Exhibit 10.12(a)

 

THIRD AMENDED AND RESTATED SEVERANCE AGREEMENT

 

THIS THIRD AMENDED AND RESTATED SEVERANCE AGREEMENT (the “Agreement”) is made
and entered into as of this 15th day of March, 2005 (the “Effective Date”), by
and between FLYi, INC., a Delaware corporation (“FLYi”) and INDEPENDENCE AIR, a
California corporation (“IA”) (FLYi and IA are herein collectively referred to
as the “Company”) and KERRY B. SKEEN (“Skeen”).

 

WITNESSETH THAT:

 

WHEREAS, Skeen is currently employed by the Company as Chief Executive Officer
and Chairman of the Board of Directors, and in connection with such employment
entered into a Severance Agreement (which was restated as of December 28, 1999
and July 25, 2001) (the “Prior Severance Agreement”) with the Company; and

 

WHEREAS, under the Prior Severance Agreement Skeen would have the right to
retire of the earlier of the date of FLYi’s 2005 annual meeting of stockholders
(or special meeting in lieu thereof) or June 1, 2005; and

 

WHEREAS, the Company wishes to assure itself of the continued services of Skeen;
and

 

WHEREAS, to promote the Company’s efforts to reduce its costs on both a cash and
accounting basis, the Company and Skeen have agreed to certain modifications to
the Prior Severance Agreement to defer or reduce certain significant
compensation benefits provided for under the Prior Severance Agreement; and

 

WHEREAS, the Compensation Committee of the Board of Directors of the Company,
after consultation with the Board of Directors, has determined that the best
interests of the Company would be served by entering into this amended and
restated Agreement with Skeen; and

 

NOW, THEREFORE, the parties, for and in consideration of the mutual and
reciprocal covenants and agreements hereinafter contained, and intending to be
legally bound hereby, do contract and agree as follows:

 

1.             Employment: Company hereby employs Skeen and Skeen hereby accepts
employment by Company and agrees to perform his duties and responsibilities
hereunder upon all of the terms and conditions as are hereinafter set forth.

 

2.             Duties:  Skeen shall serve in the capacities of Chief Executive
Officer and Chairman of the Board of the Company and of any other entity(ies) to
which the Company’s obligations under

 

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this Agreement shall be assigned pursuant to Paragraph 14.  Skeen shall be
responsible for supervising and directing all operations of the Company.  All
other officers of the Company shall report to Skeen.  Skeen shall otherwise be
responsible for carrying out all duties assigned to the Chairman by the
Company’s Board of Directors and under FLYi’s and IA’s Bylaws.  The Company
shall use its good faith efforts to ensure that Skeen continues to serve as a
member of the Company’s Board of Directors.

 

3.             Terms of Employment:  Skeen’s term of employment under this
Agreement shall commence on the Effective Date and shall terminate on May 31,
2006, unless further extended as hereinafter set forth.  Commencing on May 31,
2006, and each successive anniversary of that date, the Agreement shall
automatically be extended for an additional twelve (12) months without further
action by either party unless (i) Skeen elects to retire from his positions with
the Company pursuant to Paragraph 11, or (ii) either party provides the other
sixty (60) days’ written notice that such party does not wish to extend the term
of this Agreement.

 

4.             Extent of Service:  Skeen shall devote such time and attention as
is required to perform his obligations under this Agreement and will at all
times faithfully and industriously, consistent with his ability, experience and
talent, perform his duties hereunder.

 

5.             Compensation:  During the term of this Agreement following the
Effective Date, Company agrees to pay to Skeen, and Skeen agrees to accept from
Company, in full payment for services rendered by Skeen and work to be performed
by him under the terms of this Agreement, the following:

 

A.            Salary.  An annual base salary of Three Hundred Sixty-Nine
Thousand Seven Hundred and Fifty Dollars ($369,750) shall be paid to Skeen
beginning on April 1, 2005.  Commencing October 1, 2005 and each October 1
thereafter, the amount of Skeen’s base salary shall be increased as determined
by the Compensation Committee of the Board of Directors of the Company;
provided, however, that in no event shall Skeen’s annual base salary be less
than the amount set forth in the first sentence of this Section 5.A.  Skeen’s
base salary for each year shall be payable to him in accordance with the
reasonable payroll practices of the Company as from time to time in effect for
executive employees (but in no event less often than monthly).

 

B.            Management Incentive Plan.  Skeen shall participate in the
Company’s Management Incentive Program, or any successor bonus plan or program
for management employees.  In addition, if the Company maintains an additional
executive/management bonus plan, then Skeen’s bonus arrangement shall be at
least consistent with the provisions of such bonus plan.

 

C.            Executive Bonuses.  Skeen shall be eligible for an additional
annual bonus under an executive performance bonus plan currently known as Senior
Management Incentive Plan (“SMIP”) for so long as the Board of Directors
determines to maintain such plan.  Under such plan, each calendar year, Skeen
shall be entitled to receive a bonus equal to specified percentage of base
salary upon the attainment of certain pre-established goals.  The maximum bonus
under this plan assuming all goals are met will not be less than 100% of base
salary.  Such goals and percentage of salary shall be determined by the
Compensation Committee of the Board of

 

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Directors of the Company.  The bonus amount each year shall be paid in cash,
stock, options or such other form as the Compensation Committee provides, paid
at the time period provided under such plan, at the same time and in the same
form as paid generally to other eligible employees, except to the extent that
this Agreement provides otherwise.

 

D.            Deferred Compensation.

 

(i)            Notwithstanding anything to the contrary in the Prior Severance
Agreement, Deferred Compensation (as defined below) shall be provided as
described in this Paragraph 5.D., which shall supercede and control over all
prior deferred compensation arrangements.  As of the Effective Date, the Company
has credited amounts of deferred compensation under an unfunded and non-tax
qualified arrangement (“Deferred Compensation”) pursuant to the Prior Severance
Agreement.  The amounts credited as Deferred Compensation are recorded as a
bookkeeping entry representing a general unsecured obligation of the Company and
Skeen shall not have a claim to any specific assets of the Company in
satisfaction of the amounts, if any, payable as Deferred Compensation.  As of
the Effective Date, the balance in the Deferred Compensation account recorded
for Skeen equals $3,422,372, which is the amount of the Company’s Deferred
Compensation “contributions” under the Prior Severance Agreement between the
Company and Skeen, as such was amended from time to time, through the Effective
Date.  No interest or rate of return or other appreciation or depreciation of
value shall accrue or be payable on amounts credited to Skeen as Deferred
Compensation pursuant to this Section 5.D. unless the Company elects otherwise.

 

(ii)           As of January 1, 2005, Skeen became 100% vested in the Deferred
Compensation, pursuant to the terms of the Prior Severance Agreement.  As of and
after the Effective Date, (A) the Company’s obligation under the prior Severance
Agreement to credit Deferred Compensation for the benefit of Skeen at the rate
of one hundred percent (100%) of Skeen’s annual base salary shall terminate and
(B) the Company shall have no further obligation to accrue any additional
Deferred Compensation for the benefit of Skeen.

 

(iii)          The “Deferred Compensation Ending Date” shall mean the earliest
of (a) May 1, 2005, (b) the Termination Date (as defined below) if Skeen’s
employment with the Company is terminated at any time under circumstances that
do not entitle him to Severance Compensation pursuant to Paragraph 10 of this
Agreement, and (c) the last day of the Severance Period (as defined in Paragraph
10) if Skeen is entitled to Severance Compensation.  Upon the Deferred
Compensation Ending Date, the Company shall pay to Skeen in cash whatever
“Deferred Compensation” amount is equal to the total amount then credited to his
account pursuant to this Paragraph 5.D., provided that the Company shall have a
right of set-off against, and may reduce the amount payable as Deferred
Compensation by, any amount owed or payable by Skeen to the Company, including
as provided in Section 5.E.

