Steve Nieman Captain, Horizon Air 15204 N. E 181st Loop Brush Prairie, WA 98606 PHONE: 360-687-3187 FAX: 360-666-6483 MOBILE: 360-904-2926 email to: stevenieman@mac.com Friday, June 18, 2004 via postal mail acknowledgement of return receipt requested; sase enclosed John Ashcroft United States Attorney General U.S. Department of Justice 950 Pennsylvania Avenue, NW Washington, DC 20530-0001 Re: Election at the 2004 Alaska Air Group, Inc. ("AAG") Shareholders Meeting on May 18, 2004, Seattle, WA (ERISA considerations) Enclosures: SASE Attachments: Total of five--Appendixes A, B, C, D and E Dear Mr. Ashcroft: I am writing to bring your attention to the recent corporate election conducted by the AAG. I believe this election worthy of examination. We seek your consideration on behalf of all the shareholders, especially employee shareholders investing via the 401(k) plans. I was one of the four challenger candidates who ran a contested proxy solicitation opposing the AAG's three incumbent nominees and one new nominee. The other three challenger candidates were: Richard D. Foley, Dr. Robert C. Osborne and Terry K. Dayton. Our corporate campaign covered proposals by nine other stockholders who sponsored a total of ten shareholder resolutions. We enthusiastically support improving accountability and transparency through enhancement of democratic governance practices. Circumstances Leading Up to the Close of the Election o The 2004 Annual Stockholders' Meeting was held on Tuesday, May 18, 2004 in Seattle, WA. Beneficial and registered owners could vote through the middle of the meeting when the polls closed. o Deadline for voting for Alaska Airline and Horizon Air 401(k) plan participants was the close of business on the East Coast on May 13, 2004. The AAG has contracts with two corporations that administer the plans: Putnam Fiduciary Trust Company ("Putnam") and the Fidelity Institutional Retirement Services Company ("Fidelity"). o We filed our preliminary form of proxy with the U.S. Securities and Exchange Commission ("SEC") on April 7, 2004 and filed our definitive form of proxy on May 3, 2004 (it posted on the SEC's EDGAR site on May 4th.) The AAG filed its preliminary form of proxy on March 30, 2004 and its definitive form of proxy on April 23, 2004. (A sidebar: We also ran an opposing solicitation in 2003 at the AAG where we encountered similar voting). These filings can be viewed at . o We did an Internet-only solicitation on to keep costs low and afford the opportunity to exercise ownership rights that otherwise would have been priced out of practicality. In each of the last two years, the SEC has granted a "definitive" status to our campaign for proxies. o According to the amended Feb. 12, 2003 By-laws of the AAG, Section 4. Notice of Meetings, the management of the company is to provide notice of meetings "not less than thirty...days...before the date of the meeting to each stockholder entitled to vote at such meeting (i) in writing or (ii) by United States mail...If mailed, notice will be given when deposited in the United States mail..." (See Appendix A). o As outlined in the Trust Agreement 7.(e) (see Appendix B), the Alaska/Horizon Air 401(k) plan participants have the right to vote on all candidates and resolutions that legally qualify through SEC proxy review regulations. Our Opinion on this Election To the best of our knowledge, all SEC regulations and laws were complied with. However, the election lacked numerous practical safeguards and reasonable processes to ensure qualified voters received proper proxy materials, which should have included access to a universal ballot card delivered in sufficient time to be voted, returned and counted. 1.) We believe that the SEC's oversight of the preparation of proxy statements and voting materials in contested elections should require a higher level of communication and coordination between the incumbents and the challengers. In order that the full disclosure requirements of the regulations are met, what the management of the AAG included in its proxy statement affected our proxy statement; what we did affected the AAG's proxy statement. Yet, the management of the company, in our opinion, resisted all reasonable efforts to communicate and coordinate in the best interests of all shareholders. We note that the management of the AAG was not specifically compelled by statute or regulation to do other than what it chose to do. Nevertheless, we can only conclude its choices to decline communication and coordination delayed both proxy statements from going "definitive," and resulted in delays of delivery of voting materials to shareholders, which impeded the lawful exercise of their ownership rights. While we might agree that AAG management was within its legal rights to justify certain procedural maneuvering it did leading up to the election, we would never agree that any interpretation of legal or regulatory compliance should subsume the higher duty to ensure that its election was straight-forward, easy to understand and took whatever steps were necessary to ensure the enfranchisement of all of its shareholders. We believe that the existing systems and processes permit the former but discourage the latter. 