ALASKA AIR GROUP, INC.
2008 PERFORMANCE INCENTIVE PLAN
PERFORMANCE STOCK UNIT AWARD AGREEMENT
THIS PERFORMANCE STOCK UNIT AWARD AGREEMENT (this “Agreement”) dated [DATE] by
and between ALASKA AIR GROUP, INC., a Delaware corporation (the “Corporation”),
and [name] (the “Participant”) evidences the award of stock units (the “Award”)
granted by the Corporation to the Participant as to the number of stock units
(the “Stock Units”) first set forth below.
 
 
 
 
Number of Stock Units1:
 
Award Date:
 
Performance Period:
 
 
 
 
 
 
 

Vesting1 The Award shall vest and become nonforfeitable as provided in Section 2
of the attached Terms and Conditions of Performance Stock Unit Award (the
“Terms”).
The Award is granted under the Alaska Air Group, Inc. 2008 Performance Incentive
Plan (the “Plan”) and subject to the Terms attached to this Agreement
(incorporated herein by this reference) and to the Plan. The Award has been
granted to the Participant in addition to, and not in lieu of, any other form of
compensation otherwise payable or to be paid to the Participant. Capitalized
terms are defined in the Plan if not defined herein. The parties agree to the
terms of the Award set forth herein. The Participant acknowledges receipt of a
copy of the Terms, the Plan and the Prospectus for the Plan.

 
 
PARTICIPANT
ALASKA AIR GROUP, INC.
a Delaware Corporation
_________________________________________
By: _____________________________________
 
William S. Ayer
Chairman, President and CEO
 
 

1 Subject to adjustment under Section 7.1 of the Plan.

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TERMS AND CONDITIONS OF PERFORMANCE STOCK UNIT AWARD

1.    Stock Units. As used herein, the term “stock unit” shall mean a non-voting
unit of measurement which is deemed for bookkeeping purposes to be equivalent to
one outstanding share of the Corporation's Common Stock (subject to adjustment
as provided in Section 7.1 of the Plan) solely for purposes of the Plan and this
Agreement. The Stock Units shall be used solely as a device for the
determination of the payment to eventually be made to the Participant if such
Stock Units vest pursuant to this Agreement. The Stock Units shall not be
treated as property or as a trust fund of any kind.
2.    Vesting.
(a)    Performance-Based Vesting. Subject to Sections 2(b) and 7 below, the
Award shall vest and become nonforfeitable based on the achievement of the
performance goals established by the Administrator and set forth on Exhibit A
attached hereto for the Performance Period identified on the cover page of this
Agreement. The number of Stock Units that vest and become payable under this
Agreement shall be determined based on the level of results or achievement of
targets for each of the Performance Goals as set forth in Exhibit A. Except as
otherwise expressly provided in Exhibit A, in Section 2(b) and in Section 7(b),
any Stock Units subject to the Award that do not vest on or before the last day
of the Performance Period pursuant to such provisions shall terminate as of the
last day of the Performance Period.
(b)    Possible Acceleration. Notwithstanding any other provision herein or in
the Plan, the Award, to the extent then outstanding and not vested, shall become
fully vested if (i) the Participant's employment with the Corporation and its
Subsidiaries is terminated during the Performance Period by the Corporation or a
Subsidiary without Cause or by the Participant for Good Reason, and (ii) such
termination occurs at any time within the period commencing six (6) months
before a Change of Control and ending twenty-four (24) months after such Change
of Control (and in either case during the Performance Period). (For these
purposes, the terms “Cause,” “Change of Control” and “Good Reason” shall have
the meanings ascribed to them in Exhibit B attached hereto.) In the event that,
upon the occurrence of a Change of Control, the Participant is entitled to
accelerated vesting of the Award pursuant to this Section 2(b) in connection
with a termination of the Participant's employment prior to such Change of
Control, the Award, to the extent it had not vested and was cancelled or
otherwise terminated upon or prior to the date of such Change of Control solely
as a result of such termination of employment, shall be reinstated (as though no
such termination had occurred) and shall automatically become fully vested as of
the date of the Change of Control (even if after the Performance Period but only
if the termination of employment occurred during the Performance Period). For
avoidance of doubt, if the Award is accelerated under this Section 2(b), the
number of Stock Units that shall be vested after giving effect to the foregoing
provisions of this Section 2(b) shall equal the number of Stock Units set forth
on the cover page of this Agreement (subject to adjustment under Section 7.1 of
the Plan), and the performance-based vesting provisions of Section 2(a) shall be
disregarded.
3.    Continuance of Employment/Service Required; No Employment/Service
Commitment. Except as expressly provided in Section 2(b) and 7(b), the vesting
schedule requires continued employment or service through each applicable
vesting date as a condition to the vesting of the applicable installment of the
Award and the rights and benefits under this Agreement. Employment or service
for only a portion of the vesting period, even if a substantial portion, will
not entitle the Participant to any proportionate vesting or avoid or mitigate a
termination of rights and benefits upon or following a termination of employment
or services as provided in Section 7(a) below or under the Plan.
Nothing contained in this Agreement or the Plan constitutes an employment or
service commitment by the Corporation, affects the Participant's status as an
employee at will who is subject to termination without cause, confers upon the
Participant any right to remain employed by or in service to the Corporation,
interferes in any way with the right of the Corporation at any time to terminate
such employment or services, or affects the right of the Corporation to increase
or decrease the Participant's other compensation or benefits. Nothing in this
paragraph, however, is intended to adversely affect any independent contractual
right of the Participant without his consent thereto.

