DESCRIPTION OF THE PSP1 WARRANTS
The following is a brief description of the terms of the PSP1 Warrants that may be offered and sold by the selling securityholder. This summary does not
purport to be complete and is subject to, and qualified in its entirety by reference to, the form of PSP1 Warrant, a copy of which has been filed as Exhibit 4.6 to our Registration Statement on Form S-3 filed
with the SEC on September 25, 2020. References to we, us and our in this section refer to Alaska Air Group.
The PSP1 Warrants
Alaska
Airlines/Horizon PSP1 Warrants
On April 23, 2020, June 23, 2020, September 30, 2020 and February 19, 2021, in
connection with participation by Alaska Airlines and Horizon in the Payroll Support Program under the CARES Act, we issued Warrants to U.S. Treasury to purchase 846,748 shares, 14,321 shares, 27,258 shares and 4,019 shares, respectively, of our
Common Stock (each a Alaska Airlines/Horizon PSP1 Warrant and, collectively, the Alaska Airlines/Horizon PSP1 Warrants). Each Alaska Airlines/Horizon PSP1 Warrant may be exercised at an exercise price of $31.61 (the last
reported trading price of our Common Stock on April 9, 2020) at any time prior to the fifth anniversary of its issuance.
McGee
PSP1 Warrants
On June 23, 2020, July 31, 2020, August 31, 2020, August 31, 2020 and February 19, 2021, in
connection with the participation by McGee in the Payroll Support Program under the CARES Act, we issued Warrants to U.S. Treasury to purchase 13,275 shares, 7,163 shares, 7,163 shares, 2 shares and 8,178 shares, respectively, of our Common Stock
(each a McGee PSP1 Warrant and, collectively, the McGee PSP1 Warrants and, together with the Alaska Airlines/Horizon PSP1 Warrants, each a PSP1 Warrant and, collectively, the PSP1 Warrants). Each McGee
PSP1 Warrant may be exercised at an exercise price of $31.61 (the last reported trading price of our Common Stock on April 9, 2020) at any time prior to the fifth anniversary of its issuance.
Common Stock Subject to the PSP1 Warrants
The PSP1 Warrants initially represent the right to purchase up to 928,127 shares of our Common Stock. The number of shares deliverable upon the
exercise of the PSP1 Warrants is subject to the adjustments described below under the heading Adjustments to the PSP1 Warrants.
Exercise of the PSP1 Warrants
The
initial exercise price of each PSP1 Warrant is $31.61 per share of Common Stock for which such PSP1 Warrant may be exercised. Each PSP1 Warrant may be exercised in whole or in part at any time, and from time to time, at or before 5:00 p.m., New York
City time, on the fifth anniversary of the issuance of such PSP1 Warrant, by surrender of such PSP1 Warrant and delivery of a completed notice of exercise attached as an annex to such PSP1 Warrant to us and the payment of the exercise price per
share for the shares of our Common Stock for which such PSP1 Warrant is being exercised.
The exercise price of a PSP1 Warrant cannot be
paid in cash by the holder of such PSP1 Warrant in exchange for the number of shares of our Common Stock underlying such PSP1 Warrant. Rather, upon exercise of a PSP1 Warrant in whole or in part, we may elect to pay or deliver, as the case may be,
(a) cash (Net Cash Settlement) or (b) shares of our Common Stock together with cash, if applicable, in lieu of delivering any fractional shares of our Common Stock (Net Share Settlement). If we elect Net Cash
Settlement, we will pay to the warrantholder cash equal to the number of shares of our Common Stock as to which such PSP1 Warrant has been exercised, as indicated in the notice of exercise, multiplied by the sum of the average market price for
shares of our Common Stock for the 15 consecutive trading days, ending on and including the date the exercise notice was delivered, less the then-applicable exercise price per share of Common Stock. If we elect Net Share Settlement, we will deliver
to the warrantholder a number of shares of our Common Stock equal to the number of shares of our Common Stock as to which such PSP1 Warrant has been exercised, as indicated in the notice of exercise, multiplied by the quotient of (i) the sum of
the average market price for shares of our Common Stock for the 15 consecutive trading days, ending on and including the date the exercise notice was delivered, less the then-applicable exercise price per share of Common Stock, divided by
(ii) the average market price for shares of our Common Stock for the 15 consecutive trading days, ending on and including the date the exercise notice was delivered. The exercise price applicable to each PSP1 Warrant is subject to further
adjustment as described below under the heading Adjustments to the PSP1 Warrants.
PS-16