<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Alaska Air Group
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
1999 NOTICE OF ANNUAL
STOCKHOLDERS MEETING
AND PROXY STATEMENT
[LOGO OF ALASKA AIR GROUP]
<PAGE>
LETTER TO STOCKHOLDERS
- - --------------------------------------------------------------------------------
[SIDEBAR]
1999 Annual Meeting
Tuesday, May 18, at 2 p.m.
Museum of Flight
9404 East Marginal Way South
Seattle, Washington
- - --------------------------------------------------------------------------------
Alaska Air Group, Inc.
P.O. Box 68947
Seattle, Washington 98168
April 1, 1999
Dear Stockholder:
We cordially invite you to attend our 1999 Annual Meeting of
Stockholders. The meeting will be held at 2 p.m. on May 18, 1999, in the
William M. Allen Theater at the Museum of Flight, 9404 East Marginal Way South,
Seattle, Washington.
We encourage you to participate at this meeting, but whether or not
you plan to attend, please sign and return your proxy card as soon as possible.
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.
Following this year's Annual Meeting, Mr. Robert L. Parker, Jr., will
retire from the Board after 25 years of service as a director. We deeply
appreciate Bobby's contribution to the Company and its stockholders, and hope
you will join us in wishing him well at a brief reception following the meeting.
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
1
<PAGE>
TABLE OF CONTENTS
- - --------------------------------------------------------------------------------
NOTICE OF 1999 ANNUAL MEETING........................ 3
ANNUAL MEETING INFORMATION........................... 4
QUESTIONS AND ANSWERS................................ 5
PROPOSALS TO BE VOTED ON
ELECTION OF DIRECTORS........................... 9
1999 LONG-TERM INCENTIVE EQUITY PLAN (SUMMARY).. 12
INCREASE AUTHORIZED COMMON STOCK................ 15
STRUCTURE OF THE BOARD............................... 17
DIRECTOR COMPENSATION................................ 18
PRINCIPAL STOCKHOLDERS............................... 19
EXECUTIVE COMPENSATION............................... 20
COMPENSATION COMMITTEE REPORT................... 20
PERFORMANCE GRAPH............................... 25
SUMMARY COMPENSATION TABLE...................... 26
STOCK OPTIONS GRANTED........................... 27
STOCK OPTIONS EXERCISED......................... 28
RETIREMENT BENEFITS............................. 29
CHANGE-IN-CONTROL ARRANGEMENTS.................. 31
SECTION 16(a) REPORTING COMPLIANCE................... 32
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS............. 32
STOCKHOLDER PROPOSALS................................ 32
COSTS OF PROXY SOLICITATION.......................... 33
TEXT OF 1999 LONG-TERM INCENTIVE EQUITY PLAN......... APPENDIX
2
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
- - --------------------------------------------------------------------------------
[SIDEBAR]
YOUR VOTE IS IMPORTANT.
Whether or not you plan to attend the meeting, please submit your proxy so that
your stock can be voted.
- - --------------------------------------------------------------------------------
The 1999 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 2 p.m. on May 18, 1999, for the following
purposes:
1. To elect three directors for three-year terms.
2. To approve the 1999 Long-Term Incentive Equity Plan.
3. To amend the Company's Certificate of Incorporation to increase the
authorized common stock from 50 million to 100 million shares.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders owning Company shares at the close of business on March 19, 1999
are entitled to vote.
By Order of the Board of
Directors,
Keith Loveless
Corporate Secretary and
Associate General Counsel
3
<PAGE>
ANNUAL MEETING INFORMATION
- - --------------------------------------------------------------------------------
[SIDEBAR]
Stockholders who owned Alaska Air Group stock on March 19 are eligible to vote.
- - --------------------------------------------------------------------------------
Our Board of Directors is soliciting proxies for this year's Annual Meeting of
Stockholders. This proxy statement contains important information for you to
consider when deciding how to vote on the matters brought before the meeting.
Please read it carefully.
The Board set March 19, 1999, as the record date for the meeting. Stockholders
who owned Company common stock on that date are entitled to vote at the meeting,
with each share entitled to one vote. There were __________ shares of Company
common stock outstanding on the record date.
Voting materials, which include this proxy statement, a proxy card and the 1998
Annual Report, will be mailed to stockholders on or about April 1, 1999.
4
<PAGE>
QUESTIONS AND ANSWERS
- - --------------------------------------------------------------------------------
[SIDEBAR]
Why am I receiving this proxy statement and proxy card?
What am I voting on?
How do I vote?
- - --------------------------------------------------------------------------------
WHY AM I RECEIVING THIS PROXY STATEMENT AND PROXY CARD?
You are receiving this proxy statement and proxy card from us because you own
shares of common stock in Alaska Air Group, Inc. This proxy statement describes
issues on which we would like you to vote. It also gives you information on
these issues so that you can make an informed decision.
When you sign the proxy card, you appoint John F. Kelly and Keith Loveless as
your representatives at the meeting. Mr. Kelly and Mr. Loveless will vote your
shares at the meeting as you have instructed on the proxy card. This way, your
shares will be voted even if you cannot attend the meeting.
If an issue that is not on the proxy card comes up for vote at the meeting, Mr.
Kelly and Mr. Loveless will vote your shares, under your proxy, in accordance
with their best judgment.
WHAT AM I VOTING ON?
You are being asked to vote on the election of three directors, the approval of
the new 1999 Long-Term Incentive Equity Plan, and an amendment to the
Certificate of Incorporation that would increase the Company's authorized common
stock.
HOW DO I VOTE?
You may vote by mail.
Simply sign your proxy card and mail it in the enclosed, prepaid and addressed
envelope. If you mark your voting instructions on the proxy card, your shares
will be voted as you instruct.
If you return a signed card but do not provide voting instructions, your shares
will be voted:
. for the three named director nominees,
. for the 1999 Long-Term Incentive Equity Plan, and
. for amending the Certificate of Incorporation to increase the Company's
authorized common stock.
You may vote by phone.
Follow the instructions that came with your proxy statement. If you vote by
telephone, you do not have to mail in your proxy card. Some stockholders may
not be able to vote by telephone.
You may vote on the Internet.
If you hold your shares in an account at a brokerage firm (known as holding in
"street name"), you may vote on the Internet. Follow the instructions that came
with your proxy statement. If you vote on the Internet, you do not have to mail
in your proxy card. Some stockholders may not be able to vote on the Internet.
5
<PAGE>
QUESTIONS AND ANSWERS
- - --------------------------------------------------------------------------------
[SIDEBAR]
What does it mean if I receive more than one proxy card?
What if I change my mind after I return my proxy?
Will my shares be voted if I do not sign and return my proxy card?
- - --------------------------------------------------------------------------------
You may vote in person at the meeting.
We will pass out a ballot to anyone who requests one at the meeting. If you
hold your shares in street name, you must request a legal proxy from your
stockbroker and bring it to the meeting in order to vote at the meeting.
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
It means that you have multiple accounts through the transfer agent or with
stockbrokers. Please sign and return all proxy cards to ensure that all your
shares are voted.
WHAT IF I CHANGE MY MIND AFTER I RETURN MY PROXY?
