10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the year ended December 31, 2005

OR

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

For the transition period from         to        

Commission File No. 0-14719

SKYWEST, INC.

(Incorporated under the	87-0292166
Laws of Utah)	(IRS Employee ID no.)

444 South River Road
St. George, Utah 84790
(435) 634-3000

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, No Par Value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes xNo o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of this Act.   Yes oNo x

Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes xNo o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in the definitive proxy statement incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x  Accelerated filer oNon-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes oNo x

The aggregate market value of Common Stock held by non-affiliates (based upon the closing sale price of the Common Stock on The Nasdaq National Market System) on June 30, 2005 was approximately $931,547,945.

As of March 10, 2006, there were 59,513,040 shares of Common Stock outstanding.

Documents Incorporated by Reference

Portions of the Registrant’s Proxy Statement to be used in connection with the solicitation of proxies in connection with the Registrant’s 2006 Annual Meeting of Shareholders are incorporated by reference in Part III as specified.

SKYWEST, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

		Page No.
	PART I
Cautionary Statement Concerning Forward Looking Statements			3
Item 1.	Business		4
Item 1A.	Risk Factors		15
Item 1B.	Unresolved Staff Comments		24
Item 2.	Properties		25
Item 3.	Legal Proceedings		27
Item 4.	Submission of Matters to a Vote of Security Holders		27
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		28
Item 6.	Selected Financial and Operating Data		29
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		42
Item 8.	Financial Statements and Supplementary Data		43
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		66
Item 9A.	Controls and Procedures		66
Item 9B.	Other Information		70
	PART III
Item 10.	Directors and Executive Officers of the Registrant		70
Item 11.	Executive Compensation		70
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		70
Item 13.	Certain Relationships and Related Transactions		70
Item 14.	Principal Accountant Fees and Services		70
	PART IV
Item 15.	Exhibits and Financial Statement Schedules		71
Signatures			76

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PART I

Unless otherwise indicated, “SkyWest,” “we,” “us,” “our” and similar terms refer to SkyWest, Inc. and our subsidiaries; “SkyWest Airlines” refers to our wholly-owned subsidiary, SkyWest Airlines, Inc.; and “ASA” refers to our wholly-owned subsidiary, Atlantic Southeast Airlines, Inc.

Cautionary Statement Concerning Forward-Looking Statements

Certain of the statements contained in this Annual Report on Form 10-K should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “hope,” “likely,” and “continue” and similar terms used in connection with statements regarding our outlook, the revenue environment, our contract relationships, and our expected financial performance. These statements include, but are not limited to, statements about the benefits of our acquisition of ASA, including our future financial and operating results, our plans for SkyWest Airlines and ASA, our objectives, expectations and intentions and other statements that are not historical facts. You should also keep in mind that all forward-looking statements are based on our existing beliefs about present and future events outside of our control and on assumptions that may prove to be incorrect. If one or more risks identified in this report, or any applicable filings materializes, or any other underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected, or intended. These risks and uncertainties include, but are not limited to, those described below in Item 1A., Risk Factors, and the following:

·our ability to achieve anticipated potential benefits with respect to our acquisition of ASA;

·our ability to obtain and maintain financing necessary for operations and other purposes;

·our ability to maintain adequate liquidity;

·the impact of high fuel prices on the airline industry;

·the impact of global instability, including the continued impact of the United States military presence in foreign countries, the September 11, 2001 terrorist attacks and the potential impact of future hostilities, terrorist attacks or other global events;

·our ability to attract and retain code-share partners;

·changes in our code-share relationships;

·the cyclical nature of the airline industry;

·competitive practices in the airline industry, including significant fare-restructuring activities, capacity reductions and bankruptcy and other airline restructurings by major and regional carriers, including Delta Air Lines (“Delta”) and United Air Lines (“United”);

·global and national economic conditions;

·labor costs;

·security-related and insurance costs;

·weather conditions;

·government legislation and regulation;

·unfavorable resolution of negotiations with municipalities for the leasing of facilities;

·relations with ASA’s unionized employees and the impact and outcome of labor negotiations;

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·unionization efforts among SkyWest Airlines’ employees; and

·other risks and uncertainties listed from time to time in our reports filed with the SEC.

There may be other factors not identified above of which we are not currently aware that may affect matters discussed in the forward-looking statements, and may also cause actual results to differ materially from those discussed. We assume no obligation to publicly update any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these statements other than as required by law.

ITEM 1.   BUSINESS

General

We are a holding company that operates two independent, wholly-owned subsidiaries, SkyWest Airlines and ASA. SkyWest Airlines and ASA are regional airlines offering scheduled passenger service with over 2,400 daily departures to 218 destinations in the United States, Canada, Mexico and the Caribbean. Substantially all of our flights are operated as either Delta Connection or United Express under code-share arrangements with Delta or United, with significant presence in their key domestic hubs and focus cities. SkyWest Airlines and ASA provide regional flying to our partners under long-term, fixed-fee code-share agreements. Among other features of our fixed-fee agreements, our partners reimburse us for specified direct operating expenses (including fuel expense, which is passed through to our partners), and pay us a fee for operating the aircraft.

SkyWest Airlines and ASA have developed industry-leading reputations for providing quality, low-cost regional airline service during their long operating histories—SkyWest Airlines has been flying since 1972 and ASA since 1979. As of December, 31, 2005, our consolidated fleet consisted of a total of 380 aircraft, of which 224 were in service with Delta and 156 were in service with United. We currently operate one type of regional jet aircraft in two differently sized configurations, the 40- and 50-seat Bombardier CRJ200 Regional Jet (the “CRJ200”) and the 70-seat Bombardier CRJ700 Regional Jet (the “CRJ700”), and two types of turboprop aircraft, the 30-seat Embraer Brasilia EMB-120 turboprop (the “Brasilia turboprop”) and the 66-seat Avions de Transport 72-210 turboprop (the “ATR-72 turboprop”). SkyWest Airlines and ASA have combined firm orders to acquire 15 additional CRJ700s and 17 CRJ900s over the next two years and ASA is committed to sublease six additional CRJ200s from Delta commencing in early 2006. In addition, we have options to acquire 70 additional Bombardier Regional Jets over the next two years. We believe the option aircraft, which range in seating configurations between 50 and 90 seats, position us to capitalize on additional growth opportunities with our existing and other potential code-share partners.

On September 7, 2005, we completed the acquisition of ASA from Delta for $421.3 million in cash. Additionally, as part of the purchase, we paid $5.3 million of transaction fees and ASA assumed approximately $1.25 billion in long-term debt. In addition, we returned to Delta $50 million in deposits that Delta had previously paid on future ASA aircraft deliveries. We believe the combination of SkyWest Airlines and ASA presents our company with new opportunities for growth through our two geographically-focused regional airline platforms—SkyWest Airlines in the Western United States and ASA in the Eastern United States. We now provide the vast majority of regional airline service for Delta in Atlanta, its most important eastern hub, and Salt Lake City, its most important western hub. In connection with the ASA acquisition, we have established new, separate, but substantially similar, long-term fixed-fee Delta Connection Agreements with Delta for both SkyWest Airlines and ASA. We also obtained control of 26 gates in the Hartsfield-Jackson International Airport located in Atlanta, from which we currently provide service to Delta. Delta has committed to provide to us opportunities to utilize 28 additional regional jets in our fleet by the end of 2007. Delta has also agreed that, starting in 2008, ASA is guaranteed

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to maintain its percentage of total Delta Connection flights that it has in 2007, so long as its bid for additional regional flying is competitive with other regional carriers.

We were incorporated in Utah in 1972. Our principal executive offices are located at 444 South River Road, St. George, Utah 84790, and our primary telephone number is (435) 634-3000. We maintain an Internet web site at www.skywest.com. Our website provides a link to the web site of the SEC, through which our annual, quarterly and current reports, as well as amendments to those reports, are available. In addition, we provide electronic or paper copies of our filings free of charge upon request.

Our Operating Platforms

SkyWest Airlines

SkyWest Airlines provides regional jet and turboprop service in the Western United States with the exception of flying provided to United out of its Chicago (O’Hare) hub. SkyWest Airlines offered approximately 1,500 daily scheduled departures as of December 31, 2005, of which approximately 1,100 were United Express flights and approximately 400 were Delta Connection flights. SkyWest Airlines’ operations are conducted from hubs located in Chicago (O’Hare), Denver, Los Angeles, San Francisco, Portland, Seattle/Tacoma and Salt Lake City. SkyWest Airlines’ fleet as of December 31, 2005 consisted of 42 70-seat CRJ700s, all of which were flown for United; 123 50-seat CRJ200s, of which 66 were flown for United and 57 were flown for Delta, and 62 30-seat Brasilia turboprops, of which 48 were flown for United and 14 were flown for Delta. SkyWest Airlines conducts its Delta code-share operations pursuant to the terms of a Delta Connection Agreement which obligates Delta to compensate SkyWest Airlines for its direct costs associated with operating Delta Connection flights, plus a payment based on block hours flown. In addition, the SkyWest Airlines Delta Connection Agreement provides for us to increase our profitability if we reduce our total costs. SkyWest Airlines’ United operations are conducted under a United Express Agreement pursuant to which SkyWest Airlines is paid primarily on a fee-per-completed block hour and departure basis plus a margin based on performance incentives. Under the United Express Agreement, excess margins over certain percentages must be returned or shared with United, depending on various conditions.

ASA

ASA largely provides regional jet service in the United States east of the Mississippi River, with the exception of flying provided to Delta out of its Salt Lake City hub. ASA offered more than 850 daily scheduled departures as of December 31, 2005, all of which were Delta Connection flights. ASA’s operations are conducted primarily from hubs located in Atlanta, Salt Lake City and Cincinnati. ASA’s fleet as of December, 2005, all of which were flown for Delta, consisted of 35 70-seat CRJ700s, 106 40 and 50-seat CRJ200s, and twelve ATR-72 turboprops (which we expect to remove from service by August 2007). Under the terms of the ASA Delta Connection Agreement, Delta has agreed to compensate ASA for its direct costs associated with operating Delta Connection flights, plus, if ASA completes a certain minimum percentage of its Delta Connection flights, a specified margin on such costs. Additionally, the ASA Delta Connection Agreement provides for incentive compensation upon satisfaction of certain performance goals. Under the ASA Delta Connection Agreement, excess margins over certain percentages must be returned or shared with Delta, depending on various conditions.

Growth Opportunities

During the five years ended December 31, 2005, our total operating revenues expanded at a compounded annual rate of 20.4% and the number of daily flights we operated increased from approximately 950 at the end of 2000 to approximately 2,400 as of December 31, 2005. With the exception

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of our acquisition of ASA, our growth during that five-year period was internally generated. We believe there are additional opportunities for expansion of our operations, consisting primarily of:

·Delivery of Aircraft Under Firm Order. We have firm orders to acquire 15 additional CRJ700s and 17 CRJ900s during the two-year period ending December 31, 2007. We have also obtained the right to sublease from Delta six additional CRJ200s. We have agreements with Delta or United to place all 38 of these aircraft into revenue service, under long-term, fixed-fee contracts, promptly following their delivery.

·Potential Opportunities from Delta’s Restructuring. We believe that as Delta restructures its fleet under bankruptcy protection, there may be new regional flying contracts that become available for qualified regional carriers. ASA holds certain rights to maintain its proportion of overall Delta regional flights, as well as its proportion of Atlanta regional flights. This may help ASA compete for new flying mandates, if any, that come into existence at Delta.

·Scope Clause Relief. “Scope clauses” are elements of major airlines’ labor contracts with their own pilots that place restrictions on the number and size of aircraft, or the amount of flight activity, that can be operated by major airlines’ regional airline contractors such as ASA and SkyWest Airlines. Greater liberalization of scope clauses generally creates more business opportunities for regional airlines. Since 2001, five of the six major national airlines (American Airlines, Inc. (“American”), Delta, Northwest Airlines, Inc. (“Northwest”), United and US Airways) have successfully achieved some scope clause liberalization. If further efforts by major airlines to relax scope clause restrictions are successful, it may create incremental opportunities for regional airlines.

·Narrowbody Replacement Flying. A meaningful portion of the recent growth of the regional airline industry resulted from the replacement of major airline-operated narrowbody jet aircraft (such as 737s, DC9s, MD80s and A319s) with regional airline-operated jets on the same route. The major airline affects this change in equipment to achieve an advantage in trip costs, unit costs, frequency or a combination of these benefits. At present, the six major national airlines have a significant number of narrowbody aircraft that are more than 15 years old in their fleets. Such older aircraft are frequently less fuel- and maintenance-efficient than new aircraft. If major airlines decide to substitute newer regional airline-operated equipment for any portion of these older narrowbody aircraft under their retirement, it may create incremental opportunities for regional airlines.

Competition and Economic Conditions

The airline industry is highly competitive. SkyWest Airlines and ASA compete principally with other code-sharing regional airlines, but also with regional airlines operating without code-share agreements, low cost carriers and major airlines. The combined operations of SkyWest Airlines and ASA extend nationally throughout nearly every major geographic market in the United States. Our competition includes, therefore, nearly every other regional airline, and to a certain extent, also the major and low-cost carriers. The primary competitors of SkyWest Airlines and ASA among regional airlines with code-share arrangements include Air Wisconsin Airlines Corporation, American Eagle Airlines, Inc. (“American Eagle”) (owned by American), Comair, Inc. (“Comair”) (owned by Delta), ExpressJet Holdings, Inc. (“ExpressJet”), Horizon Air Industries, Inc. (“Horizon”) (owned by Alaska Air Group, Inc.), Mesa Air Group, Inc. (“Mesa”), MAIR Holdings, Inc. (“MAIR”), Pinnacle Airlines Corp. (“Pinnacle”), Republic Airways Holdings Inc. (“Republic”) and Trans State Airlines, Inc. Major airlines award contract flying to these regional airlines based upon, but not limited to, the following criteria: low cost, financial resources, overall customer service levels relating to on-time arrival and departure statistics, cancellation of flights, baggage handling performance and the overall image of the regional airline as a whole. The principal competitive factors on pro-rate flying include fare pricing, customer service, routes served, flight schedules, aircraft types and relationships with major partners.

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The principal competitive factors for code-share partner regional airlines are code-share agreement terms, customer service, aircraft types, fare pricing, flight schedules and markets and routes served. Based on the size of the combined operations of SkyWest Airlines and ASA, we are the largest regional airline in the United States. However, some of the major and low-cost carriers are larger, and may have greater financial and other resources than SkyWest Airlines and ASA. Additionally, regional carriers owned by major airlines, such as American Eagle and Comair, may have access to greater resources at the parent level than SkyWest Airlines and ASA, and may have enhanced competitive advantages since they are subsidiaries of major airlines. Moreover, federal deregulation of the industry allows competitors to rapidly enter our markets and to quickly discount and restructure fares. The airline industry is particularly susceptible to price discounting because airlines incur only nominal costs to provide service to passengers occupying otherwise unsold seats.

Generally, the airline industry is highly sensitive to general economic conditions, in large part due to the discretionary nature of a substantial percentage of both business and leisure travel. Many airlines have historically reported lower earnings or substantial losses during periods of economic recession, heavy fare discounting, high fuel costs and other disadvantageous environments. Economic downturns combined with competitive pressures have contributed to a number of reorganizations, bankruptcies, liquidations and business combinations among major and regional carriers. The effect of economic downturns is somewhat mitigated by the predominantly contract-based flying arrangements of SkyWest Airlines and ASA. Nevertheless, the per passenger component in such fee structure would be affected by an economic downturn. In addition, if Delta or United, or other code-share partners we may secure in the future, experience a prolonged decline in passenger load or are harmed by low ticket prices or high fuel prices, they will likely seek to renegotiate their code-share agreements with SkyWest Airlines and ASA or cancel flights in order to reduce their costs.

Industry Overview

Majors, Low Cost Carriers and Regional Airlines

The airline industry in the United States has traditionally been dominated by several major airlines, including American Airlines, Inc. (“American”), Continental Airlines, Inc. (“Continental”), Northwest Airlines, Inc. (“Northwest”), US Airways, Inc. (“US Airways”), Delta and United. The major airlines offer scheduled flights to most major U.S. cities, numerous smaller U.S. cities, and cities throughout the world through a hub and spoke network.

Low cost carriers, such as Southwest Airlines Co. (“Southwest”), JetBlue Airways Corporation (“JetBlue”), US Airways, Inc., Frontier Airlines, Inc. (“Frontier”) and AirTran Airways, Inc. (“AirTran”), generally offer fewer conveniences to travelers and have lower cost structures than major airlines, which permits them to offer flights to and from many of the same markets as the major airlines, but at lower prices. Low cost carriers typically fly direct flights with limited service to smaller cities, concentrating on higher demand flights to and from major population bases.

Regional airlines, such as ASA, ExpressJet, Mesa, MAIR, Pinnacle, Republic and SkyWest Airlines, typically operate smaller aircraft on lower-volume routes than major and low cost carriers. Several regional airlines, including American Eagle, Comair and Horizon, are wholly-owned subsidiaries of major airlines. In contrast to low cost carriers, regional airlines generally do not try to establish an independent route system to compete with the major airlines. Rather, regional airlines typically enter into relationships with one or more major airlines, pursuant to which the regional airline agrees to use its smaller, lower-cost aircraft to carry passengers booked and ticketed by the major airline between a hub of the major airline and a smaller outlying city. In exchange for such services, the major airline pays the regional airline either a fixed flight fee, termed “contract” or “fixed-fee” flights, or receives a percentage of applicable ticket revenues, termed “pro-rate” or “revenue-sharing” flights.

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Growth of the Regional Airline Industry

According to the Regional Airline Association, the regional airline sector of the airline industry experienced compounded annual passenger growth of 12.3% between 2000 and 2004. We believe the growth of the number of passengers using regional airlines and the revenues of regional airlines during the last decade is attributable to a number of factors, including:

·Regional airlines work with, and often benefit from the strength of, the major airlines. Since many major airlines have incorporated increased use of regional airlines into their future growth strategies, many regional airlines have expanded, and may continue to expand, with the major airlines they serve.

·Regional airlines tend to have a more favorable cost structure and leaner corporate structure than many major airlines. Many regional airlines were founded in the midst of the highly competitive market that developed following deregulation of the airline industry in 1978.

·Many major airlines have determined that an effective method for retaining customer loyalty and maximizing system revenue, while lowering costs, is to outsource shorter, low-volume routes to more cost-efficient regional airlines flying under the major airline’s code and name.

·Regional airlines are gradually replacing smaller turboprop planes with 32 to 110-seat regional jets. Such regional jets feature cabin class comfort, low noise levels and speed similar to the 120-seat plus aircraft operated by the major airlines, but are cheaper to acquire and operate because of their smaller size. We believe the increasing use of regional jets has led, and may continue to lead, to greater public acceptance of regional airlines.

Relationship of Regional and Major Airlines

Regional airlines generally enter into code-share agreements with major airlines, pursuant to which the regional airline is authorized to use the major airline’s two-letter flight designator codes to identify the regional airline’s flights and fares in the central reservation systems, to paint its aircraft with the colors and/or logos of its code-share partner and to market and advertise its status as a carrier for the code-share partner. For example, SkyWest Airlines flies out of Chicago (O’Hare), Denver, Los Angeles, San Francisco, Portland and Seattle/Tacoma as United Express and out of Salt Lake City as The Delta Connection. ASA operates as The Delta Connection out of Atlanta, Cincinnati and Salt Lake City. In addition, the major airline generally provides services such as reservations, ticketing, ground support and gate access to the regional airline, and both partners often coordinate marketing, advertising and other promotional efforts. In exchange, the regional airline provides a designated number of low-capacity (usually between 30 and 70 seats) flights between larger airports served by the major airline and surrounding cities, usually in lower-volume markets.

The financial arrangements between the regional airlines and their code-share partners usually involve contract, or fixed-fee, payments based on the flights or a revenue-sharing arrangement based on the flight ticket revenues, as explained below:

·Fixed-Fee Arrangements. Under a fixed-fee arrangement, the major airline generally pays the regional airline a fixed-fee based on the flight, with additional incentives based on completion of flights, on-time performance and baggage handling performance. In addition, the major and regional airline often enter into an arrangement pursuant to which the major airline bears the risk of changes in the price of fuel and other such costs that are passed through to the major airline partner. Regional airlines benefit from a fixed-fee arrangement because they are sheltered from most of the elements that cause volatility in airline earnings, including variations in ticket prices, passenger loads and fuel prices. However, regional airlines in fixed-fee arrangements do not benefit from positive trends in ticket prices, passenger loads or fuel prices and, because the major airlines

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absorb most of the risks, the margin between the fixed-fees for a flight and the expected per-flight costs tends to be smaller than the margins associated with revenue-sharing arrangements.

·Revenue-Sharing Arrangements. Under a revenue-sharing arrangement, the major airline and regional airline negotiate a proration formula, pursuant to which the regional airline receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on the regional airline and the other portion of their trip on the major airline. Substantially all costs associated with the regional airline flight are borne by the regional airline. In such a revenue-sharing arrangement, the regional airline realizes increased profits as ticket prices and passenger loads increase or fuel prices decrease and, correspondingly, realizes decreased profits as ticket prices and passenger loads decrease or fuel prices increase.

Code-Share Agreements

SkyWest Airlines operates under a United Express Agreement with United, and SkyWest Airlines and ASA operate under Delta Connection Agreements with Delta. These code-share agreements authorize Delta and United to identify our flights and fares under their two-letter flight designator codes (“DL” and “UA”) in the central reservation systems, and authorize us to paint our aircraft with their colors and logos and to market our status as The Delta Connection or United Express. Under each of our code-share agreements, our passengers participate in the major partner’s frequent flyer program, and the major partner provides additional services such as reservations, ticket issuance, ground support services and gate access. We also coordinate our marketing, advertising and other promotional efforts with Delta and United. As of December 31, 2005, approximately 93.8% of SkyWest Airlines’ and ASA’s total daily flights were structured as contract flights, where Delta or United controls scheduling, ticketing, pricing and seat inventories. The remainder of our flights are pro-rate flights, where SkyWest Airlines and ASA control scheduling, ticketing, pricing and seat inventories, and share revenues with Delta or United according to pro-rate formulas. The following summaries of our code-share agreements do not purport to be complete and are qualified in their entirety by reference to the applicable agreement. Under our code-share agreements, we have commitments from our major partners to place 38 additional regional jets into service over approximately the next two years.

SkyWest Airlines Delta Connection Agreement

SkyWest Airlines and Delta are parties to an Amended and Restated Delta Connection Agreement, dated as of September 8, 2005 (the “SkyWest Airlines Delta Connection Agreement”). As of December 31, 2005, SkyWest Airlines operated 57 CRJ200s and 14 Brasilia turboprops under the SkyWest Airlines Delta Connection Agreement. SkyWest Airlines operates these aircraft to provide Delta Connection service between Delta hubs and destinations designated by Delta. As of December 31, 2005, SkyWest Airlines was operating approximately 400 Delta Connection flights per day between Salt Lake City and designated outlying destinations. Delta is entitled to all passenger, cargo and other revenues associated with each flight.

In exchange for providing the designated number of flights and performing SkyWest Airlines’ other obligations under the SkyWest Airlines Delta Connection Agreement, SkyWest Airlines receives from Delta on a weekly basis (i) reimbursement for 100% of its direct costs related to the Delta Connection flights plus (ii) a fixed dollar payment per completed flight block hour, subject to annual escalation at an agreed rate. Costs directly reimbursed by Delta under the SkyWest Airlines Delta Connection Agreement include costs related to fuel, ground handling, and aircraft maintenance and ownership.

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The SkyWest Airlines Delta Connection Agreement terminates on September 8, 2020, unless Delta elects to exercise its option to extend the term for up to four additional five-year terms. The SkyWest Airlines Delta Connection Agreement is subject to early termination in various circumstances including:

·if SkyWest Airlines or Delta commits a material breach of the SkyWest Airlines Delta Connection Agreement, subject to 30 days notice and cure rights;

·if SkyWest Airlines fails to conduct all flight operations and maintain all aircraft under the SkyWest Airlines Delta Connection Agreement in compliance in all material respects with applicable government regulations;

·if SkyWest Airlines fails to satisfy certain performance and safety requirements;

·if, under certain circumstances, Delta has a right to terminate the ASA Delta Connection Agreement;

·if the other party files for bankruptcy, reorganization or similar action (subject to limitations imposed by the U.S. Bankruptcy Code) or if either party makes an assignment for the benefit of creditors; or

·if SkyWest Airlines fails to maintain competitive base rate costs (provided that SkyWest Airlines has the right to adjust its rates prior to any such termination).

ASA Delta Connection Agreement

ASA and Delta are parties to a Second Amended and Restated Delta Connection Agreement, dated as of September 8, 2005 (the “ASA Delta Connection Agreement”). As of December 31, 2005, ASA operated 35 CRJ700s, 106 CRJ200s and 12 ATR-72 turboprops for Delta under the ASA Delta Connection Agreement. We expect to remove the 12 ATR-72 turboprops from the ASA fleet and return them to Delta by August 2007. ASA operates these aircraft to provide Delta Connection service between Delta hubs and destinations designated by Delta. As of December 31, 2005, ASA was operating more than 850 Delta Connection flights per day between Atlanta, Cincinnati, Salt Lake City and designated outlying destinations. Under the ASA Delta Connection Agreement, Delta is entitled to all passenger, cargo and other revenues associated with each flight. Commencing in 2008, ASA is guaranteed to maintain its percentage of total Delta Connection flights that it has in 2007, so long as its bid for additional regional flying is competitive with other regional carriers.

In exchange for providing the designated number of flights and performing ASA’s other obligations under the ASA Delta Connection Agreement, ASA receives from Delta on a weekly basis (i) reimbursement for 100% of its direct costs related to Delta Connection flights plus (ii) if ASA completes a certain minimum percentage of its Delta Connection flights, an amount equal to a certain percentage of the direct costs related to the Delta Connection flights (not including fuel costs). Costs directly reimbursed by Delta under the ASA Delta Connection Agreement include costs related to fuel, ground handling, and aircraft maintenance and ownership. The ASA Delta Connection Agreement also provides for incentive compensation based upon ASA’s performance, including on-time arrival performance and completion percentage rates.

The ASA Delta Connection Agreement terminates on September 8, 2020, unless Delta elects to exercise its option to extend the term for up to four additional five-year terms. The ASA Delta Connection Agreement is subject to early termination in various circumstances including:

·if ASA or Delta commits a material breach of the ASA Delta Connection Agreement, subject to 30 days notice and cure rights;

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·if ASA fails to conduct all flight operations and maintain all aircraft under the ASA Delta Connection Agreement in compliance in all material respects with applicable government regulations;

·if ASA fails to satisfy certain performance and safety requirements;

·if, under certain circumstances, Delta has a right to terminate the SkyWest Airlines Delta Connection Agreement;

·if the other party files for bankruptcy, reorganization or similar action (subject to limitations imposed by the U.S. Bankruptcy Code) or if either party makes an assignment for the benefit of creditors; or

·if ASA fails to maintain competitive base rate costs (provided that ASA has the right to adjust its rates prior to any such termination).

SkyWest Airlines United Express Agreement

SkyWest Airlines and United are parties to a United Express Agreement entered into on July 31, 2003 (the “United Express Agreement”). As of December 31, 2005, SkyWest Airlines operated 42 CRJ700s, 66 CRJ200s and 48 Brasilia turboprops under the United Express Agreement, flying a total of approximately 1,100 United Express flights per day between Chicago (O’Hare), Denver, Los Angeles, San Francisco, Portland and Seattle/Tacoma and designated outlying destinations. Generally, under the United Express Agreement, United retains all air fares, cargo rates, mail charges and other revenues associated with each flight.

In exchange for providing the designated number of flights and performing SkyWest Airlines’ obligations under the United Express Agreement, SkyWest Airlines receives from United compensation (subject to an annual adjustment) of a fixed-fee per completed block hour, fixed-fee per completed departure, fixed-fee per passenger, fixed-fee for overhead and aircraft costs, and one-time start-up costs for each aircraft delivered. The United Express Agreement provides for incentives based upon SkyWest Airlines’ performance, including on-time arrival performance and completion percentage rates. Additionally, certain of SkyWest Airlines’ operating costs are reimbursed by United, including costs related to fuel and aircraft ownership and maintenance.

The United Express Agreement expires incrementally on December 31, 2011, 2013 and 2015. United has the option, upon one year’s notice, of extending the United Express Agreement for five years. The United Express Agreement is subject to early termination in various circumstances including:

·if SkyWest Airlines or United fails to fulfill an obligation under the United Express Agreement for a period of 60 days after written notice to cure;

·if SkyWest Airlines’ operations fall below certain performance levels for a period of three consecutive months;

·subject to limitations imposed by the U.S. Bankruptcy Code, if the other party becomes insolvent, fails to pay its debts when due, takes action leading to its cessation as a going concern, makes an assignment of substantially all of its assets, or ceases or suspends operations;

·if bankruptcy proceedings are commenced against the other party (subject to limitations imposed by the U.S. Bankruptcy Code) and certain specified conditions are not satisfied; or

·if SkyWest Airlines operates, subject to certain exceptions, any additional regional jets or turboprop aircraft pursuant to a marketing or code-share relationship with any party other than United to

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provide hub service at United’s hubs in Chicago (O’Hare), Denver, Los Angeles, San Francisco, Seattle/Tacoma, or Washington, D.C. (Dulles International Airport).

Markets and Routes

As of December 31, 2005, SkyWest Airlines scheduled the following daily flights as a United Express carrier: 300 to or from Chicago O’Hare International Airport, 232 to or from Denver International Airport, 278 to or from Los Angeles International Airport, 36 to or from Portland International Airport, 220 to or from San Francisco International Airport and 18 to or from Seattle/Tacoma International Airport and 16 to or from other outlying airports.

As of December 31, 2005, SkyWest Airlines and ASA scheduled the following daily flights as a Delta Connection carriers: 684 to or from Hartsfield-Jackson Atlanta International Airport and 564 to or from Salt Lake City International Airport and 124 to or from Cincinnati/Northern Kentucky International Airport.

Our flight schedules are structured to facilitate the connection of our passengers with flights of our major partners at the airports we serve. The following chart shows selected information about the cities and routes served by SkyWest Airlines and ASA as of December 31, 2005.

Training and Aircraft Maintenance

SkyWest Airlines’ and ASA’s employees perform substantially all routine airframe and engine maintenance and periodic inspection of equipment at their respective maintenance facilities, and provide substantially all training to SkyWest Airlines and ASA pilots and maintenance personnel at their respective training facilities. SkyWest Airlines and ASA also contract with third party vendors for non-routine airframe and engine maintenance.

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Employees

As of December 31, 2005 SkyWest and SkyWest Airlines collectively employed 8,095 full-time equivalent employees consisting of 3,480 pilots and flight attendants, 3,303 customer service personnel, 843 mechanics and other maintenance personnel, and 469 administration and support personnel. None of these employees are currently represented by a union. We are aware, however, that collective bargaining group organization efforts among SkyWest Airlines’ employees occur from time to time and we anticipate that such efforts will continue in the future. During 2004, SkyWest Airlines’ pilots voted against a resolution to join an officially recognized union. Under governing rules, SkyWest Airlines’ pilots may again vote on this issue at any time because one year has passed since the previous vote. If unionization efforts are successful, we may be subjected to risks of work interruption or stoppage and/or incur additional expenses associated with increased union representation of our employees. SkyWest Airlines has never experienced a work stoppage due to a strike or other labor dispute, and we consider SkyWest Airlines’ relationships with its employees to be good.

As of December 31, 2005, ASA employed approximately 5,552 full-time equivalent employees consisting of 2,481 pilots and flight attendants, 1,747 customer service personnel, 895 mechanics and other maintenance personnel, and 429 administration and support personnel. Three of ASA’s employee groups are represented by unions. ASA’s pilots are represented by the Air Line Pilots Association International, ASA’s flight attendants are represented by the Association of Flight Attendants—CWA, and ASA’s flight controllers are represented by the Professional Airline Flight Control Association. The collective bargaining agreements between ASA and its pilots and flight attendants became amendable September 15, 2002 and September 26, 2003, respectively. ASA has been negotiating with the pilots and flight attendants unions since 2002 and 2003, respectively. Each of these negotiations is currently under the jurisdiction of mediators supplied by the National Mediation Board. The collective bargaining agreement between ASA and its flight controllers becomes amendable in April 2006. ASA has never experienced a work stoppage due to a strike or other labor dispute, and considers its relationships with employees to be good.

Government Regulation

All interstate air carriers, including SkyWest Airlines and ASA, are subject to regulation by the DOT, the FAA and other governmental agencies. Regulations promulgated by the DOT primarily relate to economic aspects of air service. The FAA requires operating, air worthiness and other certificates; approval of personnel who may engage in flight, maintenance or operating activities; record-keeping procedures in accordance with FAA requirements; and FAA approval of flight training and retraining programs. Generally, governmental agencies enforce their regulations through, among other ways, certifications, which are necessary for the continued operations of SkyWest Airlines and ASA, and proceedings, which can result in civil or criminal penalties or revocation of operating authority. The FAA can also issue maintenance directives and other mandatory orders relating to, among other things, grounding of aircraft, inspection of aircraft, installation of new safety-related items and the mandatory removal and replacement of aircraft parts.

We believe SkyWest Airlines and ASA are operating in compliance with FAA regulations and hold all necessary operating and airworthiness certificates and licenses. We incur substantial costs in maintaining current certifications and otherwise complying with the laws, rules and regulations to which SkyWest Airlines and ASA are subject. SkyWest Airlines’ and ASA’s flight operations, maintenance programs, record keeping and training programs are conducted under FAA approved procedures. SkyWest Airlines and ASA do not operate at any airports where landing slots are restricted.

All air carriers are required to comply with federal laws and regulations pertaining to noise abatement and engine emissions. All air carriers are also subject to certain provisions of the Federal Communications Act of 1934, as amended, because of their extensive use of radio and other communication facilities.

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SkyWest Airlines and ASA are also subject to certain other federal and state laws relating to protection of the environment, labor relations and equal employment opportunity. We believe that SkyWest Airlines and ASA are in compliance in all material respects with these laws and regulations.

Environmental Matters

SkyWest Airlines and ASA are subject to various federal, state, local and foreign laws and regulations relating to environmental protection matters. These laws and regulations govern such matters as environmental reporting, storage and disposal of materials and chemicals and aircraft noise. We are, and expect in the future to be, involved in various environmental matters and conditions at, or related to, our properties. We are not currently subject to any environmental cleanup orders or actions imposed by regulatory authorities. We are not aware of any active material environmental investigations related to our assets or properties.

Safety and Security

We are committed to the safety and security of our passengers and employees. Since the September 11, 2001 terrorist attacks, SkyWest Airlines and ASA have taken many steps, both voluntarily and as mandated by governmental agencies, to increase the safety and security of their operations. Some of the safety and security measures we have taken, along with our code-share partners, include: aircraft security and surveillance, positive bag matching procedures, enhanced passenger and baggage screening and search procedures, and securing of cockpit doors. We are committed to complying with future safety and security requirements.

Insurance

SkyWest Airlines and ASA maintain insurance policies that we believe are of types customary in the industry and in amounts we believe are adequate to protect against material loss. These policies principally provide coverage for public liability, passenger liability, baggage and cargo liability, property damage, including coverages for loss or damage to our flight equipment, and workers’ compensation insurance. We cannot assure, however, that the amount of insurance we carry will be sufficient to protect us from material loss.

Seasonality

Our results of operations for any interim period are not necessarily indicative of those for the entire year, since the airline industry is subject to seasonal fluctuations and general economic conditions. Our operations are somewhat favorably affected by increased travel on our pro-rate routes, historically occurring in the summer months, and are unfavorably affected by decreased business travel during the months from November through January and by inclement weather which occasionally results in cancelled flights, principally during the winter months.

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ITEM 1A. RISK FACTORS

In addition to factors discussed elsewhere in this Report, the following are important risks which could adversely affect our future results. Additional risks and uncertainties not presently known to us or that we currently do not deem material may also impair our business operations. If  any of the risks we describe below occur, or if any unforeseen risk develops, our operating results may suffer, our financial condition may deteriorate, the trading price of our common stock may decline and investors could lose all or part of their investment in us.

Risks Related to Our Operations

We are highly dependent on Delta and United.

The current terms of the SkyWest Airlines and ASA Delta Connection Agreements are subject to certain early termination provisions. Delta’s termination rights include cross-termination rights (meaning that a breach by SkyWest Airlines or ASA of its Delta Connection Agreement could, under certain circumstances, permit Delta to terminate both Delta Connection Agreements), the right to terminate each of the agreements upon the occurrence of certain force majeure events (including certain labor-related events) that prevent SkyWest Airlines or ASA from performance for certain periods and the right to terminate each of the agreements if SkyWest Airlines or ASA, as applicable, fails to maintain competitive base rate costs, subject to certain rights of SkyWest Airlines to take corrective action to reimburse Delta for lost revenues. The current term of our United Express Agreement is subject to certain early termination provisions and subsequent renewals. United may terminate the United Express Agreement due to an uncured breach by SkyWest Airlines of certain operational and performance provisions, including measures and standards related to flight completions, baggage handling and on-time arrivals.

If any of our code-share agreements are terminated pursuant to the terms of those agreements, due to the bankruptcy and restructuring proceedings of Delta and United, or otherwise, we would be significantly impacted and likely would not have an immediate source of revenue or earnings to offset such loss. A termination of any of these agreements would have a material adverse effect on our financial condition, operating revenues and net income unless we are able to enter into satisfactory substitute arrangements for the utilization of the affected aircraft by other code-share partners, or, alternatively, obtain the airport facilities and gates and make the other arrangements necessary to fly as an independent airline. We may not be able to enter into substitute code-share arrangements, and any such arrangements we might secure may not be as favorable to us as our current agreements. Operating our airline independent from major partners would be a significant departure from our business plan, would likely be very difficult and may require significant time and resources, which may not be available to us at that point.

We currently use Delta’s and United’s systems, facilities and services to support a significant portion of our operations, including airport and terminal facilities and operations, information technology support, ticketing and reservations, scheduling, dispatching, fuel purchasing and ground handling services. If Delta or United were to cease any of these operations or no longer provide these services to us, due to termination of one of our code-share agreements, a strike by Delta or United personnel or for any other reason, we may not be able to replace these services on terms and conditions as favorable as those we currently receive, or at all. Since our revenues and operating profits are dependent on our level of flight operations, we could then be forced to significantly reduce our operations. Furthermore, upon certain terminations of our code-share agreements, Delta and United could require us to sell or assign to them facilities and inventories, including maintenance facilities, we use in connection with the code-share services we provide. As a result, in order to offer airline service after termination of any of our code-share agreements, we may have to replace these airport facilities, assets and services. We may be unable to arrange such replacements on satisfactory terms, or at all.

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We may be negatively impacted by the troubled financial condition, bankruptcy proceedings and restructurings of Delta and United.

Substantially all of our revenues are attributable to our code-share agreements with Delta, which is currently reorganizing under Chapter 11 of the U.S. Bankruptcy Code, and United, which recently emerged from bankruptcy proceedings. The U.S. Bankruptcy Courts charged with administration of the Delta and United bankruptcy cases have entered final orders approving the assumption of our code-share agreements. Notwithstanding those approvals, these bankruptcies and restructurings present considerable continuing risks and uncertainties for our code-share agreements and, consequently, for our operations.

Although a plan of reorganization has been confirmed in the United bankruptcy proceedings, which became effective on February 1, 2006 (subject to pending appeals), and Delta reports that it intends to reorganize and emerge from its bankruptcy proceedings, there is no assurance that either of United or Delta will ultimately succeed in its reorganization efforts or that either Delta or United will remain a going concern over the long term. Likewise, even though both Delta and United have assumed our code-share agreements with bankruptcy court approval, there is no assurance that these agreements will survive the Chapter 11 cases. For example, the Delta reorganization could be converted to a liquidation, or Delta could liquidate some or all of its assets through one or more transactions with one or more third parties with bankruptcy court approval. In addition, Delta may not be able to confirm and consummate a successful plan of reorganization that provides for continued performance of its obligations under its code-share agreements with us. In the event United is not able to perform successfully under the terms of its plan of reorganization, assumption of our United Express Agreement could be subjected to similar risks.

Other aspects of the Delta and United bankruptcies and reorganizations pose additional risks to our code-share agreements. Delta may not be able to obtain bankruptcy court approval of various motions necessary for it to administer its bankruptcy case. As a consequence, Delta may not be able to maintain normal commercial terms with vendors and service providers, including other code-share partners, that are critical to its operations. Delta also may be unable to reach satisfactory resolutions of disputes arising out of collective bargaining agreements or to obtain sufficient financing to fund its business while it reorganizes. These and other factors not identified here could delay the resolution of the Delta bankruptcy and reorganization significantly and could threaten Delta’s operations. As to United, even though a plan of reorganization has been confirmed in the United bankruptcy proceedings, the order of confirmation is subject to pending appeals, and there is no assurance that United will be able to operate successfully under the terms of its confirmed plan.

In light of the importance of our code-share agreements with Delta and United to our business, the termination of these agreements or the failure of Delta to ultimately emerge from its bankruptcy proceeding could jeopardize our operations. Such events could leave us unable to operate much of our current aircraft fleet and the additional aircraft we are obligated to purchase. As a result, they could have a material adverse effect on our operations and financial condition.

Even though United has emerged from bankruptcy proceedings and if Delta is ultimately able to emerge from its bankruptcy proceedings, their respective financial positions will continue to pose risks for our operations. Serial bankruptcies are not unprecedented in the commercial airline industry, and Delta and/or United could file for bankruptcy again after emergence from Chapter 11, in which case our code-share agreements could be subject to termination under the U.S. Bankruptcy Code. Regardless of whether subsequent bankruptcy filings prove to be necessary, Delta and United have required, and will likely continue to require, our participation in efforts to reduce costs and improve their respective financial positions. These efforts could result in lower utilization rates of our aircraft, lower departure rates on the contract flying portion of our business, and more volatile operating margins. We believe that any of these developments could have a negative effect on many aspects of our operations and financial performance.

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We may not achieve the potential benefits of the ASA acquisition.

Our achievement of the potential benefits of the ASA acquisition will depend, in substantial part, on our ability to successfully implement our business strategy, including improving the utilization of equipment and facilities, increasing employee productivity and allocating overhead and administrative expenses over a larger platform. We will be unable to achieve the potential benefits of the ASA acquisition unless we are able to efficiently integrate the SkyWest Airlines and ASA operating platforms in a timely manner. The integration of SkyWest Airlines and ASA may be costly, complex and time-consuming, and the managements of SkyWest Airlines and ASA will have to devote substantial effort to such integration. If we are not able to successfully achieve these objectives, the potential benefits of the ASA acquisition may not be realized fully or at all, or it may take longer to realize than expected. In addition, assumptions underlying estimates of expected cost savings and expected revenues may be inaccurate, or general industry and business conditions may deteriorate. Our combined operations with ASA may experience increased competition that limits our ability to expand our business. We cannot assure you that the ASA acquisition will result in combined results of operations and financial condition consistent with our expectations or superior to what we and ASA could have achieved independently. Nor do we represent to you that any estimates or projections we have developed or presented in connection with the ASA acquisition can or will be achieved.

The amounts we receive under our code-share agreements may be less than the actual amounts of the corresponding costs we incur.

Under our code-share agreements with Delta and United, we are compensated for certain costs we incur in providing services. With respect to costs that are defined as “pass-through” costs, our code-share partner is obligated to pay to us the actual amount of the cost (and, with respect to the ASA Delta Connection Agreement, a pre-determined rate of return based upon the actual cost we incur). With respect to other costs, our code-share partner is obligated to pay to us amounts based, in part, on pre-determined rates for certain costs. During the year ended December 31, 2005, approximately 50% of our costs were pass-through costs and 50% of our costs were reimbursable at pre-determined rates. These pre-determined rates may not be based on the actual expenses we incur in delivering the associated services. If we incur expenses that are greater than the pre-determined reimbursement amounts payable by our code-share partners, our financial results will be negatively affected.

We have a significant amount of contractual obligations.

As of December 31, 2005, we had a total of approximately $1.8 billion in total long-term debt obligations. Substantially all of this long-term debt was incurred in connection with the acquisition of aircraft, engines and related spare parts including debt assumed in the ASA acquisition. We also have significant long-term lease obligations primarily relating to our aircraft fleet. These leases are classified as operating leases and therefore are not reflected as liabilities in our condensed consolidated balance sheets. At December 31, 2005, we had 247 aircraft under lease, with remaining terms ranging from one to 18 years. Future minimum lease payments due under all long-term operating leases were approximately $3.2 billion at December 31, 2005. At a 7% discount factor, the present value of these lease obligations was equal to approximately $2.1 billion at December 31, 2005. As of December 31, 2005, we had commitments of approximately $838 million to purchase 15 CRJ700s and 17 CRJ900s and to lease six CRJ200’s, together with related flight equipment. We expect to complete these deliveries by April 2007. Our high level of fixed obligations could impact our ability to obtain additional financing to support additional expansion plans or divert cash flows from operations and expansion plans to service the fixed obligations.

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There are risks associated with our regional jet strategy, including potential oversupply and possible passenger dissatisfaction.

Our selection of Bombardier Regional Jets as the primary aircraft for our existing operations and projected growth involves risks, including the possibility that there may be an oversupply of regional jets available for sale in the foreseeable future, due, in part, to the financial difficulties of regional and major airlines, including Delta, United, Northwest, Comair, Mesaba, and FLYi which is in the process of liquidating its regional jet fleet. A large supply of regional jets may allow other carriers, or even new carriers, to acquire aircraft for unusually low acquisition costs, allowing them to compete more effectively in the industry, which may ultimately harm our operations and financial performance.

Our regional jet strategy also presents the risk that passengers may find the Bombardier Regional Jets to be less attractive than other aircraft, including other regional jets. Recently, several other models of regional jets have been introduced by manufacturers other than Bombardier. If passengers develop a preference for other regional jet models, our results of operation and financial condition could be negatively impacted.

We may be limited from expanding our flying within the Delta and United flight systems, and there are constraints on our ability to provide airline services to airlines other than Delta and United.

Additional growth opportunities within the Delta and United flight systems are limited by various factors. Except as currently contemplated by our existing code-share agreements, we cannot assure that Delta or United will contract with us to fly any additional aircraft. We may not receive additional growth opportunities, or may agree to modifications to our code-share agreements that reduce certain benefits to us in order to obtain additional aircraft, or for other reasons. Furthermore, the troubled financial condition, bankruptcies and restructurings of Delta and United may reduce the growth of regional flying within their flight systems. Given the troubled nature of the airline industry, we believe that some of our competitors may be more inclined to accept reduced margins and less favorable contract terms in order to secure new or additional code-share operations. Even if we are offered growth opportunities by our major partners, those opportunities may involve economic terms or financing commitments that are unacceptable to us. Any one or more of these factors may reduce or eliminate our ability to expand our flight operations with our existing code-share partners. Additionally, even if Delta and/or United choose to expand our fleet on terms acceptable to us, they may be allowed at any time to subsequently reduce the number of aircraft covered by our code-share agreements. We also cannot assure you that we will be able to obtain the additional ground and maintenance facilities, including gates, and support equipment, to expand our operations. The failure to obtain these facilities and equipment would likely impede our efforts to implement our business strategy and could materially adversely affect our operating results and our financial condition.

Delta and/or United may be restricted in increasing their business with us, due to “scope” clauses in the current collective bargaining agreements with their pilots that restrict the number and size of regional jets that may be operated in their flight systems not flown by their pilots. Delta’s scope limitations restrict its partners from operating aircraft with over 70 seats even if those aircraft are operated for an airline other than Delta. We cannot assure that these scope clauses will not become more restrictive in the future. Any additional limit on the number of regional jets we can fly for our code-share partners could have a material adverse effect on our expansion plans and the price of our common stock.

Our business model depends on major airlines, including Delta and United, electing to contract with us instead of operating their own regional jets. Some major airlines, including Delta, American, US Airways and JetBlue, own their own regional airlines or operate their own regional jets instead of entering into contracts with regional carriers. We have no guarantee that in the future our code-share partners will choose to enter into contracts with us instead of operating their own regional jets. Our partners are not prohibited from doing so under our code-share agreements. A decision by Delta or United to phase out

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code-share relationships and instead acquire and operate their own regional jets could have a material adverse effect on our financial condition, results of operations or the price of our common stock.

Additionally, our code-share agreements limit our ability to provide airline services to other airlines in certain major airport hubs of each of Delta and United. Under the SkyWest Airlines Delta Connection Agreement, our growth is contractually restricted in Atlanta, Cincinnati, Orlando and Salt Lake City. Under the ASA Delta Connection Agreement, our growth is restricted in Atlanta, Cincinnati, New York (John F. Kennedy International Airport), Orlando and Salt Lake City. Under SkyWest Airlines’ United Express Agreement, growth is restricted in Chicago (O’Hare International Airport), Denver, Los Angeles, San Francisco, Seattle/Tacoma and Washington D.C. (Dulles International Airport).

Increased labor costs, strikes, labor disputes and increased unionization of our workforces may adversely affect our ability to conduct our business.

Our business is labor intensive, requiring large numbers of pilots, flight attendants, mechanics and other personnel. Labor costs constitute a significant percentage of our total operating costs. For example, during the year ended December 31, 2005, our labor costs constituted approximately 24.2% of our total operating costs. Increases in our unionized labor costs could result in a material reduction in our earnings and affect our revenue under our code-share agreements. Any new collective bargaining agreements entered into by other regional carriers may also result in higher industry wages and increased pressure on us to increase the wages and benefits of our employees. Future agreements with unionized and non-unionized employees may be on terms that are not as attractive as our current agreements or comparable to agreements entered into by our competitors.

ASA’s pilots, flight attendants and flight controllers are represented by unions, including:  The Air Line Pilots Association, International, the Association of Flight Attendants—CNA and the Professional Airline Flight Control Association. ASA’s pilots and flight attendants are currently working under open labor contracts, and ASA has been in negotiations with respect to such contracts since 2002 and 2003, respectively. Negotiations with unions representing SkyWest Airlines’ employees could divert management attention and disrupt operations, which may result in increased operating expenses and lower net income. Moreover, we cannot predict the outcome of any future negotiations relating to union representation or collective bargaining agreements.

SkyWest Airlines’ employees are not currently represented by any union; however, collective bargaining group organization efforts among those employees occur from time to time. We recognize that such efforts will likely continue in the future and may ultimately result in some or all of SkyWest Airlines’ employees being represented by one or more unions. Moreover, one or more unions representing ASA employees may seek a single carrier determination by the National Mediation Board, which could require SkyWest Airlines to recognize such union or unions as the certified bargaining representative of SkyWest Airlines’ employees. One or more unions representing ASA employees may also assert that SkyWest Airlines’ employees should be subject to ASA collective bargaining agreements. If SkyWest Airlines’ employees were to unionize or be deemed to be represented by one or more unions, negotiations with unions representing SkyWest Airlines’ employees could divert management attention and disrupt operations, which may result in increased operating expenses and lower net income. Moreover, we cannot predict the outcome of any future negotiations relating to union representation or collective bargaining agreements. Agreements reached in collective bargaining may increase operating expenses and lower operating results and net income. If unionizing efforts among SkyWest Airlines’ employees are successful, we may be subjected to risks of work interruption or stoppage and/or incur additional administrative expenses associated with union representation.

If we are unable to reach labor agreements with any current or future unionized work groups, we may be subject to work interruptions or stoppages, which may adversely affect our ability to conduct our operations and may even allow Delta or United to terminate their respective code-share agreements.

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We may be unable to obtain all of the aircraft, engines, parts or related maintenance and support services we require, which could have a material adverse impact on our business.

We rely on a limited number of aircraft types, and are dependent on Bombardier as the sole manufacturer of our regional jets. For the quarter ended December 31, 2005, 62.0% of our available seat miles were flown using CRJ200s, 31.0% of our available seat miles were flown using CRJ700s, 5.0% of our available seat miles were flown using Brasilia turboprops and 2.0% of our available seat miles were flown using ATR-72 turboprops. As of December 31, 2005, we had commitments of approximately $838 million to purchase 15 CRJ700s and 17 CRJ900s and to lease six CRJ200’s, together with related flight equipment.  Additionally, we had obtained options to acquire another 70 regional jets that can be delivered in either 70 or 90-seat configurations. Delivery dates for these aircraft remain subject to final determination as agreed upon by us and our major partners.

Any significant disruption or delay in the expected delivery schedule of our fleet would adversely affect our business strategy and overall operations and could have a material adverse impact on our operating results or our financial condition. Certain of Bombardier’s aerospace workers are represented by unions and have participated in at least one strike in recent history. Any future prolonged strike at Bombardier or delay in Bombardier’s production schedule as a result of labor matters could disrupt the delivery of regional jets to us, which could adversely affect our planned fleet growth. We are also dependent on General Electric as the manufacturer of our aircraft engines. General Electric also provides parts, repair and overhaul services, and other types of support services on our engines. Our operations could be materially and adversely affected by the failure or inability of Bombardier or General Electric to provide sufficient parts or related maintenance and support services to us on a timely or economical basis, or the interruption of our flight operations as a result of unscheduled or unanticipated maintenance requirements for our aircraft or engines. In addition, the issuance of FAA directives restricting or prohibiting the use of Bombardier aircraft types we operate would have a material adverse effect on our business and operations.

Maintenance costs will likely increase as the age of our regional jet fleet increases.

Because the average age of our CRJ700s and CRJ200s is approximately 1.4 and 4.2 years, respectively, our regional jet fleet requires less maintenance now than it will in the future. We have incurred relatively low maintenance expenses on our regional jet fleet because most of the parts on our regional jet aircraft are under multi-year warranties and a limited number of heavy airframe checks and engine overhauls have occurred. Our maintenance costs will increase significantly, both on an absolute basis and as a percentage of our operating expenses, as our fleet ages and these warranties expire. Under our United Express Agreement, specific amounts are included in the rates for future maintenance on CRJ200 engines used in our United Express operations. The actual cost of maintenance on CRJ200 engines may vary from the estimated rates.

If we incur problems with any of our third-party service providers, our operations could be adversely affected.

Our reliance upon others to provide essential services on behalf of our operations may limit our ability to control the efficiency and timeliness of contract services. We have entered into agreements with contractors to provide various facilities and services required for our operations, including fuel supply and delivery, aircraft maintenance, services and ground facilities, and expect to enter into additional similar agreements in the future. These agreements are subject to termination after notice. Any material problems with the efficiency and timeliness of our automated or contract services could have a material adverse effect on our business, financial condition and results of operations.

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Interruptions or disruptions in service at one of our hub airports, due to adverse weather or for any other reason, could have a material adverse impact on our operations.

We currently operate primarily through hubs in Atlanta, Los Angeles, San Francisco, Salt Lake City, Chicago, Denver, Cincinnati/Northern Kentucky and the Pacific Northwest. Nearly all of our flights will either originate or fly into one of these hubs. Our revenues depend primarily on our completion of flights and secondarily on service factors such as timeliness of departure and arrival. Any interruptions or disruptions could, therefore, severely and adversely affect us. Extreme weather can cause flight disruptions, and during periods of storms or adverse weather, fog, low temperatures, etc., our flights may be canceled or significantly delayed. Hurricanes Katrina and Rita, in particular, caused severe disruption to air travel in the affected areas and adversely affected airlines operating in the region, including ASA. We operate a significant number of flights to and from airports with particular weather difficulties, including Atlanta, Salt Lake City, Chicago and Denver. A significant interruption or disruption in service at one of our hubs, due to adverse weather or otherwise, could result in the cancellation or delay of a significant portion of our flights and, as a result, could have a severe impact on our business, operations and financial performance.

Fluctuations in interest rates could adversely affect our liquidity, operating expenses and results.

A substantial portion of our indebtedness bears interest at fluctuating interest rates. These are primarily based on the London interbank offered rate for deposits of U.S. dollars, or LIBOR. LIBOR tends to fluctuate based on general economic conditions, general interest rates, federal reserve rates and the supply of and demand for credit in the London interbank market. We have not hedged our interest rate exposure and, accordingly, our interest expense for any particular period may fluctuate based on LIBOR and other variable interest rates. To the extent these interest rates increase, our interest expense will increase, in which event, we may have difficulty making interest payments and funding our other fixed costs and our available cash flow for general corporate requirements may be adversely affected.

Our business could be harmed if we lose the services of our key personnel.

Our business depends upon the efforts of our chief executive officer, Jerry C. Atkin, and our other key management and operating personnel. We may have difficulty replacing management or other key personnel who leave and, therefore, the loss of the services of any of these individuals could harm our business. We do not maintain key-man insurance on any of our executives.

The Securities and Exchange Commission staff is investigating our accounting treatment of certain maintenance costs.

Effective January 1, 2002, we changed our method of accounting for certain engine overhaul expenses. In connection with this change, we restated our financial statements for the year ended December 31, 2001 and the first and second quarters of the year ended December 31, 2002. The staff of the SEC has been investigating the facts pertaining to this change in accounting method and the related restatements. We have cooperated with this investigation, and have offered to enter into a cease and desist order pursuant to which we would agree not to violate federal securities laws in the future. The SEC is currently reviewing our offer. If our offer is not accepted, we may be required to devote additional time and resources in responding to the investigation, and we could experience other adverse consequences.

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Risks Related to the Airline Industry

We may be materially affected by the uncertainty of the airline industry.

The airline industry has experienced tremendous challenges in recent years and will likely remain volatile for the foreseeable future. Among other factors, the financial challenges faced by major carriers, including Delta, United and Northwest, the slowing U.S. economy and increased hostilities in Iraq, the Middle East and other regions have significantly affected, and are likely to continue to affect, the U.S. airline industry. These events have resulted in declines and shifts in passenger demand, increased insurance costs, increased government regulations and tightened credit markets, all of which have affected, and will continue to affect, the operations and financial condition of participants in the industry, including us, major carriers (including our major partners), competitors and aircraft manufacturers. These industry developments raise substantial risks and uncertainties which will affect us, major carriers (including our major partners), competitors and aircraft manufacturers in ways that we are unable to currently predict.

The airline industry is highly competitive and has undergone a period of consolidation and transition leaving fewer potential code-share partners.

The airline industry is highly competitive. We not only compete with other regional airlines, some of which are owned by or operated as code-share partners of major airlines, but we also face competition from low-cost carriers and major airlines on many of our routes. Low-cost carriers such as Southwest, JetBlue, US Airways, and AirTran, among others, operate at many of our hubs, resulting in significant price competition. Additionally, a large number of other carriers operate at our hubs, creating intense competition. Certain of our competitors are larger and have significantly greater financial and other resources than we do. Moreover, federal deregulation of the industry allows competitors to rapidly enter our markets and to quickly discount and restructure fares. The airline industry is particularly susceptible to price discounting because airlines incur only nominal costs to provide service to passengers occupying otherwise unsold seats. Increased fare competition could adversely affect our operations and the price of our common stock. The airline industry has undergone substantial consolidation, and it may in the future undergo additional consolidation. Recent examples include the merger between America West Airlines and US Airways in September 2005, and American Airlines’ acquisition of the majority of Trans World Airlines’ assets in 2001. Other developments include domestic and international code-share alliances between major carriers, such as the “SkyTeam Alliance,” that includes Delta, Continental and Northwest, among others. Any additional consolidation or significant alliance activity within the airline industry could limit the number of potential partners with whom we could enter into code-share relationships and materially adversely affect our relationship with our code-share partners.

Terrorist activities or warnings have dramatically impacted the airline industry, and will likely continue to do so.

The terrorist attacks of September 11, 2001 and their aftermath have negatively impacted the airline industry in general, including our operations. The primary effects experienced by the airline industry include a substantial loss of passenger traffic and revenue. Although, to some degree, airline passenger traffic and revenue have recovered since the September 11th attacks, additional terrorist attacks could have a similar or even more pronounced effect. Even if additional terrorist attacks are not launched against the airline industry, there will be lasting consequences of the attacks, including increased security and insurance costs, increased concerns about future terrorist attacks, increased government regulation and airport delays due to heightened security. Additional terrorist attacks and the fear of such attacks could negatively impact the airline industry, and result in further decreased passenger traffic and yields, increased flight delays or cancellations associated with new government mandates, as well as increased security, fuel and other costs. We cannot provide any assurance that these events will not harm the airline industry generally or our operations or financial condition in particular.

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Rapidly increasing fuel costs have adversely affected, and will likely continue to adversely affect, the operations and financial performance of the airline industry.

The price of aircraft fuel is unpredictable and has increased significantly in recent periods. Higher fuel prices may lead to higher airfares, which would tend to decrease the passenger load of our code-share partners. In the long run, such decrease will have an adverse effect on the number of flights such partner will ask us to provide and the revenues associated with such flights. Additionally, fuel shortages have been threatened. The future cost and availability of fuel to us cannot be predicted, and substantial fuel cost increases or the unavailability of adequate supplies of fuel may have a material adverse effect on our results of operations. During periods of increasing fuel costs, our operating margins have been, and will likely continue to be, adversely affected.

We are subject to significant governmental regulation.

All interstate air carriers, including SkyWest Airlines and ASA, are subject to regulation by the DOT, the FAA and other governmental agencies. Regulations promulgated by the DOT primarily relate to economic aspects of air service. The FAA requires operating, air worthiness and other certificates; approval of personnel who may engage in flight, maintenance or operation activities; record keeping procedures in accordance with FAA requirements; and FAA approval of flight training and retraining programs. We cannot predict whether we will be able to comply with all present and future laws, rules, regulations and certification requirements or that the cost of continued compliance will not have a material adverse effect on our operations. We incur substantial costs in maintaining our current certifications and otherwise complying with the laws, rules and regulations to which we are subject. A decision by the FAA to ground, or require time-consuming inspections of or maintenance on, all or any of our aircraft for any reason may have a material adverse effect on our operations. In addition to state and federal regulation, airports and municipalities enact rules and regulations that affect our operations. From time to time, various airports throughout the country have considered limiting the use of smaller aircraft, such as our aircraft, at such airports. The imposition of any limits on the use of our aircraft at any airport at which we operate could have a material adverse effect on our operations.

The occurrence of an aviation accident would negatively impact our operations and financial condition.

An accident or incident involving one of our aircraft could result in significant potential claims of injured passengers and others, as well as repair or replacement of a damaged aircraft and its consequential temporary or permanent loss from service. In the event of an accident, our liability insurance may not be adequate to offset our exposure to potential claims and we may be forced to bear substantial losses from the accident. Substantial claims resulting from an accident in excess of our related insurance coverage would harm our operational and financial results. Moreover, any aircraft accident or incident, even if fully insured, could cause a public perception that our operations are less safe or reliable than other airlines.

