SCHEDULE 14A INFORMATION
                  Proxy Statement Pursuant to Section 14(a)
                  of the Securities Exchange Act of 1934
                   (Amendment No.    )
Filed by the Registrant     / x /
Filed by a Party other than the Registrant  /   /
/   / Preliminary Proxy Statement
/   / Confidential, for Use of the Commission Only (as
      permitted by Rule 14a-6(e) (2))
/ x / Definitive Proxy Statement
/   / Definitive Additional Materials
/   / Soliciting Material Pursuant to 240.14a-11(c) or
      240.14a-12

               Aluminum Company of America
       (Name of Registrant as Specified in Its Charter)

    (Name of Person(s) Filing Proxy Statement if other than
                         Registrant)

Payment of Filing Fee (Check the appropriate box):
/ x / No fee required.
/   / Fee computed on table below per Exchange Act
      Rules 14a-6(i) (4) and 0-11.

      1)  Title of each class of securities to which
          transaction applies:

          -------------------------------------------------
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      2)  Aggregate number of securities to which transaction
          applies:

          -------------------------------------------------
          -------------------------------------------------
      3)  Per unit price or other underlying value of 
          transaction computed pursuant to Exchange Act
          Rule 0-11 (Set forth in the amount on which the
          filing fee is calculated and state how it was 
          determined):

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      4)  Proposed maximum aggregate value of transaction:

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      5)  Total fee paid:

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/   / Fee paid previously with preliminary materials.
/   / Check box if any part of the fee is offset as 
      provided by Exchange Act Rule 0-11(a)(2) and
      identify the filing for which the offsetting fee was
      paid previously.  Identify the previous filing by
      registration statement number, or the Form or Schedule
      and the date of its filing.

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                             19971998
                Notice of Annual Meeting and
                       Proxy Statement


To Alcoa Shareholders:TO ALCOA SHAREHOLDERS:

It is my privilege to invite you to the 19971998 annual meeting
of Alcoa shareholders.

     We will meetThe meeting is on Friday, May 9,8, 1998 at 9:30 a.m. in
the Westin William Penn Hotel, in Pittsburgh, Pennsylvania.  The
hotel is fully accessible to disabled persons and headsets
will be available for the hearing-impaired.
     
     I hope you will be able to attend and participate in this review of your
company's business and operations.  The Westin William Penn Hotel is fully accessible to
disabled persons.This proxy statement
describes the items we will vote on at the meeting.  In
addition headsets forto those items, we will review the hearing-
impaired will be available.major
developments of 1997 and answer your questions.
     
     If you plan to attend, the meeting, you will need an admission
ticket.  YourFor registered shareholders, there is an admission
ticket is attached to the enclosed proxy card that accompanies this proxy statement for
registered shareholders.  Other shareholders(voting) card.
Shareholders and others also may obtain a
tickettickets by contacting
the corporate secretary.
     
     Whether or not you plan to attend it is important that
your shares are represented at the meeting.  Please fill outmeeting, please
sign and date the enclosed proxy card and return your proxy cardit promptly.

Sincerely,

/s/Paul H. O'Neill

Paul H. O'Neill
Chairman of the Board and
Chief Executive Officer

March 12, 199711, 1998


Alcoa
425 Sixth Avenue
Pittsburgh, Pennsylvania
15219-1850

Notice of 19971998 Annual Meeting



March 12, 1997

The11, 1998

Alcoa's annual meeting of shareholders of Aluminum Company of
America (Alcoa) is scheduled forwill take place on
Friday, May 9, 19978, 1998 beginning at 9:30 a.m.  We will meet in
the William Penn Ballroom of the Westin William Penn Hotel in
Pittsburgh, Pennsylvania.  The purposes of the meeting are:

  (1)  to elect three directors for a term of three years;
  
  (2)  to approve an amendment to the company's Long Term
       Stock Incentive Plan under which stock options are
       granted; and
  
  (3)  to consider any other matters that properly may come
       before the meeting or any adjournment of the meeting.