You may revoke your proxy and change your vote at any time before the polls
close at the meeting. You may do this by:
. signing another proxy with a later date,
. voting by telephone or on the Internet (your latest telephone or Internet
proxy is counted), or
. voting again at the meeting.
WILL MY SHARES BE VOTED IF I DO NOT SIGN AND RETURN MY PROXY CARD?
If you are a stockholder of record and do not return your proxy card, your
shares will not be voted. If your shares are held in street name and you do not
submit voting instructions to your broker, your broker may vote your shares
under certain circumstances. Brokerage firms have authority under New York
Stock Exchange rules to vote customers' unvoted shares on routine matters. At
this meeting, brokers may vote in connection with all three of the proposals
described in this proxy statement.
When a brokerage firm votes its customers' unvoted shares on routine matters,
these shares are counted for purposes of establishing a quorum to conduct
business at 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 of any of the proposals.
If you are a participant in one of the Company's 401(k) plans, the plan's
trustee may vote your shares under certain circumstances.
The Alaska Air Group 401(k) trust includes Employee Stock Ownership Plan
("ESOP") features. The trustee will vote the shares that have been allocated to
participants' accounts in accordance with confidential instructions received
from participants. The trustee will vote allocated shares for which no
instructions were received as it determines to be in the best interest of the
participants. Shares that have not yet been allocated to individual
participants will be voted by the trustee in direct proportion to the number of
instructed shares cast for and against each proposal.
6
<PAGE>
QUESTIONS AND ANSWERS
- - --------------------------------------------------------------------------------
[SIDEBAR]
Number of votes needed to hold a meeting
What if a nominee is unable to stand for election?
Number of votes needed for proposals to pass
How votes are counted
- - --------------------------------------------------------------------------------
HOW MANY VOTES DO YOU NEED TO HOLD THE MEETING?
A majority of the Company's outstanding shares as of the record date (a quorum)
must be present at the meeting in order to hold the meeting and conduct
business. Shares are counted as present at the meeting if the stockholder:
. is present and votes in person at the meeting, or
. has properly submitted a proxy card, or
. has voted via telephone or the Internet.
HOW MANY VOTES MUST THE NOMINEES HAVE TO BE ELECTED?
In the election of directors, the three nominees who receive the highest number
of for votes will be elected.
WHAT HAPPENS IF A NOMINEE IS UNABLE TO STAND FOR ELECTION?
The Board may reduce the number of seats on the Board or the Executive Committee
may designate a substitute nominee. If they designate a substitute, shares
represented by proxies will be voted for the substitute nominee.
Stockholders may nominate candidates according to the procedures outlined in the
Company's bylaws. See Stockholder Proposals on page 32.
HOW MANY VOTES MUST THE 1999 LONG-TERM INCENTIVE EQUITY PLAN HAVE IN ORDER TO
PASS?
A majority of the shares present in person or by proxy and entitled to vote at
the meeting must vote for the plan.
HOW MANY VOTES MUST BE CAST IN FAVOR OF INCREASING THE AUTHORIZED COMMON STOCK
FOR THE PROPOSAL TO PASS?
For the proposal to pass, a majority of all outstanding shares entitled to vote
on the matter must be cast for the amendment.
HOW ARE VOTES COUNTED?
You may vote for or withheld from each nominee for director. You may vote for
or against or abstain on the 1999 Long-Term Incentive Equity Plan and on the
proposal to amend the Certificate of Incorporation to increase the authorized
common stock.
If you abstain from voting on the 1999 Plan or the amendment to the Certificate
of Incorporation, the abstention has the same effect as a
7
<PAGE>
QUESTIONS AND ANSWERS
- - --------------------------------------------------------------------------------
[SIDEBAR]
Where to find voting results
- - --------------------------------------------------------------------------------
vote against. If you sign your proxy card without giving instructions for
voting, your shares will be counted for each director nominee and for the other
two proposals.
Voting results are tabulated and certified by our transfer agent, EquiServe.
WHERE DO I FIND THE VOTING RESULTS OF THE MEETING?
We will announce preliminary voting results at the meeting. We also will
publish the final results in our quarterly report on Form 10-Q for the second
quarter of 1999. You can get a copy of that report by calling us at (206) 431-
5567, or the Securities and Exchange Commission at (800) SEC-0330 for the
location of the nearest public reference room, or through the EDGAR system at
http://www.sec.gov on the Internet.
8
<PAGE>
PROPOSALS TO BE VOTED ON
- - --------------------------------------------------------------------------------
[SIDEBAR]
Election of Directors
. Byron I. Mallott
. Patricia Q. Stonesifer
. Richard A. Wien
- - --------------------------------------------------------------------------------
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company currently has ten directors. Robert L. Parker, Jr., is retiring
from the Board after this meeting and, therefore, is not standing for re-
election.
HOW MANY DIRECTORS ARE NOMINATED EACH YEAR?
The directors are divided into three classes so that approximately one-third of
the directors are elected each year for three-year terms. Directors are elected
to hold office until their successors are elected and qualified, or until
resignation or removal in the manner provided in our bylaws. Three directors
are nominees for election this year. The remaining directors will continue to
serve the terms described in their biographies.
WHO ARE THE NOMINEES?
Nominees for election this year are Mr. Byron I. Mallott, Ms. Patricia Q.
Stonesifer and Mr. Richard A. Wien. Each nominee is presently a director of the
company and has consented to serve a three-year term ending in 2002.
The board recommends a vote for election of each of the director nominees.
BYRON I. MALLOTT
Mr. Mallott, age 55, has been a director since 1982 and serves on the Company's
Audit Committee. He is 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 January 1999, he was appointed to the Board of
Directors of the 12th Federal Reserve District, Federal Reserve Bank in San
Francisco. He was a director of Sealaska Corporation, Juneau, Alaska, from 1972
to 1988; Chairman from 1976 to 1983; and Chief Executive Officer from 1982 to
1992. He owns Mallott Enterprises (personal investments) and is a director of
Horizon Air.
PATRICIA Q. STONESIFER
Ms. Stonesifer, age 42, was appointed a director of the Company in July 1998 and
serves on the Audit Committee. She is President and Chairman of Gates Learning
Foundation, Redmond, Washington, which helps provide computer technology to
schools, libraries and other public entities. In 1997, she served as a
technology consultant to Dreamworks SKG, and from ___ to ____ as senior vice
president of Microsoft's Interactive Media Division. Ms. Stonesifer currently
serves on the boards of Alaska Airlines, Amazon.com, inc., Kinko's, Inc. and the
Fund for America's Libraries.
RICHARD A. WIEN
Mr. Wien, age 63, has been a director since 1982 and serves on the
9
<PAGE>
CURRENT BOARD MEMBERS
- - --------------------------------------------------------------------------------
[SIDEBAR]
Current Board Members
. Ronald F. Cosgrave
. Mary Jane Fate
. John F. Kelly
. Bruce R. Kennedy
- - --------------------------------------------------------------------------------
Company's Compensation and Audit Committees. He played an active role in the
management of Wien Airlines until 1969, when he was elected President of Merric,
Inc., an Alaska helicopter contract and charter service company. After Merric
merged with Era Aviation in 1973, Mr. Wien served as Era's Executive Vice
President until 1981. 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, National Bank of Alaska and Usibelli Coal
Mine.