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4.    Limitations on Rights Associated with Units. The Participant shall have no
rights as a stockholder of the Corporation, no dividend rights and no voting
rights, with respect to the Stock Units and any shares of Common Stock
underlying or issuable in respect of such Stock Units until such shares of
Common Stock are actually issued to and held of record by the Participant. No
adjustments will be made for dividends or other rights of a holder for which the
record date is prior to the date of issuance of the stock certificate.
5.    Restrictions on Transfer. Neither the Award, nor any interest therein or
amount or shares payable in respect thereof may be sold, assigned, transferred,
pledged or otherwise disposed of, alienated or encumbered, either voluntarily or
involuntarily. The transfer restrictions in the preceding sentence shall not
apply to (a) transfers to the Corporation, or (b) transfers by will or the laws
of descent and distribution.
6.    Timing and Manner of Payment of Stock Units. On or as soon as
administratively practical following the date on which any Stock Units subject
to this Award vest pursuant to Section 2 or Section 7(b) (and in all events
within two and one-half months after such vesting event), the Corporation shall
deliver to the Participant a number of shares of Common Stock (either by
delivering one or more certificates for such shares or by entering such shares
in book entry form, as determined by the Corporation in its discretion) equal to
the number of Stock Units subject to this Award that vest on such date. The
Corporation's obligation to deliver shares of Common Stock or otherwise make
payment with respect to vested Stock Units is subject to the condition precedent
that the Participant or other person entitled under the Plan to receive any
shares with respect to the vested Stock Units deliver to the Corporation any
representations or other documents or assurances that the Administrator may deem
necessary or desirable to assure compliance with all applicable legal and
accounting requirements. The Participant shall have no further rights with
respect to any Stock Units that are paid or that terminate pursuant to Section
7.
7.    Effect of Termination of Employment or Service.
(a)    Except as expressly provided in Section 2(b) and in Section 7(b), the
Participant's Stock Units shall terminate to the extent such units have not
become vested prior to the first date the Participant is no longer employed by
or providing services to the Corporation or one of its Subsidiaries, regardless
of the reason for the termination of the Participant's employment or services
with the Corporation or a Subsidiary. If any unvested Stock Units are terminated
hereunder (whether pursuant to Section 2, this Section 7 or otherwise), such
Stock Units shall automatically terminate and be cancelled as of the applicable
termination date without payment of any consideration by the Corporation and
without any other action by the Participant, or the Participant's beneficiary or
personal representative, as the case may be, and the Participant shall have no
right with respect thereto or in respect thereof. If the Participant is
rendering services other than as an employee or a director, the Administrator
shall be the sole judge of whether the Participant continues to render services
for purposes of this Agreement.
(b)    Notwithstanding Section 7(a), if the Participant's employment or service
with the Corporation or one of its Subsidiaries terminates during the
Performance Period as a result of the Participant's death, Total Disability or
Retirement (as such terms are defined below), (i) the Participant's Stock Units
shall be subject to pro-rata vesting such that the number of Stock Units subject
to the Award (if any) that shall become vested as of the conclusion of the
Performance Period shall equal (A) the number of Stock Units subject to the
Award that would have vested as of the conclusion of the Performance Period in
accordance with Section 2(a) above (assuming no termination of employment or
service had occurred), multiplied by (B) a fraction, the numerator of which
shall be the number of whole months during the Performance Period the
Participant was employed by or rendered services to the Corporation or one of
its Subsidiaries, and the denominator of which shall be the number of whole
months in the Performance Period; and (ii) any Stock Units subject to the Award
that do not vest in accordance with the foregoing clause (i) shall terminate as
of the last day of the Performance Period. If a Participant's employment or
service is terminated in the circumstances described in Section 2(b) and in the
circumstances described in this Section 7(b), the provisions of Section 2(b)
shall control.
(c)    For purposes of this Agreement, “Total Disability” means a “permanent and
total disability” (within the meaning of Section 22(e)(3) of the Code or as
otherwise determined by the Administrator). For purposes of this Agreement,
“Retirement” means that, as of the date of the termination of the Participant's
employment or service with the Corporation, the Participant has either (i)
attained age 55 with at least five (5) full