 

(iv)          Tax Liability on Deferred Compensation.  Under the Prior Severance
Agreement, as amended as of July 25, 2001, the Company was obligated to pay to
Skeen the Deferred Compensation Tax Payment as of the date of FLYi’s 2005 annual
meeting of stockholders (or special meeting in lieu thereof).  Pursuant to a
separate agreement approved by

 

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the Company and executed by the Company and Skeen on March 15, 2005, the Company
and Skeen agreed to restructure and delay payment of the Deferred Compensation
Tax Payment to Skeen as follows.  Fifty percent (50%) of the Deferred
Compensation Tax Payment shall be paid to Skeen on May 1, 2005.  The remaining
fifty percent (50%) of the Deferred Compensation Tax Payment shall be paid to
Skeen on the earliest of (x) May 1, 2006, (y) the date of a Change in Control
(as defined and determined under Paragraph 13.A), provided Skeen remains at that
time actively employed by the Company pursuant to the terms hereof, or (z) if
Skeen’s employment with the Company is terminated at any time under
circumstances that entitle him to Severance Compensation, the last day of the
Severance Period (as defined in Paragraph 10.E.).  For purposes of this
Agreement, the Deferred Compensation Tax Payment shall be a payment in cash
equal to the amount of any state, local and federal taxes that would be imposed
on Skeen on the amount of the Company’s cumulative Deferred Compensation
contributions through and including May 1, 2005, if he were taxed on such
amounts as of such date.  In addition, at the time that Skeen becomes entitled
to payment of the Deferred Compensation Tax Payment, the Company shall pay Skeen
a “gross up” payment on the Deferred Compensation Tax Payment, equal to the
aggregate amount of any additional taxes (whether income taxes, excise taxes,
special taxes, employment taxes or otherwise) that are or will be payable by
Skeen as a result of the Deferred Compensation Tax Payment being paid or payable
to Skeen and/or as a result of the additional amounts paid or payable to Skeen
pursuant to this sentence, such that after payment of such additional taxes
Skeen shall have been paid on a net after-tax basis an amount equal to the
Deferred Compensation Tax Payment.  The payments provided for under this
Paragraph 5.D.(iv) shall be made whether or not any taxes are due by Skeen on
the Deferred Compensation contributions at that time and whether or not such
Deferred Compensation is to be paid at that time, based on rates in effect on
May 1, 2005 for state, local and federal income taxes then applicable to Skeen,
and for FICA (if due) and Medicare taxes, estimated at the highest marginal
rates in effect at that time.  The amount of the Deferred Compensation Tax
Payment and of any gross-up amounts payable under this Paragraph 5.D.(iv) shall
be determined as of May 1, 2005 by the Company’s independent auditing firm,
whose determination, absent manifest error, shall be treated as conclusive and
binding absent a binding determination by a governmental taxing authority that a
greater amount of taxes is payable by Skeen.

 

E.             Split Dollar Life Insurance.  Notwithstanding anything to the
contrary in the Prior Severance Agreement, the Company shall manage a split
dollar life insurance arrangement covering Skeen as described in this Paragraph
5.E, which shall supercede and control over all prior deferred compensation
arrangements.  As of the Effective Date, the Company has paid $3,422,372 to fund
payment of the premiums under the split dollar life insurance arrangement
covering Skeen as provided in Paragraph 5.E of the Prior Severance Agreement. 
The split dollar life insurance arrangement is provided under a policy or
policies with Phoenix Home Life Mutual - (such policies and agreements related
thereto, the “Split Dollar Agreement”).  The Company shall continue to abide by
the terms of the Split Dollar Agreement with Skeen in force on the date of this
Agreement.

 

(i)            Skeen shall be the owner of the policy under the Split Dollar
Agreement and will have the right to designate his beneficiary with respect to
proceeds of the policy payable upon his death; provided, however, that
notwithstanding the foregoing, the Company shall have a

 

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collateral assignment of the policy as security for the repayment of the amounts
paid by the Company toward the premiums for the policy.

 

(ii)           As of and after the Effective Date, (A) the Company’s obligation
under the Prior Severance Agreement to pay the annual premium due on the policy
in an amount equal to one hundred percent (100%) of Skeen’s annual base salary
shall terminate and (B) the Company shall have no further obligation to fund any
premium payments in excess of the amount funded as of the Effective Date, which
amount is set forth in the first paragraph of this Section 5.E.

 

(iii)          The “Split Dollar Release Date” shall mean the earliest of
(a) May 1, 2005, (b) the Termination Date (as defined below) if Skeen’s
employment with the Company is terminated at any time under circumstances that
do not entitle him to Severance Compensation pursuant to Paragraph 10 of this
Agreement, and (c) the last day of the Severance Period (as defined in Paragraph
10) if Skeen is entitled to Severance Compensation.  Upon the Split Dollar
Release Date, the following shall occur:

 

(a)           Pursuant to Paragraph 5.D.(iii), the Company shall offset its
obligation to pay the Deferred Compensation against Skeen’s obligation to pay
the total of all premiums paid by the Company on the split dollar policy(ies)
acquired pursuant to Skeen’s employment with the Company, in complete
satisfaction of the Company’s obligation to pay the Deferred Compensation to
Skeen and shall release its interest in the policy on Skeen’s life acquired
pursuant to the terms of the Split Dollar Agreement, and any or all of the paid
up additions standing to the credit of such policy, if any, such that the
released interest equals the total of all premiums paid by the Company on the
split dollar policy(ies) acquired pursuant to Paragraph 5.E. under the Prior
Severance Agreement.  Skeen hereby agrees that such action shall satisfy the
Company’s obligation with respect to the Deferred Compensation.  The Company
agrees that the amount of any such release of interest by the Company shall
satisfy in full the amount of “Liabilities” (as such term is defined in the
Agreement of Assignment of Life Insurance Death Benefit As Collateral entered
into between Skeen and the Company in connection with the Split Dollar
Agreement) owed to the Company in connection with the Split Dollar Agreement and
related Collateral Assignment Agreement.  Accordingly, the Company also agrees
as of such date to release in full its interest as acquired by collateral
assignment of the policy pursuant to the Split Dollar Agreement and related
Collateral Assignment Agreement.

 

(b)           The Split Dollar Agreement shall continue in full force and effect
and survive separate and apart from this Agreement; provided, however, that the
Company shall have no further obligation to pay any premium on the policy under
the Split Dollar Agreement which has a due date after the Split Dollar Release
Date and such obligation shall be transferred to Skeen.

 

F.             Discretionary Compensation.  The Company may pay Skeen
discretionary compensation, bonuses and benefits in addition to those provided
for herein in such amounts and at such times as the Compensation Committee of
the Board of Directors of the Company shall determine.

 

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6.             Benefits:

 

A.            The Company shall pay for or provide Skeen such vacation time and
benefits, including but not limited to, coverage under Company’s major medical,
accident, health, dental, disability and life insurance plans, as are made
available to other executive employees of Company generally (and, to the extent
provided by such policies, to Skeen’s dependents).

 

B.            The Company agrees to promptly reimburse Skeen for any otherwise
unreimbursed health or medical insurance premiums and/or uncovered medical
expenses up to $25,000 per calendar year under a written medical reimbursement
plan maintained for Skeen and other key executive employees.  If such payments
are taxable to Skeen, the Company shall pay Skeen a gross-up equal to the
estimated income, FICA and Medicare taxes due with respect to such
reimbursement, with federal and state income taxes being estimated at the
highest marginal rates.

 

C.            Skeen shall be eligible to participate in any profit sharing plan,
employee stock ownership plan or other qualified retirement plan adopted by
Company to the same extent as other executive employees of Company.  Skeen shall
also be eligible to participate in any stock option, restricted stock, stock
appreciation rights or stock purchase plans or programs of Company, which
participation shall be at levels at least equal in value to such benefits
provided by Company to other key executive employees of Company.

 

D.            The Company agrees to reimburse Skeen for the cost of investment
and tax planning services up to $15,000 incurred during each calendar year.  If
such payments are taxable to Skeen, the Company shall pay Skeen a gross-up equal
to the estimated income, FICA and Medicare taxes due with respect to such
reimbursement, with federal and state income taxes being estimated at the
highest marginal rates.