  Owners of common stock of record
at the close of business on February 10, 19979, 1998 will be entitled
to vote at the meeting.

At the meeting, we plan to:

     -    elect three directors for a term of three years,    
     
     -    approve an amendment to Alcoa's Articles to increase 
          the number of authorized shares of common stock,
     
     -    approve an amendment to Alcoa's Long Term Stock
          Incentive Plan under which stock options are granted,
     
     -    vote on a proposal submitted by a shareholder on the
          topic of charitable contributions, and
     
     -    consider any other matters that may properly come before
          the meeting.

     A quorum is required in order to conduct business at the meeting.
The quorumThis requirement will be satisfied if shareholders entitled to castthe holders of a
majority of the votes that
all shareholders areshares entitled to cast at the meetingvote are present, either
in person or by proxy.  If a quorum is not present, the
shareholders in attendance may adjourn the meeting may be adjourned to aand decide
on another time and place determined by those shareholders who are present.  If the
meeting is adjourned, theto meet.  The shareholders present
at the nextfollowing meeting will constitute a quorum for
electing directors and, if the purpose of electing
directors.  In the event that theadjourned meeting is adjourned for
one or more periods totalingheld at
least 15 days after the shareholders present at this latestscheduled annual meeting date, will
constitute a quorum for acting upon any matter to beon all other matters being
voted on at the
meeting.

  Your attention is directed to the following proxy statement
and the accompanying proxy card.on.

On behalf of Alcoa's Board of Directors,

/s/ Barbara Jeremiah
Barbara JeremiahDenis A. Demblowski

Denis A. Demblowski
Secretary

                                  
                                  Contents

  Proxy solicitation3


CONTENTS

5    The Annual Meeting and voting information . . . . . . . .  4Voting

6    Alcoa Common Stock Ownership
          
          Owners of More Than 5%

          Director and Executive Officer Stock Ownership
          
          Section 16(a) Beneficial Ownership Reporting Compliance

          Stock Performance Graph
     
7    PROPOSAL 1-ELECTION OF DIRECTORS
          
          The Board of Directors
          
          . . . . . . . . . . . . . . . . . . .  4Directors' Compensation
          
          Transactions with Directors' Companies
          
          Committees and Meetings and committees of the Board
          
. . . . . . . . .  8
     Certain relationships and related transactions . . . .  8
     Directors' compensation  . . . . . . . . . . . . . . .  8
  Security ownership. . . . . . . . . . . . . . . . . . . .  8
     Performance graph. . . . . . . . . . . . . . . . . . .  913   Compensation of executive officers  . . . . . . . . . . . 10Executive Officers
          
          Report of the Compensation Committee
          
          report on
       executive compensation . . . . . . . . . . . . . . . 10
     1996 executive compensation  . . . . . . . . . . . . . 11
       Summary compensation table . . . . . . . . . . . . . 12Compensation Table
          
          Option Grants in 1997
          
          1997 Aggregate Option Exercises and Year-End Option
            Values

          Pension Plans
          
          Pension Plan Table

20   PROPOSAL 2 - APPROVE AN AMENDMENT TO ALCOA'S ARTICLES
                  INCREASING AUTHORIZED COMMON STOCK

21   PROPOSAL 3 - APPROVE AN AMENDMENT TO THE LONG TERM
                  STOCK INCENTIVE PLAN

22   PROPOSAL 4 - SHAREHOLDER PROPOSAL REGARDING
                  CHARITABLE CONTRIBUTIONS

23   Other Information
          
          Relationship with Independent Accountants
          
          Shareholder Proposals for the 1999 Meeting
          
          Other Matters

24   Appendix A-Description of Long Term Stock Incentive Plan

. . . . . . . . . . . 13
       Option grants table  . . . . . . . . . . . . . . . . 14
       Aggregated option exercise table . . . . . . . . . . 15
       Pension plans  . . . . . . . . . . . . . . . . . . . 16
       Pension plan table . . . . . . . . . . . . . . . . . 16
  Proposal to approve an amendment to the
   Long Term Stock Incentive Plan . . . . . . . . . . . . . 16
  Other information   . . . . . . . . . . . . . . . . . . . 18
     Relationship with independent accountants. . . . . . . 18
     1998 meeting--shareholder proposals. . . . . . . . . . 18
     Other matters. . . . . . . . . . . . . . . . . . . . . 18
  