WHO ARE THE OTHER DIRECTORS?
RONALD F. COSGRAVE
Mr. Cosgrave, age 67, serves on the Company's Executive Committee. He has served
on the Board of Directors since 1971, except during the period 1981 to 1983. He
was Chairman of Alaska Northwest Properties Inc. from 1979 to 1997, when he
became Executive Manager of ANP, LLC. Mr. Cosgrave is a retired Chairman and
Chief Executive Officer of Alaska Airlines. He is also Chairman Emeritus and a
director of Alaska Airlines. Mr. Cosgrave's term expires in 2001.
MARY JANE FATE
Mrs. Fate, age 65, has been a director since 1979 and serves on the Company's
Compensation Committee. She has served as General Manager of a family business
in 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 Alaska Airlines and Baan o yeel kon Corporation, and
a member of the University of Alaska Board of Regents. Mrs. Fate's term expires
in the year 2000.
JOHN F. KELLY
Mr. Kelly, age 54, has been a director since 1989 and serves on the Company's
Executive Committee. He was elected Chairman, President and Chief Executive
Officer of Alaska Air Group and Chairman and Chief Executive Officer of Alaska
Airlines in February 1995. He also served as President of Alaska Airlines from
1995 to 1997, Chief Operating Officer from November 1994 to February 1995 and as
Vice President/Marketing from 1981 to June 1987. He has served Horizon Air as
its Chairman since February 1991, except the period from November 1994 to
February 1995, and was President and Chief Executive Officer from June 1987 to
November 1994. He also serves on the board of the Air Transport Association and
is a director of AVISTA Corp., a public utility based in Spokane, Washington.
Mr. Kelly's term expires in the year 2000.
BRUCE R. KENNEDY
Mr. Kennedy, age 60, has been a director since 1972 and has served as Chairman
of the Company's Executive Committee since 1985, except for the period from
10
<PAGE>
CURRENT BOARD MEMBERS
- - --------------------------------------------------------------------------------
[SIDEBAR]
Current board members
. R. Marc Langland
. John V. Rindlaub
- - --------------------------------------------------------------------------------
November 1994 to February 1995. He is Chairman Emeritus of Alaska Air Group and
served as its Chairman, Chief Executive Officer and President from 1985 to 1991.
He was also Chairman of Alaska Airlines from 1979 to 1991, Chief Executive
Officer from 1979 to 1990 and President from 1978 to 1990. He serves on the
board of directors of Horizon Air and of the ARIS Corporation, a Seattle-based
company that provides information technology services. Mr. Kennedy's term
expires in the year 2000.
R. MARC LANGLAND
Mr. Langland, age 57, has been a director since 1991. He is a member of the
Company's Compensation Committee and Chairman of the Audit Committee. He has
been President of Northrim Bank, Anchorage, Alaska, since November 1990 and
Chairman since January 1998. 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 Alaska Airlines, Northrim Bank, Usibelli Coal Mine, and
Saltchuk Resources, Inc. Mr. Langland's term expires in 2001.
JOHN V. RINDLAUB
Mr. Rindlaub, age 54, has been a director since 1996 and serves on the Company's
Audit Committee. He is Chairman of Seafirst Bank, a post he has held since
1993, and President, Bank of America, Northwest, which includes responsibility
for Washington, Oregon, Idaho and Alaska. Prior to his position at Seafirst,
Mr. Rindlaub served as Group Executive Vice President/Asia Division for Bank
America and as a managing director for Bankers Trust Company New York,
Investment Banking Group. He is also a director of Horizon Air and of 12th
Federal Reserve District, Federal Reserve Bank of San Francisco. Mr. Rindlaub's
term expires in 2001.
11
<PAGE>
PROPOSALS TO BE VOTED ON
- - --------------------------------------------------------------------------------
[SIDEBAR]
1999 Long-Term Incentive Equity Plan
. Purpose
. Term
. Administration
. Eligibility
- - --------------------------------------------------------------------------------
PROPOSAL NO. 2
APPROVAL OF THE 1999 LONG-TERM INCENTIVE EQUITY PLAN
The Board recommends for approval of the Alaska Air Group, Inc. 1999 Long-Term
Incentive Equity Plan.
The 1999 Long-Term Incentive Equity Plan (the "1999 Plan") will replace the 1996
Long-Term Incentive Equity Plan, which as of March 19, 1999, had approximately
60,000 shares of common stock available for grant. No further grants will be
made under the 1996 Plan after it expires by its terms in 2001. Currently
943,700 shares are subject to outstanding options granted under all the
Company's current and prior option plans. This number represents 3.6% of the
currently outstanding shares.
The full text of the 1999 Plan appears as an appendix to this proxy statement
and should be referred to for a complete description of its provisions.
Purpose.
The purpose of the 1999 Plan is to promote the Company's long-term profitability
and enhance value for its stockholders by:
. encouraging key employees and officers of the Company and its subsidiaries
to focus on long-range objectives,
. providing a means to attract and retain the services of employees with
exceptional qualifications, and
. linking the interests of key employees directly to stockholder interests.
Term.
The 1999 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 1999 Plan will be administered by the Compensation Committee of the Board
(the "Committee"). The Committee is composed of two or more nonemployee
directors, each of whom is intended to qualify to administer the 1999 Plan under
Rule 16b-3 of the Securities Exchange Act and Section 162(m) of the Internal
Revenue Code. No member of the Committee is eligible to participate in the 1999
Plan. The Committee has the authority to:
. interpret the 1999 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 and its subsidiaries are eligible for awards.
Approximately 25-50 employees are expected to participate in the 1999 Plan. The
selection of participants is solely at the discretion of the Committee.
12
<PAGE>
PROPOSALS TO BE VOTED ON
- - --------------------------------------------------------------------------------
[SIDEBAR]
1999 Long-Term Incentive Equity Plan
. Types of Awards
. Amendment of Plan
. Available Shares
- - --------------------------------------------------------------------------------
Types of Awards.
Awards under the 1999 Plan may take the form of incentive or nonqualified stock
options, stock appreciation rights ("SARs"), or stock awards, denominated in
units or in shares of the Company's common stock which may, at the Committee's
discretion, vest based on continuous service or on the achievement of
performance goals.
Stock Options: A stock option is the right to acquire common stock at an
exercise price equal to or greater than the fair market value of Company stock
on the date of grant. Options include nonqualified stock options ("NSOs") and
incentive stock options ("ISOs"). ISOs qualify for special tax treatment and
must comply with Section 422 of the Code. Stock options are also subject to a
vesting schedule determined by the Committee. The 1999 Plan prohibits the
repricing of stock options and SARs.
SARs: An SAR is a right to receive a payment equal to the appreciation in
market value of the Company's common stock since the grant of the SAR. SARs may
be granted along with stock options or by themselves. The exercise price of an
SAR will never be less than the fair market value of the common stock on the
date of grant.
Stock Awards: Stock awards may be subject to conditions determined by the
Committee. Generally, those conditions include continuous service with the
Company for at least three years or achieving performance goals related to
profits, profit growth, profit-related return ratios, cash flow or stockholder
return.
Any award under the 1999 Plan may include one or a combination of these grant
types.
Amendment of Plan.