Risks Related to Our Common Stock

We can issue additional shares without shareholder approval.

Our Restated Articles of Incorporation, as amended (the “Restated Articles”), authorize the issuance of up to 120,000,000 shares of common stock, all of which may be issued without any action or approval by our shareholders. As of December 31, 2005, we had 58,715,575 shares outstanding. In addition, we have a stock option plan under which 4,562 shares are reserved for issuance, and an employee stock purchase plan under which 2,500,000 shares are reserved for issuance, both of which may dilute the ownership interests of our shareholders. The issuance of any additional shares of common stock would further dilute the percentage ownership of existing shareholders. Our Restated Articles also authorize the issuance of up to 5,000,000 shares of preferred stock. Our board of directors has the authority to issue preferred stock with the rights and preferences, and at the price, which it determines. Any shares of preferred stock issued

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would likely be senior to shares of our common stock in various regards, including dividends, payments upon liquidation and voting. The value of our common stock could be negatively affected by the issuance of any shares of preferred stock.

We issued more shares of common stock than were authorized by our employee stock purchase plan, which could result in administrative sanctions or other adverse consequences.

During the quarter ended December 31, 2005, we discovered that in January and July 2005 we issued shares of common stock to our employees under the SkyWest, Inc. 1995 Employee Stock Purchase Plan (the “Employee Stock Purchase Plan”) that exceeded the number of shares authorized for issuance under the Employee Stock Purchase Plan. In an effort to address the over issuance, we amended the SkyWest, Inc. Executive Stock Incentive Plan (the “Executive Plan”) and the SkyWest, Inc. 2001 Allshare Stock Option Plan (the “Allshare Plan”) to reduce the number of shares issuable pursuant to those plans by a number that exceeded the number of shares issued in excess of the number of shares authorized pursuant to the Employee Stock Purchase Plan. On February 8, 2006, after reviewing the issues associated with the over issuance, the staff of The Nasdaq Stock Market notified us that the  over issuance violated the shareholder approval rule set forth in Nasdaq Marketplace Rule 4350(i)(1)(A). The Nasdaq staff letter also notified us that the reduction in the number of shares issuable pursuant to the Executive Plan and the Allshare Plan, both of which had been previously approved by our shareholders, had the effect of restoring our compliance with Marketplace Rule 4350(i)(1)(A). The Nasdaq staff letter indicates that, as of the date of the letter, the matter is closed.

As discussed below in Item 5. Market for Registrant’s Common Equity, Related Stock holder Matters and Issuer Purchases of Equity Securities, the issuances of the shares of common stock that exceeded the number authorized by the Employee Stock Purchase Plan were not registered under the Securities Act of 1933, as amended (the “Securities Act”). The failure to register those issuances could result in administrative sanctions against us or have other adverse consequences to us.

Distribution of dividends may decrease or cease.

Historically, we have paid dividends in varying amounts on our common stock. The future payment and amount of cash dividends will depend upon our financial condition and results of operations, loan covenants and other factors deemed relevant by our board of directors. There can be no assurance that we will continue our practice of paying dividends on our common stock or that we will have the financial resources to pay such dividends.

Provisions of our charter documents and code-share agreements may affect the ability or desire of others to gain control of our company.

Our ability to issue preferred and common shares without shareholder approval may have the effect of delaying or preventing a change in control and may adversely affect the voting and other rights of the holders of our common stock, even in circumstances where such a change in control would be viewed as desirable by most investors. The provisions of the Utah Control Shares Acquisition Act may also discourage the acquisition of a significant interest in or control of our company. Additionally, our code-share agreements contain termination and extension trigger provisions related to change in control type transactions that may have the effect of deterring a change in control of our company.

ITEM 1B.UNRESOLVED STAFF COMMENTS

None

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ITEM 2.PROPERTIES

Flight Equipment

As of December 31, 2005, we owned or leased a fleet of aircraft, consisting of the following types of aircraft:

Aircraft Type	Number of Owned Aircraft		Number of Leased Aircraft		Passenger Capacity		Scheduled Flight Range (miles)		Average Cruising Speed (mph)		Average Age (years)
CRJ200s		69		160		50		1,100		530		4.2
CRJ700s		42		35		70		1,600		530		1.4
Brasilia Turboprops		14		48		30		300		300		8.9
ATR-72 Turboprops		—		12		66		300		300		12.2

SkyWest Airlines and ASA have combined firm orders to acquire 32 additional CRJ700s (which can be delivered in configurations ranging between 70 and 90 seats) over the next two years and ASA is committed to sublease six CRJ200s from Delta commencing in 2006. SkyWest and ASA do not presently have orders for additional aircraft other than these Bombardier Regional Jets. Gross committed expenditures for these 32 aircraft and related equipment, including estimated amounts for contractual price escalations will be approximately $838 million through April 2007. We presently are receiving these aircraft on an incremental schedule, and anticipate that delivery dates for these aircraft could continue through approximately April 2007; however, actual delivery dates remain subject to final determination based on various factors. SkyWest Airlines and ASA have also obtained combined options for another 70 Bombardier Regional Jets that can be delivered in either 70 or 90-seat configurations.

The following table outlines the number of Bombardier Regional Jets that SkyWest Airlines and ASA are scheduled to receive during each of the periods set forth below and the expected size and composition of our combined fleet following the receipt of these aircraft.

	During the fiscal year ended December 31,
	2006		2007		2008		2009
Additional CRJ200s		6		0		0		0
Additional CRJ700s		24		8		0		0
Total Bombardier Regional Jets		336		344		344		344
Total Brasilia Turboprops		61		60		59		57
Total ATR-72 Turboprops		12		0		0		0
Total Combined Fleet		409		404		403		401

Bombardier Regional Jets

The Bombardier Regional Jets are among the quietest commercial jets currently available and offer many of the amenities of larger commercial jet aircraft, including flight attendant service, as well as a stand-up cabin, overhead and underseat storage, lavatories and in-flight snack and beverage service. The speed of Bombardier Regional Jets is comparable to larger aircraft operated by the major airlines, and they have a range of approximately 1,600 miles; however, because of their smaller size and efficient design, the per-flight cost of operating a Bombardier Regional Jet is generally less than that of a 120-seat or larger jet aircraft.

Brasilia Turboprops

The Brasilia turboprops are 30-seat, pressurized aircraft designed to operate more economically over short-haul routes than larger jet aircraft. These factors make it economically feasible for SkyWest Airlines to provide high frequency service in markets with relatively low volumes of passenger traffic. Passenger

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comfort features of the Brasilia turboprops include stand-up headroom, a lavatory, overhead baggage compartments and flight attendant service. We expect that Delta and United will want us to continue to operate Brasilia turboprops in markets where passenger load and other factors make the operation of a Bombardier Regional Jet impractical. As of December 31, 2005, SkyWest Airlines operated 62 Brasilia turboprops out of Los Angeles, San Francisco, Salt Lake City, Seattle/Tacoma and Portland. SkyWest Airlines’ Brasilia turboprops are generally used in its California markets, which are characterized by high frequency service on shorter stage lengths.

ATR-72 Turboprops

While ASA currently operates twelve ATR-72 turboprops out of Atlanta, we expect that these aircraft will be removed from service by August 2007.

Ground Facilities

SkyWest Airlines and ASA own or lease the following principal properties:

SkyWest Airlines Facilities

·SkyWest Airlines owns a 56,600 square foot aircraft maintenance facility in Palm Springs, California

·SkyWest Airlines leases a 131,300 square foot facility at the Salt Lake International Airport. This facility consists of a 58,400 square foot aircraft maintenance hangar and 72,900 square feet of training and office space. In January 2002, we entered into a sale lease-back agreement with the Salt Lake Airport Authority. Under the agreement, we received approximately $18 million in cash in exchange for the newly constructed facility and entered into a 26-year operating lease agreement. The sales price was equal to the construction costs and no gain or loss was recognized.

·SkyWest Airlines leases a 90,000 square foot aircraft maintenance and training facility at the Salt Lake City International Airport. The Salt Lake City facility consists of 40,000 square feet of maintenance facilities and 50,000 square feet of training and other facilities. We originally constructed the Salt Lake City facility which we subsequently sold to and leased back from the Salt Lake City Airport Authority. SkyWest Airlines is leasing the facility under an operating lease arrangement over a 36-year term.

·SkyWest Airlines leases a 90,000 square foot maintenance hanger and a 15,000 square foot office facility in Fresno, California.

·SkyWest Airlines leases a 28,000 square foot maintenance hanger in Tucson, Arizona.

·SkyWest Airlines leases ticket counters, check-in and boarding and other facilities in the passenger terminal areas in the majority of the airports it serves and staffs those facilities with SkyWest Airlines personnel. Other airlines, including Delta and United, provide ticket handling and/or ground support services for SkyWest Airlines in 54 of the 121 airports to which SkyWest Airlines flies.

·We own the corporate headquarters facilities of SkyWest and SkyWest Airlines, located in St. George, Utah, in two adjacent buildings of 63,000 and 55,000 square feet, respectively. Both facilities were internally funded with cash generated from operations and were subsequently refinanced with third-party debt.

ASA Facilities

·ASA leases 61,000 square feet in an office building located at the Hartsfield-Jackson Atlanta International Airport which serves as ASA’s corporate headquarters. The lease expires on April 30, 2008.

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·ASA leases a 78,550 square foot aircraft maintenance facility in Macon, Georgia. The Macon facility also contains a 7,500 square foot training and storage facility. The Macon facility is bond-financed, with the lease expiring in 2018.

·ASA leases a 39,000 square foot aircraft maintenance facility in Baton Rouge, Louisiana. ASA has the right to occupy the Baton Rouge facility rent-free until 2022.

·ASA leases a 63,800 square foot parts storage facility located near the Hartsfield-Jackson Atlanta International Airport.

·ASA leases smaller aircraft line maintenance facilities in Atlanta, Georgia; Salt Lake City, Utah; Columbia, South Carolina; Fort Walton Beach, Florida; Montgomery, Alabama; and Shreveport, Louisiana.

·ASA uses 26 gates at the Hartsfield-Jackson Atlanta International Airport:  13 gates are leased directly from the airport authority, six gates are subleased from US Air, five gates are subleased from Delta and two gates are used pursuant to a month-to-month arrangement. ASA intends to lease from Delta three additional gates effective December 1, 2005.

·ASA leases ticket counters, check-in and boarding and other facilities in the passenger terminal areas in the majority of the airports it serves and staffs those facilities with ASA personnel. Other airlines, including Delta, provide ticket handling and/or ground support services for ASA in 84 of 123 airports ASA serves.

Our management deems SkyWest Airlines’ and ASA’s current facilities as being suitable and necessary to support existing operations and believes these facilities will be adequate for the foreseeable future.

ITEM 3.LEGAL PROCEEDINGS

We are subject to certain legal actions which we consider routine to our business activities. As of December 31, 2005, our management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters is not likely to have a material adverse effect on our financial position, liquidity or results of operations. The most significant of these matters is summarized below:

Securities and Exchange Commission

Effective January 1, 2002, we changed our method of accounting for CRJ200 engine overhaul expenses. In connection with the change in accounting method, we restated our financial statements for the year ended December 31, 2001 and the first and second quarters of the year ended December 31, 2002. The restated financial information, together with a discussion of the change in accounting method, was presented in Amendment No. 1 on our Form 10-K/A for the year ended December 31, 2001 and Amendments No. 1 on our Forms 10-Q/A for the quarters ended June 30, 2002 and June 30, 2002. The staff of the SEC is currently conducting an investigation of the facts pertaining to the change in our accounting method and other changes presented in the restatement of our financial statements. We do not believe that any of the matters under investigation constitute a violation of law. In June 2005, after extensive discussions with the SEC staff, we presented to the SEC an offer to enter into a cease and desist order pursuant to which we would agree not to violate federal securities laws in the future. The SEC is currently evaluating our proposal; however, there can be no assurance that our offer will be accepted. We continue to cooperate with the SEC in an effort to resolve the investigation.

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

No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2005.

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PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price for Our Common Stock

Our common stock is traded on The Nasdaq National Market under the symbol “SKYW.” At March 10, 2006, there were approximately 1,158 stockholders of record. Securities held of record do not include shares held in securities position listings. The following table sets forth the range of high and low closing sales prices for our common stock, during the periods indicated.

	2005				2004
Quarter	High		Low		High		Low
First	$	20.30	$	16.05	$	20.51	$	17.11
Second	19.76		17.35		19.91		16.00
Third	26.82		18.08		16.88		13.07
Fourth	32.84		26.25		20.35		14.49

The transfer agent for our common stock is Zions First National Bank, Salt Lake City, Utah.

Dividends

During 2005 and 2004, our Board of Directors declared regular quarterly dividends of $0.03 per share. On November 2, 2005, our  Board of Directors declared a regular quarterly cash dividend of $0.03 per share payable to stockholders of record on December 31, 2005 and paid the dividend on January 6, 2006.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table contains information regarding our equity compensation plans as of December 31, 2005.

Plan Category	Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights			Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in the First Column)
Equity compensation plans approved by security holders(1)		6,301,002		$	18.38		1,794,562
Equity compensation plans not approved by security holders		—		—			2,500,000

(1)Consists of our Executive Stock Incentive Plan and our All Share Stock Option Plan. See Note 5 to our Consolidated Financial Statements for the fiscal year ended December 31, 2005, included in Item 8 of this Report, for additional information regarding these plans.

Sales of Unregistered Securities

During the quarter ended December 31, 2005, we discovered that we had issued an aggregate of 2,329,606 shares of common stock to certain of our employees participating in our Employee Stock Purchase Plan. After giving effect to stock splits occurring on June 8, 1998 and December 15, 2000, the number of shares of common stock which we were authorized to sell under our Employee Stock Purchase Plan, and with respect to which we had filed a Registration Statement on Form S-8, was 2,000,000. Accordingly, we concluded that the issuance of 329,606 shares of our common stock was not registered under the Act.

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Of the shares sold in excess of the Employee Stock Purchase Plan’s authorized limit, 154,126 shares were sold on January 4, 2005 at a price of $14.35 per share and 175,480 shares were sold on July 5, 2005 at a price of $15.45 per share. Pursuant to the provisions of the Employee Stock Purchase Plan, the amounts paid by the participating employees for the shares were withheld as payroll deductions from compensation we would have otherwise paid to such employees during the six-month period preceding the month of each sale.

ITEM 6.SELECTED FINANCIAL AND OPERATING DATA

The following selected financial and operating data of should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and related notes included elsewhere in this Report.

Selected Consolidated Financial Data (amounts in thousands, except per share data):

	Year Ended December 31,
	2005(2)			2004			2003			2002			2001
Operating revenues	$	1,964,048		$	1,156,044		$	888,026		$	774,447		$	601,865
Operating income	220,408			144,776			108,480			119,555			65,564
Income before cumulative effect of change in accounting principle	112,267			81,952			66,787			78,277			50,516
Net income	112,267			81,952			66,787			86,866			50,516
Net income per common share:
Basic	$	1.94		$	1.42		$	1.16		$	1.52		$	0.90
Diluted	1.90			1.40			1.15			1.51			0.88
Weighted average shares:
Basic	57,851			57,858			57,745			57,229			56,365
Diluted	58,933			58,350			58,127			57,551			57,237
Total assets	$	3,320,646		$	1,662,287		$	1,529,210		$	999,384		$	831,566
Current assets	693,632			712,337			670,368			513,233			386,556
Current liabilities	615,917			170,467			151,959			121,388			115,738
Long-term debt, net of current maturities	1,422,758			463,233			462,773			125,379			113,688
Stockholders’ equity	913,198			779,055			709,063			638,686			545,840
Return on average equity(1)	13.2		%	11.0		%	9.9		%	14.7		%	9.8		%

(1)Calculated by dividing net income by the average of beginning and ending stockholders’ equity for the year.

(2)On September 7, 2005, we completed the acquisition of ASA from Delta for $421.3 million in cash. We paid $5.3 million of transaction fees and ASA assumed approximately $1.25 billion in long-term debt and related assets. Our 2005 consolidated operating revenues contain 114 days of additional revenue generated by the ASA acquisition.

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Selected Operating Data

	Year Ended December 31,
	2005		2004		2003		2002		2001
Block hours	866,975		589,129		482,158		405,007		356,370
Departures	623,307		464,697		395,631		351,631		333,383
Passengers carried	20,343,975		13,424,520		10,738,691		8,388,935		6,229,867
Revenue passenger miles (000)	9,538,906		5,546,069		4,222,669		2,990,753		1,732,180
Available seat miles (000)	12,718,973		7,546,318		5,875,029		4,356,053		2,837,278
Load factor	75.0	%	73.5	%	71.9	%	68.7	%	61.1	%
Break-even load factor	68.6	%	65.5	%	63.9	%	58.4	%	54.4	%
Yield per revenue passenger mile	20.3	¢	20.5	¢	20.9	¢	25.7	¢	34.4	¢
Revenue per available seat mile	15.4	¢	15.3	¢	15.1	¢	17.8	¢	21.2	¢
Cost per available seat mile	14.1	¢	13.6	¢	13.4	¢	15.1	¢	18.9	¢
Average passenger trip length	469		413		393		356		278
Number of operating aircraft at end of year	380		206		185		149		131

Quarterly Financial Data

	Year Ended December 31, 2005
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter(1)			Year
Operating revenues (000)	$	340,292	$	384,043	$	497,349		$	742,364	$	1,964,048
Operating income (000)	34,446		44,596		55,994			85,372		220,408
Net income (000)	18,765		24,757		30,060			38,685		112,267
Net income per common share:
Basic	$	0.33	$	0.43	$	0.52		$	0.66	$	1.94
Diluted	0.32		0.42		0.51			0.64		1.90
Weighted average common shares:
Basic	57,668		57,671		57,846			58,218		57,851
Diluted	58,197		58,323		59,016			60,197		58,933

(1)On September 7, 2005, we completed the acquisition of ASA and our fourth quarter  operating revenues contain 114 days of additional revenue generated by the ASA acquisition.

The following terms used in this section and elsewhere in this Report have the meanings indicated below:

“Revenue passenger miles” represents the number of miles flown by revenue passengers.

“Available seat miles” represents the number of seats available for passengers multiplied by the number of miles the seats are flown.

“Load factor” represents the percentage of aircraft seating capacity that is actually utilized (revenue passenger miles divided by available seat miles).

“Breakeven load factor” is the passenger load factor that will result in operating revenues being equal to operating expenses, assuming constant revenue per passenger mile and expenses.

“Yield per passenger mile” represents the average amount one passenger pays to fly one mile.

“Passenger revenue per available seat mile” represents passenger revenue divided by available seat miles.

“Operating cost per available seat mile” represents operating expenses plus interest divided by available seat miles.

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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis presents factors that had a material effect on our results of operations during the years ended December 31, 2005, 2004 and 2003. Also discussed is our financial position as of the end of December 31, 2005 and 2004. You should read this discussion in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this report or incorporated herein by reference. This discussion and analysis contains forward-looking statements. Please refer to the sections of this Report entitled ‘‘Cautionary Statement Concerning Forward-Looking Statements’’ and “Item 1A. Risk Factors” for discussion of the uncertainties, risks and assumptions associated with these statements.

Overview

Through SkyWest Airlines and ASA, we operate the largest regional airline in the United States. As of December 31, 2005, SkyWest Airlines and ASA offered scheduled passenger and air freight service with more than 2,400 total daily departures to 218 destinations in the United States, Canada, Mexico and the Caribbean. Additionally, we provide ground handling services for approximately ten other airlines throughout our system. As of December 31, 2005, our consolidated fleet consisted of 229 CRJ200s (66 assigned to United and 163 assigned to Delta, including ten CRJ100s which have been upgraded to conform to the manufacturer’s specifications for CRJ200s) 77 CRJ700s (42 assigned to United and 35 assigned to Delta), 62 Brasilia turboprops (48 assigned to United and 14 assigned to Delta), and 12 ATR-72 turboprops (all assigned to Delta). We believes our success in attracting multiple contractual relationships with major airline partners is attributable to our delivery of high-quality customer service with an all cabin-class fleet at a competitive cost structure. For the month ended December 31, 2005, approximately 59.9% of our aggregate capacity was operated under the Delta code and approximately 40.1% was operated under the United code.

SkyWest Airlines has been a partner with Delta in Salt Lake City and United in Los Angeles since 1987 and 1997, respectively. In 1998, SkyWest Airlines expanded its relationship with United to provide service in Portland, Seattle/Tacoma, San Francisco and additional Los Angeles markets. In 2001, SkyWest Airlines expanded its operations to serve as the Delta Connection in Dallas/Fort Worth. However, effective January 31, 2005, SkyWest Airlines re-deployed all its Delta Connection flights to Salt Lake City as a result of Delta’s decision to “de-hub” its Dallas/Fort Worth operations. In 2004, SkyWest Airlines expanded its United Express operations to provide service in Chicago. As of December 31, 2005, SkyWest Airlines operated as a Delta Connection carrier in Salt Lake City, and a United Express carrier in Los Angeles, San Francisco, Denver, Chicago and the Pacific Northwest, operating more than 1,500 total daily flights.  In April 2003, SkyWest Airlines signed an agreement with Continental to supply Continental with regional airline feed into Continental’s Houston hub beginning on July 1, 2003. The Continental flying represented only approximately 1.5% of our “available seat miles” or “ASMs” during 2004, and generated less than 1.0% of our 2005 operating income. In January 2005, we announced the mutual decision with Continental to end SkyWest Airlines’ operations as a Continental Connection carrier and we completed the phase-out process on July 1, 2005.

On September 7, 2005, we completed the acquisition of ASA from Delta for $421.3 million in cash. Additionally, as part of the purchase, we paid $5.3 million of transaction fees and ASA assumed approximately $1.25 billion in long-term debt. In addition, we returned to Delta $50 million in deposits that Delta had previously paid on future ASA aircraft deliveries. We believe the combination of SkyWest Airlines and ASA presents our company with new opportunities for growth through our two geographically-focused regional airline platforms—SkyWest Airlines in the Western United States and ASA in the Eastern United States. We now provide the vast majority of regional airline service for Delta in Atlanta, its most important eastern hub, and Salt Lake City, its most important western hub. In connection with the ASA acquisition, we have established new, separate, but substantially similar, long-term fixed-fee

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Delta Connection Agreements with Delta for both SkyWest Airlines and ASA. We also obtained control of 26 gates in the Hartsfield-Jackson International Airport located in Atlanta, from which we currently provide service to Delta. Delta has committed to provide to us opportunities to utilize 28 additional regional jets in our fleet by the end of 2007. Delta has also agreed that, starting in 2008, ASA is guaranteed to maintain its percentage of total Delta Connection flights that it has in 2007, so long as its bid for additional regional flying is competitive with other regional carriers.

ASA has been a code-share partner with Delta in Atlanta since 1984. ASA expanded its operations as a Delta Connection carrier to also include Cincinnati/Northern Kentucky and Salt Lake City in September 2002 and April 2003, respectively. ASA operates approximately 850 daily flights, all in the Delta Connection system.

Historically, multiple contractual relationships have enabled us to reduce reliance on any single major airline code and to enhance and stabilize operating results through a mix of our controlled or “pro-rate” flying and contract flying. On contract routes, the major airline partner controls scheduling, ticketing, pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on the completed block hours, flight departures and other operating measures. On pro-rate flights, we control scheduling, ticketing, pricing and seat inventories and receive a pro-rated portion of passenger fares. Since August 1, 2003, substantially all of our flights have been contract flights. For the year ended December 31, 2005, essentially all of our Brasilia turboprops flown for Delta were flown under pro-rate arrangements while approximately 92% of our Brasilia turboprops flown in the United system were flown under contractual arrangements, with the remaining nine percent flown under pro-rate arrangements.

In September 2005, Delta filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Prior to the date of Delta’s bankruptcy filing, each of SkyWest Airlines and ASA entered into an amended Delta Connection Agreement which provides for a 15-year term, subject to certain termination and extension rights. Delta received all necessary approvals from the U.S. Bankruptcy Court and the Delta Connection Agreements were assumed by Delta on October 6, 2005. Under the terms of its Delta Connection Agreement, SkyWest Airlines is compensated primarily on a fee-per-completed-block hour and departure basis, is reimbursed for fuel and other direct costs, and is paid a margin based on completed block hours. Under its Delta Connection Agreement, ASA is compensated primarily on a fee-per-completed-block-hour basis, is directly reimbursed for fuel and other costs, and is paid a margin based on performance incentives. Notwithstanding the assumption by Delta of the Delta Connection Agreements, Delta’s bankruptcy filing could still lead to many other unforeseen expenses, risks and uncertainties for SkyWest Airlines, ASA or both.

Although Delta has reported that it intends to reorganize and emerge from its ongoing Chapter 11 bankruptcy proceeding, it could convert its reorganization proceeding to a liquidation proceeding under the U.S. Bankruptcy Code or liquidate some or all of its assets through one or more transactions with third parties. Such events could jeopardize our Delta Connection operations, leave us unable to efficiently utilize the additional aircraft which we are currently obligated to purchase, or result in other outcomes which could have a material adverse effect on our operating results or financial condition.

Although a plan of reorganization has been confirmed in United’s bankruptcy proceedings, which became effective on February 1, 2006 (subject to pending appeals), there is no assurance that United’s plan will ultimately succeed. Among other uncertainties, United’s order of confirmation is subject to pending appeals. There is no assurance that United will be able to operate successfully under the terms of its plan. In the event United is not able to perform successfully under the terms of its plan, our United Express operations could be jeopardized, which could have a material adverse effect on our operating results or financial condition.

On February 4, 2005, we announced that SkyWest had been selected by United to operate 20 new CRJ700s in its United Express operations, and that SkyWest had placed a firm order for these CRJ700s

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with Bombardier. Deliveries of these aircraft began in the third quarter of 2005 and we expect these deliveries to be completed by the first quarter of 2006. Our total firm aircraft orders and commitments, as of December 31, 2005, consisted of orders for 15 CRJ700s, 17 CRJ900s and commitments to lease six CRJ200’s from Delta. Total expenditures for these aircraft and related flight equipment, including amounts for contractual price escalations is estimated to be approximately $838 million through April 2007. Additionally, our agreement with Bombardier includes options for another 70 aircraft that can be delivered in either 70 or 90-seat configurations. We presently anticipate that delivery dates for these aircraft could start in January 2007 and continue through April 2010; however, actual delivery dates remain subject to final determination as agreed upon by us and our code-share partners.

Critical Accounting Policies

Our significant accounting policies are summarized in Note 1 to our consolidated financial statements for the year ended December 31, 2005, included in Item 8 of this Report. Critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management’s subjective and complex judgments due to the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to revenue recognition, aircraft maintenance, aircraft leases and impairment of long-lived assets and intangibles as discussed below. The application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results will differ, and could differ materially from such estimates.

Revenue Recognition

Passenger and ground handling revenues are recognized when service is provided. Under our contract and pro-rate flying agreements with our code-share partners, revenue is considered earned when the flight is completed. In the event that our contractual rates have not been finalized at quarterly or annual financial statement dates, we record revenues based on a prior period’s approved rates, adjusted to reflect management’s current estimate of the results of the then-current contract negotiations. Our agreements with our code-share partners contain certain provisions pursuant to which the parties could terminate the respective agreements, subject to certain rights of the other party, if certain performance criteria are not maintained. Our revenues could be impacted by a number of factors, including changes to the code-share agreements, contract modifications resulting from contract renegotiations and our ability to earn incentive payments contemplated under applicable agreements.

Maintenance

We use the direct-expense method of accounting for our regional jet aircraft engine overhaul costs. Under this method, the maintenance liability is not recorded until the maintenance services are performed, thus substantially reducing significant estimates and judgments inherent under the accrual method. We use the “deferral method” of accounting for our Brasilia turboprop engine overhauls, which provides for engine overhaul costs to be capitalized and depreciated over the estimated useful life of the engine. For leased aircraft, we are subject to lease return provisions that require a minimum portion of the “life” of an overhaul be remaining on the engine at the lease return date. With respect to engine overhauls related to leased Brasilia turboprops to be returned, we adjust the estimated useful lives of the final engine overhauls based on the respective lease return dates. With respect to SkyWest Airlines, a third-party vendor provides our long-term engine services covering the scheduled and unscheduled repairs for engines on our CRJ700s. Under the terms of the agreement, we pay a set dollar amount per engine hour flown on a monthly basis and the third-party vendor assumes the obligation to repair the engines at no additional cost to us, subject to certain specified exclusions.

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Aircraft Leases

The majority of SkyWest Airlines’ aircraft are leased from third parties, while ASA’s aircraft are primarily debt-financed on a long-term basis. In order to determine the proper classification of our leased aircraft as either operating leases or capital leases, we must make certain estimates at the inception of the lease relating to the economic useful life and the fair value of an asset as well as select an appropriate discount rate to be used in discounting future lease payments. These estimates are utilized by management in making computations as required by existing accounting standards that determine whether the lease is classified as an operating lease or a capital lease. All of our aircraft leases have been classified as operating leases, which results in rental payments being charged to expense over the terms of the related leases. Additionally, operating leases are not reflected in our condensed consolidated balance sheet and accordingly, neither a lease asset nor an obligation for future lease payments is reflected in our condensed consolidated balance sheet.

Impairment of Long-Lived and Intangible Assets

As of December 31, 2005, we had approximately $2.6 billion of property and equipment and related assets. Additionally, as of December 31, 2005, we had approximately $33.0 million in intangible assets. In accounting for these long-lived and intangible assets, we make estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate. We recorded an intangible of approximately $33.0 million relating to the acquisition of ASA. The intangiblel is being amortized over fifteen years under the strait-line method. As of December 31, 2005, we had recorded $718,000 in amortization expense. Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long-lived assets. On a periodic basis, we evaluate whether the book value of our aircraft is impaired in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  Based on the results of the evaluations, our management concluded no impairment was necessary as of December 31, 2005. However, there is inherent risk in estimating the future cash flows used in the impairment test. If cash flows do not materialize as estimated, there is a risk the impairment charges recognized to date may be inaccurate, or further impairment charges may be necessary in the future.

Results of Operations

2005 Compared to 2004

Operating Statistics.The following table sets forth our major operational statistics and the percentage-of-change for the years identified below.

	Year ended December 31,
	2005		2004		% Change
Passengers carried	20,343,975		13,424,520			51.5
Revenue passenger miles (000)	9,538,906		5,546,069			72.0
Available seat miles (000)	12,718,973		7,546,318			68.5
Passenger load factor	75.0	%	73.5	%		1.5 pts
Passenger breakeven load factor	68.6	%	65.5	%		3.1 pts
Yield per revenue passenger mile	20.3	¢	20.5	¢		(1.0	)
Revenue per available seat mile	15.4	¢	15.3	¢		0.7
Cost per available seat mile	14.1	¢	13.6	¢		3.7
Fuel cost per available seat mile	4.6	¢	3.3	¢		39.4
Average passenger trip length (miles)	469		413			13.6

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Our total ASMs generated during the year ended December 31, 2005 increased 68.5% from the year ended December 31, 2004. The increase in ASMs was primarily a result of increasing the size of our aircraft fleet, including our acquisition of ASA, from 206 aircraft as of December 31, 2004, to 380 aircraft as of December 31, 2005. On the date we acquired ASA, ASA’s fleet consisted of 149 aircraft (35 CRJ700s, 102 CRJ200s and 12 ATRs). In addition to the aircraft acquired in connection with the acquisition of ASA, we took delivery of 30 CRJ 700s and two CRJ200s during the year ended December 31, 2005.

Net Income.Net income increased to $112.3 million, or $1.90 per diluted share, for the year ended December 31, 2005, compared to $81.9 million, or $1.40 per diluted share, for the year ended December 31, 2004. Factors relating to the change in net income are discussed below.

Operating revenues increased 69.9% for the year ended December 31, 2005, compared to the year ended December 31, 2004. The increase in total operating revenues was primarily due to the acquisition of ASA. Airline operating and interest expenses, excluding fuel charges, per ASM decreased 7.8% to 9.5¢ for the year ended December 31, 2005, from 10.3¢ for the year ended December 31, 2004. The primary reason for the decrease was the increased capacity of our regional jet aircraft and the increase in stage lengths flown by our regional jet aircraft.

Passenger Revenues.   Passenger revenues, which represented 98.7% of consolidated operating revenues for the year ended December 31, 2005, increased 70.1% to $1.94 billion for the year ended December 31, 2005, from $1.14 billion, or 98.6% of consolidated operating revenues, for the year ended December 31, 2004. Our passenger revenues, excluding fuel reimbursements from major partners, increased 51.9% for the year ended December 31, 2005. The increase in passenger revenues excluding fuel was primarily due to a 68.5% increase in ASMs, principally as a result of our increase in operating aircraft to 380 aircraft as of December 31, 2005, from 206 aircraft as of December 31, 2004. Revenue per ASM increased 0.7% to 15.4¢, from 15.3¢ for the year ended December 31, 2004, primarily due to an increase in fuel reimbursements from our major partners. Passenger revenues include an amount designed to reimburse us for aircraft ownership costs. The amount deemed to be rental income for the year ended 2005 was $308.3 million.

Passenger Load Factor.   Passenger load factor increased to 75.0% for the year ended December 31, 2005, from 73.5% for the year ended December 31, 2004. The increase in load factor was due primarily to the further development of our relationships with United and Delta whereby SkyWest supplements mainline service in previously established and developed markets. Additionally, we are experiencing higher passenger acceptance of our regional jet aircraft.

Ground Handling and Other Revenue.Total ground handling revenue for the year ended December 31, 2005 increased approximately 55.5% from the same period of 2004. The increase was primarily related to contracts with our major partners, whereby, SkyWest performs the ground handling for other regional airlines.

Total Airline Expenses Excluding Fuel.Total airline expenses for the year ended December 31, 2005, excluding fuel charges (which are substantially reimbursable by our major partners), increased approximately 55.2% from the same period of 2004. The increase was primarily a result of a 68.5% increase in ASMs (which resulted principally from the acquisition of ASA). Total operating expenses for the year ended December 31, 2005 increased at a lower rate than ASM growth, primarily due to the increased operating efficiencies obtained from increased stage lengths flown by the regional jets.

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Operating and Interest Expenses.Operating and interest expenses increased 74.5% to $1.80 billion for the year ended December 31, 2005, compared to $1.03 billion for the year ended December 31, 2004. The increase in total operating and interest expenses was due principally to the acquisition of ASA. As a percentage of consolidated operating revenues, total operating and interest expenses increased to 91.5% for the year ended December 31, 2005, from 89.1% for the year ended December 31, 2004. The increase in operating and interest expenses as a percentage of consolidated operating revenues was primarily due to significant increases in fuel costs year-over-year.

The following tables set forth information regarding our operating expense components for the years ended December 31, 2005 and 2004. Operating expenses are expressed as a percentage of operating revenues. Individual expense components are also expressed as cents per ASM.

	Year ended December 31,
	2005							2004
	Amount			Percentage of Revenue		Cents per ASM		Amount			Percentage of Revenue		Cents Per ASM
	(in thousands)							(in thousands)
Salaries, wages and employee benefits		$	434,218		22.1		3.4		$	282,676		24.5		3.8
Aircraft costs		325,771			16.6		2.6		222,837			19.3		3.0
Maintenance		129,626			6.6		1.0		77,514			6.7		1.0
Fuel		590,776			30.1		4.6		252,556			21.8		3.3
Other airline expenses		263,248			13.4		2.1		175,686			15.2		2.3
Interest		53,331			2.7		0.4		18,239			1.6		0.2
Total airline expenses		$	1,796,970				14.1		$	1,029,508				13.6

The cost per ASM of salaries, wages and employee benefits decreased to 3.4¢ for the year ended December 31, 2005, compared to 3.8¢ for the year ended December 31, 2004. The average number of full-time equivalent employees increased 97.2% to 13,304 for the year ended December 31, 2005 from 6,747 for the year ended December 31, 2004. The increase in number of employees was due, in large part, to the acquisition of ASA and addition of personnel required for the new regional jet flying and ground handling operations within our United Express operations.

The cost per ASM for aircraft costs, including aircraft rent and depreciation, decreased to 2.6¢ for the year ended December 31, 2005, from 3.0¢ for the year ended December 31, 2004. The decrease in cost per ASM was primarily due to the addition of ASA’s regional jet fleet and the addition of thirty CRJ700s, which have a lower operating cost per ASM than our existing CRJ200 and turboprop fleets.

The cost per ASM for maintenance expense remained constant at 1.0¢ for the year ended December 31, 2005, and December 31, 2004. Under our United Express Agreement, specific amounts are included in the rates and charges for mature maintenance on regional jet engines that we record as revenue. However, consistent with the change to a direct expense maintenance policy, we record maintenance expense on our CRJ200 engines as it is incurred. As a result, during the year ended December 31, 2005, we collected and recorded as revenue $25.2 million (pretax) under the United Express Agreement, with no material offset to CRJ200 engine maintenance overhauls. Because the “Maintenance” line in the table set forth above does not include salaries, wages and employee benefits associated with our maintenance operations (those costs are stated separately in the table), the maintenance expense line in the above table differs from the maintenance line in our Condensed Consolidated Statements of Income set forth in Item 8 below.

The cost per ASM for fuel increased 39.4% to 4.6¢ for the year ended December 31, 2005, from 3.3¢ for the year ended December 31, 2004. This increase was primarily due to the average price of fuel

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increasing to $2.05 per gallon during the year ended December 31, 2005, from $1.45 per gallon for the year ended December 31, 2004.

The cost per ASM for other expenses, primarily consisting of landing fees, station rentals, computer reservation system fees and hull and liability insurance, decreased 8.7% to 2.1¢ for the year ended December 31, 2005, from 2.3¢ for the year ended December 31, 2004. The decrease was primarily related to the increase in stage lengths flown by our regional jets.

Interest expense increased to approximately $53.3 million during the year ended December 31, 2005, from approximately $18.2 million during the year ended December 31, 2004. The increase in interest expense was primarily due to the acquisition of ASA’s aircraft which are primarily financed with long-term debt.

2004 Compared to 2003

Operating Statistics.The following table sets forth our major operational statistics and the percentage-of-change for the years identified below.

	Year ended December 31,
	2004		2003		% Change
Passengers carried	13,424,520		10,738,691			25.0
Revenue passenger miles (000)	5,546,069		4,222,669			31.3
Available seat miles (000)	7,546,318		5,875,029			28.4
Passenger load factor	73.5	%	71.9	%		1.6 pts
Passenger breakeven load factor	65.5	%	63.9	%		1.6 pts
Yield per revenue passenger mile	20.50	¢	20.90	¢		(1.9	)
Revenue per available seat mile	15.30	¢	15.10	¢		1.3
Cost per available seat mile	13.60	¢	13.40	¢		1.5
Fuel cost per available seat mile	3.30	¢	2.50	¢		32.0
Average passenger trip length (miles)	413		393			5.1

The total ASMs we generated during the year ended December 31, 2004 increased 28.4% from the year ended December 31, 2003. The increase in ASMs was primarily a result of the increase in our operating aircraft to 206 aircraft as of December 31, 2004, from 185 aircraft as of December 31, 2003. During the year ended December 31, 2004, we took delivery of 12 new CRJ200s, four used CRJ200s with an average age of less than one year and 12 new CRJ700s.

Net Income.Net income increased to $81.9 million, or $1.40 per diluted share, for the year ended December 31, 2004, compared to $66.8 million, or $1.15 per diluted share, for the year ended December 31, 2003. Factors relating to the change in net income are discussed below.

Passenger Revenues.   Passenger revenues include an amount designed to reimburse us for aircraft ownership cost. The amount deemed to be rental income for the year ended 2004 was $187.0 million. Passenger revenues, which represented 98.6% of consolidated operating revenues for the year ended December 31, 2004, increased 29.2% to $1.14 billion for the year ended December 31, 2004, from $882.1 million, or 99.3% of consolidated operating revenues, for the year ended December 31, 2003. Passenger revenues, excluding fuel reimbursements from major partners, increased 21.1% for the year ended December 31, 2004. The increase in passenger revenues excluding fuel was primarily due to a 28.4% increase in ASMs, principally as a result of us increasing our operating aircraft to 206 aircraft as of December 31, 2004, from 185 aircraft as of December 31, 2003; however, this increase was partially offset by the economic efficiencies of flying new, incremental regional jet aircraft. These efficiencies are passed on to our major partners through the rates contemplated by their respective contracts. Twelve CRJ700s and twelve additional CRJ200s were placed into service under our United Express operations during the

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year ended December 31, 2004. Revenue per ASM increased 1.3% to 15.3¢, from 15.1¢ for the year ended December 31, 2003, primarily due to an increase in fuel reimbursements from major partners.

Passenger Load Factor.   Passenger load factor increased to 73.5% for the year ended December 31, 2004, from 71.9% for the year ended December 31, 2003. The increase in load factor was due primarily to the further development of our relationships with United and Delta whereby SkyWest supplements mainline service in previously established and developed markets. Additionally, we are experiencing higher passenger acceptance of our regional jet aircraft.

Total Airline Expenses Excluding Fuel.Total airline expenses for the year ended December 31, 2004, excluding fuel charges (which are substantially reimbursable by our major partners), increased approximately 21.4% from the same period of 2003. The increase was primarily a result of a 28.4% increase in ASMs (which resulted principally from the expansion of SkyWest’s regional jet fleet from 2003). Total operating expenses for the year ended December 31, 2004 increased at a lower rate than ASM growth, primarily due to the increased operating efficiencies obtained from increased stage lengths flown by the regional jets.

Operating and Interest Expenses.Operating and interest expenses increased 30.4% to $1.03 billion for the year ended December 31, 2004, compared to $789.4 million for the year ended December 31, 2003. The increase in total operating and interest expenses was due principally to the growth in our regional jet fleet from 2003. As a percentage of consolidated operating revenues, total operating and interest expenses increased to 89.1% for the year ended December 31, 2004, from 88.9% for the year ended December 31, 2003. The increase in operating and interest expenses as a percentage of consolidated operating revenues was primarily due to significant increases in fuel costs year-over-year.

Operating revenues increased 30.2% for the year ended December 31, 2004, compared to the year ended December 31, 2003, while total operating and interest expenses increased 30.4% over the same period. The increase in total operating revenues was primarily due to the growth in SkyWest’s regional jet fleet from 2003. Airline operating and interest expenses, excluding fuel charges, per ASM decreased 5.5% to 10.3¢ for the year ended December 31, 2004, from 10.9¢ for the year ended December 31, 2003. The primary reason for the decrease was the increased capacity of our regional jet aircraft and the increase in stage lengths flown by our regional jet aircraft.

The following tables set forth information regarding our operating expense components for the years ended December 31, 2004 and 2003. Operating expenses are expressed as a percentage of operating revenues. Individual expense components are also expressed as cents per ASM.

	Year ended December 31,
	2004							2003
	Amount			Percentage of Revenue		Cents per ASM		Amount			Percentage of Revenue		Cents Per ASM
	(in thousands)							(in thousands)
Salaries, wages and employee benefits		$	282,676		24.5		3.8		$	225,545		25.4		3.8
Aircraft costs		222,837			19.3		3.0		199,355			22.4		3.4
Maintenance		77,514			6.7		1.0		54,151			6.1		0.9
Fuel		252,556			21.8		3.3		149,429			16.8		2.5
Other airline expenses		175,686			15.2		2.3		151,066			17.0		2.6
Interest		18,239			1.6		0.2		9,891			1.1		0.2
Total airline expenses		$	1,029,508				13.6		$	789,437				13.4

The cost per ASM of salaries, wages and employee benefits remained constant at 3.8¢ for the year ended December 31, 2004 and December 31, 2003. The average number of full-time equivalent employees

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increased 28.3% to 6,747 for the year ended December 31, 2004 from 5,257 for the year ended December 31, 2003. The increase in number of employees was due, in large part, to the addition of personnel required for the new regional jet flying and ground handling operations within our United Express operations.

The cost per ASM for aircraft costs, including aircraft rent and depreciation, decreased to 3.0¢ for the year ended December 31, 2004, from 3.4¢ for the year ended December 31, 2003. The decrease in cost per ASM was primarily due to the addition of twelve CRJ700s, which have a lower operating cost per ASM than our existing aircraft. Additionally, the decrease was due, in part, to our changing the estimate on depreciable lives of rotable spares from five years to ten years effective January 2004. This change in estimate increased our pretax income by $11,455,000 for the year ended December 31, 2004. The impact of this change on costs per ASM for the year ended December 31, 2004 was 0.002¢ and the remaining decrease was primarily due to the increase in the number of regional jets that were added to our fleet during 2004.

The cost per ASM for maintenance expense increased to 1.0¢ for the year ended December 31, 2004, from 0.9¢ the year ended December 31, 2003. The increase in cost per ASM was primarily due to the timing of certain maintenance events. Under our United Express Agreement, specific amounts are included in the rates and charges for mature maintenance on regional jet engines that we record as revenue. However, consistent with the change to a direct expense maintenance policy, we record maintenance expense on our CRJ200 engines as it is incurred. As a result, during the year ended December 31, 2004 we collected and recorded as revenue $23.3 million (pretax) under the United Express Agreement, with no corresponding offset for CRJ200 engine maintenance overhauls since none were incurred. Because the “Maintenance” line in the table set forth above does not include salaries, wages and employee benefits associated with our maintenance operations (those costs are stated separately in the table), the maintenance expense line in the above table differs from the maintenance line in our Condensed Consolidated Statements of Income set forth in Item 8 below.

The cost per ASM for fuel increased to 3.3¢ for the year ended December 31, 2004, from 2.5¢ for the year ended December 31, 2003. This increase was primarily due to the average price of fuel increasing to $1.45 per gallon during the year ended December 31, 2004, from $1.12 per gallon for the year ended December 31, 2003.

The cost per ASM for other expenses, primarily consisting of landing fees, station rentals, computer reservation system fees and hull and liability insurance, decreased 11.5% to 2.3¢ for the year ended December 31, 2004, from 2.6¢ for the year ended December 31, 2003. The decrease was primarily related to our elimination of certain reservation and distribution costs which were previously associated with the United Express Agreement that are now handled directly by United, along with the increase in stage lengths flown by our regional jets.

Interest expense increased to approximately $18.2 million during the year ended December 31, 2004, from approximately $9.9 million during the year ended December 31, 2003. The increase in interest expense was primarily due to the long-debt financing of the new regional jets we acquired.

Liquidity and Capital Resources

We had working capital of $77.7 million and a current ratio of 1.1:1 at December 31, 2005, compared to working capital of $536.5 million and a current ratio of 4.1:1 at December 31, 2004. The decrease was principally caused by the use of cash to fund the acquisition of ASA. The principal sources of cash during the year ended December 31, 2005 were $267.5 million in net proceeds from the sale and purchase of marketable securities, $207.5 million provided by operating activities, $141.0 million of proceeds from the issuance of long-term debt, $90.0 million of proceeds from draws under new and existing lines of credit, $36.4 million from returns on aircraft deposits, $11.7 million from proceeds from the sale of leased aircraft,

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and $21.8 million from the sale of common stock in connection with the exercise of stock options under our stock option and employee stock purchase plans, $6.2 million sale of other assets and $4.0 million of proceeds from the sale of owned aircraft. During the year ended December 31, 2005, we paid net of cash acquired from ASA $371.9 million as the purchase price for ASA. We invested $214.2 million in flight equipment, $101.4 million in deposits for aircraft, and $12.7 million in buildings and ground equipment. We made principal payments on long-term debt of $51.3 million and paid $7.0 million in cash dividends. These factors resulted in a $27.6 million increase in cash and cash equivalents during the year ended December 31, 2005.

Our position in marketable securities, consisting primarily of bonds, bond funds and commercial paper, decreased to $159 million at December 31, 2005, compared to $427.5 million at December 31, 2004. The decrease in marketable securities was due primarily to the $421.3 million in purchase price, $5.3 million in transaction fees and $50 million in returns of aircraft deposits we paid to Delta in connection with our acquisition of ASA on September 7, 2005.

At December 31, 2005, our total capital mix was 39.1% equity and 60.9% debt, compared to 62.7% equity and 37.3% debt at December 31, 2004. The change in the total capital mix during 2005 was primarily due to our acquisition of ASA on September 7, 2005.

During 2005, SkyWest increased an existing $10.0 million line-of-credit facility, with a bank, to $40.0 million. As of December 31, 2005, SkyWest Airlines had borrowed $30.0 million under the facility. The facility, expires on January 31, 2007 and bears interest at a rate equal to prime less 0.25%, which was a net rate of 7% on December 31, 2005.

Additionally, SkyWest Airlines entered into another borrowing facility with a financing company and borrowed $60.0 million. The facility expires on March 21, 2006, with interest payable on a floating basis which was 6.87% at December 31, 2005. The borrowings under this facility are secured by four CRJ200s. The amounts borrowed under both arrangements were utilized for general corporate purposes and we intend to pay this back from cash generated through operations.

As of December 31, 2005, we had $34.6 million in letters of credit and surety bonds outstanding with various banks and surety institutions.

On December 31, 2005, we classified $24.8 million as restricted cash, related to our workers compensation policies and the purchase of ASA. On December 31, 2004, we classified $9.2 million as restricted cash as required by our workers compensation policy.

Significant Commitments and Obligations

General

The following table summarizes our commitments and obligations stated in calendar years except as noted for each of the next five years and thereafter (in thousands):

	Total		2006		2007		2008		2009		2010		Thereafter
Firm aircraft Commitments	$	838,000	$	618,000	$	220,000	$	—	$	—	$	—	$	—
Operating lease payments for aircraft and facility obligations	3,234,082		302,110		277,398		253,556		268,844		262,396		1,869,778
Principal maturities on long-term debt	1,753,901		331,145		98,752		102,696		106,925		111,332		1,003,051
Lines of Credit	90,000		60,000		30,000		—		—		—		—
Total commitments and obligations	$	5,915,983	$	1,311,255	$	626,150	$	356,252	$	375,769	$	373,728	$	2,872,829

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Purchase Commitments and Options

On February 4, 2005, we announced that SkyWest Airlines had been selected by United to operate 20 new CRJ700s in its United Express operations, and that SkyWest Airlines had placed a firm order for these CRJ700s with Bombardier. Deliveries of these aircraft began in the third quarter of 2005 and we expect these deliveries to be completed by the first quarter of 2006. Our total firm aircraft orders and commitments as of December 31, 2005, consisted of orders for 15 CRJ700s, 17 CRJ900s and commitments to lease six CRJ200’s from Delta. Total expenditures for these aircraft and related flight equipment, including amounts for contractual price escalations is estimated to be approximately $838 million. Additionally, our agreement with Bombardier includes options for another 70 aircraft that can be delivered in either 70 or 90-seat configurations. We presently anticipate that delivery dates for these aircraft could start in May 2007 and continue through April 2010; however, actual delivery dates remain subject to final determination as agreed upon by us and our code-share partners.

SkyWest Airlines has not historically funded a substantial portion of its aircraft acquisitions with working capital. Rather, it has generally funded its aircraft acquisitions through a combination of operating leases and debt financing. At the time of each aircraft acquisition, we evaluate the financing alternatives available, and selected one or more of these methods to fund the acquisition. In the event that alternative financing can not be arranged at the time of delivery, Bombardia has financed aircraft acquisitions until more permanent arrangements can be made. Subsequent to this initial acquisition of an aircraft, we may also refinance the aircraft or convert one form of financing to another (e.g., replacing debt financing with leveraged lease financing).

At present, we intend to satisfy our 2006 firm aircraft purchase commitment, as well as our acquisition of any additional aircraft, through a combination of operating leases and debt financing, consistent with our historical practices. Based on current market conditions and discussions with prospective leasing organizations and financial institutions, we currently believe that we will be able to obtain financing for the committed acquisitions, as well as additional aircraft, without materially reducing the amount of working capital available for our operating activities.

Aircraft Lease and Facility Obligations

We also have significant long-term lease obligations primarily relating to our aircraft fleet. At December 31, 2005, we had 247 aircraft under lease with remaining terms ranging from one to 18 years. Future minimum lease payments due under all long-term operating leases were approximately $3.2 billion at December 31, 2005. Assuming a 7.0% discount rate, which is the rate used to approximate the implicit rates within the applicable aircraft leases, the present value of these lease obligations would have been equal to approximately $2.1 billion at December 31, 2005.

As part of our leveraged lease agreements, we typically agree to indemnify the equity/owner participant against liabilities that may arise due to changes in benefits from tax ownership of the respective leased aircraft. See Note 4 to our consolidated financial statements set forth in Item 8 of this Report.

Long-term Debt Obligations

Our total long-term debt at December 31, 2005 was $1,753.9 million, of which $1,746.5 million related to the acquisition of Brasilia turboprop, CRJ200 and CRJ700 aircraft and $7.4 million related to our corporate office building.The average effective rate on the debt related to the Brasilia turboprop and CRJ200 aircraft was approximately 5.7% at December 31, 2005. Approximately, $256.7 million of our current portion of long-term debt is expected to be refinanced into permanent long-term financing within the next year.

41

Seasonality

Our results of operations for any interim period are not necessarily indicative of those for the entire year, since the airline industry is subject to seasonal fluctuations and general economic conditions. Our operations are somewhat favorably affected by increased travel on our pro-rate routes, historically occurring in the summer months, and are unfavorably affected by decreased business travel during the months from November through January and by inclement weather which occasionally results in cancelled flights, principally during the winter months.

New Accounting Standard

As contemplated by SFAS Statement 123, Accounting for Stock-Based Compensation(“SFAS 123”), we currently account for share-based payments to employees using intrinsic value method set forth in APB Opinion 25, Accounting for Stock Issued to Employees and, as such, generally recognize no compensation cost for employee stock options. We have determined that we will adopt SFAS 123 using the modified prospective method. On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R) (revised 2004), Share-Based Payment (“Statement 123(R)”), which revises SFAS No. 123 and supersedes APB Opinion 25. Generally, the approach in Statement 123(R) is similar to the approach described in SFAS No. 123; however, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized as an expense in the statement of operations based on their fair values. We will be required to adopt Statement 123(R) effective January 1, 2006.

The adoption of the fair value method set forth in Statement 123(R) is likely to have a significant impact on our future results of operations, although it is not anticipated to have a significant impact on our overall financial position. The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 to our consolidated financial statements set forth in Item 8 of this Report. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While we cannot estimate what those amounts will be in the future (primarily because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $7,509,000, $442,000 and$129,000 in 2005, 2004, and 2003, respectively.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Aircraft Fuel

In the past, we have not experienced difficulties with fuel availability and we currently expect to be able to obtain fuel at prevailing prices in quantities sufficient to meet our future needs. Pursuant to our contract flying arrangements, United will bear the economic risk of fuel price fluctuations on our United Express flights. On our Delta Connection regional jet flights, Delta will bear the economic risk of fuel price fluctuations. On the majority of our Delta Connection routes flown using Brasilia turboprops, we will bear the economic risk of fuel fluctuations. At present, we believe that our results from operations will not be materially and adversely affected by fuel price volatility.

Interest Rates

Our earnings are affected by changes in interest rates due to the amounts of variable rate long-term debt and the amount of cash and securities held. The interest rates applicable to variable rate notes may

42

rise and increase the amount of interest expense. We would also receive higher amounts of interest income on cash and securities held at the time; however, the market value of our available-for-sale securities would likely decline. At December 31, 2005, we had variable rate notes representing 74.7% of our total long-term debt compared to 73.1% of our long-term debt at December 31, 2004. For illustrative purposes only, we have estimated the impact of market risk using a hypothetical increase in interest rates of one percentage point for both variable rate long-term debt and cash and securities. Based on this hypothetical assumption, we would have incurred an additional $6,701,000 in interest expense and received $4,895,000 in additional interest income for the year ended December 31, 2005 and we would have incurred an additional $3,746,000 in interest expense and received $4,868,000 in additional interest income for the year ended December 31, 2004.

We currently intend to finance the acquisition of aircraft through the manufacturer, third-party leases or long-term borrowings. Changes in interest rates may impact the actual cost to us to acquire these aircraft. To the extent we place these aircraft in service under our code-share agreements with Delta and United, our code-share agreements currently provide that reimbursement rates will be adjusted higher or lower to reflect any changes in our aircraft rental rates.

The Company has an interest rate swap agreement to manage its exposure on the debt instrument related to the Company’s headquarters. The Company’s policies do not permit management to enter into derivative instruments for any purpose other than cash flow hedging purposes. Accordingly, the Company does not speculate using derivative instruments. The Company assesses interest rate cash flow risk by identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The fair values of the Company’s derivative instruments are recognized as other current liabilities in the accompanying balance sheet. In accordance with provisions of SFAS No. 133, the Company recorded a $344,000 and $691,000 liability at December 31, 2005 and 2004 respectively, in the accompanying consolidated balance sheets representing the fair value of the outstanding interest rate swap agreement. The Company decreased interest expense by $347,000 and $209,000 during the years ended December 31, 2005 and 2004, respectively, relating to adjustments to the fair value and of the derivatives.

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information set forth below should be read together with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing elsewhere herein.

43

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
SkyWest, Inc.

We have audited the accompanying consolidated balance sheets of SkyWest, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SkyWest, Inc. and subsidiaries at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of SkyWest, Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Salt Lake City, Utah
March 9, 2006

44

SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

ASSETS

	December 31, 2005					December 31, 2004
CURRENT ASSETS:
Cash and cash equivalents		$		140,614			$		113,020
Marketable securities		159,054					427,517
Restricted cash		24,823					9,160
Income tax receivable		12,534					8,999
Receivables, net		28,267					27,964
Inventories		68,611					33,922
Prepaid aircraft rents		178,762					61,550
Deferred tax assets		41,012					11,869
Other current assets		39,955					18,336
Total current assets		693,632					712,337
PROPERTY AND EQUIPMENT:
Aircraft and rotable spares		2,727,595					1,095,363
Deposits on aircraft		90,235					66,346
Buildings and ground equipment		150,426					100,268
		2,968,256					1,261,977
Less—accumulated depreciation and amortization		(415,734			)		(329,430			)
Total property and equipment, net		2,552,522					932,547
OTHER ASSETS
Intangible assets, net		33,043					—
Other assets		41,449					17,403
Total other assets		74,492					17,403
Total assets		$	3,320,646				$	1,662,287

See accompanying notes to consolidated financial statements.

45

SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY

	December 31,					December 31,
	2005					2004
CURRENT LIABILITIES:
Current maturities of long-term debt		$		331,145			$		32,585
Accounts payable		95,283					57,130
Line of credit		60,000					—
Accrued salaries, wages and benefits		53,105					30,094
Accrued aircraft rents		26,279					30,320
Taxes other than income taxes		18,224					8,465
Other current liabilities		31,881					11,873
Total current liabilities		615,917					170,467
OTHER LONG TERM LIABILITIES		33,829					5,364
LONG TERM LINE OF CREDIT		30,000					—
LONG-TERM DEBT, net of current maturities		1,422,758					463,233
DEFERRED INCOME TAXES PAYABLE		225,068					189,215
DEFERRED AIRCRAFT CREDITS		79,876					54,953
COMMITMENTS AND CONTINGENCES (Note 4)		—					—
STOCKHOLDERS’ EQUITY:
Preferred stock, 5,000,000 shares authorized; none issued		—					—
Common stock, no par value, 120,000,000 shares authorized; 65,509,631 and 64,442,958 shares issued, respectively		364,535					335,241
Retained earnings		582,620					477,424
Treasury stock, at cost, 6,794,056 shares		(32,551			)		(32,551			)
Accumulated other comprehensive loss (Note 1)		(1,406			)		(1,059			)
Total Stockholders’ Equity		913,198					779,055
Total liabilities and stockholders’ equity		$	3,320,646				$	1,662,287

See accompanying notes to consolidated financial statements.

46

SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)

	Year Ended December 31,
	2005			2004			2003
OPERATING REVENUES:
Passenger	$	1,938,450		$	1,139,580		$	882,062
Ground handling and other	25,598			16,464			5,964
Total operating revenues	1,964,048			1,156,044			888,026
OPERATING EXPENSES:
Flying operations	1,079,292			577,492			417,801
Customer service	271,746			180,578			139,125
Maintenance	186,675			113,537			83,829
Depreciation and amortization	115,275			76,817			74,419
General and administrative	90,652			62,844			64,372
Total operating expenses	1,743,640			1,011,268			779,546
OPERATING INCOME	220,408			144,776			108,480
OTHER INCOME (EXPENSE):
Interest income	12,943			10,050			10,492
Interest expense	(53,330		)	(18,239		)	(9,891		)
Gain on sale of property and equipment	175			—			406
Loss on sale of marketable securities	(570		)	—			—
Total other income (expense), net	(40,782		)	(8,189		)	1,007
INCOME BEFORE INCOME TAXES	179,626			136,587			109,487
PROVISION FOR INCOME TAXES	67,359			54,635			42,700
NET INCOME	$	112,267		$	81,952		$	66,787
BASIC EARNINGS PER SHARE	$	1.94		$	1.42		$	1.16
DILUTED EARNINGS PER SHARE	$	1.90		$	1.40		$	1.15
Weighted average common shares:
Basic	57,851			57,858			57,745
Diluted	58,933			58,350			58,127

See accompanying notes to consolidated financial statements.

47

SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(In thousands)

	Common Stock								Treasury Stock						Accumulated Other
					Retained										Comprehensive
	Shares		Amount		Earnings				Shares			Amount			Loss				Total
Balance at December 31, 2002		63,335	$	320,085		$	340,308			(5,898	)	$	(20,285	)		$	(1,422	)	$	638,686
Comprehensive income:
Net income		—	—			66,787				—		—				—			66,787
Net unrealized appreciation on marketable securities net of tax of $813		—	—			—				—		—				1,273			1,273
Total comprehensive income		—	—			—				—		—				—			68,060
Exercise of common stock options		24	309			—				—		—				—			309
Sale of common stock under employee stock purchase plan		533	6,505			—				—		—				—			6,505
Tax benefit from exercise of common stock Options		—	129			—				—		—				—			129
Cash dividends declared ($0.08 per share)		—	—			(4,626		)		—		—				—			(4,626		)
Balance at December 31, 2003		63,892	$	327,028		$	402,469			(5,898	)	$	(20,285	)		$	(149	)	$	709,063
Comprehensive income:
Net income		—	—			81,952				—		—				—			81,952
Net unrealized appreciation on marketable securities net of tax of $607		—	—			—				—		—				(910		)	(910		)
Total comprehensive income		—	—			—				—		—				—			81,042
Exercise of common stock options		208	2,772			—				—		—				—			2,772
Sale of common stock under employee stock purchase plan		343	4,999			—				—		—				—			4,999
Tax benefit from exercise of common stock Options		—	442			—				—		—				—			442
Treasury stock purchases		—	—			—				(896	)	(12,266		)		—			(12,266		)
Cash dividends declared ($0.12 per share)		—	—			(6,997		)		—		—				—			(6,997		)
Balance at December 31, 2004		64,443	$	335,241		$	477,424			(6,794	)	$	(32,551	)		$	(1,059	)	$	779,055
Comprehensive income:
Net income		—	—			112,267				—		—				—			112,267
Net unrealized depreciation on marketable securities net of tax of $219		—	—			—				—		—				(347		)	(347		)
Total comprehensive income		—	—			—				—		—				—			111,920
Exercise of common stock options		892	19,073			—				—		—				—			19,073
Sale of common stock under employee stock purchase plan		175	2,712			—				—		—				—			2,712
Tax benefit from exercise of common stock Options		—	7,509			—				—		—				—			7,509
Treasury stock purchases		—	—			—				—		—				—			—
Cash dividends declared ($0.12 per share)		—	—			(7,071		)		—		—				—			(7,071		)
Balance at December 31, 2005		65,510	$	364,535		$	582,620			(6,794	)	$	(32,551	)		$	(1,406	)	$	913,198

See accompanying notes to consolidated financial statements.