  
  Alcoa
  425 Sixth Avenue
  Pittsburgh, Pennsylvania 15219-1850
  Corporate secretary: (412) 553-4678
  
                             -3-

Proxy Statement

Proxy solicitation26   Glossary

27   Alcoa's Visions and voting informationValues


                                  4


The accompanyingAnnual Meeting and Voting

We have sent you this booklet and proxy is solicited by thecard because Alcoa's
Board of Directors of Aluminum Company of America (Alcoa oris soliciting your proxy to vote at the
company) for use
at thecompany's 1998 annual meeting of shareholders on Friday, May 9, 1997.
Proxies will be8, 1998.
This booklet contains information about the items being voted
if properly signed, received by the
secretary of the company prior to the close of votingon at the meeting and not revoked.

  Holders of record ofannual meeting.
     
Who Is Entitled to Vote?
Alcoa common stock holders of record at the close of business
on February 10, 1997 will be9, 1998 are entitled to vote at the
meeting.  On that date 173,106,093 shares of common stock
were outstanding.vote.  Shareholders are entitled tohave
one vote per share on each matter properly brought before the meeting.

  Under Pennsylvania law and the company's Articles, a quorum
is required to conduct business at the annual meeting.  A
quorum is the presence, in person or by proxy, of a majority
of the votes entitled to be cast at the meeting.
Abstentions, votes withheld from director nominees and broker
non-votes are counted to determine a quorum.  If a quorum is
present, the candidate or candidates receiving the highest
number of votes will be elected directors, and any other
matter being voted on aton.

How Do I Vote by Proxy?
When you sign and return the meeting will be approved if a
majority of the votes cast by shareholders is voted in favor
of such matter.  Abstentions, broker non-votes and failures
to vote are disregarded in tabulating voting results.

  Proxies representingenclosed proxy card, your shares of common stock held of record
also will represent full and fractional shares held under the
company's Dividend Reinvestment and Stock Purchase Plan and
full shares held under Alcoa's employee savings plans, if the
registrations are the same.  Separate mailings are made for
shares not held under the same registration.

  Employee savings plan shares for which no voting directions
are received from participants
will be voted in accordance with your directions.  If you do
not mark any selections, your shares will be voted as
recommended by the independent trusteeBoard of Directors.  You may vote in
person if you attend the same proportion (for, againstmeeting, but whether you plan to
attend or abstain) asnot, we urge you to return the shares in all plans for which participant
directions are received.

  A shareholder who has returned a proxy card promptly.

May I Change My Vote?
You may revoke ityour proxy at any time before it is voted at
the meeting in several ways:  by deliveringsending in a revised proxy
dated later than the first;  by voting by ballotin person at the
meeting,meeting; or by written noticenotifying Alcoa's secretary in writing that
you have revoked your proxy.

Quorum and Voting Information
   As of the record date, 168,100,787 shares of Alcoa common    
stock were issued and outstanding.  A majority of the
outstanding shares, present in person or represented by
proxy, constitutes a quorum, which is required to the company's secretary withdrawing the
proxy.  This notice may be mailed to the secretaryconduct
business at the addressannual meeting.  You are considered part of
the quorum if you have submitted a properly signed proxy
card.  Abstentions, broker non-votes* and votes withheld from
director nominees are included in the count to determine a
quorum.  However, abstentions and broker non-votes are not
counted in the voting results.  If a quorum is present,
director candidates receiving the highest number of votes
will be elected; each other matter being voted on will be
approved if it receives a majority of the first pagevotes cast by
shareholders.

