by Delaware
General Corporation Law, however, such advancement of expenses shall be made
only upon delivery of an undertaking by such director or officer to repay all
amounts so advanced if it is ultimately determined that such director or
officer is not entitled to be indemnified.

As permitted by Section 102 of the Delaware General Corporation Law,
the Company's Certificate of Incorporation contains provisions eliminating a
director's personal liability for monetary damages to the Company and its
stockholders arising from a breach of a director's fiduciary duty except for
liability under Section 174 of the Delaware General Corporation Law or
liability for any breach of the director's duty of loyalty to the Company or
its stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law or for any transaction by
which the director derived an improper personal benefit.
<PAGE> 37

ITEM 16. EXHIBITS

The following exhibits are filed herewith or incorporated by
reference:

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF
NUMBER EXHIBIT
------ -------
<S> <C> <C>
4.1* Specimen Common Stock Certificate.
4.2** Indenture, dated as of July 2, 1997, between the
Company and First Union National Bank of Virginia.
4.3*** Registration Rights Agreement, dated as of July 2,
1997, by and among the Company, Alex. Brown &
Sons Incorporated and The Robinson-Humphrey
Company, Inc.
5.1# Opinion of Gibson, Dunn & Crutcher LLP as to
legality of the Notes and Common Stock registered
hereby.
12.1# Computation of Ratio of Earnings to Fixed Charges.
23.1# Consent of Gibson, Dunn & Crutcher LLP (included
in Exhibit 5.1).
23.2**** Consent of BDO Seidman, LLP.
25.1# Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939 on Form T-1.
25.2# Power of Attorney
</TABLE>

* Previously filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (Registration No. 35-62206), effective July 20,
1993, incorporated herein by reference.

** Previously filed as Exhibit 4.17 to the Company's quarterly report on
Form 10-Q for the three-month period ended June 30, 1997, filed August
14, 1997, incorporated herein by reference.

*** Previously filed as Exhibit 4.18 to the Company's quarterly report on
Form 10-Q for the three-month period ended June 30, 1997, filed August
14, 1997, incorporated herein by reference.

**** Filed herewith

# Previously filed as an Exhibit to the Company's Registration Statement
on Form S-3 (Registration No. 333-35429), filed September 11, 1997

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;

provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in the post-effective amendment by those

II-2
<PAGE> 38

paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities(other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.

II-3
<PAGE> 39

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed onits behalf by the undersigned, thereunto
duly authorized, in the city of Dulles, Commonwealth of Virginia on December 1,
1997.

ATLANTIC COAST AIRLINES, INC.

By: /s/ C. Edward Acker*
----------------------------
C. Edward Acker
Chairman of the Board of Directors

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on December 1, 1997.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----

<S> <C>
/s/ C. Edward Acker* Chairman of the Board of Directors
--------------------
C. Edward Acker

/s/ Kerry B. Skeen* President and Chief Executive Officer
------------------- (principal executive officer)
Kerry B. Skeen

/s/ Paul H. Tate Senior Vice President and Chief
----------------- Financial Officer (principal financial
Paul H. Tate and accounting officer)

/s/ Robert E. Buchanan* Director
-----------------------
Robert E. Buchanan

/s/ Joseph W. Elsbury* Director
----------------------
Joseph W. Elsbury

/s/ James J. Kerley* Director
--------------------
James J. Kerley

/s/ James C. Miller* Director
--------------------
James C. Miller

/s/ Thomas J. Moore* Director
--------------------
Thomas J. Moore

/s/ John M. Sullivan* Director
---------------------
John M. Sullivan

------------------------ Director
Susan MacGregor Coughlin

*By: /s/ Paul H. Tate
---------------------
Paul H. Tate
Attorney-in-fact
</TABLE>

II-4
<PAGE> 40

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- ------ ------- -------------

<S> <C>
23.2 Consent of BDO Seidman, LLP.
</TABLE>

II-5

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
Atlantic Coast Airlines, Inc.

We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our reports dated January
24, 1997, relating to the consolidated financial statements and schedule of
Atlantic Coast Airlines, Inc. appearing in the Company's Annual Report on Form
10-K for the year ended December 31, 1996.

We also consent to the reference to our firm under the caption "Experts" in the
Prospectus.

/s/ BDO SEIDMAN, LLP
BDO Seidman,LLP

Washington, D.C.
December 1, 1997