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Exhibit 10.1

ALASKA AIR GROUP, INC.
2008 PERFORMANCE INCENTIVE PLAN
PERFORMANCE STOCK UNIT AWARD AGREEMENT
 
THIS PERFORMANCE STOCK UNIT AWARD AGREEMENT (this “Agreement”) dated __________,
by and between ALASKA AIR GROUP, INC., a Delaware corporation (the
“Corporation”), and _____________   (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 is
terminated during the Performance Period by the Corporation 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 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).
 
3.      Continuance of Employment.  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
 

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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.
 
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.
 
(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
the Corporation, regardless of the reason for the termination of the
Participant’s employment with the Corporation.  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.
 
(b)      Notwithstanding Section 7(a), if the Participant’s employment with the
Corporation 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 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, and the denominator of which shall be the number
 

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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 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 with the Corporation, the Participant has either (i) attained age 55
with at least five (5) full years of service with the Corporation, or (ii) has
attained age 60, or (iii) is a participant in and is entitled to commence a
benefit under a Corporation-sponsored defined benefit plan and has at least 10
years of service with the Corporation.
 
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 an
employee of the Corporation, 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
 

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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.
 
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.

 

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·
“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.

 
 
·
“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:

 
o
Airtran Holdings,

 
o
AMR,

 
o
Continental Airlines,

 
o
Delta Air Lines,

 
o
ExpressJet Holdings,

 
o
JetBlue Airways,

 
o
Hawaiian Holdings Inc.,

 
o
Mesa Air Group Inc.,

 
o
Republic Airways Holdings,

 
o
SkyWest,

 
o
Southwest Airlines,

 
o
UAL, and

 
o
US Airways Group.

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

 

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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.

 
 
(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.”
 

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