Only the Board may amend the 1999 Plan. However, stockholder approval would be
required for any amendment that would increase the number of shares available
for issuance under the Plan.
Available Shares.
Subject to adjustment for stock splits or other extraordinary events, such as a
change in capitalization, up to 1,200,000 shares may be issued to participants
under the 1999 Plan. Shares underlying previously granted award become available
for re-grant if:
. options or SARs expire, terminate or are canceled prior to exercise, or
. stock awards are forfeited.
In addition, shares that otherwise would be issuable under an award, but are
used as payment in connection with an award, will be made available for grant.
Where an SAR or other award is settled in cash, the shares related to such award
will also remain available for grant. The maximum number of shares available
for issuance under the 1999 Plan will not be reduced to reflect any dividends or
dividend equivalents.
13
<PAGE>
PROPOSALS TO BE VOTED ON
- - --------------------------------------------------------------------------------
[SIDEBAR]
1999 Long-Term Incentive Equity Plan
. Award Limitations
. Other Award Terms
. Acceleration and Settlement
. Tax Consequences
- - --------------------------------------------------------------------------------
Limitation on Awards.
No more than 600,000 shares of the total authorized under the 1999 Plan may be
issued as stock awards, and no single individual may be granted awards relating
to more than 600,000 shares during any consecutive three-year period.
Other Terms of Awards.
Generally, no payment is required upon the grant of any award. Upon exercise of
an option, the optionee must pay the exercise price to the Company. Payment of
awards may be in the form of cash, shares, other awards or in such combinations
as the Committee determines. The Committee may decide that awards earn
dividends or dividend equivalents. The Committee may establish other terms,
conditions, and limitations for an award that are not inconsistent with the 1999
Plan including, but not limited to, the term of an award and the provisions
applicable if a participant's employment ends for any reason.
Acceleration and Settlement of Awards.
The 1999 Plan provides that the Committee may establish change-in-control
provisions 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.
Federal Income Tax Consequences.
Under current federal income tax laws, the federal income tax consequences of
awards under the 1999 Plan can be summarized as follows:
At the time the options or SARs are granted, the award will have no federal
income tax consequences to the Company or the optionee.
Upon the exercise of NSOs or SARs, the optionee generally will recognize
ordinary income equal to the fair market value of the shares at the time of
exercise minus the exercise price. This ordinary income will be subject to
withholding tax, and the amount of ordinary income recognized by the optionee
generally will be deductible for tax purposes by the Company. When the shares
are sold or otherwise disposed of, any additional gain or loss by the holder
will be capital gain or loss.
The exercise of ISOs does not result in any regular taxable income to the
optionee, nor is the Company entitled to a deduction. However, the excess of
the fair market value of the ISO shares at the time of exercise over the
exercise price is an item of tax preference for purposes of computing
alternative minimum taxable income. If the shares are held for one year after
exercise and two years after grant, the difference between the sale price and
the exercise price generally will be taxable as long-term capital gain or loss.
If the shares are not held for that period, the optionee will recognize ordinary
income at the time of early disposition equal to the excess of the fair market
value of the shares at exercise over the exercise price, and the Company
14
<PAGE>
PROPOSALS TO BE VOTED ON
- - --------------------------------------------------------------------------------
[SIDEBAR]
1999 Long-Term Incentive Equity Plan
. Company Tax Deductions
. Plan Benefits
. Other Information
Authorize additional shares of common stock
- - --------------------------------------------------------------------------------
will be entitled to a corresponding deduction. Any additional gain on the
disposition will be taxed as capital gain.
This summary does not include state or local tax consequences.
Limitation on Income Tax Deduction.
See page 24 for a description of the effect of Section 162(m) of the Internal
Revenue Code. The 1999 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.
New Plan Benefits.
No awards have been made to date under the 1999 Plan. The Committee has made no
determinations with respect to grants of awards under the 1999 Plan. For
purposes of comparison with respect to the option portion of the 1999 Plan,
during the previous year under the 1996 Long-Term Incentive Equity Plan, the
Company granted 122,800 options to the named executives as shown on page 27, and
195,200 options to executive officers as a group. During 1998, no options were
granted to other employees under the 1996 Plan.
Other Information.
The closing price of the Company's common stock reported on the New York Stock
Exchange on March 19, 1999 was $ _______ per share.
PROPOSAL NO. 3.
AUTHORIZATION OF ADDITIONAL SHARES OF COMMON STOCK
AMENDMENT TO THE ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED
COMMON STOCK FROM 50 MILLION TO 100 MILLION SHARES.
The Board recommends a vote in favor of this amendment.
The Board recommends that Article 4.1 of the Company's Restated Certificate of
Incorporation be amended to increase the number of shares of common stock
authorized for issuance from 50 million to 100 million shares.
4.1 Authorized Capital. The total number of shares of all classes of stock
that this Corporation shall have authority to issue is 105,000,000 shares, of
which 5,000,000 shares shall be preferred stock having a par value of $1.00 per
share and 100,0000,000 shares shall be common stock having a par value of $1.00
per share.
Purpose.
There are presently over 26 million shares of common stock issued and
outstanding. Approximately 1.4 million shares are reserved for issuance in
connection with outstanding grants under the Company's existing stock plans and
another 1.2 million shares will be reserved under the 1999 Plan, which is
proposed for stockholder approval at this meeting. This will leave just over 21
million shares available for future common stock offerings, the conversion of
any convertible securities that may be issued, and stock dividends and splits.
15
<PAGE>
PROPOSALS TO BE VOTED ON
- - --------------------------------------------------------------------------------
[SIDEBAR]
Authorize additional shares of common stock
Other business
- - --------------------------------------------------------------------------------
The Company currently has firm orders for 24 new Boeing aircraft scheduled for
delivery through the year 2002. and orders for 25 Bombardier regional jets and
five Fokker F28 jets to be delivered through 2005. The acquisition of new
aircraft and the Company's continued growth 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 or
securities convertible into common stock. Additional equity capital may also be
required for other corporate purposes including, without limitation, the
declaration of stock dividends or stock splits, issuance or exchange under the
Company's Rights Agreement, or the adoption of additional employee compensation
plans.
The Company has no present plans to issue any additional shares of common stock,
other than in connection with its existing and proposed employee compensation
plans. The Board has the authority to issue authorized shares without further
stockholder approval except as provided under Delaware law or the rules of the
New York Stock Exchange. This enables the Company to take advantage of market
conditions and favorable opportunities without the delay and expense associated
with holding a special meeting of its stockholders at the time such additional
shares are needed.
The proposed increase in the number of authorized shares of common stock will
not change the number of shares currently outstanding or the rights of the
holders of such shares. However, issuance of additional shares of common stock
for other than a stock split or dividend could have a dilutive effect on
earnings per share and on the voting power of common stock outstanding.
The Company's stockholders do not have preemptive rights. This means that the
Company may issue additional share without first offering them to current
stockholders.
The Company is not aware of any effort to accumulate its common stock or obtain
control of the Company. We have not proposed the increase in authorized stock
with the intention of using the additional shares for anti-takeover purposes.