48

SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	Year Ended December 31,
	2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	112,267		$	81,952		$	66,787
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	115,275			76,817			74,419
Maintenance expense related to disposition of rotable spares	—			—			834
(Gain) loss on sale of property and equipment	(175		)	—			406
Loss on sale of marketable securities	570			—			—
Decrease in allowance for doubtful accounts	(5		)	(34		)	(664		)
Net increase in deferred income taxes	17,958			29,598			91,085
Tax benefit from exercise of common stock options	7,509			442			129
Deferred aircraft credits, net of accretion	24,923			4,444			22,751
Changes in operating assets and liabilities:
Increase in restricted cash	(14,524		)	—			(9,160		)
Decrease (increase) in receivables	7,895			(15,738		)	14,813
Decrease (increase) in income tax receivable	(9,522		)	53,909			(62,908		)
Decrease (increase) in inventories	(8,355		)	(7,842		)	953
Decrease (increase) in other current assets and prepaid aircraft rents	(49,356		)	1,750			(53,917		)
Increase (decrease) in accounts payable and accrued aircraft rents	(6,638		)	13,921			5,641
Increase in other current liabilities	9,712			7,647			6,574
NET CASH PROVIDED BY OPERATING ACTIVITIES	207,534			246,866			157,743
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities	(332,269		)	(499,265		)	(417,675		)
Sales of marketable securities	599,815			429,665			354,585
Purchase of ASA, net of cash acquired	(371,912		)	—			—
Proceeds from the sale of aircraft	4,013			—			—
Acquisition of property and equipment:
Aircraft and rotable spare parts	(214,164		)	(134,627		)	(694,906		)
Deposits on aircraft	(101,345		)	(58,730		)	(38,069		)
Buildings and ground equipment	(12,745		)	(18,917		)	(7,531		)
Decrease (increase) in other assets	6,154			(3,447		)	(8,094		)
NET CASH USED IN INVESTING ACTIVITIES	(422,453		)	(285,321		)	(811,690		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt	140,980			34,450			625,114
Proceeds from sale-lease-back of aircraft	11,734			—			33,731
Principal payments on long-term debt	(51,331		)	(32,282		)	(25,650		)
Return of deposits on aircraft and rotable spare parts	36,384			47,796			—
Proceeds from issuance of line of credit	90,000			—			—
Net proceeds from issuance of common stock	21,785			7,771			6,814
Purchase of treasury stock	—			(12,266		)	—
Payment of cash dividends	(7,039		)	(6,401		)	(4,615		)
NET CASH USED IN FINANCING ACTIVITIES	242,513			39,068			635,394
Increase(decrease) in cash and cash equivalents	27,594			613			(18,553		)
Cash and cash equivalents at beginning of year	113,020			112,407			130,960
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	140,614		$	113,020		$	112,407
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of capitalized amounts	$	53,720		$	21,108		$	13,761
Income taxes	$	54,247		$	5,103		$	11,188
NON-CASH INVESTING AND FINANCING ACTIVITIES
Deposits applied to delivered aircraft	$	22,043		$	3,088		$	90,920
Debt transferred to operating lease	$	55,375		$	—		$	243,725
Deposits applied as lease payments	$	36,982		$	—		$	—

See accompanying notes to consolidated financial statements.

49

SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005

(1)Nature of Operations and Summary of Significant Accounting Policies

SkyWest, Inc. (the “Company”), through its wholly-owned subsidiaries, SkyWest Airlines, Inc. (“SkyWest Airlines”) and Atlantic Southeast Airlines, Inc. (“ASA”), operates the largest regional airline in the United States. As of December 31, 2005, SkyWest and ASA offered scheduled passenger and air freight service with approximately 2,400 total daily departures to 218 different destinations in the United States, Canada, Mexico and the Caribbean. Additionally, the Company provides ground handling services for approximately ten other airlines throughout its system. As of December 31, 2005, the Company’s fleet consisted of 229 40- and 50-seat Bombardier CRJ200 Regional Jet aircraft (“CRJ200s”) (66 assigned to United Air Lines, Inc. (“United”), 163 assigned to Delta Air Lines, Inc. (“Delta”) 77 70-seat Bombardier CRJ 700 Regional Jet aircraft (“CRJ700s”) (42 assigned to United and 35 assigned to Delta), 62 Embraer Brasilia EMB-120 turboprops (“Brasilia Turboprops”) (48 assigned to United and 14 assigned to Delta), and 12 Avions de Transport 72-210 (“ATR-72 turboprops”) (all assigned to Delta). For the month ended December 31, 2005, approximately 59.9% of the Company’s capacity was operated under the Delta code and approximately 40.1% was operated under the United code.

SkyWest Airlines has been a partner with Delta in Salt Lake City and United in Los Angeles since 1987 and 1997, respectively. In 1998, SkyWest Airlines expanded its relationship with United to provide service in Portland, Seattle/Tacoma, San Francisco and additional Los Angeles markets. In 2001, SkyWest Airlines expanded its operations to serve as the Delta Connection in Dallas/Fort Worth. However, effective January 31, 2005, SkyWest Airlines re-deployed all its Delta Connection flights to Salt Lake City as a result of Delta’s decision to “de-hub” its Dallas/Fort Worth operations. In 2004, SkyWest Airlines expanded its United Express operations to provide service in Chicago. As of December 31, 2005, SkyWest Airlines operated approximately 1,500 total daily flights as a Delta Connection carrier in Salt Lake City, and a United Express carrier in Chicago (O’Hare), Denver, Los Angeles, San Francisco, Portland and Seattle/Tacoma. SkyWest Airlines believes its success in attracting multiple contractual relationships with major airline partners is attributable to its delivery of high-quality customer service with an all cabin-class fleet at a competitive cost structure. In April 2003, SkyWest Airlines signed an agreement with Continental Airlines, Inc. (“Continental”) to supply Continental with regional airline feed into Continental’s Houston hub beginning on July 1, 2003. The Continental flying represented only approximately 1.5% of the Company’s 2004 ASM production and generated less than 1.0% of the Company’s 2005 operating income. In January 2005, the Company announced the mutual decision with Continental to end SkyWest Airlines’ operations as a Continental Connection carrier and the Company completed the phase-out process on July 1, 2005.

On September 7, 2005, the Company completed the acquisition of all of the issued and outstanding capital stock of ASA. ASA is a regional airline with primary hub operations in Atlanta, Salt Lake City and Cincinnati. The consolidated statements of income reported herein contain 114 days of operations relating to ASA from September 8, 2005 to December 31, 2005.

Pursuant to the terms of the Stock Purchase Agreement entered into between the Company, Delta and ASA Holdings, Inc. (“ASA Holdings”) the Company paid $421.3 million in cash for ASA, plus $5.3 million of transaction fees. Additionally, as part of the purchase, the Company assumed approximately $1,251.3 million in long-term debt which combined with the amounts paid at closing, resulted in an aggregate purchase price of approximately $1,677.9 million. The purchase price of ASA has been adjusted to reflect certain post-closing adjustments related to ASA’s working capital as of September 7, 2005.

50

ASA has been a code-share partner with Delta in Atlanta since 1984. ASA expanded its operations as a Delta Connection carrier to also include Cincinnati/Northern Kentucky and Salt Lake City in September 2002 and April 2003, respectively. ASA operates approximately 850 daily flights, all in the Delta Connection system.

Basis of Presentation

The Company’s consolidated financial statements include the accounts of SkyWest, Inc. and its wholly-owned subsidiaries, SkyWest Airlines and ASA, with all inter-company transactions and balances having been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principals generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company classified $24.8 and $9.2 million of cash as restricted cash as required by the Company’s workers’ compensation policy, purchase of ASA and  classified it accordingly in the consolidated balance sheets as of December 31, 2005 and 2004, respectively.

Marketable Securities

The Company’s investments in marketable debt and equity securities are deemed by management to be available for sale and are reported at fair market value with the net unrealized appreciation or depreciation reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity. At the time of sale, any realized appreciation or depreciation, calculated by the specific identification method, is recognized in gain(loss) on sale of marketable securities. The Company’s position in marketable securities as of December 31, 2005 and 2004 was as follows (in thousands):

	2005							2004
Investment Types	Cost			Market Value				Cost				Market Value
Commercial paper	$	—			$		—	$		13,016			$		13,019
Bond and bond funds	155,192				152,929			276,995					275,292
Corporate notes	—				—			121,926					121,913
Asset backed securities	6,167				6,125			17,283					17,226
Other	—				—			62					67
	161,359				159,054			429,282					427,517
Unrealized depreciation	(2,305		)		—			(1,765			)		—
Total	$	159,054			$	159,054		$	427,517				$	427,517

51

Marketable securities had the following maturities as of December 31, 2005 (in thousands):

Maturities	Amount
Year 2006	$112,616
Years 2007 through 2010	3,963
Years 2011 through 2015	2,277
Thereafter	40,198

The Company has classified all marketable securities as short-term since it has the intent to maintain a liquid portfolio and the ability to redeem the securities within one year.

Inventories

Inventories include expendable parts, fuel and supplies and are valued at cost (FIFO basis) less an allowance for obsolescence based on historical results and management’s expectations of future operations. Expendable inventory parts are charged to expense as used. An allowance for obsolescence is provided for spare parts currently identified as excess to reduce the carrying costs to net realizable value. These allowances are based on management estimates, which are subject to change.

Property and Equipment

Property and equipment are stated at cost and depreciated over their useful lives to their estimated residual values using the straight-line method as follows:

	Depreciable	Residual
Assets	Life	Value
Aircraft and rotable spares	10-18 years		0-30	%
Ground equipment	5-7 years		0	%
Office equipment	5-7 years		0	%
Leasehold improvements	15 years		0	%
Buildings	20-39.5 years		0	%

Impairment of Long Lived and Intangible Assets

As of December 31, 2005, we had approximately $2.6 billion of property and equipment and related assets. Additionally, as of December 31, 2005, we had approximately $33.0 million in intangible assets. In accounting for these long-lived and intangible assets, we make estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate. We recorded an intangible asset of approximately $33.0 million relating to the acquisition of ASA. The intangible is being amortized over fifteen years under the strait-line method. As of December 31, 2005, we had recorded $718,000 in amortization expense. Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long-lived assets. On a periodic basis, we evaluate whether the book value of our aircraft is impaired in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  Based on the results of the evaluations, our management concluded no impairment was necessary as of December 31, 2005. However, there is inherent risk in estimating the future cash flows used in the impairment test. If cash flows do not materialize as estimated, there is a risk the impairment charges recognized to date may be inaccurate, or further impairment charges may be necessary in the future.

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Reclassifications

Certain reclassifications have been made to the December 31, 2004 and 2003 consolidated financial statements to conform to the current year presentation.

Capitalized Interest

Interest is capitalized on aircraft purchase deposits and long-term construction projects and is depreciated over the estimated useful life of the asset. During the years ended December 31, 2005, 2004 and 2003, the Company capitalized interest costs of approximately $2,833,000, $3,397,000, and $5,084,000, respectively.

Maintenance

The Company operates under an FAA-approved continuous inspection and maintenance program. The Company uses the direct expense method of accounting for its regional jet engine overhauls where the expense is recorded when the overhaul event occurs. In 2004, the Company entered into an engine services agreement with a third party vendor to provide long-term engine services covering the scheduled and unscheduled repairs for engines certain of its CRJ700 regional jet aircraft. Under the terms of the agreement, the Company pays a set dollar amount per engine hour flown on a monthly basis and the third party vendor will assume the responsibility to repair the engines at no additional cost to the Company, subject to certain specified exclusions. Maintenance costs under these contracts are recognized when a contractual obligation exists. The Company uses the “deferral method” of accounting for its Brasilia turboprop engine overhauls where the overhaul costs are capitalized and depreciated over the estimated useful life of the engine. The costs of maintenance for airframe and avionics components, landing gear and normal recurring maintenance are expensed as incurred. For leased aircraft, the Company is subject to lease return provisions that require a minimum portion of the “life” of an overhaul be remaining on the engine at the lease return date. For Brasilia turboprop engine overhauls related to leased aircraft to be returned, the Company adjusts the estimated useful lives of the final engine overhauls based on the respective lease return dates.

Passenger and Ground Handling Revenues

Passenger and ground handling revenues are recognized when service is provided. Under the Company’s contract and pro-rate flying agreements with Delta and United, as well as the Company’s prior arrangement with Continental, revenue is considered earned when the flight is completed. In the event that our contractual rates have not been finalized at quarterly or annual financial statement dates, we record revenues based on a prior period’s approved rates, adjusted to reflect management’s current estimate of the results of the then-current contract negotiations.

On September 7, 2005, the Company completed its acquisition of all of the issued and outstanding capital stock of ASA from ASA Holdings, Inc. a subsidiary of Delta. ASA is a regional airline with primary hub operations in Atlanta, Salt Lake City and Cincinnati. In connection with the acquisition of ASA, SkyWest Airlines and ASA entered into Delta Connection Agreements, which became effective September 8, 2005. On September 14, 2005, Delta filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. With the approval of the U.S. Bankruptcy Court charged with administration of Delta’s reorganization proceedings, Delta assumed the Delta Connection Agreements on October 6, 2005 (see footnote 2 of the consolidated financial statements).

Each of the Delta Connection Agreements provides for a fifteen-year term, subject to early termination by Delta or SkyWest Airlines or ASA, as applicable, upon the occurrence of certain events. Delta’s termination rights include (i) cross-termination rights between the two Delta Connection Agreements, (ii) the right to terminate each of the Delta Connection Agreements upon the occurrence of

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certain force major events, including certain labor-related events, that prevent SkyWest Airlines or ASA from performance for certain periods, and (iii) the right to terminate each of the ASA Delta Connection Agreements if SkyWest Airlines or ASA fails to maintain competitive base rate costs, subject to certain adjustment rights. In addition to the termination rights, Delta has the right to extend the term of the Delta Connection Agreements upon the occurrence of certain events or at the expiration of the initial term. SkyWest Airlines and ASA have the right to terminate their respective Delta Connection Agreements upon the occurrence of certain breaches by Delta, including the failure to cure payment defaults. SkyWest Airlines and ASA also have cross-termination rights between the two Delta Connection Agreements.

Under the terms of the SkyWest Airlines Delta Connection Agreement, Delta agrees to compensate SkyWest Airlines for its direct costs associated with operating the Delta Connection flights, plus a payment based on block hours flown. However, among other changes, the SkyWest Airlines Delta Connection Agreement established a multi-year rate reset provision. Under the terms of the ASA Delta Connection Agreement, Delta agrees to compensate ASA for its direct costs associated with operating the Delta Connection flights, plus, if ASA completes a certain minimum percentage of its Delta Connection flights, an additional percentage of such costs. Additionally, ASA’s Delta Connection Agreement provides for the payment of incentive compensation upon satisfaction of certain performance goals. Under the ASA Delta Connection Agreement, excess margins over certain percentages must be returned or shared with Delta, depending on various conditions. The parties to the Delta Connection Agreements make customary representations, warranties and covenants, and the agreements contain other provisions typical of agreements of this kind, including with respect to various operational, marketing and administrative matters.

The SkyWest Airlines and ASA Delta Connection Agreements also provide a weekly payment for an amount per aircraft designed to reimburse the Company for certain aircraft ownership costs. In accordance with Emerging Issues Task Force No. 01-08, Determining Whether an Arrangement Contains a Lease, the Company has concluded that a component of its revenue under the Delta Connection Agreements is rental income, inasmuch as the Delta Connection Agreements identify the “right of use” of a specific type and number of aircraft over a stated period of time. The amounts deemed to be rental income under the Delta Connection Agreement for the years ended December 31, 2005 and 2004 were $139.9 million and $72.5 million, respectively. These amounts were recorded in passenger revenue on the Company’s consolidated statements of income.

Effective July 31, 2003, SkyWest Airlines entered into the United Express Agreement, which sets forth the principal terms and conditions governing the Company’s United Express operations. The United Express Agreement has received all necessary approvals from the U.S. Bankruptcy Court. Under the terms of the United Express Agreement, SkyWest Airlines is compensated primarily on a fee-per-completed-block hour and departure basis and is reimbursed for fuel and other costs. Additionally, SkyWest Airlines is eligible for incentive compensation upon the achievement of certain performance criteria.

The United Express Agreement also provides a monthly reimbursement for an amount per aircraft designed to reimburse the Company for certain aircraft ownership costs. In accordance with EITF 01-08, the Company has concluded that a component of its revenue under the United Express Agreement is rental income, inasmuch as the United Express Agreement identifies the “right of use” of a specific type and number of aircraft over a stated period of time. The amounts deemed to be rental income under the United Express Agreement for the years ended December 31, 2005 and 2004 were $168.4 and $114.5 million, respectively. These amounts were recorded in passenger revenue on the Company’s consolidated statements of income. The United Express Agreement contains certain provisions pursuant to which the parties could terminate the agreement, subject to certain rights of the other party, if certain performance criteria are not maintained.

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The Company’s revenues could be impacted by a number of factors, including changes to its code-share agreements with Delta and United, contract modifications resulting from contract re-negotiations and the Company’s ability to earn incentive payments contemplated under its code-share agreements.

The preparation of financial statements in conformity with accounting principals generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Deferred Aircraft Credits

The Company accounts for incentives provided by aircraft manufacturers as deferred credits. The deferred credits related to leased aircraft are amortized on a straight-line basis as a reduction to lease expense over the respective lease term. Credits related to owned aircraft reduce the purchase price of the aircraft, which has the effect of amortizing the credits on a straight-line basis as a reduction in depreciation expense over the life of the related aircraft. The incentives are credits that may be used to purchase spare parts and pay for training and other expenses.

Income Taxes

The Company recognizes a liability or asset for the deferred tax consequences of all temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled.

Net Income Per Common Share

Basic net income per common share (“Basic EPS”) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an antidilutive effect on net income per common share. During the years ended December 31, 2005, 2004, and 2003, 2,378,000 3,836,000 and 2,735,000 options were excluded from the computation of Diluted EPS respectively.

The calculation of the weighted average number of common shares outstanding for Basic EPS and Diluted EPS are as follows for the years ended December 31, 2005, 2004 and 2003 (in thousands):

	Year Ended December 31,
	2005		2004		2003
Numerator:
Numerator for earnings per share	$	112,267	$	81,952	$	66,787
Denominator:
Denominator for basic earnings per-share weighted average shares	57,851		57,858		57,745
Dilution due to stock options	1,082		492		382
Denominator for diluted earnings per-share weighted average shares	58,933		58,350		58,127
Basic earnings per-share	$	1.94	$	1.42	$	1.16
Diluted earnings per-share	$	1.90	$	1.40	$	1.15

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Stock Options

The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based compensation plans. Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, requires pro forma information regarding net income and net income per share as if the Company had accounted for its stock options under the fair value method of the statement which is described more fully in Note 5 below. The Company did not record any stock-based compensation expense related to stock options for the years ended December 31, 2005, 2004 and 2003.

The following table contains the pro forma disclosures and the related impact on net income and net income per share (in thousands, except per share information):

	Year Ended December 31,
	2005			2004			2003
Net income:
As reported	$	112,267		$	81,952		$	66,787
Stock based compensation under fair value method	(4,927		)	(6,706		)	(7,679		)
Pro forma	$	107,340		$	75,246		$	59,108
Net income per common share:
Basic as reported	$	1.94		$	1.42		$	1.16
Basic pro forma	$	1.86		$	1.30		$	1.02
Diluted as reported	$	1.90		$	1.40		$	1.15
Diluted pro forma	$	1.82		$	1.29		$	1.02

Comprehensive Income

The Company reports comprehensive income in accordance with SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components in financial statements. Comprehensive income includes charges and credits to stockholders’ equity that are not the result of transactions with shareholders. As of December 31, 2005 and 2004, accumulated other comprehensive loss includes adjustments, net of tax, to reflect unrealized appreciation (depreciation) on marketable securities. The Company recorded net unrealized appreciation (depreciation) of $(347,000), $(910,000), and $1,273,000, net of income taxes, on marketable securities for the years ended December 31, 2005, 2004, and 2003 respectively. These adjustments have been reflected in the accompanying consolidated statements of stockholders’ equity and comprehensive income.

Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for receivables and accounts payable approximate fair values because of the immediate or short-term maturity of these financial instruments. Marketable securities are reported at fair value in the consolidated balance sheets. The fair value of the Company’s long-term debt is estimated based on current rates offered to the Company for similar debt and approximately $1,751.8 million as of December 31, 2005, as compared to the carrying amount of $1,753.9 million. The Company’s fair value of long-term debt as of December 31, 2004 was $495.8 million as compared to the carrying amount of $495.8 million.

SFAS No. 133, “Accounting for Derivative Instruments and Certain Hedging Activities, SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activity, an Amendment of SFAS 133 and related interpretations require that all derivative instruments be recorded on the balance sheet at their respective fair values.

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The Company has an interest rate swap agreement to manage its exposure on the debt instrument related to the Company’s headquarters. The Company’s policies do not permit management to enter into derivative instruments for any purpose other than cash flow hedging purposes. Accordingly, the Company does not speculate using derivative instruments. The Company assesses interest rate cash flow risk by identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The fair values of the Company’s derivative instruments are recognized as other current liabilities in the accompanying balance sheet. In accordance with provisions of SFAS No. 133, the Company recorded a $344,000 and $691,000 liability at December 31, 2005 and 2004 respectively, in the accompanying consolidated balance sheets representing the fair value of the outstanding interest rate swap agreement. The Company decreased interest expense by $347,000 and $209,000 during the years ended December 31, 2005 and 2004, respectively, relating to adjustments to the fair value and of the derivatives.

Segment Reporting

The Company has adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. This statement requires disclosures related to components of a company for which separate financial information is available that is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. Management believes that the Company has only one operating segment in accordance with SFAS No. 131 because the Company’s business consists of scheduled regional airline service.

New Accounting Standard

As contemplated by SFAS Statement 123, Accounting for Stock-Based Compensation (“SFAS 123”), we currently account for share-based payments to employees using intrinsic value method set forth in APB Opinion 25, Accounting for Stock Issued to Employees and, as such, generally recognize no compensation cost for employee stock options. We have determined that we will adopt SFAS 123 using the modified prospective method. On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R) (revised 2004), Share-Based Payment (“Statement 123(R)”), which revises SFAS No. 123 and supersedes APB Opinion 25. Generally, the approach in Statement 123(R) is similar to the approach described in SFAS No. 123; however, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized as an expense in the statement of operations based on their fair values. We will be required to adopt Statement 123(R) effective January 1, 2006.

The adoption of the fair value method set forth in Statement 123(R) is likely to have a significant impact on our future results of operations, although it is not anticipated to have a significant impact on our overall financial position. The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 to our consolidated financial statements set forth in Item 8 of this Report. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While we cannot estimate what those amounts will be in the future (primarily because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $7,509,000, $442,000 and  $129,000 in 2005, 2004, and 2003, respectively.

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(2) Acquisition of ASA

On September 7, 2005, the Company completed the acquisition of all of the issued and outstanding capital stock of ASA. ASA is a regional airline with primary hub operations in Atlanta, Salt Lake City and Cincinnati. The consolidated statements of income reported herein contain 114 days of operations relating to ASA from September 8, 2005 to December 31, 2005.

Pursuant to the terms of the Stock Purchase Agreement entered into between the Company, Delta and ASA Holdings, Inc. (“ASA Holdings”) the Company paid $421.3 million in cash for ASA, plus $5.3 million of transaction fees. Additionally, as part of the purchase, the Company assumed approximately $1,251.3 million in long-term debt which combined with the amounts paid at closing, resulted in an aggregate purchase price of approximately $1,677.9 million. The purchase price of ASA has been adjusted to reflect certain post-closing adjustments related to ASA’s working capital as of September 7, 2005.

In connection with the acquisition of ASA, SkyWest Airlines and Delta entered into an Amended and Restated Delta Connection Agreement and ASA and Delta entered into a Second Amended and Restated Delta Connection Agreement whereby SkyWest Airlines and ASA agreed to provide regional airline service in the Delta flight system (See Note 1). Among other provisions, the Delta Connection Agreements provide for the transfer of certain ownership and lease rights among SkyWest Airlines, ASA, Delta and Comair Inc., a wholly-owned subsidiary of Delta (“Comair”). Prior to December 31, 2005, SkyWest Airlines, ASA, Delta and/or Comair, as applicable, terminated two master sublease agreements with respect to ten Bombardier CRJ200s and transferred to Delta ten CRJ200s financed in part by an affiliate of Bombardier, and ASA and Delta entered into a sublease agreement whereby ASA is subleasing the ten CRJ200s from Delta.

The acquisition value of ASA was accounted for using the purchase method of accounting. Accordingly, the aggregate purchase price was assigned to the assets acquired and liabilities assumed based on fair market values at the respective purchase date. The following table reflects the allocation of the aggregate purchase (including the attribution of ASA liabilities to the purchase price, since those liabilities remained the obligation of ASA post-closing) to the aggregate assets acquired and liabilities assumed (in thousands):

Current assets, net	$	154,057
Property, plant and equipment	1,548,854
Intangible assets	33,762
Other non-current assets	31,937
Current liabilities	(312,748		)
Long-term liabilities	(1,029,299		)
Total consideration	$	426,563
Less cash acquired	(54,651		)
Net cash paid	$	371,912

The Company is currently in the process of completing the final purchase price allocation based on the results of a valuation performed by a third party valuation advisor and any final purchase adjustment are not expected to be material to the consolidated financial statements. The intangible assets value of $33.8 million represents the value assigned to the Delta Connection Agreement between ASA and Delta, which was signed in conjunction with the acquisition of ASA and is based on the valuation performed by the third-party valuation advisor and will be amortized over the 15-year life of the contract.

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The following table illustrates the pro forma effects of the acquisition of ASA and sets forth the unaudited pro forma combined revenues, net income and earnings per share for the years ended December 31, 2005 and 2004 (in thousands, except per share amounts):

	Years ended December 31,
	2005			2004
Revenue		$	2,766,368	$	2,091,486
Net Income (loss)		$	139,454	$	(382,567	)
Basic earnings (loss) per share		$	2.41	$	(6.61	)
Diluted earnings (loss) per share		$	2.37	$	(6.61	)

During the year ended December 31, 2004 ASA recorded an impairment of goodwill of  $498.7 million which contributed to the net loss of $382.6 million.

(3)Long-term Debt

Long-term debt consisted of the following as of December 31, 2005 and 2004 (in thousands):

	December 31,				December 31,
	2005				2004
Notes payable to banks, due in semi-annual installments, variable interest based on LIBOR, or with interest rates ranging from 4.16% to 6.23% through 2012 to 2020, secured by aircraft		$	666,758			$		207,530
Notes payable to a financing company, due in semi-annual installments, variable interest based on LIBOR, or with interest rates ranging from 3.51% to 7.01% through 2006 to 2021, secured by aircraft		643,831				—
Notes payable to banks, due in semi-annual installments plus interest at 6.06% to 7.18% through 2021, secured by aircraft		297,624				170,716
Notes payable to a financing company, due in semi-annual installments plus interest at 5.78% to 6.23% through 2019, secured by aircraft		93,327				—
Notes payable to banks, due in monthly installments plus interest of 6.05% to 7.38% through 2020, secured by aircraft		31,406				36,867
Notes payable to banks, due in semi-annual installments, plus interest at 3.72% to 3.86%, net of the benefits of interest rate subsidies through the Brazilian Export financing program, through 2011, secured by aircraft		13,546				15,897
Notes payable to a bank, due in monthly installments interest based on LIBOR through 2012, interest rate at 7.9% secured by building		7,411				7,865
Other notes payable, secured by aircraft		—				750
Notes payable to banks, due in quarterly installments, interest based on LIBOR plus 0.75% through 2019, secured by aircraft		—				56,193
Long-term debt		$	1,753,903			$		495,818
Less current maturities		(331,145		)		(32,585			)
Long-term debt, net of current maturities		$	1,422,758			$	463,233

At December 31, 2005, the three-month and six-month LIBOR rates were 4.54% and 4.70%, respectively.

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The aggregate amounts of principal maturities of long-term debt as of December 31, 2005 were as follows (in thousands):

2006	$	331,145
2007	98,752
2008	102,696
2009	106,925
2010	111,332
Thereafter	1,003,053
	$	1,753,903

During 2005, the Company increased an existing $10.0 million line-of-credit facility, with a bank, to $40.0 million. As of December 31, 2005, SkyWest Airlines had borrowed $30.0 million under the facility. The facility, expires on January 31, 2007 and bears interest at a rate equal to prime less 0.25%, which was a net rate of 7.0% on December 31, 2005.

Additionally, SkyWest Airlines entered into another borrowing facility with a financing company and borrowed $60.0 million. The facility expires on March 21, 2006, with interest payable on a floating basis which was 6.87% at December 31, 2005. The borrowings under this facility are secured by four CRJ200 aircraft. The amounts borrowed under both arrangements were utilized for general corporate purposes.

As of December 31, 2005, we had $34.6 million in letters of credit and surety bonds outstanding with various banks and surety institutions.

Certain of the Company’s long-term debt arrangements contain limitations on, among other things, the sale or lease of assets and ratio of long-term debt to tangible net worth. As of December 31, 2005, the Company was in default with its Zions line of credit; however, we received a waiver from Zions. The Company was in compliance with all other debt covenants contained in its long-term debt agreements. We believe that in the absence of unusual circumstances, the working capital available to us will be sufficient to meet our present financial requirements, including expansion, capital expenditures, lease payments and debt service obligations for at least the next 12 months.

During 2005, aircraft deposits with Bombardier of $22.0 million were applied as down payments to Bombardier for temporary financing of aircraft while the Company arranged for permanent long-term financing through debt and other third party leasing arrangements. When the Company obtained long-term debt financing, the debt agreements were written such that the long-term debt could be refinanced into operating leases. Hence, in 2005, $55.4 million in debt was refinanced into long-term operating leases.

During 2005, SkyWest Airlines entered into a third party long-term leveraged lease facility for 32 regional jet aircraft. In conjunction with this financing transaction, SkyWest Airlines applied $37.0 million of amounts previously held on deposit by the manufacturer as lease payments required under the lease.

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(4)Income Taxes

The provision for income taxes includes the following components (in thousands):

	Year ended December 31,
	2005			2004			2003
Current tax provision:
Federal	$		45,714	$		13,009	$		(46,230	)
State	5,798			4,643			2,279
	51,512			17,652			(43,951			)
Deferred tax provision:
Federal	13,124			33,817			82,968
State	2,723			3,166			3,683
	15,847			36,983			86,651
Provision for income taxes	$	67,359		$	54,635		$	42,700

The following is a reconciliation between the statutory Federal income tax rate of 35% and the effective rate which is derived by dividing the provision for income taxes by income before provision for income taxes (in thousands):

	Year ended December 31,
	2005				2004			2003
Computed “expected” provision for income taxes at the statutory rates	$		62,869		$		47,805	$		38,320
Increase in income taxes resulting from:
State income taxes, net of Federal income tax benefit	6,387				5,313			4,338
Other, net	(1,897			)	1,516			42
Provision for income taxes	$	67,359			$	54,634		$	42,700

The significant components of the net deferred tax assets and liabilities are as follows (in thousands):

	As of December 31,
	2005			2004
Deferred tax assets:
Accrued benefits	$	14,673		$	7,303
Net operating loss carryforward	7,265			1,335
AMT credit carryforward	—			639
Accrued reserves and other	19,074			2,592
Total deferred tax assets	41,012			11,869
Deferred tax liabilities:
Accelerated depreciation	(204,598		)	(189,766		)
Maintenance and other	(20,470		)	551
Total deferred tax liabilities	(225,068		)	(189,215		)
Net deferred tax liability	$	(184,056	)	$	(177,346	)

The Company’s income tax receivable and deferred tax liabilities were primarily generated through accelerated bonus depreciation on newly purchased aircraft and support equipment in accordance with the Job Creation and Worker Assistance Act of 2002.

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(5)Commitments and Contingencies

Lease Obligations

The Company leases 247 aircraft, as well as airport facilities, office space, and various other property and equipment under non-cancelable operating leases which are generally on a long-term net rent basis where the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. Management expects that, in the normal course of business, leases that expire will be renewed or replaced by other leases. The following table summarizes future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2005 (in thousands):

Year ending December 31,
2006	$	302,110
2007	277,398
2008	253,556
2009	268,844
2010	262,396
Thereafter	1,869,778
	$	3,234,082

In January 2003, the FASB issued Interpretation No. 46, or (FIN 46), Consolidation of Variable Interest Entities, which requires the consolidation of variable interest entities. The majority of the Company’s leased aircraft are owned and leased through trusts whose sole purpose is to purchase, finance and lease these aircraft to the Company; therefore, they meet the criteria of a variable interest entity. However, since these are single owner trusts in which the Company does not participate, the Company is not at risk for losses and is not considered the primary beneficiary. As a result, based on the current rules, the Company is not required to consolidate any of these trusts or any other entities in applying FIN 46. Management believes that the Company’s maximum exposure under these leases is the remaining lease payments.

Total rental expense for non-cancelable aircraft operating leases was approximately $210.2 million, $145.9 million and $124.9 million for the years ended December 31, 2005, 2004 and 2003, respectively. The above minimum rental payments do not include airport landing fees, which amounted to approximately $47.9 million $32.7 million and $26.5 million for the years ended December 31, 2005, 2004 and 2003, respectively.

The Company’s leveraged lease agreements, typically agree to indemnify the equity/owner participant against liabilities that may arise due to changes in benefits from tax ownership of the respective leased aircraft. The terms of these contracts range up to 18 years.  The Company did not accrue any liability relating to the indemnification to the equity/owner participant because the probability of this occurring is remote.

Self-insurance

The Company self-insures a portion of its losses from claims related to workers’ compensation, environmental issues, property damage, medical insurance for employees and general liability. Losses are accrued based on an estimate of the ultimate aggregate liability for claims incurred, using standard industry practices and the Company’s actual experience.

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Purchase Commitments and Options

On February 4, 2005, the Company announced that SkyWest Airlines had been selected by United to operate 20 new CRJ700s in its United Express operations, and that SkyWest Airlines had placed a firm order for these CRJ700s with Bombardier. Deliveries of these aircraft began in the third quarter of 2005 and the Company expects these deliveries to be completed by the first quarter of 2006. The Company’s total firm aircraft orders and commitments as of December 31, 2005, consisted of orders for 15 CRJ700s, 17 CRJ900s and commitments to lease six CRJ200’s from Delta. Total expenditures for these aircraft and related flight equipment, including amounts for contractual price escalations is estimated to be approximately $838 million. Additionally, the Company’s agreement with Bombardier includes options for another 70 aircraft that can be delivered in either 70 or 90-seat configurations. The Company presently anticipates that delivery dates for these aircraft could start in May 2007 and continue through April 2010; however, actual delivery dates remain subject to final determination as agreed upon by the Company and its code-share partners.

Legal Matters

The Company is subject to certain legal actions which it considers routine to its business activities. As of December 31, 2005, management believes, after consultation with legal counsel, that the ultimate outcome of such legal matters is not likely to have a material adverse effect on the Company’s financial position, liquidity or results of operations.

Concentration Risk and Significant Customers

The Company requires no collateral from its major partners or customers but monitors the financial condition of its major partners. The Company maintains an allowance for doubtful accounts receivable based upon expected collectability of all accounts receivable. The Company’s allowance for doubtful accounts totaled $58,000 and $24,000 as of December 31, 2005 and 2004, respectively. For the years ended December 31, 2005, 2004 and 2003, the Company’s contractual relationships with Delta and United combined accounted for approximately 98.5% of the Company’s total revenues.

Employees

As of December 31, 2005 SkyWest and SkyWest Airlines collectively employed 8,095 full-time equivalent employees consisting of 3,480 pilots and flight attendants, 3,303 customer service personnel, 843 mechanics and other maintenance personnel, and 469 administration and support personnel. None of these employees are currently represented by a union. We are aware, however, that collective bargaining group organization efforts among SkyWest Airlines’ employees occur from time to time and we anticipate that such efforts will continue in the future. During 2004, SkyWest Airlines’ pilots voted against a resolution to join an officially recognized union. Under governing rules, SkyWest Airlines’ pilots may again vote on this issue at any time because one year has passed since the previous vote. If unionization efforts are successful, we may be subjected to risks of work interruption or stoppage and/or incur additional expenses associated with increased union representation of our employees. SkyWest Airlines has never experienced a work stoppage due to a strike or other labor dispute, and we consider SkyWest Airlines’ relationships with its employees to be good.

As of December 31, 2005, ASA employed approximately 5,552 full-time equivalent employees consisting of 2,481 pilots and flight attendants, 1,747 customer service personnel, 895 mechanics and other maintenance personnel, and 429 administration and support personnel. Three of ASA’s employee groups are represented by unions. ASA’s pilots are represented by the Air Line Pilots Association International, ASA’s flight attendants are represented by the Association of Flight Attendants—CWA, and ASA’s flight controllers are represented by the Professional Airline Flight Control Association. The collective

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bargaining agreements between ASA and its pilots and flight attendants became amendable September 15, 2002 and September 26, 2003, respectively. ASA has been negotiating with the pilots and flight attendants unions since 2002 and 2003, respectively. Each of these negotiations is currently under the jurisdiction of mediators supplied by the National Mediation Board. The collective bargaining agreement between ASA and its flight controllers becomes amendable in April 2006. ASA has never experienced a work stoppage due to a strike or other labor dispute, and considers its relationships with employees to be good.

Allowance against receivable

The Company currently has a dispute with one of its major partners regarding the calculation of certain revenues. Due to the dispute, the Company has recorded certain reserves against the applicable revenues and receivable until such time the dispute is resolved.

(6)Capital Transactions

Preferred Stock

The Company is authorized to issue 5,000,000 shares of preferred stock in one or more series without shareholder approval. No shares of preferred stock are presently outstanding. The Company’s Board of Directors is authorized, without any further action by the stockholders of the Company, to (i) divide the preferred stock into series; (ii) designate each such series; (iii) fix and determine dividend rights; (iv) determine the price, terms and conditions on which shares of preferred stock may be redeemed; (v) determine the amount payable to holders of preferred stock in the event of voluntary or involuntary liquidation; (vi) determine any sinking fund provisions; and (vii) establish any conversion privileges.

Stock Options

In August 2000, the Company’s shareholders approved the adoption of two new stock option plans: the Executive Stock Incentive Plan (the “Executive Plan”) and the 2001 Allshare Stock Option Plan (the “Allshare Plan”). Both plans became effective January 1, 2001. These plans replaced the Company’s Combined Incentive and Non-Statutory Stock Option Plans (the “Prior Plans”); however, all outstanding options under Prior Plans remain outstanding. No further grants will be made under the Prior Plans. As of December 31, 2005, there were approximately 940,000 employee options outstanding under the Prior Plans. The Executive Plan provides for the issuance of options to purchase up to 4,000,000 shares of common stock to officers, directors and other management employees of which 3,696,477 options had been issued as of December 31, 2005. The Allshare Plan provides for the issuance of options to purchase up to 4,000,000 shares of common stock to employees of the Company, of which 2,508,961 options had been issued as of December 31, 2005. The Executive Plan and Allshare Plan are both administered by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) who designate option grants as either incentive or non-statutory. Incentive stock options are granted at not less than 100% of the market value of the underlying common stock on the date of grant. Non-statutory stock options are granted at a price as determined by the Compensation Committee.

The fair value of stock options was estimated at the grant date using the Black-Scholes option pricing model. The following table shows the assumptions used for grants in the years ended December 31, 2005, 2004 and 2003.

	2005		2004		2003
Expected annual dividend rate	0.70	%	0.63	%	0.76	%
Risk-free interest rate	3.87	%	2.75	%	2.56	%
Average expected life (years)	6		4		4
Expected volatility of common stock	0.391		0.422		0.603

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Options are exercisable for a period as defined by the Compensation Committee at the date granted; however, no stock option will be exercisable before six months have elapsed from the date it is granted and no incentive stock option shall be exercisable after ten years from the date of grant. The following table summarizes the stock option activity for all plans for the years ended December 31, 2005, 2004 and 2003:

	2005					2004					2003
	Number of Options		Weighted Average Price			Number of Options		Weighted Average Price			Number of Options		Weighted Average Price
Outstanding at beginning of year	5,531,101			$	19.39	4,690,122			$	19.27	3,679,925			$	21.70
Granted	1,826,050			17.11		1,134,812			19.18		1,116,915			10.57
Exercised	(891,292	)		21.71		(207,755	)		12.12		(24,396	)		11.97
Canceled	(164,857	)		17.58		(86,078	)		18.31		(82,322	)		21.20
Outstanding at end of year	6,301,002			18.38		5,531,101			19.39		4,690,122			19.27
Weighted average fair value of options granted during the year				$	7.04				$	6.66				$	4.85

The following table summarizes information about stock options outstanding at December 31, 2005:

	Options Outstanding							Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price			Number Exercisable	Weighted Average Exercise Price
$10 to $15		1,463,176		6.1 years		$	11.18	415,000		$	12.67
$16 to $21		3,412,440		8.1 years		18.24		525,000		20.13
$22 to $27		1,425,386		5.8 years		26.10		1,425,386		26.10
$10 to $27		6,301,002		7.1 years		18.38		2,365,386		22.42

(7)Retirement Plan and Employee Stock Purchase Plan

SkyWest Retirement Plan

The Company sponsors the SkyWest, Inc. Employees’ Retirement Plan (the “SkyWest Plan”). Employees who have completed 90 days of service and are 18 years of age are eligible for participation in the SkyWest Plan. Employees may elect to make contributions to the SkyWest Plan. The Company matches 100% of such contributions up to 2%, 4% or 6% of the individual participant’s compensation, based upon length of service. Additionally, a discretionary contribution may be made by the Company. The Company’s combined contributions to the SkyWest Plan were $10.5 million, $9.7 million and $7.8 million for the years ended December 31, 2005, 2004 and 2003, respectively.

ASA Retirement Plan

ASA sponsors the Atlantic Southeast Airlines, Inc. Investment Savings Plan (“ASA Plan”). Employees who have completed 90 days of service and are 18 years of age are eligible for participation in the ASA Plan. Employees may elect to make contributions to the ASA Plan however, ASA limits the amount of company match of up to 6% of their compensation. Additionally, ASA matches the individual participant’s contributions from 20% to 75%, based on length of service. Since ASA makes company matching contributions on an annual basis, no contributions were made for the period from date of acquisition through December 31, 2005. Additionally, participants are 100% vested in their elective deferrals and rollover amounts and from 10% to 100% in company matching contributions based on length of service.

Employee Stock Purchase Plan

In February 1996, the Company’s Board of Directors approved the SkyWest, Inc. 1995 Employee Stock Purchase Plan (the “Stock Purchase Plan”). All employees who have completed 90 days of

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employment are eligible to participate, except employees who own five percent or more of the Company’s common stock. The Stock Purchase Plan enables employees to purchase shares of the Company’s common stock at a 15% discount, through payroll deductions. Employees can contribute up to 15% of their base pay, not to exceed $21,250 each calendar year, for the purchase of shares. Shares are purchased semi-annually at the lower of the beginning or the end of the period price. Employees can terminate their participation in the Stock Purchase Plan at anytime upon written notice.

The following table summarizes purchases made under the Employee Stock Purchase Plan:

	Year Ended December 31,
	2005		2004		2003
Number of share purchased	175,480		343,136		324,680
Average price of shares purchased	$	15.45	$	14.57	$	13.24

During the year ended December 31, 2005, the Company discovered that it had issued 329,606 more shares of common stock than originally authorized to certain of its employees participating in the Stock Purchase Plan. Of the shares sold in excess of the Stock Purchase Plan’s authorized limit, 154,126 shares were sold on January 4, 2005 at a price of $14.35 per share and 175,480 shares were sold on July 5, 2005 at a price of $15.45 per share. Because the shares that exceed the original authorized shares were not deemed to be qualified under the Stock Purchase Plan, the intrinsic value of these share on the purchase date was recorded as compensation expense.

(8)Related-Party Transactions

The Company’s Chairman and Chief Executive Officer, serves on the Board of Directors for Zion’s Bancorporation (“Zion’s”) and the Utah State Board of Regents. The Company maintains a line of credit (see Note 2) and certain bank accounts with Zion’s, Zion’s is an equity participant in leveraged leases on two CRJ200 and four Brasilia turboprop aircraft operated by the Company and Zion’s provides investment administrative services to the Company for which the Company paid approximately $176,000 during the year ended December 31, 2005. Zion’s also serves as the Company’s transfer agent. The balance in the Zion’s accounts as of December 31, 2005, was $30,693,000.

One of the Company’s former board members is a shareholder in Soltis Investment Advisors, Inc. (“Soltis”). Soltis provides cash management advisory services for a portion of the Company’s cash programs, to the SkyWest Plan and the Company’s deferred executive compensation plan. Soltis received approximately $263,000 in 2005 for fees from Fidelity relating to the Company’s cash programs. Soltis received approximately $144,850 in 2005 for fees for advisory services to the SkyWest Plan and Company’s deferred compensation plan. With respect to the executive deferred compensation plan for the officer group, Soltis provides consulting services in conjunction with the Newport Group. Soltis received $20,000 during 2005 from the Newport Group.

ITEM 9.CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), within 90 days of the filing date of this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in alerting them on a timely basis to material information required to

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be included in our reports filed or submitted under the Exchange Act. There have been no significant changes (including corrective actions with regard to material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced above.

Report of Management on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes those written policies and procedures that:

·pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

·provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America;

·provide reasonable assurance that our receipts and expenditures are being made only in accordance with authorization of our management; and

·provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our consolidated financial statements.

Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions taken to correct deficiencies as identified.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness our internal control over financial reporting as of December 31, 2005. Our management’s assessment excluded ASA, which we acquired on September 7, 2005. As of December 31, 2005, ASA had $1.8 billion and $444.7 million of total assets and net assets, respectively. For the year ended December 31, 2005, ASA had total revenues of $399.8 million. In accordance with guidance issued by the SEC, companies are allowed to exclude acquisitions from their assessment of internal controls over financial reporting during the first year subsequent to the acquisition while integrating the acquired operations. Our management’s assessment was based on criteria for effective internal control over financial reporting described in “Internal Control—“Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. Our management reviewed the results of its assessment with the Audit Committee of our Board of Directors. Based on this assessment, our management determined that, as of December 31, 2005, we maintained effective internal control over financial reporting.

Ernst & Young LLP, independent registered public accounting firm, who audited and reported on our consolidated financial statements included in this report, has issued an attestation report on management’s assessment of internal control over financial reporting. This attestation report appears on page 69 of this report.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
SkyWest, Inc.

We have audited management’s assessment, included in the accompanying Report of Management on Internal Control Over Financial Reporting, that SkyWest, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). SkyWest, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Report of Management on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Atlantic Southeast Airlines, Inc., which is included in the 2005 consolidated financial statements of SkyWest, Inc. and constituted $1.8 billion and $444.7 million of total assets and  net assets, respectively, as of December 31, 2005 and  $399.8 million of passenger revenue for the year then ended. Atlantic Southeast Airlines, Inc. was acquired by SkyWest, Inc. during 2005. Our audit of internal control over financial reporting of SkyWest, Inc. also did not include an evaluation of the internal control over financial reporting of Atlantic Southeast Airlines, Inc.

In our opinion, management’s assessment that SkyWest, Inc. maintained effective internal control over financial reporting as of December 31, 2005 is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, SkyWest, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of SkyWest, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2005 of SkyWest, Inc. and subsidiaries and our report dated March 9, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Salt Lake City, Utah
March 9, 2006

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ITEM 9B.OTHER INFORMATION

None.

PART III

Items 10, 11, 12, 13 and 14 in Part III of this report are incorporated herein by reference to our definitive proxy statement for our 2006 annual meeting of shareholders scheduled for May 2, 2006. Our definitive proxy statement will be filed with the SEC not later than 120 days after December 31, 2005, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended.

		Headings in Proxy Statement
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	“Election of Directors” and “Executive Officers”
ITEM 11.	EXECUTIVE COMPENSATION	“Executive Compensation” and “Report of the Compensation Committee”
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	“Election of Directors” and “Security Ownership of Certain Beneficial Owners and Management”
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	“Executive Compensation”
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	“Principal Accountant Fees and Services”

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PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)Documents Filed:

1.Financial Statements:  Reports of Independent Auditors, Consolidated Balance Sheets as of December 31, 2005 and 2004, Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003, Consolidated Statements of Cashflows for the year ended December 31, 2005, 2004 and 2003, Consolidated Statements of Owners Equity for the years ended December 31, 2005, 2004 and 2003 and Notes to Consolidated Financial Statements.

2.Financial Statement Schedule. The following consolidated financial statement schedule of the our company is included in this Item 15.

—Report of independent auditors on financial statement schedule

—Schedule II—Valuation and qualifying accounts

All other schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions or are not applicable, and therefore have been omitted.

(b)Exhibits

Number	Exhibit	Location
2.1	Stock Purchase Agreement, dated as of August 15, 2005, among SkyWest, Inc., Delta Air Lines, Inc., and ASA Holdings, Inc.	(1)
3.1	Restated Articles of Incorporation	(2)
3.2	Amended and Restated Bylaws	(3)
4.1	Specimen of Common Stock Certificate	(4)
10.1	Amended and Restated Delta Connection Agreement, dated as of September 8, 2005, between SkyWest Airlines, Inc. and Delta Air Lines, Inc.	(5)
10.2	Second Amended and Restated Delta Connection Agreement, dated as of September 8, 2005, between Atlantic Southeast Airlines, Inc. and Delta Air Lines, Inc.	(5)
10.3	United Express Agreement dated September 9, 2003 between United Air lines, Inc. and SkyWest Airlines, Inc.	(6)
10.4	Stock Option Agreement dated January 28, 1987 between Delta Air Lines, Inc. and SkyWest, Inc.	(7)
10.5	Lease Agreement dated December 1, 1989 between Salt Lake City Corporation and SkyWest Airlines, Inc.	(8)
10.6(a)	Master Purchase Agreement between Bombardier and SkyWest Airlines, Inc.	(9)
10.6(b)	Supplement to Master Purchase Agreement Between Bombardier, and SkyWest Airlines, Inc.	(6)
10.7	SkyWest, Inc. Amended and Combined Incentive and Non-Statutory Stock Option Plan	(10)

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10.8(a)	SkyWest, Inc. 1995 Employee Stock Purchase Plan	(11)
10.8(b)	First Amendment to SkyWest, Inc. 1995 Employee Stock Purchase Plan	Filed herewith
10.8(c)	Second Amendment to SkyWest, Inc. 1995 Employee Stock Purchase Plan	Filed herewith
10.8(d)	Third Amendment to SkyWest, Inc. 1995 Employee Stock Purchase Plan	(12)
10.9	SkyWest, Inc. 2006 Employee Stock Purchase Plan	(13)
10.10	SkyWest, Inc. Executive Stock Incentive Plan	(14)
10.11	SkyWest, Inc. Allshare Stock Option Plan	(14)
10.12(a)	2004 Restatement of the SkyWest, Inc. Employees’ Retirement Plan	Filed herewith
10.12(b)	Amendment Number One to the 2004 Restatement of the SkyWest, Inc. Employees’ Retirement Plan	Filed herewith
10.12(c)	Amendment Number Two to the 2004 Restatement of the SkyWest, Inc. Employees’ Retirement Plan	Filed herewith
10.13(a)	Atlantic Southeast Airlines, Inc. Investment Savings Plan.	Filed herewith
10.13(b)	First Amendment to the Atlantic Southeast Airlines, Inc. Investment Savings Plan.	Filed herewith
10.13(c)	Second Amendment to the Atlantic Southeast Airlines, Inc. Investment Savings Plan.	Filed herewith
10.13(d)	Third Amendment to the Atlantic Southeast Airlines, Inc. Investment Savings Plan.	Filed herewith
10.13(e)	Fourth Amendment to the Atlantic Southeast Airlines, Inc. Investment Savings Plan.	Filed herewith
21.1	Subsidiaries of the Registrant	(2)
23.1	Consent of Independent Registered Public Accounting Firm	Filed herewith
31.1	Certification of Chief Executive Officer	Filed herewith
31.2	Certification of Chief Financial Officer	Filed herewith
32.1	Certification of Chief Executive Officer	Filed herewith
32.2	Certification of Chief Financial Officer	Filed herewith

(1)Incorporated by reference to the exhibits to Registrant’s Form 8-K filed on September 13, 2005

(2)Incorporated by reference to the exhibits to a Registration Statement on Form S-3, File No. 333-129832

(3)Incorporated by reference to the exhibits to a Registration Statement on Form S-3, File No. 33-74290

(4)Incorporated by reference to the exhibits to a Registration Statement on Form S-3, File No. 333-42508

(5)Incorporated by reference to the exhibits to Registrant’s Form 8-K/A filed on February 21, 2006

(6)Incorporated by reference to the exhibits to Registrant’s Form 10-Q filed on September 30, 2003

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(7)Incorporated by reference to the exhibits to Registrant’s Forms 8-K filed on January 21, 1998 and February 11, 1998

(8)Incorporated by reference to the exhibits to Registrant’s Form 10-Q filed for the quarter ended December 31, 1986

(9)Incorporated by reference to the exhibits to Registrant’s Form 10-Q filed on February 13, 2001

(10)Incorporated by reference to the exhibits to a Registration Statement on Form S-8, File No. 33-41285

(11)Incorporated by reference to the exhibits to Registrant’s Form 10-K filed for the year ended March 31, 1995

(12)Incorporated by reference to the exhibits to a Registration Statement on Form S-8, File No. 333-130846

(13)Incorporated by reference to the exhibits to a Registration Statement on Form S-8, File No. 333-130848

(14)Incorporated by reference to the exhibits to Registrant’s Form 10-Q filed on July 28, 2000

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Report of Independent Registered Public Accounting Firm

We have audited the consolidated financial statements of SkyWest, Inc. and subsidiaries (the “Company”) as of December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005, and have issued our report thereon dated March 9, 2006 (included elsewhere in this Form 10-K). Our audits also included the financial statement schedule listed in Item 15(a) of this Form 10-K. This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Salt Lake City, Utah
March 9, 2006

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SKYWEST, INC. AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2005, 2004 and 2003
(Dollars in thousands)

Description	Balance at Beginning of Year			Additions Charged to Costs and Expenses			Deductions				Balance at End of Year
Year Ended December 31, 2005:
Allowance for inventory obsolescence		$	2,033		$	883		$	0		$	2,916
Allowance for doubtful accounts receivable		24			64			30			58
Sales allowance		—			10,200			—			10,200
		$	2,057		$	11,147		$	30		$	13,174
Year Ended December 31, 2004:
Allowance for inventory obsolescence		$	1,926		$	505		$	(398	)	$	2,033
Allowance for doubtful accounts receivable		59			540			(575		)	24
		$	1,985		$	1,045		$	(973	)	$	2,057
Year Ended December 31, 2003:
Allowance for inventory obsolescence		$	480		$	1,446		$	—		$	1,926
Allowance for doubtful accounts receivable		723			14			(678		)	59
		$	1,203		$	1,460		$	(678	)	$	1,985

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SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K for the year ended December 31, 2005, to be signed on its behalf by the undersigned, thereunto duly authorized, on March 13, 2006.

SKYWEST, INC.
By:	/s/ BRADFORD R. RICH
	Bradford R. Rich
	Executive Vice President, Chief Financial Officer and Treasurer

ADDITIONAL SIGNATURES

Pursuant to the requirement of the Securities Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons in the capacities and on the dates indicated.

	Names		Capacities		Date
/s/ JERRY C. ATKIN		Chairman of the Board and
Jerry C. Atkin		Chief Executive Officer		March 13, 2006
/s/ SIDNEY J. ATKIN		Vice Chairman of the Board
Sidney J. Atkin		And Director		March 13, 2006
/s/ BRADFORD R. RICH		Executive Vice President,
Bradford R. Rich		Chief Financial Officer And Treasurer		March 13, 2006
/s/ J. RALPH ATKIN
J. Ralph Atkin		Director		March 13, 2006
/s/ MERVYN K. COX
Mervyn K. Cox		Director		March 13, 2006
/s/ IAN M. CUMMING
Ian M. Cumming		Director		March 13, 2006
/s/ STEVEN F. UDVAR-HAZY
Steven F. Udvar-Hazy		Director		March 13, 2006
/s/ W. STEVE ALBRECHT
W. Steve Albrecht		Director		March 13, 2006
/s/ ROBERT G. SARVER
Robert G. Sarver		Director		March 13, 2006

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EX-10.8(B)

Exhibit 10.8(b)

AMENDMENT NO. 1

TO

SKYWEST, INC.

1995 EMPLOYEE STOCK PURCHASE PLAN

THIS AMENDMENT, (the “Amendment”) is made effective as of the 31^st day of December 1995 by SkyWest, Inc., a Utah corporation (the “Company”).

RECITALS

WHEREAS, effective November 8, 1994, the Company adopted the SkyWest Inc. 1995 Employee Stock Purchase Plan (the “Plan”) for the purpose of providing a method whereby employees of the Company and certain of its subsidiaries would have an opportunity to acquire a proprietary interest in the Company.

WHEREAS, subsequent to the adoption of the Plan, the Company has determined it advisable and in the best interests of the Company to execute this Amendment to amend the Plan to incorporate the modifications set forth below;

NOW THEREFORE, upon these premises, the Plan is hereby modified, altered and amended in the following respects only:

1.Amendments.

a.Section 6.1 shall be amended to read in its entirety as follows:

6.1Number of Option Shares. On the applicable Offering Commencement Date, a participating Employee shall be deemed to have been granted an option to purchase on the Offering Termination Date a number of shares of Common Stock determined by dividing such participating Employee’s contributions accumulated prior to such Offering Termination Date and retained in the participating Employee’s account as of the Offering Termination Date by the lower of (i) eighty-five percent (85%) of the market value of a share of Common Stock on the offering Commencement Date, or (ii) eighty-five percent (85%) of the market value of a share of Common Stock on the Offering Termination Date; provided, however, that the maximum number of shares of Common Stock an Employee may purchase during each Offering shall be determined at the Offering Commencement Date by dividing $25,000 ($12,500 in the case of a six-month Offering) by the market value of a share of Common stock on the Offering Commencement Date, and provided further that such purchase shall be subject to the limitations set forth in Article 10 or any other applicable provisions of the Plan. For purposes of this Section 6.1, the market value of a share of Common Stock shall mean the closing sale price of the Common stock on the applicable date (or the nearest prior business day on which shares of Common Stock traded on the NASDAQ/NMS if no shares of Common Stock traded on the applicable date) as reported on the NASDAQ/NMS or on such other exchange or quotation system on which the Common Stock is then listed or quoted.

b.Section 6.2 shall be amended to read in its entirety as follows:

6.2Option Price. The option price of Common Stock purchased with payroll deductions made during each Offering for a participant therein shall be the lower of:

(a)85% of the closing sale price of the stock on the NASDAQ Stock Market/National Market System (“NASDAQ/NMS”) (or such other exchange or quotation system on which the Common Stock is then listed or quoted) on the applicable Offering Commencement Date (or on the nearest prior business day on which shares of Common Stock are traded on the NASDAQ/NMS if no shares of Common Stock are traded on the applicable Offering Termination Date);

(b)85% of the NASDAQ/NMS closing sale price of the stock on the NASDAQ/NMS (or such other exchange or quotation system on which the Common Shares is then listed or quoted) on the applicable Offering Termination Date (or on the nearest prior business day on which shares of Common Stock are traded on the NASDAQ/NMS if no shares of Common Stock are traded on the applicable Offering Termination Date).

2.Effective Date. This amendment shall be effective as of December 31, 1995 and shall apply to all existing options under the Plan and all options to be granted under the terms of the Plan on or after December 31, 1995.

3.Ratification. In all respect, other than as specifically set forth in Section 1 above, the Plan shall remain unaffected by this Amendment, the Plan shall continue in full force and effect, subject to the terms and conditions thereof, and in the event of any conflict, inconsistency, or incongruity between the provisions of this Amendment and any provisions of the Plan the provisions of this Amendment shall in all respects govern and control.

To record the adoption of this amendment Plan by the Board and approval by the stockholders, the Company has caused its duly authorized officer to affix the corporate name and seal hereto.

SKYWEST, INC.,
a Utah corporation
By:	/s/ Eric Christensen
Its: VP Planning and Corporate Secretary

EX-10.8(C)

Exhibit 10.8(c)

AMENDMENT No. 2

TO

SKYWEST, INC.

1995 EMPLOYEE STOCK PURCHASE PLAN

THIS AMENDMENT, (the “Amendment”) is made this 12^th day of June, 2000, by SkyWest, Inc., a Utah corporation (the “Company”) to be effective July 1, 2000.

RECITALS

WHEREAS, effective November 8, 1994, the Company adopted the SkyWest, Inc. 1995 Employee Stock Purchase Plan (the “Plan”) for the benefit of employees of the Company and the employees of certain of its subsidiaries, which Plan the Company has previously amended.