 

E.             Skeen shall be permitted to use the Company’s aircraft (or
aircraft operated by any successor in interest to the Company) from time to time
for business entertainment purposes or personal use, with personal use to be
subject to the following limitations:  (i) Skeen’s request on timing and type of
aircraft should be reasonable as to not impact the operation of the airline;
(ii) no more than 20 segments (i.e., 10 round trips) per calendar year,
excluding ferry flights; (iii) trip length not to exceed 1,000 nautical miles.

 

7.             Reimbursement of Expenses:  The Company agrees to promptly
reimburse Skeen, within fifteen (15) days after presentation of receipts and
other appropriate documentation, for all reasonable, ordinary and necessary
travel costs and other necessary expenses incurred by Skeen in performing his
duties pursuant to this Agreement.

 

8.             Stock Options:

 

A.            Company agrees to continue in force a stock option plan or one
which is substantially similar to the existing plan (“Stock Option Plan”), which
has been approved by the shareholders of the Company and, on the first business
day in each October commencing in

 

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October, 2001, and (subject to the provisions of Paragraph 10.A.(vii))
continuing so long as Skeen is employed by the Company to grant Skeen options
under the Stock Option Plan to purchase not less than 200,000 shares of the
common stock of FLYi (such number to be adjusted to reflect any stock splits
after the Effective Date) at the price per share at the opening of the trading
market on the date of such grant.  The Company also agrees to approve the
issuance of such additional shares as are necessary to enable Skeen to exercise
such options.  The Company will not be required to reserve shares from existing
plans to cover future obligations under this paragraph, but will use reasonable
efforts to obtain shareholder approval as necessary from time to time to make a
sufficient number of additional shares available on a timely basis, and will
provide Skeen with equivalent alternative compensation should approval not be
obtained.  The terms of the grant of such options granted after January 1, 2000
shall provide that (a) Skeen’s right to exercise such options shall vest and
become exercisable over the four-year period beginning on the date of each grant
at the rate of one-fourth per year (i.e., one-fourth shall vest and become
exercisable on the first anniversary of the grant) so long as Skeen is employed
by the Company or consulting with the Company pursuant to the terms of Paragraph
12, (b) Skeen’s right to exercise such options to purchase the entire number of
shares covered thereby shall become immediately 100% vested in the event there
is a Change in Control (as defined and determined under Paragraph 13.A.) or in
the event Company shall otherwise become obligated to provide Skeen with
Severance Compensation as provided in Paragraph 10.E. herein, (c) such options
shall be exercisable for ten (10) years after the date of the grant so long as
Skeen is employed by the Company and (d) Skeen shall have the right to exercise
such vested options within ninety (90) days following any termination of Skeen’s
employment except that in the case of termination of employment for which Skeen
is entitled to “Severance Compensation” as provided herein, in which case the
terms of Paragraph 10.E.(iii) shall apply.  Notwithstanding the above, the terms
of the grant of such options shall be no less favorable to Skeen than the terms
of options granted as of the time of the grant to other senior executive
officers.

 

B.            In addition to the foregoing, if the Company in the exercise of
its discretion, shall grant Skeen any additional stock options, such options
shall contain terms and conditions which are at least as favorable to Skeen as
those set forth in this Paragraph 8. All outstanding options previously issued
to Skeen prior to the Effective Date of this Agreement shall also be subject to
the foregoing terms, except that vesting periods shall be as stated in the
existing option agreements, and except that no such terms shall be applicable to
options intended to qualify as Incentive Stock Options if and to the extent such
terms would be deemed to result in a “material modification” of such options.

 

C.            Skeen and the Company agree that, effective as of March 15, 2005,
the stock options set forth on Attachment A to this Agreement, that were
previously granted by FLYi to Skeen, shall be cancelled and of no further effect
and Skeen shall have no further rights or claims with respect thereto.

 

9.             Deductions: Deductions shall be made from any component of
Skeen’s compensation provided pursuant to this Agreement or otherwise for social
security, Medicare, federal, state and local withholding taxes, and any other
such taxes as may from time to time be required by any governmental authority.

 

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10.           Termination: Skeen’s employment with the Company shall be
terminated only in accordance with the following provisions:

 

A.            Disability.

 

(i)            In the event Skeen shall become mentally or physically disabled
so as to have been unable to perform his duties hereunder for twelve (12)
consecutive months, subject to Skeen’s right to return to work as provided
below, Company shall have the right to terminate Skeen’s employment with Company
upon the expiration of such twelve (12) month period; provided, however, that
upon any such termination Company shall be obligated to provide Skeen with
Severance Compensation as provided in Paragraph 10.E. herein.  Such twelve-month
period shall be deemed to have commenced on the date when Skeen is first unable
to perform his duties on a substantially full-time basis because of mental or
physical disability and shall end on the date on which Skeen shall return to the
substantial full-time performance of his duties.  If at the expiration of such
twelve (12) month period, the Company shall desire to terminate Skeen on the
basis of disability, it shall give written notice to him.  Skeen’s employment
shall thereafter be terminated if he does not return to substantial full-time
performance of his duties within ten (10) calendar days after such notice is
given.

 

(ii)           Nothing contained herein shall be construed to affect Skeen’s
rights under any disability insurance or similar policy, whether maintained by
the Company, Skeen or another party.  The Company may utilize a disability
policy to fund, in whole or in part, the compensation that would be due to Skeen
during the term of or in the event of a disability, in which case the proceeds
of the policy would not be in addition to any compensation otherwise payable to
Skeen.

 

(iii)          For purposes of this Agreement, Skeen shall be deemed to be
disabled when he shall have been absent from his duties because of sickness,
illness, injury or other physical or mental infirmity on a substantially
full-time basis.  In the event of a dispute as to whether Skeen is disabled, the
issue of the determination of disability shall be submitted to a Board of
Arbiters for a binding decision under the procedures set forth in Paragraph
10.A.(v) below.

 

(iv)          At the end of any disability (other than a disability that results
in the termination of Skeen’s employment with the Company), Skeen shall return
to work and this Agreement shall continue as though such disability had not
occurred.

 

(v)           If there is a dispute as to whether Skeen is subject to any
disability, the issue shall be submitted to a Board of Arbiters (whose decision
shall be binding on the Company and Skeen) consisting of three persons: one
physician who specializes in the physical or mental disability in dispute
(hereinafter referred to as a “Specialist”) shall be appointed on behalf of
Company by the Board of Directors of Company (with Skeen having no vote on this
question); a second Specialist shall be appointed by Skeen and a third
Specialist shall be appointed by the two Specialists so appointed.  The decision
of a majority of such Specialists shall be binding upon the parties hereto.  If
a majority of the Specialists determines that Skeen is not subject to any

 

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disability for purposes of this Agreement, Skeen shall return to work under the
provisions hereof.  Such Specialists may physically examine Skeen, who hereby
consents to such examination and to make available any pertinent medical
records.  The cost of such Specialists shall be paid by Company.

 

(vi)          If it is determined that Skeen can return to work hereunder on a
part-time basis, the parties agree to use good faith efforts to negotiate the
terms of Skeen’s return to work.

 

(vii)         During any period in which Skeen is disabled but his employment
shall not have been terminated, Skeen shall continue to receive his base salary
and any applicable bonus, and shall continue to receive all benefits as an
employee and as provided herein generally. Any options previously granted shall
continue to vest, but no new options shall be issued to Skeen.

 

B.            Death.

 

(i)            Skeen’s employment with Company shall terminate immediately upon
Skeen’s death; provided, however, that Company shall be obligated to provide the
Severance Compensation as specified in Paragraph 10.E. herein to Skeen’s estate,
heirs or beneficiaries.

 

(ii)           Nothing contained herein shall be construed to affect Skeen’s
rights under any life insurance or similar policy, whether maintained by
Company, Skeen or another party.  The Company may utilize a life insurance
policy to fund, in whole or in part, the Severance Compensation that would be
payable in the event of Skeen’s death, in which case the proceeds of any such
policy would not be in addition to any Severance Compensation otherwise payable
under this Paragraph 10.B.