OTHER BUSINESS
The Company has received notice that a certain individual may seek to bring a
matter before the annual meeting asking management to compare the Company's
corporate governance practices with those discussed in articles published in
Business Week and the National Association of Corporate Directors. After due
consideration, the persons named on the proxy card intend to exercise the
discretionary authority given to them by the proxy card to vote against this
item if it is properly brought before the annual meeting for a vote. The Board
knows of no other business for consideration at the meeting. If other matters
are properly presented at the meeting, or for any adjournment or postponement of
the meeting, Mr. John F. Kelly and Mr. Keith Loveless will vote on your behalf
in accordance with their best judgment on such matters.
16
<PAGE>
STRUCTURE OF THE BOARD OF DIRECTORS
- - --------------------------------------------------------------------------------
[SIDEBAR]
Committees of the Board
. Members
. Functions
. Meetings held
- - --------------------------------------------------------------------------------
The Board held four regular meetings in 1998. Each director attended at least
83% of all Board and applicable committee meetings during 1998. This table
describes the Board's committees.
<TABLE>
<CAPTION>
NAME OF NUMBER OF
COMMITTEE FUNCTIONS MEETINGS
AND MEMBERS OF THE COMMITTEE IN 1998
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
AUDIT . reviews the annual report of independent 2
auditors;
R. Marc Langland* . evaluates internal and external audit functions;
Byron I. Mallott . makes recommendation regarding
John V. Rindlaub appointment of independent auditors and
Patricia Q. Stonesifer other auditing matters to the Board; and
Richard A. Wien . evaluates the Company's compliance with
environmental regulations
- - ------------------------------------------------------------------------------------------
COMPENSATION . sets the salary of the Chairman and Chief 5
Executive Officer;
Robert L. Parker, Jr.* . approves salaries of executive officers of
Mary Jane Fate Alaska Airlines and Horizon Air;
R. Marc Langland . makes recommendations to the Board
Richard A. Wien . regarding other executive compensation issues;
including modification or adoption of
executive compensation plans;
. grants stock awards and stock options; and
. administers the Company's stock option and
other long-term incentive plans.
- - -----------------------------------------------------------------------------------------
EXECUTIVE . serves as Nominating Committee to select 3
director nominees.
Bruce R. Kennedy*
Ronald F. Cosgrave
John F. Kelly
Robert L. Parker, Jr.
*Chairperson
</TABLE>
17
<PAGE>
DIRECTOR COMPENSATION
- - --------------------------------------------------------------------------------
[SIDEBAR]
In 1997, directors set stock ownership guidelines for themselves.
- - --------------------------------------------------------------------------------
We do not pay directors who are also employees of the Company additional
compensation for their service as directors, except for the reimbursement of
expenses incurred in attending meetings. In 1998, compensation for nonemployee
directors included the following:
. an annual retainer of $20,000, with a minimum of 25% of the retainer paid
in the form of Alaska Air Group common stock issued under the Company's
Nonemployee Director Stock Plan;
. $1,200 for each Board or Committee meeting in which a nonemployee
director participates in person, but no more than one payment per day. If
participation is via telephone, the fee is $750;
. an annual retainer of $2,000 to committee chairpersons;
. an annual retainer of $1,000 to nonemployee directors who served on the
board of Alaska Airlines or Horizon Air; and
. expenses in connection with attending Board and committee meetings.
In addition, directors, their spouses and their dependent children are eligible
for complimentary travel privileges on Alaska Airlines and Horizon Air.
18
<PAGE>
PRINCIPAL STOCKHOLDERS
- - --------------------------------------------------------------------------------
[SIDEBAR]
Stock owned by officers, directors and holders of more than 5% of the Company's
stock
- - --------------------------------------------------------------------------------
This table shows how much Company common stock is owned by directors, the
individuals named in the Summary Compensation Table on page 26, all executive
officers as a group, and owners of more than 5% of the Company's outstanding
common stock. Holdings are as of March 19, 1999, except for 401(k) plan shares,
which are as of December 31, 1998.
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED
NUMBER PERCENT OF
OF SHARES OUTSTANDING
NAME OWNED(1) SHARES
The Equitable Group(2) 2,707,800 10.3%
William S. Ayer 34,324 *
George D. Bagley 8,155 *
Ronald F. Cosgrave 7,272 *
Mary Jane Fate(5) 387 *
John R. Fowler 17,543 *
John F. Kelly 58,845 *
Bruce R. Kennedy 13,557 *
R. Marc Langland 1,472 *
Harry G. Lehr 4,061 *
Byron I. Mallott 708 *
Robert L. Parker Jr. 809 *
John V. Rindlaub 3,597 *
Patricia Q. Stonesifer 1,578 *
Richard A. Wien 1,814 *
Directors and Executive Officers 238,651 .95%
as a group
(27 persons)(4)
* Less than 1%.
(1) Includes shares that the named person:
. may vote or invest alone,
. shares voting and investment power with his or her spouse, or
. holds in one of the Company's 401(k) plans,
. may acquire through stock option exercises through June 1, 1999.
(2) Number of shares owned is based on information contained in a report on
Schedule 13-G filed by The Equitable Group with the Securities and Exchange
Commission on or about February 15, 1999. The address of The Equitable
Group is 1290 Avenue of the Americas, New York, NY 10104.
(3) Does not include 1,546 shares registered in the name of her husband. Mrs.
Fate disclaims beneficial ownership of those shares.
(4) Includes 1,800 shares subject to a vesting schedule, forfeiture risk and
other restrictions.
19
<PAGE>
EXECUTIVE COMPENSATION
- - --------------------------------------------------------------------------------
[SIDEBAR]
Compensation Committee Report
. Compensation Policy
- - --------------------------------------------------------------------------------
In this section, we describe the compensation we pay our Chief Executive Officer
and the next four most highly compensated executive officers (the "named
executives"). It consists of:
. a report by the Compensation Committee on executive compensation,
. a graph showing comparative performance of the common stock,
. a detailed table showing compensation for the years 1998, 1997 and 1996, and
. information about stock options and retirement benefits.
This section also includes descriptions of certain change-in-control
arrangements between the Company and its executives.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 1998, the Compensation Committee of the Company's Board of Directors
consisted of Mr. Parker, Mrs. Fate, Mr. Langland and Mr. Wien. No member of the
Committee was an employee of the Company of any of its subsidiaries. Each
member meets the definition of "nonemployee director" under Rule 16b-3 of the
Securities Exchange Act of 1934 and is an "outside director" within the meaning
of Section 162(m) of the Internal Revenue Code.
The Committee has overall responsibility for the Company's executive
compensation policies and practices. In part, the Committee's functions
include:
. determining the compensation of the Chief Executive Officer of the Company;
. upon recommendation of the Chief Executive Officer, reviewing and approving
all executive officers' compensation, including salary and payments under the
Management Incentive Plan; and
. granting awards under stock incentive plans.
The Committee has provided the following report on the compensation policies of
the Company as they apply to its executive officers and the relationship of
Company performance to executive compensation and the Chief Executive Officer's
compensation.
EXECUTIVE COMPENSATION POLICY
The Company's policy is to pay competitive compensation. 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;
20
<PAGE>
EXECUTIVE COMPENSATION
- - --------------------------------------------------------------------------------
[SIDEBAR]
Compensation Committee Report
. Annual Base Salaries
. Management Incentive Plan
- - --------------------------------------------------------------------------------
. 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, equity-based awards and retirement
benefits.