WHEREAS, the Company has determined it is advisable and in the best interests of the Company to amend the Plan to permit additional offerings through June 30, 2005; and to reflect the adjustment made to the Plan’s maximum share limitations as a result of the Company’s 1998 two-for-one stock split;

NOW THEREFORE, upon these premises, the Plan is hereby modified, altered, and amended effective July 1, 2000, in the following respects only:

1.Amendments.

a.Section 4.1 shall be amended to read in its entirety as follows:

4.1Offerings. The Plan will be implemented by ten annual offerings of Common Stock (the “Offerings”) beginning on the 1^st day of July in each of the years 1995 through 2004, with each Offering terminating on June 30 of the following year; provided, however, that each annual Offering may, in the discretion of the Committee exercised prior to the commencement thereof, be divided into two six-month Offerings commencing, respectively, on July 1 and January 1, and terminating on December 31 and June 30, respectively. The number of shares of Common Stock that may be issued in any Offering shall not cause the Plan to exceed the limitations of Section 10.1 below. As used in the Plan, “Offering Commencement Date” means the July 1 or January 1, as the case may be, on which the particular Offering begins and “Offering Termination Date” means the December 31 or June 30, as the case may be, on which the particular Offering terminates.

b.Section 10.1 shall be amended to read in its entirety as follows:

10.1Maximum Shares. The maximum number of shares of Common Stock which may be issued under the Plan, subject to adjustment as provided in Section 12.4 below, shall be 1,000,000 shares for all Offerings. The foregoing limitation reflects the Company’s 1998 two-for-one stock split which resulted in the Plan’s original 500,000 maximum share limitation being increased to 1,000,000 shares. If the total

number of shares for which options are exercised on any Offering Termination Date in accordance with Article 6 exceeds the maximum number of shares set forth in this Section 10.1, the Company shall make a pro-rata allocation of the shares available for delivery and distribution in as nearly a uniform manner as shall be practicable and as it shall determine to be equitable, and the balance of payroll deductions credited to the account of each participant shall be returned to him as promptly as possible.

2.Effective Date. This amendment shall be effective as of July 1, 2000, and shall apply to all options to be granted under the terms of the Plan on or after July 1, 2000.

3.Ratification. In all respects, other than as specifically set forth in Section 1 above, the Plan shall remain unaffected by this Amendment, the Plan shall continue in full force and effect, subject to the terms and conditions thereof, and in the event of any conflict, inconsistency, or incongruity between the provisions of this Amendment and any provisions of the Plan the provisions of this Amendment shall in all respects govern and control.

To record the adoption of this Amendment by the Board, the Company has caused its duly authorized officer to affix the corporate name and seal hereto.

SKYWEST, INC.,
A Utah corporation
By:	/s/ Jerry C. Atkin
Its:	Chief Executive Officer

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EX-10.12(A)

Exhibit 10.12(a)

2004 RESTATEMENT

OF THE

SKYWEST, INC. EMPLOYEES’ RETIREMENT PLAN

TABLE OF CONTENTS

ARTICLE I: DEFINITIONS				1
ARTICLE II: ADMINISTRATION				11
2.1			POWERS AND RESPONSIBILITIES OF THE EMPLOYER	11
2.2			DESIGNATION OF ADMINISTRATIVE AUTHORITY	12
2.3			POWERS AND DUTIES OF THE ADMINISTRATOR	12
2.4			RECORDS AND REPORTS	13
2.5			APPOINTMENT OF ADVISERS	13
2.6			PAYMENT OF EXPENSES	14
2.7			CLAIMS PROCEDURE	14
2.8			CLAIMS REVIEW PROCEDURE	14
ARTICLE III: ELIGIBILITY				15
3.1		CONDITIONS OF ELIGIBILITY		15
3.2		EFFECTIVE DATE OF PARTICIPATION		15
3.3		DETERMINATION OF ELIGIBILITY		16
3.4		TERMINATION OF PARTICIPATION		16
3.5		OMISSION OF ELIGIBLE EMPLOYEE		16
3.6		INCLUSION OF INELIGIBLE EMPLOYEE		16
3.7		REHIRED EMPLOYEES AND BREAKS IN SERVICE		17
ARTICLE IV: CONTRIBUTION AND ALLOCATION				17
4.1	FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION			17
4.2	PARTICIPANT’S SALARY REDUCTION ELECTION			18
4.3	TIME OF PAYMENT OF EMPLOYER CONTRIBUTIONS			21
4.4	ALLOCATION OF CONTRIBUTIONS AND EARNINGS			21
4.5	TOP HEAVY MINIMUM CONTRIBUTIONS			23
4.6	ACTUAL DEFERRAL PERCENTAGE TESTS			24
4.7	ADJUSTMENT TO SATISFY ADP TEST			25
4.8	ACP TESTS			28
4.9	ADJUSTMENT TO SATISFY ACP TESTS			29
4.10	MAXIMUM ANNUAL ADDITIONS			31
4.11	ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS			33
4.12	ROLLOVERS AND PLAN-TO-PLAN TRANSFERS FROM QUALIFIED PLANS			34
4.13	VOLUNTARY CONTRIBUTIONS			36
4.14	DIRECTED INVESTMENT ACCOUNT			36
4.15	QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS			39
4.16	QUALIFIED MILITARY SERVICE			39

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ARTICLE V: VALUATIONS				39
5.1			VALUATION OF THE TRUST FUND	39
5.2			METHOD OF VALUATION	39
ARTICLE VI: VESTED BENEFITS AND DISTRIBUTIONS				40
6.1		VESTED BENEFITS		40
6.2		DISTRIBUTION OF BENEFITS UPON SEPARATION FROM EMPLOYMENT PRIOR TO DEATH		40
6.3		BENEFICIARY DESIGNATIONS AND DISTRIBUTION UPON DEATH		42
6.4		MINIMUM REQUIRED DISTRIBUTIONS		44
6.5		LIMITED JOINT AND SURVIVOR ANNUITY RULES		49
6.6		ROLLOVER DISTRIBUTIONS		52
6.7		DISTRIBUTION FOR MINOR OR INCOMPETENT BENEFICIARY		53
6.8		LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN		53
6.9		PRE-RETIREMENT IN-SERVICE DISTRIBUTION		54
6.10		ADVANCE DISTRIBUTION FOR HARDSHIP		54
6.11		QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION		55
ARTICLE VII: TRUSTEE				56
7.1	BASIC RESPONSIBILITIES OF THE TRUSTEE			56
7.2	INVESTMENT POWERS AND DUTIES OF THE TRUSTEE			57
7.3	OTHER POWERS OF THE TRUSTEE			57
7.4	LOANS TO PARTICIPANTS			60
7.5	DUTIES OF THE TRUSTEE REGARDING PAYMENTS			61
7.6	TRUSTEE’S COMPENSATION AND EXPENSES AND TAXES			61
7.7	ANNUAL REPORT OF THE TRUSTEE			61
7.8	AUDIT			62
7.9	RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE			62
7.10	TRANSFER OF INTEREST			63
7.11	TRUSTEE INDEMNIFICATION			64
7.12	EMPLOYER SECURITIES AND REAL PROPERTY			64
ARTICLE VIII: AMENDMENT, TERMINATION AND MERGERS				64
8.1	AMENDMENT			64
8.2	TERMINATION			64
8.3	MERGER, CONSOLIDATION OR TRANSFER OF ASSETS			65

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ARTICLE IX: TOP HEAVY		65
9.1	TOP HEAVY PLAN REQUIREMENTS	65
9.2	DETERMINATION OF TOP HEAVY STATUS	65
ARTICLE X: MISCELLANEOUS		67
10.1	PARTICIPANT’S RIGHTS	67
10.2	ALIENATION	68
10.3	CONSTRUCTION OF PLAN	69
10.4	GENDER AND NUMBER	69
10.5	LEGAL ACTION	69
10.6	PROHIBITION AGAINST DIVERSION OF FUNDS	70
10.7	RECEIPT AND RELEASE FOR PAYMENTS	70
10.8	ACTION BY THE EMPLOYERS	70
10.9	NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY	71
10.10	HEADINGS	71
10.11	UNIFORMITY	71

iii

2004 RESTATEMENT OF THE

SKYWEST, INC. EMPLOYEES’ RETIREMENT PLAN

This 2004 Restatement of the SkyWest, Inc. Employees’ Retirement Plan is hereby made and entered into this            day of June 2004, by and between SkyWest, Inc. (herein referred to as the “Employer”) and Michael Kraupp, Alan Olson and Ann Olsen (herein referred to as the “Trustee”).

WITNESSETH:

WHEREAS, the Employer heretofore established a Profit Sharing Plan and Trust effective April 1, 1977, known as SkyWest, Inc. Employees’ Retirement Plan (herein referred to as the “Plan”) in recognition of the contribution made to its successful operation by its employees and the employees of its participating affiliates and for the exclusive benefit of its eligible employees and the employees of its participating affiliates; and

WHEREAS, under the terms of the Plan, the Employer has the ability to amend the Plan, provided the Trustees join in such amendment if the provisions of the Plan affecting the Trustees are amended;

WHEREAS, the Plan has previously been amended and restated at various times; and

WHEREAS, it is necessary and desirable to again amend and restate the Plan;

NOW, THEREFORE, the Employer and the Trustees in accordance with the provisions of the Plan pertaining to amendments thereof, hereby amend and restate the Plan in its entirety to provide as follows effective January 1, 2004:

ARTICLE I

DEFINITIONS

1.1“Act” means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.

1.2“Administrator” means SkyWest, Inc. unless another person or entity has been designated by SkyWest, Inc. pursuant to Section 2.2 to administer the Plan on behalf of SkyWest, Inc..

1.3“Affiliated Employer” means any SkyWest Airlines, Inc. and any other corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes SkyWest, Inc.; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an

1

affiliated service group (as defined in Code Section 414(m)) which includes the Employer.

1.4“Aggregate Account” means, with respect to each Participant, the value of all accounts maintained on behalf of a Participant, whether attributable to Employer or Employee contributions, subject to the provisions of Section 9.2.

1.5“Anniversary Date” means the last day of the Plan Year.

1.6“Annuity Starting Date” means, with respect to any Participant, the first day of the first period for which an amount is paid as an annuity under Section 6.1 below.

1.7“Beneficiary” means the person (or entity) to whom the share of a deceased Participant’s total account is payable, subject to the restrictions of Sections 6.2 and 6.6.

1.8.“Catch-Up Contribution” means any Deferred Compensation Contributions on behalf of a Participant who has or will attain age 50 or older during the Plan Year in question and which constitutes a “catch-up” contribution within the meaning of Regulation Section 1.414(v)-1(a).  Catch-Up Contributions shall not be taken into account for purposes of applying the limitations of Code Sections 402(g) and 415 and shall be disregarded in applying the provisions of this Plan that implement Sections 401(k)(3), 401(k)(11), 401(k)(12), 410 and 416 of the Code.

1.9“Code” means the Internal Revenue Code of 1986, as amended or replaced from time to time.

1.10“Compensation” with respect to any Participant means such Participant’s wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer’s trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) or 6052.  Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)).  For purposes of this Section, the determination of Compensation shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457(b).

For a Participant’s initial year of participation in the component of the Plan for which Compensation is being used, Compensation shall be recognized for the entire Plan Year.

Compensation in excess of $200,000 shall be disregarded for all purposes other than for purposes of salary deferral elections pursuant to Section 4.2.  The $200,000 limit shall be adjusted for increases in the cost of living in accordance with Code Section

2

401(a)(17)(B), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year.  For any short Plan Year the Compensation dollar limit shall be an amount equal to the Compensation limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by 12.

1.11“Contract” or “Policy” means any life insurance policy, retirement income policy or annuity contract (group or individual) issued pursuant to the terms of the Plan.

1.12“Deferred Compensation Contributions” with respect to any Participant means the amount of the Participant’s Compensation which has been contributed to the Plan in accordance with the Participant’s salary reduction and deferral election pursuant to Section 4.2 excluding any such amounts distributed as excess “annual additions” pursuant to Section 4.11(a)(2) below.

1.13“Designated Investment Alternative” means a specific investment identified by name by the Employer (or such other Fiduciary who has been given the authority to select investment options) as an available investment under the Plan to which Plan assets may be invested by the Trustee pursuant to the investment direction of a Participant.

1.14“Directed Investment Option” means one or more of the following:

(a)a Designated Investment Alternative; and

(b)any other investment permitted by the Plan and the Participant Direction Procedures to which Plan assets may be invested by the Trustee pursuant to the investment direction of a Participant.

1.15“Elective Contribution” means (a) any Deferred Compensation Contributions, (b) any Employer matching contribution made pursuant to Section 4.1(b) which is used to satisfy the “ADP” test, and (c) any Employer Qualified Non-Elective Contribution made pursuant to Section 4.1(c) and Section 4.7(b) which is used to satisfy the “ADP” test.  Any Elective Contributions (whether or not used to satisfy the “ADP” test or the “ACP” test) shall be subject to the requirements of Sections 4.2(b) and 4.2(c) and shall satisfy the nondiscrimination requirements of Regulation Sections 1.401(k)-1(b)(5) and 1.401(m)-1(b)(5), the provisions of which are specifically incorporated herein by reference.

1.16“Eligible Employee” means any Employee of: (i) SkyWest, Inc., (ii) SkyWest Airlines, Inc., an Affiliate of SkyWest, Inc. that previously adopted the Plan for its employees; and (iii) any other Affiliated Employer which, with the consent of SkyWest, Inc., adopts the Plan in writing for its Employees.  Notwithstanding the foregoing, Leased Employees are not Eligible Employees and may not participate in the Plan.  If SkyWest, Inc., SkyWest Airlines, Inc. or another Affiliated Employer classifies a worker for personnel and/or payroll purposes as an independent contractor or other form of non-Employee service provider and a court or governmental authority subsequently

3

determines that the worker is or was in fact a common law Employee, the reclassified worker shall not be an Eligible Employee and shall not participate in the Plan.

1.17 “Employee” means any person who is employed by SkyWest, Inc., SkyWest Airlines, Inc. or another Affiliated Employer, and excludes any person who is employed as an independent contractor.  Employee shall include Leased Employees within the meaning of Code Sections 414(n)(2) unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and such Leased Employees do not constitute more than 20% of the recipient’s non-highly compensated work force.

1.18 “Employer” means SkyWest, Inc., any successor which shall maintain this Plan, SkyWest Airlines, Inc. and any other Affiliated Employer that has adopted the Plan.  Any provision herein to the contrary, unless the context otherwise clearly requires, SkyWest, Inc. shall be treated as the sole Employer for purposes of Articles II, VII, VIII and X.

1.19 “Excess Aggregate Contributions” means, with respect to any Plan Year, the excess of the aggregate amount of the Employer matching contributions made pursuant to Section 4.1(b) (to the extent such matching contributions are not used to satisfy the “ADP” tests), after-tax voluntary Employee contributions made pursuant to Section 4.13, Excess Contributions recharacterized as after-tax voluntary Employee contributions pursuant to Section 4.7(a) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.8(c) on behalf of Highly Compensated Participants for such Plan Year, over the maximum amount of such contributions permitted under the limitations of Section 4.8(a) (determined by hypothetically reducing contributions made on behalf of Highly Compensated Participants in order of the actual contribution ratios beginning with the highest of such ratios).  Such determination shall be made after first taking into account corrections of any Excess Deferred Compensation pursuant to Section 4.2 and taking into account any adjustments of any Excess Contributions pursuant to Section 4.7.

1.20 “Excess Contributions” means, with respect to a Plan Year, the excess of Elective Contributions made on behalf of Highly Compensated Participants for the Plan Year over the maximum amount of such contributions permitted under Section 4.6(a) (determined by hypothetically reducing contributions made on behalf of Highly Compensated Participants in order of the actual deferral ratios beginning with the highest of such ratios).  Excess Contributions do not include Catch-Up Contributions.  Excess Contributions, including amounts recharacterized pursuant to Section 4.7(a)(2), shall be treated as “annual additions” under Section 4.10(b).

1.21“Excess Deferred Compensation” means, with respect to any taxable year of a Participant, the excess of the aggregate Deferred Compensation Contributions (excluding Catch-Up Contributions) made on behalf of such Participant for such taxable year, over the dollar limitation provided for in Code Section 402(g).  Excess Deferred Compensation shall be treated as an “annual addition” pursuant to Section 4.10(b) when contributed to the Plan unless distributed to the affected Participant not later than the first April 15th following the close of the Participant’s taxable year.  Additionally, for

4

purposes of Sections 4.5 and 9.2, Excess Deferred Compensation shall continue to be treated as Employer contributions even if distributed pursuant to Section 4.2(f).  However, Excess Deferred Compensation of Non-Highly Compensated Participants is not taken into account for purposes of Section 4.6(a) to the extent such Excess Deferred Compensation occurs pursuant to Section 4.2(d).

1.22“Fiduciary” means any person who (a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so, or (c) has any discretionary authority or discretionary responsibility in the administration of the Plan.

1.23“Fiscal Year” means the Employer’s accounting year of 12 months commencing on January 1 of each year and ending the following December 31.

1.24“415 Compensation” with respect to any Participant means such Participant’s Compensation” determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)).  “415 Compensation” shall include any elective deferral (as defined in Code Section 402(g)(3)), and any amount which is contributed or deferred by the Employer at the election of the Participant and which is not includible in the gross income of the Participant by reason of Code Sections 125, or 132(f)(4).

1.25“Highly Compensated Employee” means an Employee described in Code Section 414(q) and the Regulations thereunder, and generally means any Employee who:

(a)was a “5% owner” as defined in Section 1.31(b) at any time during the “determination year” or the “look-back year”; or

(b)for the “look-back year” had “415 Compensation” from the Employer in excess of $90,000.  The $90,000 amount is adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period is the calendar quarter ending September 30, 1996.

The “determination year” means the Plan Year, for which testing is being performed, and the “look-back year” means the immediately preceding 12-month period.  The determination of who is a Highly Compensated Employee shall be made in accordance with Regulation Section 1.414(q)-lT, A-4 and IRS Notice 97-45 (or any superseding guidance).

1.26“Highly Compensated Participant” means any Highly Compensated Employee who is eligible to participate in the component of the Plan being tested.

5

1.27“Hour of Service” means, for purposes of eligibility for participation, (a) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties (these hours will be credited to the Employee, for the computation period in which the duties are performed); (b) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, jury duty, disability, lay-off, military duty or leave of absence) during the applicable computation period (these hours will be calculated and credited pursuant to Department of Labor regulation 2530.200b-2 which is incorporated herein by reference); and (c) each hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of damages (these hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made).  The same Hours of Service shall not be credited both under (a) or (b), as the case may be, and under (c).

Notwithstanding 1.27(b) above, (i) no more than 501 Hours of Service are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker’s compensation, or unemployment compensation or disability insurance laws; and (iii) Hours of Service are not required to be credited for a payment which’ solely reimburses an Employee for medical or medically related expenses incurred by the Employee.

For purposes of 1.27(b) above, a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer, or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate.

For purposes of this Section, Hours of Service will be credited for employment with other Affiliated Employers.  The provisions of Department of Labor Regulation Sections 2530.200b-2(b) and (c) are incorporated herein by reference.

1.28“Inactive Participant” means a Participant who is no longer an Eligible Employee.

1.29“Income” means the income or losses allocable to Excess Deferred Compensation, Excess Contributions or Excess Aggregate Contributions which amount shall be allocated in the same manner as income or losses are allocated pursuant to Section 4.4(d).

6

1.30“Investment Manager” means an entity that (a) has the power to manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility to the Plan in writing.  Such entity must be a person, firm, or corporation registered as an investment adviser under the Investment Advisers Act of 1940, a bank, or an insurance company.

1.31“Key Employee” means a key employee as defined in Code Section 416(i) and the Regulations thereunder.  An Employee or former Employee is considered a Key Employee if the Employee, at any time during the Plan Year that contains the “Determination Date,” is:

(a)an officer of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) having annual “415 Compensation” greater than $130,000 (as adjusted under Code Section 416(i)(1) for any such Plan Year).

(b)a “5% owner” of the Employer.  A “5% owner” means any person who owns (or is considered as owning within the meaning of Code Section 318) more than 5% of the outstanding stock of the Employer or stock possessing more than 5% of the total combined voting power of all stock of the Employer.  In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers.

(c)a “1% owner” of the Employer having annual “415 Compensation” from the Employer of more than $150,000.  A “1% owner” means any person who owns (or is considered as owning within the meaning of Code Section 318) more than 1% of the outstanding stock of the Employer or stock possessing more than 1% of the total combined voting power of all stock of the Employer In determining percentage ownership hereunder, Employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers.  However, in determining whether an individual has “415 Compensation” of more than $150,000, “415 Compensation” from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account.

1.32“Leased Employee” means any person (other than an Employee of the recipient Employer) who pursuant to an agreement between the recipient Employer and any other person or entity has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time basis for at least one year under primary direction or control by the recipient Employer.  A Leased Employee shall not be an Eligible Employee.

1.33“Non-Elective Contribution” means the Employer contributions to the Plan other than Elective Contributions.

1.34“Non-Highly Compensated Participant” means any Participant who is not a Highly Compensated Employee.

7

1.35“Non-Key Employee” means any Employee or former Employee (and such Employee’s or former Employee’s Beneficiaries) who is not, and has never been a Key Employee.

1.36“Normal Retirement Age” means the Participant’s 65^th birthday.

1.37“Normal Retirement Date” means the first day of the month coinciding with or next following the date the Participant attains Normal Retirement Age.

1.38“One-Year Break in Service” means an eligibility computation period during which an Employee has not completed more than 500 Hours of Service.  Further, solely for the purpose of determining whether a Participant has incurred a One-Year Break in Service, Hours of Service shall be recognized for “authorized leaves of absence” and “maternity and paternity leaves of absence.”  Years of Service and One-Year Breaks in Service shall be measured on the same computation period.  “Authorized leave of absence” means an unpaid; temporary cessation from active employment with the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service, or any other reason.  A “maternity or paternity leave of absence” means an absence from work for any period by reason of the Employee’s pregnancy, birth of the Employee’s child, placement of a child with the Employee in connection with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement.  For this purpose, Hours of Service shall be credited for the computation period in which the absence from work begins, only if credit therefore is necessary to prevent the Employee from incurring a One-Year Break in Service, or, in any other case, in the immediately following computation period.  The Hours of Service credited for a “maternity or paternity leave of absence” shall be those which would normal1y have been credited but for such absence, or, in any case in which the Administrator is unable to determine such hours normal1y credited, eight Hours of Service per day.  The total Hours of Service required to be credited for a “maternity or paternity leave of absence” shall not exceed the number of Hours of Service needed to prevent the Employee from incurring a One-Year Break in Service.

1.39“Participant” means any Eligible Employee who participates in the Plan and any former Eligible Employee who has any Vested Benefit under the Plan.

1.40“Participant Direction Procedures” means such instructions, guidelines or policies, the terms of which are incorporated herein, as shal1 be established pursuant to Section 4.14 and observed by the Administrator and applied and provided to Participants who have Participant Directed Accounts.

1.41“Participant’s Combined Account” means the total aggregate amount of each Participant’s Elective Account, Non-Elective Account, Voluntary Account, Qualified Voluntary Contribution Account and Transfer/Rollover Account, as applicable.

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1.42“Participant’s Directed Account” means that portion of a Participant’s interest in the Plan with respect to which the Participant has directed the investment in accordance with the Participant Direction Procedure.

1.43“Participant’s Elective Account” means the account established and maintained by

the Administrator for each Participant with respect to the Participant’s total interest in the Plan and Trust resulting from the Elective Contributions.  A separate accounting shall be maintained with respect to that portion of the Participant’s Elective Account attributable to Deferred Compensation Contributions, Employer matching contributions made pursuant to Section 4.1(b) and any Employer Qualified Non-Elective Contributions.

1.44“Participant’s Non-Elective Account” means the account established and maintained by the Administrator for each Participant with respect to such Participant’s total interest in the Plan and Trust resulting from the Employer Non-Elective Contributions.  A separate sub-account and accounting shall be maintained with respect to that portion of the Participant’s Non-Elective Account attributable to Employer matching contributions made pursuant to Section 4.1(b), Employer discretionary contributions made pursuant to Section 4.1(d) and any Employer Qualified Non-Elective Contributions under Section 4.1(c).

1.45“Participant’s Transfer/Rollover Account” means the account established and maintained by the Administrator for each Participant with respect to the Participant’s total interest in the Plan resulting from (a) direct plan-to-plan transfer to the Plan from another plan not constituting a distribution, and (b) amounts transferred to the Plan, directly or indirectly, from another qualified plan or individual retirement account as rollover distributions in accordance with Section 4.12.  A separate accounting shall be maintained with respect to that portion of the Participant’s Transfer/Rollover Account attributable to transfers (within the meaning of Code Section 414(1)) and “rollovers.”

1.46“Plan” means this instrument, including all amendments thereto.

1.47“Plan Year” means calendar year.

1.48“Qualified Non-Elective Contribution” means any Employer contributions made pursuant to Section 4.1(c), Section 4.7(b) and Section 4.9(f).  Such contributions may be used to satisfy the “ADP” tests or the “ACP” tests.

1.49“Qualified Voluntary Employee Contribution Account” means the account maintained pursuant to Section 4.15 to which a Participant’s tax deductible qualified voluntary employee contributions made prior to 1987 are allocated.

1.50“Regulation” means the Income Tax Regulations as promulgated by the Secretary of the Treasury or its delegate, and as amended from time to time.

1.51“Top Heavy Plan” means a plan described in Section 9.2(a).

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1.52“Top Heavy Plan Year” means a Plan Year during which the Plan is a Top Heavy

Plan.

1.53“Total and Permanent Disability” means a physical or mental condition of a Participant resulting from bodily injury, disease, or mental disorder which renders such Participant incapable of continuing usual arid customary employment with the Employer.  The disability of a Participant shall be determined by a licensed physician chosen by the Administrator.

1.54“Trustee” means the person or entity named as trustee herein or in any separate trust forming a part of this Plan, and any successors.

1.55“Trust Fund” means the assets of the Plan and Trust as the same shall exist from time to time.

1.56“Valuation Date” means the Anniversary Date and may include any other date or dates deemed necessary or appropriate by the Administrator for the valuation of Participant accounts during the Plan Year, which may include any day that the Trustee, any transfer agent appointed by the Trustee or the Employer or any stock exchange used by such agent, are open for business.

1.57“Vested Benefit” means the nonforfeitable balance in any account maintained on behalf of a Participant.  Each Participant is fully (100%) vested in all of his or her accounts, as adjusted from time to time to reflect investment gains and losses.

1.58“Voluntary Contribution Account” means the account established and maintained by the Administrator for each Participant with respect to the Participant’s total interest in the Plan resulting from the Participant’s after-tax voluntary Employee contributions as described in Section 4.13 and recharacterized Excess Contribution under Section 4.7(a). Therefore, a separate accounting shall be maintained with respect to that portion of the Voluntary Contribution Account attributable to after-tax voluntary Employee contributions made pursuant to Section 4.13 and amounts recharacterized as after-tax voluntary Employee contributions pursuant to Section 4.7(a).

1.59Year of Service” means a computation period of 12 consecutive months, as hereinafter set forth, during which an Employee has at least 1000 Hours of Service.

For purposes of eligibility to participate with respect to Employer contributions under Sections 4.1(b) through (d) and the calculation of the maximum Compensation matched under Section 4.1(b), the 12-month computation periods shall be measured from the date on which the Employee first performs an Hour of Service and each anniversary thereof.  Notwithstanding the foregoing, if an individual ceases to be an Eligible Employee, incurs a One-Year Break in Service, and subsequently returns to Eligible Employee status, the individual’s computation periods for determining such eligibility and maximum matching contributions beginning after such One-Year Break in Service

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shall be measured from the date he or she again performs an Hour of Service and the Anniversaries thereof.

Notwithstanding the foregoing, for any short Plan Year, the determination of whether an Employee has completed a Year of Service shall be made in accordance with Department of Labor regulation 2530.203-2(c).

Years of Service with any Affiliated Employer shall be recognized.

ARTICLE II

ADMINISTRATION

2.1POWERS AND RESPONSIBILITIES OF THE EMPLOYER

(a)In addition to the general powers and responsibilities otherwise provided for in this Plan, SkyWest, Inc., as the principal Employer, shall be empowered to appoint and remove the Trustee and the Administrator from time to time as it deems necessary for the proper administration of the Plan to ensure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act.  SkyWest, Inc. may appoint counsel, specialists, advisers, agents (including any nonfiduciary agent) and other persons as it deems necessary or desirable in connection with the exercise of its fiduciary duties under this Plan.  SkyWest, Inc. may compensate such agents or advisers from the assets of the Plan as fiduciary expenses (but not including any business (settler) expenses of the Employers), to the extent not paid by the Employer.

(b)SkyWest, Inc. may, by written agreement or designation, appoint at its option one or more Investment Managers (qualified under the Investment Company Act of 1940 as amended), investment advisers, or other agents to provide direction to the Trustee with respect to any or all of the Plan assets.  Such appointment shall be given by SkyWest, Inc. in writing in a form acceptable to the Trustee and shall specifically identify the Plan assets with respect to which the Investment Manager or other agent shall have authority to direct the investment.

(c)SkyWest, Inc. shall establish a “funding policy and method,” i.e., it shall determine whether the Plan has a short run need for liquidity (e.g., to pay benefits) or whether liquidity is a long run goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so.  SkyWest, Inc. or its delegate shall communicate such needs and goals to the Trustee, who shall coordinate such Plan needs with its investment policy.  Such “funding policy and method” shall be consistent with the objectives of this Plan and with the requirements of Title I of the Act.

(d)SkyWest, Inc. shall periodically review the performance of any Fiduciary or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder.  This requirement

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may be satisfied by formal periodic review by SkyWest, Inc. or by a qualified person specifically designated by it, through day-to-day conduct and evaluation, or through other appropriate ways.

2.2DESIGNATION OF ADMINISTRATIVE AUTHORITY

SkyWest, Inc. shall be the Administrator and may appoint any person, including, but not limited to, the Employees of the Employers, to perform the duties of the Administrator.  Any person so appointed shall signify acceptance by filing written acceptance with SkyWest, Inc.  Upon the resignation or removal of any individual performing the duties of the Administrator, SkyWest, Inc. may designate a successor.

2.3POWERS AND DUTIES OF THE ADMINISTRATOR

The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan.  The Administrator shall administer the Plan in accordance with its terms and shall have full discretionary power and authority to interpret and construe the terms of the Plan and to resolve all questions arising in connection with the administration, interpretation, and application of the Plan.  Any such determination by the Administrator shall be conclusive and binding upon all persons.  The Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure, discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan under the terms of Code Section 401 (a), and shall comply with the terms of the Act and all regulations issued pursuant thereto.  The Administrator shall have all powers necessary or appropriate to accomplish the Administrator’s duties under the Plan.

The Administrator shall be charged with the duties of the general administration of the Plan as set forth under the terms of the Plan, including, but not limited to, the following:

(a)the discretion to determine all questions relating to the eligibility of Employees to participate or remain a Participant hereunder and to receive benefits under the Plan;

(b)to compute, certify, and direct the Trustee with respect to the amount and the kind of benefits to which any Participant shall be entitled hereunder;

(c)to authorize and direct the Trustee with respect to all discretionary or otherwise directed disbursements from the Trust;

(d)to maintain all necessary records for the administration of the Plan;

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(e)to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan as are consistent with the terms hereof;

(f)to compute and certify to the Employers and to the Trustee from time to time the sums of money necessary or desirable to be contributed to the Plan;

(g)to consult with the Employers and the Trustee regarding the short and long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion in a manner designed to accomplish specific objectives;

(h)to act as the named Fiduciary responsible for communications with Participants as needed to maintain Plan compliance with Act Section 404(c), including, but not limited to, the receipt and transmitting of Participant’s directions as to the investment of their account(s) under the Plan and the formulation of policies, rules, and procedures pursuant to which Participants may give investment instructions with respect to the investment of their accounts;

(i)to determine the validity of, and take appropriate action with respect to, any qualified domestic relations order received by it; and

(j)to notify and assist any Participant regarding the Participant’s rights, benefits, or elections available under the Plan.

2.4RECORDS AND REPORTS

The Administrator shall keep a record of all actions taken and shall keep all other books of account, records, policies, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, Beneficiaries and others as required by law.

2.5APPOINTMENT OF ADVISERS

The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel, specialists, advisers, agents (including nonfiduciary agents) and other persons as the Administrator or the Trustee deems necessary or desirable in connection with the administration of this Plan, including but not limited to agents and advisers to assist with the administration and management of the Plan, and thereby to provide, among such other duties as the Administrator may appoint, assistance with maintaining Plan records and the providing of investment information to the Plan’s investment fiduciaries and to Participants.

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2.6PAYMENT OF EXPENSES

All expenses of administration may be paid out of the Trust Fund unless paid by the Employers.  Such expenses shall include any expenses incident to the functioning of the Administrator, or any person or persons retained or appointed by any Named Fiduciary incident to the exercise of their duties under the Plan, including, but not limited to, fees of accountants, counsel, Investment Managers, agents (including nonfiduciary agents) appointed for the purpose of assisting the Administrator or the Trustee in carrying out the instructions of Participants as to the directed investment of their accounts and other specialists and their agents, the costs of any bonds required pursuant to Act Section 412, and other costs ..of administering the Plan.  Until paid, the expenses shall constitute a liability of the Trust Fund.

2.7CLAIMS PROCEDURE

Claims for benefits under the Plan must be filed in writing with the Administrator.  Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the application is filed, or such other period as is required by applicable law or Department of Labor regulation.  In the event a decision cannot be reached within 90 days, the Plan may obtain a 90-day extension of the claim resolution deadline to the extent permitted under applicable Department of Labor regulations.  In the event the claim is denied in whole or in part, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan shall be cited, and, where appropriate, an explanation as to how the claimant can appeal the claim denial will be provided.  In addition, the claimant shall be furnished with an explanation of the Plan’s claims review procedure.

2.8CLAIMS REVIEW PROCEDURE

Any claimant who has been denied a benefit by a decision of the Administrator pursuant to Section 2.7 shall be entitled to request the Administrator to give further consideration to a claim by filing with the Administrator a written appeal.  Such request, together with a written statement of the reasons why the claimant believes the claim should be allowed, shall be filed with the Administrator no later than 60 days after receipt of the written notification of denial provided for in Section 2.7.  The Administrator shall then reconsider within 60 days the claim on appeal.  If the Administrator so determines, it may (but need not) conduct a hearing within the 60-day period, at which the claimant may be represented by an attorney or any other representative of such claimant’s choosing and expense and at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of the claim.  Upon written notice to the Administrator, the claimant or the claimant’s representative shall have an opportunity to review all documents in the possession of the Administrator which are pertinent to the claim at issue and its disallowance.  If a hearing is held, either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings.  In such event, a complete written transcript of the proceedings shall be furnished to both parties by the court reporter.  The full expense of any such court

14

reporter and such transcripts shall be borne by the party causing the court reporter to attend the hearing.  A final decision as to the allowance of the claim shall be made by the Administrator within 60 days of receipt of the appeal (unless there has been an extension of 60 days due to special circumstances, provided the delay and the special circumstances occasioning it are communicated to the claimant within the 60-day period).  Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based.

ARTICLE III

ELIGIBILITY

3.1CONDITIONS OF ELIGIBILITY

(a)Any Eligible Employee who has completed 90 days of employment with an Employer shall be eligible to participate in the Plan with respect to Deferred Compensation Contributions under Section 4.1(a) and 4.2 and after-tax Voluntary Contributions under Section 4.13.  For purposes of this Section, an Eligible Employee will be deemed to have completed 90 days of employment if such individual is still an Employee at any time 90 days after his or her most recent employment commencement date;

(b)With respect to Employer matching contributions pursuant to Section 4.1(b) and Employer Qualified Non-Elective Contributions pursuant to Section 4.1(c), an Eligible Employee shall not be eligible to participate hereunder until the date such Employee has completed one Year of Service;

(c)With respect to Employer discretionary contributions pursuant to Section 4.1(d), an Eligible Employee shall not be eligible to participate hereunder until the date such Employee has completed two Years of Service.

3.2EFFECTIVE DATE OF PARTICIPATION

With respect to Deferred Compensation Contributions pursuant to Section 4.2 and after-tax voluntary Employee contributions pursuant to Section 4.13, an Eligible Employee shall become a Participant effective as of the first day of month coinciding with or next following the date on which such Employee meets the eligibility requirement of Section 3.1(a), provided the Employee is still employed as of such date.  With respect to Employer matching contributions pursuant to Section 4.1(b), Employer Qualified Non-Elective Contributions pursuant to Section 4.1(c) and Employer discretionary contributions pursuant to Section 4.1(d), an Eligible Employee shall become a Participant effective on the date on which such Employee meets the applicable one and two Year of Service eligibility requirements of Section 3.1(b) or (c) as the case may be.

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If an Employee, who has satisfied the Plan’s eligibility requirements and would otherwise become a Participant, shall go from a classification of an Eligible Employee to a noneligible class of Employees, such Employee shall become a Participant in the Plan on the date such Employee again becomes an Eligible Employee, or, if later, the date that the Employee would have otherwise entered the Plan had the Employee always been an Eligible Employee.  However, if such Employee incurs a One-Year Break in Service, eligibility will be determined under the Break in Service rules set forth in Section 3.7.

3.3DETERMINATION OF ELIGIBILITY

The Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information furnished by the Employer.  Such determination shall be subject to review pursuant to Section 2.8, and shall be conclusive and binding as long as is pursuant to the Plan and the Act.

3.4TERMINATION OF PARTICIPATION

A Participant shall cease to be an active Participant on the date he or she ceases to be an Eligible Employee.  An inactive Participant shall cease to be entitled to any contributions, but shall continue to participate in the Plan as an inactive Participant, until such time as the Participant’s Account is distributed pursuant to the terms of the Plan.  A person shall cease to be a Participant when his or her Vested Benefit has been fully distributed.

3.5OMISSION OF ELIGIBLE EMPLOYEE

If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by the Employer for the year has been made and allocated, then the Employer shall make a subsequent contribution, if necessary after the application of Section 4.4(c), so that the omitted Employee receives a total amount which the Employee would have received (including both Employer contributions and earnings thereon) had the Employee not been omitted.  Such contribution shall be made regardless of whether it is deductible under applicable provisions of the Code.

3.6INCLUSION OF INELIGIBLE EMPLOYEE

If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such inclusion is not made until after a contribution for the year has been made and allocated, the Employer shall be entitled to recover the contribution made with respect to the ineligible person provided the error is discovered within 12 months of the date on which it was made.  Otherwise, the amount contributed with respect to the ineligible person shall constitute a forfeiture for the Plan Year in which the discovery is made.  Any such forfeitures shall be used to satisfy and be treated as a part of the Employer’s matching contribution for the year of forfeiture and succeeding Plan Years until fully reallocated.  Notwithstanding the foregoing, any Deferred Compensation Contributions made by an ineligible person shall

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be distributed to the person (along with any earnings attributable to such Deferred Compensation Contributions).

3.7REHIRED EMPLOYEES AND BREAKS IN SERVICE

If any Participant becomes an Inactive Participant or ceases participation due to severance from eligible employment with the Employer and is reemployed by the Employer before a One-Year Break in Service occurs, the Former Participant shall become a Participant (in the same manner as if severance from employment with the Employer had not occurred) as of the reemployment effective date.  If any Participant becomes a Inactive Participant or ceases participation due to severance from eligible employment with the Employer and is reemployed by the Employer after a One-Year Break in Service has occurred, the Former Participant shall again participate in the Plan as of the date of reemployment, and his or her Years of Service for purposes of determining entitlement to share in Employer contributions shall include his Years of Service prior to the One-Year Break in Service.

ARTICLE IV

CONTRIBUTION AND ALLOCATION

4.1FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION

For each Plan Year, the Employer shall contribute to the Plan:

(a)An amount equal to the total Deferred Compensation Contributions elected for the year by all Participants under Section 4.2.

(b)On behalf of each Participant who is eligible to share in Employer matching contributions for the Plan Year, a matching contribution for each payroll period during the year that ends on or after the date the Participant satisfies the Year of Service eligibility requirement set forth in Section 3.1(b) equal to 100% of such Participant’s Deferred Compensation Contributions for that payroll period, plus such discretionary percentage of the eligible Participant’s Deferred Compensation Contributions for that payroll period (uniform as to all eligible Participants for the same Plan Year) as the Employer determines, which amount, if any, shall be deemed an Employer Elective Contribution.  Notwithstanding the foregoing:

(i)No Employer matching contribution under this Section 4.1(b) shall be made or due with respect to Deferred Compensation Contributions for a payroll period to the extent such Deferred Compensation Contributions exceeds:

(A)2% of the Participant’s Compensation for the payroll period in question if the Participant has completed at least one but less than five Years of Service prior to the close of that payroll period;

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(B)4% of the Participant’s Compensation for the payroll period in question if the Participant has completed at least five but less than ten Years of Service prior to the close of that payroll period; and

(C)6% of the Participant’s Compensation for the payroll period in question if the Participant has completed at least ten Years of Service prior to the close of the payroll period.

(ii)No Highly Compensated Employee who is an officer of an Employer having the rank of Vice President or higher shall be eligible for any Employer matching contribution for any payroll period in which he is so employed.

In determining maximum matching contributions for any payroll period, the annual dollar limitation on Compensation under Code Section 401(a)(17) shall be applied on a cumulative basis for those periods in which the Participant makes salary reduction contributions only, beginning with the first payroll period in the Plan Year for which such Deferred Compensation Contributions are made.

(c)On behalf of each Non-Highly Compensated Participant who has completed at least one Year of Service prior to the close of the Plan Year to which the contributions relate and is eligible therefore to share in the Qualified Non-Elective Contribution for the Plan Year, a discretionary Qualified Non-Elective Contribution equal to such uniform percentage of each eligible individual’s Compensation, if any, as the Employer determines each year.

(d)A discretionary amount, which amount, if any, shall be deemed an Employer Non-Elective Contribution.  Anything else to the contrary notwithstanding, a Participant shall not be eligible to share in the discretionary Employer Non-Elective Contribution described in this paragraph unless and until such Participant has completed two Years of Service prior to the close of the Plan Year to which the contribution relates.

(e)Additionally, if applicable, the Employer shall make the Top Heavy minimum contribution described in Section 4.5 below.

(f)All contributions by the Employer shall be made in cash or in such property as is acceptable to the Trustee.

4.2PARTICIPANT’S SALARY REDUCTION ELECTION

(a)Each Participant may elect to reduce his Compensation and in lieu thereof receive Deferred Compensation Contributions for a Plan Year, in any whole multiple of 1% up to 100% of his Compensation, provided that no such Compensation reduction and deferral election shall apply to that portion of the Participant’s Compensation that the Employer must withhold for applicable employment taxes.  A deferral election (or modification of an earlier election) may not be made with respect to Compensation which

18

is currently available on or before the date the Participant executes such election.  For purposes of this Section, Compensation shall be determined prior to any reductions made pursuant to Code Sections 125, 132(f)(4), 402(e)(3) and 402(h)(1)(B) and without regard to the limitations of Code Section 401(a)(17).

The amount by which Compensation is reduced shall be that Participant’s Deferred Compensation Contribution and be treated as an Elective Contribution and allocated to that Participant’s Elective Account.

(b)The balance in each Participant’s Elective Account shall be fully vested and, except as otherwise provided herein, shall not be subject to forfeiture.

(c)Notwithstanding anything in the Plan to the contrary, amounts held in the Participant’s Elective Account may not be distributable (including any offset of loans in default) earlier than: (1) the Participant’s separation from employment, Total and Permanent Disability, or death; (2) the Participant’s attainment of age 59-1/2; (3) the termination of the Plan without the existence at the time of Plan termination of another defined contribution plan or the establishment of a successor defined contribution plan by the Employer or an Affiliated Employer within the period ending 12 months after distribution of all assets from the Plan maintained by the Employer; or (4)  the proven financial hardship of a Participant, subject to the limitations of Section 6.10.

(d)A Participant’s Deferred Compensation Contributions shall not exceed, during any taxable year of the Participant, the limitation imposed by Code Section 402(g), as in effect at the beginning of such taxable year.  If such dollar limitation is exceeded, a Participant will be deemed to have notified the Administrator of such excess amount, which excess shall be distributed under Section 4.2(f).  The dollar limitation shall be adjusted annually pursuant to the method provided in Code Section 415(d) in accordance with Regulations.  Any provision herein to the contrary notwithstanding, this limitation shall not apply to Catch-Up Contributions.

(e)In the event a Participant has received a hardship distribution pursuant to Section 6.10(b) or pursuant to Regulation 1.401(k)-1(d)(2)(iv)(B) from any other plan maintained by the Employer, then no Deferred Compensation Contributions shall be made on behalf of the Participant for six months following the distribution.

(f)If a Participant’s Deferred Compensation Contributions together with any elective deferrals (as defined in Regulation Section 1.402(g)-1(b)) under another qualified cash or deferred arrangement (as described in Code Section 401(k)), a simplified employee pension (as described in Code Section 408(k)(6)), a simple individual retirement account plan (as described in Code Section 408(p)), a salary reduction arrangement (within the meaning of Code Section 3121(a)(5)(D)), a deferred compensation plan under Code Section 457(b), or a trust described in Code Section 501(c)(18) cumulatively exceed the limitation imposed by Code Section 402(g) (as adjusted annually in accordance with the method provided in Code Section 415(d) pursuant to the Regulations) for such Participant’s taxable year, the Participant may, not

19

later than March 1 following the close of the Participant’s taxable year, notify the Administrator in writing of such excess and request that the Participant’s Deferred Compensation under this Plan be reduced by an amount specified by the Participant.  In such event, the Administrator may direct the Trustee to distribute such excess amount (and any Income al1ocable to such excess amount) to the Participant not later than the first April 15th following the close of the Participant’s taxable year.  Any distribution of less than the entire amount of Excess Deferred Compensation and Income shall be treated as a pro rata distribution of Excess Deferred Compensation and Income Contributions.  Any distribution on or before the last day of the Participant’s taxable year must satisfy each of the following conditions:

(1)the distribution must be made after the date on which the Plan received the Excess Deferred Compensation;

(2)the Participant shal1 designate the distribution as Excess Deferred

Compensation; and

(3)the Plan must designate the distribution as a distribution of Excess Deferred Compensation.

Any distribution made pursuant to this Section 4.2(f) shall be made first from unmatched Deferred Compensation Contributions and, thereafter, from Deferred Compensation Contributions which are matched.  Matching contributions which relate to such Deferred Compensation Contributions shall be forfeited and applied as part of the Employer’s matching contribution for the year of forfeiture and succeeding Plan Years until fully utilized.

(g)Notwithstanding Section 4.2(f) above, a Participant’s Excess Deferred Compensation shall be reduced, but not below zero, by any distribution and/or recharacterization of Excess Contributions pursuant to Section 4.7(a) for the Plan Year beginning with or within the taxable year of the Participant.

(h)Employer Elective Contributions made pursuant to this Section may be segregated into a separate account for each Participant in a federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short-term debt security acceptable to the Trustee until such time as the allocations pursuant to Section 4.4 have been made.

(i)The Employers and the Administrator shall implement the salary reduction elections provided for herein in accordance with the following:

(1)A Participant may make an initial salary deferral election within a reasonable time, not to exceed 30 days, after entering the Plan pursuant to Section 3.2.  If the Participant fails to make an initial salary deferral election within such time, then such Participant may thereafter make an election in accordance with the rules governing modifications.  The Participant shall make such an election by

20

entering into a written salary reduction agreement with the Employer and filing such agreement with the Administrator.  Such election shall initially be effective beginning with the pay period following the acceptance of the salary reduction agreement by the Administrator, shall not have retroactive effect and shall remain in force until revoked.

(2)A Participant may modify a prior election during the Plan Year and concurrently make a new election by filing a written notice with the Administrator within a reasonable time before the pay period for which such modification is to be effective.  However, modifications to a salary deferral election shall only be permitted semi-annually, during election periods established by the Administrator prior to the first day of a Plan Year and the first day of the seventh month of a Plan Year.  Any modification shall not have retroactive effect and shall remain in force until revoked.

(3)A Participant may elect to prospectively revoke the Participant’s salary reduction agreement in its entirety at any time during the Plan Year by providing the Administrator with 30 days written notice of such revocation (or upon such shorter notice period as may be acceptable to the Administrator).  Such revocation shall become effective as of the beginning of the first pay period coincident with or next following the expiration of the notice period.  Furthermore, the termination of the Participant’s employment, or the cessation of participation for any reason, shall be deemed to revoke any salary reduction agreement then in effect, effective immediately following the close of the pay period within which such termination or cessation occurs.

4.3TIME OF PAYMENT OF EMPLOYER CONTRIBUTIONS

The Employer may make its contributions to the Plan for a particular Plan Year at such time as the Employer, in its sole discretion, determines.  If the Employer makes a contribution for a particular Plan Year after the close of that Plan Year, the Employer will designate to the Trustee the Plan Year for which the Employer is making its contribution.

4.4ALLOCATION OF CONTRIBUTIONS AND EARNINGS

(a)The Administrator shall establish and maintain appropriate accounts in the name of each Participant to which the Administrator shall credit as of each Anniversary Date, or other Valuation Date, all amounts allocated to each such Participant as set forth herein.

(b)The Employers shall provide the Administrator with all information required by the Administrator to make a proper allocation of the Employer contributions for each Plan Year.  Within a reasonable period of time after the date of receipt by the Administrator of such information, the Administrator shall allocate such contributions as follows:

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(1)To each Participant’s Elective Account in an amount equal to each such Participant’s Deferred Compensation Contributions for the year.

(2)With respect to matching contributions made pursuant to Section 4.1(b) on behalf of a Participant (i) to the Participant’s Elective Account if the contributions are used to satisfy the “ADP” test, or (ii) to his Participant Account if not used to satisfy the “ADP” test.

(3)With respect to Employer Qualified Non-Elective Contributions made pursuant to Section 4.1(c) on behalf of a Participant, (i) to the Participant’s Elective Account if the contribution is used to satisfy the “ADP” test, or (ii) to his Participant Account if not used to satisfy the “ADP” test.

(4)With respect to Employer discretionary contributions made pursuant to Section 4.1(d), to the Participant Account of each Participant who has completed at least two Years of Service in the ratio that the Participant’s Compensation for that Plan Year bears to the total Compensation of all Participants eligible to share in that discretionary contribution for that Plan Year.

(c)For any Top Heavy Plan Year, Non-Key Employees shall also receive the additional minimum allocation, if any, required under Section 4.5.

(d)As of each Valuation Date, before the current valuation period allocation of Employer contributions, any earnings or losses (other than earnings or losses in Directed Investment Accounts) of the Trust Fund shall be allocated in the same proportion that each Participant’s and Former Participant’s nonsegregated accounts (other than Directed Investment Accounts) bear to the total of all Participants’ and Former Participants’ nonsegregated accounts as of such date.  Earnings or losses with respect to a Participant’s Directed Account shall be allocated solely to that account in accordance with Section 4.14.

Participants’ transfers from other qualified plans and after-tax voluntary Employee contributions deposited in the general Trust Fund shall share in any earnings and losses (net appreciation or net depreciation) of the Trust Fund in the same manner provided above.  Each Directed Investment Account and segregated account maintained on behalf of a Participant shall be credited or charged with its separate earnings and losses.

(e)Notwithstanding anything in this Section to the contrary, all information necessary to properly reflect a given transaction may not be available until after the date specified herein for processing such transaction, in which case the transaction will be reflected when such information is received and processed.  Subject to express limits that may be imposed under the Code, the processing of any contribution, distribution or other transaction may be delayed for any legitimate business reason (including, but not limited to, failure of systems or computer programs, failure of the means of the transmission of data, force majeure, the failure of a service provider to timely receive values or prices, and the correction for errors or omissions or the errors or omissions of any service

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provider).  The processing date of a transaction will be binding for all purposes of the Plan.

(f)Notwithstanding anything to the contrary, if the Plan would otherwise fail the requirements of Code Section 410(b) because any type of Employer contributions are not allocated to a sufficient number of Participants for a Plan Year, then the group of Participants eligible to share in the contribution shall be expanded to include the minimum number of additional Participants necessary to satisfy Code Section 410(b).  The specific Participants who shall become eligible under the terms of this paragraph shall be those who have not separated from service prior to the last day of the Plan Year and have completed the greatest number of Hours of Service in the Plan Year.  Nothing in this Section shall permit the reduction of a Participant’s accrued benefit.  Therefore any amounts that have previously been allocated to Participants may not be reallocated to satisfy these requirements.  In such event, the Employer shall make an additional contribution equal to the amount such affected Participants would have received had they been included in the allocations, even if it exceeds the amount which would be deductible under Code Section 404.  Any adjustment to the allocations pursuant to this paragraph shall be considered a retroactive amendment adopted by the last day of the Plan Year.

4.5TOP HEAVY MINIMUM CONTRIBUTIONS

(a)For any Top Heavy Plan Year, the sum of the Employer contributions allocated to the Participant’s Combined Account of each Non-Key Employee shall be equal to at least 3% of such Non-Key Employee’s “415 Compensation” (reduced by contributions and forfeitures, if any, allocated to each Non-Key Employee in any defined contribution plan included with this Plan in a Required Aggregation Group).  However, if (1) the sum of the Employer contributions allocated to the Participant’s Combined Account of each Key Employee for such Top Heavy Plan Year is less than 3% of each Key Employee’s “415 Compensation” and (2) this Plan is not required to be included in an Aggregation Group to enable a defined benefit plan to meet the requirements of Code Section 401(a)(4) or 410, the sum of the Employer contributions allocated to the Participant’s Combined Account of each Non-Key Employee shall be equal to the largest percentage of 415 Compensation allocated to the Participant’s Combined Account of any Key Employee.  In determining whether a Non-Key Employee has received the required minimum allocation, a Non-Key Employee’s Deferred Compensation Contributions and matching contributions needed to satisfy the “ADP” tests pursuant to Section 4.6(a) shall not be taken into account.

(b)For purposes of the minimum allocations set forth above, the percentage allocated to the Participant’s Combined Account of any Key Employee shall be equal to the ratio of the sum of the Employer contributions allocated on behalf of such Key Employee divided by the “415 Compensation” for such Key Employee.

(c)The Top Heavy minimum allocations shall be allocated to the Participant’s Combined Account of all Non-Key Employees who are employed by the Employer on the last day of the Plan Year.

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4.6ACTUAL DEFERRAL PERCENTAGE TESTS

(a)For each Plan Year (“Testing Year”), the annual “ADP” for the Highly Compensated Participant group for the Testing Year shall not exceed the greater of 125% of: (1) the “ADP” of the Non-Highly Compensated Participant group for the Plan Year immediately preceding the Testing Year in question (the “Prior Year”), multiplied by 1.25, or (2) the lesser of (x) 200% of the ADP for the Highly for the Non-Highly Compensated Participant group for the Prior Year or (y) the Non-Highly Compensated Participant group ADP for the Prior Year, plus two percentage points.  The provisions of Code Section 401(k)(3) and Regulation Section 1.401(k)-1(b) are incorporated herein by reference.

(b)For the purposes of this Plan “ADP” means, with respect to any group for a Testing or Prior Year, as applicable, the average of the ratios, calculated separately for each Participant in that group, whether or not contributing, of the amount of Elective Contributions allocated to each Participant’s Elective Account for such year to such Participant’s Compensation for such Plan year.  The actual deferral ratio for each Participant and the “ADP” for each group shall be calculated to the nearest one-hundredth of one percent.  Employer Elective Contributions allocated to each Non-Highly Compensated Participant’s Elective Account shall be reduced by Excess Deferred Compensation to the extent such excess amounts are made under this Plan or any other plan maintained by the Employer and by any matching contributions which relate to such Excess Deferred Compensation.

(c)For the purposes of this Section, if two or more plans which include cash or deferred arrangements are considered one plan for the purposes of Code Section 401(a)(4) or 410(b) (other than Code Section 410(b)(2)(A)(ii)), the cash or deferred arrangements included in such plans shall be treated as one arrangement.  Plans may be aggregated under this paragraph (c) only if they have the same plan year.  Notwithstanding the above, if two or more plans which include cash or deferred arrangements are permissively aggregated under Regulation 1.410(b)-7(d), all plans permissively aggregated must use either the current year testing method or the prior year testing method for the testing year.

(d)If a Highly Compensated Participant is a Participant under two or more cash or deferred arrangements (other than a cash or deferred arrangement which is part of an employee stock ownership plan as defined in Code Sections 4975(e)(7) or 409) of an Employer, all such cash or deferred arrangements shall be treated as one arrangement for the purpose of determining the actual deferral ratio with respect to such Highly Compensated Participant.  However, if the cash or deferred arrangements have different plan years, this paragraph shall be applied by treating all cash or deferred arrangements ending with or within the same calendar year as a single arrangement.

(e)When calculating the “ADP” for the Non-Highly Compensated Participant group, the prior year testing method shall be used.  Any change from the prior year

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testing method to the current year testing method shall be made pursuant to Internal Revenue Service Notice 98-1, Section VII (or superseding guidance), the provisions of which are incorporated herein by reference.

(f)This Section and Section 4.7 may be applied separately (or will be applied separately to the extent required by Regulations) to each plan within the meaning of Regulation Section 1.401(k)-1(g)(11).  Furthermore, the provisions of Code Section 401(k)(3)(F) may be used to exclude from consideration all Non-Highly Compensated Employees who have not satisfied the minimum age and service requirements of Code Section 410(a)(1)(A).

4.7ADJUSTMENT TO SATISFY ADP TEST

In the event (or if it is anticipated) that the initial allocations of Elective Contributions made pursuant to Section 4.4 with respect to any Plan Year do (or might) not satisfy the ADP test set forth in Section 4.6(a), the Administrator shall adjust Excess Contributions pursuant to one or more of the options set forth below, including a combination of those options if the Employer so determines:

(a)No later than the close of the following Plan Year, the Highly Compensated Participant having the largest dollar amount of Elective Contributions shall have a portion of his Elective Contributions distributed and/or at his election recharacterized as an after-tax voluntary Employee contribution pursuant to Section 4.13 until the total amount of Excess Contributions has been distributed, or until the amount of his Elective Contributions equals the Elective Contributions of the Highly Compensated Participant having the second largest dollar amount of Elective Contributions (again disregarding Catch-Up Contributions).  This process shall continue until the total amount of Excess Contributions has been distributed.  In determining the amount of Excess Contributions to be distributed and/or recharacterized with respect to an affected Highly Compensated Participant, Catch-Up Contributions shall be disregarded and the amount of Excess Contributions shall be reduced pursuant to Section 4.2(f) by any Excess Deferred Compensation previously distributed to such Participant for the taxable year ending with or within such Plan Year and any forfeited matching contributions which relate to such Excess Deferred Compensation.

(1) With respect to the distribution of Excess Contributions pursuant to (a) above, such distribution:  (i) may be postponed but not later than the close of the Plan Year following the Plan Year to which they are allocable; (ii) shall be made first from unmatched Deferred Compensation and, thereafter, proportionately from Deferred Compensation which is matched and matching contributions which relate to such Deferred Compensation, if used in the “ADP” tests pursuant to Section 4.6; (iii) shall be adjusted for Income; and (iv) shall be designated by the Employer as a distribution of Excess Contributions (and Income).

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(2)With respect to the recharacterization of Excess Contributions pursuant to (a) above, such recharacterized amounts:  (i) shall be deemed to have occurred on the date on which the last of those Highly Compensated Participants with Excess Contributions to be recharacterized is notified of the recharacterization and the tax consequences of such re-characterization; (ii) shall not exceed the amount of Deferred Compensation Contributions on behalf of the Participant for the Plan Year; (iii) shall be treated as after-tax voluntary Employee contributions for purposes of Code Section 401(a)(4) and Regulation Section 1.401(k)-1(b); (iv) are not permitted if the amount recharacterized plus after-tax voluntary Employee contributions actually made by such Highly Compensated Participant, exceed the maximum amount of after-tax voluntary Employee contributions (determined prior to application of Section 4.8(a)) that such Highly Compensated Participant is permitted to make under the Plan in the absence of recharacterization; and (v) shall be adjusted for Income.

(3)Any distribution and/or recharacterization of less than the entire amount of Excess Contributions shall be treated as a pro rata distribution and/or recharacterization of Excess Contributions and Income.

(4)Matching contributions that relate to Excess Contributions shall be forfeited unless the related matching contribution is distributed as an Excess Contribution pursuant to (1) above or as an Excess Aggregate Contribution pursuant to Section 4.9.  All such forfeitures shall be used to satisfy and applied as part of the Employer’s matching contribution for the year of forfeiture and future Plan Years until fully utilized.

(b)In lieu of correction under subsection (a) above, or in combination with any corrective action under subsection (a) above, within 12 months after the end of the Plan Year, the Employer may make a special Qualified Non-Elective Contribution in accordance with one of the following provisions which contribution shall be allocated to the Participant’s Elective Account of each Non-Highly Compensated Participant eligible to share in the allocation in accordance with such provision.  The Employer shall provide the Administrator with written notification of the amount of the contribution being made and for which provision it is being made pursuant to:

(1)A special Qualified Non-Elective Contribution may be made on behalf of each Non-Highly Compensated Participant in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 4.6(a).  Such contribution shall be allocated in the same proportion that each Non-Highly Compensated Participant’s Compensation for the year (or prior year if the prior year testing method is being used) bears to the total Compensation of all Non-Highly Compensated Participants for such year.

(2)A special Qualified Non-Elective Contribution may be made on behalf of each Non-Highly Compensated Participant who has elected to make salary reduction contributions under Section 4.2 for the year in an amount

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sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 4.6(a).  Such contribution shall be allocated in the same proportion that each such Non-Highly Compensated Participant’s Deferred Compensation Contributions for the year bears to the total Deferred Compensation Contributions of all such Non-Highly Compensated Participants for such year.

(3)A special Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 4.6(a).  Such contribution shall be allocated in equal amounts (per capita).

(4)A special Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 4.6(a).  Such contribution shall be allocated to the Non-Highly Compensated Participant having the lowest Compensation, until one of the tests set forth in Section 4.6(a) is satisfied (or is anticipated to be satisfied), or until such Non-Highly Compensated Participant has received the maximum “annual addition” pursuant to Section 4.10.  This process shall continue until one of the tests set forth in Section 4.6(a) is satisfied (or is anticipated to be satisfied).

Notwithstanding the above, at SkyWest’s discretion, Non-Highly Compensated Participants who are not employed by the Employer at the end of the Plan Year (or at the end of the prior Plan Year if the prior year testing method is being used) shall not be eligible to receive a special Qualified Non-Elective Contribution and shall be disregarded.

Notwithstanding the above, if the testing method changes from the current year testing method to the prior year testing method, then to prevent the double counting of Qualified Non-Elective Contributions for the first testing year for which the change is effective, any contribution on behalf of Non-Highly Compensated Participants used to satisfy the “ADP” or “ACP” test under the current year testing method for the prior year testing year shall be disregarded.