 

C.            Termination by Skeen.

 

(i)            Without Good Reason.  Skeen may, without “Good Reason” (as
hereinafter defined), terminate his employment by giving to Company sixty (60)
days’ written notice by Certified Mail, Return Receipt Requested, at the office
of Company, and such termination shall be effective on the sixtieth (60th) day
following the date of such notice (the “Termination Date”).  In such event,
Skeen (i) shall continue to render his services up to the Termination Date if so
requested by Company and (ii) shall be paid his regular base salary and shall
receive all benefits up to the Termination Date.  Skeen will be entitled to
payment of any bonus due but not yet paid for prior bonus periods, and for a
pro-rata bonus amount for the bonus period in which the termination occurs
pursuant to this Paragraph 10.C.(i) but will not be entitled to Severance
Compensation or to any other compensation, bonus or fringe benefits accrued
after the Termination Date.  The bonus payable to Skeen will be paid at the same
time it would have been paid had Skeen’s employment not been terminated, will be
based on the achievement of targets for the entire bonus period without regard
to interim results as of the termination date, and will be paid pro-rata based
on the number of full months Skeen was employed within the bonus period divided
by the total number of months in the bonus period.

 

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(ii)           With Good Reason.  Skeen may terminate his employment with
Company immediately for Good Reason.  In the event Skeen’s employment with
Company is terminated by Skeen for Good Reason, Company shall be obligated to
provide Skeen with Severance Compensation as provided in Paragraph 10.E.
herein.  “Good Reason” shall mean any of the following (without Skeen’s express
prior written consent):

 

(a)           The assignment to Skeen by Company of duties inconsistent with
Skeen’s positions, duties, responsibility and status with Company, or any
removal of Skeen from or any failure to re-elect Skeen to his positions,
including his position as a member of the Company’s Board of Directors (except
in connection with the termination of his employment for disability, death or
for cause as provided herein), unless cured within fifteen (15) days of Skeen
giving written notice thereof to the Company.

 

(b)           Any material adverse change in any benefit plan or arrangement in
which Skeen is participating and which is not applicable generally to other key
executive employees of Company who participate in such plan or arrangement),
unless cured within fifteen (15) days of Skeen giving written notice thereof to
the Company.

 

(c)           Skeen’s relocation outside of the Washington D.C./ Northern
Virginia region without his consent, except for required travel by Skeen on
Company business; provided, however, that if the Board of Directors of Company
determines to relocate Company’s principal executive offices, Company shall pay
all of Skeen’s reasonable moving and other relocation expenses, the Board of
Directors shall make such adjustments in Skeen’s salary as it reasonably deem
necessary to reflect the increased costs of living in the new location, and
Skeen shall be obligated to perform his services generally at such new location
and such relocation shall not constitute “Good Reason” hereunder.

 

(d)           Any material breach by Company of any provisions of this Agreement
which is not cured by Company within fifteen (15) days of Skeen giving written
notice thereof to the Company.

 

(e)           Except in the case of disability or death, any purported
termination of Skeen’s employment by the Company which is not effected pursuant
to sixty (60) days’ prior written notice of termination.

 

(f)            Any termination by Skeen of his employment with the Company which
is effected as a result of, in connection with or within two years following a
“Change in Control” as defined and determined under Paragraph 13.A. of this
Agreement; provided that any amounts due as Severance Compensation shall be
reduced as provided in Paragraph 13.D.  The two year period will be deemed to
mean any notice given within two years following a Change in Control where an
actual termination occurs within sixty days following said notice.

 

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D.            Termination by Company.

 

(i)            Without Cause.  Company may, without cause, terminate Skeen’s
employment under this Agreement at any time by giving Skeen sixty (60) days’
written notice thereof, and such termination shall be effective on the sixtieth
(60th) day following the date such notice is given (said 60th day, the
“Termination Date”).  In the event Skeen’s employment with Company is terminated
without cause, Company shall be obligated to provide Skeen with Severance
Compensation as provided in Paragraph 10.E. herein.  At the option of Company,
Skeen’s employment shall be immediately terminated upon the Company giving such
notice, in which case Skeen shall continue to receive his full base salary and
related fringe benefits through the Termination Date.  Notwithstanding any
provision of this Agreement to the contrary, any termination of Skeen’s
employment by the Company, for any reason or no reason, within two years
following a “Change in Control,” as defined and determined under Paragraph 13.A.
of this Agreement, shall automatically be deemed to be a termination without
cause; provided that any amounts due as Severance Compensation shall be reduced
as provided in Paragraph 13.D.

 

(ii)           For Cause. Company may terminate Skeen’s employment under this
Agreement immediately for “cause.”  In such event, Skeen will be entitled to
payment of a pro-rata bonus amount to the date of termination of employment, but
will not be entitled to Severance Compensation or to any other compensation,
bonus or fringe benefits accrued after the date of termination of employment. 
The bonus amount payable to Skeen will be calculated in the same fashion as in
the case of termination by Skeen without good reason, as set forth in Paragraph
10.C.(i) above.  Cause shall be defined as any of the following: (i) willful
unauthorized misconduct in the material performance of Skeen’s duties hereunder,
(ii) commission of an act of theft, fraud or dishonesty by Skeen, which act is
materially harmful to Company, (iii) material breach of any provision of this
Agreement if such breach has not been cured by Skeen (or if Skeen has not
compensated the Company for such breach by payment of an amount deemed
reasonable by the Company if the breach cannot be cured) within fifteen (15)
days after the Company gives Skeen written notice of such breach.  Any
termination under this Paragraph 10.D.(ii) shall take effect immediately upon
the Company giving Skeen written notice thereof.

 

E.             Severance Compensation.  “Severance Compensation” is defined as
all of the compensation and benefits described in this Paragraph 10.E.  It will
be provided to Skeen upon the occurrence of any of the events described
elsewhere in this Agreement as providing for Skeen’s receipt of Severance
Compensation, but not in any other circumstances except to the extent that
individual components of Severance Compensation may be separately provided
pursuant to the terms of this Agreement.  “Termination Date” is defined as the
last day of Skeen’s employment with the Company.  “Severance Period” is defined
as the period beginning on the day following the Termination Date and ending on
the day which is three years following the Termination Date.  Benefits extending
to Skeen’s spouse shall refer to Skeen’s spouse as of the date such benefits are
extended or, after Skeen’s death, to Skeen’s spouse as of the date of his
death.  The compensation and benefits to be provided as Severance Compensation
are as follows:

 

(i)            Severance Pay.  Throughout the Severance Period, Skeen will
receive severance pay at the rate of 100% of his annual base salary in effect at
the time of his termination, to be paid on the Company’s regular payroll payment
dates at the same time and in the same fashion as the Company’s regular payroll
payments.

 

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(ii)           Bonus.  For all bonus plans in which Skeen is participating as of
the Termination Date, the Company shall pay to Skeen a lump sum bonus payout. 
This payout shall consist of a payment in the amount calculated by the formula
[(x + y) * z] where (x) is Skeen’s base pay earned in the year from January 1 to
the Termination Date, (y) is the amount which is three times Skeen’s annual base
salary in effect at the time of Termination, and (z) is the percentage which
under each plan is the maximum percentage of base pay that Skeen was eligible to
earn during the year in which the Termination Date occurred assuming all targets
were met in full, whether or not said targets actually were met.  The payments
provided for under this Paragraph 10.E.(ii) will be paid in cash or in such
other form as bonus amounts generally are paid to eligible employees, or in a
combination thereof, as determined by the Committee, within thirty days
following the Termination Date and shall be considered to be full compensation
for all amounts due to Skeen for bonus plans in which he was participating as of
the Termination Date, and he shall not be entitled to any further payments under
any of said plans during the Severance Period or thereafter.  Notwithstanding
the above, any bonus due to Skeen for years (or other applicable bonus period)
completed prior to the Termination Date but not yet paid shall be paid in
addition to the bonus described herein.

