Alaska's WorldOnYourHorizon.com

Alaska Air Group's New 2010 Employee Stock Purchase Plan

How is the AAG Employee Stock Purchase Plan different from the previous Employee Stock Purchase Plan?

Previously, Alaska Airlines and Horizon Air employees can purchase Alaska Air Group stock monthly at its current market price through convenient regular payroll deductions.

The AAG Employee Stock Purchase Plan now offers eligible employees the opportunity to buy shares of Alaska Air Group’s common stock each quarter at a discounted price through regular payroll deductions.

Who is eligible to participate in the Employee Stock Purchase Plan?

You are eligible to enroll in the AAG Employee Stock Purchase Plan if you:
arrow are an employee of Alaska Airlines or Horizon Air, and
arrow have worked as a regular employee for either company for at least one year.

How does the AAG Employee Stock Purchase Plan work?

An eligible employee may enroll in a 12-month Offering Period during the open enrollment period prior to the start of that offering period.

Each offering period consists of four quarterly purchase periods, during which time your payroll deductions are accumulated. You can contribute from 1% to 10% of your gross base pay to the plan – in whole percentage increments.

Your after-tax contributions are automatically deducted from your paycheck each pay period (and converted to U.S. dollars for non-U.S. employees).

Each quarter, your contributions are used to purchase Alaska Air Group (ALK) common stock at a 15% discount.

Once purchased, your shares are held for you in an account in your name with Citigroup Smith Barney – the broker selected by the company to administer the AAG Employee Stock Purchase Plan.

Your contributions automatically continue for the next offering period unless you complete and submit an Enrollment/Change Form (PDF 85K) indicating a change to 0% (suspension) or withdrawal from the plan, or unless you terminate employment with Alaska Air Group or its subsidiaries.

How is the discounted price determined?

At the end of each quarter, your contributions are used to buy Alaska Air Group stock at a 15% discount off the lower fair market value* of Alaska Air Group stock on:
the first business day of the offering period, or
the last business day of the quarterly purchase period.

*The fair market value of the stock is the regular trading session closing price as reported by the New York Stock Exchange.

Remember, participation in the plan is voluntary. Before enrolling in the plan, you may wish to consult a financial advisor.

How is the purchase price of the Alaska Air Group Common Stock determined?

The purchase price on each purchase date for the Alaska Air Group common stock will be equal to 85% of the lesser of (a) the fair market value of the common stock on the first day of an offering and (b) the fair market value on a purchase date within the offering. For example, if the fair market value of the Alaska Air Group common stock is $10.00 per share on the first day of an offering and $15.00 on the first purchase date during the offering, you can purchase shares at $8.50 per share. The foregoing values are for illustrative purposes only.

What happens if the common stock's fair market value is less on a purchase date than on the first day of that offering?

If the fair market value of the Alaska Air Group common stock is less on a purchase date than on the first day of that offering, you will be able to buy shares at 85% of the fair market value on the purchase date. In addition, if a new offering is scheduled to begin on the day immediately following this purchase date, you will automatically be enrolled in that new offering, assuming you are still eligible to participate in the plan.

When do the offerings begin?

New offerings are scheduled to begin on September 1 and March 1 of each year and end on the following August 31 and February 28 (or February 29 in a leap year), respectively. The plan administrator can change the length of future offerings or the dates on which such offerings begin, provided that an offering may not exceed 27 months if the purchase price can be less than 85% of the common stock's fair market value on the purchase date. You will be notified of any such changes.

When do purchase periods begin?

Purchase periods will begin on December 1, March 1, June 1 and September 1 of each year and will end three months later on the next February 28 (or February 29 in a leap year), May 31, August 31 and November 30, respectively. The plan administrator can change the beginning and ending dates for future purchase periods under the plan. You will be notified of any such changes.

How do I enroll in the plan?

Step 1 - Download the Website Instruction for Participation in ESPP (PDF 61k)
Step 2 - Go to the Smith Barney Benefit Access site and follow the instructions

Your payroll deductions will begin with the first full pay period after the new offering period begins.

How much may I contribute to the plan?