(c)If during a Plan Year, it is projected that the aggregate amount of Elective Contributions to be allocated to all Highly Compensated Participants under this Plan would cause the Plan to fail the tests set forth in Section 4.6(a), then the Administrator may automatically reduce the Deferred Compensation Contributions of Highly Compensated Participants, beginning with the Highly Compensated Participant who has the highest deferral ratio until it is anticipated the Plan will pass the tests or until the actual deferral ratio equals the actual deferral ratio of the Highly Compensated Participant having the next highest actual deferral ratio.  This process may continue until it is anticipated that the Plan will satisfy one of the tests set forth in Section 4.6(a).  Alternatively, the Employer may specify a maximum percentage of Compensation that may be deferred.

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4.8ACP TESTS

(a)For each Plan Year (“Testing Year”), the “ACP” for the Highly Compensated Participant group for that Testing Year shall not exceed the greater of:  (1) 125% of the ACP for the Non-Highly Compensated Participant group for the Plan Year immediately preceding the Testing Year in question (the “Prior Year”); or (2) the lesser of (x) 200% of the ACP for the Non-Highly Compensated Participant group for the Prior Year or (y) the ACP for the Non-Highly Compensated Participant group for the Prior Year plus two percentage points.  The provisions of Code Section 401(m) and Regulation Sections 1.401(m)-1(b) and 1.401(m)-2 are incorporated herein by reference.

(b)“ACP” for a Testing Year or Prior Year, as applicable, with respect to any Participant group, means the average of the ratios (calculated separately for each Participant in each group and rounded to the nearest one-hundredth of one percent) of:  (1) the sum of Employer matching contributions made pursuant to Section 4.1(b) (to the extent such matching contributions are not used to satisfy the “ADP” tests), after-tax voluntary Employee contributions made pursuant to Section 4.13 and Excess Contributions recharacterized as after-tax voluntary Employee contributions pursuant to Section 4.7(a) on behalf of each such Participant for such year; to (2) the Participant’s Compensation for such year.

(c)For purposes of determining “ACP,” only Employer matching contributions contributed to the Plan prior to the end of the succeeding Plan Year shall be considered.  In addition, the Administrator may elect to take into account Employer matching contributions pursuant to Section 4.1(b) (to the extent such matching contributions are not used to satisfy the “ADP” tests) and after-tax voluntary Employee contributions pursuant to Section 4.13, elective deferrals (as defined in Regulation Section 1.402(g)-1(b)) and qualified non-elective contributions (as defined in Code Section 401(m)(4)(C)) contributed to any plan maintained by the Employer.  Such elective deferrals and qualified non-elective contributions shall be treated as Employer matching contributions subject to Regulation Section 1.401(m)-1(b)(5) which is incorporated herein by reference.  However, the Plan Year must be the same as the plan year of the plan to which the elective deferrals and the qualified non-elective contributions are made.

(d)If two or more plans of the Employer to which matching contributions, Employee contributions, or both, are made are treated as one plan for purposes of Code Sections 401(a)(4) or 410(b) (other than the average benefits test under Code Section 410(b)(2)(A)(ii)), such plans shall be treated as one plan.  In addition, two or more plans of the Employer to which matching contributions, Employee contributions, or both, are made may be considered as a single plan for purposes of determining whether or not such plans satisfy Code Sections 401(a)(4), 410(b) and 401(m).  Any adjustment to the Non-Highly Compensated Participant actual contribution ratio for the prior year shall be made in accordance with Internal Revenue Service Notice 98-1 and any superseding guidance.  Plans may be aggregated under this paragraph (d) only if they have the same plan year.

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Notwithstanding the above, if two or more plans which include cash or deferred arrangements are permissively aggregated under Regulation 1.410(b)-7(d), all plans permissively aggregated must use either the current year testing method or the prior year testing method for the testing year.

(e)If a Highly Compensated Participant is a Participant under two or more plans (other than an employee stock ownership plan as defined in Code Section 4975(e)(7) or 409) which are maintained by the Employer or an Affiliated Employer to which matching contributions, Employee contributions, or both, are made, all such contributions on behalf of such Highly Compensated Participant shall be aggregated for purposes of determining such Highly Compensated Participant’s actual contribution ratio.  However, if the plans have different plan years, this paragraph shall be applied by treating all plans ending with or within the same calendar year as a single plan.

(f)For purposes of Sections 4.8(a) and 4.9, a Highly Compensated Participant and Non-Highly Compensated Participant shall include any Employee eligible to have Employer matching contributions (whether or not a deferral election was made or suspended) or after-tax voluntary Employee contributions (whether or not after-tax voluntary Employee contributions are made) allocated to the Participant’s account for the Plan Year.

(g)When calculating the “ACP” for the Non-Highly Compensated Participant group, the prior year testing method shall be used.  Any change from the prior year testing method to the current year testing method shall be made pursuant to Internal Revenue Service Notice 98-1, Section VII (or superseding guidance), the provisions of which are incorporated herein by reference.

(h)Notwithstanding anything in this Section to the contrary, the provisions of this Section and Section 4.9 may be applied separately (or will be applied separately to the extent required by Regulations) to each plan within the meaning of Regulation Section 1.401(k)-1(g)(11).  Furthermore, the Plan may exclude from consideration all Non-Highly Compensated Employees who have not satisfied the minimum age and service requirements of Code Section 410(a)(1)(A).

4.9ADJUSTMENT TO SATISFY ACP TESTS

In the event (or if it is anticipated) that the ACP tests in Section 4.8(a) will not be met in any Plan Year, the Administrator shall adjust Excess Aggregate Contributions pursuant to one or more of the options set forth below, including a combination of those options if the Employer so determines:

(a)Not later than the close of the following Plan Year the Administrator shall direct the Trustee to distribute to the Highly Compensated Participant having the largest dollar amount of contributions determined pursuant to Section 4.8(b)(1), a portion of such contributions (and Income allocable to such contributions) until the total amount of Excess Aggregate Contributions has been distributed, or until the Participant’s remaining

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contributions subject to the ACP test equals the amount of such contributions determined pursuant to Section 4.8(b)(1) of the Highly Compensated Participant having the second largest dollar amount of contributions.  This process shall continue until the total amount of Excess Aggregate Contributions has been distributed.  The distribution of Excess Aggregate Contributions shall be made in the following order:  (1) After-tax voluntary Employee contributions including Excess Contributions recharacterized as after-tax voluntary Employee contributions pursuant to Section 4.7(a)(2); and (2) Employer matching contributions.

(b)Any distribution of less than the entire amount of Excess Aggregate Contributions (and Income) shall be treated as a pro rata distribution of Excess Aggregate Contributions and Income.  Distribution of Excess Aggregate Contributions shall be designated by the Employer as a distribution of Excess Aggregate Contributions (and Income).

(c)Excess Aggregate Contributions attributable to amounts other than after-tax voluntary Employee contributions shall be treated as Employer contributions for purposes of Code Sections 404 and 415 even if distributed from the Plan.

(d)The determination of the amount of Excess Aggregate Contributions with respect to any Plan Year shall be made after first determining the Excess Contributions, if any, to be treated as after-tax voluntary Employee contributions due to recharacterization for the plan year of any other qualified cash or deferred arrangement (as defined in Code Section 401(k)) maintained by the Employer that ends with or within the Plan Year or which are treated as after-tax voluntary Employee contributions due to recharacterization pursuant to Section 4.7(a).

(e)If during a Plan Year the projected aggregate amount of Employer matching contributions, after-tax voluntary Employee contributions and Excess Contributions recharacterized as after-tax voluntary Employee contributions to be allocated to all Highly Compensated Participants under this Plan would, by virtue of the tests set forth in Section 4.8(a), cause the Plan to fail such tests, then the Administrator may automatically reduce proportionately or in the order provided in Section 4.9(a) each affected Highly Compensated Participant’s projected share of such contributions by an amount necessary to satisfy one of the tests set forth in Section 4.8(a).

(f)Notwithstanding subsection (a) above or in combination with corrective action under subsection (a) above, within 12 months after the end of the Plan Year, the Employer may make a special Qualified Non-Elective Contribution in accordance with one of the following provisions, as the Employer determines.  The Employer shall provide the Administrator with written notification of the amount of the contribution being made and for which provision it is being made pursuant to:

(1)A special Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 4.8.

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Such contribution shall be allocated in the same proportion that each Non-Highly Compensated Participant’s Compensation for the year (or prior year if the prior year testing method is being used) bears to the total Compensation of all Non-Highly Compensated Participants for such year.

(2)A special Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 4.8. Such contribution shall be allocated to that each Non-Highly Compensated Participant electing salary reductions pursuant to Section 4.2 in the same proportion that each such Participant’s Deferred Compensation Contributions for the year (or at the end of the prior Plan Year if the prior year testing method is being used) bears to the total Deferred Compensation Contributions of all such Participants for such year.

(3)A special Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 4.8. Such contribution shall be allocated in equal amounts (per capita).

(4)A special Qualified Non-Elective Contribution may be made on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Section 4.8.  Such contribution shall be allocated to the Non-Highly Compensated Participant having the lowest Compensation, until one of the tests set forth in Section 4.8 is satisfied (or is anticipated to be satisfied), or until such Participant has received the maximum “annual addition” pursuant to Section 4.10.  This process shall continue until one of the tests set forth in Section 4.8 is satisfied (or is anticipated to be satisfied).

Notwithstanding the above, at the Employer’s discretion, Non-Highly Compensated Participants who are not employed at the end of the Plan Year shall not be eligible to receive a special Qualified Non-Elective Contribution.

If the testing method changes from the current year testing method to the prior year testing method, then to prevent the double counting of Qualified Non-Elective Contributions for the first testing year for which the change is effective, any special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated Participants used to satisfy the “ADP” or “ACP” test under the current year testing method for the prior year shall be disregarded.

4.10MAXIMUM ANNUAL ADDITIONS

(a)Notwithstanding the foregoing, but subject to Code Section 414(v), the maximum “annual additions” credited to a Participant’s accounts for any “limitation year” shall equal the lesser of:  (1) $40,000, as adjusted for increases in the cost of living under

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Code Section 415(d), or (2) 100% of the Participant’s “415 Compensation” for such “limitation year.” If the contribution that would otherwise be contributed or allocated to the Participant’s accounts would cause the “annual additions” for the “limitation year” to exceed such maximum, the amount contributed or allocated will be reduced so that the limit is met and any amount in excess of the maximum “annual additions,” which would have been allocated to such Participant may be allocated to other Participants.  For any short “limitation year,” the dollar limitation in (1) above shall be reduced by a fraction, the numerator of which is the number of full months in the short “limitation year” and the denominator of which is 12.

(b)The term “annual additions” means the sum credited to a Participant’s accounts for any “limitation year” of (1) Employer contributions (other than Catch-Up Contributions), (2) Employee contributions, (3) forfeitures, (4) amounts allocated after March 31, 1984 to an individual medical account, as defined in Code Section 415(1)(2) which is part of a pension or annuity plan maintained by the Employer and (5) amounts derived from contributions paid or accrued which are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code Section 419A(d)(3)) under a welfare benefit plan (as defined in Code Section 419(e)) maintained by the Employer.

(c)For purposes of applying the limitations of Code Section 415, the transfer of funds from one qualified plan to another is not an “annual addition.” In addition, the following are not Employee contributions for the purposes of Section 4.10(b)(2): (1) rollover contributions (as defined in Code Sections 402(e)(6), 403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of loans made to a Participant from the Plan; (3) repayments of distributions received by an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (4) repayments of distributions received by an Employee pursuant to Code Section 411(a)(3)(D) (mandatory contributions); and (5) Employee contributions to a simplified employee pension excludable from gross income under Code Section 408(k)(6).

(d)The “limitation year” shall be the Plan Year.

(e)For the purpose of this Section, all qualified defined contribution plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined contribution plan.  If the Employer is a member of a controlled group of corporations, trades or businesses under common control (as defined by Code Section 1563(a) or Code Section 414(b) and (c) as modified by Code Section 415(h)), is a member of an affiliated service group (as defined by Code Section 414(m)), or is a member of a group of entities required to be aggregated pursuant to Regulations under Code Section 414(o), all Employees of such Employers shall be considered to be employed by a single Employer.

(f)If a Participant participates in more than one defined contribution plan maintained by the Employer which have different anniversary dates, the maximum “annual additions” under this Plan shall equal the maximum “annual additions” for the

32

“limitation year” minus any “annual additions” previously credited to such Participant’s accounts during the “limitation year.”

(g)If a Participant participates in both a defined contribution plan subject to Code Section 412 and a defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same anniversary date, “annual additions” will be credited to the Participant’s accounts under the defined contribution plan subject to Code Section 412 prior to crediting “annual additions” to the Participant’s accounts under the defined contribution plan not subject to Code Section 412.  If a Participant participates in more than one defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, the maximum “annual additions” under this Plan shall equal the product of (A) the maximum “annual additions” for the “limitation year” minus any “annual additions” previously credited under subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the numerator of which is the “annual additions” which would be credited to such Participant’s accounts under this Plan without regard to the limitations of Code Section 415 and (ii) the denominator of which is such “annual additions” for all plans described in this subparagraph.

(h)Notwithstanding anything contained in this Section to the contrary, the limitations, adjustments and other requirements prescribed in this Section shall at all times comply with the provisions of Code Section 415 and the Regulations thereunder.

4.11ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS

(a)If, as a result of a reasonable error in estimating a Participant’s Compensation, a reasonable error in determining the amount of elective deferrals (within the meaning of Code Section 402(g)(3)) that may be made with respect to any Participant under the limits of Section 4.10 or other facts and circumstances to which Regulation Section 1.415-6(b)(6) shall be applicable, the “annual additions” under this Plan would cause the maximum “annual additions” to be exceeded for any Participant, the “excess amount” will be disposed of in one of the following manners, as uniformly determined by the Administrator for all Participants similarly situated.

(1)Any after-tax voluntary Employee contributions (plus attributable gains), to the extent they would reduce the “excess amount,” will be distributed to the Participant;

(2)If, after the application of subparagraph (1) above, an “excess amount” still exists, any unmatched Deferred Compensation Contributions and, thereafter, proportionately from Deferred Compensation Contributions which are matched and matching contributions which relate to such Deferred Compensation Contributions, will be reduced to the extent they would reduce the “excess amount.” The Deferred Compensation Contributions (and any gains attributable to such Deferred Compensation Contributions) will be distributed to the Participant and the Employer matching contributions (and any gains attributable to such

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matching contributions) will be forfeited and applied to reduce the Employer matching contribution in the next “limitation year” and each succeeding “limitation year” until fully utilized.

(3)If, after the application of subparagraphs (1) and (2) above, an “excess amount” still exists, and the Participant is covered by the Plan at the end of the “limitation year,” the “excess amount” will be used to reduce the Employer contribution for such Participant in the next “limitation year,” and each succeeding “limitation year” if necessary;

(4)If, after the application of subparagraphs (1), (2) and (3) above, an “excess amount” still exists, and the Participant is not covered by the Plan at the end of the “limitation year,” the “excess amount” will be held unallocated in a “Section 415 suspense account.” The “Section 415 suspense account” will be applied to reduce future Employer contributions for all remaining Participants in the next “limitation year,” and each succeeding “limitation year” if necessary;

(5)If a “Section 415 suspense account” is in existence at any time during the “limitation year” pursuant to this Section, it will not participate in the allocation of investment gains and losses of the Trust Fund.  If a “Section 415 suspense account” is in existence at any time during a particular “limitation year,” all amounts in the “Section 415 suspense account” must be allocated and reallocated to Participants’ accounts before any Employer contributions or any Employee contributions may be made to the Plan for that “limitation year.” Except as provided in (l) and (2) above, “excess amounts” may not be distributed to Participants or Former Participants.

(b)For purposes of this Section 4.11, “excess amount” for any Participant for a “limitation year” shall mean the excess, if any, of (1) the “annual additions” which would be credited to the Participant’s account under the terms of the Plan without regard to the limitations of Code Section 415 over (2) the maximum “annual additions” determined pursuant to Section 4.10.

(c)For purposes of this Section, “Section 415 suspense account” shall mean an unallocated account equal to the sum of “excess amounts” for all Participants in the Plan during the “limitation year.”

4.12ROLLOVERS AND PLAN-TO-PLAN TRANSFERS FROM QUALIFIED PLANS

(a)With the consent of the Administrator, amounts may be transferred (within the meaning of Code Section 414(1)) to this Plan from another retirement plan meeting the requirements of Code Section 401(a) by Participants, provided the trust from which such funds are transferred permits the transfer to be made and the transfer will not jeopardize the tax exempt status of the Plan or Trust or create adverse tax consequences for the Employer.  The amounts transferred shall be accounted for in a separate

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Participant’s Transfer/Rollover Account.  Except as permitted by Regulations (including Regulation Section 1.411(d)-4), amounts attributable to elective contributions (as defined in Regulation 1.401(k)-1(g)(3)), including amounts treated as elective contributions, which are transferred from another qualified plan in a plan-to-plan transfer (other than a direct rollover) shall be subject to the distribution limitations provided for in Regulation Section 1.401(k)-1(d).

(b)With the consent of the Administrator, the Plan may accept a “rollover” from another qualified plan by Participants, provided the “rollover” will not jeopardize the tax exempt status of the Plan or create adverse tax consequences for the Employer.  Prior to accepting any “rollovers” to which this Section applies, the Administrator may require the Employee to establish (by providing opinion of counselor otherwise) that the amounts to be rolled over to this Plan meet the requirements of this Section.  The amounts rolled over shall be set up in a separate Participant’s Transfer/Rollover Account.

For purposes of this Section, the term “qualified plan” shall mean any tax qualified plan under Code Section 401(a), or, any other plans from which distributions are eligible to be rolled over into this Plan pursuant to the Code.  The term “rollover” means: (1) amounts transferred to this Plan directly from another qualified plan; (2) distributions received by an Employee from other “qualified plans” which are eligible for tax-free rollover to a “qualified plan” and which are transferred by the Employee to this Plan within 60 days following receipt thereof; (3) amounts transferred to this Plan from a conduit individual retirement account provided that the conduit individual retirement account has no assets other than assets which (A) were previously distributed to the Employee by another “qualified plan,” (B) were eligible for tax-free rollover to a “qualified plan” and (C) were deposited in such conduit individual retirement account within 60 days of receipt thereof; (4) amounts distributed to the Employee from a conduit individual retirement account meeting the requirements of clause (3) above, and transferred by the Employee to this Plan within 60 days of receipt thereof from such conduit individual retirement account; and (5) any other amounts which are eligible to be rolled over to this Plan pursuant to the Code.

(c)Amounts in a Participant’s Transfer/Rollover Account shall be held by the Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or distributed to the Participant, in whole or in part, except as provided in paragraph (d) of this Section.  The Trustee shall have no duty or responsibility to inquire as to the propriety of the amount, value or type of assets transferred, nor to conduct any due diligence with respect to such assets; provided, however, that such assets are otherwise eligible to be held by the Trustee under the terms of this Plan.

(d)The Administrator, at the election of the Participant, shall direct the Trustee to distribute all or a portion of the amount credited to the Participant’s Transfer/Rollover Account.  Any distributions of amounts held in a Participant’s Transfer/Rollover Account shall be made in a manner which is consistent with, and satisfies the provisions of Article VI, including, but not limited to, all notice and consent requirements of Code Sections 417 and 411(a)(11) and the Regulations thereunder.

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Furthermore, such amounts shall not be considered as part of a Participant’s benefit in determining whether an involuntary cash-out of benefits may be made without Participant consent.

(e)The Administrator may direct that Employee transfers and rollovers made after a Valuation Date be segregated into a separate account for each Participant until such time as the allocations pursuant to this Plan have been made, at which time they may remain segregated or be invested as part of the general Trust Fund or be directed by the Participant pursuant to Section 4.14.

4.13VOLUNTARY CONTRIBUTIONS

(a)Each Participant may, in accordance with nondiscriminatory procedures established by the Administrator, elect to make after-tax voluntary Employee contributions to the Plan.  Such contributions must generally be paid to the Trustee within a reasonable period of time after being received by the Employer.

(b)A Participant may elect at any time to withdraw in a lump sum all or a portion of the balance from such Participant’s Voluntary Contribution Account in a manner which is consistent with and satisfies Section 6.2 below applied as if the Participant had separated from employment.  If the Administrator maintains sub-accounts with respect to after-tax voluntary Employee contributions (and earnings thereon) which were made on or before a specified date, a Participant shall be permitted to designate which sub-account shall be the source for withdrawal.

In the event such a withdrawal is made, or in the event a Participant has received a hardship distribution from the Participant’s Elective Account pursuant to Article VI or pursuant to Regulation 1.401(k)-1(d)(2)(iii)(B) from any other plan maintained by the Employer, then the Participant shall be barred from making any after-tax voluntary Employee contributions for a period of six months after receipt of the withdrawal or distribution.

4.14DIRECTED INVESTMENT ACCOUNT

(a)Participants may, subject to a procedure established by the Administrator (the Participant Direction Procedures) and applied in a uniform nondiscriminatory manner, direct the Trustee, in writing (or in such other form which is acceptable to the Trustee), to invest all of their accounts in specific assets, specific funds or other investments permitted under the Plan and the Participant Direction Procedures.  That portion of the interest of any Participant so directing will thereupon be considered a Participant’s Directed Account.

(b)As of each Valuation Date, all Participant Directed Accounts shall be charged or credited with the net earnings, gains, losses and expenses as well as any appreciation or depreciation in the market value using publicly listed fair market values when available or appropriate as follows:

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(1)to the extent that the assets in a Participant’s Directed Account are accounted for as pooled assets or investments, the al1ocation of earnings, gains and losses of each Participant’s Directed Account shall be based upon the total amount of funds so invested in a manner proportionate to the Participant’s share of such pooled investment; and

(2)to the extent that the assets in the Participant’s Directed Account are accounted for as segregated assets; the allocation of earnings, gains and losses from such assets shall be made on a separate and distinct basis.

(c)Investment directions will be processed as soon as administratively practicable after proper investment directions are received from the Participant.  No guarantee is made by the Plan, Employer, Administrator or Trustee that investment directions will be processed on a daily basis, and no guarantee is made in any respect regarding the processing time of an investment direction.  Notwithstanding any other provision of the Plan, the Employer, Administrator or Trustee reserves the right to not value an investment option on any given Valuation Date for any reason deemed appropriate by the Employer, Administrator or Trustee.  Furthermore, the processing of any investment transaction may be delayed for any legitimate business reason (including, but not limited to, failure of systems or computer programs, failure of the means of the transmission of data, force majeure, the failure of a service provider to timely receive values or prices, and correction for errors or omissions or the errors or omissions of any service provider).  The processing date of a transaction will be binding for all purposes of the Plan and considered the applicable Valuation Date for an investment transaction.

(d)The Participant Direction Procedures shall provide an explanation of the circumstances under which Participants and their Beneficiaries may give investment instructions, including, but need not be limited to, the following:

(1)the conveyance of instructions by the Participants and their Beneficiaries to invest Participant Directed Accounts in Directed investment Options;

(2)the name, address and phone number of the Fiduciary (and, if applicable, the person or persons designated by the Fiduciary to act on its behalf) responsible for providing information to the Participant or a Beneficiary upon request relating to the Directed Investment Options;

(3)applicable restrictions on transfers to and from any Designated Investment Alternative;

(4)any restrictions on the exercise of voting, tender and similar rights related to a Directed Investment Option by the Participants or their Beneficiaries;

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(5)a description of any transaction fees and expenses which affect the balances in Participant Directed Accounts in connection with the purchase or sale of Directed Investment Options; and

(6)general procedures for the dissemination of investment and other information relating to the Designated Investment Alternatives as deemed necessary or appropriate, including but not limited to a description of:  (i) the investment vehicles available under the Plan, including specific information regarding any Designated Investment Alternative; (ii) any designated Investment Managers; and (iii) a description of the additional information which may be obtained upon request from the Fiduciary designated to provide such information.

(e)With respect to assets in a Participant’s Directed Investment Account, the Participant or Beneficiary shall direct the Trustee with regard to any voting, tender and similar rights associated with the ownership of such assets, (hereinafter referred to as the “Stock Rights”) as follows:

(1)each Participant or Beneficiary shall direct the Trustee to vote or otherwise exercise such Stock Rights in accordance with the provisions, conditions and terms of any such Stock Rights;

(2)such directions shall be provided to the Trustee by the Participant or Beneficiary in accordance with the procedure as established by the Administrator and the Trustee shall vote or otherwise exercise such Stock Rights with respect to which it has received directions to do so under this Section; and

(3)to the extent to which a Participant or Beneficiary does not instruct the Trustee to vote or otherwise exercise such Stock Rights, such Participants or Beneficiaries shall be deemed to have directed the Trustee that such Stock Rights remain nonvoted and unexercised.

(f)Any information regarding investments available under the Plan, to the extent not required to be described in the Participant Direction Procedures, may be provided to the Participant in one or more written documents (or in any other form including, but not limited to, electronic media) which are separate from the Participant Direction Procedures and are not thereby incorporated by reference into this Plan.

(g)The Administrator may, in its discretion, include in or exclude by amendment or other action from the Participant Direction Procedures such instructions, guidelines or policies as it deems necessary or appropriate to ensure proper administration of the Plan, and may interpret the same accordingly.

(h)The Plan is intended to constitute a plan described in Section 404(c) of the Act and the regulations thereunder.  As a result the Trustees and other Plan fiduciaries will have no liability for any losses that are the result of investment directions given by Participants, Beneficiaries or alternate payees under qualified domestic relations orders.

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4.15QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS

(a)Any voluntary Employee contribution to the Plan attributable to taxable years ending before January 1, 1987, shall be treated as a “Qualified Voluntary Employee Contribution” within the meaning of Code Section 219(e)(2) as it existed prior to the enactment of the Tax Reform Act of 1986, and held in a separate Qualified Voluntary Employee Contribution Account.

(b)A Participant may elect at any time to make withdrawals from such Participant’s Qualified Voluntary Employee Contribution Account in the same manner as if the Participant had separated from employment.  Any distribution shall be made in a manner which is consistent with and satisfies the provisions of Section 6.2.

4.16QUALIFIED MILITARY SERVICE

Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service will be provided in accordance with Code Section 414(u).

ARTICLE V

VALUATIONS

5.1VALUATION OF THE TRUST FUND

The Administrator shall direct the Trustee, as of each Valuation Date, to determine the net worth of the assets comprising the Trust Fund as it exists on the Valuation Date.  In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value (or their contractual value in the case of a Contract or Policy) as of the Valuation Date and shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the Employer or the Trust Fund.  The Trustee may update the value of any shares held in the Participant Directed Account by reference to the number of shares held by that Participant, priced at the market value as of the Valuation Date.

5.2METHOD OF VALUATION

In determining the fair market value of securities held in the Trust Fund which are listed on a registered stock exchange, the Administrator shall direct the Trustee to value the same at the prices they were last traded on such exchange preceding the close of business on the Valuation Date.  If such securities were not traded on the Valuation Date, or if the exchange on which they are traded was not open for business on the Valuation Date, then the securities shall be valued at the prices at which they were last traded prior to the Valuation Date.  Any unlisted security held in the Trust Fund shall be valued at its bid price next preceding the close of business on the Valuation Date, which bid price shall be obtained from a registered broker or an investment banker.  In determining the fair market value of assets other than securities for which trading or bid prices can be

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obtained, the Trustee may appraise such assets itself, or in its discretion, employ one or more appraisers for that purpose and rely on the values established by such appraiser or appraisers.

ARTICLE VI

VESTED BENEFITS AND DISTRIBUTIONS

6.1VESTED BENEFITS

Except as otherwise expressly provided in this Plan document, each Participant shall have a non-forfeitable right to his entire Combined Account balance and all of his other accrued benefits under the Plan, as adjusted from time to time to reflect investment gains and losses, without regard to Years of Service.

6.2DISTRIBUTION OF BENEFITS UPON SEPARATION FROM EMPLOYMENT PRIOR TO DEATH.

(a)Upon a Participant’s separation from employment with his Employer for any reason other than death, the Participant’s entire Vested Benefit shall become distributable to him in accordance with the provisions of this Section 6.2 and, if applicable, Section 6.5 below.  The Trustee shall distribute a Participant’s Vested Benefit to the Participant in accordance with such directions as the Administrator shall give.

(b)Subject to Section 6.2(c) and Section 6.5 below, distribution of a Participant’s entire Vested Benefit to the Participant shall be made in the form of a lump sum distribution.  That lump sum shall be paid in cash, or to the extent the Participant so elects, in a combination of any shares of Employer stock held in his accounts plus cash for the balance.  Notwithstanding the foregoing, to the extent that a Participant’s account secures the repayment of any Plan loan, following separation from employment with the Employers, the Plan may distribute the promissory note evidencing the loan in kind as part of the Participant’s lump sum distribution.

(c)Notwithstanding Section 6.2(b) above, if a former Participant’s Vested Benefit (calculated without regard to that portion of his Transfer/Rollover Account that is attributable to rollover contributions within the meaning of Code Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii) and 457(e)(16) and the earnings allocable thereto) exceeds $5,000, the Participant is entitled to elect to receive distribution in the form of either (i) a lump sum payment of his entire account balance, or (ii) monthly, quarterly, semi-annual or annual cash payments over a designated period certain subject to the following rules:

(1)The Participant must designate in writing on such forms as the Administrator provides for this purpose, the payout period over which any installment distribution is to be made.  Once the installment method and payout period is elected, the Participant may not modify that election other than to cancel the election and receive an immediate lump sum distribution of any then-

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remaining Vested Benefit on such forms as the Plan Administrator provides for that purpose.

(2)The period of installment payments elected may not exceed the life expectancy of the Participant or the joint life expectancy of the Participant and his designated Beneficiary at the time distribution begins or otherwise cause the Plan to violate the provisions of Section 6.4 below or Code Section 401(a)(9).

(3)The amount of each such periodic installment payment shall equal the product of (i) the Participant’s account balance on the Valuation Date immediately preceding the date of distribution (or such other Valuation Date as the Administrator reasonably determines); multiplied by (ii) a fraction the numerator of which is one and the denominator of which is the sum of one plus the remaining periodic distributions to be made after the installment in question.  The final installment payment shall be an amount equal to the Participant’s entire remaining Vested Benefit.

(d)Subject to Section 6.2(e) below, the payment of a Participant’s Vested Benefit shall be made or begin, as applicable, as soon as possible after his separation from employment, and in no event later than the 60th day following the close of the Plan Year in which the Participant separates from employment.

(e)If a Participant’s Vested Benefit exceeds $5,000 (calculated without regard to that portion of his Transfer/Rollover Account that is attributable to rollover contributions within the meaning of Code Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii) and 457(e)(16) and the earnings allocable thereto), the following provisions shall apply to that Participant:

(1)The Plan cannot make distribution to the Participant without his consent until he attains age 65.  This restriction shall cease to apply when the Participant dies.  If the Participant does not consent to a pre-age 65 distribution of his Vested Benefit following termination of his employment with an Employer, distribution of his Vested Benefit shall be deferred until he attains age 65 unless the Participant (and in the case of any Transfer/Rollover Account subject to Section 6.5 below, the Participant’s spouse) later consents to a pre-age 65 distribution;

(2)The Participant may elect to defer the commencement of benefits beyond age 65 to a Participant-designated date that is no later than the minimum required distribution deadline imposed under Section 6.4 below.  Any election by a Participant to defer distribution shall be made on such forms and in accordance with such uniform procedures as the Administrator determines; and

(3)Where required under this Section 6.2(e), the consent of the Participant (and, if applicable, his spouse) to commencement of distribution prior to attaining age 65 shall be obtained in writing within the 90-day period ending on

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the “distribution starting date.”  The “distribution starting date” is the first day of the first period for which an amount is paid in any form.  The Plan Administrator shall notify the Participant of the right to defer any distribution until the Participant attains age 65. The notice shall include a general description of the material features, and an explanation of the relative values of, the optional forms of benefit available under the Plan in a manner that would satisfy the notice requirements of Section 417(a)(3) of the Code and Section 6.5(e) below, and shall be provided no less than 30 days and no more than 90 days prior to the distribution starting date.  The Participant (and, if applicable, spouse) shall have at least 30 days from the date of the notice to elect or reject an immediate distribution, but may waive the 30-day waiting period.

This subsection 6.2(e) shall not apply to any Participant other than a Participant described in the first sentence of this subsection 6.2(e).

(f)Except as provided in Section 6.3(c) below, if a Participant dies after separating from employment with his Employer and after commencing installment distributions, his remaining Vested Benefit, if any, shall continue to be distributed to his Beneficiary under the Participant-elected method of installment distribution in effect at the time of his death.  Notwithstanding the foregoing, the deceased Participant’s Beneficiary may elect in writing on such forms as the Administrator requires for this purpose to receive a distribution of the remaining Vested Benefit in a single lump sum as soon as practicable after the date such election is submitted to the Plan Administrator.

6.3BENEFICIARY DESIGNATIONS AND DISTRIBUTION UPON DEATH

(a)Upon the death of a married Participant or married Former Participant, the Participant’s entire Vested Benefit under the Plan shall become payable to his surviving spouse, adjusted for gains and losses in the same manner as other account balances are adjusted pending distribution.  If, however, there is no surviving spouse or if the Participant waives this mandatory survivor benefit and the surviving spouse consents in the manner set forth in Section 6.5 for a Qualified Election (other than the notice requirements therefor) to the designation of another Beneficiary by the Participant, the deceased Participant’s Vested Benefit shall instead be paid to the designated Beneficiary pursuant to the distribution provisions of the Plan which would apply in the absence of this subsection 6.3(a).  A Participant may designate one or more alternative or contingent Beneficiaries as provided in Section 6.3(b) below.

(b)Any Beneficiary designation under this Section 6.3(b) shall be in the written form prescribed by the Administrator and shall be effective only when executed by the Participant and, if applicable under Code Section 401(a)(11)(B)(iii)(I), his spouse, and filed with the Administrator by the Participant.  A Participant may, from time to time in like manner, revoke in writing the Beneficiary designation and such action shall not require the consent of any Beneficiary.  A Participant (with the consent of his lawful spouse, if any) may designate multiple, contingent or successive beneficiaries, and specify the proportionate distribution to each such Beneficiary.  The following

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Beneficiary rules shall apply for purposes of this Section 6.3 as well as Sections 6.4 and 6.5:

(1)If a named Beneficiary predeceases the Participant, any prior designation of that Beneficiary shall be deemed revoked on the date of the Beneficiary’s death.

(2)If the Beneficiary shall survive the Participant, but shall die before the entire Vested Benefit of the former Participant has been paid, then, absent any other provision by the Participant, the unpaid amount shall be payable to the estate of the deceased Beneficiary.  If multiple Beneficiaries are designated, absent express provision by the Participant, those named or their survivors, shall share equally any benefits payable under this Plan.

(3)In the absence of an effective Beneficiary designation, the Administrator shall direct the Trustee to distribute the Participant’s undistributed Vested Benefits to the Participant’s surviving spouse, if any, or, if there is no surviving spouse, then to the estate of the Participant.

(4)Any spouse or named Beneficiary of a Participant who cannot be located with reasonable efforts shall be deemed to have predeceased the Participant for all purposes under the Plan.  If a Participant designates as a Beneficiary an individual who is his spouse at the time of designation, and that Beneficiary subsequently ceases to be the Participant’s lawful spouse as a result of divorce, annulment or legal separation, the former spouse shall be deemed to have predeceased the Participant unless a qualified domestic relations order within the meaning of Code Section 414(p) provides otherwise.

(c)If distribution of a Participant’s Vested Benefit commences on account of separation from employment and the Participant dies before distribution is completed, any remaining Vested Benefit shall be distributed to his Beneficiary in the manner provided in Section 6.2(f) above.  If distribution of a deceased Participant’s Vested Benefit on account of his separation from employment with an Employer has not commenced prior to the Participant’s date of death, the deceased Participant’s Vested Benefit shall be paid to his Beneficiary in the form of a single lump sum distribution as soon as reasonably practicable after the Administrator is notified of the Participant’s death, and in no event later than 60 days following the year of death.

(d)Notwithstanding Section 6.3(c) above, if the deceased Participant’s Vested Benefit at the time of death exceeds $5,000 (calculated without regard to that portion of his Transfer/Rollover Account described in the first sentence of Section 6.2(e)), then subject to Section 6.4 below the Beneficiary may elect as follows:

(1)To receive distribution in the form of either (i) a lump sum payment of the deceased Participant’s entire remaining Vested Benefit, or (ii)

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monthly, quarterly, semi-annual or annual cash payments over a designated period certain subject to the following rules:

(i)The Beneficiary must designate in writing on such forms as the Administrator provides for such purpose the period over which any installment distribution is to be made.  Once the installment method and payout period is elected, the Beneficiary may not modify that election other than to by electing on such forms as the Plan Administrator provides for this purpose to cancel the election and receive an immediate lump sum distribution of any then-remaining account balance.

(ii)The period of installment payments elected may not exceed the life expectancy of the Beneficiary at the time distribution begins or otherwise cause the Plan to violate the provisions of Section 6.4 below or Code Section 401(a)(9).

(iii)The amount of each such periodic installment payment shall equal the product of (i) the account balance on the Valuation Date immediately preceding the date of distribution (or such other valuation Date as the Administrator reasonably determines); multiplied by (ii) a fraction the numerator of which is one and the denominator of which is the sum of one plus the remaining periodic distributions to be made after the installment distribution in question.  The final installment payment shall be an amount equal to the Beneficiary’s entire remaining account balance.

(2)The Beneficiary may elect to defer the commencement of benefits to a Beneficiary-designated date that is no later than the minimum required distribution deadline imposed under Section 6.4 below, or by Code Section 401(a)(9).  Any election by a Beneficiary to defer distribution shall be made on such forms and in accordance with such uniform procedures as the Administrator determines.

This Section 6.3(d) shall only apply if the deceased Participant’s Vested Benefit at the time of death exceeds $5,000 (calculated without regard to Transfer/Rollover Account balances described in the first sentence of Section 6.2(e)).

6.4MINIMUM REQUIRED DISTRIBUTIONS

(a)The provisions of this Section 6.4 will apply for purposes of determining required minimum distributions for the Plan Year commencing on or after January 1, 2003 and take precedence over any inconsistent provisions of the Plan.  All distributions required under this Section 6.4 will be determined and made in accordance with the Treasury Regulations under Section 401(a)(9) of the Code; provided, however that notwithstanding the other provisions of this Section 6.4, distributions may be made under a designation made before January 1, 1984, in accordance with Section 242(b)(2) of the

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Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the Plan that relate to Section 242(b)(2) of TEFRA.

(b)The Participant’s account balance will be distributed, or begin to be distributed, to the Participant no later than the Participant’s Required Beginning Date.  If the Participant dies before distributions begin, the Participant’s will be distributed, or begin to be distributed, no later than as follows:

(1)If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, then distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70-1/2, if later.

(2)If the Participant’s surviving spouse is not the Participant’s sole Designated Beneficiary, then, except as provided in subsection 6.4(e) below, distributions to the Designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

(3)If there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(4)If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this Section 6.4(b), other than subsection (b)(1), will apply as if the surviving spouse were the Participant.

(5)If a Participant dies before distributions begin and there is a Designated Beneficiary other than the Participant’s surviving spouse, this Section 6.4 does not require distribution to begin by the date specified in subsection (b)(2) above if the Designated Beneficiary duly elects to defer distribution, but the Participant’s account balance must be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.  If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary and the surviving spouse dies after the Participant but before distribution to the Participant or surviving spouse begins, this election will apply as if the surviving spouse were the Participant.  All elections as to the above five-year rule or the life expectancy rule under subsections (b)(2) and (e)(1) apply only if the Participant has a Designated Beneficiary by September 30 of the calendar year following the Participant’s year of death and must be made not later than the earlier of (i) September 30 of the calendar year in which distribution would be required to begin under subsection (b)(2), or (ii) by September 30 of the calendar year which contains the fifth anniversary of the Participant’s (or, if applicable, surviving

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spouse’s) death.  If neither the Participant nor Beneficiary makes an election under this subsection (b)(5), distribution will be made in accordance with Sections 6.4(b)(2) and 6.4(e) of the Plan.

For purposes of this subsection (b) and subsection (e), unless subsection (b)(4) applies, distributions are considered to begin on the Participant’s Required Beginning Date.  If subsection (b)(4) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under this subsection (b).  If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s required beginning date (or to the Participant’s surviving spouse before the date distributions are required to begin to the surviving spouse under this subsection (b)), the date distributions are considered to begin is the date distributions actually commence.

(c)Unless the Participant’s interest is distributed on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with subsections (d) and (e) of this Section 6.4.  If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions under that annuity will be made in accordance with the requirements of Section 401(a)(9) of the Code and the Treasury Regulations promulgated thereunder.

(d)During the Participant’s lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:

(1)The quotient obtained by dividing the Participant’s account balance by the distribution period on the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s age as of the Participant’s birthday in the distribution calendar year; or

(2)If the Participant’s sole Designated Beneficiary for the distribution calendar year is the Participant’s spouse, the quotient obtained by dividing the Participant’s account balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the distribution calendar year.

Required minimum distributions will be determined under this Section 6.4(d) beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the Participant’s date of death.

(e)The following minimum distribution rules apply after a Participant’s death.

(1)If the Participant dies on or after the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the

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quotient obtained by dividing the Participant’s account balance by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant’s Designated Beneficiary, determined as follows:

(i)The Participant’s remaining life expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(ii)If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year.  For distribution calendar years after the year of the surviving spouse’s death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

(iii)If the Participant’s surviving spouse is not the Participant’s sole Designated Beneficiary, the Designated Beneficiary’s remaining life expectancy is calculated using the age of the Beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

(2)If the Participant dies on or after the date distributions begin and there is no Designated Beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the Participant’s remaining life expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(3)Except as provided in Section 6.4(b)(5), if the Participant dies before the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s account balance by the remaining life expectancy of the Participant’s Designated Beneficiary, determined as provided in Section 6.4(e)(1).

(4)If the Participant dies before the date distributions begin and there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

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(5)If the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under Section 6.4(b)(2), this Section 6.4(e) will apply as if the surviving spouse were the Participant.

(f)For purposes of this Section 6.4, the following definitions apply:

(1)“Designated Beneficiary” means the individual who is designated as the Beneficiary under Section 6.2 of the Plan and is the designated Beneficiary under Section 401(a)(9) of the Internal Revenue Code and Section 1.401(a)(9)-1, Q&A-4, of the Treasury Regulations.

(2)“Distribution calendar year” means a calendar year for which a minimum distribution is required.  For distributions beginning before the Participant’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year that contains the Participant’s Required Beginning Date.  For distributions beginning after the Participant’s death, the first distribution calendar year is the calendar year in which distributions are required to begin under Section 6.4(b).  The required minimum distribution for the Participant’s first distribution calendar year will be made on or before the Participant’s Required Beginning Date.  The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the Participant’s Required Beginning Date occurs, will be made on or before December 31 of that distribution calendar year.

(3)“Life expectancy” means life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9 of the Treasury Regulations.

(4)“Participant’s account balance” means the account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date.  The account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.

(5)“Required Beginning Date” means April 1 of the calendar year in which the Participant attains age 70 ½; provided that in the case of a Participant other than a five percent (5%) owner, the Required Beginning Date is April 1 of the calendar year following the later of (i) the calendar year in which the Participant attains age 70-1/2, or (b) the calendar year in which the Participant ceases to be an Employee.

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6.5LIMITED JOINT AND SURVIVOR ANNUITY RULES

(a)This Section 6.5 shall only apply to the distribution of that portion of a Participant’s Transfer/Rollover Account that is attributable to direct or indirect transfers to the Plan from another plan that is subject to the survivor annuity requirements of Sections 401(a)(11)(A) and 417 of the Code (a “417 Account”).  This Section 6.5 shall not apply to any other account of a Participant.  This Section shall take precedence over any conflicting provision in this Plan.

(b)For purposes of this Section 6.5, the following definitions shall apply:

(1)“Election Period” means the period that begins on the first day of the Plan Year in which the Participant attains age thirty-five (35) and ends on the date of the Participant’s death.  If a Participant separates from employment prior to the first day of the Plan Year in which age thirty-five (35) is attained, the Election Period shall begin on the date of separation from employment with respect to his account balances as of the date of separation.

(2)“Earliest Retirement Age” means the earliest date on which, under the Plan, the Participant could elect to receive benefits under the Plan.

(3)“Pre Age Thirty-Five (35) Waiver” means the special Qualified Election that a Participant who will not attain age thirty-five (35) as of the end of the current Plan Year can make to waive the Qualified Pre-Retirement Survivor Annuity for the period beginning on the date of such election and ending on the first day of the Plan Year in which the Participant will attain age thirty-five (35).  The Administrator shall provide to the Participant a written explanation of the Qualified Pre-Retirement Survivor Annuity in such terms as are comparable to the explanation required under Section 6.5(e) below.  Qualified Pre-Retirement Survivor Annuity coverage shall be reinstated as of the first day of the Plan Year in which the Participant attains age thirty-five (35), and any new waiver thereafter shall be subject to the full requirements of this Section 6.5.

(4)“Qualified Election” means a waiver of a Qualified Annuity or a Qualified Pre-Retirement Survivor Annuity by a married Participant (or, if deceased, by his spouse).  Any waiver of a Qualified Annuity or a Qualified Pre-Retirement Survivor Annuity by a married Participant or spouse shall not be effective unless: (i) the Spouse consents in writing to the election; (ii) the election designates a specific beneficiary, including any class of beneficiaries or any contingent beneficiaries, which may not be changed without spousal consent (or the Spouse expressly permits designations by the Participant without any further spousal consent); (iii) the Spouse’s consent acknowledges the effect of the election; and (iv) the Spouse’s consent is witnessed by a Plan representative or notary public.  Additionally, a Participant’s waiver of the Qualified Annuity shall not be effective unless the election designates a form of benefit payment that may not be changed without spousal consent (or the Spouse expressly permits designations by the Participant without any further spousal consent).  If it is

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established to the satisfaction of a Plan representative that there is no Spouse or that the Spouse cannot be located, the Participant’s waiver will be deemed a Qualified Election.

Any consent by a Spouse obtained under this provision (or establishment that the consent of a Spouse may not be obtained) shall be irrevocable by that Spouse but shall be effective only with respect to that Spouse.  A consent that permits designations by the Participant without any requirement of further consent by the Spouse must acknowledge that the Spouse has the right to limit consent to a specific beneficiary, and a specific form of benefit where applicable, and that the Spouse voluntarily elects to relinquish either or both of these rights.  A Participant may revoke a prior waiver without the consent of his Spouse at any time before the commencement of benefits.  The number of revocations shall not be limited.

(5)“Qualified Annuity” means in the case of an unmarried Participant, an immediate life annuity.  In the case of a married Participant, an immediate annuity for the life of the Participant with a survivor annuity for the life of the Participant’s Spouse which is fifty percent (50%) of the amount of the annuity payable during the joint lives of the Participant and the Spouse and which is the amount of benefit which can be purchased with the Participant’s 417 Account balance.

(6)“Qualified Pre-Retirement Survivor Annuity” means an annuity for life of a Participant’s Surviving Spouse, the payments under which are equal to the amount of benefits that can be purchased with 50% of the Participant’s 417 Account balance as of the last day of the Plan Year in which occurs the Participant’s death.

(7)“Spouse (Surviving Spouse)” means the lawful spouse or surviving spouse of the Participant, provided that a former spouse will be treated as the spouse or surviving spouse (and a current spouse will not be treated as a spouse or former spouse) to the extent provided under a qualified domestic relations order described in Section 414(p) of the Code.

(c)Subject to Section 6.5(f) below, unless an optional form of benefit is selected pursuant to a Qualified Election within the 90-day period ending on the Annuity Starting Date, a Participant’s 417 Account shall be paid in the form of a Qualified Annuity pursuant to the purchase of annuity contracts which comply with the terms of this Plan.  The Participant may elect to have the annuity contract distributed upon attainment of the Earliest Retirement Age under the Plan.

(d)Subject to Section 6.5(f) below, unless an optional form of benefit has been selected pursuant to a Qualified Election made within the Election Period, if a married Participant or married former Participant with a 417 Account dies before the Annuity Starting Date, then the Vested Benefit in such 417 Account shall be applied toward the purchase of a Qualified Pre-Retirement Survivor Annuity contract which

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complies with the terms of this Plan and will provide payments to the Participant’s Surviving Spouse commencing on the earliest date the deceased Participant could have elected to receive retirement benefits under the Plan, unless the Surviving Spouse makes a Qualified Election to waive the Qualified Pre-Retirement Survivor Annuity or elects to defer distribution as provided in the Plan.

(e)The following notice requirements shall apply under this Section 6.5:

(1)In the case of a Qualified Annuity, the Plan Administrator shall, not less than 30 days and no more than 90 days prior to the Annuity Starting Date, provide each Participant covered by this Article with a written explanation of: (i) the terms and conditions of a Qualified Annuity; (ii) a general description of the material features, and an explanation of the relative values of the optional forms of benefit available under the Plan; (iii) the Participant’s right to make and the effect of an election to waive the Qualified Annuity form of benefit; (iv) the rights of a Participant’s Spouse; and (v) the right to make, and the effect of, a revocation of a previous election to waive the Qualified Annuity.

(2)The Annuity Starting Date for a distribution in a form other than a Qualified Annuity may be less than 30 days after receipt of the written explanation described above if (i) the Participant has been provided with information that clearly indicates that the Participant has at least 30 days to consider whether to waive the Qualified Annuity and elect (with spousal consent, if applicable) to a form of distribution other than a Qualified Annuity; (ii) the Participant is permitted to revoke any affirmative distribution election at least until the Annuity Starting Date or, if later, at any time prior to the expiration of the seven day period that begins the day after the explanation of the Qualified Annuity is provided to the Participant; and (iii) the Annuity Starting Date is a date after the date that the written explanation is provided to the Participant.

(3)In the case of a Qualified Pre-Retirement Survivor Annuity, the Plan Administrator shall provide each Participant covered by this Article within the applicable period for the Participant a written explanation of the Qualified Pre-Retirement Survivor Annuity in such terms and in such manner as would be comparable to the explanation provided for meeting the requirements of Section 6.5(e)(1) and (2) above.  The applicable period for the Participant is the last to end of the following periods:  (i) the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35; (ii) a reasonable period after the Participant commences participation; or (iii) a reasonable period after this Section first applies to the Participant.  Notwithstanding the foregoing, notice must be provided within a reasonable period after separation from employment in the case of a Participant who separates from employment before attaining age 35.  For purposes of applying this Section 6.5(e)(3), a reasonable period ending after the enumerated events described above is the end of the two year period beginning one year prior to the

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date the applicable event occurs, and ending one year after that date.  In the case of a Participant who separates from employment before the Plan Year in which he attains age 35, notice shall be provided within the two-year period beginning one year prior to separation and ending one year after separation.  If such a Participant thereafter returns to employment with the Employer, the applicable period for the Participant shall be re-determined.

(f)If the present value of a Participant’s Qualified Annuity or a Qualified Pre-Retirement Survivor Annuity does not exceed $5,000 at the Annuity Starting Date, this Section 6.5 shall not apply to the Participant’s 417 Account, and the Plan shall distribute that amount in accordance with the rules of Sections 6.2 through 6.4 above.  For this purpose, present value shall be determined under Section 417(e)(3) of the Code.  Notwithstanding the above, no lump sum distribution shall be made hereunder once benefits have commenced to be paid under this Section 6.5 unless the Participant and his Spouse (or the Surviving Spouse, if applicable) so consent.

6.6ROLLOVER DISTRIBUTIONS

(a)Anything in this Plan to the contrary notwithstanding, a Distributee may elect at the time and in the manner prescribed by the Administrator to have all or any portion of his Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover.

(b)For purposes of this Section 6.6 the following definitions shall apply:

(1)“Direct Rollover’ means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee of all or a portion of the Distributee’s Vested Benefit.

(2)“Distributee” means an Employee or former Employee to whom a distribution is to be, or may be, made.  In addition, an Employee’s or former Employee’s surviving spouse and an Employee’s or former Employee’s spouse or former spouse who is an alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with respect to the interest of the spouse or former spouse.

(3)“Eligible Retirement Plan” means an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, a qualified trust described in Section 401(a) of the Code, which accepts the Distributee’s Eligible Rollover Distribution.  Additionally, an Eligible Retirement Plan shall mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457 of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state that agrees to separately account for amounts transferred to such plan from this Plan.  The

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definition of Eligible Retirement Plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is an alternate payee under a qualified domestic relations order as defined in Section 414(p) of the Code.

(4)“Eligible Rollover Distribution” is any distribution of all or any portion of the account balance of the Distributee, except that an Eligible Rollover Distribution does not include any distribution that is (i) one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated beneficiary, or for a specified period of ten years or more; (ii) required under Section 401(a)(9) of the Code; (iii) not includable in gross income of the Distributee (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities); or (iv) made in the event of hardship pursuant to Section 6.10 below.  Notwithstanding the foregoing, the portion of a distribution consisting of after-tax Employee contributions that are not includible in income shall be an eligible rollover distribution if transferred to an individual retirement account or annuity described in Code Section 408(a) or (b) or to a defined contribution plan described in Code Sections 401(a) or 403(a) that agrees to separately account for such amounts, including the portion that is includible in gross income and the portion that is not includible in gross income.

6.7DISTRIBUTION FOR MINOR OR INCOMPETENT BENEFICIARY

In the event a distribution is to be made to a minor or incompetent Beneficiary, then the Administrator may direct that such distribution be paid to the legal guardian, or if none in the case of a minor Beneficiary, to a parent of such Beneficiary or a responsible adult with whom the Beneficiary maintains residence, or to the custodian for such Beneficiary under the uniform Gift to Minors Act or Gift to Minors Act, if such is permitted by the laws of the state in which said Beneficiary resides.  Such a payment to the legal guardian, custodian or parent of a minor Beneficiary shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof.

6.8LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN

In the event that all, or any portion, of the distribution payable to a Participant or Beneficiary hereunder shall, more than one year after the date they are eligible to be paid, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or Beneficiary, the amounts of distributable shall be treated as a forfeiture and applied to reduce Employer matching contributions for the year of forfeiture and succeeding Plan Years until fully applied.  Notwithstanding the foregoing, if the value of a Participant’s Vested benefit derived from Employer and Employee contributions (including accumulated Qualified Voluntary Employee Contributions) does not exceed $5,000, then the amount

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distributable may, in the sole discretion of the Administrator; either be treated as a forfeiture and applied to reduce Employer matching contributions for the year of forfeiture and succeeding Plan Years until fully applied, or if at least $1,000, be paid directly to an individual retirement account described in Code Section 408(a) or an individual retirement annuity described in Code Section 408(b) at the time it is determined that the whereabouts of the Participant or the Beneficiary cannot be ascertained.  In the event a Participant or Beneficiary is located subsequent to the forfeiture, such benefit shall be restored, first from forfeitures, if any, and then from an additional Employer contribution if necessary.  However, regardless of the proceeding, a benefit which is lost by reason of escheat under applicable state law is not treated as a forfeiture for purposes of this Section.

6.9PRE-RETIREMENT IN-SERVICE DISTRIBUTION

At such time as a Participant shall have attained the age of 59-1/2 years, the Administrator, at the written election of the Participant who has not severed employment with the Employer, shall direct the Trustee to distribute in a lump sum all or a portion of the amount then credited to the accounts maintained on behalf of the Participant (excluding any accounts subject to Section 6.5).  No distribution shall be made from the Participant’s account unless the balance in the Participant’s account to be distributed has accumulated for at least two years.  In the event that the Administrator makes such a distribution, the Participant shall continue to be eligible to participate in the Plan on the same basis as any other Employee.

6.10ADVANCE DISTRIBUTION FOR HARDSHIP

The Administrator, at the election of a Participant, shall direct the Trustee to distribute to the Participant in any one Plan Year up to the lesser of 100% of the Vested Participant’s Elective Account and Participant’s Account valued as of the last Valuation Date or the amount necessary to satisfy the immediate and heavy financial need of the Participant.  Any distribution made pursuant to this Section shall be deemed to be made as of the first day of the Plan Year or, if later, the Valuation Date immediately preceding the date of distribution, and the Participant’s Elective Account and Participant’s Account shall be reduced accordingly.  Withdrawal under this Section is deemed to be on account of an immediate and heavy financial need of the Participant only if the withdrawal is for:

(1)Medical expenses described in Code Section 213(d) incurred by the Participant, the Participant’s spouse, or any of the Participant’s dependents (as defined in Code Section 152) or necessary for these persons to obtain medical care as described in Code Section 213(d);

(2)The costs directly related to the purchase (excluding mortgage payments) of a principal residence for Participant;

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(3)Payment of tuition, related educational fees, and room and board expenses for the next 12 months of post-secondary education for the Participant and the Participant’s spouse, children, or dependents; or

(4)Payments necessary to prevent the eviction of the Participant from the Participant’s principal residence or foreclosure on the mortgage on that residence.

(b)No distribution shall be made pursuant to this Section unless the Administrator, based upon the Participant’s representation and such other facts as are known to the Administrator, determines that all of the following conditions are satisfied.

(1)The distribution is not in excess of the amount of the immediate and heavy financial need of the Participant.  The amount of the immediate and heavy financial need may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution;

(2)The Participant has obtained all distributions, other than hardship distributions, and all nontaxable (at the time of the loan) loans currently available under all plans maintained by the Employer; and

(3)The Plan, and all other plans maintained by the Employer, provide that the Participant’s elective deferrals and after-tax voluntary Employee contributions will be suspended for at least six months after receipt of the hardship distribution or, the Participant, pursuant to a legally enforceable agreement, will suspend elective deferrals and after-tax voluntary Employee contributions to the Plan and all other plans maintained by the Employer for at least six months after receipt of the hardship distribution.

(c)Notwithstanding the above, distributions from the Participant’s Elective Account pursuant to this Section shall be limited, as of the date of distribution, to the Participant’s Elective Account as of the end of the last Plan Year ending before July 1, 1989, plus the total Participant’s Deferred Compensation Contributions after such date, reduced by the amount of any previous distributions pursuant to this Section 6.10 and Section 6.09.

(d)Any distribution pursuant to this Section shall be made in a lump sum.

6.11QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION

All rights and benefits, including elections, provided to a Participant in this Plan shall be subject to the rights afforded to any “alternate payee” under a “qualified domestic relations order.”  Furthermore, a distribution to an “alternate payee” shall be permitted if such distribution is authorized by a “qualified domestic relations order,” even if the affected Participant has not separated from employment and has not reached the

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“earliest retirement age” under the Plan.  For the purposes of this Section 6.11, “alternate payee,” “qualified domestic relations order” and “earliest retirement age” shall have the meaning set forth under Code Section 414(p).

ARTICLE VII

TRUSTEE

7.1BASIC RESPONSIBILITIES OF THE TRUSTEE

(a)The Trustee shall have the following categories of responsibilities:

(1)Consistent with the “funding policy and method” determined by SkyWest, Inc., to invest, manage, and control the Plan assets subject, however, to the direction of each Participant with respect to the Participant’s Directed Account, the Employers or an Investment Manager appointed by the Employer or any agent of the Employers;

(2)At the direction of the Administrator, to pay benefits required under the Plan to be paid to Participants, or, in the event of their death, to their Beneficiaries; and

(3)To maintain records of receipts and disbursements and furnish to the Employers and/or Administrator for each Plan Year a written annual report pursuant to Section 7.7.

(b)In the event that the Trustee shall be directed by a Participant (pursuant to the Participant Direction Procedures), or SkyWest, Inc., or an Investment Manager or other agent appointed by SkyWest, Inc. with respect to the investment of any or all Plan assets, the Trustee shall have no liability with respect to the investment of such assets, but shall be responsible only to execute such investment instructions as so directed.

(1)The Trustee shall be entitled to rely fully on the written (or other form acceptable to the Administrator and the Trustee, including, but not limited to, voice recorded) instructions of a Participant (pursuant to the Participant Direction Procedures), or SkyWest, Inc., or any Fiduciary or nonfiduciary agent of SkyWest, Inc., in the discharge of such duties, and shall not be liable for any loss or other liability, resulting from such direction (or lack of direction) of the investment of any part of the Plan assets.

(2)The Trustee may delegate the duty of executing such instructions to any nonfiduciary agent, which may be an affiliate of the Trustee or any Plan representative.

(3)The Trustee may refuse to comply with any direction from the Participant in the event the Trustee, in its sole and absolute discretion, deems such directions improper by virtue of applicable law.  The Trustee shall not be

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responsible or liable for any loss or expense which may result from the Trustee’s refusal or failure to comply with any directions from the Participant.

(4)Any costs and expenses related to compliance with the Participant’s directions shall be borne by the Participant’s Directed Account, unless paid by the Employers.

(5)Notwithstanding anything hereinabove to the contrary, the Trustee shall not invest any portion of a Participant’s Directed Account in “collectibles” within the meaning of that term as employed in Code Section 408(m).

(c)If there shall be more than one Trustee, they shall act by a majority of their number, but may authorize one or more of them to sign papers on their behalf.

7.2INVESTMENT POWERS AND DUTIES OF THE TRUSTEE

(a)The Trustee shall invest and reinvest the Trust Fund to keep the Trust Fund invested without distinction between principal and income and in such securities or property, real or personal, wherever situated, as the Trustee shall deem advisable, including, but not limited to, stocks, common or preferred, open-end or closed-end mutual funds, bonds and other evidences of indebtedness or ownership, and real estate or any interest therein.  The Trustee shall at all times in making investments of the Trust Fund consider, among other factors, the short and long-term financial needs of the Plan on the basis of information furnished by the Employer.  In making such investments, the Trustee shall not be restricted to securities or other property of the character expressly authorized by the applicable law for trust investments; however, the Trustee shall give due regard to any limitations imposed by the Code or the Act so that at all times the Plan may qualify as a qualified profit sharing plan and trust.

(b)The Trustee may employ a bank or trust company pursuant to the terms of its usual and customary bank agency agreement, under which the duties of such bank or trust company shall be of a custodial, clerical and record-keeping nature.