 

(iii)          Stock Options.  All options to purchase shares of FLYi stock that
have been granted to Skeen shall become 100% vested as of the Termination Date. 
All options that would have been granted to Skeen in the future pursuant to
Paragraph 8.A. hereof shall not be granted if the date on which they would have
been granted occurs after the Termination Date, even though said date may occur
during the Severance Period.  Skeen (or, in the case of death, his estate or his
beneficiaries) shall have the right to exercise such vested options until the
earlier of the original expiration date of said option, or a date determined as
follows:  (a) for options not intended to qualify as Incentive Stock Options,
Skeen shall have the right to exercise vested options any time prior to the end
of the Severance Period; (b) for options granted after the date of this
Agreement that are intended to qualify as Incentive Stock Options, Skeen shall
have the right to exercise vested options any time prior to the end of the
Severance Period, provided that Skeen shall not be entitled to Incentive Stock
Option treatment with respect to such options unless Skeen exercises them within
three months following termination of his employment on account of reasons other
than his death or disability or unless Skeen (or his estate or his
beneficiaries) exercises them within one year following any termination on
account of death or disability; (c) for options intended to qualify as Incentive
Stock Options where termination is caused by his death or disability, Skeen (or
his estate or his beneficiaries) shall have the right to exercise within one
year following termination of his employment.

 

(iv)          This section is intentionally omitted.

 

(v)           Insurance Programs. Coverage under the Company’s major medical,
accident, health, dental, and life insurance plans as from time to time provided
to other executive employees of the Company (and, to the extent provided by such
policies, to Skeen’s dependents) shall continue to be paid for by the Company
for the remainder of Skeen’s and his spouse’s life.  Provided, however, if such
coverage cannot be continued during the foregoing time period under the terms of
such policies or plans, the Company shall reimburse Skeen for the cost of

 

12

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comparable coverage under individually obtained policies or for COBRA coverage,
or shall make other arrangements to assure that Skeen has comparable coverage.

 

(vi)          Disability Insurance.  The Company will prepay, to the time of
Skeen’s reaching age 65, the premiums due on any disability insurance policy as
was provided to Skeen as of the time of Termination.  In the event that the
Company discontinued or reduced the amount of coverage of any disability
insurance within one year preceding the Termination, the Company shall at the
time of the Termination re-establish disability insurance to the amount
previously provided and with equivalent coverage, and shall prepay future
premiums as provided herein.

 

(vii)         Vacation.  Vacation shall not continue to accrue after the
Termination Date under any circumstances.

 

(viii)        Executive Medical Reimbursement Plan and Investment and Tax
Planning.  Throughout the Severance Period, the Company will continue to
promptly reimburse Skeen for any otherwise unreimbursed health and medical
insurance premiums and/or uncovered medical expenses up to $25,000 per calendar
year under a written medical reimbursement plan maintained for the Company’s key
executive employees, and for the $15,000 per year investment and tax planning
service expenses, incurred during each calendar year, including the tax
gross-up, if applicable.

 

(ix)           Travel Benefits.  Skeen and his wife shall be provided with free
travel on the Company’s aircraft or on the aircraft of any successor in interest
to the Company on a positive space basis.  The above travel will be first class
on aircraft offering more than one class of service.  These travel benefits will
be provided for the longer of the Severance Period or the remainder of Skeen’s
life.  Skeen shall not be entitled to travel benefits on any other airline.

 

(x)            Deductions for Taxes.  Subject to Paragraph 13.C., any
compensation due to Skeen hereunder will be subject to deductions for social
security, federal and state withholding taxes, and any other such taxes as may
from time to time be required by governmental authority.

 

(xi)           Company Aircraft.  The limited use of Company aircraft (or
aircraft operated by any successor in interest to the Company) as provided
herein shall continue throughout the Severance Period and shall continue
thereafter until such time as Skeen has reached age 75.  Skeen may elect to
receive a lump sum cash payment equal to the present value of said benefit.

 

(xii)          Tax Liability on Deferred Compensation.  To the extent provided
under Paragraph 5.D.(iv) and not previously paid, the Company shall pay to Skeen
fifty percent (50%) of the Deferred Compensation Tax Payment.

 

F.             Deferral of Payments.  Notwithstanding any other provision of
this Agreement to the contrary, all payments pursuant to this Section 10 shall
be deferred until six months after

 

13

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Skeen’s termination of employment to the extent necessary to avoid the
application of the excise tax under Section 409A of the Code.

 

11.           Retirement:  If Skeen remains actively employed by the Company
pursuant to the terms hereof (other than as a consultant) on the Retirement
Eligibility Date, then Skeen may terminate his employment other than pursuant to
Paragraph 10 hereof by electing to retire from his positions with the Company,
in which case he shall receive certain benefits from the Company and may remain
with the Company in certain capacities, as provided in this Paragraph 11.  If
Skeen remains actively employed by the Company pursuant to the terms hereof
(other than as a consultant) on the Retirement Eligibility Date, and if Skeen’s
employment terminates on or after the Retirement Eligibility Date due to death
or disability, or if after that date the Company terminates Skeen’s employment
for any reason other than for “cause” (as defined in Paragraph 10.D.(ii)), then
in addition to any Severance Compensation to which he may be entitled, he shall
thereafter receive certain benefits from the Company as provided in this
Paragraph 11.C and 12.G.  For purposes of this Paragraph 11, the “Retirement
Eligibility Date” shall mean the earlier of the date of FLYi’s 2006 annual
meeting of stockholders (or special meeting in lieu thereof) or June 1, 2006.

 

A.            Skeen shall provide the Board of Directors with written notice to
the Company of his intention to retire pursuant to the terms hereof.  Said
notice shall be provided at least three months prior to the intended date of
retirement unless otherwise agreed.  The retirement date (“Retirement Date”)
will be a date selected by Skeen, but may be no earlier than the Retirement
Eligibility Date.  If Skeen has not previously retired, his Retirement Date will
be the earlier of June 1 or the date of the annual meeting of stockholders (or
special meeting in lieu thereof) first occurring after Skeen reaches age 70.

 

B.            On the Retirement Date, Skeen shall resign from all of his
positions as an officer and an employee of FLYi and from each of its
subsidiaries, and from any other position he holds at the request of, or in
connection with, his employment with the Company.  Skeen shall tender his
resignation from the Board of Directors of FLYi and of each of its subsidiaries,
unless requested otherwise by the Board of Directors.  From and after the
Retirement Date, Skeen may serve as a Consultant as provided in Paragraph 12 and
in such other capacities as agreed from time to time.

 

C.            Following retirement from the Company as provided in this
Paragraph 11, Skeen shall receive the benefits set forth in this Subparagraph C
in lieu of any commitments, salary, severance payments or other benefits
provided for in Paragraphs 1 through 8 of this Agreement.  These benefits shall
commence as of the Retirement Date (except for retirement pay which commences
after the Retirement Date as provided below) and shall continue until the
earlier of the date of Skeen’s death or the date indicated below, except that
benefits expressly identified as extending to Skeen’s spouse’s life shall end on
her death.  Benefits extending to Skeen’s spouse shall refer to Skeen’s spouse
as of the date such benefits are extended or, after Skeen’s death, to Skeen’s
spouse as of the date of his death.  Benefits to be provided pursuant to this
Subparagraph C are as follows:

 

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(i)            Following the Retirement Date, Skeen shall be paid retirement pay
as provided in this Paragraph 11.C.(1).  Retirement pay will be paid on the
Company’s regular payroll payment dates at the same time and in the same fashion
as the Company’s regular payroll payments until the date indicated below.  Upon
Skeen’s death, retirement pay will be paid to Skeen’s estate or as Skeen may
otherwise designate in a written beneficiary designation furnished to the
Company prior to his death.  Retirement pay will be in an amount, based on a
percentage of Skeen’s annual base salary at the highest rate in effect during
the 12 months preceding the Retirement Date and for the periods,  as indicated
below:

 

Period

 

Percentage of
annual base
salary

 

Beginning on the Retirement Date through the date which is the fifth anniversary
of the Retirement Date

 

0

%

Beginning one day after the fifth anniversary of the Retirement Date and ending
on the date which is the tenth anniversary of the Retirement Date

 

75

%

Beginning one day after the tenth anniversary of the Retirement Date through the
later of (a) the date which is the fifteenth (15th) anniversary of the
Retirement Date, and (b) the date of Skeen’s 76th birthday

 

50

%

Beginning on the date which is the later of 15 years following the Retirement
Date or the date of Skeen’s 76th birthday

 

0

%

 

(ii)           Skeen shall be provided with coverage under the Company’s major
medical, accident, health, dental, disability and life insurance plans as from
time to time provided to other executive employees of the Company generally
(and, to the extent provided by such policies, to Skeen’s dependents), which
coverage shall continue to be paid for by the Company for the remainder of
Skeen’s and his spouse’s life.  Provided, however, if such coverage cannot be
continued until Skeen’s and his spouse’s death, as the case may be, under the
terms of such policies or plans, the Company shall reimburse Skeen for the cost
of comparable coverage under individually obtained policies or for COBRA
coverage, or shall make other arrangements to assure that Skeen has comparable
coverage.

