SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
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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 (S) 240.14a-11(c) or (S) 240.14a-12
ALASKA AIR GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Notes:
2001 NOTICE OF ANNUAL
STOCKHOLDERS MEETING
AND PROXY STATEMENT
[LOGO OF ALASKA AIR GROUP]
PRELIMINARY COPY
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[SIDEBAR]
2001 Annual Meeting
Tuesday, May 15, at 2 p.m.
Museum of Flight
9404 East Marginal Way South
Seattle, Washington
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Alaska Air Group, Inc.
P.O. Box 68947
Seattle, Washington 98168
April 6, 2001
Dear Stockholder:
We cordially invite you to attend our 2001 Annual Meeting of
Stockholders. The meeting will be held at 2 p.m. on May 15, 2001, 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 complete and submit your proxy as soon as possible. You
can vote over the Internet, by telephone or by mail. 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,
/s/ John F. Kelly
John F. Kelly
Chairman, President and
Chief Executive Officer
TABLE OF CONTENTS
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS................................. 3
ANNUAL MEETING INFORMATION............................................... 4
QUESTIONS AND ANSWERS.................................................... 5
PROPOSALS TO BE VOTED ON
. ELECTION OF DIRECTORS........................................... 9
. AMEND CERTIFICATE OF INCORPORATION TO ELIMINATE THE 80%
SUPER-MAJORITY VOTING REQUIREMENTS.............................. 12
. STOCKHOLDER PROPOSAL ON SIMPLE MAJORITY VOTE.................... 15
. STOCKHOLDER PROPOSAL ON ANNUAL ELECTION OF DIRECTORS............ 17
OTHER BUSINESS........................................................... 19
STRUCTURE OF THE BOARD OF DIRECTORS...................................... 20
DIRECTOR COMPENSATION.................................................... 21
PRINCIPAL STOCKHOLDERS................................................... 22
EXECUTIVE COMPENSATION
. COMPENSATION COMMITTEE REPORT................................... 23
. PERFORMANCE GRAPH............................................... 27
. SUMMARY COMPENSATION TABLE...................................... 28
. OPTION GRANTS................................................... 29
. OPTIONS EXERCISED............................................... 30
. RETIREMENT BENEFITS............................................. 31
. CHANGE-IN-CONTROL ARRANGEMENTS.................................. 33
AUDIT COMMITTEE REPORT................................................... 34
SECTION 16(a) REPORTING COMPLIANCE....................................... 35
INDEPENDENT CERTIFIED PUBLIC AUDITORS.................................... 35
STOCKHOLDER PROPOSALS.................................................... 35
COSTS OF PROXY SOLICITATION.............................................. 36
OTHER MATTERS............................................................ 36
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[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.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 2001 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 15, 2001, for the following
purposes:
1. To elect four directors for three-year terms.
2. To vote on a proposal to amend the Certificate of Incorporation to
eliminate the 80% super-majority voting requirements.
3. To vote on a stockholder proposal regarding simple majority voting.
4. To vote on a stockholder proposal regarding the annual election of the
Board of Directors.
5. 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 16, 2001
are entitled to vote.
By Order of the Board of Directors,
/s/ Keith Loveless
Keith Loveless
General Counsel & Corporate Secretary
April 6, 2001
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[SIDEBAR]
Stockholders who owned Alaska Air Group stock on March 16 are eligible to vote.
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ANNUAL MEETING INFORMATION
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 16, 2001, 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 26,478,205 shares of Company
common stock outstanding on the record date.
Voting materials, which include this proxy statement, a proxy card and the 2000
Annual Report, will be mailed or made available via the Internet to stockholders
on or about April 6, 2001.
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[SIDEBAR]
Why am I receiving this annual meeting information and proxy?
Can I receive materials via the Internet?
What am I voting on?
How do I vote?
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QUESTIONS AND ANSWERS
WHY AM I RECEIVING THIS ANNUAL MEETING INFORMATION AND PROXY?
You are receiving this annual meeting information and proxy from us because you
own shares of common stock in Alaska Air Group. 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 informed decisions.
When you sign and mail the proxy card or submit your proxy via the Internet or
by telephone, 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 your proxy. This way, your shares will
be voted even if you cannot attend the meeting.
If an issue that is not on the proxy 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.
CAN I RECEIVE FUTURE MATERIALS VIA THE INTERNET?
If you received a printed copy of this proxy statement through the mail, you may
be able to receive future stockholder materials over the Internet instead. This
will reduce the Company's printing and postage costs, as well as the number of
paper documents you will receive.
Stockholders of record and employees who hold shares through a Company stock
plan can read additional information about this option, as well as request
electronic delivery, by going to www.econsent.com/alk on the Internet. If you
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hold your shares in a brokerage account, please go to www.InvestorDelivery.com.
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If you already receive your proxy materials via the Internet, you will continue
to receive them that way until you instruct otherwise through one of the
websites referenced above.
WHAT AM I VOTING ON?
You are being asked to vote on the election of four directors, a proposal to
amend the Company's Certificate of Incorporation to eliminate the 80%
super-majority voting requirements, a stockholder proposal for the Board of
Directors to consider taking the steps necessary to institute simple majority
voting for all issues that come before the stockholders, and a stockholder
proposal for the Board to consider taking the steps necessary to elect the
entire Board annually.
The Company received a letter from a stockholder requesting a discussion of
certain matters at the Annual Meeting, including the Board's recommendations for
voting on proposals submitted to stockholders, employee stock ownership, and
voting rights in employee plans. If the individual who sent the letter, or his
representative, proposes that any matter related to these discussion items be
brought to a vote, and such matter is properly brought to a vote, the persons
named on the proxy card intend to exercise the discretionary authority given to
them by the proxy card to vote against any such items.
HOW DO I VOTE?
You may vote on the Internet.
You may vote via the Internet regardless of whether you receive your annual
meeting materials through the mail or via 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.
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.
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.
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[SIDEBAR]
What if I receive more than one proxy?
What if I change my mind?
What if I do not return my proxy card?
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If you return a signed card but do not provide voting instructions, your shares
will be voted in accordance with the recommendation of the Board of Directors:
. for the four named director nominees,
. for the proposal to amend the Certificate of Incorporations,
. against the stockholder proposal regarding simple majority voting, and
. against the stockholder proposal regarding annual election of the entire
Board of Directors.
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 through a broker, 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 OR EMAIL NOTIFICATION?
It means that you have more than one account for your Alaska Air Group shares.
Please complete and submit all proxies to ensure that all your shares are voted.
WHAT IF I CHANGE MY MIND AFTER I SUBMIT 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:
. voting again by telephone or on the Internet (your latest telephone or
Internet proxy is counted),
. signing another proxy card with a later date, or
. voting again at the meeting.
WILL MY SHARES BE VOTED IF I DO NOT SUBMIT MY PROXY?
If you are a stockholder of record and do not submit your proxy, your shares
will not be voted. If your shares are held through a broker 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 only in connection with the election of directors for
three-year terms as 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 voting in
connection with the stockholder 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. Currently, 1,172,461 shares are allocated to employees
through the trust. The trustee will vote the shares in accordance with
confidential instructions received from participants. The trustee will vote
shares for which no instructions were received as it determines to be in the
best interest of the participants.