You may contribute, by payroll deduction, any amount between 1% and 10% of your regular salary for each full payroll period in the offering period. Amounts will be withheld only in whole percentages. Once you have authorized deductions, they will be deducted from your after-tax paycheck each full pay period during the offering period and held by the company without interest until the purchase period is completed.

Can I make changes to my contributions?

You may change your contribution amount via the Smith Barney Benefit Access site as many times as you like up to the last day of the open enrollment period. After the open enrollment period is closed you will not be able to change your percentage unless you suspend your contributions.

How can I suspend my contributions without withdrawing from the plan?

You suspend your contributions by decreasing your rate to 0%. You may suspend from the plan at any time by submitting an Enrollment/Change Form (PDF 85K) to Corporate Affairs/SEAZZ-AS indicating your desire to suspend. The form must be received at least ten days prior to the beginning of the next payroll period.

If you choose to suspend your contributions, your payroll deductions will cease and any previous deductions will be used to purchase stock for you on the next purchase date. You must change your election during the next open enrollment for your payroll deductions to resume.

How do I withdraw from the plan?

You may withdraw from the plan at any time by submitting an Enrollment/Change Form (PDF 85K) to Corporate Affairs/SEAZZ-AS indicating your desire to withdraw. The form must be received at least ten days prior to the beginning of the next payroll period.

Your payroll deductions will stop and you will be issued a check for your accumulated payroll deductions as soon as practical following receipt of your form. If you do withdraw from the plan, you must wait until the next offering period or open enrollment period to re-enroll.

What is the difference between suspending and withdrawing from the plan?

By suspending, your payroll contributions will be reduced to 0%. If you suspend your contributions you cannot rejoin for the current offering period. You can however, enroll for the next offering period during the next open enrollment. All prior payroll deductions shall be applied toward the purchase of common stock on the next purchase date.

If you choose to withdraw, your contributions will cease and all amounts you have contributed during the current offering period will be refunded to you. If you withdraw, you cannot rejoin for the current offering period. You can however, enroll for the next offering period.

Can I re-enroll in the plan?

If you have withdrawn from the plan and want to restart your contributions, you may enroll again during the next open enrollment period.

If I decide not to join now will I have another opportunity?

You may join during any open enrollment period during which the plan is in effect. Currently we offer two open enrollment periods each year. You may enroll only during those windows. The plan will remain in effect unless the Board of Directors terminates the plan or the number of shares reserved under the plan have all been purchased.

What happens if I leave the company?

If at any time you cease to be employed by Alaska Air Group or one of its subsidiaries, you will be withdrawn from the plan automatically and your uninvested payroll deductions will be returned to you.

If you are rehired, you may rejoin the plan through the standard enrollment process as long as all eligibility requirements have been met.

If I am on a leave of absence, can I still participate in the Plan?

You can continue to participate in the Plan during the first 90 calendar days of your paid leave of absence. Payroll deductions will continue at the same percentage of your gross pay as prior to the start of the leave until proper notification to suspend participation, withdraw from the Plan, or until 90 calendar days from the first day of the leave, whichever comes first. In order to participate while on leave you must complete the "Election to Continue Participation while on Leave of Absence"form.(PDF 57K)

How many shares can I buy?

At the end of each quarterly purchase period, your cumulative AAG Employee Stock Purchase Plan contributions are used to buy Alaska Air Group stock. Your shares of Alaska Air Group stock are then held in your personal AAG Employee Stock Purchase Plan account at Smith Barney.

The number of shares purchased depends on the market price (or fair market value) of the company’s common stock on the first day of the offering period and the last day of the purchase periods and the cumulative amount of your contribution at the end of each purchase period. On the last trading day of the purchase period, accumulated contributions will be used to purchase whole and fractional shares at the purchase price. These shares will be credited to your account at Smith Barney.

The IRS limits the number of shares that can be purchased in any calendar year. No participant may purchase more than $25,000 (in total fair market value) of stock in a calendar year. For purposes of this calculation the value is based on the fair market value at the start of the offering period.

The AAG Employee Stock Purchase Plan also limits the number of shares a participant may purchase in an offering period to 2,000 shares.

In no event may you participate if you own five percent or more of the outstanding stock of the company.