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years of service with the Corporation and its Subsidiaries, or (ii) has attained
age 60, or (iii) is a participant in and is entitled to commence a benefit under
a defined benefit plan sponsored by the Corporation or any of its Subsidiaries
and has at least 10 years of service with the Corporation and its Subsidiaries.
8.    Adjustments Upon Specified Events. Upon the occurrence of certain events
relating to the Corporation's stock contemplated by Section 7.1 of the Plan
(including, without limitation, an extraordinary cash dividend on such stock),
the Administrator shall make adjustments in accordance with such section in the
number of Stock Units then outstanding and the number and kind of securities
that may be issued in respect of the Award. No such adjustment shall be made
with respect to any ordinary cash dividend paid on the Common Stock.
Furthermore, the Administrator shall adjust the performance measures and
performance goals referenced in Section 2 hereof to the extent (if any) it
determines that the adjustment is necessary or advisable to preserve the
intended incentives and benefits to reflect (1) any material change in corporate
capitalization, any material corporate transaction (such as a reorganization,
combination, separation, merger, acquisition, or any combination of the
foregoing), or any complete or partial liquidation, (2) any change in accounting
policies or practices, (3) the effects of any special charges to the
Corporation's earnings, or (4) any other similar special circumstances.
9.    Tax Withholding. Subject to Section 8.1 of the Plan, upon any distribution
of shares of Common Stock in respect of the Stock Units, the Corporation shall
automatically reduce the number of shares to be delivered by (or otherwise
reacquire) the appropriate number of whole shares, valued at their then fair
market value (determined in accordance with the applicable provisions of the
Plan), to satisfy any withholding obligations of the Corporation with respect to
such distribution of shares at the minimum applicable withholding rates. In the
event that the Corporation cannot legally satisfy such withholding obligations
by such reduction of shares, or in the event of a cash payment or any other
withholding event in respect of the Stock Units, the Corporation shall be
entitled to require a cash payment by or on behalf of the Participant and/or to
deduct from other compensation payable to the Participant any sums required by
federal, state or local tax law to be withheld with respect to such distribution
or payment.
10.    Notices. Any notice to be given under the terms of this Agreement shall
be in writing and addressed to the Corporation at its principal office to the
attention of the Secretary, and to the Participant at the Participant's last
address reflected on the Corporation's records, or at such other address as
either party may hereafter designate in writing to the other. Any such notice
shall be given only when received, but if the Participant is no longer employed
by or providing services to the Corporation or a Subsidiary, shall be deemed to
have been duly given by the Corporation when enclosed in a properly sealed
envelope addressed as aforesaid, registered or certified, and deposited (postage
and registry or certification fee prepaid) in a post office or branch post
office regularly maintained by the United States Government.
11.    Plan. The Award and all rights of the Participant under this Agreement
are subject to the terms and conditions of the provisions of the Plan,
incorporated herein by reference. The Participant agrees to be bound by the
terms of the Plan and this Agreement. The Participant acknowledges having read
and understanding the Plan, the Prospectus for the Plan, and this Agreement.
Unless otherwise expressly provided in other sections of this Agreement,
provisions of the Plan that confer discretionary authority on the Board or the
Administrator do not (and shall not be deemed to) create any rights in the
Participant unless such rights are expressly set forth herein or are otherwise
in the sole discretion of the Board or the Administrator so conferred by
appropriate action of the Board or the Administrator under the Plan after the
date hereof.
12.    Entire Agreement. This Agreement and the Plan together constitute the
entire agreement and supersede all prior understandings and agreements, written
or oral, of the parties hereto with respect to the subject matter hereof. The
Plan and this Agreement may be amended pursuant to Section 8.6 of the Plan. Such
amendment must be in writing and signed by the Corporation. The Corporation may,
however, unilaterally waive any provision hereof in writing to the extent such
waiver does not adversely affect the interests of the Participant hereunder, but
no such waiver shall operate as or be construed to be a subsequent waiver of the
same provision or a waiver of any other provision hereof.

