Alaska Air Group, Inc.
P.O. Box 68947
Seattle, Washington 98168
April 2, 1996
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Alaska Air Group at 10 a.m. on May 21, 1996, in the William M. Allen
Theater at the Museum of Flight, 9404 East Marginal Way South, Seattle,
Washington. Please note that the meeting time is earlier than in recent
years.
We encourage you to participate at this meeting. Whether you plan to
attend the meeting or not, please sign and return your proxy card as soon
as possible. This will save your company the expense of contacting you
again.
Your opinion and your vote are important to us regardless of the
number of shares you own. Voting by proxy will not prevent you from voting
in person if you attend the meeting, but it will ensure that your vote is
counted if you are unable to attend.
We look forward to visiting with you at the meeting and addressing
your questions and comments.
Sincerely,
John F. Kelly
Chairman, President and
Chief Executive Officer
(PAGE BREAK)
Alaska Air Group, Inc.
P.O. Box 68947
Seattle, Washington 98168
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 21, 1996
To the Stockholders:
The Annual Meeting of Stockholders of Alaska Air Group, Inc. will be
held in the William M. Allen Theater at the Museum of Flight, 9404 East
Marginal Way South, Seattle, Washington, at 10 a.m. on May 21, 1996, for
the following purposes:
1. To elect three directors for terms of three years each.
2. To act upon a proposal to approve the 1996 Long-Term Incentive
Equity Plan.
3. To act upon a proposal to amend the Company's Certificate
of Incorporation to increase the authorized common stock
from 30 million to 50 million shares.
4. To transact such other business as may properly come
before the meeting or any adjournment thereof.
Only stockholders of record on March 25, 1996, will be entitled to
vote at the meeting.
By Order of the Board of Directors,
Marjorie E. Laws
Vice President/Corporate Affairs
and Corporate Secretary
April 2, 1996
Seattle, Washington
YOUR VOTE IS IMPORTANT. Whether you plan to attend the meeting or not,
please sign and return the proxy in the enclosed envelope so your stock can
be voted. The envelope requires no postage if mailed in the United States.
(PAGE BREAK)
Alaska Air Group, Inc.
P.O. Box 68947
Seattle, Washington 98168
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Alaska Air Group, Inc. ("Air Group"
or the "Company") to be used at the 1996 Annual Meeting of Stockholders
(the "Annual Meeting"), at 10 a.m. on May 21, 1996, at the Museum of
Flight, 9404 East Marginal Way South, Seattle, Washington. This proxy
statement is being mailed to stockholders on about April 2, 1996.
PROXIES
The shares represented by the enclosed proxy, when properly executed,
will be voted in accordance with directions given by the stockholder.
Where a choice is available and the stockholder has provided no
instructions, the shares will be voted in favor of the election of the
three nominees for director, "FOR" Proposals 2 and 3, and in support of
management on any other matters that properly come before the Annual
Meeting. A stockholder has the right to revoke, withdraw or change the
proxy at any time before it is voted by contacting the Vice
President/Corporate Affairs and Corporate Secretary of the Company. Other
than the election of directors and Proposals 2 and 3, the Company is not
aware of any other matters to be presented at the Annual Meeting.
STOCKHOLDER PROPOSALS
Under the rules of the Securities and Exchange Commission ("SEC"), for
a stockholder proposal to be included in the proxy statement for the 1997
Annual Meeting, it must be received by the Company at its corporate
headquarters, P.O. Box 68947, Seattle, Washington 98168, by December 2,
1996. The Company's Bylaws outline procedures, including minimum notice
requirements, for bringing matters before the stockholders.
VOTING SECURITIES
The Company's voting stock consists solely of common stock. On March
25, 1996, the record date for stockholders entitled to vote at the Annual
Meeting, the Company had outstanding 13,822,508 shares of $1.00 par common
stock ("common stock"). Each share of common stock is entitled to one vote
on any matter brought before the meeting.
A majority of the outstanding shares must be present in person or by
proxy to constitute a quorum for the transaction of business at the Annual
Meeting. If a quorum is present, the affirmative vote of a majority of the
shares present shall be required to act on the election of directors and on
Proposal 2 to approve the 1996 Long-Term Incentive Equity Plan. Adoption
of Proposal 3 to amend the Certificate of Incorporation to increase the
authorized common stock will require the affirmative vote of a majority of
the shares entitled to vote at the meeting. Abstentions or, in the case of
the election of directors, withheld votes will be included in the number of
shares present and will have the effect of voting against any matter before
the meeting. Shares not voted by brokers will not be included in the
number of shares present and therefore will have no effect on the voting.
On December 31, 1995, the Company's 40l(k) plans held 1,122,652
shares, or 8.3% of the outstanding common stock, in trust for participants.
The Alaska 401(k) plan includes Employee Stock Ownership Plan ("ESOP")
features. Included in the total shares held by the 401(k) plans are
673,068 shares held by the ESOP (the "ESOP shares") and 449,584 non-ESOP
shares. As of December 31, 1995, 148,808 shares remain unallocated to
participants' accounts.
The trustee will vote the allocated shares in accordance with
confidential instructions from each participant. If no instructions are
received, the trustee will vote such allocated shares as it determines to
be in the best interest of the participants.
A pro rata portion of unallocated ESOP shares are automatically voted
by the trustee on behalf of participants in the same manner as the
participants instructed the allocated shares to be voted. The trustee will
vote the balance of unallocated ESOP shares for which no instructions are
received in proportion to the unallocated shares for which voting
instructions are received.
Security Ownership of Certain Beneficial Owners and Management
5% Owners. The following table shows the beneficial ownership of each
person or entity known by the Company to own more than 5% of the Company's
common stock. Ownership shown is based on publicly available information
reported as of February 15, 1996.
Amount & Nature Percent of
Name & Address of of Class
Beneficial Owner Beneficial Ownership
FMR Corp. 1,357,700 (1) 9.8%
82 Devonshire Street
Boston, Massachusetts 02109
Alaska Airlines & Horizon Air 1,122,652 8.3%
Industries 40l(k) Plans
c/o BNY Western Trust Company, Trustee
Two Union Square, Suite 520
601 Union Street
Seattle, Washington 98101
The Crabbe Huson Group, Inc. 1,067,400 (2) 7.8%
121 S.W. Morrison, Suite 1400
Portland, Oregon 97204
The Goldman Sachs Group, L.P. 744,556 (3) 5.4%
and Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Merrill Lynch & Co., Inc. 736,199 (4) 5.4%
World Financial Center, North Tower
250 Vesey Street
New York, New York 10281
(1)Includes the following shares beneficially owned by
two wholly owned subsidiaries of FMR Corp.: Fidelity Management &
Research Company - 883,200 and Fidelity Management Trust Company -
474,500. FMR Corp. has sole voting power for 501,500 shares and sole
dispositive power for 1,357,700 shares.
(2)The Crabbe Huson Group is an investment advisor
with shared voting and dispositive power over 160,800 shares
beneficially owned by 12 investors. In addition, Crabbe Huson Group
and Crabbe Huson Special Fund, Inc., an open-ended investment company,
share voting and dispositive power for 906,600 shares. Both companies
disclaim beneficial ownership of all shares.
(3)The Goldman Sachs Group, L.P. and Goldman, Sachs &
Co. share voting and dispositive power of the 744,556 shares reported
and are beneficial owners of the shares.
(4)Includes 4,600 shares beneficially owned and 731,599 shares that could
be obtained upon conversion of convertible bonds by several wholly
owned subsidiaries of Merrill Lynch & Co.: Merrill Lynch, Pierce,
Fenner & Smith Incorporated; Merrill Lynch Group, Inc.; Princeton
Service, Inc.; Merrill Lynch Asset Management; Fund Asset Management;
and Merrill Lynch Trust Company. No single subsidiary's interest
relates to more than 5% of Air Group's common stock. Merrill Lynch &
Co. has neither sole voting nor sole dispositive power over the shares
and disclaims beneficial ownership.
Management. The following table shows the beneficial ownership of Company
common stock by all directors, director nominees, executive officers named
in the Summary Compensation Table and all directors, nominees and executive
officers as a group as of March 25, 1996, except for 40l(k) plan shares,
which are as of December 31, 1995. As a group, the directors, nominees and
executive officers owned 6.5% of the outstanding stock on that date. None
of these individuals owns more than 1% of the outstanding common stock.
Unless otherwise noted, they have sole voting and dispositive power over
such shares.