Page 6
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[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
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HOW MANY VOTES MUST BE PRESENT 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:
. has voted via telephone or the Internet, or
. has properly submitted a proxy card, or
. is present and votes in person at the meeting.
HOW MANY VOTES MUST THE NOMINEES HAVE TO BE ELECTED?
In the election of directors, the four 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 of Directors may reduce the number of seats on the Board, or the
Nominating 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 ____.
HOW MANY VOTES MUST THE PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION TO
ELIMINATE THE 80% SUPER-MAJORITY VOTING REQUIREMENTS HAVE IN ORDER TO PASS?
A majority of the shares outstanding must vote for the proposal.
HOW MANY VOTES MUST THE PROPOSAL REGARDING SIMPLE MAJORITY VOTING 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 proposal.
HOW MANY VOTES MUST THE PROPOSAL REGARDING ANNUAL ELECTION OF THE ENTIRE BOARD
OF DIRECTORS 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 proposal.
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 other proposals.
If you abstain from voting on the proposals, the abstention has the same effect
as a vote against. If you sign your proxy card without giving instructions for
voting, your shares will be counted in accordance with the recommendation of the
Board of Directors: for each director nominee, for the proposal to amend the
Certificate of Incorporation, against the stockholder proposal regarding simple
majority voting, and against the stockholder proposal regarding the annual
election of the entire Board.
Voting results are tabulated and certified by our transfer agent, EquiServe.
Page 7
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[SIDEBAR]
Where to find voting results
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WHERE CAN 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
2001. You can get a copy of that report by calling us at (206) 431-5567, or by
calling 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.
Page 8
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[SIDEBAR]
Election of Directors
. William S. Ayer
. Ronald F. Cosgrave
. R. Marc Langland
. John V. Rindlaub
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PROPOSALS TO BE VOTED ON
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company currently has ten directors.
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. Four 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. William S. Ayer, Mr. Ronald F. Cosgrave,
Mr. R. Marc Langland and Mr. John V. Rindlaub. Each nominee is presently a
director of the Company and has consented to serve a three-year term ending in
2004.
The Board of Directors recommends a vote for election of each of the director
nominees.
WILLIAM S. AYER
Mr. Ayer, age 46, was appointed a director in July 1999. He is President and
Chief Operating Officer of Alaska Airlines and serves on the boards of Alaska
Airlines, AirLifeLine, Inc., the Alaska Airlines Foundation, the University of
Washington Business School Advisory Board, and the Ronald McDonald House
Charities of Western Washington.
RONALD F. COSGRAVE
Mr. Cosgrave, age 69, serves on the Company's Executive and Nominating
Committees. 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.
R. MARC LANGLAND
Mr. Langland, age 59, has been a director since 1991. He is a member of the
Company's Executive and Nominating Committees and Chairman of the Compensation
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.
JOHN V. RINDLAUB
Mr. Rindlaub, age 56, has been a director since 1996 and serves on the Company's
Audit Committee. He is President, Bank of America, Northwest, which includes
responsibility for Washington, Oregon, Idaho and Alaska. In addition, he is
responsible for the bank's commercial and retail business in Hong Kong and
serves as Chairman, Bank of America, Asia, Ltd. He was Chairman of Seafirst Bank
from 1993 through 1999. 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.
Page 9
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[SIDEBAR]
Current Board members
. Mary Jane Fate
. John F. Kelly
. Bruce R. Kennedy
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WHO ARE THE OTHER DIRECTORS?
MARY JANE FATE
Mrs. Fate, age 67, 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 2003.
JOHN F. KELLY
Mr. Kelly, age 56, 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, the
Washington Roundtable, and is a director of Avista Corporation, a public utility
based in Spokane, Washington. Mr. Kelly's term expires in 2003.
BRUCE R. KENNEDY
Mr. Kennedy, age 62, has been a director since 1972 and serves as Chairman of
the Nominating Committee. He has served as Chairman of the Company's Executive
Committee since 1985, except for the period from 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 ARIS Corporation, a Seattle-based company that provides information
technology services. Mr. Kennedy's term expires in 2003.
Page 10
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[SIDEBAR]
Current Board members
. Byron I. Mallott
. J. Kenneth Thompson
. Richard A. Wien
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BYRON I. MALLOTT
Mr. Mallott, age 57, has been a director since 1982 and is Chairman of the
Company's Audit Committee. He is President of the First Alaskans Foundation.
From 1995 to 1999, he served as Executive Director (chief executive officer) of
the Alaska Permanent Fund Corporation, a trust managing proceeds from the state
of Alaska's oil revenues. 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 and of Alaska Communications Systems, a
provider of telecommunication services in the state of Alaska. His term will
expire in 2002.
J. KENNETH THOMPSON
Mr. Thompson, age 49, was appointed a director in October 1999 and serves on the
Company's Compensation Committee and its Safety Committee. He served as
executive vice president of ARCO's Asia Pacific oil and gas operating companies
in Alaska, California, Indonesia, China and Singapore from 1998 to 2000. Prior
to that, he was President of ARCO Alaska, Inc., the parent company's oil and gas
producing division based in Anchorage. Mr. Thompson is President of Pacific Rim
Leadership Development, LLC, and President of Pacific Star Energy Company, both
located in Anchorage, Alaska. Mr. Thompson's term expires in 2003.
RICHARD A. WIEN
Mr. Wien, age 65, has been a director since 1982 and serves on the Company's
Compensation and Audit Committees and chairs the Safety Committee. 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 and Usibelli Coal Mine. Mr.
Wien's term expires in 2002.
Page 11
PROPOSAL NO. 2
AMEND CERTIFICATE OF INCORPORATION TO ELIMINATE THE 80% SUPER-MAJORITY VOTING
REQUIREMENT
The Board recommends a vote in favor of this Amendment.
The Company's 2000 Proxy Statement included a stockholder proposal recommending
that the Board take the steps necessary to implement simple majority voting on
all issues submitted to its stockholders. That proposal was approved with
12,694,475 votes for, 6,412,719 votes against, and 213,238 votes abstaining. In
view of these results, the Board committed to examine the issue of super-
majority voting in greater detail. As a consequence of that review, the Board is
proposing an amendment to the Company's Certificate of Incorporation to delete
the super-majority vote provisions contained in Article 10 of the certificate.
Article 10 currently reads:
Special Voting. If this corporation has a "controlling stockholder," the
affirmative vote of the holders of not less than 80% of the outstanding
shares of voting stock shall be required for this corporation to (a)
consolidate with, or merge with any other corporation, (b) convey to any
corporation or other person or otherwise dispose of all or substantially
all of its assets, or (c) dispose of by any means all or substantially all
of the stock or assets of any major subsidiary. For purposes of this
Article, a controlling stockholder is a person who, including associates of
such person, is the beneficial owner of more than 15% of the voting power
of this corporation. This voting requirement shall not be applicable if 80%
of the disinterested members (not representing or being associated with the
controlling stockholder) of this corporation's full Board of Directors have
voted in favor of the proposed consolidation, merger, conveyance, or
disposition. If there is a controlling stockholder, this Article 10 can be
amended only by the affirmative vote of 80% of the voting power of this
corporation. Any determination made by the Board of Directors, on the basis
of information at the time available to it, as to whether any person is an
associate of a controlling stockholder, shall be conclusive and binding for
all purposes of this Article 10.