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13.    Limitation on Participant's Rights. Participation in the Plan confers no
rights or interests other than as herein provided. This Agreement creates only a
contractual obligation on the part of the Corporation as to amounts payable and
shall not be construed as creating a trust. Neither the Plan nor any underlying
program, in and of itself, has any assets. The Participant shall have only the
rights of a general unsecured creditor of the Corporation with respect to
amounts credited and benefits payable, if any, with respect to the Stock Units,
and rights no greater than the right to receive the Common Stock as a general
unsecured creditor with respect to Stock Units, as and when payable hereunder.
14.    Counterparts. This Agreement may be executed simultaneously in any number
of counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
15.    Section Headings. The section headings of this Agreement are for
convenience of reference only and shall not be deemed to alter or affect any
provision hereof.
16.    Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware without regard to
conflict of law principles thereunder.
17.    Construction. It is intended that the terms of the Award will not result
in the imposition of any tax liability pursuant to Section 409A of the Code.
This Agreement shall be construed and interpreted consistent with that intent.

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EXHIBIT A
PERFORMANCE GOALS

Subject to Sections 2(b) and 7 of this Agreement, the percentage of the Stock
Units subject to the Award that vest will be determined in accordance with the
chart below based on the Company's Total Shareholder Return (TSR)Percentile Rank
(as defined below) for the Performance Period.

TSR Percentile Rank
Percentage of Stock Units that Vest
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Numerical Example

Assume that the Participant was granted an Award of [ ] Stock Units and the
Corporation's TSR Percentile Rank for the Performance Period was [ ]. In that
case, the number of Stock Units subject to the Award that would vest would be [
]. The remaining [ ] Stock Units subject to the Award that did not vest would
terminate as of the end of the Performance Period.

Definitions
For purposes of the Award, the following definitions will apply:
“TSR” means total shareholder return and shall be determined with respect to the
Corporation and any other company in the Airline Peer Group by dividing: (a) the
sum of (i) the difference obtained by subtracting the Beginning Price from the
Ending Price plus (ii) all dividends and other distributions paid on such
company's common stock during the Performance Period by (b) the Beginning Price,
with any non-cash distributions to be ascribed such dollar value as may be
determined by or at the direction of the Administrator.
•
“Beginning Price” means, with respect to the Corporation and any other company
in the Airline Peer Group, the average of the closing market prices of such
company's common stock on the principal exchange on which such stock is traded
for the thirty (30) consecutive trading days ending with the first day of the
Performance Period or, in the case of a company that is not traded on a stock
exchange on the first day of the Performance Period, the average of the closing
market prices of such company's common stock on the principal exchange on which
such stock is thereafter first admitted to trading for the thirty (30)
consecutive trading days commencing with the first day in the Performance Period
on which such company's common stock is so traded.

•
“Ending Price” means, with respect to the Corporation and any other company in
the Airline Peer Group, the average of the closing market prices of such
company's common stock on the principal exchange on which such stock is traded
for the thirty (30) consecutive trading days ending with the last day of the
Performance Period.

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•
“TSR Percentile Rank” means the ranking of the Corporation's TSR among the TSRs
for the companies (including the Corporation) comprising the Airline Peer Group
identified below.

•
“Airline Peer Group” means the Corporation and each of the following companies:

◦
AMR*

◦
Delta Air Lines*

◦
JetBlue Airways*

◦
Hawaiian Holdings Inc.

◦
Mesa Air Group Inc.

◦
Republic Airways Holdings

◦
SkyWest*

◦
Southwest Airlines*

◦
UAL*

◦
US Airways Group*

*Components of Amex Airline Index.