If you are a shareholder of this bookletrecord or may beparticipate in Alcoa's
Dividend Reinvestment and Stock Purchase Plan or employee
savings plans, you will receive a proxy card indicating all
shares of common stock held in or credited to your accounts
as of the record date, if the account registrations are the
same.  You will receive a separate mailing for accounts with
different registrations.

   
Shares held in Alcoa's employee savings plans are voted by
the plans' independent trustee in accordance with voting
instructions received from plan participants using the
enclosed proxy card.  The plans direct the trustee to vote
shares for which no instructions are received in the same
proportion (for, against and abstain) indicated by the voting
instructions given to
the judge of election at the meeting.

  Proxies,by participants in all plans.
    

Is My Vote Confidential?
Yes.  Proxy cards, ballots and voting tabulations that
identify shareholders will be held confidential, except in aare kept confidential.  There are
exceptions for contested proxy solicitationsolicitations or where
necessary to meet legal requirements.  Corporate Election
Services, Inc., the
company'san independent proxy tabulator used by the
company, has been appointed judge of election for the
meeting.
     
Costs of This Proxy Solicitation
Alcoa pays the cost of soliciting proxies.  ToWe have hired
Morrow & Company, Inc. to assist in the solicitation process
Alcoa hired the firm of Morrow &
Co., Inc., for a fee of $7,000$11,500 plus reasonable out-of-pocket expenses.
Also, Alcoa directors and officers and other regular
employees also may solicit proxies by mail, in
person, or by telephone or by fax.  The companyAlcoa will request that
persons who hold shares for others, such as banks, brokerage
firms and other persons who hold stock in their
names for others, or in the name of nominees for others,trustees, obtain voting instructions from the
beneficial ownersowners* of the stock.  Alcoashares.  The company will reimburse
suchthese persons for their reasonable expenses in providing
proxy materials to beneficial owners and obtaining voting
instructions.

Shareholders'How Do I Comment on Company Business?
There is space for comments about any aspect of company business
are welcome.  Space is provided for this purpose on the proxy card givenor you may send
them to registered shareholders.  Other shareholders
may write to the companyus in care of the corporate secretary.  Although shareholder comments areit
is not answered on anpossible to respond to each individual, basis, they do assistyour ideas
help us to better understand your concerns and answer
shareholders' needs.
     
                                 *See glossary for definition
                                                             
                                  5


Alcoa management in
determining and respondingCommon Stock Ownership
                              
The following table shows shareholders who reported to the
needsSecurities and Exchange Commission (SEC) beneficial ownership
of shareholders.more than 5% of Alcoa common stock as of December 31,
1997.
     