The Board of Directors, when evaluating any offer of another party to (a)
make a tender or exchange offer for any equity security of this
corporation, (b) merge or consolidate this corporation with another
corporation, or (c) purchase or otherwise acquire all or substantially all
of the properties and assets of this corporation, shall, in connection with
the exercise of its judgment in determining what is in the best interests
of this corporation and its stockholders, give due consideration to all
relevant factors, including, without limitation, the social and economic
effects on the employees, customers and other constituents of this
corporation.
Page 12
Article 10 was designed to curb abusive takeover attempts. It was adopted in
1985, prior to the enactment of Section 203 of the Delaware General Corporation
Law ("Section 203"), a statutory provision also designed to curb abusive
takeovers of Delaware corporations.
The Board believes that elimination of Article 10 will not adversely affect the
Company or its stockholders, because the Company will continue to be protected
under Section 203.
. Section 203 of the Delaware General Corporation Law. Like Article 10,
Section 203 addresses the problem of abusive takeover attempts by
preventing certain business combinations of a corporation with "interested
stockholders." Section 203 prevents business combinations with interested
stockholders within three years after such stockholders become interested
unless (a) the business combination is approved by the board of directors
before the person becomes an interested stockholder; (b) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder; or (c) the business combination is approved by the
corporation's board of directors and by the holders of at least 66-2/3% of
the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Section 203 defines
an "interested stockholder" as any person (other than the corporation and
any direct or indirect majority-owned subsidiary of the corporation) that
(a) is the owner of 15% or more of the outstanding voting stock of the
corporation, or (b) is an affiliate or associate of the corporation and was
an owner of 15% or more of the outstanding voting stock of the corporation
at any time within the three-year period immediately prior to the date a
determination is sought on whether such person is an interested
stockholder. Section 203 is intended to have a deterrent effect on the
ability or desire of third persons to acquire a substantial block of a
corporation's voting stock and to attempt to gain control of the
corporation without negotiating directly with its board.
A Delaware corporation remains subject to Section 203 unless the
corporation, by action of its stockholders, adopts an amendment to its
certificate of incorporation or bylaws expressly electing not to be
governed by Section 203. Article 10 of the Company's Bylaws requires a vote
of a majority of the outstanding stock and 75% of the persons present and
entitled to vote at a meeting to amend the Bylaws.
. Other Measures that Encourage Negotiation of a Fair Price. In addition to
the protections of Section 203, the Company will continue to avail itself
of other tools that may be used to encourage a bidder to negotiate a fair
price in the event of a hostile takeover bid, specifically, a staggered
board of directors and a shareholder rights plan.
Under the Company's Certificate of Incorporation, as approved by the
stockholders, the Board is divided into three classes with directors
elected to serve three-year terms. Approximately one-third of the directors
stand for election each year. As discussed in the Board of Director's
Response to Proposal 4, under a staggered board of directors, at least two
annual stockholder meetings will be required to effect a change in control
of the Board, thus giving the incumbent directors the time and leverage
necessary to evaluate the adequacy and fairness of any takeover proposal,
negotiate on behalf of stockholders and weigh alternative methods of
maximizing stockholder value for all stockholders.
In addition to a staggered board, the Company has implemented a shareholder
rights plan. Under that plan, each holder of a share of the Company's
common stock other than an "acquiring person," as that term is defined
below, has a right to purchase one one-hundredth of a share of preferred
stock. This right becomes exercisable ten days after an individual or group
of affiliated
Page 13
persons (an "acquiring person") acquires or commences a tender offer or
exchange offer for 20% or more of the Company's common stock. Upon exercise
of such right, stockholders other than the acquiring person can receive
that number of shares of the Company's common stock having a market value
of two times the exercise price of the right (or, in a merger or other
business combination, that number of shares of the acquiring company's
common stock having a market value of two times the exercise price of the
right). Each share of preferred stock will be entitled to preferential
dividends, liquidation payments and voting rights of 100 times the
dividend, liquidation payments and voting rights of the Company's common
stock. The rights may be redeemed by the Company's Board of Directors at
any time prior to an acquiring person's acquisition of 50% or more of the
Company's common stock. Because the Board has the right to redeem the
rights, the shareholder rights plan strengthens the Board's bargaining
position by giving the Board a greater period of time to properly evaluate
an acquisition offer and by giving the bidder an inducement to negotiate.
The Board believes that the protections of Section 203, coupled with the
Company's other anti-takeover protections, will provide a sufficient level of
protection for the interests of the Company and its stockholders in the event of
a hostile takeover bid. None of these protections is designed or intended to
prevent an unsolicited, non-abusive offer to acquire the Company at a fair
price. Potential acquirers will be encouraged by these protections to negotiate
directly with the Board. In the Board's view, these protections will provide the
Board adequate flexibility in any negotiations and will enhance the Board's
ability to negotiate the highest possible bid from a potential acquirer.
Generally speaking, takeover attempts which have not been negotiated by the
Board can seriously disrupt business, distract management, and cause great
expense. Such attempts may take place at inopportune times and may involve terms
which are less favorable to all the stockholders than would be available in a
transaction negotiated and approved by the Board. On the other hand,
Board-approved transactions can be carefully planned and undertaken at an
opportune time in order to obtain maximum value for the corporation and all of
its stockholders with due consideration given to such matters as recognition or
postponement of gain or loss for tax purposes, the management and business of
the acquiring corporation or controlling stockholder, and the maximum strategic
deployment of the Company's assets.
The Board believes that this proposal is in the best interests of the
stockholders and represents a good faith effort to be responsive to the wishes
of its stockholders, as expressed by the voting results of last year's Annual
Meeting.
If stockholders approve the proposal, the Board will cause a Restated
Certificate of Incorporation to be filed with the Secretary of the State of
Delaware as soon as practicable after such approval is final.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" PROPOSAL 2.
Page 14
PROPOSAL NO. 3
STOCKHOLDER PROPOSAL ON SIMPLE-MAJORITY VOTING
A stockholder has advised the Company that he intends to present the following
resolution at the Annual Meeting. In accordance with applicable proxy
regulations, the proposed resolution and supporting statement, for which the
Board of Directors and the Company accept no responsibility, are set forth
below.
Stockholder Resolution
[ADOPT RESOLUTION THAT WON 65% OF SHAREHOLDER VOTE IN 2000: REINSTATE SIMPLE-
MAJORITY VOTE]
Shareholders recommend that the board take the steps necessary to reinstate
simple majority vote on all issues submitted for shareholder vote - to the
fullest extent possible. [This includes requiring that any future proposal
impacting majority shareholder vote be approved by a shareholder vote - as a
separate proposal.]
Proponent's Supporting Statement
Why return to simple-majority vote?
. Two simple-majority resolutions won 59% average APPROVAL from shareholders in
1999 - Investor Responsibility Research Centers' Corporate Governance
Bulletin, April-June 1999.
. [Professionally-managed funds said that super-majority vote requirements may
devaluate the stock.]
What incentive is there for good corporate governance - highlighted by simple-
majority vote? A new study by the international management consultancy McKinsey
& Co. shows that institutional investors are prepared to pay an 18% premium for
good corporate governance. McKinsey warns that companies that fail to reform
will find themselves at a competitive disadvantage in attracting capital to
finance growth. - Wall Street Journal, June 19, 2000.