ANNUAL BASE SALARY
1998 base salaries for executive officers are based on:
. subjective analysis of competitive market rates,
. the market demand for each executive 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 for companies included in the Dow Jones Airlines
Group contained in the Performance Graph on page 25, other air carriers and
similarly sized Pacific Northwest companies and from broad-based national
compensation surveys, and retains the services of outside compensation
specialists. The Company does not attempt to set executive compensation at
specific target ranges of any particular survey. In 1998, executive officers
other than the CEO received increases averaging 4.7%.
MANAGEMENT INCENTIVE PLAN
Air Group's Management Incentive Plan ("MIP") places at risk a significant
portion of each executive's potential cash compensation, linking it to annual
profitability.
For awards to be paid, the Company must achieve or exceed profit goals
established annually by the Compensation Committee. In recent years, MIP goals
have been based on return-on-equity levels as determined by the Compensation
Committee each year. Beginning in 1999, the Committee has based MIP goals on
reaching return-on-invested capital targets and the Company's net earnings
growth as compared to that of peer companies. Awards increase proportionately
based on the degree to which goals are met. Through 1998, awards could range up
to 45% of executive officers' base salaries if the target was met, and up to 90%
of base salaries if profits reached the maximum goal. Beginning in 1999, awards
can range up to 50% of base pay if target goals are met, and up to 100% if the
maximum goal is reached. Award levels vary by position and can also be adjusted
for individual performance.
21
<PAGE>
EXECUTIVE COMPENSATION
- - --------------------------------------------------------------------------------
[SIDEBAR]
Compensation Committee Report
. Executive Stock Awards
. CEO Base Salary and Performance
- - --------------------------------------------------------------------------------
For 1998, payments made to the named executives shown on the Summary
Compensation Table on page 26 were based on profits that exceeded the maximum
goal.
For the executives in the Summary Compensation Table, the percentages of total
potential cash compensation linked to performance under the MIP in 1998 were:
. Mr. Kelly -- 47%,
. Mr. Ayer -- 41%,
. Mr. Bagley -- 41%,
. Mr. Lehr -- 38%, and
. Mr. Fowler -- 38%.
EQUITY-BASED AWARDS
Although the 1996 Long-Term Incentive Equity Plan provides for a variety of
equity-based awards, options and restricted stock awards are the only equity-
based compensation presently in use by the Company. They provide an incentive
to maximize stock values, linking the long-term interests of executives with
those of stockholders. Because the awards vest over several years, they
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.
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 according to base salary and position. The options granted to each
of the named executive officers in 1998 are shown in the tables on pages 26 and
27.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Base Salary -- In setting the CEO's base salary, the Committee reviews
competitive information similar to that used for other Company executives and
periodically retains the services of an outside consultant. 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 from outside the Company.
The Board of Directors conducts an 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.
The Committee believes that Mr. Kelly's leadership has contributed significantly
to the
22
<PAGE>
EXECUTIVE COMPENSATION
- - --------------------------------------------------------------------------------
[SIDEBAR]
Compensation Committee Report
. CEO Management Incentive Plan
. CEO Stock Options
- - --------------------------------------------------------------------------------
Company's following achievements during 1998:
Profitability -- The Company earned record net income of $124.4 million far
exceeding 1997's record of $72.4 million.
Pretax Income Margin -- Air Group's margin of 10.8% exceeded its 1988 record of
7.7%. Horizon and Alaska Airlines also set records of 5.4% and 12.2%,
respectively.
Stock Price -- The average daily closing price of the Company's common stock
during 1998 increased 66% over last year's average to $46.01 per share. In April
1998, the stock hit an all-time high of $62.5625.
Average Return on Equity was 19.7%, the best return since 1984. Return on
beginning equity was 26.2%, a near repeat of last year's return. To put this
into perspective, the Company's equity grew from $272.5 million in 1996 to
$475.3 million in 1997 to $789.5 million in 1998.
Earnings per Share increased 36% over 1997 from $3.53 to $4.81 (diluted). This
follows 1997's 72% increase.
Debt/Equity Ratio improved from 46:54 at year end 1997 to 18:82 in 1998. If you
factor in operating leases, the ratio improved from 79:21 to 67:33.
Cost -- Alaska Airlines' unit costs declined 4% from 1997 levels -- the largest
improvement of the major U.S. airlines.
Operating Margin -- Alaska Airlines' operating margin improvement was the best
among the major U.S. airlines.
In 1998, the Committee set Mr. Kelly's salary at $500,000 for two years;
therefore his salary will not increase in 1999 in spite of the Company's record-
breaking performance.
Management Incentive Plan
The MIP award is the portion of the CEO's compensation that most directly
relates to the Company's financial performance. Under the plan in effect during
1998, the CEO's award could range from zero to 45% of base salary if the profit
target was met, up to a maximum of 90% if profits reached the maximum goal. The
profit measurements on which Mr. Kelly's 1998 MIP award was based were identical
to those detailed on page 21 for all participants in the MIP. Mr. Kelly's 1998
MIP payment was $443,942.
Stock Options
In 1998, Mr. Kelly was granted a total of 57,300 stock options under the
Company's equity plans, based on the criteria outlined earlier for option grants
to executive officers in general. The Committee believes that having a
significant amount of compensation tied to stock performance further aligns the
CEO's interests with those of the Company's stockholders.
23
<PAGE>
EXECUTIVE COMPENSATION
- - --------------------------------------------------------------------------------
[SIDEBAR]
Compensation Committee Report
. Limits on Deductibility of Executive Compensation
- - --------------------------------------------------------------------------------
OTHER INFORMATION
Tax Law Limits on Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code eliminates the Company's ability to
deduct certain compensation over $1 million paid to the named executive officers
unless such compensation is based on performance objectives meeting certain
criteria or is otherwise excluded from the limitation. The Company intends to
qualify a sufficient amount of compensation to its executive officers so that
Section 162(m) will not materially affect the Company in an adverse way.
Compensation from the exercise of options granted to date under the Company's
stock option and equity plans qualifies for the deduction.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Robert L. Parker, Jr., Chairperson
Mary Jane Fate, Committee Member
R. Marc Langland, Committee Member
Richard A. Wien, Committee Member
24
<PAGE>
PERFORMANCE GRAPH
- - --------------------------------------------------------------------------------
[SIDEBAR]
The stock price performance shown here is historical and not necessarily
indicative of future performance.
- - --------------------------------------------------------------------------------
The following graph shows a five-year comparison of cumulative total returns for
the Company's common stock, the Standard & Poor's 500 Index, and the Dow Jones
Airlines Group, assuming an initial investment of $100 on December 31, 1993 with
all dividends reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
[PERFORMANCE GRAPH APPEARS HERE]
ALASKA DOW JONES
DATE AIR GROUP S&P 500 AIRLINES(1)
1993 $100.00 $100.00 $100.00
1994 106.19 101.32 69.97
1995 115.04 139.39 105.83
1996 148.67 171.40 121.98
1997 274.34 228.59 193.54
1998 313.27 293.91 170.33
Information presented is as of fiscal years ended December 31.
(1) The companies included in the Dow Jones Airlines Group are: AMR, Southwest
Airlines, UAL, Delta Air Lines, US Airways and Northwest Airlines.