No. of Common Percent
Name of Individual Shares of
Beneficially Class
Owned Owned
George D. Bagley 59,410 (1)
William H. Clapp 48,369 (2)
Ronald F. Cosgrave 16,000
Mary Jane Fate 115 (3)
John R. Fowler 29,673 (1)
John F. Kelly 89,146 (1)(4)
Bruce R. Kennedy 109,385 (1)(5)
R. Marc Langland 150
Harry G. Lehr 67,659 (1)
Byron I. Mallott 400 (5)
Robert L. Parker, Jr. 266
Michel A. Swanigan 250 (1)
Raymond J. Vecci 77,711 (1)(4)(5)
Richard A. Wien 200
All directors, nominees and 904,777 (1)(5) 6.5%
executive officers as a
group (24 individuals)
(1)Includes shares held in trust under the Company's 40l(k) plans. Also
includes the following options, which are exercisable in the next 60
days:
Name of Individual Stock Option Capital Performance
Plans Plan (6)
George D. Bagley 27,850 31,200
John R. Fowler 28,775 0
John F. Kelly 42,225 44,850
Bruce R. Kennedy 22,000 74,100
Harry G. Lehr 30,650 35,100
Michel A. Swanigan 250 0
Raymond J. Vecci 0 68,250
All directors, nominees
and executive 342,240 432,900
officers as a group
(24 individuals)
(2)Includes 30,000 shares registered in the name of a family trust for
which Mr. Clapp is a beneficiary and serves as co-trustee.
(3)Does not include 1,546 shares registered in the name of her husband.
Mrs. Fate disclaims beneficial ownership of those shares.
(4)On February 9, 1995, Mr. Kelly was elected Chairman, President and
Chief Executive Officer of the Company, replacing Mr. Vecci who
resigned effective that same date.
(5)Shares dispositive and investment power with spouse over the following
shares: Bruce R. Kennedy - 13,285; Byron I. Mallott - 400; Raymond J.
Vecci - 9,461; and all directors, nominees and executive officers as a
group - 123,613.
(6)Under the Alaska Air Group Capital Performance Plan ("CPP"),
approximately 290 management employees purchased investment options
which effectively entitle them to purchase Company common stock. These
employees will experience no gain until and unless the market value of
the stock exceeds $27. At the time the options were purchased, the
market value of the common stock was $23.75 per share. The options
expire in February 1997, and if not exercised by that time, the plan
calls for investments to be returned to participants. The named
executive officers invested the following amounts in CPP options:
George D. Bagley - $42,080; John R. Fowler - $0; John F. Kelly -
$60,490; Harry G. Lehr - $47,340; Michel A. Swanigan - $0; and Raymond
J. Vecci - $92,050.
ELECTION OF DIRECTORS
Three directors are proposed to be elected at the Annual Meeting. The
Board of Directors is divided into three classes, each serving staggered
three-year terms. The persons named in the proxy intend to vote for the
election of the three nominees named below. Each nominee has consented to
serve as a director. If any nominee is unable to serve for any reason, the
proxies or their substitutes will vote the shares represented by each proxy
for such substitute nominees as the Executive Committee of the Board of
Directors shall approve.
NOMINEES FOR DIRECTOR (Term expiring 1999)
BYRON I. MALLOTT (52) - Mr. Mallott has been a director since 1982 and is a
member of the Audit Committee. He served as Mayor of the City and Borough
of Juneau, Alaska, from October 1994 until resigning in February 1995 upon
appointment as the Executive Director (chief executive officer) of the
Alaska Permanent Fund Corporation (a trust managing proceeds from the state
of Alaska's oil revenues). In December 1994, he completed a two-year
appointment as Executive in Residence at the University of Alaska
Southeast. He was a director of Sealaska Corporation, Juneau, Alaska, from
1972 to 1988; Chairman from 1976 to 1983; and Chief Executive Officer from
1982 through September 1992. He owns Mallott Enterprises (personal
investments) and is a director of Colville Tribal Enterprises Corporation
and Horizon Air.
ROBERT L. PARKER, JR. (47) - Mr. Parker has been a director since 1975. He
serves on the Executive Committee and is Chairman of the Compensation
Committee. He has been President and Chief Executive Officer of Parker
Drilling Company (oil and gas drilling contractor), Tulsa, Oklahoma, since
December 1991. He was President and Chief Operating Officer from 1977 to
1991, and has been a director of Parker Drilling since 1977.
RICHARD A. WIEN (60) - Mr. Wien has been a director since 1982 and serves
on the Compensation and Audit Committees. He has been Chairman and Chief
Executive Officer of Florcraft, Inc. (retail flooring), Fairbanks and
Anchorage, Alaska, since 1986. He is also a director of Horizon Air and
National Bank of Alaska.
CONTINUING DIRECTORS (Term expiring 1998)
WILLIAM H. CLAPP (54) - Mr. Clapp has been a director since 1977 and is
Chairman of the Audit Committee. He has been Chairman of the Board and
President of Matthew G. Norton Co. (investment/holding company), Seattle,
Washington, since 1979. Mr. Clapp is also a director of Weyerhaeuser
Company and Alaska Airlines.
RONALD F. COSGRAVE (64) - Mr. Cosgrave has been a director since 1971
(except for a brief period between 1981 and 1983) and serves on the
Executive Committee. He has been Chairman of the Board of Alaska Northwest
Properties Inc. (real estate and investments), Seattle, Washington, since
1979. He is a retired Chairman and Chief Executive Officer of Alaska
Airlines. Mr. Cosgrave is Chairman Emeritus and a director of Alaska
Airlines.
R. MARC LANGLAND (54) - Mr. Langland has been a director since February
1991 and serves on the Audit and Compensation Committees. He has been
President of Northrim Bank (banking), Anchorage, Alaska, since November
1990 and President of Norcap, Ltd. (investments) since May 1989. He was
Chairman and Chief Executive Officer of Key Bank of Alaska from 1987 to
1988 and President from 1985 to 1987. He served on the Board of Trustees
of the Alaska Permanent Fund Corporation from February 1987 to January 1991
and was Chairman from June 1990 to January 1991. He is also a director of
Northrim Bank and Alaska Airlines.
CONTINUING DIRECTORS (Term expiring 1997)
MARY JANE FATE (62) - Mrs. Fate has been a director since 1979 and serves
on the Compensation Committee. She has served as General Manager of a
family business, Fairbanks, Alaska, since 1989. She was President and
Executive Director of Baan o yeel kon Corporation (an Alaska Native village
corporation) from 1981 to 1989. She is a director of Horizon and Baan o
yeel kon Corporation.
JOHN F. KELLY (51) - Mr. Kelly has been a director since 1989 and serves on
the Executive Committee. He was elected Chairman, President and Chief
Executive Officer of Air Group and Alaska Airlines and Chairman of Horizon
Air in February 1995. He was Chief Operating Officer of Alaska Airlines
from November 1994 to February 1995. He was Chairman of Horizon Air from
February 1991 to November 1994 and President and Chief Executive Officer of
Horizon Air from June 1987 to November 1994. He was Vice
President/Marketing of Alaska Airlines from 1981 to June 1987. He is a
director of Horizon Air and Alaska Airlines.
BRUCE R. KENNEDY (57) - Mr. Kennedy has been a director since 1972 and has
served as Chairman of the Executive Committee since 1985, except for the
brief period of November 1994 to February 1995. He is Chairman Emeritus of
Air Group. He served as Chairman, Chief Executive Officer and President of
Air Group from 1985 to 1991. He was also Chairman of Alaska Airlines from
1979 to 1991, Chief Executive Officer from 1979 to 1990 and President for
eleven years between 1978 and 1990.
DIRECTOR REMUNERATION
Each outside director of Air Group receives an annual retainer of
$15,000. Outside directors of Alaska Airlines or Horizon receive an annual
retainer of $1,000. An annual retainer of $1,000 is also paid to each
Committee chair. In addition, a meeting fee of $1,000 is paid for each
Board or Committee meeting in which an outside director participates in
person. If participation is via telephone, the fee is $750. When more
than one meeting of a Board and/or Committee is held on the same day, only
one meeting fee is paid.
THE BOARD OF DIRECTORS AND COMMITTEE MEETINGS
The Board of Directors has established the following committees which
meet outside of regular Board of Directors meetings to assist the Board in
discharging its responsibilities.