7.3OTHER POWERS OF THE TRUSTEE

The Trustee, in addition to all powers and authorities under common law, statutory authority, including the Act, and other provisions of the Plan, shall have the following powers and authorities, to be exercised in the Trustee’s sole discretion:

(a)To purchase, or subscribe for, any securities or other property and to retain the same.  In conjunction with the purchase of securities, margin accounts may be opened and maintained;

(b)To sell, exchange, convey, transfer, grant options to purchase, or otherwise dispose of any securities or other property held by the Trustee, by private contract or at public auction.  No person dealing with the Trustee shall be bound to see to

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the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition, with or without advertisement;

(c)To vote upon any stocks, bonds, or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options, and to make any payments incidental thereto; to oppose, or to consent to, or otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities, or other property.  However, the Trustee shall not vote proxies relating to securities for which it has not been assigned full investment management responsibilities.  In those cases where another party has such investment authority or discretion, the Trustee will deliver all proxies to said party who will then have full responsibility for voting those proxies;

(d)To cause any securities or other property to be registered in the Trustee’s own name, in the name of one or more of the Trustee’s nominees, in a clearing corporation, in a depository, or in book entry form or in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund;

(e)To borrow or raise money for the purposes of the Plan in such amount, and upon such terms and conditions, as the Trustee shall deem advisable; and for any sum so borrowed, to issue a promissory note as Trustee, and to secure the repayment thereof by pledging all, or any part, of the Trust Fund; and no person lending money to the Trustee shall be bound to see to the application of the money lent or to inquire into the validity, expediency, or propriety of any borrowing;

(f)To keep such portion of the Trust Fund in cash or cash balances as the Trustee may, from time to time, deem to be in the best interests of the Plan, without liability for interest thereon;

(g)To accept and retain for such time as the Trustee may deem advisable any securities or other property received or acquired as Trustee hereunder, whether or not such securities or other property would normally be purchased as investments hereunder;

(h)To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted;

(i)To settle, compromise, or submit to arbitration any claims, debts, or damages due or owing to or from the Plan, to commence or defend suits or legal or administrative proceedings, and to represent the Plan in all suits and legal and administrative proceedings;

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(j)To employ suitable agents and counsel and to pay their reasonable expenses and compensation, and such agent or counsel may or may not be agent or counsel for the Employer;

(k) To apply for and procure from responsible insurance companies, to be selected by the Administrator, as an investment of the Trust Fund such annuity, or other Contracts (on the life of any Participant) as the Administrator shall deem proper; to exercise, at any time or from time to time, whatever rights and privileges may be granted under such annuity, or other Contracts; to collect, receive, and settle for the proceeds of all such annuity or other Contracts as and when entitled to do so under the provisions thereof;

(l)To invest funds of the Trust in time deposits or savings accounts bearing a reasonable rate of interest or in cash or cash balances without liability for interest thereon;

(m)To invest in Treasury Bills and other forms of United States government obligations;

(n)To invest in shares of investment companies registered under the Investment Company Act of 1940;

(o)To sell, purchase and acquire put or call options if the options are traded on and purchased through a national securities exchange registered under the Securities Exchange Act of 1934, as amended, or, if the options are not traded on a national securities exchange, are guaranteed by a member firm of the New York Stock Exchange regardless of whether such options are covered;

(p)To deposit monies in federally insured savings accounts or certificates of deposit in banks or savings and loan associations;

(q)To pool all or any of the Trust Fund, from time to time, with assets belonging to any other qualified employee pension benefit trust created by the Employer or any Affiliated Employer, and to commingle such assets and make joint or common investments and carry joint accounts on behalf of this Plan and Trust and such other trust or trusts, allocating undivided shares or interests in such investments or accounts or any pooled assets of the two or more trusts in accordance with their respective interests;

(r)To appoint a nonfiduciary agent or agents to assist the Trustee in carrying out any investment instructions of Participants and of any Investment Manager or Fiduciary, and to compensate such agent(s) from the assets of the Plan, to the extent not paid by the Employer;

(s)To do all such acts and exercise all such rights and privileges, although not specifically mentioned herein, as the Trustee may deem necessary to carry out the purposes of the Plan.

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7.4LOANS TO PARTICIPANTS

(a)The Trustee may, at the Administrator’s direction, make loans to Participants and Beneficiaries under the following circumstances: (1) loans shall be made available to all Participants and Beneficiaries on a reasonably equivalent basis; (2) loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Participants and Beneficiaries; (3) loans shall bear a reasonable rate of interest; (4) loans shall be adequately secured; and (5) loans shall provide for periodic repayment over a reasonable period of time.  Each loan shall constitute a Participant-directed investment by the borrower’s Participant Directed Account.

(b)No Participant loan shall take into account the present value of such Participant’s Qualified Voluntary Employee Contribution Account.

(c)Loans made pursuant to this Section (when added to the outstanding balance of all other loans made by the Plan to the Participant) shall, in accordance with a uniform and nondiscriminatory policy established by the Administrator, be limited to the lesser of:

(1)$50,000 reduced by the highest outstanding balance of loans from the Plan to the Participant during the one year period ending on the day before the date on which such loan is made, or

(2)one-half of the present value of the non-forfeitable accrued benefit of the Participant under the Plan.

For purposes of this limit, all plans of the Employer shall be considered one plan.

(d)Loans shall provide for level amortization with payments to be made not less frequently than quarterly over a period not to exceed five years.  However, loans used to acquire any dwelling unit which, within a reasonable time, is to be used (determined at the time the loan is made) as a “principal residence” of the Participant shall provide for periodic repayment over a reasonable period of time that may exceed five years.  For this purpose, a “principal residence” has the same meaning as a “principal residence” under Code Section 1034.  Loan repayments may be suspended under this Plan as permitted under Code Section 414(u)(4).

(e)Any loans granted or renewed shall be made pursuant to a Participant loan program.  Such loan program shall be established in writing by the Administrator and must include, but need not be limited to, the following:

(1)the identity of the person or positions authorized to administer the

Participant loan program;

(2)a procedure for applying for loans;

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(3)the basis on which loans will be approved or denied;

(4)limitations, if any, on the types and amounts of loans offered;

(5)the procedure under the program for determining a reasonable rate of interest;

(6)the types of collateral which may secure a Participant loan; and

(7)the events constituting default and the steps that will be taken to

preserve Plan assets.

Such Participant loan program shall be contained in a separate written document which, when properly executed, is hereby incorporated by reference and made a part of the Plan.  Furthermore, such Participant loan program may be modified or amended in writing from time to time without the necessity of amending this Section.

(f)Notwithstanding anything in this Plan to the contrary, if a Participant or Beneficiary defaults on a loan made pursuant to this Section, then the loan default will be a distributable event to the extent permitted by the Code and Regulations.

7.5DUTIES OF THE TRUSTEE REGARDING PAYMENTS

At the direction of the Administrator, the Trustee shall, from time to time, in accordance with the terms of the Plan, make payments out of the Trust Fund.  The Trustee shall not be responsible in any way for the application of such payments.

7.6TRUSTEE’S COMPENSATION AND EXPENSES AND TAXES

The Trustee shall be paid such reasonable compensation as set forth in the Trustee’s fee schedule (if the Trustee has such a schedule) or as agreed upon in writing by SkyWest, Inc. and the Trustee.  However, an individual serving as Trustee who already receives full-time pay from an Employer shall not receive compensation from the Plan. In addition, the Trustee shall be reimbursed for any reasonable expenses, including reasonable counsel fees incurred by it as Trustee.  Such compensation and expenses shall be paid from the Trust Fund unless paid or advanced by the Employers.  All taxes of any kind whatsoever that may be levied or assessed under existing or future laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid from the Trust Fund.

7.7ANNUAL REPORT OF THE TRUSTEE

(a)Within a reasonable period of time after the close of each Plan Year, the Trustee, or its agent, shall furnish to SkyWest, Inc. and Administrator a written statement

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of account with respect to the Plan Year for which such contribution was made setting forth:

(1)the net income, or loss, of the Trust Fund;

(2)the gains, or losses, realized by the Trust Fund upon sales or other disposition of the assets;

(3)the increase, or decrease, in the value of the Trust Fund;

(4)all payments and distributions made from the Trust Fund; and

(5)such further information as the Trustee and/or Administrator deems appropriate.

(b)SkyWest, Inc., promptly upon its receipt of each such statement of account, shall acknowledge receipt thereof in writing and advise the Trustee and/or Administrator of its approval or disapproval thereof.  Failure by SkyWest, Inc. to disapprove any such statement of account within 90 days after its receipt thereof shall be deemed an approval thereof.  The approval by SkyWest, Inc. of any statement of account shall be binding on SkyWest, Inc. and the Trustee as to all matters contained in the statement to the same extent as if the account of the Trustee had been settled by judgment or decree in an action for a judicial settlement of its account in a court of competent jurisdiction in which the Trustee, SkyWest, Inc. and all persons having or claiming an interest in the Plan were parties.  However, nothing contained in this Section shall deprive the Trustee of its right to have its accounts judicially settled if the Trustee so desires.

7.8AUDIT

(a)If an audit of the Plan’s records shall be required by the Act and the regulations thereunder for any Plan Year, the Administrator shall direct the Trustee to engage on behalf of a Participant an independent qualified public accountant for that purpose.

(b)All auditing and accounting fees shall be an expense of and may, at the election of the Employers, be paid from the Trust Fund.

7.9RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE

(a)Unless otherwise agreed to by both the Trustee and SkyWest, Inc., a Trustee may resign at any time by delivering to SkyWest, Inc., at least 30 days before its effective date, a written notice of resignation.

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(b)Unless otherwise agreed to by both the Trustee and SkyWest, Inc., SkyWest, Inc. may remove a Trustee at any time by delivering to the Trustee, at least 30 days before its effective date, a written notice of such Trustee’s removal.

(c)Upon the death, resignation, incapacity, or removal of any Trustee, a successor may be appointed by SkyWest, Inc.; and such successor, upon accepting such appointment in writing and delivering same to SkyWest, Inc., shall, without further act, become vested with all the powers and responsibilities of the predecessor as if such successor had been originally named as a Trustee herein.  Until such a successor is appointed, the remaining Trustee or Trustees shall have full authority to act under the terms of the Plan.

(d)SkyWest, Inc. may designate one or more successors prior to the death, resignation, incapacity, or removal of a Trustee.  In the event a successor is so designated by SkyWest, Inc. and accepts such designation, the successor shall, without further act, become vested with all the powers and responsibilities of the predecessor as if such successor had been originally named as Trustee herein immediately upon the death, resignation, incapacity, or removal of the predecessor.

(e)Whenever any Trustee hereunder ceases to serve as such, the Trustee shall furnish to SkyWest, Inc. and Administrator a written statement of account with respect to the portion of the Plan Year during which the individual or entity served as Trustee.  This statement shall be either (1) included as part of the annual statement of account for the Plan Year required under Section 7.7, or (2) set forth in a special statement.  Any such special statement of account should be rendered to SkyWest, Inc. no later than the due date of the annual statement of account for the Plan Year.  The procedures set forth in Section 7.7 for the approval by SkyWest, Inc. of annual statements of account shall apply to any special statement of account rendered hereunder and approval by SkyWest, Inc. of any such special statement in the manner provided in Section 7.7 shall have the same effect upon the statement as SkyWest, Inc.’s approval of an annual statement of account.  No successor to the Trustee shall have any duty or responsibility to investigate the acts or transactions of any predecessor who has rendered all statements of account required by Section 7.7 and this subparagraph.

7.10TRANSFER OF INTEREST

Notwithstanding any other provision contained in this Plan, the Trustee at the direction of the Administrator shall transfer the Vested Benefit, if any, of a Participant to another trust forming part of a pension, profit sharing or stock bonus plan maintained by such Participant’s new employer and represented by said employer in writing as meeting the requirements of Code Section 401(a), provided that the trust to which such transfers are made permits the transfer to be made.

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7.11TRUSTEE INDEMNIFICATION

SkyWest, Inc. agrees to indemnify and hold harmless the Trustee against any and all claims, losses, damages, expenses and liabilities the Trustee may incur in the exercise and performance of the Trustee’s power and duties hereunder, unless the same are determined to be due to gross negligence or willful misconduct.

7.12EMPLOYER SECURITIES AND REAL PROPERTY

The Trustee shall be empowered to acquire and hold “qualifying employer securities” and “qualifying employer real property,” as those terms are defined in the Act.  The Plan is specifically intended to allow Participants to elect to invest their Participant Directed Accounts in common stock of SkyWest, Inc.

ARTICLE VIII

AMENDMENT, TERMINATION AND MERGERS

8.1AMENDMENT

(a)SkyWest, Inc. shall have the right at any time to amend this Plan, subject to the limitations of this Section.  However, any amendment which affects the rights, duties or responsibilities of the Trustee or Administrator may only be made with the Trustee’s or Administrator’s written consent.  Any such amendment shall become effective as provided therein upon its execution (including retroactive amendments).  The Trustee shall not be required to execute any such amendment unless the amendment affects the duties of the Trustee hereunder.

(b)No amendment to the Plan shall be effective if it authorizes or permits any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to any purpose other than for the exclusive benefit of the Participants or their Beneficiaries or estates; or causes any reduction in the amount credited to the account of any Participant; or causes or permits any portion of the Trust Fund to revert to or become property of any Employer.

(c)Except as permitted by Regulations (including Regulation Section 1.411(d)-4) or other IRS guidance, no Plan amendment or transaction having the effect of a Plan amendment (such as a merger, plan transfer or similar transaction) shall be effective if it eliminates, reduces or modifies any “protected benefit” described in Code Section 411(d)(6) and the Regulations thereunder.

8.2TERMINATION

(a)SkyWest, Inc. shall have the right at any time to terminate the Plan by delivering to the Trustee and Administrator written notice of such termination.  Upon any full or partial termination, all amounts credited to the affected Participants’ Combined

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Accounts shall remain 100% vested and shall not thereafter be subject to forfeiture, and all unallocated forfeitures, shall be allocated to the accounts of all active Participants during the year of termination in proportion to their Compensation for the year of termination.

(b)Upon the full termination of the Plan, SkyWest, Inc. shall direct the distribution of the assets of the Trust Fund to Participants in a manner which is consistent with and satisfies the provisions of Article VI.  Distributions to a Participant shall be made in cash or in property allocated to the Participant’s account or through the purchase of irrevocable nontransferable deferred commitments from an insurer except, however, for property distributions made prior to the earlier of (1) the effective date of an amendment limiting distribution in property to property allocated to the Participant’s account, or (2) the adoption date of this amendment and restatement, distributions in property are not limited to property in the Participant’s account.

8.3MERGER, CONSOLIDATION OR TRANSFER OF ASSETS

This Plan and Trust may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other plan and trust only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the Plan immediately after such transfer, merger or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation, and such transfer, merger or consolidation does not otherwise result in the elimination or reduction of any Code Section 411(d)(6) “protected benefits.”

ARTICLE IX

TOP HEAVY

9.1TOP HEAVY PLAN REQUIREMENTS

For any Top Heavy Plan Year, the Plan shall meet the minimum allocation requirements of Code Section 416(c) pursuant to Section 4.4 of the Plan.

9.2DETERMINATION OF TOP HEAVY STATUS

(a)This Plan shall be a Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds 60% of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group.  If any Participant is a Non-Key Employee for any Plan Year, but such Participant was a Key Employee for any prior Plan Year, such Participant’s Present Value of Accrued Benefit and/or Aggregate Account balance shall not be taken into account for purposes of determining whether this Plan is a Top Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top Heavy Group).  In addition, if a

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Participant or Former Participant has not performed any services for any Employer maintaining the Plan at any time during the one year period ending on the Determination Date, any accrued benefit for such Participant or Former Participant shall not be taken into account for the purposes of determining whether this Plan is a Top Heavy Plan.

(b)Aggregate Account: A Participant’s Aggregate Account as of the Determination Date is the sum of:

(1)the Participant’s Combined Account balance as of the most recent Valuation Date within a 12-month period ending on the Determination Date.

(2)an adjustment for any contributions due as of the Determination Date.  Such adjustment shall be the amount of any contributions actually made after the Valuation Date but due on or before the Determination Date, except for the first Plan Year when such adjustment shall also reflect the amount of any contributions made after the Determination Date that are allocated as of a date in that first Plan Year.

(3)any Plan distributions made within the one-year period ending on the Determination Date.  However, in the case of distributions made after the Valuation Date and prior to the Determination Date, such distributions are not included as distributions for top heavy purposes to the extent that such distributions are already included in the Participant’s Aggregate Account balance as of the Valuation Date.  Notwithstanding anything herein to the contrary, all distributions under a terminated plan which if it had not been terminated would have been required to be included in an Aggregation Group, will be counted.  Further, distributions from the Plan (including the cash value of life insurance policies) of a Participant’s account balance because of death shall be treated as a distribution for the purposes of this paragraph.

(4)any Employee contributions, whether voluntary or mandatory. However, amounts attributable to tax deductible qualified voluntary employee contributions shall not be considered to be a part of the Participant’s Aggregate Account balance.

(5)with respect to unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another employer), if this Plan provides the rollovers or plan-to-plan transfers, it shall always consider such rollovers or plan-to-plan transfers as a distribution for the purposes of this Section.  If this Plan is the plan accepting such rollovers or plan-to-plan transfers, it shall not consider such rollovers or plan-to-plan transfers as part of the Participant’s Aggregate Account balance.  However, rollovers or plan-to-plan transfers accepted prior to January 1, 1984 shall be considered as part of the Participant’s Aggregate Account balance.

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(6)with respect to related rollovers and plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), if this Plan provides the rollover or plan-to-plan transfer, it shall not be counted as a distribution for purposes of this Section.  If this Plan is the plan accepting such rollover or plan-to-plan transfer, it shall consider such rollover or plan-to-plan transfer as part of the Participant’s Aggregate Account balance, irrespective of the date on which such rollover or plan-to-plan transfer is accepted.

For the purposes of determining whether two employers are to be treated as the same employer in (5) and (6) above, all employers aggregated under Code Section 414(b), (c), (m) and (o) are treated as the same employer.

(c)“Aggregation Group” has the meaning set forth in Code Section 416(g)(2) and by the Regulations thereunder.

(d)“Determination Date” means (a) the last day of the preceding Plan Year, or (b) in the case of the first Plan Year, the last day of such Plan Year.

(e)Present Value of Accrued Benefit: In the case of a defined benefit plan, the Present Value of Accrued Benefit for a Participant other than a Key Employee, shall be as determined using the single accrual method used for all plans of the Employer and Affiliated Employers, or if no such single method exists, using a method which results in benefits accruing not more rapidly than the slowest accrual rate permitted under Code Section 411(b)(1)(C).  The determination of the Present Value of Accrued Benefit shall be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date except as provided in Code Section 416 and the Regulations thereunder for the first and second plan years of a defined benefit plan.

(f)“Top Heavy Group” means an Aggregation Group in which, as of the Determination Date, the sum of:  (1) the Present Value of Accrued Benefits of Key Employees under all defined benefit plans included in the group, and (2) the Aggregate Accounts of Key Employees under all defined contribution plans included in the group, exceeds 60% of a similar sum determined for all Participants.

ARTICLE X

MISCELLANEOUS

10.1PARTICIPANT’S RIGHTS

This Plan shall not be deemed to constitute a contract between any Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee.  Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of any Employer or to

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interfere with the right of any Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon the Employee as a Participant of this Plan.

10.2ALIENATION

(a)Subject to the exceptions provided below, and as otherwise permitted by the Code and the Act, no benefit which shall be payable out of the Trust Fund to any person (including a Participant or the Participant’s Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Trustee, except to such extent as may be required by law.

(b)Subsection (a) shall not apply to the extent a Participant or Beneficiary is indebted to the Plan, by reason of a loan made pursuant to Section 7.4.  At the time a distribution is to be made to or for a Participant’s or Beneficiary’s benefit, such proportion of the amount to be distributed as shall equal such indebtedness shall be paid to the Plan, to apply against or discharge such indebtedness.  Prior to making a payment, however, the Participant or Beneficiary must be given written notice by the Administrator that such indebtedness is to be so paid in whole or part from the Participant’s Combined Account.  If the Participant or Beneficiary does not agree that the indebtedness is a valid claim against the Vested Participant’s Combined Account, the Participant or Beneficiary shall be entitled to a review of the validity of the claim in accordance with procedures provided in Sections 2.7 and 2.8.

(c)Subsection (a) shall not apply to a “qualified domestic relations order” defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Administrator under the provisions of the Retirement Equity Act of 1984.  The Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders.  Further, to the extent provided under a “qualified domestic relations order,” a former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan.

(d)Subsection (a) shall not apply to an offset to a Participant’s accrued benefit against an amount that the Participant is ordered or required to pay the Plan with respect to a judgment, order, or decree issued, or a settlement entered into, on or after August 5, 1997, in accordance with Code Sections 401(a)(13)(C) and (D).  In a case in which the survivor annuity requirements of Section 6.5 above and Code Section 401(a)(11) apply with respect to distributions from the Plan to the Participant, if the Participant has a spouse at the time at which the offset is to be made:

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(1)either such spouse has consented in writing to such offset and such consent is witnessed by a notary public or representative of the Plan (or it is established to the satisfaction of a Plan representative that such consent may not be obtained by reason of circumstances described in Code Section 417(a)(2)(B)), or an election to waive the right of the spouse to either a qualified joint and survivor annuity or a qualified pre-retirement survivor annuity is in effect in accordance with the requirements of Code Section 417(a),

(2)such spouse is ordered or required in such judgment, order, decree or settlement to pay an amount to the Plan in connection with a violation of fiduciary duties, or

(3)in such judgment, order, decree or settlement, such spouse retains the right to receive the survivor annuity under a qualified joint and survivor annuity provided pursuant to Code Section 401(a)(11)(A)(i) and under a qualified pre-retirement survivor annuity provided pursuant to Code Section 401(a)(11)(A)(ii).

10.3CONSTRUCTION OF PLAN

This Plan and Trust shall be construed and enforced according to the Code, the Act and the laws of the State of Utah, other than its laws respecting choice of law, to the extent not pre-empted by the Act.

10.4GENDER AND NUMBER

Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply.

10.5LEGAL ACTION

In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which the Trustee, the Employers or the Administrator may be a party, and such claim, suit, or proceeding is resolved in favor of the Trustee, the Employers or the Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney’s fees, and other expenses pertaining thereto incurred by them for which they shall have become liable.  No action seeking to recover benefits under the Plan or based on benefit amounts not paid under the Plan may be brought, filed or commenced later than one year after such benefits are denied under the Plan’s claims appeal procedures.

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10.6PROHIBITION AGAINST DIVERSION OF FUNDS

(a)Except as provided below and otherwise specifically permitted by law, it shall be impossible by operation of the Plan or of the Trust, by termination of either, by power of revocation or amendment, by the happening of any contingency, by collateral arrangement or by any other means, for any part of the corpus or income of any Trust Fund maintained pursuant to the Plan or any funds contributed thereto to be used for, or diverted to, purposes other than the exclusive benefit of Participants, former Participants, or their Beneficiaries.

(b)In the event any Employer shall make an excessive contribution under a mistake of fact pursuant to Act Section 403(c)(2)(A), the Employer may demand repayment of such excessive contribution at any time within one (1) year following the time of payment and the Trustees shall return such amount to the Employer within the one (1) year period.  Earnings of the Plan attributable to the contributions may not be returned to the Employer but any losses attributable thereto must reduce the amount so returned.

(c)Except for Sections 3.5, 3.6, and 4.1(e), any contribution by an Employer to the Trust Fund is conditioned upon the deductibility of the contribution by the Employer under the Code and, to the extent any such deduction is disallowed, the Employer may, within one (1) year following the final determination of the disallowance, whether by agreement with the Internal Revenue Service or by final decision of a competent jurisdiction, demand repayment of such disallowed contribution and the Trustee shall return such contribution within one (1) year following the disallowance.  Earnings of the Plan attributable to the contribution may not be returned to the Employer, but any losses attributable thereto must reduce the amount so returned.

10.7RECEIPT AND RELEASE FOR PAYMENTS

Any payment to any Participant, the Participant’s legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of the Plan, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employers, either of whom may require such Participant, legal representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer.

10.8ACTION BY THE EMPLOYERS

Whenever any Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by its Chief Executive Officer, Chief Financial Officer or any other person duly authorized by its legally constituted authority.

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10.9NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY

The “named Fiduciaries” of this Plan are (1) the Employers, (2) the Administrator, (3) the Trustee and (4) any Investment Manager appointed hereunder.  The named Fiduciaries shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under the Plan including, but not limited to, any agreement allocating or delegating their responsibilities, the terms of which are incorporated herein by reference.  In general, the Employers shall have the sole responsibility for making the contributions provided for under Section 4.1; and SkyWest, Inc. shall have the authority to appoint and remove the Trustee and the Administrator; to formulate the Plan’s “funding policy and method”; and to amend or terminate, in whole or in part, the Plan.  The Administrator shall have the sole responsibility for the administration of the Plan, including, but not limited to, the items specified in Article II of the Plan, as the same may be allocated or delegated thereunder.  The Administrator shall act as the named Fiduciary responsible for communicating with the Participant according to the Participant Direction Procedures.  The Trustee shall have the sole responsibility of management of the assets held under the Trust, except to the extent directed pursuant to Article II or with respect to those assets, the management of which has been assigned to an Investment Manager, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in the Plan.  Each named Fiduciary may rely upon any such direction, information or action of another named Fiduciary as being proper under the Plan, and is not required under the Plan to inquire into the propriety of any such direction, information or action.  No named Fiduciary shall guarantee the Trust Fund in any manner against investment loss or depreciation in asset value.  Any person or group may serve in more than one Fiduciary capacity.

10.10HEADINGS

The headings and subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof.

10.11UNIFORMITY

All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner.  In the event of any conflict between the terms of this Plan and any Contract purchased hereunder, the Plan provisions shall control.

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IN WITNESS WHEREOF, this Plan has been executed on the day and year first above written.

SKYWEST, INC.
By:	/s/ Michael J. Kraupp
Its:	Vice President of Finance and Assistant
	Treasurer
Name: Michael J. Kraupp
/s/ Michael J. Krapp
Michael Kraupp, Trustee
/s/ Alan Olson
Alan Olson, Trustee
/s/ Ann Olson
Ann Olsen, Trustee

CONFIRMATION OF PRIOR ADOPTION OF PLAN

SkyWest Airlines, Inc. consents to this restatement of the Plan.

SKYWEST AIRLINES, INC.
By:	/s/ Michael J. Kraupp
Its:	Vice President of Finance and Assistant
	Treasurer
Name: Michael J. Kraupp
Date: June 17, 2004

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EX-10.12(B)

Exhibit 10.12(b)

AMENDMENT NUMBER ONE TO THE 2004 RESTATEMENT OF THE

SKYWEST, INC. EMPLOYEES’ RETIREMENT PLAN

This Amendment Number One to the 2004 Restatement of the SkyWest, Inc. Employees’ Retirement Plan (the “Plan”) is hereby adopted effective January 1, 2004.

WHEREAS, SkyWest, Inc. (the “Company”) maintains the Plan for the benefit of its employees and the employees of its participating subsidiaries; and

WHEREAS, the Plan provides for “ADP” and “ACP” testing using the “prior year testing method”;” and

WHEREAS, it is necessary and desirable to amend the Plan to provide for “ADP” and “ACP” testing using the “current year testing method” described in Treasury Regulation Section 1.401(k)-2(a)(2); and

WHEREAS, the Company has reserved the right to amend the Plan.

NOW, THEREFORE, the Plan is hereby amended as follows:

1.Sections 4.6(a) and (b) of the Plan document are amended to read as follows, retroactively effective to January 1, 2004:

“(a)For each Plan Year (“Testing Year”), the annual “ADP” for the Highly Compensated Participant group for the Testing Year shall not exceed the greater of 125% of: (1) the “ADP” of the Non-Highly Compensated Participant group for the Testing Year in question, multiplied by 1.25, or (2) the lesser of (x) 200% of the ADP of the Non-Highly Compensated Participant group for the Testing Year or (y) the Non-Highly Compensated Participant group ADP for the Testing Year, plus two percentage points.  The provisions of Code Section 401(k)(3) and Regulation Section 1.401(k)-1(b) are incorporated herein by reference.

(b)For the purposes of this Plan “ADP” means, with respect to any Participant group for a Testing Year, the average of the ratios, calculated separately for each Participant in that group, whether or not contributing, of the amount of Elective Contributions allocated to each Participant’s Elective Account for such year to such Participant’s Compensation for such year.  The actual deferral ratio for each Participant and the “ADP” for each group shall be calculated to the nearest one-hundredth of one percent.  Employer Elective Contributions allocated to each Non-Highly Compensated Participant’s Elective Account shall be reduced by Excess Deferred Compensation to the extent such excess amounts are made under this Plan or any other plan maintained by the Employer and by any matching contributions which relate to such Excess Deferred Compensation.”

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2.Section 4.6(e) of the Plan document is amended to read as follows retroactively effective to January 1, 2004:

“(e)” When calculating the “ADP” for the Non-Highly Compensated Participant group, the current year testing method shall be used.  Any change from the current year testing method to the current year testing method shall be made pursuant to Treasury Regulation Section 1.401(k)-2(c) and Internal Revenue Service Notice 98-1, Section VII (or superseding guidance), the provisions of which are incorporated herein by reference.

3.Section 4.8(a) and (b) of the Plan document is amended to read as follows, retroactively effective to January 1, 2004:

“(a)For each Plan Year (“Testing Year”), the “ACP” for the Highly Compensated Participant group for that Testing Year shall not exceed the greater of:  (1) 125% of the ACP of the Non-Highly Compensated Participant group for the Testing Year in question; or (2) the lesser of (x) 200% of the ACP of the Non-Highly Compensated Participant group for the Testing Year or (y) the ACP for the Non-Highly Compensated Participant group for the Testing Year plus two percentage points.  The provisions of Code Section 401(m) and Regulation Sections 1.401(m)-1(b) and 1.401(m)-2 are incorporated herein by reference.

(b)“ACP” for a Testing Year with respect to any Participant group, means the average of the ratios (calculated separately for each Participant in each group and rounded to the nearest one-hundredth of one percent) of:  (1) the sum of Employer matching contributions made pursuant to Section 4.1(b) (to the extent such matching contributions are not used to satisfy the “ADP” tests), after-tax voluntary Employee contributions made pursuant to Section 4.13 and Excess Contributions recharacterized as after-tax voluntary Employee contributions pursuant to Section 4.7(a) on behalf of each such Participant for such year; to (2) the Participant’s Compensation for such year.”

4.Section 4.8(g) of the Plan document is amended to read as follows retroactively effective to January 1, 2004:

“(g)” When calculating the “ACP” for the Non-Highly Compensated Participant group, the current year testing method shall be used.  Any change from the current year testing method to the current year testing method shall be made pursuant to Treasury Regulation Section 1.401(k)-2(c) and Internal Revenue Service Notice 98-1, Section VII (or superseding guidance), the provisions of which are incorporated herein by reference.

5. Except as provided above, the Plan is hereby ratified and confirmed in all respects.

(Remainder of page intentionally left blank; signature page follows)

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IN TESTIMONY WHEREOF, SkyWest, Inc. has caused this Amendment Number One to be executed by its duly authorized officer this 15^th day of March, 2005.

SKYWEST, INC.
By:	/s/ Bradford R. Rich
Its:	Executive Vice President, Chief Financial
	Officer and Treasurer
Name: Bradford R. Rich

3

EX-10.12(C)

Exhibit 10.12(c)

AMENDMENT NUMBER TWO TO THE 2004 RESTATEMENT OF THE

SKYWEST, INC. EMPLOYEES’ RETIREMENT PLAN

This Amendment Number Two to the 2004 Restatement of the SkyWest, Inc. Employees’ Retirement Plan (the “Plan”) is hereby adopted this 22^nd day of December, 2005 to be effective as set forth below.

WHEREAS, SkyWest, Inc. (the “Company”) maintains the Plan for the benefit of its employees and the employees of its participating subsidiaries; and

WHEREAS, it is necessary and desirable to amend the Plan to reduce the threshold for mandatory cash-out distributions under the Plan from $5,000 to $1,000; and

WHEREAS, on March 15, 2005 the Company adopted Amendment Number One to the Plan on March 15, 2005 changing the Plan’s ADP and ACP testing methods from the “prior year method” to the “current year method” (“Amendment One”); and

WHEREAS, it is necessary and desirable to correct the effective date stated in Amendment One to read “January 1, 2005;” and

WHEREAS, the Company has reserved the right to amend the Plan.

NOW, THEREFORE, the Plan is hereby amended as follows:

1.Section 6.2(c) of the Plan document is amended to read as follows effective March 28, 2005:

“(c)Notwithstanding Section 6.2(b) above, if a former Participant’s Vested Benefit exceeds $1,000, the Participant is entitled to elect to receive distribution in the form of either (i) a lump sum payment of his entire account balance, or (ii) monthly, quarterly, semi-annual or annual cash payments over a designated period certain subject to the following rules:

(1)The Participant must designate in writing on such forms as the Administrator provides for this purpose, the payout period over which any installment distribution is to be made.  Once the installment method and payout period is elected, the Participant may not modify that election other than to cancel the election and receive an immediate lump sum distribution of any then-remaining Vested Benefit on such forms as the Plan Administrator provides for that purpose.

(2)The period of installment payments elected may not exceed the life expectancy of the Participant or the joint life expectancy of the Participant and his designated Beneficiary at the time distribution begins or otherwise cause the Plan to violate the provisions of Section 6.4 below or Code Section 401(a)(9).

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(3)The amount of each such periodic installment payment shall equal the product of (i) the Participant’s account balance on the Valuation Date immediately preceding the date of distribution (or such other Valuation Date as the Administrator reasonably determines); multiplied by (ii) a fraction the numerator of which is one and the denominator of which is the sum of one plus the remaining periodic distributions to be made after the installment in question.  The final installment payment shall be an amount equal to the Participant’s entire remaining Vested Benefit.”

2.Section 6.2(e) of the Plan document is amended to read as follows effective March 28, 2005:

“(e)If a Participant’s Vested Benefit exceeds $1,000, the following provisions shall apply to that Participant:

(1)The Plan cannot make distribution to the Participant without his consent until he attains age 65.  This restriction shall cease to apply when the Participant dies.  If the Participant does not consent to a pre-age 65 distribution of his Vested Benefit following termination of his employment with an Employer, distribution of his Vested Benefit shall be deferred until he attains age 65 unless the Participant (and in the case of any Transfer/Rollover Account subject to Section 6.5 below, the Participant’s spouse) later consents to a pre-age 65 distribution;

(2)The Participant may elect to defer the commencement of benefits beyond age 65 to a Participant-designated date that is no later than the minimum required distribution deadline imposed under Section 6.4 below.  Any election by a Participant to defer distribution shall be made on such forms and in accordance with such uniform procedures as the Administrator determines; and

(3)Where required under this Section 6.2(e), the consent of the Participant (and, if applicable, his spouse) to commencement of distribution prior to attaining age 65 shall be obtained in writing within the 90-day period ending on the “distribution starting date.”  The “distribution starting date” is the first day of the first period for which an amount is paid in any form.  The Plan Administrator shall notify the Participant of the right to defer any distribution until the Participant attains age 65. The notice shall include a general description of the material features, and an explanation of the relative values of, the optional forms of benefit available under the Plan in a manner that would satisfy the notice requirements of Section 417(a)(3) of the Code and Section 6.5(e) below, and shall be provided no less than 30 days and no more than 90 days prior to the distribution starting date.  The Participant (and, if applicable, spouse) shall have at least 30 days from the date of the notice to elect or reject an immediate distribution, but may waive the 30-day waiting period.

This subsection 6.2(e) shall not apply to any Participant other than a Participant described in the first sentence of this subsection 6.2(e).”

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3.Section 6.3(d) of the Plan document is amended to read as follows effective March 28, 2005:

“(d) Notwithstanding Section 6.3(c) above, if the deceased Participant’s Vested Benefit at the time of death exceeds $1,000, then subject to Section 6.4 below the Beneficiary may elect as follows:

(1)To receive distribution in the form of either (i) a lump sum payment of the deceased Participant’s entire remaining Vested Benefit, or (ii) monthly, quarterly, semi-annual or annual cash payments over a designated period certain subject to the following rules:

(i)The Beneficiary must designate in writing on such forms as the Administrator provides for such purpose the period over which any installment distribution is to be made.  Once the installment method and payout period is elected, the Beneficiary may not modify that election other than to by electing on such forms as the Plan Administrator provides for this purpose to cancel the election and receive an immediate lump sum distribution of any then-remaining account balance.

(ii)The period of installment payments elected may not exceed the life expectancy of the Beneficiary at the time distribution begins or otherwise cause the Plan to violate the provisions of Section 6.4 below or Code Section 401(a)(9).

(iii)The amount of each such periodic installment payment shall equal the product of (i) the account balance on the Valuation Date immediately preceding the date of distribution (or such other valuation Date as the Administrator reasonably determines); multiplied by (ii) a fraction the numerator of which is one and the denominator of which is the sum of one plus the remaining periodic distributions to be made after the installment distribution in question.  The final installment payment shall be an amount equal to the Beneficiary’s entire remaining account balance.

(2)The Beneficiary may elect to defer the commencement of benefits to a Beneficiary-designated date that is no later than the minimum required distribution deadline imposed under Section 6.4 below, or by Code Section 401(a)(9).  Any election by a Beneficiary to defer distribution shall be made on such forms and in accordance with such uniform procedures as the Administrator determines.

This Section 6.3(d) shall only apply if the deceased Participant’s Vested Benefit at the time of death exceeds $1,000.”

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4.The second sentence of Section 6.8 of the Plan document is amended to read as follows effective March 28, 2005:

“Notwithstanding the foregoing, if the value of a Participant’s Vested benefit derived from Employer and Employee contributions does not exceed $1,000, then the amount distributable may, in the sole discretion of the Administrator; either be treated as a forfeiture and applied to reduce Employer matching contributions for the year of forfeiture and succeeding Plan Years until fully applied, or be paid directly to an individual retirement account described in Code Section 408(a) or an individual retirement annuity described in Code Section 408(b) at the time it is determined that the whereabouts of the Participant or the Beneficiary cannot be ascertained.”

5.The effective dates of Amendment Number One and the changes to the Plan set forth therein are hereby amended to read “January 1, 2005.”

6. Except as provided above, the Plan is hereby ratified and confirmed in all respects.

IN TESTIMONY WHEREOF, SkyWest, Inc. has caused this Amendment Number Two to be executed by its duly authorized officer this 22^nd day of December, 2005.

SKYWEST, INC.
By:	/s/ Bradford R. Rich
Its:	Executive Vice President, Chief Financial
	Officer and Treasurer
Name: Bradford R. Rich

4

EX-10.13(A)

Exhibit 10.13(a)

ATLANTIC SOUTHEAST AIRLINES, INC.
INVESTMENT SAVINGS PLAN

THIS INDENTURE is made on February 26, 2002, by ATLANTIC SOUTHEAST AIRLINES, INC., a corporation duly organized and existing under the laws of the State of Georgia (hereinafter called the “Primary Sponsor”).

W I T N E S S E T H:

WHEREAS, the Primary Sponsor originally established the Atlantic Southeast Airlines, Inc. Investment Savings Plan, effective October 1, 1984 (the “Plan”), and last amended and restated the Plan by indenture effective January 1, 1989; and

WHEREAS, the Primary Sponsor now wishes to amend and restate the Plan primarily to comply with and make changes permitted by the provisions of the General Agreement on Trade and Tariffs, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997 and the Community Renewal Tax Relief Act of 2000; and

WHEREAS, the Plan is intended to be a profit sharing plan within the meaning of Treasury Regulations Section 1.401-1(b)(1)(ii) and also contains a cash or deferred arrangement as described in Section 401(k) of the Internal Revenue Code of 1986; and

WHEREAS, the provisions of the Plan, as amended and restated herein, shall apply to Plan Years beginning after January 1, 1997, except to the extent the provisions are required to apply at an earlier date or to any other members to comply with applicable law;

NOW, THEREFORE, the Primary Sponsor does hereby amend and restate the Plan in its entirety, generally effective as of January 1, 1997, except as otherwise provided herein, to read as follows:

ATLANTIC SOUTHEAST AIRLINES, INC.
INVESTMENT SAVINGS PLAN

		PAGE
ARTICLE 1	DEFINITIONS	1
ARTICLE 2	ELIGIBILITY	11
ARTICLE 3	CONTRIBUTIONS	11
ARTICE 4	ALLOCATIONS	13
ARTICLE 5	INDIVIDUAL FUNDS AND INVESTMENTS OF TRUST ASSETS	14
ARTICLE 6	PLAN LOANS	15
ARTICLE 7	WITHDRAWALS DURING EMPLOYMENT	18
ARTICLE 8	PAYMENT OF BENEFITS ON TERMINATION OF EMPLOYMENT	20
ARTICLE 9	PAYMENT OF BENEFITS OF RETIREMENT OR DISABILITY	22
ARTICLE 10	DEATH BENEFITS	22
ARTICLE 11	GENERAL RULES ON DISTRIBUTIONS	23
ARTICLE 12	ADMINISTRATION OF THE PLAN	26
ARTICLE 13	CLAIM REVIEW PROCEDURE	29
ARTICLE 14	INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS	31
ARTICLE 15	PROHIBITION AGAINST DIVERSION	32
ARTICLE 16	LIMITATION OF RIGHTS	32
ARTICLE 17	AMENDMENT TO OR TERMINATION OF THE PLAN AND THE TRUST	33
ARTICLE 18	ADOPTION OF PLAN BY AFFILIATES	34
ARTICLE 19	QUALIFICATION AND RETURN OF CONTRIBUTIONS	35
ARTICLE 20	INCORPORATION OF SPECIAL LIMITATIONS	35
APPENDIX A	LIMITATION ON ALLOCATIONS	A-37
APPENDIX B	TOP-HEAVY PROVISIONS	B-1
APPENDIX C	SPECIAL NONDISCRIMINATION RULES	C-1

ARTICLE 1

DEFINITIONS

Wherever used herein, the masculine pronoun shall be deemed to include the feminine, and the singular to include the plural, unless the context clearly indicates otherwise and the following words and phrases shall, when used herein, have the meanings set forth below:

1.1“Account” means a Participant’s aggregate balance in the following accounts, as adjusted pursuant to the Plan as of any given date:

(a)“Deferred Account” which shall reflect a Participant’s interest in contributions made by a Plan Sponsor under Section 3. 1.

(b)“Matching Account” which shall reflect a Participant’s interest in matching contributions made by a Plan Sponsor under Section 3.2.

(c)“Rollover Account” which shall reflect a Participant’s interest in contributions made by a Plan Sponsor under Section 3.4.

In addition, the Plan Administrator shall allocate the interest of a Participant in any funds transferred to the Plan in a trust-to-trust transfer (other than Rollover Amounts) or pursuant to the merger of another tax-qualified retirement plan with the Plan among the above accounts as the Plan Administrator determines best reflects the interest of the Participant.

1.2“Affiliate” means

(a)any corporation which is a member of the same controlled group of corporations (within the meaning of Code Section 414(b)) as is a Plan Sponsor;

(b)any other trade or business (whether or not incorporated) under common control (within the meaning of Code Section 414(c)) with a Plan Sponsor;

(c)any other corporation, partnership or other organization which is a member of an affiliated service group (within the meaning of Code Section 414(m)) with a Plan Sponsor; and

(d)any other entity required to be aggregated with a Plan Sponsor pursuant to regulations under Code Section 414(o). Notwithstanding the foregoing, for purposes of applying the limitations set forth in Appendix A and for purposes of determining Annual Compensation under Appendix A, the references to Code Sections 414(b) and (c) above shall be as modified by Code Section 415(h).

1.3“Annual Compensation” means wages within the meaning of Code Section 3401(a) (for purposes of income tax withholding at the source) and all other compensation paid to an Employee by a Plan Sponsor and Affiliates during a Plan Year for which the Plan Sponsor

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or an Affiliate, to the extent applicable, is required to furnish the Employee a written statement under Code Sections 6041(d), 6051(a)(3) and 6052, to the extent not in excess of the Annual Compensation Limit for all purposes under the Plan except for purposes of determining who are Highly Compensated Employees. Notwithstanding the above, Annual Compensation shall be determined as follows:

(a)for purposes of determining, with respect to each Plan Sponsor, the amount of contributions made by or on behalf of an Employee under Section 3.1 and allocations under Section 4.1(a), Annual Compensation shall only include amounts received for the portion of the Plan Year during which the Employee was a Participant;

(b)for purposes of determining with respect to each Plan Sponsor, the amount of contributions made by or on behalf of an Employee under Section 3.2 and allocations under Section 4.1(b), and for purposes of applying the provisions of Appendix C hereto for such Plan Years as the Secretary of the Treasury may allow, Annual Compensation shall not be limited to amounts received for the portion of the Plan Year during which the Employee was a Participant;

(c)for purposes of determining the amount of contributions under Plan Section 3 and allocations under Plan Section 4 made by or on behalf of an Employee, Annual Compensation shall not include reimbursements of pilot flight training expenses;

(d)for all purposes under the Plan, except as provided in Subsection (e) of this Section, Annual Compensation shall include any amount which would have been paid during a Plan Year, but was contributed by a Plan Sponsor on behalf of an Employee pursuant to a salary reduction agreement which is not includable in the gross income of the Employee under Code Sections 125, 402(g)(3), 457 and, effective on January 1, 2001, Section 132(f)(4); and

(e)effective until December 31, 1997, for purposes of applying the annual addition limits in Appendix A, Annual Compensation shall not include the amounts described in Subsection (d).

1.4“Annual Compensation Limit” means $150,000, which amount may be adjusted in subsequent Plan Years based on changes in the cost of living as announced by the Secretary of the Treasury.

1.5“Beneficiary”

(a)A Participant’s Beneficiary is the person or trust that a Participant designated most recently in writing to the Plan Administrator on such form and in such manner as is reasonably required by the Plan Administrator. Except as outlined in Subsection (c) below, a Participant may change his Beneficiary at any time by providing a new written election to the Plan Administrator on such form and in such manner as is reasonably required by the Plan Administrator.

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(b)If the Participant has failed to make a designation, no person designated is alive, no trust has been established, or no Beneficiary or successor Beneficiary has been designated who is alive, the term “Beneficiary” means:

(1)the Participant’s spouse; or

(2)if no spouse is alive, the Participant’s estate.

(c)Nonspouse Beneficiaries

(1)Notwithstanding the foregoing, the spouse of a married Participant shall be his Beneficiary unless that spouse has consented in writing to the designation by the Participant of some other person or trust and the spouse’s consent acknowledges the effect of the designation and is witnessed by a notary public or a Plan representative.

(2)A Participant may change his designation of a nonspouse beneficiary at any time. However, a Participant may not change his designation without further consent of his spouse unless the spouse’s consent permits designation of another person or trust without further spousal consent and acknowledges that the spouse has the right to limit consent to a specific beneficiary and that the spouse voluntarily relinquishes this right.

(3)The spouse’s consent shall not be required if the Participant establishes to the satisfaction of the Plan Administrator that

(A)the spouse cannot be located,

(B)the Participant has a court order indicating that he is legally separated or has been abandoned (within the meaning of local law) unless a “qualified domestic relations order” (as defined in Code Section 414(p)) provides otherwise, or

(C)there are other circumstances as the Secretary of the Treasury prescribes.

If the spouse is legally incompetent to give consent, consent by the spouse’s legal guardian shall be deemed to be consent by the spouse.

(d)If, subsequent to the death of a Participant, the Participant’s Beneficiary dies while entitled to receive benefits under the Plan, the successor Beneficiary, if any, or the Beneficiary listed under Subsection (b)(1) or, if no spouse is alive, Subsection (b)(2) shall be the Beneficiary.

1.6“Board of Directors” means the Board of Directors of the Primary Sponsor.

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1.7“Break in Service” means the failure of an Employee, in connection with a Termination of Employment other than by reason of death, Disability, or attainment of a Retirement Date, to complete more than 500 Hours of Service in any Plan Year.

1.8“Code” means the Internal Revenue Code of 1986, as amended.

1.9“Deferral Amount” means a contribution of a Plan Sponsor on behalf of a Participant pursuant to Section 3.1.

1.10“Delta Stock” means the common stock, par value $1.50 per share, of Delta Airlines, Inc.

1.11“Delta Stock Fund” means the Individual Fund under the Plan created to hold shares of Delta Stock.

1.12“Direct Rollover” means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee.

1.13“Disability” means a disability of a Participant within the meaning of Code Section 72(m)(7), to the extent that the Participant is, or would be, entitled to disability retirement benefits under the federal Social Security Act or to the extent that the Participant is entitled to recover benefits under any long term disability plan or policy maintained by the Plan Sponsor. The determination of whether or not a Disability exists shall be determined by the Plan Administrator and shall be substantiated by competent medical evidence.

1.14“Distributee” means an Employee or former Employee. In addition, the Employee’s or former Employee’s surviving spouse and the Employee’s or former Employee’s spouse or former spouse who is the alternate payee under a qualified domestic relations order (as defined in Code Section 414(p)), are Distributees with regard to the interest of the spouse or former spouse.

1.15“Elective Deferrals” means, with respect to any taxable year of the Participant, the sum of

(a)any Deferral Amounts;

(b)any contributions made by or on behalf of a Participant under any other qualified cash or deferred arrangement as defined in Code Section 401(k), whether or not maintained by a Plan Sponsor, to the extent such contributions are not or would not, but for Code Section 402(g)(1) be included in the Participant’s gross income for the taxable year; and

(c)any other contributions made by or on behalf of a Participant pursuant to Code Section 402(g)(3).

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1.16“Eligibility Service” means

(a)for the period beginning January 1, 1997 and ending September 30, 2000, a twelve-consecutive-month period during which the Employee completes no less than 1,000 Hours of Service beginning on the date on which the Employee first performs an Hour of Service upon his employment or reemployment with the Plan Sponsor or, in the event the Employee fails to complete 1,000 Hours of Service in that twelve-consecutive-month period, any Plan Year thereafter during which the Employee completes no less than 1,000 Hours of Service, including the Plan Year which includes the first anniversary of the date the Employee first performed an Hour of Service upon his employment or reemployment; and

(b)for the period beginning October 1, 2000, the completion of a ninety-consecutive-day period beginning on the date on which the Employee first performs an Hour of Service upon his employment or reemployment with the Plan Sponsor.

1.17“Eligible Employee” means any Employee of a Plan Sponsor compensated by a Plan Sponsor on a salaried basis other than an Employee who is

(a)covered by a collective bargaining agreement between a union and a Plan Sponsor, provided that retirement benefits were the subject of good faith bargaining, unless the collective bargaining agreement provides for participation in the Plan;

(b)a leased employee within the meaning of Code Section 414(n)(2);

(c)deemed to be an Employee of a Plan Sponsor pursuant to regulations under Code Section 414(o);

(d)a non-resident alien (within the meaning of Code Section 7701(b)(1)(B)) who received no earned income (within the meaning of Code Section 911(d)(2)) from a Plan Sponsor which constitutes income from sources within the United States (within the meaning of Code Section 861(a)(d)(3)); or

(e)initially classified by a Plan Sponsor as an independent contractor for federal income tax purposes for the period of such classification, regardless of any subsequent determination that any such person should have been characterized as a common law employee of the Plan Sponsor for such period.

1.18“Eligible Retirement Plan” means an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a) or a qualified trust described in Code Section 401(a) that accepts the Distributee’s Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity.

1.19“Eligible Rollover Distribution” means any distribution of all or any portion of the Distributee’s Account, except that an Eligible Rollover Distribution does not include: any

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distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and, effective for distributions made after December 31, 1999, any hardship distributions of Deferral Amounts pursuant to Section 7.1.

1.20“Employee” means any person who is

(a)a common law employee of a Plan Sponsor or an Affiliate;

(b)a leased employee within the meaning of Code Section 414(n)(2) with respect to a Plan Sponsor; or

(c)deemed to be an employee of a Plan Sponsor pursuant to regulations under Code Section 414(o).

For purposes of this Section, an Employee shall be deemed to be a leased employee within the meaning of Code Section 414(n)(2) if the individual is a person (other than an Employee of the recipient) who, pursuant to an agreement between the recipient and any other person, has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)), on a substantially full-time basis for a period of at least one (1) year, and such services are performed under the primary direction and control of the service recipient.

1.21“Entry Date” means (a) for the period beginning January 1, 1997 and ending on September 30, 2000, January 1 and July 1 of each Plan Year; and (b) for the period beginning October 1, 2000, “Entry Date” means January 1, April 1, July 1, and October 1.

1.22“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

1.23“Fiduciary” means each Named Fiduciary and any other person who exercises or has any discretionary authority or control regarding management or administration of the Plan, any other person who renders investment advice for a fee or has any authority or responsibility to do so with respect to any assets of the Plan, or any other person who exercises or has any authority or control respecting management or disposition of assets of the Plan.

1.24“Fund” means the amount at any given time of cash and other property held by the Trustee pursuant to the Plan.

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1.25“Highly Compensated Employee” means, with respect to a Plan Year, each Employee who:

(a)was at any time during the Plan Year or the immediately preceding Plan Year an owner of more than five percent (5%) of the outstanding stock of a Plan Sponsor or Affiliate or more than five percent (5%) of the total combined voting power of all stock of a Plan Sponsor or Affiliate;

(b)received Annual Compensation in excess of $80,000 during the immediately preceding Plan Year ($85,000 during the immediately preceding Plan Year for Plan Years beginning on or after January 1, 2000), which amount shall be adjusted for changes in the cost of living as provided in regulations issued by the Secretary of the Treasury; or

(c)is a former Employee who met the requirements of Subsection (a) or (b) at the time the former Employee separated from service with the Plan Sponsor or an Affiliate or at any time after the former Employee attained age 55.

1.26“Hour of Service” means:

(a)Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for a Plan Sponsor or any Affiliate during the applicable computation period, and such hours shall be credited to the computation period in which the duties are performed;

(b)Each hour for which an Employee is paid, or entitled to payment, by a Plan Sponsor or any Affiliate on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence;

(c)Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by a Plan Sponsor or any Affiliate, and such hours shall be credited to the computation period or periods to which the award or agreement for back pay pertains rather than to the computation period in which the award, agreement or payment is made; provided, that the crediting of Hours of Service for back pay awarded or agreed to with respect to periods described in Subsection (b) of this Section shall be subject to the limitations set forth in Subsection (f);

(d)Solely for purposes of determining whether a Break in Service has occurred, each hour during any period that the Employee is absent from work (1) by reason of the pregnancy of the Employee, (2) by reason of the birth of a child of the Employee, (3) by reason of the placement of a child with the Employee in connection with the adoption of the child by the Employee, or (4) for purposes of caring for such child for a period immediately following its birth or placement shall be credited (A) only in the computation period in which the absence from work begins, if the Employee would be prevented from incurring a Break in Service in that year solely because of that credit, or (B), in any other case, in the next following computation period;

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(e)Without duplication of the Hours of Service counted pursuant to Subsection (d) hereof and solely for such purposes as required pursuant to the Family and Medical Leave Act of 1993 and the regulations thereunder (the “FMLA”), each hour (as determined pursuant to the FMLA) for which an Employee is granted leave under the FMLA (1) for the birth of a child, (2) for placement with the Employee of a child for adoption or foster care, (3) to care for the Employee’s spouse, child or parent with a serious health condition, or (4) for a serious health condition that makes the Employee unable to perform the functions of the Employee’s job;

(f)The Plan Administrator shall credit Hours of Service in accordance with the provisions of Section 2530.200b-2(b) and (c) of the U.S. Department of Labor Regulations or such other federal regulations as may from time to time be applicable and determine Hours of Service from the employment records of a Plan Sponsor or in any other manner consistent with regulations promulgated by the Secretary of Labor, and shall construe any ambiguities in favor of crediting Employees with Hours of Service. Notwithstanding any other provision of this Section, in no event shall an Employee be credited with more than 501 Hours of Service during any single continuous period during which he performs no duties for the Plan Sponsor or Affiliate; and

(g)In the event that a Plan Sponsor or an Affiliate acquires substantially all of the assets of another corporation or entity or a controlling interest of the stock of another corporation or merges with another corporation or entity and is the surviving entity, then service of an Employee who was employed by the prior corporation or entity and who is employed by the Plan Sponsor or an Affiliate at the time of the acquisition or merger shall be counted in the manner provided, with the consent of the Primary Sponsor, in resolutions adopted by the Plan Sponsor which authorizes the counting of such service.

Notwithstanding the foregoing, solely for purposes of determining Hours of Service for Eligible Employees who are designated as “flight crew employees,” each hour for which such an Employee is paid, or entitled to payment, pursuant to this Section while designated as a “flight crew employee” shall be multiplied by 2.2857.

1.27“Individual Fund” means individual subfunds of the Fund as may be established by the Plan Administrator from time to time for the investment of the Fund.

1.28“Investment Committee” means a committee, which may be established to direct the Trustee with respect to investments of the Fund.

1.29“Investment Manager” means a Fiduciary, other than the Trustee, the Plan Administrator, or a Plan Sponsor, who may be appointed by the Primary Sponsor:

(a)who has the power to manage, acquire, or dispose of any assets of the Fund or a portion thereof; and

(b)who

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(1)is registered as an investment adviser under the Investment Advisers Act of 1940;

(2)is a bank as defined in the Investment Advisers Act of 1940; or

(3)is an insurance company qualified to perform services described in Subsection (a) above under the laws of more than one state; and

(c)who has acknowledged in writing that he is a Fiduciary with respect to the Plan.

1.30“Named Fiduciary” means only the following:

(a)the Plan Administrator;

(b)the Trustee;

(c)the Investment Committee; and

(d)the Investment Manager.

1.31“Normal Retirement Age” means (a) age 65 for all Participants other than those described in Subsection (b) of this Section, and (b) age 60 for Participants designated as flight crew employees operating aircraft under FAR Part 121.

1.32“Participant” means any Employee or former Employee who has become a participant in the Plan for so long as his vested Account has not been fully distributed pursuant to the Plan.

1.33“Plan Administrator” means the organization or person designated to administer the Plan by the Primary Sponsor and, in lieu of any such designation, means the Primary Sponsor.

1.34“Plan Sponsor” means individually the Primary Sponsor and any Affiliate or other entity which has adopted the Plan and Trust.

1.35“Plan Year” means the calendar year.

1.36“Retirement Date” means the date on which the Participant terminates employment on or after reaching Normal Retirement Age.

1.37“Rollover Amount” means any amount transferred to the Fund by a Participant, which amount qualifies as an Eligible Rollover Distribution under Code Section 402(c)(4), or for rollover treatment under Code Sections 403(a)(4) or 408(d)(3)(A)(ii), and any regulations issued thereunder.

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1.38“Termination Completion Date” means the last day of the fifth consecutive Break in Service computation period, determined under the Plan Section which defines Break in Service, in which a Participant completes a Break in Service.

1.39“Termination of Employment” means the termination of employment of an Employee from all Plan Sponsors and Affiliates for any reason other than death or attainment of a Retirement Date. Any absence from active employment of the Plan Sponsor and Affiliates by reason of an approved leave of absence shall not be deemed for any purpose under the Plan to be a Termination of Employment. Transfer of an Employee from one Plan Sponsor to another Plan Sponsor or to an Affiliate shall not be deemed for any purpose under the Plan to be a Termination of Employment. In addition, transfer of an Employee to another employer in connection with a corporate transaction involving a sale of assets, merger or sale of stock, shall not be deemed to be a Termination of Employment, for purposes of the timing of distributions under Plan Section 8.1, if the employer to which such Employee is transferred agrees with the Plan Sponsor to accept a transfer of assets from the Plan to its tax-qualified plan in a trust-to-trust transfer meeting the requirements of Code Section 414(l). If the employer to which such Employee is transferred does not agree to accept a transfer of assets from the Plan to its tax-qualified Plan, Plan Section 8.6 is applicable in the event that such Termination of Employment is not a distributable event under Code Section 401(k)(10)(A).

1.40“Trust” means the trust established under an agreement between the Primary Sponsor and the Trustee to hold the Fund or any successor agreement.

1.41“Trustee” means the trustee under the Trust.

1.42“Valuation Date” means each day on which the New York Stock Exchange is open for business or any other day which the Plan Administrator declares to be a Valuation Date.

1.43“Year of Vesting Service” means each Plan Year during which an Employee completes no less than 1,000 Hours of Service. Notwithstanding anything contained herein to the contrary, Vesting Service shall not include:

(a)In the case of an Employee who completes five consecutive Breaks in Service for purposes of determining the vested portion of his Account derived from Plan Sponsor contributions which accrued before his Termination Completion Date, all service in Plan Years after his Termination Completion Date.

(b)In the case of an Employee who completes five consecutive Breaks in Service and at that time does not have any vested right in Plan Sponsor contributions, all service before those Breaks in Service commenced.

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ARTICLE 2

ELIGIBILITY

2.1New Hires. Each Eligible Employee shall become a Participant as of the Entry Date coinciding with or next following the date he completes his Eligibility Service.

2.2Existing Participants. Each individual who was a Participant on December 31, 1996 shall continue to be a Participant as of January 1, 1997.

2.3Former Participants Rehired. Each former Participant who is reemployed by a Plan Sponsor shall become a Participant as of the date of his reemployment as an Eligible Employee.

2.4Former Employees Rehired. Each former Employee who completes his Eligibility Service but terminates employment with a Plan Sponsor before becoming a Participant shall become a Participant as of the latest of the date he:

(a)is reemployed;

(b)would have become a Participant if he had not incurred a Termination of Employment; or

(c)becomes an Eligible Employee.

ARTICLE 3

CONTRIBUTIONS

3.1(a)Deferral Amounts. The Plan Sponsor shall make a contribution to the Fund on behalf of each Participant who is an Eligible Employee and has elected to defer a portion of Annual Compensation otherwise payable to him for the Plan Year and to have such portion contributed to the Fund. The election must be made before the Annual Compensation is payable and may only be made pursuant to an agreement between the Participant and the Plan Sponsor which shall be in such form and subject to such rules and limitations as the Plan Administrator may prescribe and shall specify the percentage of Annual Compensation that the Participant desires to defer and to have contributed to the Fund. Once a Participant has made an election for a Plan Year, the Participant may revoke or modify his election to increase or reduce the rate of future deferrals, as provided in accordance with the administrative procedures provided by the Plan Administrator. Any increase or reduction in deferrals will be effective on the first day of the calendar quarter following the Plan Administrator’s receipt of the Participant’s request. A Participant may revoke his election and discontinue his deferrals at any time in accordance with the administrative procedures provided by the Plan Administrator. The revocation will be effective for the first payroll period following the Plan Administrator’s receipt of the Participant’s request. The contribution made by a Plan Sponsor on behalf of a Participant under this Section 3.1 shall be in one percent (1%)

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increments in an amount equal to the amount specified in the Participant’s deferral agreement, but not in excess of twenty percent (20%) of the Participant’s Annual Compensation. Pursuant to Section 4 of Appendix C, the Plan Administrator may restrict the amount which Highly Compensated Employees may defer under this Section 3.1.