25
<PAGE>
SUMMARY COMPENSATION TABLE
- - --------------------------------------------------------------------------------
This table shows compensation information for the Company's Chief Executive
Officer and the four other most highly paid executive officers for the last
three fiscal years. (Bonus figures are based on performance in the year shown
but paid in the following year.)
- - --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
- - ---------------------------------------------------------------------------------------
ALL
SECURITIES OTHER
UNDERLYING COMPEN-
NAME AND SALARY BONUS OPTIONS SATION(1)
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- - --------------------------- ---- --------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
John F. Kelly 1998 493,269 443,942 57,300 10,760
Chairman & CEO 1997 434,615 391,154 38,900 10,510
(Alaska) 1996 376,923 339,231 206,300(2) 10,473
William S. Ayer 1998 305,769 212,692 24,100 6,787
President 1997 224,804 138,056 17,600 6,012
(Alaska) 1996 170,746 102,448 10,800 29,939
Harry G. Lehr 1998 253,569 152,142 11,300 11,588
Senior Vice President/ 1997 236,077 141,646 9,100 11,663
Finance (Alaska) 1996 231,231 138,738 14,600 10,990
George D. Bagley 1998 235,923 165,146 15,800 11,632
President & CEO 1997 217,269 152,088 10,600 11,132
(Horizon) 1996 207,308 145,115 16,400 11,132
John R. Fowler 1998 248,003 148,802 14,300 8,632
Executive Vice President/ 1997 213,769 128,262 8,300 8,425
Technical Operations & 1996 186,231 111,738 11,800 6,694
System Controls (Alaska)
</TABLE>
(1) Represents 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 1998,
401(k) contributions were: $5,000 each for Messrs. Kelly, Ayer, and Lehr;
$10,000 for Mr. Bagley and $4,500 for Mr. Fowler. Imputed income for term
life insurance during 1998 was: Mr. Kelly $5,760; Mr. Ayer $1,787; Mr.
Lehr $6,588; Mr. Bagley $1,632 and Mr. Fowler $4,132.
(2) Includes a special grant of 150,000 options awarded to Mr. Kelly in 1996.
26
<PAGE>
STOCK OPTIONS GRANTED
- - --------------------------------------------------------------------------------
This table shows the stock options granted to the named executive officers
during the last fiscal year.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN 1998
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE STOCK PRICE
OPTIONS EMPLOYEES OR BASE APPRECIATE FOR
GRANTED(1) IN FISCAL YEAR PRICE(2) EXPIRATION OPTION TERM(3)
NAME (#) (%) ($/SH) DATE 5% ($) 10% ($)
- - ------------------------- ---------- -------------- -------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
John F. Kelly 57,300 17.6 47.125 5/7/2008 1,698,181 4,303,523
William S. Ayer 24,100 7.4 47.125 5/7/2008 714,243 1,810,033
Harry G. Lehr 11,300 3.4 47.125 5/7/2008 334,894 848,688
George D. Bagley 15,800 4.8 47.125 5/7/2008 468,259 1,186,661
John R. Fowler 14,300 4.4 47.125 5/7/2008 423,804 1,074,003
</TABLE>
(1) These options were granted under the 1996 Long-Term Incentive Equity Plan.
They are:
. generally were granted as incentive stock options, subject to
limitations imposed by tax law,
. were granted at an exercise price equal to 100% of the fair market value
of the common stock on the date of grant,
. expire ten years from the date of grant, unless canceled earlier as a
result of termination of employment,
. vest in 25% increments on each anniversary date of the grant, subject to
the terms and conditions of the 1996 Long-Term Incentive Equity Plan,
and
. provide for accelerated vesting under certain circumstances, as
described under "Change-in-Control Arrangements" on page 31.
(2) Options were granted at the closing price on May 7, 1998, as reported on
the New York Stock Exchange.
(3) We are required by the Securities and Exchange Commission to use a 5% and
10% assumed rate of appreciation over the ten-year option term. This does
not represent the Company's estimate or projection of the future common
stock price. If the Company's common stock does not appreciate, these
executives will receive no benefit from the options.
27
<PAGE>
STOCK OPTIONS EXERCISED
- - --------------------------------------------------------------------------------
This table shows stock option exercises and the value of unexercised stock
options held by the named executive officers during the last fiscal year.
AGGREGATED OPTION EXERCISES IN 1998
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES ACQUIRED VALUE FISCAL YEAR END FISCAL YEAR END(2)
NAME ON EXERCISE REALIZED(1) (#) ($)
(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John F. Kelly 37,150 1,038,550 66,325 199,075 1,310,947 2,695,009
William S. Ayer 4,500 159,155 25,125 46,575 596,675 353,400
Harry G. Lehr 11,825 348,874 5,750 31,850 119,947 413,259
George D. Bagley 4,825 183,933 11,950 37,150 267,303 408,278
John R. Fowler 16,875 507,852 7,425 31,575 156,691 339,153
</TABLE>
(1) These values are calculated by:
. subtracting the option exercise price from the market price on the date
of exercise, and
. multiplying that by the number of options exercised.
(2) These values are calculated by:
. subtracting the option exercise price from the Company's December 31,
1998 closing price ($44.25 per share, as reported on the New York Stock
Exchange), and
. multiplying that by the number of exercisable and unexercisable options.
There is no assurance that the indicated values of any unexercised options
will actually be realized.
28
<PAGE>
RETIREMENT BENEFITS
- - --------------------------------------------------------------------------------
[SIDEBAR]
The Company has a defined-benefit retirement plan for all salaried Alaska
Airlines employees.
Annual benefits are based on years of credited service.
- - --------------------------------------------------------------------------------
SALARIED RETIREMENT PLAN
The Company maintains a tax-qualified, defined benefit retirement plan for all
salaried Alaska Airlines employees. Benefits payable under the Alaska Airlines
Salaried Retirement Plan ("Salaried Retirement Plan") are based on years of
credited service and final average earnings for the five highest complete and
consecutive calendar years of an employee's last ten years of service. The
annual retirement benefit at age 62 (normal retirement age under the Salaried
Retirement Plan) is equal to 2% of the employee's final average earnings 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
payable to an employee, assuming retirement on January 1, 1999, at age 62, with
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
EARNINGS ANNUAL BENEFITS BASED ON YEARS OF CREDITED SERVICE(1)
15 20 25 30 35
$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
$500,000 150,000 200,000 250,000 300,000 350,000
(1) IRS regulations limit the annual benefits that may be paid from a tax-
qualified retirement plan. The current limit is $130,000. In addition, IRS
regulations limit the covered compensation on which annual retirement
benefits are based to $160,000 in 1999. To the extent that the amounts shown
in the table above exceed that IRS limitation, the excess is paid from the
Supplementary Plan.
29
<PAGE>
RETIREMENT BENEFITS
- - --------------------------------------------------------------------------------
[SIDEBAR]
Elected officers of Alaska Airlines can received supplemental retirement
benefits.