For a sample contribution please refer to the section on purchasing AAG ESPP shares in the AAG Employee Stock Purchase Plan Employee Guide.(PDF 256K)

How can I find out the number of shares purchased for me at the close of the purchase date?

You may view the total number of shares purchased for you at the close of each Purchase Period by accessing your account on the Smith Barney Benefit ACCESS website.

When can I sell my shares?

You can sell your shares any time after you have held them for one year following the date of purchase.

If you hold the stock for at least one year after purchase and two years after the start of the offering period during which the shares were purchased, the more favorable capital gains rate will apply to a portion of your gain. These tax rules are discussed in greater detail under the section on tax implications in the AAG Employee Stock Purchase Plan Employee Guide. (PDF 256K)

In addition, federal and state securities laws may restrict a participant’s right to sell shares. For example, an employee who is aware of material non-public information may not sell his or her stock before the news is disclosed to the public. If you think you may fall into this category, please refer to Alaska Air Group’s insider trading policy (PDF 62K), or call Corporate Affairs
at 206-392-5043.

Are there any other restrictions?

You may not use your AAG Employee Stock Purchase Plan shares as part of a margin loan or other similar arrangement.

How do I sell my shares?

You may sell your shares by logging on to the Smith Barney Benefit ACCESS site or by calling Smith Barney through their Interactive Telephone System (ITS) at 1-866-252-4759 (U.S. & Canada employees) or 212-615-7056 (Mexico employees).

For more information, please refer to the AAG Employee Stock Purchase Plan Employee Guide.(PDF 256K)

Do I pay commissions on the purchase of common stock under the plan or on the sale of that stock?

Because Alaska Air Group pays all costs associated with administering the plan, you pay no commissions on the purchase of stock under the plan. However, you are responsible for paying any commissions incurred on a sale of thoses shares.

What are the commissions?

The commissions are detailed in the Alaska Air Group Sales Commission Chart.(PDF 82K)

Who is Smith Barney?

Smith Barney is a global, full-service financial firm that provides brokerage, investment banking and asset management services to corporations, governments and individuals around the world.

Alaska Air Group, Inc. has retained Smith Barney to act as the designated broker for our AAG Employee Stock Purchase Plan.

What happens to my shares after they are purchased?

Once Smith Barney has purchased Alaska Air Group stock on your behalf, your shares are held in your Smith Barney Benefit ACCESS account. This account is set up for you automatically at the time of your first AAG Employee Stock Purchase Plan purchase. This account is separate from any other Smith Barney account you may have.

What records will I receive regarding my account?

Smith Barney will mail quarterly statements to your home address after each purchase. These statements reflect the number of shares of Alaska Air Group stock you purchased during that period, the price paid for those shares, the number of shares you own to date and the market value of your shares on the date the statement was produced.

At the beginning of each calendar year, Smith Barney will send you a statement of your AAG Employee Stock Purchase Plan shares that were purchased on your behalf during the previous calendar year. This statement contains tax information you will need when you decide to sell your stock. It is important that you keep these records.

In the event of death, what will happen to the shares I have purchased?

You can designate a beneficiary to receive any shares which have been purchased by completing the ESPP Beneficiary Designation Form (PDF 7K). Please comail the original form to Corporate Affairs/SEAZZ-AS.

Whom do I contact with questions regarding the plan?

For more information, please refer to the AAG Employee Stock Purchase Plan Employee Guide. (PDF 256K)
You may also direct your questions concerning the plan to:

Jeanne Gammon
Stock Plan Administrator
Corporate Affairs SEAZZ
206-392-5719
ext. 25719
stockpurchaseplan@alaskaair.com

Whom do I contact with questions regarding my Smith Barney ESPP account?

You may direct your questions to a Client Services Representative via email at spsclientservices@citigroup.com
or via phone at (866)-252-4759 or 212-615-7056. Market hours are Monday-Friday, 9:30am-4:00pm Eastern Time.

PDF Viewing the PDF documents requires Adobe Acrobat Reader. Download a free copy.

Questions and comments can be directed to
the Stock Plan Administrator: stockpurchaseplan@alaskaair.com.