(b)Limits on Deferral Amounts. Elective Deferrals shall in no event exceed $9,500 (for 1997) in any one taxable year of the Participant, which amount shall be adjusted for changes in the cost of living as provided by the Secretary of the Treasury. In the event the amount of Elective Deferrals exceeds $9,500 (for 1997) as adjusted, in any one taxable year then, (1) not later than the immediately following March 1, the Participant may designate to the Plan the portion of the Participant’s Deferral Amounts which consist of excess Elective Deferrals, and (2) not later than the immediately following April 15, the Plan may distribute the amount designated to it under Paragraph (1) above, as adjusted to reflect income, gain, or loss attributable to it through the end of the Plan Year, and reduced by any “Excess Deferral Amounts,” as defined in Appendix C hereto, previously distributed or recharacterized with respect to the Participant for the Plan Year beginning with or within that taxable year. The payment of the excess Elective Deferrals, as adjusted and reduced, from the Plan shall be made to the Participant without regard to any other provision in the Plan. In the event that a Participant’s Elective Deferrals exceed $9,500, as adjusted, in any one taxable year under the Plan and other plans of the Plan Sponsor and its Affiliates, the Participant shall be deemed to have designated for distribution under the Plan the amount of excess Elective Deferrals, as adjusted and reduced, by taking into account only Elective Deferral amounts under the Plan and other plans of the Plan Sponsor and its Affiliates.

3.2Matching Contributions. The Plan Sponsor proposes to make contributions to the Fund with respect to each Plan Year on behalf of each Participant who is an Eligible Employee entitled to an allocation under Plan Section 4.1(b) in an amount equal to a percentage, as determined by the Plan Sponsor, of the Participant’s Annual Compensation deferred by the Participant pursuant to Section 3.1, to the extent the contribution under Plan Section 3.1 does not exceed six percent (6%) of his Annual Compensation.

3.3Forfeitures. Forfeitures shall be used to reduce Plan Sponsor contributions made for the Plan Year in which the forfeitures arose or the following Plan Year and not to increase benefits.

3.4Rollover Contributions. Any Eligible Employee may, with the consent of the Plan Administrator and subject to such rules and conditions as the Plan Administrator may prescribe, transfer a Rollover Amount to the Fund; provided, however, that the Plan Administrator shall not administer this provision in a manner which is discriminatory in favor of Highly Compensated Employees.

3.5Form of Contributions. Contributions may be made only in cash or other property which is acceptable to the Trustee. In no event will the sum of contributions under Plan Sections 3.1 and 3.2 exceed the deductible limits under Code Section 404.

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3.6Military Service. Effective December 12, 1994, notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code.

3.7Corrective Actions. Notwithstanding any provision of the Plan to the contrary, the Plan Sponsor may make corrective distributions, contributions, allocations or other remedial actions as required or permitted to comply with any program promulgated by the Internal Revenue Service or the U.S. Department of Labor.

ARTICLE 4

ALLOCATIONS

4.1(a)Allocation of Deferral Amounts. As soon as reasonably practicable following the date of withholding by the Plan Sponsor, if applicable, and receipt by the Trustee, Plan Sponsor contributions made on behalf of each Participant under Plan Section 3.1 andRollover Amounts contributed by the Participant, shall be allocated to the Deferred Accountand Rollover Account, respectively, of the Participant on behalf of whom the contributions were made.

(b)Allocation of Matching Contributions. As of the last day of the Plan Year, Plan Sponsor contributions made under Section 3.2 and forfeitures used to reduce Plan Sponsor matching contributions, if any, for a Plan Year shall be allocated to the Matching Account of each Participant who is employed by a Plan Sponsor on the last day of the Plan Year who has completed at least 1,000 Hours of Service during the Plan Year. The matching contribution for each Plan Year, if any, shall be allocated to each eligible Participant based on his Completed Years of Service. The matching contribution for each eligible Participant shall be determined by multiplying the aggregate matching contribution made by the Plan Sponsor by the ratio of the weighted amount of Deferral Amounts of the Participant for the Plan Year to the weighted amount of Deferral Amounts of all Participants for the Plan Year. The weighted amount of Deferral Amounts is determined by multiplying the Participant’s Deferral Amounts, excluding Deferral Amounts in excess of six percent (6%) of Annual Compensation, by the appropriate percentage as provided in the following schedules, as applicable:

(i)for the period beginning January 1, 1997 and ending July 31, 1998:

Completed Years of Service	Percentage
Less than 1	0	%
1	40	%
2	60	%
3	80	%
4 or more	100	%

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(ii)for the period beginning August 1, 1998,

Completed Years of Service	Percentage
Less than 1	20	%
2	30	%
3	40	%
4 or more but less than 7	50	%
7 or more	75	%

For purposes of the Section, “Completed Years of Service” means the number of full years from the Employee’s date of hire to the date on which his vested percentage is being determined.

4.2Allocation of Earnings. As of each Valuation Date, the Trustee shall allocate the net income or net loss of each Individual Fund to each Account in the proportion that the value of the Account as of the Valuation Date bears to the value of all Accounts invested in that Individual Fund as of the Valuation Date.

ARTICLE 5

INDIVIDUAL FUNDS AND INVESTMENTS OF TRUST ASSETS

5.1Participant Direction of Contributions. Until such time as the Plan Administrator may direct otherwise, each Participant may direct the Plan Administrator to invest contributions to his Account in one or more Individual Funds, including the Delta Stock Fund, as the Participant shall designate by providing notice to the Plan Administrator according to the procedures established by the Plan Administrator for that purpose.

(a)All investment directions, or changes in investment directions, of contributions shall be made in multiples of one percent (1%) in accordance with the procedures established by the Plan Administrator. New investment directions shall be effective as of the date that such directions are process by the Plan Administrator in accordance with the procedures established for such purpose.

(b)An investment direction, once given, shall be deemed to be a continuing direction until changed as otherwise provided herein. If no direction is effective for the date a contribution is to be made, all contributions which are to be made for such date shall be invested in such Individual Fund as the Plan Administrator, the Investment Manager, the Investment Committee, or the Trustee, as applicable, may determine. To the extent permissible by law, no Fiduciary shall be liable for any loss, which results from a Participant’s exercise or failure to exercise his investment election.

5.2Participant Directions to Transfer Among Individual Funds. A Participant may elect according to the procedures established by the Plan Administrator to transfer, in multiples of one percent (1%), his Account among Individual Funds. An election under this Section 5.2

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shall be effective as of the date that such directions are processed by the Plan Administrator in accordance with the procedures established for such purpose.

5.3A Participant who makes an election pursuant to Section 5.1 or Section 5.2 may apply the new investment direction to his current Account, all future contributions, or both his current Account and all future contributions.

5.4Loan Fund. A Loan Fund shall be established by the Trustee on behalf of each Participant for whom a loan is made pursuant to Article 6. The Loan Fund shall be credited with the amount of any loan made by the Plan to the Participant and shall be debited with all principal and interest repayments of any such loans. Under rules established by the Plan Administrator, a Participant’s interest in the Individual Funds shall be debited by the amount credited to the Participant’s Loan Fund. All principal and interest repayments debited to the Loan Fund shall be invested as contributions to the Participant’s Account pursuant to Section 5.1. Each Loan Fund shall be invested in a note or notes made by the Participant evidencing the promised repayment of monies loaned to the Participant from the Fund.

5.5Employer Securities. The Trustee may acquire and hold shares of Delta Stock and other “qualifying employer securities” (within the meaning of Code Section 4975(e)(8)) which are (a) shares of common stock issued by the Primary Sponsor or a corporation which is a member of a controlled group of corporations which includes the Primary Sponsor (within the meaning of Code Section 1563(a), determined without regard to Code Sections 1563(a)(4) and (e)(3)(C)), which are readily tradeable on an established securities market or, if there is no such common stock, shares of common stock issued by the Primary Sponsor or a corporation which is a member of a controlled group of corporations which includes the Primary Sponsor (within the meaning of Code Section 1563(a), determined without regard to Code Sections 1563(a)(4) and (e)(3)(C)), which have voting power and dividend rights no less favorable than the voting power and dividend rights of any other common stock issued by the Primary Sponsor or the corporation, or (b) shares of noncallable preferred stock issued by the Primary Sponsor, which are at all times immediately convertible into stock described in (a) above at a reasonable conversion price.

5.6404(c) Protection. Each Member’s investment direction to the Plan Administrator with respect to his Account shall be in a manner compliant with the requirements of ERISA Section 404(c) and the regulations issued thereunder.

ARTICLE 6

PLAN LOANS

6.1Eligible Individuals. Subject to the provisions of the Plan and the Trust, each Participant who is an Employee shall have the right, subject to prior approval by the Plan Administrator, to borrow from the Fund. In addition, each “party in interest,” as defined in ERISA Section 3(14), who is (a) a Participant but no longer an Employee, (b) the Beneficiary of a deceased Participant, or (c) an alternate payee of a Participant pursuant to the provisions of a “qualified domestic relations order,” as defined in Code Section 414(p), shall also have the right,

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subject to prior approval by the Plan Administrator, to borrow from the Fund; provided, however, that loans to such parties in interest may not discriminate in favor of Highly Compensated Employees.

6.2Application. In order to apply for a loan, a borrower must complete and submit to the Plan Administrator documents or information required by the Plan Administrator for this purpose.

6.3Equivalent Basis. Loans shall be available to all eligible borrowers on a reasonably equivalent basis which may take into account the borrower’s creditworthiness, ability to repay, and ability to provide adequate security. Loans shall not be made available to Highly Compensated Employees, officers or shareholders of a Plan Sponsor in an amount greater than the amount made available to other borrowers. This provision shall be deemed to be satisfied if all borrowers have the right to borrow the same percentage of their interest in the Participant’s vested Account, notwithstanding that the dollar amount of such loans may differ as a result of differing values of Participants’ vested Accounts.

6.4Interest Rate. Each loan shall bear a “reasonable rate of interest” and provide that the loan be amortized in substantially level payments, made no less frequently than quarterly, over a specified period of time. A “reasonable rate of interest” shall be that rate that provides the Plan with a return commensurate with the interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances. Notwithstanding the foregoing, to the extent that any loan interest rate is subject to the provisions of the Soldiers and Sailors Relief Act of 1940, it shall not exceed six percent (6%) per annum.

6.5Security. Each loan shall be adequately secured, with the security for the outstanding balance of all loans to the borrower to consist of one-half (½) of the borrower’s interest in the Participant’s vested Account, or such other security as the Plan Administrator deems acceptable.

6.6Loan Limit. Each loan, when added to the outstanding balance of all other loans to the borrower from all retirement plans of the Plan Sponsor and its Affiliates which are qualified under Section 401 of the Code, shall not exceed the least of:

(a)$25,000, reduced by the excess, if any, of

(1)the highest outstanding balance of loans made to the borrower from all retirement plans qualified under Code Section 401 of the Plan Sponsor and its Affiliates during the one (1) year period immediately preceding the day prior to the date on which such loan was made, over

(2)the outstanding balance of loans made to the borrower from all retirement plans qualified under Code Section 401 of the Plan Sponsor and its Affiliates on the date on which such loan was made;

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(b)one-half (½) of the value of the borrower’s interest in the Account attributable to the Participant’s Deferred Account and Rollover Account (excluding any amounts made subject to a qualified domestic relations order as defined in Code Section 414(p)); or

(c)the amount that produces a monthly repayment of principal and interest that equals twenty-five percent (25%) of the Participant’s monthly salary at the time the loan is taken.

For purposes of this Section, the value of the Participant’s Account attributable to a Participant’s Deferred Account and Rollover Account shall be established as of the latest preceding Valuation Date, or any later date on which an available valuation was made, and shall be adjusted for any distributions or contributions made through the date of the origination of the loan.

6.7Loan Term. Each loan, by its terms, shall be repaid within five (5) years;

6.8Minimum Amount. Each loan shall be made in an amount of no less than $1,000.

6.9Limit on Number of Loans. A borrower is permitted to have only one loan existing under this Plan at any one time and only one loan will be permitted for a borrower in a twelve-consecutive-month period.

6.10Certain Leaves of Absence. If a borrower incurs an unpaid leave of absence for a period of one (1) year or less, the Plan Administrator may freeze the borrower’s loan status and the loan will be reamortized upon the borrower’s return to work. In this event, the limitation provided in Section 6.6(c) with respect to twenty-five percent (25%) of the borrower’s monthly salary will be waived for purposes of reamortization.

6.11Default. The loan shall be in default if:  (a) a borrower fails to make any loan payment when due; (b) a Participant ceases to be an Employee and is not otherwise a “party in interest” as defined in ERISA Section 3(14); (c) the vested Account held as security under the Plan for the borrower will, as a result of an impending distribution or withdrawal, be reduced to an amount less than the amount of all unpaid principal and accrued interest then outstanding under the loan; (d) a borrower makes any untrue representations or warranties in connection with the obtaining of the loan; or (e) a Participant becomes subject to a bankruptcy proceeding or the appointment of a receiver. In that event, the Plan Administrator may take such steps as it deems necessary to preserve the assets of the Plan (in the case of Subsection (a), after any cure period allowed by the Plan Administrator, if applicable, not to continue beyond the last day of the calendar quarter following the calendar quarter in which the required installment payment was due), including, but not limited to, directing the Trustee to make a distribution to the borrower of an offset amount (i.e., a deduction of the unpaid principal sum, accrued interest, and any other applicable charge under the note evidencing the loan from the Participant’s Account). To the extent that such distribution of an offset amount in the case of Subsection (a) would violate the requirements of Section 401(a) or 401(k) (because for example, the deduction would have to be made from the Participant’s Deferred Account while the Participant is an Employee), the entire outstanding balance of the loan (including accrued interest) shall be a deemed distribution as

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provided in Treasury Regulations under Code Section 72(p), and thereafter a distribution of an offset amount may be made at the earliest date legally permissible or deferred, at the Plan Administrator’s discretion applied on a basis not discriminating in favor of Highly Compensated Employees, until the borrower receives another distribution from the Plan. If any part of the indebtedness under the note evidencing the loan is collected by law or through an attorney, the borrower shall be liable for attorneys’ fees in an amount equal to ten percent (10%) of the amount then due and all costs of collection.

Notwithstanding the foregoing, a loan may be satisfied upon a Participant’s Termination of Employment arising from the Participant’s transfer to another employer (other than a Plan Sponsor or Affiliate) in connection with a corporate transaction involving a sale of assets, merger, or sale of stock, by distributing the note evidencing the debt as part of an Eligible Rollover Distribution if the trustee, custodian, or administrator for the Eligible Retirement Plan indicates its willingness to accept such property.

6.11Regulation. Each loan shall be made only in accordance with regulations and rulings of the Internal Revenue Service and the Department of Labor and any supplemental loan procedures established by the Plan Administrator. The Plan Administrator shall be authorized to administer the loan program of this Section and shall act in his sole discretion to ascertain whether the requirements of such regulations and rulings and this Section have been met.

ARTICLE 7

WITHDRAWALS DURING EMPLOYMENT

7.1Hardship Withdrawal. The Trustee shall, upon the direction of the Plan Administrator, withdraw all or a portion of a Participant’s Deferred Account consisting of Deferral Amounts (but not earnings thereon) prior to the time such account is otherwise distributable in accordance with the other provisions of the Plan; provided, however, that any such withdrawal shall be made only if the Participant is an Employee and demonstrates that he is suffering from “hardship” as determined herein. For purposes of this Section, a withdrawal will be deemed to be an account of hardship if the withdrawal is on account of:

(a)expenses for medical care described in Code Section 213(d) incurred by the Participant, his spouse, or any dependents of the Participant (as defined in Code Section 152) or necessary for these persons to obtain medical care described in Code Section 213(d);

(b)purchase (excluding mortgage payments) of a principal residence for the Participant;

(d)payment of tuition and related educational fees for the next twelve (12) months of post-secondary education for the Participant, his spouse, children, or dependents;

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(e)the need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant’s principal residence; or

(f)any other contingency determined by the Internal Revenue Service to constitute an “immediate and heavy financial need” within the meaning of Treasury Regulations Section 1.401(k)-l(d).

7.2Additional Hardship Withdrawal Requirements. In addition to the requirements set forth in Section 7.1,any withdrawal pursuant to Section 7.1 shall not be in excess of the amount necessary to satisfy the need determined under Section 7.1and shall also be subject to the requirements of either 7.2(a) or 7.2(b).

(a)(1)The Participant shall first obtain all withdrawals, other than hardship withdrawals, and all nontaxable loans currently available under all plans maintained by the Plan Sponsor;

(2)the Plan Sponsor shall not permit Elective Deferrals or after-tax employee contributions to be made to the Plan or any other plan maintained by the Plan Sponsor, for a period of twelve (12) months after the Participant receives the withdrawal pursuant to this Section; and

(3)the Plan Sponsor shall not permit Elective Deferrals to be made to the Plan or any other plan maintained by the Plan Sponsor for the Participant’s taxable year immediately following the taxable year of the hardship withdrawal in excess of the limit under Plan Section 3.1(b) for the taxable year, less the amount of the Elective Deferrals made to the Plan or any other plan maintained by the Plan Sponsor for the taxable year in which the withdrawal under this Section occurs.

(b)A hardship withdrawal shall be permitted only pursuant to the suspension method in Section 7.2(a) and not pursuant to the certification method in this Section 7.2(b), unless the Plan Administrator permits a hardship withdrawal pursuant to either Section 7.2(a) or 7.2(b). Under the certification method, a hardship withdrawal is permitted if the Plan Administrator relies on the Participant’s certification by execution of a form provided by the Plan Administrator, unless the Plan Administrator has actual knowledge to the contrary, that the need determined under Plan Section 6.1 cannot be relieved

(1)through reimbursement or compensation by insurance or otherwise,

(2)by reasonable liquidation of the assets of the Participant, his spouse and minor children, to the extent that the liquidation would not itself cause an immediate and heavy financial need and to the extent that the assets of the spouse and minor children are reasonably available to the Participant,

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(3)by cessation of Elective Deferrals, or

(4)by other distributions or nontaxable (at the time of the distribution) loans from plans maintained by the Plan Sponsor or any other employer, or by borrowing from commercial sources on reasonable commercial terms.

Such withdrawals shall be made only in accordance with such other rules, policies, procedures, restrictions, and conditions as the Plan Administrator may from time to time adopt. Any determination of the existence of hardship and the amount to be withdrawn on account thereof shall be made by the Plan Administrator (or such other person as may be required to make such decisions) in accordance with the foregoing rules as applied in a uniform and nondiscriminatory manner; provided that, unless the Participant requests otherwise, any such withdrawal shall include the amount necessary to pay any federal, state and local income taxes and penalties reasonably anticipated to result from the withdrawal. A withdrawal under this Section shall be made in a lump sum to the Participant.

7.3Account Transfers to Plans Sponsored by Affiliates. In the event that a Participant terminates his employment with the Primary Sponsor and is no longer eligible to receive an allocation under Section 4 hereof and becomes an employee of an Affiliate, such Participant may elect to transfer the value of his Account under the Plan to the qualified plan sponsored by such Affiliate. Notwithstanding the foregoing, a Participant’s Account may not be transferred to the plan of an Affiliate without the Participant’s voluntary and informed election as described in Treasury Regulation Section 1.411(d)-4, Q&A-3(b)(1)(i). Alternatively, the Participant must be provided the opportunity to retain the benefits, rights, and features protected under Section 411(d)(6) of the Code with respect to any transferred amounts. The transferred amount shall be paid in the form of a cash lump-sum payment plus a direct transfer in kind of any outstanding Participant loans. Such transfer shall be made pursuant to the procedures established by the Plan Administrator, and may only be made with the consent of the plan administrator of the plan into which the transfer is being made.

ARTICLE 8

PAYMENT OF BENEFITS ON TERMINATION OF EMPLOYMENT

8.1Eligibility for Payment. A Participant who has a Termination of Employment shall be eligible to receive payment of his vested Account as soon as administratively practicable after the Participant’s Termination of Employment.

8.2Vesting. That portion of a Participant’s Account in which he is vested at any given time shall be:

(a)his Deferred Account and Rollover Account, which shall be fully vested and nonforfeitable at all times; and

(b)his Matching Account computed according to the following vesting schedule:

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Years of Vesting Service	Percentage Vested
Less than 1	0	%
1	10	%
2	20	%
3	30	%
4	40	%
5	60	%
6	80	%
7 or more	100	%

If a Participant receives a distribution from these accounts at any time when the Participant is less than one hundred percent (100%) vested then until the earlier of the date the Participant forfeits his nonvested Account or the Participant’s Termination Completion Date, the vested portion of these accounts of the Participant at any time shall be equal to “X” computed according to the formula X=P(AB+D)-D. For purposes of the formula, “P” is the vested percentage at the relevant time, “AB” is the Account balance at the relevant time, and “D” is the amount of the distribution(s).

8.3Cash-out/Buyback.

(a)The nonvested portion of the Account of a Participant who has had a Termination of Employment shall be forfeited as of the earlier of the date the Participant receives a distribution of the vested portion of his Account or the Participant’s Termination Completion Date. For such purposes, a Participant who has had a Termination of Employment and who is not vested in any portion of his Account, the Participant shall be deemed to have received a distribution of his Account.

(b)If a Participant who has received (or has been deemed to have received) a distribution of the vested portion of his Account is reemployed by a Plan Sponsor or an Affiliate prior to his Termination Completion Date and (1) if the Participant’s Account was partially vested, and the Participant repays to the Fund no later than the fifth anniversary of the Participant’s reemployment by the Plan Sponsor or an Affiliate all of that portion of his vested Account which was paid to him or (2) if the Participant’s Account was not vested upon his Termination of Employment, then any portion of his Account which was forfeited shall be restored effective on the Valuation Date coinciding with or next following the repayment or the Participant’s reemployment, respectively. The restoration on any Valuation Date of the forfeited portion of the Account of a Participant pursuant to the preceding sentence shall be made first from forfeitures available for allocation on that Valuation Date, to the extent available, and secondly from contributions by the Plan Sponsor. Only after restorations have been made shall the remaining net income be available for allocation under Section 4.

8.4Changes to Vesting Schedule. If a Plan amendment directly or indirectly changes the vesting schedule, the vesting percentage for each Participant in his Account accumulated to

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the date when the amendment is adopted shall not be reduced as a result of the amendment. In addition, any Participant with at least three (3) years of Vesting Service may irrevocably elect to remain under the pre-amendment vesting schedule with respect to all of his benefits accrued both before and after the amendment.

8.5Suspension for Rehires. If a Participant has a Termination of Employment and is subsequently reemployed by a Plan Sponsor or an Affiliate prior to receiving a distribution of his Account under the Plan, such Participant shall not be entitled to a distribution under this Section while he is an Employee.

8.6Suspension for Nondistributable Events. If a Participant has a Termination of Employment which is not a distributable event as provided under Code Section 401(k)(10)(A), the Plan Sponsor is not required to distribute such Participant’s Account to the Participant prior to the time for distribution as otherwise provided under the Plan.

ARTICLE 9

PAYMENT OF BENEFITS ON RETIREMENT OR DISABILITY

9.1Eligibility for Payment. A Participant who has reached a Retirement Date or incurs a Disability while an Employee shall be eligible to receive payment of his Account as soon as administratively practicable thereafter.

9.2Vesting. The Account of a Participant who has reached a Retirement Date, has attained Normal Retirement Age while employed, or has incurred a Disability while employed shall be fully vested and nonforfeitable.

ARTICLE 10

DEATH BENEFITS

10.1Eligibility for Payment. If a Participant dies before receiving a distribution of his vested Account, his Beneficiary shall be eligible to receive payment for the Participant’s vested Account in a cashlump sum paymentas soon as administratively practicable following the death of the Participant. If a Participant dies after beginning to receive a distribution of his vested Account, his Beneficiary shall continue to receive the undistributed portion of his vested Account in the form selected by the Participant before his death.

10.2Vesting. Accounts of deceased Participants shall be vested to the extent provided pursuant to Article 8 or 9, as applicable. In addition, the Account of a Participant who dies while an Employee shall be fully vested.

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ARTICLE 11

GENERAL RULES ON DISTRIBUTIONS

11.1Timing and Form.

(a)If the vested Account balance of a Participant or a Beneficiary of a deceased Participant (in the case of a deceased Participant who did not begin to receive payment of his vested Account balance before his death) is $3,500 or less ($5,000 effective March 27, 1998), it shall be distributed in one lump sum as soon as administratively practicable after the Participant or Beneficiary is eligible for a distribution pursuant to Article 8, 9, or 10, as applicable.

(b)If the vested Account balance of a Participant or a Beneficiary of a deceased Participant (in the case of a deceased Participant who did not begin to receive payment of his vested Account balance before his death) exceeds $3,500 ($5,000 effective March 27, 1998) and the Participant or Beneficiary is eligible for a distribution pursuant to Article 8, 9, or 10 as applicable, the Participant or Beneficiary will receive payment in the form of a lump sum, unless the Participant elects to receive payment of the Account in one of the forms listed below as soon as administratively practicable after the Participant’s or Beneficiary’s written request to the Plan Administrator for payment of the vested Account balance.

(1)a lump-sum payment;

(2)payment in five (5) annual installments; or

(3)payment in ten (10) annual installments, provided that this form of payment shall not be available if payment would extend over a period exceeding the life expectancy of the Participant or the joint lives of the Participant and his Beneficiary.

No distribution of the vested Account balance of such a Participant will be made without his request before he reaches Normal Retirement Age.

(c)Payment of a Participant’s vested Account to the Participant will commence not later than sixty (60) days after the last day of the Plan Year in which falls the later of (1) the Participant reaching the earlier of Normal Retirement Age, or (2) the Participant reaching a Retirement Date or becoming subject to a Disability while an Employee; provided, however, that the distribution will be made at a later date specified by the Participant (subject to Section 11.4) if the Participant requests to delay the distribution. If the amount of the payment required to commence on the date determined under this Subsection cannot be ascertained by such date, or if it is not possible to make such payment on such date because the Plan Administrator has been unable to locate the Participant after making reasonable efforts to do so, a payment retroactive to such date

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may be made no later than sixty (60) days after the earliest date in which the amount of such payment can be ascertained for the date on which the Participant is located.

11.2Adjustments for Income. Except for installment distributions,Accounts shall not be adjusted for earnings or losses incurred after the Valuation Date with respect to which the Account is valued for imminent payout purposescoinciding with or preceding the date of distribution of the Account. Except as provided in Section 6.11, prior to distribution of an Account, the Account shall be reduced by the amount necessary to satisfy the unpaid principal, accrued interest, and penalties on any loan made to the Participant. Notwithstanding the foregoing, in the event of a plan-to-plan transfer described in Section 7.3 above, the Account shall not be reduced by the outstanding loan, but the Account (with the loan intact) shall be transferred to the recipient plan.

11.3Direct Rollovers. Notwithstanding any provisions of the Plan to the contrary that would otherwise limit a Distributee’s election under this Article 11, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of a distribution pursuant to this Section which is an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover so long as all Eligible Rollover Distributions to a Distributee for a calendar year total or are expected to total at least $200 and, in the case of a Distributee who elects to directly receive a portion of an Eligible Rollover Distribution and directly roll the balance over to an Eligible Retirement Plan, the portion that is to be directly rolled over totals at least $500. If the Eligible Rollover Distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such Eligible Rollover Distribution may commence less than thirty (30) days after the notice required under Treasury Regulations Section 1.411(a)-11(c) is given, provided that:

(a)the Plan Administrator clearly informs the Distributee that the Distributee has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and

(b)the Distributee, after receiving the notice, affirmatively elects a distribution.

11.4Required Minimum Distributions. Notwithstanding any other provisions of the Plan,

(a)Prior to the death of a Participant, all retirement payments hereunder shall

(1)be distributed to the Participant not later than the required beginning date (as defined below) or,

(2)be distributed, commencing not later than the required beginning date (as defined below) –

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(A)in accordance with regulations prescribed by the Secretary of the Treasury, over the life of the Participant or over the lives of the Participant and his designated individual Beneficiary, if any, or

(B)in accordance with regulations prescribed by the Secretary of the Treasury, over a period not extending beyond the life expectancy of the Participant or the joint life and last survivor expectancy of the Participant and his designated individual Beneficiary, if any.

(b)(1)If –

(A)the distribution of a Participant’s retirement payments have begun in accordance with Subsection (a)(2) of this Section, and

(B)the Participant dies before his entire vested Account has been distributed to him,

then the remaining portion of his vested Account shall be distributed at least as rapidly as under the method of distribution being used under Subsection (a)(2) of this Section as of the date of his death.

(2)If a Participant dies before the commencement of retirement payments hereunder, the entire interest of the Participant shall be distributed within five (5) years after his death.

(3)If –

(A)any portion of a Participant’s vested Account is payable to or for the benefit of the Participant’s designated individual Beneficiary, if any,

(B)that portion is to be distributed, in accordance with regulations prescribed by the Secretary of the Treasury, over the life of the designated individual Beneficiary or over a period not extending beyond the life expectancy of the designated individual Beneficiary, and

(C)the distributions begin not later than one (1) year after the date of the Participant’s death or such later date as the Secretary of the Treasury may by regulations prescribe,

then, for purposes of Paragraph (2) of this Subsection (b), the portion referred to in Subparagraph (A) of this Paragraph (3) shall be treated as distributed on the date on which the distributions to the designated individual Beneficiary begin.

(4)If the designated individual Beneficiary referred to in Paragraph (3)(A) of this Subsection (b) is the surviving spouse of the Participant, then –

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(A)the date on which the distributions are required to begin under Paragraph (3)(C) of this Subsection (b) shall not be earlier than the date on which the Participant would have attained age 70½, and

(B)if the surviving spouse dies before the distributions to such spouse begin, this Subsection (b) shall be applied as if the surviving spouse were the Participant.

(c)For purposes of this Section, the term “required beginning date” means April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70½ or the calendar year in which the Participant retires, except that in the case of a person described in Section l(b)(3) of Appendix B the “required beginning date” shall be April 1 of the calendar year following the calendar year in which the Participant attains age 70½.  Notwithstanding the foregoing, with respect to a Participant who attains age 70½ prior to January 1, 2003, such Participant may elect to receive minimum required distributions in accordance with Section 401(a)(9) as in effect prior to January 1, 1997, or, in the alternative, such Participant may elect to defer distribution, in which event benefits will be paid in accordance with the remaining provisions of the Plan.

(d)Distributions will be made in accordance with the regulations under Code Section 401(a)(9), including the minimum distribution incidental benefit requirement of Treas. Reg. Section 1.401(a)(9)-2.

(e)Notwithstanding any provision of the Plan to the contrary, for calendar years beginning on or after January 1, 2002, distributions will be made in accordance with the minimum distribution requirements provided in the proposed regulations under Code Section 401(a)(9) which were issued on January 17, 2001.  This Subsection (e) shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations issued under Code Section 401(a)(9) or such other date as may be specified in guidance published by the Internal Revenue Service.

ARTICLE 12

ADMINISTRATION OF THE PLAN

12.1Trust Agreement.  The Primary Sponsor shall enter into a trust agreement to establish a Trust with the Trustee designated by the Board of Directors for the management of the Fund, which trust agreement shall form a part of the Plan and is incorporated herein by reference.

12.2Operation of the Plan Administrator.  The Primary Sponsor shall appoint a Plan Administrator.  If an organization is appointed to serve as the Plan Administrator, then the Plan Administrator may designate in writing one or more persons who may act on behalf of the Plan Administrator.  If more than one person is so designated with respect to the same administrative

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function, a majority of such persons shall constitute a quorum for the transaction of business and shall have the full power to act on behalf of the Plan Administrator.  The Primary Sponsor shall have the right to remove the Plan Administrator at any time by notice in writing.  The Plan Administrator may resign at any time by written notice of resignation to the Trustee and the Primary Sponsor.  Upon removal or resignation of the plan Administrator, or in the event of the dissolution of the Plan Administrator, the Primary Sponsor shall appoint a successor.

12.3Fiduciary Responsibility.

(a)The Plan Administrator, as a Named Fiduciary, may allocate its fiduciary responsibilities among Fiduciaries other than the Trustee, designated in writing by the Plan Administrator and may designate in writing persons other than the Trustee to carry out its fiduciary responsibilities under the Plan.  The Plan Administrator may remove any person designated to carry out its fiduciary responsibilities under the Plan by notice in writing to such person.

(b)The Plan Administrator and each other Fiduciary may employ persons to perform services and to render advice with regard to any of the Fiduciary’s responsibilities under the Plan.  Charges for all such services performed and advice rendered may be paid by the Fund to the extent permitted by ERISA.

(c)Each Plan Sponsor shall indemnify and hold harmless each person constituting the Plan Administrator or the Investment Committee, except those individuals who are not a Plan Sponsor or an employee of a Plan Sponsor, from and against any and all claims, losses, costs, expenses (including, without limitation, attorney’s fees and court costs), damages, actions or causes of action arising from, on account of or in connection with the performance by such person of his duties in such capacity, other than such of the foregoing arising from, on account of or in connection with the willful neglect or willful misconduct of such person.

12.4Duties of the Plan Administrator.

(a)The Plan Administrator shall advise the Trustee with respect to all payments under the terms of the Plan and shall direct the Trustee in writing to make such payments from the Fund; provided, however, in no event shall the Trustee be required to make such payments if the Trustee has actual knowledge that such payments are contrary to the terms of the Plan and the Trust.

(b)The Plan Administrator shall from time to time establish rules, not contrary to the provisions of the Plan and the Trust, for the administration of the Plan and the transaction of its business.  All elections and designations under the Plan by a Participant or Beneficiary shall be made on forms prescribed by the Plan Administrator.  The Plan Administrator shall have discretionary authority to construe the terms of the Plan and shall determine all questions arising in the administration, interpretation and application of the Plan, including, but not limited to, those concerning eligibility for benefits and it shall not act so as to discriminate in favor of any person.  All

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determinations of the Plan Administrator shall be conclusive and binding on all Employees, Participants, Beneficiaries and Fiduciaries, subject to the provisions of the Plan and the Trust and subject to applicable law.

(c)The Plan Administrator shall furnish Participants and Beneficiaries with all disclosures now or hereafter required by ERISA or the Code.  The Plan Administrator shall file, as required, the various reports and disclosures concerning the Plan and its operations as required by ERISA and by the Code, and shall be solely responsible for establishing and maintaining all records of the Plan and the Trust.

(d)The statement of specific duties for a Plan Administrator in this Section is not in derogation of any other duties which a Plan Administrator has under the provisions of the Plan or the Trust or under applicable law.

12.5Investment Manager.  The Primary Sponsor may, by action in writing certified by notice to the Trustee, appoint an Investment Manager.  Any Investment Manager may be removed in the same manner in which appointed, and in the event of any removal, the Investment Manager shall, as soon as possible, but in no event more than thirty (30) days after notice of removal, turn over all assets managed by it to the Trustee or to any successor Investment Manager appointed, and shall make a full accounting to the Primary Sponsor with respect to all assets managed by it since its appointment as an Investment Manager.

12.6Investment Committee.  The Primary Sponsor may, by action in writing certified by notice to the Trustee, appoint an Investment Committee.  The Primary Sponsor shall have the right to remove any person on the Investment Committee at any time by notice in writing to such person.  A person on the Investment Committee may resign at any time by written notice of resignation to the Primary Sponsor.  Upon such removal or resignation, or in the event of the death of a person on the Investment Committee, the Primary Sponsor may appoint a successor.  Until a successor has been appointed, the remaining persons on the Investment Committee may continue to act as the Investment Committee.

12.7Action by a Plan Sponsor.  Any action to be taken by a Plan Sponsor shall be taken by persons duly authorized by the Plan Sponsor, except, subject to Section 17.1, amendments to, termination of, or termination of a Plan Sponsor’s participation in the Plan or the Trust or the determination of the basis of any Plan Sponsor contributions, may be made only to the extent authorized by written resolution or written direction of the Board of Directors or appropriate governing body.  Nothing herein shall be construed to prohibit the Board of Directors or appropriate governing body from delegating to any officer or other appropriate person of a Plan Sponsor the authority to take any such actions as may be specified in such resolution or written direction.

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ARTICLE 13

CLAIM REVIEW PROCEDURE

13.1Notice of Denial.  If a Participant or Beneficiary is denied a claim for benefits under a Plan, the Plan Administrator shall provide to the claimant written notice of the denial within ninety (90) days after the Plan Administrator receives the claim, unless special circumstances require an extension of time for processing the claim.  If such an extension of time for processing is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 90-day period.  In no event shall the extension exceed a period of ninety (90) days from the end of such initial period.  The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan Administrator expects to render the final decision.

13.2Contents of Notice of Denial.  If a Participant or Beneficiary is denied a claim for benefits under a Plan, the Plan Administrator shall provide to such claimant written notice of the denial which shall set forth:

(a)the specific reasons for the denial;

(b)specific references to the pertinent provisions of the Plan on which the denial is based;

(c)a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

(d)an explanation of the Plan’s claim review procedures, and the time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Sections 502(a) of ERISA following an adverse benefit determination on review.

13.3Right to Review.  After receiving written notice of the denial of a claim or that a domestic relations order is a qualified domestic relations order, a claimant or his representative shall be entitled to:

(a)request a full and fair review of the denial of the claim or determination that a domestic relations order is a qualified domestic relations order by written application to the Plan Administrator;

(b)request, free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim;

(c)submit written comments, documents, records, and other information relating to the denied claim to the Plan Administrator; and

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(d)a review that takes into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

13.4Application for Review.  If the claimant wishes such a review of the decision denying his claim to benefits under the Plan or if a claimant wishes to appeal a decision that a domestic relations order is a qualified domestic relations order, the claimant must deliver such written application to the Plan Administrator within sixty (60) days after receiving written notice of the denial or notice that the domestic relations order is a qualified domestic relations order.  Delivery shall be considered effective only upon actual receipt by the Plan Administrator.

13.5Hearing.  Upon receiving such written application for review, the Plan Administrator may schedule a hearing for purposes of reviewing the claimant’s claim, which hearing shall take place not more than thirty (30) days from the date on which the Plan Administrator received such written application for review.

13.6Notice of Hearing.  At least ten (10) days prior to the scheduled hearing, the claimant and his representative designated in writing by him, if any, shall receive written notice of the date, time, and place of such scheduled hearing.  The claimant or his representative, if any, may request that the hearing be rescheduled, for his convenience, on another reasonable date or at another reasonable time or place.

13.7Counsel.  All claimants requesting a review of the decision denying their claim for benefits may employ counsel for purposes of the hearing.

13.8Decision on Review.  No later than sixty (60) days following the receipt of the written application for review, the Plan Administrator shall submit its decision on the review in writing to the claimant and to his representative, if any, unless the Plan Administrator determines that special circumstances (such as the need to hold a hearing) require an extension of time, to a day no later than one-hundred twenty (120) days after the date of receipt of the written application for review.  If the Plan Administrator determines that the extension of time is required, the Plan Administrator shall furnish to the claimant written notice of the extension before the expiration of the initial sixty (60) day period.  The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan Administrator expects to render its decision on the review.  In the case of a decision adverse to the claimant, the decision shall include:

(a)specific reasons for the decision;

(b)specific references to the pertinent provisions of the Plan on which the decision is based;

(c)a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits; and

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(d)a statement of the claimant’s right to bring an action under Section 502(a) of ERISA.

ARTICLE 14

INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS

14.1No benefit which shall be payable under the Plan to any person shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person, nor shall it be subject to attachment or legal process for, or against, such person, and the same shall not be recognized under the Plan, except to such extent as may be required by law.  Notwithstanding the above, this Section shall not apply to a “qualified domestic relations order” (as defined in Code Section 414(p)), and benefits may be paid pursuant to the provisions of such an order.  The Plan Administrator shall develop procedures (in accordance with applicable federal regulations) to determine whether a domestic relations order is qualified, and, if so, the method and the procedures for complying therewith.  In addition, a distribution to an “alternate payee” (as defined in Code Section 414(p)) shall be permitted if such distribution is authorized by a qualified domestic relations order, even if the affected Participant has not yet separated from service and has not yet reached the “earliest retirement age” (as defined in Code Section 414(p)).  Unless the terms of the qualified domestic relations order require otherwise, a distribution shall be paid to the Alternate Payee, without the Alternate Payee’s consent, as soon as administratively practicable after the Plan Administrator determines that the domestic relations order is qualified and nonappealable pursuant to Article 13.

14.2Exceptions to Anti-Alienation.  Notwithstanding any other provision of the Plan, effective August 5, 1997, the benefit of a Participant shall be subject to legal process and may be assigned, alienated or attached pursuant to a court judgment or settlement provided:

(a)such Participant is ordered or required to pay the Plan in accordance with the following:

(1)a judgment or conviction for a crime involving the Plan;

(2)a civil judgment entered by a court in an action brought in connection with a violation of part 4 of subtitle B of Title I of ERISA; or

(3)a settlement agreement between such Participant and the Secretary of Labor, in connection with a violation (or alleged violation) of part 4 of subtitle B of Title I of ERISA by a fiduciary or any other person; and

(b)the judgment, order, decree, or settlement agreement shall expressly provide for the offset of all or part of the amount ordered or required to be paid to the Plan against such Participant’s benefits under the Plan.

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14.3Minors and Incompetents.  Whenever any benefit which shall be payable under the Plan is to be paid to or for the benefit of any person who is then a minor or determined to be incompetent by qualified medical advice, the Plan Administrator need not require the appointment of a guardian or custodian, but shall be authorized to cause the same to be paid over to the person having custody of such minor or incompetent, or to cause the same to be paid to such minor or incompetent without the intervention of a guardian or custodian, or to cause the same to be paid to a legal guardian or custodian of such minor or incompetent if one has been appointed or to cause the same to be used for the benefitof such minor or incompetent.

14.4Missing Participants.  If the Plan Administrator cannot ascertain the whereabouts of any Participant to whom a payment is due under the Plan, the Plan Administrator may direct that the payment and all remaining payments otherwise due to the Participant be cancelled on the records of the Plan and the amount thereof applied as a forfeiture in accordance with Plan provisions except that, in the event the Participant later notifies the Plan Administrator of his whereabouts and requests the payments due to him under the Plan, the forfeited amount shall be restored either from Trust income or by a special contribution by the Plan Sponsor to the Plan, as determined by the Plan Administrator, in an amount equal to the payment to be paid to the Participants.

ARTICLE 15

PROHIBITION AGAINST DIVERSION

At no time shall any part of the Fund be used for or diverted to purposes other than the exclusive benefit of the Participants or their Beneficiaries, subject, however, to the payment of all taxes and administrative expenses and subject to the provisions of the Plan with respect to returns of contributions.  Expenses incurred in the administration of the Plan shall be paid from the Trust, to the extent permitted by ERISA, unless such expenses are paid by the Plan Sponsor; provided, further, that the Plan Sponsor may be reimbursed by the Fund, to the extent permitted by ERISA, for Plan expenses originally paid by the Plan Sponsor.

ARTICLE 16

LIMITATION OF RIGHTS

Participation in the Plan shall not give any Employee any right or claim except to the extent that such right is specifically fixed under the terms of the Plan.  The adoption of the Plan and the Trust by any Plan Sponsor shall not be construed to give any Employee a right to be continued in the employ of a Plan Sponsor or as interfering with the right of a Plan Sponsor to terminate the employment of any Employee at any time.

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ARTICLE 17

AMENDMENT TO OR TERMINATION OF THE

PLAN AND THE TRUST

17.1Right of Primary Sponsor to Amend or Terminate.  The Primary Sponsor reserves the right at any time to modify or amend or terminate the Plan or the Trust in whole or in part; provided, however, that the Primary Sponsor shall have no power to modify or amend the Plan in such manner as would cause or permit any portion of the funds held under a Plan to be used for, or diverted to, purposes other than for the exclusive benefit of Participants or their Beneficiaries, or as would cause or permit any portion of a fund held under the Plan to become the property of a Plan Sponsor; and provided further, that the duties or liabilities of the Trustee shall not be increased without its written consent.  No such modifications or amendments shall have the effect of retroactively changing or depriving Participants or Beneficiaries of rights already accrued under the Plan.  No Plan Sponsor other than the Primary Sponsor shall have the right to so modify, amend or terminate the Plan or the Trust.  Notwithstanding the foregoing, each Plan Sponsor may terminate its own participation in the Plan and Trust pursuant to the Plan.

17.2Right of Plan Sponsor to Terminate Participation.  Each Plan Sponsor other than the Primary Sponsor shall have the right to terminate its participation in the Plan and Trust by resolution of its board of directors or other appropriate governing body and notice in writing to the Primary Sponsor and the Trustee unless such termination would result in the disqualification of the Plan or the Trust or would adversely affect the exempt status of the Plan or the Trust as to any other Plan Sponsor.  If contributions by or on behalf of a Plan Sponsor are completely terminated, the Plan and Trust shall be deemed terminated as to such Plan Sponsor.  Any termination by a Plan Sponsor, shall not be a termination as to any other Plan Sponsor.

17.3Plan Termination.

(a)If the Plan is terminated by the Primary Sponsor or if contributions to the Trust should be permanently discontinued, it shall terminate as to all Plan Sponsors and the Fund shall be used, subject to the payment of expenses and taxes, for the benefit of Participants and Beneficiaries, and for no other purposes, and the Account of each affected Participant shall be fully vested and nonforfeitable, notwithstanding the provisions of the Section of the Plan which sets forth the vesting schedule.

(b)In the event of the partial termination of the Plan, each affected Participant’s Account shall be fully vested and nonforfeitable, notwithstanding the provisions of the Section of the Plan which sets forth the vesting schedule.

17.4Payments Upon Plan Termination.  In the event of the termination of the Plan or the Trust with respect to a Plan Sponsor, the Accounts of the Participants with respect to the Plan as adopted by such Plan Sponsor shall be distributed in lump sum payments pursuant to the instructions of the Plan Administrator; provided that the Trustee shall not be required to make any distribution until it receives a copy of an Internal Revenue Service determination letter to the effect that the termination does not affect the qualified status of the Plan or the exempt status of the Trust or, in the event that such letter is applied for and is not issued, until the Trustee is

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reasonably satisfied that adequate provision has been made for the payment of all taxes which may be due and owing by the Trust.

17.5Plan Merger.  In the case of any merger or consolidation of the Plan with, or any transfer of the assets or liabilities of the Plan to, any other plan qualified under Code Section 401, the terms of the merger, consolidation or transfer shall be such that each Participant would receive (in the event of termination of the Plan or its successor immediately thereafter) a benefit which is no less than the benefit which the Participant would have received in the event of termination of the Plan immediately before the merger, consolidation or transfer.

17.6Optional Benefits.  Notwithstanding any other provision of the Plan, an amendment to the Plan –

(a)which eliminates or reduces an early retirement benefit, if any, or which eliminates or reduces a retirement-type subsidy (as defined in regulations issued by the Department of the Treasury), if any, or

(b)which eliminates an optional form of benefit (except to the extent otherwise provided in Treasury Regulations),

shall not be effective with respect to benefits attributable to service before the amendment is adopted.  In the case of a retirement-type subsidy described in Subsection (a) above, this Section shall be applicable only to a Participant who satisfies, either before or after the amendment, the preamendment conditions for the subsidy.

ARTICLE 18

ADOPTION OF PLAN BY AFFILIATES

Any corporation or other business entity related to the Primary Sponsor by function or operation and any Affiliate, if the corporation, business entity or Affiliate is authorized to do so by written direction adopted by the Board of Directors, may adopt the Plan and the related Trust by action of the board of directors or other appropriate governing body of such corporation, business entity or Affiliate.  Any adoption shall be evidenced by certified copies of the resolutions of the foregoing board of directors or governing body indicating the adoption and by the execution of the Trust by the adopting corporation, or business entity or Affiliate.  The resolution shall state and define the effective date of the adoption of the Plan by the Plan Sponsor and, for the purpose of Code Section 415, the “limitation year” as to such Plan Sponsor.  Notwithstanding the foregoing, however, if the Plan and Trust as adopted by an Affiliate or other corporation or business entity under the foregoing provisions shall fail to receive the initial approval of the Internal Revenue Service as a qualified Plan and Trust under Code Sections 401(a) and 501(a), any contributions by the Affiliate or other corporation or business entity after payment of all expenses will be returned to such Plan Sponsor free of any trust, and the Plan and Trust shall terminate, as to the adopting Affiliate or other corporation or business entity.

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ARTICLE 19

QUALIFICATION AND RETURN OF CONTRIBUTIONS

19.1Initial Qualification Failure.  If the Plan and the related Trust fail to receive the initial approval of the Internal Revenue Service as a qualified plan and trust within one (1) year after the date of denial of qualification (a) the contribution of a Plan Sponsor after payment of all expenses will be returned to a Plan Sponsor free of the Plan and Trust, (b) contributions made by a Participant shall be returned to the Participant who made the contributions, and (c) the Plan and Trust shall thereupon terminate.

19.2Deductibility.  All Plan Sponsor contributions to the Plan are contingent upon deductibility.  To the extent permitted by the Code and other applicable laws and regulations thereunder, upon a Plan Sponsor’s request, a contribution which was made by reason of a mistake of fact or which was nondeductible under Code Section 404, shall be returned to a Plan Sponsor within one (1) year after the payment of the contribution, or the disallowance of the deduction (to the extent disallowed), whichever is applicable.

In the event of a contribution which was made by reason of a mistake of fact or which was nondeductible, the amount to be returned to the Plan Sponsor shall be the excess of the contribution above the amount that would have been contributed had the mistake of fact or the mistake in determining the deduction not occurred, less any net loss attributable to the excess.  Any net income attributable to the excess shall not be returned to the Plan Sponsor.  No return of any portion of the excess shall be made to the Plan Sponsor if the return would cause the balance in a Participant’s Account to be less than the balance would have been had the mistaken contribution not been made.

ARTICLE 20

INCORPORATION OF SPECIAL LIMITATIONS

Appendices A, B, and C to the Plan, attached hereto, are incorporated by reference and the provisions of the same shall apply notwithstanding anything to the contrary contained herein.

[Remainder of page Intentionally Left Blank]

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APPENDIX A

LIMITATION ON ALLOCATIONS

SECTION 1

The “annual addition” for any Participant for any one limitation year may not exceed the lesser of:

(a)$30,000, as adjusted for changes in the cost of living as provided in regulations issued by the Secretary of the Treasury; or

(b)25% of the Participant’s Annual Compensation.

SECTION 2

For the purposes of this Appendix A, the term “annual addition” for any Participant means for any limitation year, the sum of certain Plan Sponsor, Affiliate, and Participant contributions, forfeitures, and other amounts as determined in Code Section 415(c)(2) in effect for that limitation year.

SECTION 3

Effective until December 31, 1999, in the event that a Plan Sponsor or an Affiliate maintains a defined benefit plan under which a Participant also participates, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any limitation year for any Participant may not exceed 1.0.

(a)The defined benefit plan fraction for any limitation year is a fraction:

(1)the numerator of which is the projected annual benefit of the Participant under the defined benefit plan (determined as of the close of such year); and

(2)the denominator of which is the lesser of

(A)the product of 1.25, multiplied by the maximum annual benefit allowable under Code Section 415(b)(1)(A), or

(B)the product of

(i)1.4, multiplied by

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(ii)the maximum amount which may be taken into account under Section 415(b)(1)(B) of the Code with respect to the Participant under the defined benefit plan for the limitation year (determined as of the close of the limitation year).

(b)The defined contribution plan fraction for any limitation year is a fraction:

(1)the numerator of which is the sum of a Participant’s annual additions as of the close of the year; and

(2)the denominator of which is the sum of the lesser of the following amounts determined for the year and for all prior limitation years during which the Participant was employed by a Plan Sponsor or an Affiliate:

(A)the product of 1.25, multiplied by the dollar limitation in effect under Code Section 415(c)(1)(A) for the limitation year (determined without regard to Section 415(c)(6) of the Code); or

(B)the product of

(i)1.4, multiplied by

(ii)the amount which may be taken into account under Code Section 415(c)(1)(B) (or Code Section 415(c)(7), if applicable) with respect to the Participant for the limitation year.

SECTION 4

For purposes of this Appendix A, the term “limitation year” shall mean a Plan Year unless a Plan Sponsor elects, by adoption of a written resolution, to use any other twelve month period adopted in accordance with regulations issued by the Secretary of the Treasury.

SECTION 5

For purposes of applying the limitations of this Appendix A, all defined contribution plans maintained or deemed to be maintained by a Plan Sponsor shall be treated as one defined contribution plan, and all defined benefit plans now or previously maintained or deemed to be maintained by a Plan Sponsor shall be treated as one defined benefit plan.  In the event any of the actions to be taken pursuant to Section 6 of this Appendix A or pursuant to any language of similar import in another defined contribution plan are required to be taken as a result of the annual additions of a Participant exceeding the limitations set forth in Section 1 of this Appendix A, because of the Participant’s participation in more than one defined contribution plan, the actions shall be taken first with regard to this Plan.

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SECTION 6

In the event that as a result of the allocation of forfeitures to the Account of a Participant, a reasonable error in estimating the Participant’s Annual Compensation or other similar circumstances, the annual addition allocated to the Account of a Participant exceeds the limitations set forth in Section 1 of this Appendix A or in the event that the aggregate contributions made on behalf of a Participant under both a defined benefit plan and a defined contribution plan, subject to the reduction of allocations in other defined contribution plans required by Section 5 of this Appendix A, cause the aggregate limitation fraction set forth in Section 3 of this Appendix A to be exceeded, the Plan Administrator shall, in writing, direct the Trustee to take such of the following actions as the Plan Administrator shall deem appropriate, specifying in each case the amount or amounts of contributions involved:

(a)A Participant’s annual addition shall be reduced by distributing to the Participant contributions made by the Plan Sponsor on behalf of the Participant pursuant to Plan Section 3.1 with respect to which no contribution is made under Plan Section 3.2;

(b)If further reduction is necessary, contributions made by the Plan Sponsor on behalf of the Participant pursuant to Plan Section 3.1 and contributions of the Plan Sponsor thereon pursuant to Plan Section 3.2 shall be reduced in the amount of the remaining excess.  The amount of the reduction under Plan Section 3.1 shall be distributed to the Participant.  The amount of the reduction under Plan Section 3.2 shall be reallocated to the Matching Accounts of Participants who are not affected by the limitation in the same proportion as the contribution of the Plan Sponsor for the year is allocated under Plan Section 4.1 to the Accounts of such Participants;

(c)If further reduction is necessary, forfeitures allocated to the Participant’s Account shall be reduced by the amount of the remaining excess.  The amount of the reduction shall be reallocated to the Matching Accounts of Participants who are not affected by the limitations in the same proportions as the contributions of the Plan Sponsor for the Plan Year are allocated to the Matching Accounts of such Participants; and

(d)If the contribution of the Plan Sponsor and forfeitureswould cause the annual addition to exceed the limitations set forth herein with respect to all Participants under the Plan, the portion of such contribution in excess of the limitations shall be segregated in a suspense account.  While the suspense account is maintained, (1) no Plan Sponsor contributions under the Plan shall be made which would be precluded by this Appendix A, (2) income, gains and loses of the Fund shall not be allocated to such suspense account and (3) amounts in the suspense account shall be allocated in subsequent limitation years as Plan Sponsor contributions and forfeitures under the Plan as of each Valuation Date on which Plan Sponsor contributions may be allocated for each such limitation year until the suspense account is exhausted.  In the event of the termination of the Plan, the amounts in the suspense account shall be returned to the Plan

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Sponsor to the extent that such amounts may not then be allocated to Participants’ Accounts.

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APPENDIX B

TOP-HEAVY PROVISIONS

SECTION 1

As used in this Appendix B, the following words shall have the following meanings:

(a)“Determination Date” means, with respect to any Plan Year, the last day of the preceding Plan Year, or, in the case of the first Plan Year, means the last day of the first Plan Year.

(b)“Key Employee” means an Employee or former Employee (including a Beneficiary of a Key Employee or former Key Employee) who at any time during the Plan Year containing the Determination Date or any of the four (4) preceding Plan Years is:

(1)Was at any time an officer of the Plan Sponsor or of any Affiliate whose Annual Compensation was greater than fifty percent (50%) of the amount in effect under Code Section 415(b)(1)(A) for the calendar year in which the Plan Year ends, where the term “officer” means an administrative executive in regular and continual service to the Plan Sponsor or Affiliate; provided, however, that in no event shall the number of officers exceed the lesser of Clause (A) or (B) of this Subparagraph (1), where:

(A)equals fifty (50) Employees; and

(B)equals the greater of (I) three (3) Employees or (II) ten percent (10%) of the number of Employees during the Plan Year, with any non-integer being increased to the next integer.

If for any year no officer of the Plan Sponsor meets the requirements of this Subparagraph (b), the highest paid officer of the Plan Sponsor for the Plan Year shall be considered an officer for purposes of this Subparagraph (b)(1);

(2)One of the ten (10) Employees owning both (A) more than one-half percent (½%) of the outstanding stock of the Plan Sponsor or an Affiliate, more than one-half percent (½%) of the total combined voting power of all stock of the Plan Sponsor or an Affiliate, or more than one-half percent (½%) of the capital or profits interest in the Plan Sponsor or an Affiliate, and (B) the largest percentage ownership interests in the Plan Sponsor or any of its Affiliates, and whose Annual Compensation is equal to or greater than the amount in effect under Section l(a) of Appendix A to the Plan for the calendar year in which the Determination Date falls; or

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(3)An owner of more than five percent (5%) of the outstanding stock of the Plan Sponsor or an Affiliate or more than five percent (5%) of the total combined voting power of all stock of the Plan Sponsor or an Affiliate; or

(4)An owner of more than one percent (1%) of the outstanding stock of the Plan Sponsor or an Affiliate or more than one percent (1%) of the total combined voting power of all stock of the Plan Sponsor or an Affiliate, and who in such Plan Year had Annual Compensation from the Plan Sponsor and all of its Affiliates of more than $150,000.

Employees other than Key Employees are sometimes referred to in this Appendix B, as “non-key employees.”

(c)“Required Aggregation Group” means:

(1)each plan of the Plan Sponsor and its Affiliates which qualifies under Code Section 401 (a) in which a Key Employee is a participant, and

(2)each other plan of the Plan Sponsor and its Affiliates which qualifies under Code Section 401 (a) and which enables any plan described in Subsection (a) of this Section to meet the requirements of Section 401(a)(4) or 410 of the Code.

(d)(1)“Top-Heavy” means:

(A)if the Plan is not included in a Required Aggregation Group, the Plan’s condition in a Plan Year for which, as of the Determination Date:

(i)the present value of the cumulative Accounts under the Plan for all Key Employees exceeds sixty percent (60%) of the present value of the cumulative Accounts under the Plan for all Participants; and

(ii)the Plan, when included in every potential combination, if any, with any or all of:

(I)any Required Aggregation Group, and

(II)any plan of the Plan Sponsor which is not part of any Required Aggregation Group and which qualifies under Code Section 401 (a)

is part of a Top-Heavy Group (as defined in Paragraph (2) of this Subsection); and

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(B)if the Plan is included in a Required Aggregation Group, the Plan’s condition in a Plan Year for which, as of the Determination Date:

(i)the Required Aggregation Group is a Top-Heavy Group (as defined in Paragraph (2) of this Subsection); and

(ii)the Required Aggregation Group, when included in every potential combination, if any, with any or all of the plans of the Plan Sponsor and its Affiliates which are not part of the Required Aggregation Group and which qualify under Code Section 401(a), is part of a Top-Heavy Group (as defined in Paragraph (2) of this Subsection).

(C)For purposes of Subparagraphs (A)(ii) and (B)(ii) of this Paragraph (1), any combination of plans must satisfy the requirements of Sections 401(a)(4) and 410 of the Code.

(2)A group shall be deemed to be a Top-Heavy Group if:

(A)the sum, as of the Determination Date, of the present value of the cumulative accrued benefits for all Key Employees under all plans included in such group exceeds

(B)sixty percent (60%) of a similar sum determined for all participants in such plans.

(3)(A)For purposes of this Section, the present value of the accrued benefit for any participant in a defined contribution plan as of any Determination Date or last day of a plan year shall be the sum of:

(i)as to any defined contribution plan other than a simplified employee pension, the account balance as of the most recent valuation date occurring within the plan year ending on the Determination Date or last day of a plan year, and

(ii)as to any simplified employee pension, the aggregate employer contributions, and

(iii)an adjustment for contributions due as of the Determination Date or last day of a plan year.

In the case of a plan that is not subject to the minimum funding requirements of Code Section 412, the adjustment in Clause (iii) of this Subparagraph (A) shall be the amount of any contributions actually made after the valuation date but on or before the Determination Date or last day

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of the plan year to the extent not included under Clause (i) or (ii) of this Subparagraph (A); provided, however, that in the first plan year of the plan, the adjustment in Clause (iii) of this Subparagraph (A) shall also reflect the amount of any contributions made thereafter that are allocated as of a date in such first plan year.  In the case of a plan that is subject to the minimum funding requirements, the account balance in Clause (i) and the aggregate contributions in Clause (ii) of this Subparagraph (A) shall include contributions that would be allocated as of a date not later than the Determination Date or last day of a plan year, even though those amounts are not yet required to be contributed, and the adjustment in Clause (iii) of this Subparagraph (A) shall be the amount of any contribution actually made (or due to be made) after the valuation date but before the expiration of the extended payment period in Code Section 412(c)(10) to the extent not included under Clause (i) or (ii) of this Subparagraph (A).

(B)For purposes of this Subsection, the present value of the accrued benefit for any participant in a defined benefit plan as of any Determination Date or last day of a plan year must be determined as of the most recent valuation date which is within a 12-month period ending on the Determination Date or last day of a plan year as if such participant terminated as of such valuation date; provided, however, that in the first plan year of a plan, the present value of the accrued benefit for a current participant must be determined either (i) as if the participant terminated service as of the Determination Date or last day of a plan year or (ii) as if the participant terminated service as of such valuation date, but taking into account the estimated accrued benefit as of the Determination Date or last day of a plan year.  For purposes of this Subparagraph (B), the valuation date must be the same valuation date used for computing plan costs for minimum funding, regardless of whether a valuation is performed that year.  The actuarial assumptions utilized in calculating the present value of the accrued benefit for any participant in a defined benefit plan for purposes of this Subparagraph (B) shall be established by the Plan Administrator after consultation with the actuary for the plan, and shall be reasonable in the aggregate and shall comport with the requirements set forth by the Internal Revenue Service in Q&A T-26 and T-27 of Regulation Section 1.416-1.

(C)For purposes of determining the present value of the cumulative accrued benefit under a plan for any participant in accordance with this Subsection, the present value shall be increased by the aggregate distributions made with respect to the participant (including distributions paid on account of death to the extent they do not exceed the present value of the cumulative accrued benefit existing immediately prior to death) under each plan being considered, and under any terminated plan which if it had not been terminated would have been in a Required Aggregation Group with the Plan, during the 5-year period ending on the Determination

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Date or last day of the plan year that falls within the calendar year in which the Determination Date falls.