 

(iii)          Skeen shall be provided with reimbursement for unreimbursed
medical costs, as provided in Paragraph 6.B hereof, for the period ending on the
later of the date which is 15 years following the Retirement Date, or the date
of Skeen’s 76th birthday.

 

(iv)          Skeen and his wife shall be provided with travel benefits, as
provided in Paragraph 10.E.(ix) hereof, for the remainder of Skeen’s life and
his spouse’s life.

 

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(v)           Skeen shall be permitted to use the Company’s aircraft (or
aircraft operated by any successor in interest to the Company) from time to
time, as provided in Paragraph 6.E. hereof, for the period ending on the later
of the date which is 15 years following the Retirement Date, or the date of
Skeen’s 76th birthday.

 

(vi)          The Company will provide an automobile for Skeen’s use for the
period ending on the later of the date which is 15 years following the
Retirement Date, or the date of Skeen’s 76th birthday.  The type of vehicle, and
the frequency of replacement, will be as per the last vehicle provided to Skeen
prior to the Retirement Date.

 

(vii)         The Company will provide Skeen with an office and secretary at a
location convenient to his primary residence.  Costs shall be estimated in
advance on an annual basis, and shall be reasonable.

 

12.           Consulting:  If Skeen retires from the Company pursuant to
Paragraph 11 above, Skeen may elect to continue to serve the Company as a
consultant for up to five years following the Retirement Date, on the terms and
conditions set forth in this Paragraph 12.  The consulting arrangements provided
under this Paragraph 12 shall not be available following termination of Skeen’s
employment under any circumstances other than retirement pursuant to Paragraph
11.

 

A.            Skeen may serve as a consultant under this Paragraph for a term
(the “Consulting Term”) beginning on the Retirement Date and ending on the date
which is the fifth anniversary of the Retirement Date, but ending in any case
not later than the date that Skeen reaches age 75.  If Skeen for any reason does
not serve as a consultant during any portion of the Consulting Term, the
expiration of the Consulting Term will not be extended.

 

B.            Skeen will serve as an advisor to the executive officers of the
Company under the direction and supervision of the Chief Executive Officer, and
as such will provide expertise and guidance regarding issues under consideration
by the Chief Executive Officer.  Skeen may work on special projects and other
matters of a strategic nature as designated by that individual and agreed by
Skeen, consistent with his expertise and with his prior role as Chief Executive
Officer.  If requested by the Company, during the Consulting Term Skeen will
also serve as a director of FLYi or any of the Company’s subsidiaries (without
compensation other than as provided herein) and/or, subject to the foregoing
restriction on Skeen’s duties and responsibilities, as a part-time employee of
FLYi or any of its subsidiaries.  Skeen will tender his resignation from any
such positions at the end of the Consulting Term and at any time during the
Consulting Term that he elects not to serve as a consultant to the Company.

 

C.            Skeen shall hold himself available to perform consulting services
for up to twenty hours during any calendar month, which service shall be
scheduled at mutually convenient times.  If consented to by the Company, Skeen
may provide more than twenty hours of consulting services during any one month,
in which case he shall not be required to provide such services in a subsequent
month without being deemed to have ceased providing consulting services.

 

16

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D.            Skeen may elect to cease serving as a consultant at any time. 
Should Skeen elect not to serve as a consultant at any time during the
Consulting Term, he may later, but within the Consulting Term, notify the
Company of his availability to provide consulting services hereunder for the
remainder of the five year period.  In such case, Skeen’s service as a
consultant under this Paragraph 12 shall recommence thirty days following the
date of the Company’s receipt of such notice, unless otherwise agreed, and shall
continue through the remainder of the Consulting Term.

 

E.             Skeen will be free to pursue any other business interests during
the Consulting Term.  However, Skeen shall not at any time while providing
consulting services during the Consulting Term, without prior notice to and
consent of the Company, directly or indirectly, as a sole proprietor, member of
a partnership, stockholder or investor, officer or director of a corporation, or
as an employee, associate, consultant or agent of any person, partnership,
corporation or other business organization or entity other than the Company: 
(i) solicit or endeavor to entice away from the Company or any of its
subsidiaries any person or entity who is, or, during the then most recent 12
month period, was employed by, or had served as an agent of, the Company or any
of its subsidiaries; or (ii) engage in or contract with others to engage in any
business, enterprise, line of work, consulting contract, joint venture or other
arrangement which conducts a business or businesses substantially similar to or
in competition with the business conducted by Company in any area in which
Company or any of its affiliates or subsidiaries provides or plans to provide
air transportation to the public; (iii) solicit business from the Company or any
airline with which the Company has a code share or similar agreement or
arrangement.

 

F.             During such time during the Consulting Term as Skeen serves as a
consultant to the Company pursuant to the terms of this Paragraph 12, Skeen
shall receive (in addition to any retirement benefits provided to Skeen during
such time pursuant to Paragraph 11 of this Agreement) the following compensation
and other benefits:

 

(i)            Consulting fees at the rate of 90% of Skeen’s annual base salary
at the highest rate in effect during the 12 months preceding the Retirement
Date, to be paid on the Company’s regular payroll payment dates at the same time
and in the same fashion as the Company’s regular payroll payments.

 

(ii)           Continuation of reimbursement for investment and tax planning
services, including tax gross-up, as provided in Paragraph 6.D. hereof.

 

(iii)          In the event that stock options and/or restricted stock granted
to Skeen prior to the Retirement Date do not otherwise continue to vest and
remain exercisable pursuant to their original terms on account of Skeen’s
service as an employee and/or director of FLYi or one of its subsidiaries during
the Consulting Term, then the Company shall take appropriate steps so that for
so long as Skeen is providing or holding himself available to provide consulting
services during the Consulting Term, all such options and all shares of
restricted stock shall continue to remain outstanding (but not beyond their
original maximum term) and shall continue to vest according to the schedule set
forth under their terms as in effect immediately

 

17

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prior to the Retirement Date, as if Skeen continued to remain an employee and/or
director of FLYi and its subsidiaries, except that any such options that qualify
for treatment as Incentive Stock Options shall cease to so qualify to the extent
provided under the Code (but shall not otherwise be affected).  In the event
that Skeen shall cease to provide consulting services during the Consulting Term
(including on or following a Change in Control) and the Company shall not
otherwise elect to permit Skeen to continue to serve as an employee and/or
director, then such event shall be treated as a termination without good reason
for purposes of vesting and expiration of any options and vesting of shares of
restricted stock then held by Skeen, notwithstanding any subsequent election by
Skeen to provide consulting services during the Consulting Term.  In the event
of Skeen’s death while serving as a consultant hereunder, all options and grants
of restricted stock shall become 100% vested as of the date of Skeen’s death.