It is increasingly important that Alaska Air reinstate simple-majority vote as a
step toward competitive corporate governance/management. [Institutional
shareholders particularly believe that when a company has a number of
substandard practices, that it is increasingly important to take steps toward
improving company governance/management.]
. Limited shareholder right to amend the charter or bylaws.
. Super-majority vote required to approve merger.
. Super-majority requirements generally lock in rules that harm shareholders.
Institutional Shareholder Services said the current super-majority vote
rule can entrench management and prevent action that may benefit shareholders
(Institutional Shareholder Services, April 8, 1999).
To make Alaska Air competitive at the highest company level:
[ADOPT RESOLUTION THAT WON 65% OF SHAREHOLDER VOTE in 2000: REINSTATE
SIMPLE-MAJORITY VOTE]
Yes on 3
Board of Directors' Response
The Board of Directors recommends a vote AGAINST this Proposal No. 3 because it
believes that the Proposal is unnecessary in light of the Board's proposal
(Proposal No. 2) to Amend the Company's Certificate of Incorporation to
eliminate the 80% super-majority vote requirements contained therein.
Page 15
The Company's 2000 Proxy Statement included a stockholder proposal, essentially
the same as the present, recommending that the Board take the steps necessary to
implement simple-majority voting on all issues submitted to its stockholders.
That proposal was approved with 12,694,475 votes for, 6,412,719 votes against,
and 213,238 votes abstaining. While the proposal was not binding, in view of
these results, the Board committed to examine the issue of super-majority voting
in greater detail. Proposal No. 2 is a direct product of the Board's commitment
and a good faith effort to be responsive to the views of its stockholders.
Accordingly, the Board believes that the concerns raised by the present proposal
are no longer valid. Therefore, the Board recommends a vote AGAINST this
proposal.
The Board also believes that stockholders should reject the proposal for the
following reasons:
. The proposal is unclear as to what is specifically being requested. It is
unclear whether the simple majority suggested by this proposal should be
based on the votes cast, the shares present and entitled to vote, or on the
shares outstanding. If the proposal intends that all matters would be
passed upon approval by a simple majority of the shares outstanding, this
would make passage more difficult than it currently is for most issues that
come before the stockholders. If, on the other hand, the proposal means
that a matter would be passed if it received a majority of the votes
present and entitled to vote, the proposal would be in violation of
Delaware law requirements that certain issues be decided based on a
majority of the shares outstanding.
. Enacting the proposal as it is presented would be contrary to Delaware law.
Delaware law provides protections for stockholders by requiring the
affirmative vote of at least a majority of the outstanding shares entitled
to vote (not just a majority of the votes present and entitled to vote at a
meeting) for certain fundamental corporate actions, such as amending the
certificate of incorporation, approving certain mergers, selling
substantially all the assets or dissolving the corporation. This proposal
would be in violation of these provisions of Delaware law.
. Delaware statutory provisions protect stockholders. Delaware law also
contains several specific super-majority voting requirements for certain
business combinations involving "interested stockholders." These "super-
majority" provisions, like those contained in the governance documents of
many public corporations and many corporate statutes, are designed to
provide protection for all stockholders against self-interested actions by
one or a few large stockholders. These provisions are not intended to, and
do not, preclude unsolicited, non-abusive offers to acquire the Company at
a fair price. They are designed, instead, to encourage any potential
acquirer to negotiate directly with the Board. This is desirable because
the Company believes the Board is in the best position to evaluate the
adequacy and fairness of proposed offers, to negotiate on behalf of all
stockholders and to protect stockholders against abusive tactics during a
takeover process.
Because proposal is a recommendation, its approval would not automatically
eliminate the 80% super-majority provisions in the Company's Certificate of
Incorporation and could not effectuate a "simple-majority vote" for those
corporate actions that require a higher vote under Delaware law. Elimination of
the 80% super-majority provisions would require amendment of the Company's
Certificate of Incorporation, which is set forth as Proposal No. 2 in this proxy
statement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "AGAINST" PROPOSAL 3.
Page 16
PROPOSAL NO. 4
STOCKHOLDER PROPOSAL ON ELECTION OF DIRECTORS
A stockholder has advised the Company that he intends to present the following
resolution at the Annual Meeting. In accordance with applicable proxy
regulations, the proposed resolution and supporting statement, for which the
Board of Directors and the Company accept no responsibility, are set forth
below.
Stockholder Resolution
RESOLVED: That Alaska Air Group stockholders urge the Board of Directors take
the necessary steps, in compliance with state law, to declassify the Board for
the purpose of director elections. The board declassification shall be completed
in a manner that does not affect the unexpired terms of directors previously
elected.
Proponent's Supporting Statement
Alaska Air group's board is divided into three classes of directors serving
staggered three-year terms. This means an individual director faces election
only once every three years, and shareholders only vote on roughly a third of
the board each year.
Companies often defend classified boards by suggesting that they preserve
continuity. We think continuity is insured through director re-elections. When
directors are performing well they routinely are re-elected with majorities of
over 95%.
We believe that annual elections can pave the way for improved board sensitivity
to important shareholder issues. In particular, it can help speed the
diversification of Alaska Air Group's board and introduce new perspectives.
In addition, a declassified board allows the company to respond quickly to
changes by giving the board the ability to appoint more qualified candidates
each year. A declassified board can help give Alaska Air Group the flexibility
it needs as it moves in to the next century.
The evidence shows that shareholders are fed up with classified boards. This is
especially true for employee shareholders. This past year, majorities of
shareholders voted to declassify boards at many companies, including: Airborne
Freight (73%), Baxter International (60.4%), Eastman Chemical (70%), Eastman
Kodak (60.7%), Lonestar Steakhouse and Saloon, Inc. (79%), Silicon Graphics
(81.1%), United Health Group (75.7%), Weyerhaeuser (58%) and Kmart1 (68.5%). In
1999, shareholders voted to declassify boards with a majority at Cendant, Cooper
Tire and Rubber, Kaufman & Broad Home, Oregon Steel and Tenneco. In 1998, Walt
Disney Company agreed to change the by-laws after the resolution passed with 65%
of the vote. More than 70% of shareholders demanded the same at Fleming and
Eastman Kodak.
By adopting annual elections, Alaska Air Group can demonstrate its commitment to
fuller accountability to shareholders, accountability that honors shareholder
prerogatives.
We urge you to vote YES for this proposal.
Board of Directors' Response
The Board of Directors recommends that you vote AGAINST this proposal. The Board
believes that its classified Board structure, which has been in place at Alaska
Air Group since the Company's incorporation under Delaware law in 1985,
continues to be in the best interests of the Company and its stockholders.
Page 17
Proponents of declassified boards would have stockholders believe that the only
way to ensure director independence and accountability is to declassify the
board of directors, which makes the Company more vulnerable to corporate raiders
and special interest groups. On the contrary, the Board of Directors believes
that a classified board structure helps to insulate directors from the pressures
of management or of special interest groups. A majority of respected
corporations have classified boards. In addition, the connection between
declassified boards and director independence is not clear. Many classified
boards are composed of highly independent directors. Conversely, there are
declassified boards some of whose members do not act independently.
Under the Company's Certificate of Incorporation, the Board of Directors is
divided into three classes with directors elected to staggered three-year terms.