- - --------------------------------------------------------------------------------
All of the participants' base salaries, as shown in the Summary Compensation
Table, excluding bonuses, are covered under the Salaried Retirement Plan. The
named executive officers have the following years of credited service and final
average compensation as of December 31, 1998:
NAMED YEARS OF FINAL AVERAGE
EXECUTIVE CREDITED SERVICE COMPENSATION
John F. Kelly 21.3(2) $365,073
William S. Ayer 3.3 $225,050
Harry G. Lehr 11.1 $220,952
George D. Bagley(1) 5.1(2) $196,993
John R. Fowler 6.2 $199,631
(1) When Mr. Bagley transferred from Alaska Airlines to Horizon Air in October
1995, he was 100% vested under the Salaried Retirement Plan. Horizon Air
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 Airlines.
(2) Reflects combined service at Alaska Airlines and Horizon Air since becoming
eligible for the Salaried Retirement Plan.
Officers Supplementary Retirement Plan
In addition to the benefits described above, under the Officers Supplementary
Retirement Plan ("Supplementary Plan"), elected officers of Air Group and Alaska
Airlines and Horizon Air'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 a
participant's final average earnings, offset by benefits from 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.
30
<PAGE>
CHANGE-IN-CONTROL ARRANGEMENTS
- - --------------------------------------------------------------------------------
[SIDEBAR]
Severance pay will be provided for officers and key employees under certain
circumstances.
- - --------------------------------------------------------------------------------
Change-in-Control Arrangements
The Boards of Directors of Alaska 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 in 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 (other than for 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
equity plans become fully exercisable unless the Board of Directors determines
otherwise.
31
<PAGE>
OTHER INFORMATION
- - --------------------------------------------------------------------------------
[SIDEBAR]
Compliance with SEC reporting requirements
Independent auditors
Stockholder proposals
- - --------------------------------------------------------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers to send reports of their ownership of Company Common
Stock to the Securities and Exchange Commission and the New York Stock Exchange.
The Company assists its directors and officers by preparing forms for filing.
SEC regulations also require the Company to identify in this proxy statement any
person who failed to file a report on a timely basis. A Form 4 due September
10, 1998, for Ms. Robin Krueger was inadvertently filed late, and a Form 3 filed
in September for Ms. Andrea Schneider inadvertently omitted shares indirectly
owned by her spouse. Except for these individuals, based on a review of copies
of reports furnished to the Company and written representations that no other
reports were required, the Company believes that everyone subject to Section
16(a) filed the required reports on a timely basis during 1998.
INDEPENDENT CERTIFIED PUBLIC AUDITORS
Our Board has selected Arthur Andersen LLP as the Company's independent public
auditors for the current fiscal year. Representatives of Arthur Andersen LLP
are expected to attend the meeting to respond to questions from stockholders and
will have the opportunity to make a statement, if they want to do so.
STOCKHOLDER PROPOSALS
The Company's next annual meeting will be held on May 16, 2000. If you wish to
submit a proposal for inclusion in the proxy materials for that meeting, you
must send the proposal to the Corporate Secretary at the address below. The
proposal must be received at the Company's executive offices no later than
December 2, 1999 to be considered for inclusion. You just have continuously
held at least $2,000 in market value or 1% of the Company's outstanding stock
for at least one year by the date of submitting the proposal, and must continue
to own such stock through the date of the meeting.
If you intend to nominate candidates for election as directors or present a
proposal at the meeting without including it in the Company's proxy materials,
you must provide notice of such proposal to the Company no later than February
15, 2000. The Company's bylaws outline procedures for giving the required
notice. If you would like a copy of the procedures contained in our bylaws,
please contact:
Corporate Secretary
Alaska Air Group, Inc.
P. O. Box 68947
Seattle, WA 98168
32
<PAGE>
OTHER INFORMATION
- - --------------------------------------------------------------------------------
[SIDEBAR]
Costs of proxy solicitation
Annual report on Form 10-K
- - --------------------------------------------------------------------------------
COSTS OF PROXY SOLICITATION
The Company pays for distributing and soliciting proxies and reimburses brokers,
nominees, fiduciaries and other custodians reasonable fees and expenses in
forwarding proxy materials to stockholders. 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 $4,000 in fees for its
services and will reimburse it for reasonable out-of-pocket expenses. Proxies
may be solicited by mail, telephone or other means. Proxies may also be
solicited by directors, officers, employees and other agents of the Company, who
will receive no additional compensation therefor except for reimbursement of
expenses.
OTHER MATTERS
The Company's 1998 Annual Report was mailed to stockholders together with this
proxy statement. The Company will furnish without charge a copy of the
Company's Annual Report on Form 10-K for the year ended December 31, 1998,
including financial statements and schedules to any stockholder who makes
written request to:
Finance Department
Alaska Air Group, Inc.
P.O. Box 68947,
Seattle, Washington 98168.
Keith Loveless
Corporate Secretary
and Associate General Counsel
April 1, 1999
Seattle, Washington
33
<PAGE>
This page intentionally left blank.
<PAGE>
APPENDIX
- - --------------------------------------------------------------------------------
ALASKA AIR GROUP, INC.
1999 LONG-TERM INCENTIVE EQUITY PLAN
1. Purpose
The purpose of the Alaska Air Group, Inc. 1999 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
two or more nonemployee members of the Board who are intended to 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, 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 1,200,000. The aggregate
number of shares that may be issued under awards pursuant to Section 8(c) of the
Plan shall not exceed 600,000 shares. No more than 120,000 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
A-1
<PAGE>
APPENDIX
- - --------------------------------------------------------------------------------
600,000 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 1,200,000.
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
A-2
<PAGE>
APPENDIX
- - --------------------------------------------------------------------------------
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, 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. Evidence of Awards
Awards under the Plan shall be evidenced by instruments 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.
A-3
<PAGE>
APPENDIX
- - --------------------------------------------------------------------------------
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.
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.
A-4
<PAGE>
[LOGO OF ALASKA AIR GROUP]
19300 PACIFIC HIGHWAY SOUTH
SEATTLE,WASHINGTON 98188
(206) 431-7040 www.alaskaair.com
<PAGE>
Alaska Air Group, Inc.
This Proxy is Solicited on Behalf of the Board of Directors
Annual Stockholders Meeting, May 18, 1999
I hereby appoint John F. Kelly and Keith Loveless as my proxies (with full power
of substitution) and authorize them to represent and to vote at the above annual
meeting all the shares of common stock of Alaska Air Group, Inc. that I would be
entitled to vote if personally present. The Board of Directors recommends a
vote FOR Proposals 1, 2 and 3.
THE PROXIES ARE AUTHORIZED TO VOTE AT THEIR DISCRETION UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.
(Please read and sign the reverse side.)
Please mark votes as in this example.
When completed and signed, this proxy will be voted as you have directed. If no
direction is made this proxy will be voted FOR Proposals 1, 2 and 3.
1. Election of Directors
Nominees: Byron I. Mallott, Patricia Q. Stonesifer and Richard A. Wien
FOR ALL NOMINEES
WITHHELD FROM ALL NOMINEES
FOR, except withhold my vote from the following nominee(s)
________________________________________
2. Proposal to approve the 1999 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 IF YOUR ADDRESS HAS CHANGED AND NOTE IT AT LEFT
Please sign exactly as your name appears on this proxy. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee or
guardian, please give your full title as such.
Signature:____________________________ Date ____________
Signature:____________________________ Date ____________