 

G.            In the event that Skeen becomes disabled while serving as a
consultant during the Consulting Term, then during the period of disability (but
not after the expiration of the Consulting Term) he shall be relieved of his
obligation to perform consulting services but shall continue to receive all
compensation and benefits provided in consideration of consulting services under
this Paragraph 12.  Disability shall be determined as provided in
Paragraph 10.A.  In the event that Skeen dies while serving as a consultant
during the Consulting Term, or dies prior to the termination of his employment
but after the Retirement Eligibility Date, he will be entitled to payment of the
consulting fees provided in Paragraph 12.F.(i) for the balance of the Consulting
Term, and all unvested stock options and restricted stock held by him shall
become 100% vested in the same fashion as provided herein in the case of death
during the term of his employment prior to retirement.

 

13.           Effect of a Change in Control:

 

A.            Definition of “Change in Control.”  For purposes of this
Agreement, a “Change in Control” shall be deemed to occur on the earliest of
(a)  an acquisition (other than directly from Company) of any securities of
Company entitled to vote for the election of Directors (the “Voting Securities”)
by any “person or group” (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934) other than an employee benefit plan of
Company, immediately after which such person has “Beneficial Ownership” (within
the meaning of Rule 13d-3 under the Exchange Act) of more than thirty percent
(30%) of the combined voting power of Company’s then outstanding Voting
Securities; (b)  announcement by any “person or group” (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) of its
acceptance for payment of securities tendered pursuant to a tender offer or
exchange offer initiated by such person owning or representing securities
constituting more than twenty percent (20%) of the combined voting power of
Company’s then outstanding Voting Securities; (c) the satisfaction or waiver of
all conditions (including without limitation any required approval by the
Company’s stockholders and any required regulatory approvals) to (1) a merger,
consolidation or reorganization involving Company or a transfer of substantially
all of the assets of Company (other than to an entity or entities owned by
Company), unless the company resulting from such merger, consolidation or
reorganization or the company to which such assets are transferred (the
“Surviving Corporation”) shall adopt or assume this Agreement and the
stockholders of Company immediately before such merger, consolidation or
reorganization own, directly or indirectly immediately following such merger,
consolidation or reorganization, at least eighty

 

18

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percent (80%) of the combined voting power of the Surviving Corporation in
substantially the same proportion as their ownership immediately before such
merger, consolidation or reorganization, or (2) a complete liquidation or
dissolution of Company; or (d)  persons who on the date of this Agreement are
directors of Company, together with people nominated by a majority of them or by
persons who were nominated by them, cease for any reason to constitute a
majority of Company’s Board of Directors.

 

B.            Compensation Upon a Change in Control.  Upon a Change in Control,
whether or not Skeen’s employment has terminated as a result of or in connection
with the Change in Control, Skeen shall receive all of the following
compensation, paid at the time of the Change in Control:

 

(i)            Salary. A payment in the amount of 300% of Skeen’s annual base
salary in effect at the time of the Change in Control.

 

(ii)           Bonus.  For all bonus plans in which Skeen is participating as of
a Change in Control, the Company shall pay to Skeen a lump sum bonus payout. 
This payout shall consist of a payment in the amount calculated by the formula
[(x + y) * z] where (x) is Skeen’s base pay earned in the year from January 1 to
the date of the Change in Control, (y) is the amount which is three times
Skeen’s annual base salary in effect at the time of the Change in Control, and
(z) is the percentage which under each plan is the maximum percentage of base
pay that Skeen was eligible to earn during the year in which the Change in
Control occurred assuming all targets were met in full, whether or not said
targets actually were met.  The payments provided for under this Paragraph
13.B.(ii) will be paid in cash or in such other form as bonus amounts generally
are paid to eligible employees, or in a combination thereof, as determined by
the Committee, within thirty days following the Termination Date and shall be
considered to be full compensation for all amounts due to Skeen for bonus plans
in which he was participating as of the Change in Control, and he shall not be
entitled to any further payments under any of said plans during the year of
participation.  Notwithstanding the above, any bonus due to Skeen for years (or
other applicable bonus period) completed prior to the Date in which the Change
of Control occurs but not yet paid shall be paid in addition to the bonus
described herein.

 

(iii)          Disability Insurance.  The Company will prepay, to the time of
Skeen’s reaching age 65, the premiums due on any disability insurance policy as
was provided to Skeen as of the time of Change in Control.  In the event that
the Company discontinued or reduced the amount of coverage of any disability
insurance within one year preceding a Change in Control, the Company shall at
the time of the Change in Control re-establish disability insurance to the
amount previously provided and with equivalent coverage, and shall prepay future
premiums as provided herein.

 

(iv)          Tax Liability on Deferred Compensation.  To the extent provided
under Paragraph 5.D.(iv) and not previously paid, the Company shall pay to Skeen
fifty percent (50%) of the Deferred Compensation Tax Payment.

 

(v)           This section is intentionally omitted.

 

19

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(vi)          Other Benefits Upon a Change in Control.  Skeen shall receive all
of the other benefits separately provided herein or in other agreements as
occurring upon a Change in Control, including vesting of unvested stock
options.  In the event a Change in Control occurs, Skeen shall be entitled to
the insurance benefits provided upon Change in Control per Paragraph 10.E.(v)
and (vi), the travel benefits provided upon Change in Control per Paragraph
10.E.(ix), and the use of Company aircraft provided upon termination of
employment per Paragraph 10.E(xi).  These benefits will apply at the time of
termination of Skeen’s employment, even if Skeen’s employment is subsequently
terminated in a fashion that does not give rise to Severance Compensation.

 

C.            Tax Gross-Up.  If, as a result of payments provided for under or
pursuant to this Agreement together with all other payments in the nature of
compensation provided to or for the benefit of Skeen under any other agreement
in connection with a Change in Control, any state, local or federal taxing
authority imposes any taxes on Skeen that would not be imposed on such payments
but for the occurrence of a Change in Control, including any excise tax under
Section 4999 of the Internal Revenue Code of 1986 (the “Code”) and any successor
or comparable provision, then, in addition to any other benefits provided under
or pursuant to this Agreement or otherwise, the Company (including any successor
to the Company) shall pay to Skeen at the time any such payments are made under
or pursuant to this or the other agreements, an amount equal to the amount of
any such taxes imposed or to be imposed on Skeen  (the amount of any such
payment, the “Parachute Tax Reimbursement”).  In addition, the Company
(including any successor to the Company) shall “gross up” such Parachute Tax
Reimbursement by paying to Skeen at the same time an additional amount equal to
the aggregate amount of any additional taxes (whether income taxes, excise
taxes, special taxes, employment taxes or otherwise) that are or will be payable
by Skeen as a result of the Parachute Tax Reimbursement being paid or payable to
Skeen and/or as a result of the additional amounts paid or payable to Skeen
pursuant to this sentence, such that after payment of such additional taxes
Skeen shall have been paid on a net after-tax basis an amount equal to the
Parachute Tax Reimbursement.  The amount of any Parachute Tax Reimbursement and
of any such gross-up amounts shall be determined by the Company’s independent
auditing firm, whose determination, absent manifest error, shall be treated as
conclusive and binding absent a binding determination by a governmental taxing
authority that a greater amount of taxes is payable by Skeen.

 

D.            Employment or Termination Following a Change in Control.  Provided
that he remains employed and the parties have not otherwise agreed to amend this
Agreement, following a Change in Control Skeen’s employment shall continue on
the terms set forth in this Agreement and Skeen shall remain subject to this
Agreement, and be entitled to receive the compensation, payments and benefits
provided for in this Agreement.  In the event that Skeen’s employment terminates
upon or within two years following the Change in Control, such that Skeen would
be entitled to Severance Compensation, then (i) any amounts due as Severance
Compensation under 10.E.(i) and 10.E.(ii) herein shall be reduced by any amounts
paid under Paragraph 13.B.(i) and 13.B.(ii) at the time of Change in Control
(but in no event shall Skeen be required to refund, repay or forego the benefit
of amounts paid pursuant to Paragraph 13.B.(i), 13.B.(ii) or 13.B.(iv)), and
(ii) Skeen will be entitled to all other payments and benefits provided for
herein

 

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with respect to such termination of employment.  In the event that Skeen’s
employment terminates more than two years following the Change in Control, Skeen
will be entitled to all payments and benefits provided for herein with respect
to such termination of employment

 

E.             Change in Control During Retirement.  In the event of a Change in
Control after the Retirement Date, then (i) Skeen shall continue to be entitled
to all retirement payments and benefits provided for under Paragraph 11, (ii)
all stock options then held by Skeen which have not previously expired or been
exercised shall become immediately 100% vested and exercisable as of the date of
the Change in Control, (iii) Skeen shall be released from his obligation to
provide consulting services under Paragraph 12.C. and on the date of the Change
in Control the Company shall pay Skeen a lump sum payment equal to 90% of
Skeen’s monthly base salary at the highest rate in effect during the 12 months
preceding the Retirement Date, multiplied by a number determined by subtracting
from 60 the number of full months between the Retirement Date and the date of
the Change in Control, and (iv) the Company (including any successor) shall
continue to reimburse Skeen for investment and tax planning services, including
tax gross-up, as provided in Paragraph 6.D. hereof, until the fifth anniversary
of the Retirement Date.