2.) With mailed proxy materials arriving late, voting timelines were squeezed. Using myself as an example, I own AAG stock in three ways: as a 401(k) plan participant; beneficially in street name through Smith Barney through another AAG employee stock buying program; and as a registered owner. I did not receive my proxy statement and proxy cards from the AAG via EquiServe for my 401(k) and registered shares until Thursday, April 29, 2004. I did not receive my Smith Barney mailing of proxy materials until Friday, May 7, 2004. 3.) AAG management did supply a universal proxy card with all candidates and all shareholder proposals on it, but only after the shareholders meeting began. While a universal ballot card is not specifically required by regulation, it is not prohibited either, proven by the fact that the management of the company distributed at least three very different ballot cards during the campaign. (See Appendix C for copies of various proxy cards involved in the contest). We included all eight candidates (the management incumbents plus the one new nominee and the four challengers) on an earlier version of our proxy card in one of our preliminary filings, but the SEC required that we delete the names of the AAG's nominees since the management of the AAG did not respond to our request to include their candidates on our proxy card. 4.) In our opinion, though AAG management knew about our opposing solicitation for director seats via our preliminary and definitive SEC filings (it also acknowledged our challenge in its preliminary and definitive SEC filings), AAG management through Fidelity and Putnam, did not provide timely voting instructions to 401(k) plan participants on how to vote for the challengers until it was a practical impossibility for those employee shareholders to exercise their ownership rights. On May 5, Fidelity mailed additional voting instructions (we've had no response to our request for a copy) concerning the opposition proxy card and how to obtain it. Putnam eventually issued an email voting instruction on May 10th to the challengers only (see Appendix D)--just days before the May 13th voting deadline for 401(k) plan participants. To the best of our knowledge, nowhere in the AAG's print or electronic media was any attempt made by management to communicate these last-minute instructions to employee 401(k) shareholders. AAG management communicates daily with employees via the company's two main websites: and . Per the 401(k) trust agreement, we believe plan participants were entitled to TIMELY LEGAL NOTICE on how to exercise their ownership rights to vote for any lawful candidate. According to the proxy tabulator at the shareholders meeting, out of approximately 15,000 employees, most of whom are plan participants and eligible to vote, only one voted for the challengers. By paying $13.65 to overnight mail to the EquiServe post office box in New Jersey identified in the Putnam instruction in order to meet the May 13th deadline, I was the only plan participant who voted the challenger proxy card. It was necessary to use the USPS because it is the only service that delivers to post office boxes. 5.) For beneficial owners, the only way to vote for all candidates and all proposals was to vote the challengers' proxy card. The only way to do that was to obtain a legal form of proxy from the street holder of the stock. Evidently, postal mail is the only permissible way, and I was told that it took a minimum of three weeks to "turn such requests around." Using myself as an example, the fact that I received my proxy card from Smith Barney on May 7th meant there was little chance I could procure this form via the mails to vote my stock as I desired before or at the May 18th stockholders meeting. I attempted to have Smith Barney fax a legal form of proxy so that I could vote the challengers' proxy card, but I was told by an employee at its San Antonio, TX office that "there is no way we can help you." 6.) Adding insult to injury, it is probable that Smith Barney voted my "uninstructed shares" for the AAG candidates, the directors I was