Audit Committee. The Audit Committee consists of William H. Clapp
(Chairman), R. Marc Langland, Byron I. Mallott and Richard A. Wien. The
Audit Committee is responsible for: (1) reviewing the annual report of the
independent auditors; (2) evaluating the external and internal financial
audit functions; (3) making recommendations to the Board of Directors with
respect to the appointment of independent auditors and other auditing
matters; and (4) evaluating the Company's compliance with environmental
regulations. Two Audit Committee meetings were held during 1995.
Compensation Committee. The Compensation Committee consists of Robert
L. Parker, Jr. (Chairman), Mary Jane Fate, R. Marc Langland and Richard A.
Wien. The functions of the Compensation Committee are to: (1) make
recommendations to the Board of Directors with respect to the salary of the
Chairman and Chief Executive Officer; (2) approve salaries of executive
officers of Alaska Airlines and Horizon Air; (3) make recommendations to
the Board of Directors with respect to other executive compensation issues,
including modification or adoption of executive compensation plans; (4)
grant stock options; and (5) serve as administrator for the Company's stock
option and other long-term incentive plans and the CPP. The Compensation
Committee held six meetings during 1995.
Executive Committee. The Executive Committee consists of Bruce R.
Kennedy (Chairman), Ronald F. Cosgrave, John F. Kelly, and Robert L.
Parker, Jr. The Executive Committee serves as the Nominating Committee to
select director nominees. The Company's Bylaws outline procedures and
minimum notice provisions for nominating directors. The Committee does not
consider director nominations from stockholders. The Executive Committee
also makes recommendations to the Board on Committee membership and chairs.
The Executive Committee held five meetings during 1995.
There were six Air Group Board of Directors meetings in 1995. All
directors attended at least 75% of the meetings of the Board and committees
on which they serve.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee is a current or
former employee or executive officer of the Company or any of its
subsidiaries or has any interlocking relationship with any other
corporation that would require disclosure.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows the compensation of the Company's Chief
Executive Officers and the four other most highly paid executive officers
(the "named executive officers") for each of the last three fiscal years
ending December 31. (Bonus figures are reported in the year earned.)
<TABLE>
Summary Compensation Table
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------- -----------------------------------
Other Awards Payouts
Annual Restricted Underlying All Other
Compen- Stock Options/ LTIP Compen-
Name and Salary Bonus sation(1) Award(s)(2) SARs(3) Payouts(2) sation(4)
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John F. Kelly(5) 1995 317,154 47,678 - 0 37,800 0 10,170
Chairman, President 1994 203,404 141,435 - 0 8,800 0 11,673
& CEO (Alaska) 1993 187,115 0 - 0 7,200 0 11,419
Harry G. Lehr 1995 222,577 22,944 - 0 25,700 0 10,350
Sr. Vice President/ 1994 161,308 96,785 - 0 7,000 0 7,272
Finance (Alaska) 1993 147,192 0 - 0 5,600 0 7,031
John R. Fowler 1995 178,654 18,416 - 0 20,600 0 6,483
Vice President/ 1994 171,500 102,900 - 0 7,500 0 6,393
Maintenance & 1993 160,035 0 19,457 0 6,200 0 6,165
Engineering (Alaska)
George D. Bagley 1995 170,813 18,133 - 0 20,800 0 6,984
President & CEO 1994 153,654 92,192 - 0 7,000 0 18,624
(Horizon) 1993 115,674 11,137 - 0 4,300 0 12,717
Michel A. Swanigan 1995 177,981 2,494 - 0 11,500 0 3,502
Vice President/Flight 1994 155,847 0 - 0 0 0 3,218
Operations (Alaska) 1993 144,210 0 - 0 0 0 2,966
Raymond J. Vecci(5) 1995 56,250 0 - 0 0 0 388,283
Former Chairman, 1994 372,116 334,904 - 0 163,900 0 10,092
Pres. & CEO (Alaska) 1993 300,000 0 - 0 11,900 0 9,681
</TABLE>
(1)Includes the value of personal benefits and a tax gross-
up for the imputed income in connection with those
benefits. Amounts that exceed the lesser of $50,000 or
10% of a named executive officer's salary plus bonus in
each of the past three years are shown. 1993 expenses
include $11,710 relating to Mr. Fowler's automobile.
Other items included in the total for Mr. Fowler fall
below the threshold for itemization.
(2)The Company granted no restricted stock awards and
currently has no long-term incentive plan.
(3)Tandem stock appreciate rights ("SARs") generally attach
to up to 50% of options granted. SARs are not paid in
cash, but can only be exercised to receive a credit
toward the exercise price of options. SARs are not
included in 150,000 of the options granted to Mr. Vecci
in 1994.
(4)Includes Company-paid contributions to
individual 40l(k) plan accounts and imputed income for
the value (as determined by the Internal Revenue Service
("IRS")) of a term life insurance benefit provided by
the Company. In 1995 401(k) contributions were: $4,620
each for Messrs. Kelly, Lehr, Fowler, Bagley and Vecci
and $3,240 for Mr. Swanigan. Imputed income for term
life insurance during 1995 was: Messrs. Kelly - $5,550;
Lehr - $5,730; Fowler - $1,863; Bagley - $2,364;
Swanigan - $262; and Vecci - $1,920. Also includes
$366,346 severance pay and $15,397 as the imputed value
of the automobile gifted to Mr. Vecci as part his
severance arrangement.
(5)On February 9, 1995, Mr. Kelly was elected Chairman,
President and Chief Executive Officer of the Company,
replacing Mr. Vecci who resigned effective that same
date.
Severance or Employment Contracts
In February 1995, the Company entered into a severance
agreement with Mr. Vecci. Mr. Vecci received a cash sum
equal to one year's base salary plus unused vacation
($366,346), and his basic benefits were continued to
September 30, 1995. He was also gifted his Company
automobile.
Stock Option Plan Information
Under the 1984 and 1988 Stock Option Plans, options are
granted at the fair market value of Air Group shares on the
date of grant. They are not transferable. They are
exercisable for cash, through a stock-for-stock exchange,
through the use of SAR credits where they exist, or a
combination of the three. The Compensation Committee is
authorized to establish the terms of each grant. The
options are generally not exercisable until one year after
grant and then become exercisable in 25% increments over a
period of four years. The 150,000 options granted to Mr.
Vecci in 1994 became fully vested and exercisable one year
after the grant date. Incentive stock options have a ten-
year term, and nonqualified options have a term of
approximately ten years and one month. Retiring employees
may exercise vested options for six months after their
retirement. Unvested options are canceled upon retirement.
Unexercised options of employees who leave the Company for
reasons other than retirement are canceled at the time their
employment ends. The accelerated vesting provisions of all
options are described under "Change in Control Arrangements"
on page 18.
The following table shows grants of stock options to
the named executive officers during 1995:
<TABLE>
Option/SAR Grants in Last Fiscal Year
<CAPTION>
Individual Grants Potential Realizable
-------------------------------------------------------- Value at Asssumed Annual
Number of % of Total Rates of Stock price
Securities Options/SARs Appreciation for Option
Underlying Granted to Term (1)
Options/SARs Employees in Exercise or
Granted Fiscal Year Base Price Expiration
Name (#) (%) ($/Sh) Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
John F. Kelly (2) 17,700 4.2 15.000 3/23/05 166,972 423,139
20,100 4.7 15.625 12/6/05 197,512 500,535
Harry G. Lehr 11,800 2.8 15.000 2/23/05 111,314 282,092
13,900 3.3 15.625 12/6/05 136,588 346,141
John R. Fowler 9,500 2.2 15.000 2/23/05 89,617 227,108
11,100 2.6 15.625 11/6/05 109,074 276,415
George D. Bagley (2) 8,500 2.0 15.000 2/23/05 80,184 203,202
12,300 2.9 15.625 12/6/05 120,866 306,297
Michel A. Swanigan 1,000 0.2 15.000 2/23/05 9,433 23,906
10,500 2.5 15.625 11/6/05 103,178 261,473
Raymond J. Vecci 0 0.0 0.000 N/A 0 0
</TABLE>
(1)The assumed rates of appreciation in the above table
were suggested as examples by the SEC and are not
intended to predict actual appreciation of Air Group
common stock prices.
(2)9,000 of the options granted to Mr. Kelly at $15.00 were
incentive stock options and will expire 2/23/05; 5,100
of the options granted to Mr. Bagley at $15.625 were
incentive stock options and expire 11/6/05. They are
shown together with the nonqualified options that were
part of the same grant.