Approximately one-third of the directors stands for election each year. This
means that a majority of the Board can be replaced in the course of two annual
meetings, both held within approximately one year's time, and the entire Board
can be replaced in the course of three annual meetings, all held within
approximately two years. The three-year staggered terms are designed to ensure
that a majority of the Company's directors at any given time have prior
experience as directors of the Company. This ensures that the Board has solid
knowledge of the Company's complex business, its long-range plans and progress,
and its evolving role in the airlines industry. Directors who have experience
with the Company and knowledge about its business are a valuable resource and
are better positioned to make the fundamental decisions that are best for the
Company and its stockholders. Numerous well-respected U.S. corporations and
institutional investors have classified boards.
The Board of Directors believes that electing directors to staggered three-year
terms is beneficial in many respects:
. It helps to prevent abrupt changes in corporate policies, based on
misplaced short-term objectives that might result if the entire Board
could be replaced in just one meeting. This allows the Company to
improve its focus on long-term strategic planning. This long-term
focus can lead to a better competitive position for the Company and
maximize stockholder value.
. Electing directors to three-year terms also enhances the independence
of non-management directors by providing them with a longer assured
term of office, thereby insulating them against pressure from
management or from special interest groups who might have an agenda
contrary to the long-term interests of all stockholders. The Board of
Directors believes that the ability to replace the entire board of
directors at one meeting undercuts director independence and leaves
the Company vulnerable to special-interest groups who may not be
acting in the best interests of all stockholders.
. The existence of three-year terms for directors assists the Company in
attracting director candidates who are willing to make a longer-term
commitment to the Company.
. Finally, a classified board of directors enhances the Board's ability
to negotiate the best results for stockholders in a takeover
situation. One benefit of having a classified board is that it
encourages a person seeking to obtain control of the Company to
negotiate with the Board. Because at least two annual stockholders
meetings generally will be required to effect a change in control of
the Board, the classified structure gives the incumbent directors the
time and leverage necessary to evaluate the adequacy and fairness of
any takeover proposal, negotiate on behalf of all stockholders and
weigh alternative methods of maximizing stockholder value for all
stockholders. (Historically, stockholders have received higher
takeover premiums when potential acquirers have been forced to
Page 18
negotiate a fair deal with the Board.) It is important to note,
however, that although the classified Board is intended to cause a
person seeking to obtain control of the Company to negotiate with the
Board, the existence of a classified board will not, in fact, prevent
a person from accomplishing a hostile acquisition.
The Board of Directors believes that the benefits of the current classified
Board structure do not come at the cost of directors' accountability to
shareholders. Directors elected to three-year terms are just as accountable to
shareholders as directors elected annually, since all directors are required to
uphold their fiduciary duties to the Company and its stockholders, regardless of
the length of their term of office. The annual election of one-third of the
directors provides stockholders with an effective means to effect change and
communicate their views on the performance of the Company and its directors.
Approval of this proposal would require the affirmative vote of a majority of
the shares of Alaska Air Group stock present in person or by proxy and entitled
to vote at the Annual Meeting. Stockholders should bear in mind, however, that
approval of this proposal would not itself repeal the Board of Directors
classification provisions found in the Company's Certificate of Incorporation.
If approved, the proposal would serve as a recommendation to the Board. The
Board would still be required to consider whether a change in the present system
of electing directors is in the best interests of the Company and its
stockholders. Then the Company's Certificate of Incorporation would have to be
amended to legally eliminate classification. Such an amendment would require
approval by the Board and, in a separate vote, by the holders of at least a
majority of the outstanding shares of Alaska Air Group stock, which is a higher
threshold than the approval needed for this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "AGAINST" PROPOSAL 4.
The Company will provide the names and addresses of the proponents of the
stockholder proposals above and the numbers of shares they hold upon oral or
written request for such information. Requests may be sent to the Corporate
Secretary, Alaska Air Group, Inc., P.O. Box 68947, Seattle, Washington 98168, by
calling (206) 431-7218.
OTHER BUSINESS
The Company received a letter from a stockholder requesting a discussion of
certain matters at the Annual Meeting, including the Board's recommendations for
voting on proposals submitted to stockholders, employee stock ownership, and
voting rights in employee plans. If the individual who sent the letter, or his
representative, proposes that any matter related to these discussion items be
brought to a vote, and such matter is properly brought to a vote, the persons
named on the proxy card intend to exercise the discretionary authority given to
them by the proxy card to vote against any such items. 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.
Page 19
================================================================================
[SIDEBAR]
Committees of the Board
. Members
. Functions
. Meetings held
================================================================================
STRUCTURE OF THE BOARD OF DIRECTORS
The Board of Directors held four regular meetings and seven special meetings in
2000. Each director attended 100% of all Board and applicable committee meetings
during 2000. This table describes the Board's committees.
NUMBER OF
NAME OF COMMITTEE FUNCTIONS MEETINGS IN
AND MEMBERS OF THE COMMITTEE 2000
AUDIT -- reviews the annual report of independent 4
auditors;
Byron I. Mallott* -- evaluates internal and external audit functions;
John V. Rindlaub -- makes recommendations regarding
Richard A. Wien other auditing matters to the Board; and
-- evaluates the Company's compliance with
environmental regulations.
COMPENSATION -- sets the salary of the Chairman and CEO; 5
-- approves salaries of executive officers of Alaska
R. Marc Langland* Airlines and Horizon Air
Mary Jane Fate -- makes recommendations to the Board
J. Kenneth Thompson regarding other executive compensation issues,
Richard A. Wien 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 -- oversees the CEO evaluation process and 2
-- makes recommendations to the Board
Bruce R. Kennedy* regarding committee/subsidiary service.
Ronald F. Cosgrave
John F. Kelly
R. Marc Langland
NOMINATING -- selects director nominees. 2
Bruce R. Kennedy*
Ronald F. Cosgrave
R. Marc Langland
SAFETY -- monitors management efforts to ensure the Formed 11/1/2000
safety of passengers and employees; No meetings in 2000
Richard A. Wien* -- monitors and assists management in creating
J. Kenneth Thompson a uniform safety culture that achieves the
highest possible industry performance measures;
-- periodically reviews with management and
outside experts all aspects of airline safety.
*Chairperson
Page 20
================================================================================
[SIDEBAR]
The Board has set stock ownership guidelines for directors.
================================================================================
DIRECTOR COMPENSATION
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 2000, 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 participated in person. If participation was via telephone,
the fee was $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 Directors 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.
Page 21
================================================================================
[SIDEBAR]
Stock owned by holders of more than 5% of the Company's stock, directors and
officers
================================================================================
PRINCIPAL STOCKHOLDERS
This table shows how much Company common stock is owned by owners of more than
5% of the Company's outstanding common stock, directors, the individuals named
in the Summary Compensation Table on page __, and all executive officers as a
group. Institutional holdings are as of December 31, 2000. All other holdings
are as of March 16, 2001.