 

14.           Assignment:  This Agreement, as it relates to the employment of
Skeen, is a personal contract and the rights and interests of Skeen hereunder
may not be sold, transferred, assigned, pledged or hypothecated.  However, this
Agreement shall inure to the benefit of and be binding upon Company and its
successors and assigns including, without limitation, any corporation or other
entity into which Company is merged or which acquires all or substantially all
of the outstanding common stock or assets of Company.  At any time prior to a
Change in Control, Company may provide, without the prior written consent of
Skeen, that Skeen shall be employed pursuant to this Agreement by any of its
affiliates instead of or in addition to Company, and in such case all references
herein to the “Company” shall be deemed to include any such entity, provided
that (i) such action shall not relieve Company of its obligation to make or
cause an affiliate to make or provide for any payment to or on behalf of Skeen
pursuant to this Agreement, and (ii) Skeen’s duties and responsibilities shall
not be significantly diminished as a result thereof.  The Board of Directors may
assign any or all of its responsibilities hereunder to any committee of the
Board, in which case references to the Board of Directors shall be deemed to
refer to such committee.

 

15.           Invalid Provisions:  The invalidity of any one or more of the
paragraphs or provisions of this Agreement shall not affect the reasonable
enforceability of the remaining paragraphs or provisions of this Agreement, all
of which are inserted herein conditionally upon being valid in law; and in the
event one or more of the paragraphs or provisions contained herein shall be
invalid, this instrument shall be construed as if such invalid paragraphs or
provisions had not been inserted or, alternatively, said paragraphs or
provisions shall be reasonably limited to the extent that the applicable court
interpreting the provisions of this Agreement considered to be reasonable.

 

16.           Specific Performance:  The parties hereby agree that any violation
by Skeen of the covenants and agreements contained herein shall cause
irreparable damage to Company, and Company may, as a matter of course, enjoin
and restrain said violation by Skeen by process

 

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issued out of a court of competent jurisdiction, in addition to any other
remedies that said court may see fit to award.

 

17.           Binding Effect:  All the terms of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective legal
representatives, successors and assigns.

 

18.           Attorneys’ Fees:  Company shall pay all legal fees incurred by
Skeen in connection with the preparation of this Agreement promptly after
submission of a bill therefor.  In the event an action is taken by either party
to enforce this Agreement or resolve a dispute in connection herewith, the
prevailing party shall be entitled to recover the costs incurred with the
prosecution and defense of such action, including reasonable attorney’s fees.

 

19.           Waiver of Breach or Violation Not Deemed Continuing:  The waiver
by either party of any provision of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach hereof.

 

20.           Entire Agreement; Law Governing:  This Agreement, together with
the letter of even date herewith regarding the change in Skeen’s duties
resulting from revision to the United Express Agreement, supercede in their
entirety any and all other agreements (specifically including any earlier
versions of this Severance Agreement), either oral or in writing, between the
parties hereto with respect to the subject matter hereof, by and between Company
and Skeen, and contains all the covenants and agreements among the parties with
respect to such subject matter.  Notwithstanding the foregoing, to the extent
that the Company’s Deferred Compensation contributions or any other compensation
or benefit provided for hereunder was paid, granted, credited or funded under
and pursuant to an earlier version of this Agreement with respect to service
prior to the Effective Date, then such compensation or benefit need not be again
paid, granted or funded, respectively, pursuant to this Agreement.  This
Agreement shall be construed in accordance with the laws of the Commonwealth of
Virginia.  Skeen hereby acknowledges that he was represented by counsel of his
choosing in the drafting and negotiation of this Agreement and that he reviewed
this Agreement with and was advised as to each of the terms thereof by such
counsel.  In interpreting this Agreement, a court shall not treat either party
as the draftsman of the Agreement.

 

21.           Paragraph Headings:  The Paragraph headings contained in this
Agreement are for convenience only and shall in no manner be construed as a part
of this Agreement.

 

22.           Release by Skeen.  In the event of a termination of employment by
Skeen that results in the payment of Severance Compensation to him pursuant to
the terms of this Agreement, in consideration for such Severance Compensation,
Skeen hereby agrees to execute a full and complete release to the Company
releasing any and all claims that he may have against the Company including any
claims relating to his termination of employment.

 

23.           Notices.  All notices permitted or required to be given pursuant
to this Agreement shall be in writing and shall be deemed to have been
sufficiently given, subject to the further provisions of this Paragraph 23, for
all purposes when presented personally to such party (which in the case

 

22

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of notice to the Company, shall be presented to the person holding the office or
offices identified below) or sent by facsimile transmission, any national
overnight delivery service, or certified or registered mail, to such party at
its address set forth below:

 

If to Skeen, to the most recent address indicated for Skeen’s residence in the
personnel records of Company, unless Skeen gives written notice that such
notices are to be delivered to another address.

 

If to FLYi or IA:

 

FLYi, Inc.

Independence Air

45200 Business Court

Dulles, VA  20166

Attention:  General Counsel or Corporate Secretary

Fax No. (703) 650-6294

 

Such notice shall be deemed to be given and received when delivered if delivered
personally, upon electronic or other confirmation of receipt if delivered by
facsimile transmission, the next business day after the date sent if sent by a
national overnight delivery service, or five (5) business days after the date
mailed if mailed in the continental United States by certified or registered
mail.  Any notice of any change in such address shall also be given in the
manner set forth above.  Whenever the giving of notice is required, the giving
of such notice may be waived in writing by the party entitled to receive such
notice.

A copy of any notice given to Skeen shall be sent to:

 

Robert E. Madden

Powell, Goldstein, Frazer & Murphy

901 New York Avenue, NW

Washington, DC  20001-4413

Fax No. (202) 624-7222

 

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IN WITNESS WHEREOF, the Company has hereunto caused this Agreement to be
executed by a duly authorized officer and Skeen has hereunto set his hand as of
the day and year first above written.

 

WITNESS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kerry B. Skeen

 

 

 

 

 

COMPANY:

 

 

 

ATTEST:

 

FLYi, INC.

 

 

 

 

 

 

 

 

BY:

 

 

Richard J. Kennedy,

 

Caroline M. Devine,

Secretary

 

 

Chairman of the Compensation

 

 

Committee of the Board of Directors

 

 

 

ATTEST:

 

INDEPENDENCE AIR

 

 

 

 

 

 

 

 

BY:

 

 

Richard J. Kennedy,

 

Caroline M. Devine,

Secretary

 

 

Chairman of the Compensation

 

 

Committee of the Board of Directors

 

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Attachment A

Stock Options Surrendered and Cancelled on March 15, 2005

 

Date of
Grant

 

Number
of
Shares

 

Strike
Price

 

5/5/1998

 

33,320

 

14.96

 

9/18/2001

 

329,866

 

13.95

 

6/26/2000

 

150,000

 

13.75

 

1/1/1999

 

80,000

 

12.50

 

3/23/1999

 

100,000

 

12.12

 

7/21/1999

 

100,000

 

10.00

 

6/2/2003

 

270,000

 

9.47

 

10/1/2002

 

200,000

 

9.25

 

 

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