The following table shows unexercised options held by
each named executive officer at year end 1995. There is no
assurance that the indicated values of any unexercised
options will actually be realized.
<TABLE>
Aggregated Option/SAR Exercises in 1995 and Fiscal Year End Options/SAR Value
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at Fiscal Year End (2) at Fiscal Year End (3)
Acquired Value ---------------------------- ------------------------------
on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
John F. Kelly 0 0 78,650 48,000 11,375 34,688
Harry G. Lehr 4,000 17,500 59,650 33,750 0 23,438
John R. Fowler 0 0 22,975 29,325 0 18,813
George D. Bagley 0 0 54,100 28,200 8,125 18,313
Michel A. Swanigan 0 0 0 11,500 0 7,813
Raymond J. Vecci 65,600 312,475 209,675 0 78,750 0
</TABLE>
(1)Market price of underlying securities at exercise date minus the
exercise price.
(2)Includes the following shares, which may be acquired through exercise
of CPP options: John F. Kelly - 44,850; Harry G. Lehr - 35,100; John
R. Fowler - None; George D. Bagley - 31,200; Michel A. Swanigan - None;
and Raymond J. Vecci - 68,250. All CPP options are convertible at a
price higher than the market price at year end 1995. (See Security
Ownership of Management on page 5 for a description of the CPP.)
(3)Defined as the market price of common stock at year end minus the
exercise price.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
Executive Compensation Policy
The Company's policy is to pay competitive compensation at all levels.
The objectives of the Company's executive compensation policies are: to
attract and retain highly qualified executives; to motivate officers to
provide excellent leadership and achieve Company goals; to link the
interests of executives and stockholders by tying a large portion of total
compensation to Company profitability and stock value; and to reward
outstanding performance. Executive compensation includes competitive base
salary, a cash incentive plan tied to annual financial performance, and
equity-based awards.
In 1994, Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code") was amended to eliminate the deductibility of certain
compensation over $1 million paid to the named executive officers. The
Company has not established a formal policy in connection with the ruling
since base plus bonus compensation of those individuals is not close to that
amount. Compensation from the exercise of options granted to date under the
Company's stock option plans qualifies for the deduction. The 1996 Long-
Term Incentive Equity Plan proposed by the Board and set forth in this proxy
statement will allow for the issuance of awards that are fully deductible
under the Code.
Base Salary
1995 base salaries for other executive officers were set by agreement
between the CEO and the Compensation Committee. They were based on
subjective analysis of: competitive market rates; the market demand for
each officer's skills; the executive's influence on long-term Company
strategies and success; the relationships among executive positions; and
individual leadership performance.
To ensure that its overall compensation is appropriate, the Company
periodically reviews executive compensation at Dow Jones Airlines Group
companies, other air carriers, similarly sized Pacific Northwest companies
and from broad-based national compensation surveys. The Company does not
attempt to set executive compensation at specific target ranges of any
particular survey. In 1995, officers (other than the CEO) received
increases averaging 3%.
Management Incentive Plan
Air Group's Management Incentive Plan ("MIP") links a significant
portion of each executive's potential cash compensation to annual
profitability. Thirty-six employees, including officers and key employees
of the Company, Alaska and Horizon, currently participate in the plan.
For awards to be paid, the Company must achieve or exceed profit goals
established annually by the Compensation Committee. In 1993 and 1994 the
MIP goals were based on return-on-equity levels of 8%, 12% and 14% for
"threshold," "target" and "maximum" goals, respectively. In 1995, the
Committee increased the basis for the "maximum" goal to a 16% return on
equity. Awards increase proportionately based on the degree to which goals
are met. They can range from zero if the "threshold" is not met, to 30-45%
of base salary if the "target" is met, up to a maximum of double the
"target" award if profits reach or exceed the "maximum" goal. Award levels
vary by position and can be adjusted for individual performance.
No payments were made under the MIP for 1990 through 1993 as the goal
was not met. In 1994 the "maximum" goal was exceeded. Payments made to the
named executive officers for 1995 were based on profits that exceeded the
"threshold" but fell short of the full "target." (See Summary Compensation
Table on page 9.)
For the executives in the Summary Compensation Table, the percentages
of total potential cash compensation linked to performance under the MIP in
1995 were: Mr. Kelly _ 47%; Mr. Lehr _ 38%; Mr. Fowler _ 38%; Mr. Bagley _
38%; and Mr. Swanigan _ 8%. Mr. Swanigan's eligible compensation was
measured from his election as Vice President/Flight Operations on October 23
through the end of 1995. Mr. Vecci did not participate in the plan in 1995.
Equity-Based Awards
Stock options are the only equity-based compensation presently used by
the Company. They provide an incentive to maximize stock values, linking
the long-term interests of executives with those of stockholders. Because
options vest over several years, they also encourage executives to remain
with the Company.
The Committee grants options at market price, so recipients benefit
only if the price of the stock appreciates and stockholders also benefit.
No options have been repriced in the past ten years.
The Committee does not base grants on ownership targets or on the
number of options an individual has outstanding, because it believes doing
so would discourage officers from retaining options or shares. Individual
grants are determined on a pro rata basis according to base salary, which
reflects the relationship of executive positions to one another. The
options granted to each of the named executive officers in 1995 are shown in
the Summary Compensation Table and the Option Grant Table on pages 9 and 11.
The 1996 Long-Term Incentive Equity Plan proposed for stockholder
approval in this proxy statement would provide for equity-based awards other
than stock options. If approved, the Committee will work with the Board to
determine whether and how to best use the plan to achieve its overall
compensation goals.
CEO Compensation
Base Salary
In recommending the CEO's base salary for approval by the Board of
Directors, the Committee reviews competitive information similar to that
used for other Company executives. The Committee does not target a specific
range of competitive pay, but applies the information as it deems
appropriate. By reviewing survey data periodically, the Committee believes
it will remain mindful of compensation levels that would be required to
recruit key executives from outside the Company.
In 1995 the Board of Directors established a procedure for annual
evaluation of the CEO's performance based on the Company's financial
performance, the CEO's relationship with the Board, communication to the
Board and other Company constituencies, investor relations, overall
leadership, and strategic and succession planning.
Following are examples of the kinds of accomplishments the Board
considers in measuring performance. In 1995 the Company continued to reduce
its unit costs and improve productivity. Alaska Airlines and Horizon Air
both reduced unit costs per available seat mile by 7% over 1994. Alaska
increased its aircraft utilization by 5% _ the equivalent of adding 3.5
planes to the fleet. Other measurable productivity gains included
improvements in the number of available seat miles per employee and
passengers per employee. The methods used to cut costs were in line with
strategic plans to be competitive in a low-fare environment, to maximize
yield and to maintain a quality service differential over the competition.
A new advertising campaign launched in 1995 was effective in highlighting
the Company's quality service while increasing awareness of its competitive
fares.
Air Group net income for 1995 was $17.3 million. This is particularly
notable because the Company maintained its strong market presence while
facing intense competition and its fifth straight year of declining fares.
Management Incentive Plan
The MIP award is the portion of the CEO's compensation that most
directly relates to the Company's financial performance. It can range from
nothing if the "threshold" is not met, to 45% of base salary if the profit
"target" is met, to 90% if profits reach or exceed the "maximum" goal. The
profit measurements on which Mr. Kelly's 1995 MIP award was based were
identical to those detailed on pages 13 and 14 for all participants in the
MIP. Mr. Kelly's 1995 MIP payment was $47,678.
Stock Options
In 1995, Mr. Kelly was granted 37,800 stock options under the Company's
stock option plans. The size of grant was based on criteria identical to
that outlined earlier for option grants to executive officers in general.
By: Alaska Air Group Compensation Committee
Robert L. Parker, Jr., Chairman
Mary Jane Fate, Committee Member
R. Marc Langland, Committee Member
Richard A. Wien, Committee Member
PERFORMANCE GRAPH
Comparison of Five-Year Cumulative Total Return(1)
Among Alaska Air Group, the S & P 500 Index, and the Dow Jones Airlines
Group
(Fiscal Year Ending December 31)
PERFORMANCE GRAPH IS SHOWN HERE BASED ON THE DATA THAT FOLLOWS
Date Alaska Air S & P 500 Dow Jones
Group Airlines(2)
1990 100.00 100.00 100.00
1991 125.40 130.47 132.60
1992 96.14 140.41 129.79
1993 82.30 154.56 157.42
1994 87.40 156.60 110.15
1995 94.68 215.45 166.60
(1)Assumes $100 invested on December 31, 1990, in Air Group common stock,
the S & P 500 Index and the Dow Jones Airlines Group with all dividends
reinvested.