OWNERS OF MORE THAN 5% Number of shares Percent Name and address of beneficial owner Owned of class - ------------------------------------ --------- -------- The Capital Group Companies, Inc. (1) 10,709,790 6.2 333 South Hope Street Los Angeles, California 90071 Loomis, Sayles & Company, L.P. (2) 11,301,464 6.15 One Financial Center Boston, Massachusetts 02111 Wellington Management Company, LLP (3) 14,068,894 8.16 75 State Street Boston, Massachusetts 02109 (1) Affiliates include Capital Research and Management Company, Capital Guardian Trust Company, Capital International, Inc. and other investment management companies. This shareholder reported that it had sole power to dispose of all shares and sole power to vote 3,139,290 of the shares owned. (2) The shareholder is an investment advisor, reporting shared power to dispose of all shares and sole power to vote 8,400 of the shares owned. (3) Wellington reported these amounts in its capacity as an investment advisor; the shares are held of record by its clients. Wellington reported that it had sole power to dispose of all shares and shared power to vote 2,034,570 of the shares shown.
DIRECTOR AND EXECUTIVE OFFICER STOCK OWNERSHIP The table below shows beneficial ownership of Alcoa common stock by directors, nominees for director and executive officers,* as of December 31, 1997. The five named executive officers are the chief executive officer (CEO) and the four officers who were the highest paid in 1997. No individual director, nominee or executive officer owned more than 1% of this class of stock. The total ownership shown for directors and executive officers as a group represents less than 2% of outstanding shares.
BENEFICIAL OWNERSHIP TABLE Name Exercisable Number Number of stock of shares deferred options (1) owned share equivalent units (2) - ------------------------------------------------------------------ Kenneth W. Dam 0 2,700 1,330 Joseph T. Gorman 0 2,245 1,838 Judith M. Gueron 0 2,917 1,330 Sir Ronald Hampel 0 1,807 0 Hugh M. Morgan (3) 0 100 0 John P. Mulroney 0 3,050 1,322 Paul H. O'Neill 859,211 215,505 4,947 Sir Arvi Parbo 0 3,579 2,625 Henry B. Schacht 0 2,521 2,645 Forrest N. Shumway 0 9,200 0 Franklin A. Thomas 0 3,121 4,735 Marina v.N. Whitman 0 1,900 1,330 Alain J. P. Belda 327,497 71,360 2,368 George E. Bergeron 184,988 35,999 1,488 Richard L. Fischer 254,718 40,254 3,312 Ronald R. Hoffman 244,238 37,564 1,916 Directors and executive officers 2,595,625 586,691 35,622 as a group (24 individuals) (1) Shares the officers had a right to acquire within 60 days through exercise of employee stock options. (2) Share-equivalent units credited to an individual's account under deferred fee or deferred compensation plans. (3) Information on Mr. Morgan, a nominee for director, is given as of February 20, 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers to file reports of Alcoa share ownership and changes in ownership. All directors and executive officers complied with these requirements in 1997. *See glossary for definition 6 STOCK PERFORMANCE GRAPH The following graph compares the most recent five-year performance of Alcoa common stock with the S&P 500 Index and a peer group index. It assumes an investment of $100 on December 31, 1992 and the reinvestment of all dividends. The peer group index, which is weighted for market capitalization,* includes Alcan Aluminium Limited and Reynolds Metals Company. The peer group index is used instead of the S&P Aluminum Industry Index, which includes Alcoa as well as Alcan and Reynolds, since Alcoa's heavy market capitalization weighting would distort a comparison with the full index.
Comparison of five-year cumulative total return December 31 ----------- 1992 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- ---- Alcoa $100.00 $ 99.08 $126.23 $156.95 $193.57 $216.58 S&P 500 100.00 110.08 111.53 153.45 188.68 251.63 Peer Group 100.00 105.32 125.06 153.15 164.19 151.79
Over the five-year period, your $100 investment in Alcoa common stock would have grown to $216.58 by the end of 1997. This compares with $251.63 for the S&P 500 Index and $151.79 for the peer group index. PROPOSAL 1 - ELECTION OF DIRECTORS The Board of Directors The AlcoaAlcoa's Board of Directors consists of 12 members andhas 11 members. The Board is divided into three classes. Theclasses whose terms of office of the three classes of directors end in successive years. John P. Diesel, a member of the class ofTwo current Alcoa directors, whose term of office expires at the 1997 annual meeting, isSir Arvi Parbo and Forrest N. Shumway, are retiring from the Board and, consequently, is not standing for reelection. Mr. DieselBoard. Sir Arvi