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED
NUMBER PERCENT OF
OF SHARES OUTSTANDING
NAME OWNED(1) SHARES
Primecap Management Company(2) 2,540,000 9.6
Franklin Resources, Inc. (3) 1,641,879 6.2
Cascade Investment, L.L.C.(4) 1,409,500 5.3
William S. Ayer 90,310 *
George D. Bagley 47,903 *
Ronald F. Cosgrave 7,600 *
Mary Jane Fate(5) 2,607 *
John F. Kelly 278,755 1.03
Bruce R. Kennedy 14,110 *
R. Marc Langland 1,998 *
Byron I. Mallott 1,234 *
John V. Rindlaub 3,871 *
Gregg A. Saretsky 25,226 *
Richard A. Wien 3,088 *
J. Kenneth Thompson 1,224 *
Bradley D. Tilden 14,945 *
Directors and Executive Officers 504,291 1.9%
as a group (15 persons)
- -------------------
* 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,
. holds in one of the Company's 401(k) plans, or
. may acquire through stock option exercises through June 6, 2000.
(2) Number of shares owned is based on information contained in a report on
Schedule 13-G filed by the Vanguard Primecap Fund with the Securities and
Exchange Commission on or about February 15, 2000. The address of Primecap
Management Company is 225 South Lake Avenue #400, Pasadena, CA 91101.
(3) Number of shares owned is based on information contained in a report on
Schedule 13-G filed by Franklin Resources, Inc. on or about February 15,
2000. The address of Franklin Resources is 777 Mariners Island Boulevard,
San Mateo, CA 94404.
(4) Number of shares owned is based on information contained in a report on
Schedule 13-G filed by Cascade Investment, L.L.C. on or about October 24,
2000. The address of Cascade Investment is 2365 Carillon Point, Kirkland,
WA 98033.
(5) Does not include 1,546 shares registered in the name of Mrs. Fate's
husband.
Page 22
================================================================================
[SIDEBAR]
Compensation Committee Report
. Compensation policy
================================================================================
EXECUTIVE COMPENSATION
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 2000, 1999 and 1998,
and
. information about stock options and retirement benefits.
This section also includes descriptions of certain change-in-control
arrangements between the Company and the named executives.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 2000, the Compensation Committee of the Company's Board of Directors
consisted of Mr. Langland, Mrs. Fate, Mr. Thompson and Mr. Wien. No member of
the Committee was an employee of the Company or 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 executives 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, equity-based awards and retirement
benefits.
Page 23
ANNUAL BASE SALARY
In 2000, base salaries for executive officers were 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 __, other air carriers and
similarly sized Pacific Northwest companies and for companies in broad-based
national compensation surveys. In addition, it retains the services of outside
compensation specialists as needed. The Company does not attempt to set
executive compensation at specific target ranges of any particular survey. In
2000, executive officers other than the CEO received increases averaging 4.9%.
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. Prior to 1999, MIP goals
were based on return-on-equity levels as determined by the Compensation
Committee each year. Beginning in 1999, the Committee based MIP goals on
reaching return-on-invested-capital targets and on 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. In 2000, the CEO could earn up to
65% of base pay if the target is met, and up to 130% if the maximum is reached.
The other named executives could earn up to 45% of base salary if the target
goal is met, and up to 90% of base salary if profits reach the maximum goal,
depending on position. Award levels can be adjusted for individual performance.
For the executives named in the Summary Compensation Table, the percentages of
total potential cash compensation linked to performance under the MIP in 2000
ranged from 41.2% to 56.5%.
EQUITY-BASED AWARDS
Although the 1996 and 1999 Long-Term Incentive Equity Plans provide for a
variety of equity-based awards, stock 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 executives in 2000 are shown in the tables on pages __ and __.
Page 24
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
annually 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, 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.
While we are not satisfied with the Company's financial performance in what has
been a most difficult year, Mr. Kelly's response to the challenges that arose
was exemplary. His approach to handling communications and assistance efforts
surrounding the tragic crash of Flight 261 was prompt, open and compassionate,
gaining the attention and recognition of the International Grief Survivors
Foundation. In addition, he led his management team in the development and
implementation of an industry-leading plan designed to make Alaska Airlines
number one in safety and compliance. We believe that Mr. Kelly also has served
the investment community well in maintaining a timely and accurate flow of
financial information.
In spite of skyrocketing fuel and other costs associated with strengthening the
Company's infrastructure, Mr. Kelly led the Company to improved performance in
some specific areas during 2000. For instance, load factor, yield, and revenue
per available seat-mile were up from 1999's performance. At 69:31, the Company's
debt/equity ratio continues to be strong. The Company continues to make great
strides in technology, as increasing numbers of customers decide to book with
the airline through the Internet. In addition, despite the challenging
circumstances of the past year, readers of Conde Nast and Travel and Leisure
Magazine once again voted Alaska Airlines best major U.S. carrier.
The foregoing achievements notwithstanding, Mr. Kelly, Alaska Airlines President
and Chief Operating Officer William S. Ayer, and Horizon Air President and CEO
George D. Bagley all refused to accept an increase in base salary this year.
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
2000, the CEO's award could range from zero to 65% of base salary if the profit
target was met, up to a maximum of 130% if profits reached the maximum goal and
the Company's net earnings growth compared favorably to that of its peers.
Because the minimum return-on-invested-capital threshold was not met in 2000,
Mr. Kelly received no MIP payment for the year.
Stock Options
In 2000, Mr. Kelly was granted a total of 88,000 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.
Page 25
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 executives 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
R. Marc Langland, Chairperson
Mary Jane Fate, Committee Member
J. Kenneth Thompson, Committee Member
Richard A. Wien, Committee Member
Page 26
================================================================================
[SIDEBAR]
The stock price performance shown here is historical and not necessarily
indicative of future performance.
================================================================================
PERFORMANCE GRAPH
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 $100 on December 31, 1995 with
all dividends reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
[PERFORMANCE GRAPH]
ALASKA DOW JONES
DATE AIR GROUP S&P 500 AIRLINES*
1995 100.00 100.00 100.00
1996 129.23 122.97 103.90
1997 238.46 164.00 163.84
1998 272.31 210.86 147.14
1999 216.15 255.23 147.69
2000 183.08 231.98 199.67
Information presented is as of fiscal years ended December 31.
* The companies included in the Dow Jones Airlines Group are: Air Tran
Holdings, Alaska Air Group, AMR, Atlantic Coast Airlines Holdings,
Continental Airlines, Delta Air Lines, Northwest Airlines, Skywest,
Southwest Airlines, UAL, and US Airways.