(2)The companies included in the Dow Jones Airlines Group are: Alaska Air
Group, AMR, Delta Airlines, Southwest Airlines, USAir and UAL.
Salaried Retirement Plan
The Company maintains a tax-qualified, defined benefit retirement plan
for all salaried Alaska employees who have completed one year of service.
Benefits payable under the Alaska Airlines Salaried Retirement Plan (the
"Salaried Retirement Plan") are based on years of credited service and
final average earnings. The annual retirement benefit at age 62 (normal
retirement age under the Salaried Retirement Plan) is equal to the
employee's final average earnings times two percent, times years of
credited service. Annual benefits are computed on a straight life annuity
basis at normal retirement age. Benefits under the Salaried Retirement
Plan are not subject to offset for Social Security benefits.
The following table shows estimated Salaried Retirement Plan annual
benefits during 1995 at various combinations of final average earnings and
years of credited service. These estimates represent the straight life
annuity benefit for an individual who retires at normal retirement age.
Final Average Annual Benefits Based on Years of Credited
Earnings (1) Service (2)
15 20 25 30 35
$125,000 $37,500 $50,000 $62,500 $75,000 $87,500
$175,000 52,500 70,000 87,500 105,000 122,500
$225,000 67,500 90,000 112,500 135,000 157,500
$300,000 90,000 120,000 150,000 180,000 210,000
$350,000 105,000 140,000 175,000 210,000 245,000
$400,000 120,000 160,000 200,000 240,000 280,000
$450,000 135,000 180,000 225,000 270,000 315,000
(1)Mr. Vecci retired under the Salaried Retirement Plan, and his annual
early retirement benefit is $38,762 based upon final average earnings
of $216,189 for the years 1989-1993 and $150,000(2) for 1994-1995.
Final average earnings for the other named executive officers for the
five-year period ending December 31, 1995 are: Mr. Kelly _ $207,953;
Mr. Lehr _ $156,973; Mr. Fowler _ $170,063; Mr. Bagley _ $162,234 and
Mr. Swanigan _ $170,000. Prior to his election as an officer in
October 1995, Mr. Swanigan was an active participant in the Fixed
Income Retirement Plan for Pilots. He is no longer accruing additional
benefits under that plan. Based on his service and earnings as a pilot
prior to October 1995, Mr. Swanigan will be eligible for an annual
benefit of $42,216 at normal retirement age under the pilots plan.
(2)IRS regulations limit the annual benefits that may be paid from a tax-
qualified retirement plan. The current limit is $120,000. In
addition, IRS regulations limit the covered compensation on which
annual retirement benefits are based to $150,000. To the extent that
the amounts shown in the table above exceed that IRS limitation, the
excess is paid from the Officers Supplementary Retirement Plan.
All of the participants' base salaries, excluding bonuses, are covered
under the Salaried Retirement Plan. The officers shown in the Summary
Compensation Table have the following years of credited service and covered
compensation as of December 31, 1995:
Named Executive Years of Credited Covered Compensation
Officer Service
John F. Kelly 18.3 $317,154
Harry G. Lehr 8.1 $222,577
John R. Fowler 3.2 $178,654
George D. Bagley(1) 2.1 $170,813
Michel A. Swanigan(2) .1 $ 24,192
Raymond J. Vecci(2) 19.7 $ 0
(1)When Mr. Bagley transferred from Alaska to Horizon in October 1995, he
was 100% vested under the Salaried Retirement Plan. Horizon does not
have a similar plan, but will supplement his benefits to ensure that
his retirement benefit will be equivalent to what he would have
received had he continued with Alaska.
(2)The covered compensation under the Salaried Retirement Plan for Messrs.
Swanigan and Vecci differs from their annual compensation because the
plan considers compensation for full year employment only. Mr. Vecci
was an employee for less than the full year, thus the amount covered
for 1995 is $0. Mr. Swanigan was an employee for the full year, but
did not begin to participate in the plan until November 1995.
Officers Supplementary Retirement Plan
In addition to the benefits described above, under the Officers
Supplementary Retirement Plan (the "Supplementary Plan"), elected officers
of Air Group and Alaska and Horizon's Chief Executive Officer can receive
retirement benefits, provided they have met service requirements. The
Supplementary Plan is a nonqualified, unfunded, noncontributory defined
benefit plan. Normal retirement benefits are payable once the officer
reaches age 60 and has ten years of service as an elected officer. Annual
benefits are calculated on a straight life annuity basis. Under the
version of the Supplementary Plan applicable to officers elected prior to
August 8, 1995, benefits can be up to 50% of a participant's final average
earnings, offset by Social Security benefits. Under the version of the
Supplementary Plan applicable to officers elected on or after August 8,
1995, benefits can range from 50% to 75% of his or her final average
earnings, offset by benefits from any Company-sponsored qualified
retirement plans and by Social Security benefits. Benefits under all
versions of the Supplementary Plan are subject to vesting schedules that
are dependent on the officer's length of service. Although we are unable
to project estimated benefits at this time, final average earnings for the
named executive officers under the Supplementary Plan at December 31, 1995
were: Mr. Kelly - $207,953; Mr. Lehr - $156,973; Mr. Fowler - $170,063;
Mr. Bagley - $162,234; and Mr. Swanigan - $153,347. Mr. Vecci retired
under the plan on February 1, 1996, and is currently receiving an annual
retirement benefit of $136,032.
Change-in-Control Arrangements
The Boards of Directors of Air Group and Alaska Airlines have adopted
resolutions providing severance pay to all executive officers and certain
other key employees in the event they are terminated within 24 months after
a change in control of the Company. The formula provides for payments
equaling from 12 to 24 months' salary, depending on length of service and
the time elapsed between a takeover and termination. Because of these and
other variables to be determined at the time of distribution, the value of
this benefit cannot be determined at this time.
Some Company benefit plans provide for accelerated vesting in the case
of a change in control. Under the Supplementary Plan applicable to
officers elected prior to August 8, 1995, after a change in control,
benefits become vested at the rate of 10% per year of a participant's
service as an elected officer. Under the Supplementary Plan applicable to
officers elected on or after August 8, 1995, benefits become fully vested
upon a change of control. The benefit after a change in control is equal
to 10% of final average earnings for each year of service as an elected
officer up to and including the fifth year. For officers having five or
more years of service as an elected officer, the benefit amount ranges from
50% to 75% of final average earnings, depending on length of service.
Under all versions, the benefit remains subject to applicable offsets.
The Supplementary Plan provides that, after a change in control,
benefits will not be forfeited if an individual is terminated for cause
(excluding dishonesty or criminal acts) or is later employed by a
competitor. The value of this provision to the named executives cannot be
determined at this time as the amount depends on a number of variables to
be determined at the time of any change in control.
Upon a change in control of the Company, outstanding options under the
Company's 1984 and 1988 Stock Option Plans become fully exercisable unless
the Board of Directors determines otherwise. As of December 31, 1995, the
value of accelerated vesting of options owned by each of the named
executive officers did not exceed $100,000 .
Under the CPP, upon a change in control, participants will receive
their original investment without interest or the amount they would have
received had they exercised the options, whichever is greater.
Transactions under Section 16(a) of Exchange Act
The Company has adopted procedures to assist its directors and
officers in complying with Section 16(a) of the Securities Exchange Act of
1934 (the "Exchange Act"), which includes assisting them in preparing forms
for filing. All present and former officers and directors of the Company
are current in their Exchange Act filings.
AUDITORS
The Board of Directors has selected Arthur Andersen LLP, independent
auditors, to examine the financial statements of Air Group and its
subsidiaries for the fiscal year ending December 31, 1996. Arthur Andersen
LLP examined the financial statements of Air Group and its subsidiaries for
the year ended December 31, 1995. It is anticipated that representatives
of Arthur Andersen LLP will be present at the Annual Meeting to answer
questions by stockholders and will have the opportunity to make a statement
if they desire to do so.
PROPOSAL TO ADOPT 1996 LONG-TERM INCENTIVE EQUITY PLAN
Background. The Board recommends approval of the Alaska Air Group,
Inc. 1996 Long-Term Incentive Equity Plan (the "1996 Plan"). The full text
of the 1996 Plan appears as Exhibit A to this proxy statement and should be
referred to for a complete description of its provisions. A summary of the
material features follows. It is qualified in its entirety by reference to
the text of the 1996 Plan.