As contemplated by Section 8 of this Agreement, the Administrator shall make
appropriate adjustments to the TSR Percentile Rank as it deems necessary or
advisable to preserve the intended incentives and benefits of this Agreement to
reflect any changes to the companies in the Airline Peer Group during the
Performance Period, it being intended that no new companies will be added to the
Airline Peer Group for purposes of the Award (unless the company is a public
company and is the successor to one or more of the companies identified above or
to all or a substantial portion of the business of any such companies) and that
a company that does not survive as a public company for the Performance Period
(directly or through a successor to it or to all or a substantial portion of its
business) shall be excluded.

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EXHIBIT B
DEFINITIONS
For purposes of the Award, the following terms shall have the meanings set forth
is this Exhibit B.
“Cause” means the occurrence of any of the following:
(i)    the Participant is convicted of, or has pled guilty or nolo contendere
to, a felony (other than traffic related offenses or as a result of vicarious
liability); or
(ii)    the Participant has engaged in acts of fraud, material dishonesty or
other acts of willful misconduct in the course of his duties to the Corporation;
or
(iii)    the Participant willfully and repeatedly fails to perform or uphold his
duties to the Corporation; or
(iv)    the Participant willfully fails to comply with reasonable directives of
the Board which are communicated to him or her in writing;
provided, however, that no act or omission by the Participant shall be deemed to
be “willful” if the Participant reasonably believed in good faith that such acts
or omissions were in the best interests of the Corporation.
“Change of Control” means the occurrence of any of the following:
(i)    the consummation of:
(A)    any consolidation or merger of the Corporation in which the Corporation
is not the continuing or surviving corporation or pursuant to which shares of
common stock of the Corporation would be converted into cash, securities or
other property, other than a merger of the Corporation in which the holders of
common stock of the Corporation immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger; or
(B)    any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, the assets of the
Corporation.
(ii)    at any time during a period of twenty-four (24) months, fewer than a
majority of the members of the Board are Incumbent Directors. “Incumbent
Directors” means (A) individuals who constitute the Board at the beginning of
such period; and (B) individuals who were nominated or elected by all of, or a
committee composed entirely of, the individuals described in (A); and (C)
individuals who were nominated or elected by individuals described in (B).
(iii)    any Person (meaning any individual, entity or group within the meaning
of Section 13(d)(3) or 14(d) of the Exchange Act) shall, as a result of a tender
or exchange offer, open market purchases, privately-negotiated purchases or
otherwise, become the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act), directly or indirectly, of the then-outstanding securities of
the Corporation ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of members of the Board
(“Voting Securities” to be calculated as provided in paragraph (d) of Rule 13d-3
in the case of rights to acquire common stock of the Corporation) representing
20% or more of the combined voting power of the then-outstanding Voting
Securities.

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(iv)    approval by the stockholders of the Corporation of any plan or proposal
for the liquidation or dissolution of the Corporation.
Unless the Board shall determine otherwise, a Change of Control shall not be
deemed to have occurred by reason of any corporate reorganization, merger,
consolidation, transfer of assets, liquidating distribution or other transaction
entered into solely by and between the Corporation and any affiliate thereof,
provided such transaction has been approved by at least two-thirds (2/3) of the
Incumbent Directors (as defined above) then in office and voting.
Notwithstanding the foregoing, in no event shall a transaction or other event
that occurred prior to the date of grant of the Award constitute a Change of
Control, and no Change of Control after the first Change of Control to occur
after the grant date shall be considered for purposes of the Award.
“Good Reason” means, without the Participant's express written consent, the
occurrence of any one or more of the following:
(i)    a material reduction in the Participant's annual base salary;
(ii)    a material diminution or reduction of the Participant's authority,
duties, or responsibilities;
(iii)    a material change in the geographic location at which the Participant
must perform services; or
(iv)    any material breach by the Corporation of any other provision of this
Agreement;
provided, however, that any such condition shall not constitute “Good Reason”
unless both (x) the Participant provides written notice to the Corporation of
the condition claimed to constitute Good Reason within ninety (90) days of the
initial existence of such condition, and (y) the Corporation fails to remedy
such condition within thirty (30) days of receiving such written notice thereof;
and provided, further, that in all events the termination of the Participant's
employment with the Corporation shall not be treated as a termination for “Good
Reason” unless such termination occurs not more than two (2) years following the
initial existence of the condition claimed to constitute “Good Reason.”

FORM OF PSU AGREEMENT 08-02-11