(D)For purposes of this Paragraph (3), participant contributions which are deductible as “qualified retirement contributions” within the meaning of Code Section 219 or any successor, as adjusted to reflect income, gains, losses, and other credits or charges attributable thereto, shall not be considered to be part of the accrued benefits under any plan.

(E)For purposes of this Paragraph (3), if any employee is not a Key Employee with respect to any plan for any plan year, but such employee was a Key Employee with respect to such plan for any prior plan year, any accrued benefit for such employee shall not be taken into account.

(F)For purposes of this Paragraph (3), if any employee has not performed any service for any Plan Sponsor or Affiliate maintaining the plan during the five-year period ending on the Determination Date, any accrued benefit for that employee shall not be taken into account.

(G)(i)In the case of an “unrelated rollover” (as defined below) between plans which qualify under Code Section 401(a), (a) the plan providing the distribution shall count the distribution as a distribution under Subparagraph (C) of this Paragraph (3), and (b) the plan accepting the distribution shall not consider the distribution part of the accrued benefit under this Section; and

(ii)in the case of a “related rollover” (as defined below) between plans which qualify under Code Section 401(a), (a) the plan providing the distribution shall not count the distribution as a distribution under Subparagraph (C) of this Paragraph (3), and (b) the plan accepting the distribution shall consider the distribution part of the accrued benefit under this Section.

For purposes of this Subparagraph (G), an “unrelated rollover” is a rollover as defined in Code Section 402(c)(4) or 408(d)(3) or a plan-to-plan transfer which is both initiated by the participant and made from a plan maintained by one employer to a plan maintained by another employer where the employers are not Affiliates.  For purposes of this Subparagraph (G), a “related rollover” is a rollover as defined in Code Section 402(c)(4) or 408(d)(3) or a plan-to-plan transfer which is either not initiated by the participant or made to a plan maintained by the employer or an Affiliate.

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SECTION 2

(a)Notwithstanding anything contained in the Plan to the contrary, except as otherwise provided in Subsection (b) of this Section, in any Plan Year during which the Plan is Top-Heavy, allocations of Plan Sponsor contributions and forfeituresfor the Plan Year for the Account of each Participant who is not a Key Employee and who has not separated from service with the Plan Sponsor prior to the end of the Plan Year shall not be less than three percent (3%) of the Participant’s Annual Compensation.  For purposes of this Subsection, an allocation to a Participant’s Account resulting from any Plan Sponsor contribution attributable to a salary reduction or similar arrangement shall not be taken into account.

(b)(1)The percentage referred to in Subsection (a) of this Section for any Plan Year shall not exceed the percentage at which allocations are made or required to be made under the Plan for the Plan Year for the Key Employee for whom the percentage is highest for the Plan Year.  For purposes of this Paragraph, an allocation to the Account of a Key Employee resulting from any Plan Sponsor contribution attributable to a salary reduction or similar agreement shall be taken into account.

(2)For purposes of this Subsection (b), all defined contribution plans which are members of a Required Aggregation Group shall be treated as part of the Plan.

(3)This Subsection (b) shall not apply to any plan which is a member of a Required Aggregation Group if the plan enables a defined benefit plan which is a member of the Required Aggregation Group to meet the requirements of Code Section 401(a)(4) or 410.

(4)If the Plan Sponsor maintains a defined benefit plan which is qualified under Code Section 401(a) and which would be Top-Heavy within the meaning of the Plan for its plan year ending within or coincident with the Plan Year, no allocation shall be made pursuant to Subsection (a) of this Section on behalf of any Participant who participates in the defined benefit plan and acquires a year of service within the meaning of paragraphs (4), (5) and (6) of Code Section 411(a) under the defined benefit plan for the plan year, if the defined benefit plan provides generally that the accrued benefit of the Participant when expressed as an annual retirement benefit shall not, when expressed as a percentage of the Participant’s Annual Compensation, be less than the lesser of (A) 2 percent multiplied by the number of such years of service in plan years during which such plan was Top-Heavy, or (B) twenty percent (20%).

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SECTION 3

Effective until December 31, 1999, in any limitation year (as defined in Section 4 of Appendix A to the Plan) which contains any portion of a Plan Year in which the Plan is Top-Heavy, the number “1.0” shall be substituted for the number “1.25” in Section 3 of Appendix A to the Plan.

SECTION 4

Notwithstanding anything contained in the Plan to the contrary, in any Plan Year during which the Plan is Top-Heavy, a Participant’s interest in his Account shall not vest at any rate which is slower than the following schedule, effective as of the first day of that Plan Year:

Full Years of Vesting Service	Percentage Vested
Less than 2	0	%
2	20	%
3	40	%
4	60	%
5	80	%
6 or more	100	%

The Schedule set forth above in this Section 4 shall be inapplicable to a Participant who has failed to perform an Hour of Service after the Determination Date on which the Plan has become Top-Heavy.  When the Plan ceases to be Top-Heavy, the Schedule set forth above in this Section 4 shall cease to apply; provided however, that the provisions of the Plan Section dealing with changes in the vesting schedule shall apply.

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APPENDIX C

SPECIAL NONDISCRIMINATION RULES

SECTION 1

DEFINITIONS

As used in this Appendix, the following words shall have the following meanings:

(a)“Actual Deferral Percentage” shall mean the percentage as determined in Section 2(b) below.

(b)“Actual Contribution Percentage” shall mean the percentage as determined in Section 5(b) below.

(c)“Eligible Participant” means a Participant who is an Employee during the Plan Year.

(d)“Highly Compensated Eligible Participant” means any Eligible Participant who is a Highly Compensated Employee.

(e)“Matching Contribution” means any contribution made by a Plan Sponsor to the Employer Matching Contribution Account and any other contributions made to a plan by a Plan Sponsor or an Affiliate on behalf of an Employee on account of a contribution made by the Employee or on account of an Elective Deferral.

(f)“Qualified Matching Contributions” means Matching Contributions of the Plan Sponsor or an Affiliate that are immediately nonforfeitable when made, and which may not be distributed, except upon one of the events described under Code Section 401(k)(2)(B) and the regulations thereunder.  Such contributions, if made to the Plan, shall be allocated as described in this Appendix C to the Qualified Nonelective Employer Contribution Account for each affected Participant.

(g)“Qualified Nonelective Contributions” means contributions of the Plan Sponsor or an Affiliate, other than Matching Contributions or Elective Deferrals that are immediately nonforfeitable when made, and which may not be distributed, except upon one of the events described under Code Section 401(k)(2)(B) and the regulations thereunder.  Such contributions, if made to the Plan, shall be allocated as described in this Appendix C to the Qualified Nonelective Employer Contribution Account for each affected Participant.

SECTION 2

ACTUAL DEFERRAL PERCENTAGE TEST

(a)In addition to any other limitations set forth in the Plan, for each Plan Year, one of the following tests must be satisfied:

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(1)The 125 Percent Test.  The Actual Deferral Percentage for the Highly Compensated Eligible Participants for the Plan Year must not be more than the Actual Deferral Percentage for all other Eligible Participants for the Plan Year, multiplied by 1.25.

(2)The Two Times Test.  The Actual Deferral Percentage for the Highly Compensated Eligible Participants for the Plan Year must not be more than the lesser of:

(A)the Actual Deferral Percentage for all other Eligible Participants for the Plan Year plus two (2) percentage points; or

(B)the Actual Deferral Percentage for all other Eligible Participants for the Plan Year, multiplied by two (2).

(b)The “Actual Deferral Percentage” for a group of Eligible Participants is equal to the average of the ratios, calculated separately for each Eligible Participant in such group, of the Salary Deferral Contributions contributed by the Plan Sponsor on behalf of the Employee for the Plan Year to the Annual Compensation of the Employee for the Plan Year.  For purposes of this calculation:

(1)the Salary Deferral Contributions for Employees who are not Highly Compensated Employees that are in excess of the maximum amount permitted under Code Section 401(a)(30) shall not be taken into account; and

(2)at the election of the Plan Administrator, all or part of the Qualified Matching Contributions and Qualified Nonelective Contributions made under the Plan may be treated as Salary Deferral Contributions, subject to the limitations of Treasury Regulation Section 1.401(k)-1(b)(5) and any other applicable regulations promulgated by the Secretary of the Treasury.

SECTION 3

DETERMINATION AND CORRECTION OF EXCESS CONTRIBUTIONS

(a)If the Salary Deferral Contributions contributed on behalf of the Highly Compensated Eligible Participants are sufficient to exceed the amount permitted under the Actual Deferral Percentage test for any Plan Year, such excess amounts shall be considered to be “Excess Contributions.”  The Plan Sponsor will determine the amount of Excess Contributions under Subparagraph (b) below and will determine what share of the Excess Contributions is attributable to each Highly Compensated Eligible Participant under Subparagraph (c) below.  The Plan Sponsor may then implement one or more of the corrective actions discussed in Subparagraphs (d) and (e) below to resolve the failure of the Actual Deferral Percentage Test so that it is considered to be passed for the Plan Year.

(b)Determination of Total Excess Contributions. For purposes of this Section 3, “Total Excess Contributions” means, with respect to a Plan Year, the excess of:

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(1)the aggregate amount of Salary Deferral Contributions contributed by a Plan Sponsor on behalf of Highly Compensated Eligible Participants for the Plan Year, over

(2)the maximum amount of Salary Deferral Contributions permitted under Section 2 of this Appendix C for the Plan Year, which shall be determined by reducing the Salary Deferral Contributions contributed on behalf of Highly Compensated Eligible Participants in order of the actual deferral percentages beginning with the highest of such percentages.

(c)Allocation of Total Excess Contributions Attributable Among Highly Compensated Eligible Participants.  The Excess Contribution for any Plan Year attributable to a given Highly Compensated Eligible Participant (for purposes of distribution or reclassification under Subsections (d) below) shall be determined by the Plan Sponsor as follows:

(1)The Salary Deferral Contributions allocated to the Highly Compensated Eligible Participant with the highest dollar amount of Salary Deferral Contributions for the Plan Year shall be reduced by the amount required to cause that Highly Compensated Eligible Participant’s remaining Salary Deferral Contributions for the Plan Year to be equal to the dollar amount of the Salary Deferral Contributions allocated to the Highly Compensated Eligible Participant with the next highest dollar amount of Salary Deferral Contributions for the Plan Year.  This amount is then the Excess Contribution attributable to such Highly Compensated Eligible Participant with the highest dollar amount of Salary Deferral Contributions which shall be distributed or reclassified under subparagraph (d) below, unless a smaller reduction equals the total Excess Contributions.

(2)If the total amount determined under Paragraph (1) of this Section 3(b) is less than the total Excess Contributions, the procedure in Paragraph (1) shall be successively repeated with the Highly Compensated Eligible Participant who has the next highest dollar amount of Salary Deferral Contributions for the Plan Year, and continuing as required until the total dollar amount allocated to the Highly Compensated Eligible Participants is equal to the total Excess Contributions attributable to Highly Compensated Eligible Participants.

(d)Recharacterization or Distribution of Excess Contributions.

(1)To the extent permitted by regulations issued by the Secretary of the Treasury, the Plan Administrator may permit a Participant to elect, within two and one-half months after the end of the Plan Year for which an Excess Contribution was contributed, to treat the Excess Contribution allocated to him, unadjusted for earnings, gains, and losses as an After-Tax Employee Contribution (such amount to be called a “Recharacterized Amount.”)  For all purposes under the Plan other than this Appendix C, Recharacterized Amounts shall be treated as Salary Deferral Contributions.

(2)The Plan Sponsor may distribute the Total Excess Contributions determined in Subparagraph (c) above, plus the income or loss thereon, to the Highly Compensated Eligible Participants to whom such Excess Contributions were allocated.

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The income or loss attributable to the Excess Contributions shall be determined in a manner similar to that described in Section 4.2 of the Plan.

(3)The Excess Contributions to be distributed or recharacterized under subparagraphs (1) and (2) above shall be reduced by Salary Deferral Contributions previously distributed or recharacterized for the taxable year ending in the same Plan Year, and shall also be reduced by Salary Deferral Contributions previously distributed or recharacterized for the Plan Year beginning in such taxable year, and by any excess Elective Deferrals as determined pursuant to Plan Section 3.1 previously distributed to the Participant for the Participant’s taxable year ending with or within the Plan Year.

(4)If the multiple use of the Two Times Test of Sections 2(a)(2) and 5(a)(2)  of this Appendix C, pursuant to Treasury Regulations section 1.401(m)-2, as promulgated by the Secretary of the Treasury, requires a corrective distribution such distribution shall be made pursuant to this Section 3, and not Section 6, of this Appendix C.

(5)Any Matching Contribution that was based on the portion of the Salary Deferral Contribution that is distributed or recharacterized under this Section as an Excess Contribution shall be forfeited upon such distribution or recharacterization.

If a distribution or recharacterization of the Excess Deferral Amounts attributable to the Highly Compensated Eligible Participants is made in accordance with this Subsection (d), the limitations in Section 2 of this Appendix C shall be treated as being met regardless of whether the actual deferral percentage, if recalculated after such distributions, would have satisfied the requirements of Section 2.

(e)Contribution of Qualified Nonelective Contributions or Qualified Matching Contributions.  Not later than twelve (12) months after the end of the Plan Year, the Plan Sponsor may make a special Qualified Nonelective Contribution or Qualified Matching Contribution on behalf of all or certain Eligible Participants who are not Highly Compensated Eligible Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) the Actual Deferral Percentage Test.  Such contribution shall be allocated to the Participant’s Qualified Nonelective Employer Contribution Account in one of the following manners, as elected by the Employer at the time the Qualified Nonelective Contribution or Qualified Matching Contribution is made, until Actual Deferral Percentage Test is satisfied, or until such Eligible Participant who is not a Highly Compensated Eligible Participant has received his maximum Annual Additions pursuant to Appendix A:

(1)Per Capita:  under this method, the Qualified Nonelective Contribution is allocated to the Qualified Nonelective Employer Contribution Account of each Eligible Participant who is not a Highly Compensated Eligible Participant who is employed with the Plan Sponsor or an Affiliate on the last day of the Plan Year in an equal amount.

(2)Pro-Rata to Compensation:  under this method, the Qualified Nonelective Contribution is allocated to the Qualified Nonelective Employer Contribution Account of each Eligible Participant who is not a Highly Compensated Eligible Participant who is

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employed with the Plan Sponsor or an Affiliate on the last day of the Plan Year in the same ratio that such Eligible Participant’s Annual Compensation for such Plan Year bears to the total Annual Compensation of all such Eligible Participants for such Plan Year.

(3)Pro-Rata to Deferrals:  This method is used for Qualified Matching Contributions.  Under this method, the Qualified Matching Contribution is allocated to the Qualified Nonelective Employer Contribution Account of each Eligible Participant who is not a Highly Compensated Eligible Participant who is employed with the Plan Sponsor or an Affiliate on the last day of the Plan Year in the same ratio that such Eligible Participant’s Salary Deferral Contribution for such Plan Year bears to the total Salary Deferral Contributions of all such Eligible Participants for such Plan Year.

(4)Bottom-Up:  under this method, the Qualified Nonelective Contribution is allocated first to the Qualified Nonelective Employer Contribution Account of the Eligible Participant who is not a Highly Compensated Eligible Participant, whose Annual Compensation for such Plan Year is the least of all such Participants, and who is employed on the last day of the Plan Year, in an amount equal to the lesser of:  (A) the maximum amount which will allow the Annual Additions to the Eligible Participant’s Account to remain within the limits of Appendix A; or (B) such percentage of Annual Compensation as the Employer shall designate.  Once such maximum allocation has been made to the Qualified Nonelective Employer Contribution Account of such Participant, this process shall be repeated with regard to the Qualified Nonelective Employer Contribution Account of successive Eligible Participants who are not Highly Compensated Eligible Participants who are employed with the employer on the last day of the Plan Year, in the order of increasing Annual Compensation, until the entire Qualified Nonelective Contribution has been allocated.  If more than one such Eligible Participant has Compensation for the Plan Year of a given amount, the Qualified Nonelective Contribution shall be allocated among all such Eligible Participants with equal Annual Compensations in alphabetical order (last name first, then first name, then middle name) until either all such Eligible Participants with equal Annual Compensations have received the appropriate Qualified Nonelective Contribution or the entire Qualified Nonelective Contribution has been allocated.

Notwithstanding the foregoing, nothing in this Section shall be deemed to prevent a Plan Sponsor, in the event of an uncorrected failure of the Actual Deferral Percentage Test, from taking any corrective measures available pursuant to Plan Section 3.9 above.

SECTION 4

PLAN ADMINISTRATOR TO MONITOR AND MAINTAIN COMPLIANCE

The Plan Administrator shall have the responsibility of monitoring the Plan’s compliance with the limitations of this Appendix C and shall have the power to take all steps it deems necessary or appropriate to ensure compliance, including, without limitation, restricting the amount which Highly Compensated Eligible Participants can elect to have contributed pursuant

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to Plan Section 3.1.  Any actions taken by the Plan Administrator pursuant to this Section 4 shall be pursuant to non-discriminatory procedures consistently applied.

SECTION 5

ACTUAL CONTRIBUTION PERCENTAGE TEST

(a)In addition to any other limitations set forth in the Plan, Matching Contributions under the Plan and the amount of nondeductible employee contributions under the Plan, for each Plan Year must satisfy one of the following tests:

(1)The 125 Percent Test.  The Actual Contribution Percentage for Highly Compensated Eligible Participants for the Plan Year must not exceed 125% of the Actual Contribution Percentage for all other Eligible Participants for the Plan Year; or

(2)The Two Times Test.  The Actual Contribution Percentage for Highly Compensated Eligible Participants for the Plan Year must not exceed the lesser of:

(A)200 % of the Actual Contribution Percentage for all other Eligible Participants for the Plan Year, and

(B)the Actual Contribution Percentage for all other Eligible Participants for the Plan Year plus two (2) percentage points.

(b)Notwithstanding the foregoing, for purposes of this Section 5, the terms Highly Compensated Eligible Participant and Eligible Participant shall not include any Participant who is not eligible to receive a Matching Contribution under the provisions of the Plan, other than as a result of the Participant failing to contribute to the Plan or failing to have an Elective Deferral contributed to the Plan on the Participant’s behalf.

(c)Notwithstanding the foregoing, if Qualified Matching Contributions are taken into account for purposes of applying the Actual Deferral Percentage Test, they shall not be taken into account under this Section 5.

(d)In applying the above tests, the Plan Administrator shall comply with any regulations promulgated by the Secretary of the Treasury which prevent or restrict the use of the Two Times Test for purposes of passing both the Actual Deferral Percentage Test and the Actual Contribution Percentage Test.

(e)The “Actual Contribution Percentage” for a group of Eligible Participants is equal to the average of the ratios, calculated separately for each Participant, of (A) to (B), where (A) is the amount of Matching Contributions under the Plan (excluding Qualified Matching Contributions which are used to apply the test set forth in Section 2 of this Appendix C or Matching Contributions which are used to satisfy the minimum required contributions to the Accounts of Eligible Participants who are not Key Employees pursuant to Section 1 of Appendix B to the Plan) and Employee After-Tax Contributions made under the Plan for the

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Eligible Participant for the Plan Year, and where (B) is the Annual Compensation of the Eligible Participant for the Plan Year.  Except to the extent limited by Treasury Regulation Section 1.401(m)-l(b)(5) and any other applicable regulations promulgated by the Secretary of the Treasury, a Plan Sponsor may elect to treat Salary Deferral Contributions and Qualified Nonelective Contributions as Matching Contributions for purpose of determining the Actual Contribution Percentage, provided the Salary Deferral Contributions, excluding those treated as Matching Contributions, satisfy the test set forth in Section 2 of Appendix C.

SECTION 6

DETERMINATION AND CORRECTION OF EXCESS AGGREGATE CONTRIBUTION AMOUNTS

(a)If either:

(1)the Matching Contributions and, if taken into account under Section 5 of this Appendix C, the Salary Deferral Contributions, Qualified Nonelective Contributions, and/or Qualified Matching Contributions made on behalf of Highly Compensated Eligible Participants, or

(2)the After-Tax Employee Contributions made by Highly Compensated Eligible Participants

are sufficient to exceed the amount permitted under the Actual Contribution Percentage Test for any Plan Year, such excess amounts shall be considered to be “Excess Aggregate Contributions.”  The Plan Sponsor will determine the amount of Excess Aggregate Contributions under subparagraph (b) below, and will determine what share of the Excess Aggregate Contribution is attributable to each Highly Compensated Eligible Participant under Subparagraph (c) below.  The Plan Sponsor may then implement one or more of the corrective actions discussed in Subparagraphs (d) and (e) below to resolve the failure of the Actual Contribution Percentage Test so that it is considered to be passed for the Plan Year.

(b)Determination of Total Excess Aggregate Contributions.  For purposes of this Section 6, with respect to any Plan Year, “Total Excess Aggregate Contributions” means the excess of:

(1)the aggregate amount of the Matching Contributions, After Tax Employee Contributions, any Qualified Nonelective Contributions or Qualified Matching Contributions, and, if taken into account under Section 5 of this Appendix C, the Salary Deferral Contributions actually made on behalf of Highly Compensated Eligible Participants for the Plan Year, over

(2)the maximum amount of contributions permitted under the limitations of Section 5 of this Appendix C, determined by reducing contributions made on behalf of Highly Compensated Eligible Participants in order of their contribution percentages, beginning with the highest of such percentages.

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The determination of the Total Excess Aggregate Contributions under this Section 6 shall be made after first determining the excess Elective Deferrals under Section 3.1(b) of the Plan and then determining the Excess Contributions under Section 3 of this Appendix C.

(c)Allocation of Total Excess Aggregate Contributions Among Highly Compensated Eligible Participants. The Excess Aggregate Contributions for any Plan Year allocable to a given Highly Compensated Eligible Participant (for purposes of distribution under Subsection (d) below) shall be determined by the Plan Sponsor as follows:

(1)The Matching Contributions and After Tax Employer Contributions allocated to the Highly Compensated Eligible Participant with the highest dollar amount of such contributions for the Plan Year shall be reduced by the amount required to cause that Highly Compensated Eligible Participant’s remaining Matching Contributions and After Tax Employer Contributions for the Plan Year to be equal to the dollar amount of such contributions allocated to the Highly Compensated Eligible Participant with the next highest dollar amount of Matching contributions and nondeductible contributions for the Plan Year.  This amount is then the Excess Annual Contributions attributable to such Highly Compensated Eligible Participant with the highest dollar amount of Matching Contributions and After Tax Employer Contributions that shall be distributed or forfeited, unless a smaller reduction equals the total Excess Aggregate Contributions.

(2)If the total amount distributed under Paragraph (1) is less than the total Excess Aggregate Contributions, the procedure in Paragraph (1) shall be successively repeated with the Highly Compensated Eligible Participant who has the next highest dollar amount of Matching Contributions and After Tax Employer Contributions for the Plan Year, and continuing as required until the total dollar amount of Matching Contributions and After Tax Employer Contributions allocated to the Highly Compensated Eligible Participants is equal to the total Excess Aggregate Contributions attributable to Highly Compensated Eligible Participants.

(d)Distribution or Forfeiture of Excess Aggregate Contributions

(1)Before the end of the Plan Year following the Plan Year for which the Total Excess Aggregate Contributions were made, the amount of the Total Excess Aggregate Contributions attributable to the Plan for the Plan Year, as adjusted to reflect any income, gain, or loss attributable to such contributions shall be distributed or, if the Excess Aggregate Contributions are forfeitable, forfeited.

(2)The distribution or forfeiture for any given Highly Compensated Eligible Participant shall be equal to the amount of the Excess Aggregate Contribution that was allocated to such Participant under Subsection (c) above.  Such amount shall first be attributed to After Tax Employer Contributions made by the Participant during the Plan Year for which no corresponding Plan Sponsor contribution is made, second to any remaining After Tax Employer Contributions made by the Participant during the Plan Year, and third to any Matching Contributions thereon.

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(3)The income allocable to an Excess Aggregate Contribution shall be determined in a manner similar to that described in Section 4.2 of the Plan.

(4)If a Participant who is to receive a distribution or forfeiture of his After Tax Employer Contribution or Matching Contribution for the year is a participant in another plan or plans maintained by the Plan Sponsor in which Excess Aggregate Contributions for a Plan Year are held, each such plan shall distribute or forfeit a pro-rata share of each class of contribution based on the respective amounts of a class of contributions made to each plan during the Plan Year.

(5)The distribution of Excess Aggregate Contributions shall be made without regard to any other provision in the Plan.

(6)If the multiple use of the Two Times Test requires a corrective distribution pursuant to Treasury Regulation Section 1.401m)-2, such distribution shall be made pursuant to Section 3 of this Appendix C and not this Section 6.

(7)Excess Aggregate Contributions, including forfeited Matching Contributions, shall be treated as Employer contributions for purposes of Code sections 404 and 415, even if they are distributed from the Plan.  Forfeited Matching Contributions that are reallocated to Participants’ Accounts shall be treated as Annual Additions under Appendix A for the Participants to whose Accounts they are allocated, and for the Participants from whose Accounts they are forfeited.

If a distribution or forfeiture of the total Excess Aggregate Contributions is made in accordance with this Section 6(d), the limitations in Section 5 of this Appendix C shall be treated as being met regardless of whether the actual contribution percentage, if recalculated after such distributions, would have satisfied the requirements of Section 5.

(e)Contribution of Qualified Nonelective Contributions or Qualified Matching Contributions.  Not later than twelve (12) months after the end of the Plan Year, the Plan Sponsor may make a special Qualified Nonelective Contribution or a Qualified Matching Contribution on behalf of Eligible Participants who are not Highly Compensated Eligible Participants in an amount sufficient to satisfy (or to prevent an anticipated failure of) one of the tests set forth in Subsection 5 above.  Such contribution shall be allocated to the Qualified Nonelective Employer Contribution Account of one or more Eligible Participants who are not Highly Compensated Eligible Participants in one of the methods described in Subsection 3(e) above, as elected by the Plan Sponsor at the time the Qualified Nonelective Contribution or Qualified Matching Contribution is made.

Notwithstanding the foregoing, nothing in this Section shall be deemed to prevent a Plan Sponsor, in the event of an uncorrected failure of the Actual Deferral Percentage Test, from taking any corrective measures available pursuant to Plan Section 3.9 above.

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SECTION 7

MULTIPLE PLANS

Except to the extent limited by rules promulgated by the Secretary of the Treasury, if a Highly Compensated Eligible Participant is a participant in any other plan of the Plan Sponsor or any Affiliate which includes Matching Contributions, deferrals under a cash or deferred arrangement pursuant to Code Section 401(k), or nondeductible employee contributions, any contributions made by or on behalf of the Participant to the other plan shall be allocated with the same class of contributions under the Plan for purposes of determining the Actual Deferral Percentage and Actual Contribution Percentage under the Plan; provided, however, contributions that are made under an “employee stock ownership plan” (within the meaning of Code Section 4975(e)(7)) shall not be combined with contributions under any plan which is not an employee stock ownership plan (within the meaning of Code Section 4975(e)(7)).

Except to the extent limited by rules promulgated by the Secretary of the Treasury, if the Plan and any other plans which include Matching Contributions, deferrals under a cash or deferred arrangement pursuant to Code Section 401(k), or nondeductible employee contributions are considered as one plan for purposes of Code Section 401(a)(4) and 410(b)(1), any contributions under the other plans shall be allocated with the same class of contributions under the Plan for purposes of determining the Actual Contribution Percentage and Actual Deferral Percentage under the Plan; provided, however, contributions that are made under an “employee stock ownership plan” (within the meaning of Code Section 4975(e)(7)) shall not be combined with contributions under any plan which is not an employee stock ownership plan (within the meaning of Code Section 4975(e)(7)).

SECTION 8

ALTERNATIVE METHOD FOR NONDISCRIMINATION TESTING

Effective January 1, 1999, notwithstanding any other provision in this Appendix C to the contrary, to the extent otherwise applicable, the limitations expressed in this Appendix C shall not apply with respect to those Plan Years in which the Plan satisfies the requirements of Code Sections 401(k)(11) and/or 401(k)(12).

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EX-10.13(B)

Exhibit 10.13(b)

FIRST AMENDMENT TO THE
ATLANTIC SOUTHEAST AIRLINES, INC.

INVESTMENT SAVINGS PLAN

THIS FIRST AMENDMENT is made on May       , 2002, by Atlantic Southeast Airlines, Inc., a corporation duly organized and existing under the laws of the State of Georgia (the “Company”).

W I T N E S S E T H:

WHEREAS, the Company maintains the Atlantic Southeast Airlines, Inc. Investment Savings Plan (the “Plan”), which was originally established by indenture effective as of January 1, 1989, and last amended and restated by indenture on February 26, 2002;

WHEREAS, Section 13.01 of the Plan permits the Company’s Board of Directors to amend the Plan from time to time; and

WHEREAS, the Company desires to amend the Plan to correct inadvertent scrivener’s errors.

NOW, THEREFORE, the Plan is hereby amended as follows:

1.Effective as of October 1, 2000, by deleting the existing Section 1.16(b) and substituting therefor the following:

“(b)for the period beginning October 1, 2000,

(i)with respect to contributions of Deferral Amounts pursuant to Section 3.1 and contributions of Rollover Amounts pursuant to Section 3.4, the completion of a ninety-consecutive-day period beginning on the date on which the Employee first performs an Hour of Service upon his employment or reemployment with the Plan Sponsor; and

(ii)with respect to contributions by a Plan Sponsor pursuant to Section 3.2, a twelve-consecutive-month period during which the Employee completes no less than 1,000 Hours of Service beginning on the date on which the Employee first performs an Hour of Service upon his employment or reemployment with a Plan Sponsor or, in the event the Employee fails to complete 1,000 Hours of Service in that twelve-consecutive-month period, any Plan Year thereafter during which the Employee completes no less than 1,000 Hours of Service, including the Plan Year in which includes the first anniversary of the date the Employee first performs an Hour of Service upon his employment or reemployment.”

2.Effective as of January 1, 1997, by deleting the existing schedule in Section 4.1(b)(ii) related to the allocation of matching contributions and the paragraph immediately following such schedule and substituting therefor the following:

“Completed Years of Service	Percentage
Less than 2	20	%
2	30	%
3	40	%
4 or more but less than 7	50	%
7 or more	75	%

For purposes of this Section, “Completed Years of Service” means the number of full years from the Employee’s date of hire to the date as of which the matching contribution is being allocated pursuant to this Section.”

Except as specifically amended hereby, the Plan shall remain in full force and effect as prior to this First Amendment.

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

ATLANTIC SOUTHEAST AIRLINES, INC.
By:	/s/
Title:		VP Human Resources

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EX-10.13(C)

Exhibit 10.13(c)

SECOND AMENDMENT TO THE

ATLANTIC SOUTHEAST AIRLINES, INC.

INVESTMENT SAVINGS PLAN

THIS SECOND AMENDMENT is made on this 31st day of December, 2002, by ATLANTIC SOUTHEAST AIRLINES, INC., a corporation duly organized and existing under the laws of the State of Georgia (the “Primary Sponsor”).

W I T N E S S E T H:

WHEREAS, the Primary Sponsor maintains the Atlantic Southeast Airlines, Inc. Investment Savings Plan (the “Plan”) which was last amended on May       , 2002; and

WHEREAS, the Primary Sponsor now wishes to amend the Plan primarily to comply with and make changes permitted by the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”);

WHEREAS, this amendment is intended as good faith compliance with the requirements of EGTRRA and is to be construed in accordance with EGTRRA and any guidance issued thereunder; and

WHEREAS, this amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this amendment.

NOW, THEREFORE, the Primary Sponsor does hereby amend the Plan effective as of January 1, 2002:

1.By deleting the existing Section 1.4 and substituting therefor the following:

“1.4‘Annual Compensation Limit’ means $200,000, which amount may be adjusted in subsequent Plan Years based on changes in the cost of living as announced by the Secretary of the Treasury.”

2.By deleting the existing Section 1.13 and substituting therefor the following:

“1.4‘Disability’ means a disability of a Participant within the meaning of Code Section 72(m)(7), to the extent that the Participant is, or would be, entitled to disability retirement benefits under the federal Social Security Act or to the extent that the Participant is entitled to recover benefits under any long term disability plan or policy maintained by the Plan Sponsor.”

3.By deleting the existing Section 1.18 and substituting therefor the following:

“1.18‘Eligible Retirement Plan’ means any of the following that will accept a Distributee’s Eligible Rollover Distribution:

(a)an individual retirement account described in Code Section 408(a);

(b)an individual retirement annuity described in Code Section 408(b);

(c)an annuity plan described in Code Section 403(a) or an annuity contract described in Code Section 403(b);

(d)a qualified trust described in Code Section 401(a); or

(e)an eligible plan under Code Section 457(b) which is maintained by a state or political subdivision of a state, or any agency or instrumentality of a state or political subdivision and which agrees to separately account for amounts transferred into such plan from this Plan.

Effective for distributions after December 31, 2005, if any portion of an Eligible Rollover Distribution is attributable to payments or distributions from a designated Roth account (as defined in Code Section 402A), an Eligible Retirement Plan with respect to such portion shall include only another designated Roth account and a Roth IRA.”

4.By deleting the existing Section 1.19 and substituting therefor the following:

“1.19‘Eligible Rollover Distribution’  means any distribution of all or any portion of the Distributee’s Account, except that an Eligible Rollover Distribution does not include:

(a)any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated Beneficiary, or for a specified period of ten (10) years of more;

(b)any distribution to the extent such distribution is required under Code Section 401(a)(9);

(c)any distribution which is made upon hardship of the Employee; and

(d)except as otherwise provided in this Section, the portion of any distribution that is not includable in gross income (determined without regard to the exclusions for net unrealized appreciation with respect to employer securities).

‘Eligible Rollover Distribution’ shall include any portion of the distribution that is not includable in gross income provided such amount is distributed directly to one of the following:

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(i)an individual retirement account described in Code Section 408(a) or an individual retirement annuity described in Code Section 408(b) (other than an endowment contract); or

(ii)a qualified trust as described in Code Section 401(a) but only to the extent that

(A)the distribution is made in a direct trustee-to-trustee transfer;

(B)the transferee plan is a defined contribution plan; and

(C)the transferee plan agrees to separately account for amounts transferred (including a separate accounting for the portion of the distribution which is includable in income and the portion which is not includable in income).”

5.By deleting the existing Section 1.37 and substituting therefor the following:

“1.37‘Rollover Amount’ means any amount transferred to the Fund by a Participant, which amount qualifies as an Eligible Rollover Distribution under Code Sections 402(c)(4), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), or 457(e)(16), and any regulations issued thereunder.  Rollover Amount does not include any amount that would not be includable in the Participant’s gross income if it was not rolled over.”

6.By deleting the existing Section 1.39 and substituting therefor the following:

“1.39‘Termination of Employment’ means a severance from employment (within the meaning of Code Section 401(k)(2)(B)(i)(I)) of an Employee from all Plan Sponsors and Affiliates for any reason other than death, Disability, or attainment of a Retirement Date.  Any absence from active employment of the Plan Sponsor and Affiliates by reason of an approved leave of absence shall not be deemed for any purpose under the Plan to be a Termination of Employment.  Transfer of an Employee from one Plan Sponsor to another Plan Sponsor or to an Affiliate shall not be deemed for any purpose under the Plan to be a Termination of Employment.  In addition, transfer of an Employee to another employer (other than a Plan Sponsor or an Affiliate) in connection with a corporate transaction involving a sale of assets, merger, or sale of stock, shall not be deemed to be a Termination of Employment, for purposes of the timing of distributions under Section 8.1, if the employer to which such Employee is transferred agrees with the Plan Sponsor to accept a transfer of assets from the Plan to its tax-qualified plan in a trust-to-trust transfer meeting the requirements of Code Section 414(l).”

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7.By deleting the existing Section 3.1 and substituting therefor the following:

“3.1(a)Deferral Amounts.  The Plan Sponsor shall make a contribution to the Fund on behalf of each Participant who is an Eligible Employee and has elected to defer a portion of his Annual Compensation otherwise payable to him for the Plan Year and to have such portion contributed to the Fund.  Except to the extent permitted under Section 3.1(c) and Code Section 414(v), the contribution made by a Plan Sponsor on behalf of a Participant under this Section 3.1(a) shall be in one percent (1%) increments in an amount equal to the amount specified in the Participant’s deferral election, but not greater than twenty-five percent (25%) of the Participant’s Annual Compensation for the 2002 Plan Year, and not greater than fifty percent (50%) of the Participant’s Annual Compensation for every Plan Year thereafter.  Pursuant to Section 4 of Appendix C, the Plan Administrator may restrict the amount which Highly Compensated Employees may defer under this Section 3.1(a).

(b)Limit on Deferral Amounts. Except to the extent permitted under Section 3.1(c) and Code Section 414(v), Elective Deferrals shall in no event exceed the limit set forth in Code Section 402(g) in any one taxable year of the Participant.  In the event the amount of Elective Deferrals exceeds Code Section 402(g) limit, in any one taxable year then,

(1)not later than the immediately following March 1, the Participant may designate to the Plan the portion of the Participant’s Deferral Amounts which consist of excess Elective Deferrals, and

(2)not later than the immediately following April 15, the Plan may distribute the amount designated to it under Paragraph (1) above, as adjusted to reflect income, gain, or loss attributable to it through the end of the Plan Year, and reduced by any ‘Excess Deferral Amounts,’ as defined in Appendix C hereto, previously distributed or recharacterized with respect to the Participant for the Plan Year beginning with or within that taxable year.

The payment of the excess Elective Deferrals, as adjusted and reduced, from the Plan shall be made to the Participant without regard to any other provision in the Plan.  In the event that a Participant’s Elective Deferrals exceed the Code Section 402(g) limit, as adjusted, in any one taxable year under the Plan and other plans of the Plan Sponsor and its Affiliates, the Participant shall be deemed to have designated for distribution under the Plan the amount of excess Elective Deferrals, as adjusted and reduced, by taking into account only Elective Deferral amounts under the Plan and other plans of the Plan Sponsor and its Affiliates.

(c)Catch-Up Contributions. Effective November 1, 2002, a Participant who is eligible to contribute Deferral Amounts to the Plan and who has attained age 50 on or before the last day of the Plan Year shall be eligible to elect to have a portion of his Annual Compensation otherwise payable to him for

4

the Plan Year contributed by the Plan Sponsor to the Fund on his behalf as catch-up contributions in accordance with and subject to the limitations of, Code Section 414(v).  Contributions made pursuant to this Section 3.1(c) shall not be taken into account for purposes of implementing the limitations set forth in Section 3.1(a), 3.1(b) and Appendix A hereto.  The Plan shall not be treated as failing to satisfy the provisions of Appendix B, Appendix C or Code Section 410(b), as applicable, by reason of the making of the catch-up contributions as described in this Section 3.1(c).

(d)Deferral Elections.  The elections under this Section 3.1 must be made before the Annual Compensation is payable and may only be made in such manner and subject to such rules and limitations as the Plan Administrator may prescribe and shall specify the percentage or dollar amount, as applicable, of Annual Compensation that the Participant desires to defer pursuant to Section 3.1(a) and/or 3.1(c) and to have contributed to the Fund.  Once a Participant has made an election for a Plan Year, the Participant may revoke or modify his election to increase or reduce the rate of future deferrals, as provided in the administrative procedures established by the Plan Administrator.”

8.By deleting the existing Section 3.4 and by substituting therefor the following:

“3.4Rollover Contributions.  Any Eligible Employee may, with the consent of the Plan Administrator and subject to such rules and conditions as the Plan Administrator may prescribe (which may include without limitation prohibitions against transferring certain categories of Rollover Amounts to the Plan), transfer a Rollover Amount to the Fund; provided, however, that the Plan Administrator shall not administer this provision in a manner which is discriminatory in favor of Highly Compensated Employees.”

9.By deleting the existing header language of Section 7.1 and substituting therefor the following:

“7.1‘Hardship Withdrawals.’  The Trustee shall, upon the direction of the Plan Administrator, withdraw all or portion of a Participant’s Deferred Account consisting of Deferral Amounts (but not earnings thereon), including Catch-Up Contributions made pursuant to Section 3.1(c), prior to the time such account is otherwise distributable in accordance with the other provisions of the Plan; provided, however, that any such withdrawal shall be made only if the Participant is an Employee and demonstrates that he is suffering from ‘hardship’ as determined herein.  For purposes of this Section, a withdrawal will be deemed to be an account of hardship if the withdrawal is on account of:”

10.By deleting the existing Section 7.2(a)(2) and by substituting therefor the following:

“(2)the Plan Sponsor shall not permit Elective Deferrals, including catch-up contributions as described in Code Section 414(v), or after-tax employee contributions to be made to the Plan or any other plan

5

maintained by the Plan Sponsor, for a period of six (6) months after the Participant receives the withdrawal pursuant to this Section.”

11.By deleting the existing Section 7.2(a)(3) in its entirety.

12.By deleting the existing Section 8.2(b) and by substituting therefor the following:

“(b)his Matching Account computed according to the following vesting schedule provided he has completed at least one hour of Service during or after the 2002 Plan Year:

Full Years of Vesting Service	Percentage Vested
Less than 2	10	%
2	20	%
3	40	%
4	60	%
5	80	%
6 or more	100	%”

13.By deleting the existing Section 8.6 in its entirety.

14.By deleting the existing Section 11.1(a) in its entirety and by substituting therefor the following:

“(a)If the vested Account balance of a Participant or a Beneficiary of a deceased Participant(in the case of a deceased Participant who did not begin to receive payment of his vested Account balance before his death) is $5,000 or less, without consideration of amounts attributable to a Participant’s Rollover Account, it shall be distributed in one lump sum as soon as administratively practicable after the Participant or Beneficiary is eligible for a distribution pursuant to Article 8, 9, or 10, as applicable.”

15.By deleting the existing header language of Section 11.1(b) and substituting therefor the following:

“(b)If the vested Account balance of a Participant or a Beneficiary of a deceased Participant (in the case of a deceased Participant who did not begin to receive payment of his vested Account balance before his death) exceeds $5,000, without consideration of amounts attributable to a Participant’s Rollover Account, and the Participant or Beneficiary is eligible for a distribution pursuant to Article 8, 9, or 10, as applicable, the Participant or Beneficiary will receive payment of the Account in one lump sum unless the Participant elects to receive payment in one of the forms listed below as soon as administratively practicable after the Participant’s or Beneficiary’s written request to the Plan Administrator for payment of the vested Account balance.”

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16.Effective as of January 1, 2003, by deleting the existing Sections 11.5(d) and (e) and substituting therefor the following:

“(d)Distributions will be made in accordance with Code Section 401(a)(9) and the regulations issued thereunder, including the incidental benefit requirements.  Notwithstanding the foregoing, effective as of January 1, 2003, any distributions pursuant to Code Section 401(a)(9) shall be administered in accordance with the requirements of Appendix D hereto.”

16.By deleting the existing Article 20 to the Plan and substituting therefor the following:

“ARTICLE 20

INCORPORATION OF SPECIAL LIMITATIONS

Appendices A, B, C and D to the Plan, attached hereto, are incorporated by reference and the provisions of the same shall apply notwithstanding anything to the contrary contained herein.”

17.Effective as of January 1, 2002, by deleting the existing Section 1 of Appendix A and substituting therefor the following:

“Except to the extent permitted under Plan Section 3.1(c) and Code Section 414(v), if applicable, the Annual Addition for any Participant for any one limitation year may not exceed the lesser of:

(a)$40,000, as adjusted under Code Section 415(d); or

(b)100% of the Participant’s Annual Compensation.

The limit described in Subsection (b) shall not apply to any contribution for medical benefits after separation from service (within the meaning of Code Section 401(h) or 419A(f)(2)) which is otherwise treated as an annual addition.”

18.By deleting Section 2 of Appendix A to the Plan and substituting therefor the following:

“For the purposes of this Appendix A, the term ‘Annual Addition’ for any Participant means for any Limitation Year, the sum of certain Plan Sponsor, Affiliate, and Participant contributions, forfeitures, and other amounts as determined in Code Section 415(c)(2) in effect for that Limitation Year.  Participant contributions shall be determined without regard to Rollover Amounts, employee contributions to a simplified employee pension which are excludable from gross income under Code Section 408(k)(6), and catch-up contributions as described in Code Section 414(v).”

7

19.By adding the following paragraph to the end of Section 6 of Appendix A to the Plan:

“Notwithstanding anything contained in the Plan to the contrary, the Plan Administrator may modify the provisions of this Section 6 with respect to reduction of Participant’s accounts in accordance with such procedures as the Plan Administrator may establish with respect to catch-up contributions described in Code Section 414(v).”

20.By deleting Section 1(b) of Appendix B to the Plan and substituting therefor the following:

“(b)‘Key Employee’ means an Employee or former Employee (including a Beneficiary of a Key Employee or former Key Employee) who at any time during the Plan Year containing the Determination Date was:

(1)an officer of the Plan Sponsor or any Affiliate whose Annual Compensation was greater than $130,000 (as adjusted for changes in the cost of living as provided in regulations issued by the Secretary of the Treasury for Plan Years beginning after December 31, 2002) for the calendar year in which the Plan Year ends, where the term ‘officer’ means an administrative executive in regular and continual service to the Plan Sponsor or an Affiliate; provided, however, that in no event shall the number of officers exceed the lesser of Clause (A) or (B) of this Subparagraph (1), where:

(A)equals fifty (50) employees; or

(B)equals the greater of (I) three (3) employees or (II) ten percent (10%) of the number of Employees during the Plan Year, with any non-integer being increased to the next integer.

If for any year, no officer of the Plan Sponsor meets the requirements of this Subparagraph (1), the highest paid officer of the Plan Sponsor for the Plan Year shall be considered an officer for purposes of this Subparagraph (1);

(2)an owner of more than five percent (5%) of the outstanding stock of the Plan Sponsor or an Affiliate or more than five percent (5%) of the total combined voting power of all stock of the Plan Sponsor or an Affiliate; or

(3)an owner of more than one percent (1%) of the outstanding stock of the Plan Sponsor or an Affiliate or more than one percent (1%) of the total combined voting power of all stock of the Plan Sponsor or an Affiliate, and who in such Plan Year had Annual Compensation from the Plan Sponsor and all of its Affiliates of more than $150,000.

8

For purposes of determining ownership under Subsections (2) and (3) above, the rules set forth in Code Section 318(a)(2) shall be applied as follows (i) in the case of any Plan Sponsor or Affiliate which is a corporation, by substituting five percent (5%) for fifty percent (50%) and, (ii) in the case of any Plan Sponsor or Affiliate which is not a corporation, ownership shall be determined in accordance with Treasury Regulations which shall be based on principles similar to the principles of Code Section 318 (modified as described in Clause (i) above).”

21.By deleting Subsection (d)(1)(A)(i) of Section 1 of Appendix B to the Plan and substituting therefor the following:

“(i)the present value of the cumulative Accounts (excluding catch-up contributions as described in Code Section 414(v) made in the Plan Year in which the determination is being made) under the Plan for all Key Employees exceeds sixty percent (60%) of the present value of the cumulative Accounts (excluding catch-up contributions as described in Code Section 414(v) for the current Plan Year) under the Plan for all Participants; and”

22.By deleting Subsection (d)(3)(C) of Section 1 of Appendix B to the Plan and substituting therefor the following:

“(C)For purposes of determining the present value of the cumulative accrued benefit under a plan for any Participant in accordance with this Subsection, the present value shall be increased by the aggregate distributions made with respect to the Participant (including distributions paid on account of death to the extent they do not exceed the present value of the cumulative accrued benefit existing immediately prior to death) under each plan being considered, and under any terminated plan which if it had not been terminated would have been in a Required Aggregation Group with the Plan, during the one-year period ending on the Determination Date or the last day of the Plan Year that falls within the calendar year in which the Determination Date falls.  In the case of a distribution made with respect to a Participant made for a reason other than separation from service, death, or Disability, this provision shall applied by substituting a five-year period for the one-year period.”

23.By deleting Subsection (d)(3)(F) of Section 1 of Appendix B to the Plan and substituting therefor the following:

“(F)For purposes of this Paragraph (3), if any Employee has not performed any service for a Plan Sponsor or an Affiliate maintaining the Plan during the one-year period ending on the Determination Date, any accrued benefit for than Employee shall not be taken into account.”

9

24.By deleting Subsection (b)(1) of Section 2 of Appendix B to the Plan and substituting therefor the following:

“(b)(1)The percentage referred to in Subsection (a) of this Section for any Plan Year shall not exceed the percentage at which allocations are made or are required to be made under the Plan for the Plan Year for the Key Employee for whom the percentage is highest for a Plan Year.  For purposes of this Paragraph, an allocation to the Account of a Key Employee resulting from any Plan Sponsor contribution attributable to a salary reduction or similar agreement shall be taken into account but allocations of catch-up contributions as described in Code Section 414(v) shall not be taken into account.”

25.By deleting Subsection (d)(4) of Section 3 of Appendix C to the Plan and substituting therefor “[Reserved].”

26.By deleting the existing Section 4 of Appendix C to the Plan and substituting therefor the following.

“The Plan Administrator shall have the responsibility of monitoring the Plan’s compliance with the limitations of this Appendix C and shall have the power to take all steps it deems necessary or appropriate to ensure compliance, including, without limitation, restricting the amount which Highly Compensated Eligible Participants can elect to have contributed pursuant to Plan Section 3.1(a).  Any actions taken by the Plan Administrator pursuant to this Section 4 shall be pursuant to non-discriminatory procedures consistently applied.”

27.By deleting Subsection (d) of Section 5 of Appendix C and substituting therefor “[Reserved].”

28.By deleting Subsection (e) of Section 5 of Appendix C and substituting therefor the following:

“The ‘Actual Contribution Percentage’ a group of Eligible Participants for a Plan Year is equal to the average of the ratios, calculated separately for each Participant, of (A) to (B), where (A) is the amount of Matching Contributions under the Plan (excluding Qualified Matching Contributions which are used to apply the test set forth in Section 2 of this Appendix C) and nondeductible employee contributions made under the Plan for the Eligible Participant for the Plan Year, and where (B) is the Annual Compensation of the Eligible Participant for the Plan Year. Except to the extent limited by Treasury Regulation Section 1.401(m)-1(b)(5) and any other applicable regulations promulgated by the Secretary of the Treasury, a Plan Sponsor may elect to treat Salary Deferral Contributions and Qualified Nonelective Contributions as Matching Contributions for the purpose of determining the Actual Contribution Percentage, provided the Salary Deferral Contributions, excluding those treated as Matching Contributions, satisfy the test set forth in Section 2 of Appendix C.”

10

29.Effective as of January 1, 2003, by adding the following Appendix D:

“APPENDIX D

MINIMUM DISTRIBUTION REQUIREMENTS

SECTION 1

GENERAL RULES

(a)Effective Date and Precedence.  The provisions of this Appendix D will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year. The requirements of this Appendix D will take precedence over any inconsistent provisions of the Plan.

(b)Requirements of Treasury Regulations Incorporated.  All distributions required under this Section will be determined and made in accordance with the Treasury Regulations under Code Section 401(a)(9).

(c)TEFRA Section 242(b)(2) Elections.  Notwithstanding the other provisions of this Appendix D, distributions may be made under a designation made before January 1, 1984, in accordance with Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the Plan that relate to Section 242(b)(2) of TEFRA.

SECTION 2

TIME AND MANNER OF DISTRIBUTION

(a)Required Beginning Date.  The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s Required Beginning Date.

(b)Death of Participant Before Distributions Begin.  If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed as follows:

(1)If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, then distributions to the surviving spouse will begin by the later of:

(A)December 31 of the calendar year immediately following the calendar year in which the Participant died, or

(B)by December 31 of the calendar year in which the Participant would have attained age 70½.

(2)If the Participant’s surviving spouse is not the Participant’s sole Designated Beneficiary, then, distributions to the Designated Beneficiary will

11

begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

(3)If there is no Designated Beneficiary, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(4)If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this Section 2(b) (but without regard to Section 2(b)(1) above), will apply as if the surviving spouse were the Participant.

For purposes of this Section 2(b) and Section 4 of this Appendix, unless Section 2(b)(4) of this Appendix applies, distributions are considered to begin on the Participant’s Required Beginning Date.  If Section 2(b)(4) of this Appendix applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 2(b)(1) of this Appendix. If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s Required Beginning Date (or to the Participant’s surviving spouse before the date distributions are required to begin to the surviving spouse under Section 2(b)(1)), the date distributions are considered to begin is the date distributions actually commence.

(c)Forms of Distribution.  Unless the Participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the Required Beginning Date, as of the first Distribution Calendar Year, distributions will be made in accordance with Sections 3 and 4 of this Appendix D.  If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Code Section 401(a)(9) and the regulations issued thereunder.

SECTION 3

REQUIRED MINIMUM DISTRIBUTIONS DURING PARTICIPANT’S LIFETIME

(a)Amount of Required Minimum Distribution For Each Distribution Calendar Year.  During the Participant’s lifetime, the minimum amount that will be distributed for each Distribution Calendar Year is the lesser of:

(1)the quotient obtained by dividing the Participant’s Account Balance by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s age as of the Participant’s birthday in the Distribution Calendar Year; or

(2)if the Participant’s sole Designated Beneficiary throughout the entire Distribution Calendar Year is the Participant’s spouse, the quotient obtained by dividing the Participant’s Account Balance by the number in the Joint

12

and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the Distribution Calendar Year.

(b)Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death.  Required minimum distributions will be determined under this Section 3 beginning with the first Distribution Calendar Year and up to and including the Distribution Calendar Year that includes the Participant’s date of death.

SECTION 4

REQUIRED MINIMUM DISTRIBUTIONS AFTER PARTICIPANT’S DEATH

(a)Death On or After Date Distributions Begin.

(1)Participant Survived by Designated Beneficiary.  If the Participant dies on or after the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the longer of the remaining Life Expectancy of the Participant or the remaining Life Expectancy of the Participant’s Designated Beneficiary, determined as follows:

(i)The Participant’s remaining Life Expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(ii)If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, the remaining Life Expectancy of the surviving spouse is calculated for each Distribution Calendar Year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year.  For Distribution Calendar Years after the year of the surviving spouse’s death, the remaining Life Expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

(iii)If the Participant’s surviving spouse is not the Participant’s sole Designated Beneficiary, the Designated Beneficiary’s remaining Life Expectancy is calculated using the age of the Designated Beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

(2)No Designated Beneficiary.  If the Participant dies on or after the date distributions begin and there is no Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s

13

Account Balance by the Participant’s remaining Life Expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(b)Death Before Date Distributions Begin.

(1)Participant Survived by Designated Beneficiary.  If the Participant dies before the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the remaining Life Expectancy of the Participant’s Designated Beneficiary, determined as provided in Section 4(a).

(2)No Designated Beneficiary.  If the Participant dies before the date distributions begin and there is no Designated Beneficiary, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(3)Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin.  If the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under Section 2(b)(1) of this Appendix D, this Section (b) will apply as if the surviving spouse were the Participant.

(4)Alternative for Distributions to Designated Beneficiaries.  In lieu of receiving distributions as required under Subsection (1) and (3) above, the Designated Beneficiary may elect to take distribution of the Participant’s entire interest on or before the December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

SECTION 5

DEFINITIONS

As used in this Appendix D, the following words and phrases shall have the meaning set forth below:

(a)Designated Beneficiary.  The individual who is designated as the Beneficiary under Section 1.5 of the Plan and is the designated Beneficiary under Section 401(a)(9) of the Internal Revenue Code and Section 1.401(a)(9)-1, Q&A-4, of the Treasury Regulations.  For purposes of this Appendix the Designated Beneficiary (or the fact that there is no Designated Beneficiary) shall be determined on the September 30 of (except for Section 3(a)(2) above) the year following the year in which the Participant died.

14

(b)Distribution Calendar Year.  A calendar year for which a minimum distribution is required.  For distributions beginning before the Participant’s death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant’s Required Beginning Date.  For distributions beginning after the Participant’s death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin under Section 2(b).  The required minimum distribution for the Participant’s first Distribution Calendar Year will be made on or before the Participant’s Required Beginning Date.  The required minimum distribution for other Distribution Calendar Years, including the required minimum distribution for the Distribution Calendar Year in which the Participant’s Required Beginning Date occurs, will be made on or before December 31 of that Distribution Calendar Year.

(c)Life Expectancy.  Life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9 of the Treasury Regulations.

(d)Participant’s Account Balance.  The Account balance as of the last Valuation Date in the calendar year immediately preceding the Distribution Calendar Year (“Valuation Calendar Year”) increased by the amount of any contributions made and allocated or forfeitures allocated to the Account balance as of dates in the Valuation Calendar Year after the Valuation Date and decreased by distributions made in the Valuation Calendar Year after the Valuation Date.  The Account balance for the Valuation Calendar Year includes any amounts rolled over or transferred to the Plan either in the Valuation Calendar Year or in the Distribution Calendar Year if distributed or transferred in the Valuation Calendar Year.

(e)Required Beginning Date.  The date specified in Section 11.4(c) of the Plan.”

Except as specifically amended hereby, the Plan shall remain in full force and effect prior to this Second Amendment.

IN WITNESS WHEREOF, the Primary Sponsor has caused this Second Amendment to be executed on the day and year first above written.

ATLANTIC SOUTHEAST AIRLINES, INC.
By:	/s/
Title:		VP Human Resources

15

EX-10.13(D)

Exhibit 10.13(d)

THIRD AMENDMENT TO THE

ATLANTIC SOUTHEAST AIRLINES, INC.

INVESTMENT SAVINGS PLAN

THIS THIRD AMENDMENT is made on this 1st day of April, 2004, by ATLANTIC SOUTHEAST AIRLINES, INC., a corporation duly organized and existing under the laws of the State of Georgia (the “Primary Sponsor”).

W I T N E S S E T H:

WHEREAS, the Primary Sponsor maintains the Atlantic Southeast Airlines, Inc. Investment Savings Plan (the “Plan”) which was last amended effective January 1, 2002; and

WHEREAS, the Primary Sponsor now wishes to amend the Plan to provide limits on the amount of Catch-Up Contributions which may be made by a Participant each pay period;

WHEREAS, this amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this amendment.

NOW, THEREFORE, the Primary Sponsor does hereby amend the Plan effective as of January 1, 2004:

1.Section 3.1(c) of the Plan is hereby amended by adding the following to the end thereof:

“Such Catch-Up Contributions shall be made each pay period from the Participant’s Annual Compensation for that pay period in multiples of 1% but shall not exceed 75% of the Participant’s Annual Compensation for such pay period; provided, however, that in no event shall a Participant’s Catch-Up Contributions for that pay period equal more than 100% of the Participant’s Annual Compensation for that pay period less all his payroll withholdings and deductions, including his Elective Deferrals under this Plan, for that pay period.”

Except as specifically amended hereby, the Plan shall remain in full force and effect prior to this Third Amendment.

IN WITNESS WHEREOF, the Primary Sponsor has caused this Third Amendment to be executed on the day and year first above written.

ATLANTIC SOUTHEAST AIRLINES, INC.
By:	/s/
Title:		Sr. V.P.—Human Resources

2

EX-10.13(E)

Exhibit 10.13(e)

FOURTH AMENDMENT

TO THE

ATLANTIC SOUTHEAST AIRLINES, INC.

INVESTMENT SAVINGS PLAN

This Fourth Amendment to the Atlantic Southeast Airlines, Inc. Investment Savings Plan, which plan was amended and restated in its entirety effective January 1, 1997 and subsequently amended by the First, Second, and Third Amendments, is made and entered on this 30th day of December, 2005, by Atlantic Southeast Airlines, Inc., a corporation duly organized and existing under the laws of the State of Georgia (the “Corporation”).

INTRODUCTION

The Corporation maintains the Atlantic Southeast Airlines, Inc. Investment Savings Plan (the “Plan”).  The Corporation now desires to amend the Plan to reflect, in good faith, provisions related to the lowering of the automatic distribution maximum to $1,000 to avoid the need for automatic rollovers.

AMENDMENT

NOW, THEREFORE, the Corporation hereby amends the Plan as follows:

1.Effective as of March 28, 2005, Section 11.1 of the Plan shall be amended to delete the phrase “$5,000” where it appears and to substitute “$1,000” in its stead.

2.Except as specifically amended hereby, the Plan shall remain in full force and effect as prior to this Amendment.

IN WITNESS WHEREOF, the Corporation has caused this Fourth Amendment to the Plan to be executed by its duly authorized officer on the day and year first above written.

ATLANTIC SOUTHEAST AIRLINES, INC.
By:	/s/
Title:		Vice President—People

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Form S-8 No.’s 333-130848,  333-130846, 33-60173 and 333-70408) pertaining to the 2006 Employee Stock Purchase Plan, 1995 Employee Stock Purchase Plan and the 2001 Allshare Stock Option Plan and Executive Stock Incentive Plan, respectively, of SkyWest, Inc. and subsidiaries, of our reports dated March 9, 2006, with respect to the consolidated financial statements and schedule of SkyWest, Inc. and subsidiaries, SkyWest, Inc. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of SkyWest, Inc., included in this Annual Report (Form10-K) for the year ended December 31, 2005.

/s/ Ernst & Young LLP

Salt Lake City, Utah
March 9, 2006

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Jerry C. Atkin, certify that:

1.     I have reviewed this Annual Report on Form 10-K of SkyWest, Inc. for the year ended December 31, 2005;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report.

4.     The registrant’s other certifying officer(s) and I are responsible for establish and maintaining internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) and disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)     designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with general accepted accounting principles;

c)     evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)     disclosed in this report any change in the registrant’s internal control over financial reported that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)     all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect the registrant’s ability to record, process, summarize and report financial information; and

b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 13, 2006

/s/ JERRY C. ATKIN

Jerry C. Atkin

Chairman of the Board and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Bradford R. Rich, certify that:

1.     I have reviewed this Annual Report on Form 10-K of SkyWest, Inc. for the year ended December 31, 2005;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report.

4.     The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) and disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)     designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with general accepted accounting principles;

c)     evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)     disclosed in this report any change in the registrant’s internal control over financial reported that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)     all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect the registrant’s ability to record, process, summarize and report financial information; and

b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 13, 2006

/s/ BRADFORD R. RICH

Bradford R. Rich

Executive Vice President, Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on From 10-K of SkyWest, Inc. (the “Company”) for the year ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jerry C. Atkin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

          (2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ JERRY C. ATKIN

Jerry C. Atkin

Chairman of the Board and Chief Executive Officer

March 13, 2006

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT
TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of SkyWest, Inc. (the “Company”) for the year ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bradford R. Rich, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ BRADFORD R. RICH

Bradford R. Rich

Executive Vice President, Chief Financial Officer and Treasurer

March 13, 2006

This certification accompanies the Report Amendment pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.