Purpose. The purpose of the 1996 Plan is to promote the Company's
long-term profitability and enhance value for its stockholders by offering
incentives and rewards to key employees and officers of the Company and its
subsidiaries, to retain their services, and to encourage them to acquire
and maintain stock ownership in the Company. The 1996 Plan was designed to
enable the Company to adapt its long-term incentive compensation to
changing business conditions.
Term. The 1996 Plan becomes effective upon approval by the
Company's stockholders. No award may be made after the fifth anniversary
of the approval date.
Administration. The 1996 Plan provides for administration by the
Compensation Committee of the Board (the "Committee"), which will be
composed of three or more non-employee directors, each of whom must qualify
to administer the 1996 Plan under (a) Rule 16b-3 of the Exchange Act or any
successor rules, and (b) Section 162(m) of the Code. No member of the
Committee is eligible to participate in the 1996 Plan. Among the powers
granted to the Committee is the authority to interpret the 1996 Plan,
establish rules and regulations for its operation, select employees to
receive awards, and determine the form, amount and other terms and
conditions of such awards.
Eligibility for Participation. All employees of the Company, or
any entity directly or indirectly controlled by the Company, or in which
the Company has a significant equity interest, are eligible to be selected
to participate in the 1996 Plan. The selection of participants is solely
at the discretion of the Committee. The Committee has not yet determined
how many employees are likely to ultimately participate in the 1996 Plan.
However, the Committee intends to grant awards under the 1996 Plan
primarily to those key employees who the Committee believes can have a
significant effect on the growth, profitability and success of the Company.
The Committee anticipates that substantially the same employees
(approximately 50) participating in the Company's existing stock option
plans will participate in the 1996 Plan.
Types of Awards. The 1996 Plan provides for the grant of the
following types of awards: (a) incentive or nonqualified stock options;
(b) stock appreciation rights ("SARs"); (c) stock awards, denominated in
common stock of the Company ("shares") or units, which may, at the
Committee's discretion, vest based on continuous service or on the
achievement of performance goals.
Amendment of Plan. Only the Board may amend the 1996 Plan.
However, stockholder approval would be required for any amendment that
would increase the number of shares available for issuance under the 1996
Plan or cause the plan not to comply with Rule 16b-3 (or any successor
rule) under the Exchange Act.
Available Shares. Subject to adjustment for stock splits or other
extraordinary events (such as a change in capitalization), up to 670,000
shares may be issued to participants under the 1996 Plan. Shares related
to awards that expire, terminate, or are canceled prior to exercise or are
forfeited prior to vesting shall thereafter be available for the granting
of other awards. Shares, otherwise issuable under an award, that are used
to pay an option exercise price, or otherwise used as payment in connection
with any award, shall thereafter be available for the granting of other
awards. In instances where an SAR or other award is settled in cash, the
shares related to such award shall remain available for granting other
awards. The maximum number of shares available for issuance under the 1996
Plan will not be reduced to reflect any dividends or dividend equivalents.
Limitation on Awards. The 1996 Plan provides that no more than
335,000 shares of the total authorization may be issued as stock awards and
that no single individual may be granted awards relating to more than
300,000 shares during any consecutive three-year period.
Stock Options. Under the 1996 Plan, the Committee may grant awards
in the form of options to purchase shares of the Company's common stock.
The Committee will determine the number of shares subject to each stock
option, the manner and time of the option's exercise, and the exercise
price per share of stock subject to the option. The exercise price of
stock options may not be less than 100% of the fair-market value of the
Company's common stock on the date the stock option is granted. Upon
exercise, the option price may, at the discretion of the Committee, be paid
in cash, shares of common stock, a combination thereof, or such other
consideration as the Committee may deem appropriate. The 1996 Plan
prohibits the repricing of stock options and SARs. Any stock option
granted in the form of an incentive stock option must satisfy the
applicable requirements of Section 422 of the Code.
Stock Appreciation Rights. The 1996 Plan authorizes the Committee
to grant SARs either in tandem with a stock option or other award or
independent of an award. An SAR is a right to receive a payment equal to
the appreciation in market value of a stated number of shares of common
stock from the SAR's exercise price to the market value on the date of its
exercise. The exercise price of an SAR will in no event be less than 100%
of the fair market value of the common stock on the date of the grant of
the SAR.
Stock Awards. The 1996 Plan authorizes the Committee to grant
awards denominated in shares or units equivalent in value to shares ("Stock
Awards"). All or part of any Stock Award may be subject to conditions and
restrictions established by the Committee. Such conditions and
restrictions will generally include continuous service with the Company for
a minimum of three years or the achievement of performance goals. Such
performance goals will be established by the Committee and will be related
to profits, profit growth, profit-related return ratios, cash flow or
shareholder return. Such goals may be stated in absolute terms or relative
to comparison companies.
Other Terms of Awards. Payment of awards may be in the form of
cash, shares, other awards or such combinations of the foregoing as the
Committee shall determine. The Committee may provide that any award earns
dividends or dividend equivalents. The Committee may establish such other
terms, conditions, and limitations for an award as are not inconsistent
with the 1996 Plan including, but not limited to, the term of an award and
the provisions applicable in the event the participant's employment
terminates for any reason.
Acceleration and Settlement of Awards. The 1996 Plan provides that
the Committee has the discretion to accelerate the vesting or settlement of
an award at any time before a sale, merger, consolidation, reorganization,
liquidation, or change in control as defined by the Committee.
New Plan Benefits. No awards have been made to date under the 1996
Plan. The Committee has made no determinations with respect to grants of
awards under the 1996 Plan. Further, since the grant of awards under the
1996 Plan is entirely within the Committee's discretion, it is not possible
to determine the amount of awards that would have been granted for the last
completed fiscal year if the 1996 Plan had been in effect.
For purposes of comparison with respect to the option portion of the
1996 Plan, during the previous year under the 1988 Stock Option Plan, the
Company granted 116,400 options to the named executive officers as shown on
page 11; 244,600 options to executive officers as a group; and 175,200
options to all employees as a group, excluding executive officers.
Federal Income Tax Consequences. The following is a brief summary
of the principal United States Federal income tax consequences under
current Federal income tax laws related to stock option awards under the
1996 Plan. This summary is not intended to be exhaustive and, among other
things, does not describe state or local tax consequences.
A participant who is granted an incentive stock option does not
realize any regular taxable income at the time of the grant or at the time
of exercise. Similarly, the Company is not entitled to any deduction for
Federal income tax purposes at the time of grant or at the time of
exercise. If the participant makes no disposition of the shares acquired
pursuant to an incentive stock option before the latter of two years from
the date of grant or one year from the exercise, any gain or loss realized
on a subsequent disposition of the shares will be treated as a long-term
capital gain or loss. If the participant does not fulfill these holding
periods, the gain will be treated as ordinary income and the Company will
be entitled to a corresponding deduction.
A participant who is granted non-qualified stock options or SARs
generally does not have taxable income at the time of grant, but does have
taxable income at the time of exercise equal to the difference between the
exercise price of the shares and the market value of the shares on the date
of exercise. The Company is entitled to a corresponding deduction for the
same amount.
A participant will not realize taxable income at the time of the grant
of either performance units or performance shares, and the Company will not
be entitled to a deduction at such time. A participant will realize
ordinary income at the time the award is paid, and the Company will have a
corresponding deduction.
A participant will not realize taxable income at the time of the grant
of restricted shares, and the Company will not be entitled to a deduction.
When the restrictions lapse, the participant will realize taxable income in
an amount equal to the excess of the fair market value of the shares at
such time over the amount, if any, paid for such shares. The Company will
be entitled to a corresponding deduction.
Limitation on Income Tax Deduction. See page 13 for a description
of the effect of Section 162(m) of the Code. The 1996 Plan has been
designed to allow the Committee to grant awards that will qualify as
"Performance-Based Compensation" under Section 162(m) of the Code and thus
be fully deductible.
Other Information. The closing price of the Company's common stock
reported on the New York Stock Exchange for March 25, 1996 was $27 per
share.
The affirmative vote of a majority of the shares of common stock
present in person or represented by proxy and entitled to vote at the
meeting is required for adoption of the 1996 Plan. Management requests a
vote FOR approval and, unless otherwise specified, management proxies will
be voted in favor of the 1996 Plan.