has served as a director for 17 years. Thesince 1980, and Mr. Shumway was first elected to the Alcoa Board has benefited greatly from his expertise and commitment and will miss his wise counsel and leadership.in 1982. The Board extends its best wishes to them for a long and happy retirement to Mr.retirements. Their sound judgment, wise counsel and Mrs. Diesel. The other three membersgood humor will be greatly missed. Henry B. Schacht and Franklin A. Thomas, two directors whose terms of the 1997 classoffice are expiring, have been nominated to serve for new terms ending in 2001. In addition, Hugh M. Morgan, managing director and chief executive officer of WMC Limited in Australia, has been nominated to serve as a director for a three-year terms that will end in 2000. Effectiveterm starting at the May 1997 annual meeting, the Board will be reduced to 11 members. The accompanying1998 meeting. Your proxy will be voted for the election of these nominees unless you withhold authority to vote for any one or more nominees is withheld.of them. In the event that any of the nomineesnominee is unable or unwilling to serve as a directorstand for any reasonelection (which is not anticipated), the proxy will be votedBoard may provide for the electiona lesser number of any substitute nominee designated by the Board of Directorsdirectors or its Executive Committee. -4-designate a substitute. *See glossary for definition 7 Nominees to serve for a three-year term expiring in 2001 Hugh M. Morgan Age: 57 Principal occupation: Managing Director and Chief Executive Officer, WMC Limited, an Australian mining and minerals processing company. Recent business experience: Mr. Morgan has been Managing Director of WMC since 1986 and its Chief Executive Officer since 1990. He was Executive Director of WMC from 1976 to 1986. He has been a director of Alcoa of Australia Limited since 1977. Other directorships: Reserve Bank of Australia and a number of industry, business, trade and international associa- tions and advisory groups. Henry B. Schacht Age: 63 Director since: 1994 Principal occupation: Director and Senior Advisor, Lucent Technologies Inc., a commu- nications systems and technology company. Recent business experience: Mr. Schacht was Chairman of Lucent Technologies from February 1996 to February 1998 and its Chief Execu- tive Officer from February 1996 to October 1997. He was Chairman of Cummins Engine Company, Inc. from 1977 to 1995 and its Chief Executive Officer from 1973 to 1994. Other directorships: Cummins Engine Company, Inc., The Chase Manhattan Corporation, The Chase Manhattan Bank, Johnson & Johnson and Lucent Technologies. Franklin A. Thomas Age: 63 Director since: 1977 Principal occupation: Consultant, TFF Study Group, a nonprofit institution focusing on South Africa. Recent business experience: From 1979 until 1996, Mr. Thomas was President of the Ford Foundation. He was President and Chief Executive Officer of Bedford Stuyvesant Restoration Corpora- tion from its founding in 1967 until 1977. Other directorships: Citicorp/Citibank, N.A., Cummins Engine Company, Inc., Lucent Technologies Inc. and PepsiCo, Inc. 8 Directors whose terms expire in 2000 Kenneth W. Dam Age: 65 Director since: 1987 Principal occupation: Max Pam Professor of American and Foreign Law, University of Chicago Law SchoolSchool. Recent business experience: Mr. Dam 64, has been a director since 1987. He is Max Pam Professor of American and Foreign Law at the University of Chicago Law School. He served as President and Chief Executive Officer of thefor United Way of America in 1992, Vice President for Law and External Relations of International Business Machines CorporationIBM Corpo- ration from 1985 to 1992, Deputy Secretary of State from 1982 to 1985 and Provost of the UniversityUniver- sity of Chicago from 1980 to 1982. He servesOther directorships: Council on Foreign Relations, the Brookings Institution and a number of nonprofit boards, including the Council on Foreign Relations and the Brookings Institution.organizations. Judith M. Gueron Age: 56 Director since: 1988 Principal occupation: President, Manpower Demonstration Research Corporation (MDRC), a nonprofit research organizationorganization. Recent business experience: Dr. Gueron 55, has been a director since 1988. She has been President of Manpower Demonstration Research Corporation (MDRC)MDRC since 1986. She was MDRC's Executive Vice President for research and evaluation of MDRC from 1978 to 1986. Before joining MDRC, Dr. Gueron was director of special projects and studies and a consultant atfor the New York City Human Resources Administration.Administration before joining MDRC. Paul