Page 27
SUMMARY COMPENSATION TABLE
This table shows compensation information for the Company's Chief Executive
Officer and the four other most highly paid executive officers of Alaska Air
Group for the last three fiscal years. ("Executive officers" as used here
includes officers of Alaska Air Group, the presidents of two operating
subsidiaries, and another elected officer of a subsidiary who has a policy-
making role at the Alaska Air Group level.) Bonus figures are shown in and based
upon performance in the year earned, but paid in the following year.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
AWARDS
--------------------------
OTHER SECURITIES ALL
ANNUAL COMPENSATION ANNUAL RESTRICTED UNDER- OTHER
------------------- COMPEN- STOCK LYING COMPEN-
NAME AND SALARY BONUS SATION(1) AWARDS OPTIONS SATION(2)
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
John F. Kelly 2000 518,269 0 - - 88,000 7,615
Chairman & CEO 1999 510,577 375,000 - - 72,700 10,661
(Alaska Air Group) 1998 493,269 443,942 - - 57,300 10,760
William S. Ayer 2000 335,961 0 - - 40,100 6,068
President & COO 1999 318,269 214,832 - - 33,100 7,003
(Alaska Airlines) 1998 305,769 212,692 - - 24,100 6,787
George D. Bagley 2000 248,302 0 35,356 - 25,400 12,132
President & CEO 1999 237,600 160,380 - - 21,000 11,632
(Horizon Air) 1998 235,923 165,146 - - 15,800 11,632
Gregg A. Saretsky 2000 214,147 0 40,471 - 13,600 5,548
Sr. Vice President/ 1999 193,617 101,649 44,088 - 11,200 5,705
Marketing & Planning 1998 142,304 109,842 37,670 103,163 18,000 415
(Alaska Airlines)
Bradley D. Tilden 2000 182,308 0 32,492 - 11,600 5,525
Vice President/Finance 1999 150,704 78,393 29,166 - 8,400 5,384
& CFO 1998 125,373 61,538 - - 4,100 5,500
(Alaska Air Group)
(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's salary plus bonus in each of the past
three years are shown. Mr. Bagley's 2000 compensation includes $10,019 in
connection with his automobile and $24,343 in connection with executive
travel. Compensation for Mr. Saretsky includes $18,793 for relocation
expenses in 1998; $11,662 for automobile expenses and $14,886 for executive
travel in 1999; and $10,995 for automobile, $15,183 for executive travel
and $11,133 for tax gross-up expenses in 2000. Mr. Tilden's 1999
compensation includes $12,610 in connection with executive travel and his
2000 compensation includes $11,950 relating to his automobile and $10,359
in connection with executive travel.
(2) Represents Company-paid contributions to individual 401(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 2000, 401(k) contributions were $5,250 each for Messrs. Kelly, Ayer,
Saretsky, and Tilden and $10,500 for Mr. Bagley. Imputed income for term
life insurance during 2000 was Mr. Kelly-$2,365; Mr. Ayer-$818; Mr. Bagley-
$1,632; Mr. Saretsky-$298 and Mr. Tilden-- $275.
Page 28
OPTION GRANTS
This table shows the stock options granted to the named executives during the
last fiscal year.
OPTIONS GRANTED IN 2000
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE STOCK PRICE
OPTIONS EMPLOYEES OR BASE APPRECIATION FOR
GRANTED(1) IN FISCAL YEAR PRICE(2) EXPIRATION OPTION TERM(3)
NAME (#) (%) ($/Sh) DATE 5% ($) 10% ($)
- --------------------------------------------------------------------------------------------------
John F. Kelly 88,000 14.4 30.50 1/25/2010 1,687,953 4,277,605
William S. Ayer 40,100 6.6 30.50 1/25/2010 769,170 1,949,227
George D. Bagley 25,400 4.2 30.50 1/25/2010 487,205 1,234,672
Gregg A. Saretsky 13,600 2.2 30.50 1/25/2010 260,865 661,084
Bradley D. Tilden 11,600 1.9 30.50 1/25/2010 222,503 568,866
_________________
(1) These options were granted under the 1999 Long-Term Incentive Equity Plan.
They:
. 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 1999 Long-Term Incentive Equity
Plan, and
. provide for accelerated vesting under certain circumstances, as
described under "Change-in-Control Arrangements" on page __.
(2) Options were granted at the closing price on January 25, 2000, 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.
Page 29
OPTIONS EXERCISED
This table shows stock option exercises and the value of unexercised stock
options held by the named executives during the last fiscal year.
AGGREGATED OPTION EXERCISES IN 2000
AND FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS/SARS AT OPTIONS/SARS AT
EXERCISE REALIZED(1) FISCAL YEAR END FISCAL YEAR END(2)
NAME (#) ($) (#) ($)
Exercisable Unexercisable Exercisable Unexercisable
John F. Kelly 0 0 216,100 273,300 957,859 0
William S. Ayer 0 0 58,225 123,275 278,500 0
George D. Bagley 0 0 29,725 78,200 111,084 0
Gregg A. Saretsky 0 0 11,800 47,100 0 0
Bradley D. Tilden 0 0 11,050 33,600 60,471 0
_________________
(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,
2000 closing price ($29.75 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.
Page 30
================================================================================
[SIDEBAR]
The Company has a defined-benefit retirement plan for all salaried Alaska
Airlines employees. Annual benefits are based on years of credited service.
================================================================================
RETIREMENT BENEFITS
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, 2001, 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 ANNUAL BENEFITS BASED ON YEARS OF
EARNINGS CREDITED SERVICE*
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
$550,000 165,000 220,000 275,000 330,000 385,000
$600,000 180,000 240,000 300,000 360,000 420,000
_____________
*IRS regulations limit the annual benefits that may be paid from a tax-qualified
retirement plan. The current limit is $140,000. In addition, IRS regulations
limit the covered compensation on which annual retirement benefits are based to
$170,000 in 2001. To the extent that the amounts shown in the table above exceed
that IRS limitation, the excess is paid from the Supplementary Plan.
Page 31
================================================================================
[SIDEBAR]
Elected officers of Alaska Airlines can receive 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 and the
Officers Supplementary Retirement Plan. The named executives have the following
years of credited service and final average compensation as of December 31,
2000:
NAMED YEARS OF FINAL AVERAGE
EXECUTIVE CREDITED SERVICE COMPENSATION
John F. Kelly 24.3/(2)/ $466,831
William S. Ayer 5.3 $270,725
George D. Bagley(1) 7.1/(2)/ $229,410
Gregg A. Saretsky 2.8 $206,650
Bradley D. Tilden 9.8 $127,198
________________
(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 Alaska 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.
Page 32
================================================================================
[SIDEBAR]
Severance pay will be provided for officers and key employees under certain
circumstances.
================================================================================
CHANGE-IN-CONTROL ARRANGEMENTS
Agreements are in place at Alaska Airlines and Horizon Air to provide severance
pay to all executive officers and certain other key employees in the event they
are terminated within 24 to 36 months after a change in control of the Company.
Depending on the employee's position, the formula provides for payments of up to
24 to 36 months' salary plus bonus, as well as commensurate service credit under
the Salaried Retirement Plan and the Supplementary Plan, as applicable, in
keeping with 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.
Page 33
================================================================================
[SIDEBAR]
Compliance with SEC reporting requirements
Independent auditors
Stockholder proposals
================================================================================
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is responsible for providing
independent, objective oversight of the Company's accounting policies and for
overseeing the adequacy of internal controls and the reliability of financial
information. The Committee is composed of three directors who are not officers
of the Company. Each member of the Audit Committee meets the independence,
financial literacy and experience requirements of the New York Stock Exchange.
The Board of Directors has adopted a charter for the Audit Committee. Each year,
the Committee reviews its charter to ensure that it reflects the new standards
set forth in Securities and Exchange Commission regulations and the New York
Stock Exchange listing requirements. A copy of the Audit Committee Charter is
attached to this proxy statement as Appendix A.
The Committee held four meetings during 2000. During these meetings, we reviewed
and discussed the audited financial statements with management and with Arthur
Andersen LLP, the Company's independent auditors. We believe that management
maintains an effective system of internal controls that results in fairly
presented financial statements.
The discussions with Arthur Andersen also included the material and judgmental
matters required by Statement on Auditing Standards No. 61, Communication with
Audit Committees, as amended, by the Auditing Standards Board of the American
Institute of Certified Public Accountants.