PROPOSAL TO AMEND RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
The Company's Board of Directors recommends that Article 4.1 of the
Company's Restated Certificate of Incorporation be amended as follows to
increase the number of shares of common stock authorized for issuance from
30,000,000 to 50,000,000 shares:
"4.1 Authorized Capital. The total number of shares of
all classes of stock which this Corporation shall have
authority to issue is 55,000,000 shares, of which 5,000,000
shares shall be preferred stock having a par value of $1.00 per
share and 50,0000,000 shares shall be common stock having a par
value of $1.00 per share."
There are presently 13,822,508 shares of common stock issued and
outstanding, and approximately 11,300,000 additional shares are reserved
for issuance upon conversion of debentures and exercise of stock options.
This leaves the Company with approximately 4,877,000 shares (or 16%) of its
authorized common stock available for future issuance for any purpose,
including offerings of common stock for financing purposes, issuance of
common stock upon conversion of any convertible securities that may be
issued in the future, and issuance of common stock upon stock dividends,
stock splits and the exercise of options. Of these 4,877,000 available
shares of common stock, 670,000 shares will be reserved for issuance under
the 1996 Plan, which is proposed for stockholder approval at this meeting.
Continued growth and expansion of the Company's route system and
acquisition of new aircraft will require additional capital expenditures
for flight equipment and ground facilities, which may need to be financed
through the sale of the Company's securities, including common stock.
Additional equity capital may also be required for other corporate
purposes. The Company has no present commitments or arrangements for the
issuance of any additional common stock (other than the shares required for
the 1996 Plan noted above). The Board of Directors is vested with the
authority to issue any authorized shares without seeking further approval
from stockholders.
The Board of Directors' ability to issue the increased number of
authorized shares of common stock might discourage a takeover attempt
because the issuance of additional shares could dilute the voting power of
the common stock then outstanding. The Company is not aware of any effort
to accumulate the common stock or obtain control of the Company by a tender
offer, proxy contest or otherwise, and the Company has no present intention
to use the increased number of shares of authorized common stock for anti-
takeover purposes.
The affirmative vote of a majority of the outstanding shares of common
stock of the Company is required for adoption of this amendment.
Management requests a vote FOR approval and, unless otherwise specified,
management proxies will be voted in favor of adoption of this amendment.
The Company hereby incorporates into this proxy statement the
financial statements and schedules contained in the Company's 1995 Annual
Report, copies of which are being mailed to each shareholder of record
simultaneously with this proxy statement.
SOLICITATION
The cost of soliciting proxies, including the cost of reimbursing
brokers for forwarding proxy material to their principals, will be paid for
by the Company. The Company has engaged Corporate Investor Communications,
Inc. ("CIC") to assist in the solicitation of proxies for the meeting. The
Company will pay CIC approximately $6,000 in fees for its services and will
reimburse it for reasonable out-of-pocket expenses. The solicitation of
proxies will be generally by mail. In addition, solicitation may be made
personally or by telephone or telegraph by employees of CIC and/or the
Company.
Proxy material may also be distributed through brokers and banks to
the beneficial owners of the Company's common stock, and the Company may
reimburse such parties for their reasonable fees and out-of-pocket expenses
for such services.
If you find it inconvenient to attend the meeting in person, your
stock will be represented and voted if you will sign, date and mail the
enclosed proxy card in the envelope provided for that purpose.
Marjorie E. Laws
Vice President/Corporate Affairs
and Corporate Secretary
April 2, 1996
Seattle, Washington
(PAGE BREAK)
Exhibit A
ALASKA AIR GROUP, INC.
1996 LONG-TERM INCENTIVE EQUITY PLAN
1. Purpose
The purpose of the Alaska Air Group, Inc. 1996 Long-Term Incentive
Equity Plan (the "Plan") is to promote the long-term profitability of
Alaska Air Group, Inc. (the "Company") and to enhance value for its
stockholders by offering incentives and rewards to key employees and
officers of the Company, to retain their services and to encourage them to
acquire and maintain stock ownership in the Company.
2. Term
The Plan shall become effective upon its approval by the Company's
stockholders and shall terminate at the close of business on the fifth
anniversary of such approval date unless terminated earlier by the Board
(as defined in Section 3). After termination of the Plan, no future awards
may be granted, but previously granted awards shall remain outstanding in
accordance with their applicable terms and conditions and the terms and
conditions of the Plan.
3. Plan Administration
The Compensation Committee (the "Committee") of the Board of Directors
of the Company (the "Board") shall be responsible for administering the
Plan. The members of the Committee shall be appointed by the Board and
shall consist of three or more nonemployee members of the Board who shall
qualify to administer the Plan as contemplated by (a) Rule 16b-3 under the
Securities and Exchange Act of 1934 (the "Exchange Act") or any successor
rules, and (b) Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). The Committee shall have full and exclusive power to
interpret the Plan and to adopt such rules, regulations and guidelines for
carrying out the Plan as it may deem necessary or proper, all of which
power shall be executed in the best interests of the Company and in keeping
with the objectives of the Plan. This power includes but is not limited to
selecting award recipients, establishing all award terms and conditions and
adopting modifications, amendments and procedures, as well as rules and
regulations governing awards under the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan.
In no event, however, shall the Committee have the power to cancel
outstanding stock options or stock appreciation rights ("SARs") for the
purpose of replacing or re-granting such options or SARs with a purchase
price that is less than the purchase price of the original option or SAR.
The interpretation and construction of any provision of the Plan or any
option or right granted hereunder and all determinations by the Committee
in each case shall be final, binding and conclusive with respect to all
interested parties.
4. Eligibility
Any employee of the Company shall be eligible to receive awards under
the Plan. "Employee" shall also include any former employee of the Company
eligible to receive an assumed or replacement award as contemplated in
Sections 5 and 8, and "Company" includes any entity that is directly or
indirectly controlled by the Company or any entity in which the Company has
a significant equity interest, as determined by the Committee, except that
with respect to incentive stock options ("ISOs") intended to comply with
Section 422 of the Code, "Company" includes only any parent or subsidiary
of the Company in accordance with Section 422 of the Code.
5. Shares of Common Stock Subject to the Plan
Subject to the provisions of Section 6 of the Plan, the aggregate
number of shares of Common Stock ($1.00 par value) of the Company
("shares") which may be transferred to participants under the Plan shall be
670,000. The aggregate number of shares that may be issued under awards
pursuant to Section 8(c) of the Plan shall not exceed 335,000 shares. No
more than 67,000 shares may be issued pursuant to Section 8(c) of the Plan
as stock awards subject to restrictions based solely on continuous
employment of less than three (3) years. The aggregate number of shares
that may be covered by awards granted to any single individual under the
Plan shall not exceed 300,000 shares for any consecutive three-year period,
such limitation to be applied in a manner consistent with the requirements
of, and only to the extent required for compliance with, the exclusion from
the limitation on deductibility of compensation under Section 162(m) of the
Code. The aggregate number of shares that may be represented by ISOs shall
not exceed 670,000.
Shares subject to awards under the Plan which expire, terminate or are
canceled prior to exercise or, in the case of awards granted under
Section 8(c), do not vest shall thereafter be available for the granting of
other awards. Shares otherwise issuable pursuant to an award which have
been exchanged by a participant as full or partial payment to the Company
in connection with any award under the Plan also shall thereafter be
available for the granting of other awards. In instances where an SAR or
other award is settled in cash, the shares covered by such award shall
remain available for the granting of other awards. Likewise, the payment
of cash dividends and dividend equivalents paid in cash in conjunction with
outstanding awards shall not be counted against the shares available for
issuance.
Any shares issued under the Plan may consist in whole or in part of
authorized and unissued shares or of treasury shares, and no fractional
shares shall be issued under the Plan. Cash may be paid in lieu of any
fractional shares in settlements of awards under the Plan.
6. Adjustments and Reorganizations
In the event of any stock dividend, stock split, combination or
exchange of shares, merger, consolidation, spin-off, recapitalization or
other distribution (other than normal cash dividends) of Company assets to
stockholders, or any other change affecting shares or share price, the
Committee shall make a proportionate adjustment with respect to: (a) the
aggregate number of shares that may be issued under the Plan; (b) each
outstanding award made under the Plan; and (c) the exercise price per share
for any outstanding stock options, SARs or similar awards under the Plan.