H. O'Neill Age: 62 Director since: 1986 Principal occupation: Chairman of the Board and Chief Executive Officer of Alcoa Mr. O'Neill, 61, has been a director since 1986. He became Chairman of the Board and Chief Executive Officer of Alcoa in June 1987. Before joining Alcoa inRecent business experience: From 1985 to 1987, Mr. O'Neill had been an officer of International Paper Company since 1977 andwas President and a director since 1985. Mr. O'Neill was named Chairman of The RAND Corporation in January 1997. He is also a director of theInternational Paper Company. Other directorships: Gerald R. Ford Foundation, Eastman Kodak Company, Lucent Technologies Inc., Manpower Demonstration Research Corporation, National Association of Securities Dealers, Inc. and The RAND Corporation. -5- Continuing directors--term expiring9 Directors whose terms expire in 1999 Joseph T. Gorman Age: 60 Director since: 1991 Principal occupation: Chairman and Chief Executive Officer, TRW Inc., a global company serving the automotive, and space and defense marketsmarkets. Recent business experience: Mr. Gorman 59, became a director in 1991.was TRW's President from 1985 to 1991 and Chief Operating Officer from 1985 to 1988. He has beenserved as Chairman and Chief Executive Officer of TRW since December 1988. Mr. Gorman servedOther directorships: In addition to serving as Chief Operating Officer of TRW from 1985 until 1988 and as President from 1985 until April 1991. He is also a director of TRW, andMr. Gorman is a director of The Procter & Gamble Company and is a member of the BP America Inc. Advisory Board. Sir Ronald Hampel Age: 65 Director since: 1995 Principal occupation: Chairman, Imperial Chemical Industries PLC, a diversified chemicals manufacturer, since 1995. Recent business experience: Sir Ronald 64, has been a director since January 1995. He has been Chairman of Imperial Chemical Industries PLC since April 1995, and a director since 1985. From 1993 to 1995 he was Deputy Chairman and Chief Executive of Imperial ChemicalChemi- cal Industries from 1993 to 1995 and served as its Chief Operating Officer from 1991 to 1993. He has been an ICI director since 1985. He is a member of the Listed Companies Advisory Committee of the London Stock Exchange and the Nominating Committee of the New York Stock Exchange. He is also a directorExchange and Chairman of the UK Committee on Corporate Governance. Other directorships: British Aerospace PLC. 10 John P. Mulroney Age: 62 Director since: 1987 Principal occupation: President and Chief Operating Officer, Rohm and Haas Company, a specialty chemicals manufacturermanufacturer. Recent business experience: Mr. Mulroney 61, has been a director since 1987. He has beenserved as President and Chief Operating Officer of Rohm and Haas Company since 1986. In 1982 he was electedHe has been a director of Rohm and Group Vice PresidentHaas since 1982. Other directorships: In addition to Rohm and Corporate Business Director of that corporation.Haas, Mr. Mulroney also is also a director of Teradyne, Inc. Marina v.N. Whitman Age: 62 Director since: 1994 Principal occupation: Professor of Business Administration and Public Policy, University of Michigan Dr. Whitman, 61, has been a director since 1994. She is Professor of Business AdministrationAdministra- tion and Public Policy, School of Business Administration and the School of Public Policy at the University of Michigan. Recent business experience: Dr. Whitman was Vice President and Group Executive, Public Affairs and Marketing Staffs of General Motors Corporation from 1985 to 1992 and Vice President and Chief Economist from 1979 to 1985. She was a member of the President's Council of Economic Advisers from 1972 to 1973. Dr. Whitman is also a director ofOther directorships: Browning-Ferris Industries, Inc., The Chase Manhattan Corporation, The Procter & Gamble Company and Unocal Corporation. -6- Continuing directors--term expiring 1998 Sir Arvi Parbo Chairman of WMC Limited (formerly Western Mining Corporation Holdings Limited), an Australian exploration and mining company Sir Arvi, 71, has been a11 Directors' Compensation Alcoa pays each director since 1980. He has been Chairman of WMC Limited since 1974. He served as Managing Director of that company from 1971 to 1986. He was Chairman of Alcoa of Australia Limited from 1978 to June 1996. Sir Arvi is also a director of Hoechst Australia Limited, Munich Reinsurance Company of Australia Ltd., Sara Lee Corporation and Zurich Australian Insurance Group. Henry B. Schacht Chairman and Chief Executive Officer, Lucent Technologies Inc., a communications systems and technology company Mr. Schacht, 62, has been a director