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


 





















 


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.


 


11





















 


(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





















 


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





















 


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:


 


14





















 


(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.


 


15





















 


(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





















 


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





















 


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





















 


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





















 


(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


 


20





















 


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


 


21





















 


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





















 


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


 


23





















 


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

  



 





















 


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