7. Fair Market Value
Fair Market Value for all purposes under the Plan shall mean the
closing price of a share of Common Stock as reported daily in The Wall
Street Journal or similar readily available public source for the date in
question. If no sales of shares were made on such date, the closing price
of a share as reported for the preceding day on which a sale of shares
occurred shall be used.
8. Awards
The Committee shall determine the type or types of award(s) to be made
to each participant. Awards may be granted singly, in combination or in
tandem. Awards also may be made in combination or in tandem with, in
replacement of, as alternative to, or as the payment form for grants or
rights under any other compensation plan or individual contract or
agreement of the Company including those of any acquired entity. The types
of awards that may be granted under the Plan are:
(a) Stock Options -- This is a grant of a right to purchase a
specified number of shares during a specified period as determined by the
Committee. The purchase price per share for each stock option shall be not
less than 100% of Fair Market Value on the date of grant (except if a stock
option is granted retroactively in tandem with or as a substitution for an
SAR, the exercise price may be no lower than the exercise price per share
for such tandem or replaced SAR). A stock option may be in the form of an
ISO which, in addition to being subject to applicable terms, conditions and
limitations established by the Committee, complies with Section 422 of the
Code. The exercise price for a stock option shall be paid in full by the
optionee at the time of the exercise in cash or such other method permitted
by the Committee, including (i) tendering (either actually or by
attestation) shares, (ii) authorizing a third party to sell the shares (or
a sufficient portion thereof) acquired upon exercise of a stock option and
assigning the delivery to the Company of a sufficient amount of the sale
proceeds to pay for all the shares acquired through such exercise, or
(iii) any combination of the above.
(b) SARs -- This is a right to receive a payment, in cash and/or
shares, equal to the excess of the Fair Market Value of a specified number
of shares on the date the SAR is exercised over the Fair Market Value on
the date the SAR was granted (except that if an SAR is granted
retroactively in tandem with or in substitution for a stock option, the
designated Fair Market Value shall be no lower than the exercise price per
share for such tandem or replaced stock option).
(c) Stock Awards -- This is an award made or denominated in
shares or units equivalent in value to shares. All or part of any stock
award may be subject to conditions and restrictions established by the
Committee which may be based on continuous service with the Company or the
achievement of performance goals related to profits, profit growth,
profit-related return ratios, cash flow or shareholder returns, where such
goals may be stated in absolute terms or relative to comparison companies.
9. Dividends and Dividend Equivalents
The Committee may provide that any awards under the Plan earn
dividends or dividend equivalents. Such dividends or dividend equivalents
may be paid currently or may be credited to a participant's account. Any
crediting of dividends or dividend equivalents may be subject to such
restrictions and conditions as the Committee may establish, including
reinvestment in additional shares or share equivalents.
10. Deferrals and Settlements
Payment of awards may be in the form of cash, stock, other awards or
combinations thereof as the Committee shall determine, and with such
restrictions as it may impose. The Committee also may require or permit
participants to elect to defer the issuance of shares or the settlement of
awards in cash under such rules and procedures as it may establish under
the Plan. It also may provide that deferred settlements include the
payment or crediting of interest on the deferral amounts, or the payment or
crediting of dividend equivalents where the deferral amounts are
denominated in shares.
11. Transferability and Exercisability
Awards granted under the Plan shall not be transferable or assignable
other than by will or the laws of descent and distribution, except to the
extent permitted by the Committee, in its sole discretion, and by
Rule 16b-3 under the Exchange Act and, with respect to ISOs, by Section 422
of the Code. However, any award so transferred shall continue to be
subject to all the terms and conditions contained in the instrument
evidencing such award.
12. Award Agreements
Awards under the Plan shall be evidenced by agreements as approved by
the Committee that set forth the terms, conditions and limitations for each
award which may include the term of an award (except that in no event shall
the term of any ISO exceed a period of ten years from the date of its
grant), the provisions applicable in the event the participant's employment
terminates, and the Committee's authority to unilaterally or bilaterally
amend, modify, suspend, cancel or rescind any award.
13. Acceleration and Settlement of Awards
The Committee shall have the discretion, exercisable at any time
before a sale, merger, consolidation, reorganization, liquidation or change
in control of the Company, as defined by the Committee, to provide for the
acceleration of vesting and for settlement, including cash payment, of an
award granted under the Plan upon or immediately before such event is
effective. However, the granting of awards under the Plan shall in no way
affect the right of the Company to adjust, reclassify, reorganize, or
otherwise change its capital or business structure, or to merge,
consolidate, dissolve, liquidate, sell or transfer all or any portion of
its businesses or assets.
14. Plan Amendment
The Plan may be amended only by the Board as it deems necessary or
appropriate to better achieve the purposes of the Plan, except that no such
amendment shall be made without the approval of the Company's stockholders
which would increase the number of shares available for issuance in
accordance with Sections 5 and 6 of the Plan, or cause the Plan not to
comply with Rule 16b-3 (or any successor rule) under the Exchange Act.
15. Tax Withholding
The Company shall have the right to deduct from any settlement of an
award made under the Plan, including the delivery or vesting of shares, a
sufficient amount to cover withholding of any federal, state or local taxes
required by law, or to take such other action as may be necessary to
satisfy any such withholding obligations. The Committee may, in its
discretion and subject to such rules as it may adopt, permit participants
to use shares to satisfy required tax withholding, and such shares shall be
valued at the Fair Market Value as of the settlement date of the applicable
award.
16. Other Benefit and Compensation Programs
Unless otherwise specifically determined by the Committee and not
inconsistent with the terms of any benefit plan, severance program or
severance pay law, settlements of awards received by participants under the
Plan shall not be deemed a part of a participant's regular, recurring
compensation for purposes of calculating payments or benefits from any
Company benefit plan, severance program or severance pay law. Further, the
Company may adopt other compensation programs, plans or arrangements as it
deems appropriate or necessary.
17. Unfunded Plan
Unless otherwise determined by the Board, the Plan shall be unfunded
and shall not create (or be construed to create) a trust or a separate fund
or funds. The Plan shall not establish any fiduciary relationship between
the Company and any participant or other person. To the extent any person
holds any rights by virtue of an award granted under the Plan, such rights
(unless otherwise determined by the Committee) shall be no greater than the
rights of an unsecured general creditor of the Company.
18. Use of Proceeds
The cash proceeds received by the Company from the issuance of shares
pursuant to awards under the Plan shall constitute general funds of the
Company.
19. Regulatory Approvals
The implementation of the Plan, the granting of any award under the
Plan, and the issuance of shares upon the exercise or settlement of any
award shall be subject to the Company's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the
Plan, the awards granted under it or the shares issued pursuant to it.
20. Future Rights
No person shall have any claim or rights to be granted an award under
the Plan, and no participant shall have any rights under the Plan to be
retained in the employ of the Company.
21. Successors and Assigns
The Plan shall be binding on all successors and assigns of a
participant including, without limitation, the estate of such participant
and the executor, administrator or trustee of such estate, or any receiver
or trustee in bankruptcy or representative of the participant's creditors.
Exhibit to Definitive Proxy Statement of Alaska Air Group, Inc.
Proxy Card Text
Alaska Air Group, Inc.
This Proxy is Solicited on Behalf of the Board of Directors
Annual Stockholders Meeting, May 21, 1996
The undersigned stockholder hereby appoints John F. Kelly and Marjorie E.
Laws Proxies of the undersigned (with full power of substitution) and
hereby authorizes them to represent and to vote at the above annual meeting
all the shares of common stock of Alaska Air Group, Inc. that the
undersigned would be entitled to vote if personally present. The Board of
Directors recommends a vote FOR Proposals 1, 2 and 3.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
(continued and to be signed on the reverse side)
Please mark votes as in this example.
This Proxy when executed will be voted in the manner directed herein. If
no direction is made this proxy will be voted FOR Proposals 1, 2 and 3.
1. Election of Directors
Nominees: Byron I Mallott, Robert L. Parker, Jr. and Richard A. Wien
FOR ALL NOMINEES
WITHHELD FROM ALL NOMINEES
For, except vote withheld from the following nominee(s)
________________________________________
2. Proposal to adopt the 1996 Long-Term Incentive Equity Plan
FOR
AGAINST
ABSTAIN
3 Proposal to amend the Certificate of Incorporation to increase
authorized common stock.
FOR
AGAINST
ABSTAIN
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
Please sign exactly as your name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
Signature(s):____________________________ Date ____________
Signature(s):____________________________ Date ____________