We have received and reviewed the written disclosures and the letter from the
independent auditors required by Independence Standard No. 1, Independence
Discussions with Audit Committees, as amended, by the Independence Standards
Board, and have discussed with the auditors their independence.
Based on the review and discussions described above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in Alaska Air Group's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000.
During fiscal year 2000, the Company retained its principal auditor, Arthur
Andersen LLP, to provide services in the following categories and amounts:
. Audit Fees for the Company's Annual Financial
Statements and Quarterly Reviews $234,000
. Financial Information Systems Design and
Implementation Fees $ 0
. All Other Fees* $180,000
*Substantially all of the fees included in "All Other Fees" consists of services
traditionally provided by auditors, such as review of tax returns, consultation
on tax and accounting matters, audits of employee benefit plans and other
special purpose audits.
The Audit Committee has considered whether the provision of the non-audit
services referenced above is compatible with maintaining the independence of the
Company's independent auditors.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Byron I. Mallott, Chairperson
John V. Rindlaub
Richard A. Wien
Page 34
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.
Securities and Exchange Commission regulations also require the Company to
identify in this proxy statement any person who failed to file a report on a
timely basis. Based on a review of copies of reports furnished to the Company
and written representations that no reports were required, the Company believes
that everyone subject to Section 16(a) filed the required reports on a timely
basis during 2000.
INDEPENDENT CERTIFIED PUBLIC AUDITORS
Our Board of Directors 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 21, 2002. 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 7, 2001 to be considered for inclusion. You must 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 you 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
20, 2002. 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
Page 35
================================================================================
[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 $7,000 in fees for its
services and will reimburse it for reasonable out-of-pocket expenses. Proxies
may be solicited by personal interview, 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 2000 Annual Report was mailed or delivered electronically 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, 2000, 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
General Counsel and
Corporate Secretary
April 6, 2001
Seattle, Washington
Page 36
Appendix A
Alaska Air Group, Inc. Audit Committee Charter
Purpose
There shall be a committee of the Board of Directors to be known as the Audit
Committee. The Audit Committee shall review and report to the Board of Directors
regarding:
. The appropriateness of the Company's accounting policies.
. The adequacy of the Company's internal controls and reliability of
the Company's financial information reported to the public.
. The independence and performance of the Company's independent
accountants.
. The performance of the Company's internal auditors and financial
management.
. Such other matters as may be assigned by the Board of Directors.
While the Audit Committee has the responsibilities and powers set forth in this
charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
or in accordance with generally accepted accounting principles. That is the
responsibility of management and the independent auditors. Nor is it the duty of
the Audit Committee to conduct investigations, to resolve disagreements, if any
between management and the independent accountants, or to assure compliance with
laws, regulations or the Company's corporate policies.
Composition
The Audit Committee shall be appointed by the Board of Directors and shall have
at least three members. The Audit Committee shall meet the independence,
financial literacy and experience requirements of the New York Stock Exchange,
as the same may be amended or supplemented from time to time.
Matters Pertaining to Independent Accountants
The independent accountants are ultimately accountable to the Audit Committee
and the Board of Directors. The Audit Committee and the Board of Directors shall
have the ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the independent accountants.
The Audit Committee shall:
. Review the terms of the engagement of the independent accountants,
including the scope of their audit, proposed fees and personnel
qualifications.
. Ensure that the independent accountants periodically submit to the
Audit Committee a formal written statement delineating all
relationships between the independent accountants and the Company.
. Actively engage in a dialogue with the independent accountants with
respect to any disclosed relationships or services that may impact the
objectivity and independence of the independent accountants, and
recommend that the Board of Directors take appropriate action to
satisfy itself of such independence.
. Review quarterly financial results with the independent accountants
when required by Generally Accepted Auditing Standards. The Chair of
the Audit Committee may represent the entire Audit Committee for
purposes of this review.
Page 37
. Review with the independent accountants and management the results of
the independent accountants year-end audit.
. Review the independent accountants' report on internal controls with
the independent accountants and management.
. Receive and review required communications from the independent
accountants.
Matters Pertaining to the Internal Auditor
The Audit Committee shall:
. Review with the internal auditor planned internal audit activities and
the results of internal audit activities.
Matters Pertaining to Filings with Government Agencies
The Audit Committee shall:
. Prepare the report required by the rules of the Securities and
Exchange Commission to be included in the Company's annual proxy
statement to shareholders.
Controls
The Audit Committee shall:
. Review with management the Company's major financial risk exposure and
the adequacy and effectiveness of the Company's associated internal
controls.
. Review the Company's procedures with respect to appropriateness of
significant accounting policies and adequacy of financial controls.
Charter Review
The Audit Committee shall review and reassess the adequacy of its charter
annually and recommend any proposed changes to the Board of Directors for
approval.
Page 38
[LOGO OF ALASKA AIR GROUP]
19300 PACIFIC HIGHWAY SOUTH
SEATTLE, WASHINGTON 98188
(206) 431-7040 www.alaskaair.com
0491-PS-00
PRELIMINARY COPY
Alaska Air Group, Inc.
This Proxy is Solicited on Behalf of the Board of Directors
Annual Stockholders Meeting, May 15, 2001
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. I also hereby direct the trustee of the
Company employee 401(k) plan(s) to vote the shares of stock of Alaska Air Group,
Inc. allocated to my account that I am entitled to vote pursuant to the Plan(s).
The Board of Directors recommends a vote FOR ALL NOMINEES in Proposal 1, FOR
Proposal 2, and AGAINST Proposals 3 & 4.
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.)
Vote by Telephone
It's fast, convenient, and immediate!
Call Toll-Free on a Touch-Tone Phone
1-877-PRX-VOTE (1-877-779-8683).
Follow these four easy steps:
1. Read the accompanying Proxy Statement/Prospectus and Proxy Card.
2. Call the toll-free number 1-877-PRX-VOTE (1-877-779-8683).
3. Enter your 14-digit Voter Control Number located on your Proxy Card above
your name.
4. Follow the recorded instructions.
Your vote is important!
Call 1-877-PRX-VOTE anytime!
Vote by Internet
It's fast, convenient, and your vote is immediately confirmed and posted.
Follow these four easy steps:
1. Read the accompanying Proxy Statement/Prospectus and Proxy Card.
2. Go to the Website http://www.eproxyvote.com/alk.
-----------------------------
3. Enter your 14-digit Voter Control Number located on your Proxy Card above
your name.
4. Follow the instructions provided.
Your vote is important!
Go to http://www.eproxyvote.com/alk anytime!
-----------------------------
Do not return your Proxy Card if you are voting by Telephone or Internet
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, 3 & 4.
1. Election of Directors
Nominees: (01) William S. Ayer, (02) Ronald F. Cosgrave, (03) R. Marc
Langland and (04) John V. Rindlaub
FOR ALL NOMINEES
WITHHELD FROM ALL NOMINEES
FOR, except withhold my vote from the following nominee(s)
_________________________________
2. Company proposal to amend Certificate of Incorporation to eliminate the 80%
super majority voting requirements.
FOR AGAINST ABSTAIN
3. Stockholder proposal to recommend simple majority vote.
FOR AGAINST ABSTAIN
4. Stockholder proposal to elect all directors annually.
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 ____________