running against (I am currently corresponding with Smith Barney to obtain documentation that reveals if they voted my stock against me.) Even though we asserted to the New York Stock Exchange ("NYSE") that the management of the AAG notified shareholders that a contested election existed through its filing with the SEC, that brokers received these materials, and that we had delivered our opposition solicitation materials to a majority of the shareholders--the NYSE still insisted under its interpretation of its rules that no contested election existed. Therefore, we believe it instructed its broker clients to vote all shares that stockholders didn't specify how to vote (the proxy tabulator did not have the "broker vote" tally available at the end of the meeting.) Due to the NYSE's insistence on an interpretation in direct conflict with the clear wording of its own rules, we think that some shares may have been double voted, and some shareholders disenfranchised (see NYSE rules appended to Appendix E). 7.) Some AAG stockholders got to vote on all available candidates and shareholder proposals; other stockholders did not. The voting instruction form issued by the AAG to 401(k) plan participants contained proposals numbered 11 and 12. All other AAG stockholders received ballot cards that left out proposals 11 and 12. While this may not be illegal, we would characterize this as the least optimal choice available to AAG management. We believe that we have demonstrated and subsequently documented through our contested contests at the AAG over the last two years that proxy voting is in dire need of overhaul. It is our belief that democratic governance, including corporate governance, must be built on a foundation of the proper conduct of fair elections, with unfettered access to a universal ballot and ballot box--the contents of which are subject to an honest count. We look forward to your examination of the 2004 AAG election to ensure that shareholders, particularly 401(k) shareholders, are not inadvertently disenfranchised at the corporate ballot box. Closing Solutions: Six Simple Ones 1) Communicate or Postpone. Require parties involved in each side of a proxy contest to communicate or lose any advantage their non-responsiveness might have gained them, which should include postponement of the date of the shareholders meeting. 2 Electronic Communication Replaces the Mails. Require electronic communication as the primary method for all communication with shareholders. If shareholders desire mailed proxy materials, they can simply download them from their connection to the Internet. 3) Ensure Proper Contact Information. The SEC should interpret its rules to require complete information on how to contact shareholder proposalists and challenger candidates, unless the individuals involved request privacy. 4) Empower the SEC. The SEC needs to decree that only its authority can determine the existence of an opposing solicitation, which would end the voting of "uninstructed shares" by brokers. 5) End Shareholder Discrimination. The SEC should ensure equality by prohibiting any prejudice against 401(k) plan shareholder participants that might subject them to inferior ownership rights compared to other stockholders. 6) And finally, Require a Universal Ballot. The SEC should clarify its rules to permit either (or both) sides of a proxy contest to issue a "Universal Ballot Proxy Voting and Instruction Card" if either side so chooses. All candidates and resolutions to be voted upon should be properly identified and included. Sincerely, /s/ Steve Nieman cc: Richard Foley Dr. Robert Osborne Terry Dayton The Honorable Judd Gregg, U.S. Senate Chairman, Senate Committee on Health, Education, Labor and Pensions The Honorable Richard Shelby, U.S. Senate Chairman, Senate Committee on Banking, Housing and Urban Affairs The Honorable Michael Oxley, U.S. House of Representatives Chairman, House Committee on Financial Services The Honorable Sam Johnson, U.S. House of Representatives Chairman, Subcommittee on Employer-Employee Relations M. Jane Brady, Delaware Attorney General Christine O. Gregoire, Washington Attorney General Eliot Spitzer, New York Attorney General Elaine Chao, Secretary, U.S. Department of Labor Sydney Sambrano, Benefits Advisor U.S. Department of Labor, Employee Benefits and Security Administration William Donaldson, Chairman, SEC Alan Beller, Director of Corporation Finance, SEC John Reed, CEO, NYSE William Ayer, CEO, AAG Windle Turley, Esq. Dennis P. Barron, Esq. The New York Times The Wall St. Journal The Corporate Library Council of Institutional Investors Institutional Shareholders Services www.votepal.com