since 1994. He was named Chairman and Chief Executive Officer of Lucent Technologies in February 1996. Mr. Schacht was Chairman from 1977 to 1995 and Chief Executive Officer from 1973 to 1994 of Cummins Engine Company, Inc., a leading manufacturer of diesel engines. He served as Chairman of the Executive Committee of the Board of Directors of Cummins in 1995. Mr. Schacht is also a director of Cummins Engine Company, Inc., The Chase Manhattan Corporation and The Chase Manhattan Bank and Lucent Technologies. Forrest N. Shumway Former Vice Chairman, AlliedSignal Inc., a diversified, technologically-based corporation Mr. Shumway, 69, has been a director since February 1988 and served previously as a director from 1982 to 1987. He retired as Vice Chairman of the Board and Chairman of the Executive Committee of AlliedSignal Inc. in 1987. Prior to 1985, he had served as Chairman and Chief Executive Officer of The Signal Companies, Inc. Mr. Shumway is also a director of American President Companies, Ltd., The Clorox Company and Transamerica Corporation. Franklin A. Thomas Consultant, TFF Study Group, a nonprofit institution focusing on South Africa Mr. Thomas, 62, has been a director since 1977. From 1979 until he assumed his current position in 1996, he was President of The Ford Foundation. Mr. Thomas was President and Chief Executive Officer of Bedford Stuyvesant Restoration Corporation from its founding in 1967 until 1977. He is also a director of Citicorp/Citibank, N.A., Cummins Engine Company, Inc., Lucent Technologies Inc. and PepsiCo, Inc. -7- Meetings and committees of the Board The Alcoa Board of Directors had seven meetings during 1996. The Board has several standing committees, including the five described below. Attendance by directors at meetings of the Board and of committees on which they served averaged 95%. All directors attended at least 75% of these meetings. The Audit Committee, composed of Directors Dam, Gueron, Schacht, Shumway, Thomas (chairman) and Whitman, reviews the performance of the independent accountants and makes recommendations to the Board concerning the selection of independent accountants to audit the company's financial statements. This committee also reviews the audit plans, audit results and findings of the internal auditors and the independent accountants, reviews the environmental audits conducted by the company's environmental staff and monitors compliance with Alcoa business conduct policies. The Audit Committee meets regularly with the company's management, the Director of Internal Audit and independent accountants to discuss the adequacy of internal accounting controls and the financial reporting process and with the company's management to discuss environmental matters. The independent accountants and the Director of Internal Audit have access to the Audit Committee without management's presence. This committee met eight times in 1996. The Compensation Committee, composed of Directors Dam, Diesel (chairman), Mulroney, Parbo and Thomas, determines the compensation of all Alcoa officers (including salary and bonus), authorizes or approves any contract for remuneration to be paid after termination of an officer's regular employment and performs specified functions under company compensation plans. The Compensation Committee reviews, butwho is not required to approve, the participation of officers in the company's other benefit programs for salaried employees. This committee met five times in 1996. The Executive Committee, composed of Directors Diesel, O'Neill (chairman) and Thomas, has been granted the authority of the Board in the management of the company's business and affairs. It meets principally when specific action must be taken between Board meetings. This committee did not meet in 1996. The Nominating Committee, composed of Directors Diesel, Gorman, Hampel, Mulroney (chairman), Parbo and Thomas, reviews the performance of incumbent directors and the qualifications of nominees proposed for election to the Board and makes recommendations to the Board with regard to nominations for director. This committee considers proposed nominees whose names and information regarding education and experience are submitted in writing by shareholders to the secretary of the company. This committee met once in 1996. The Pension and Savings Plan Investment Committee, composed of Directors Gorman, Gueron, Hampel, Shumway (chairman), Thomas and Whitman, reviews and makes recommendations to the Board concerning the investment management of the assets of Alcoa's retirement plans and principal savings plans. This committee met twice in 1996. Certain relationships and related transactionsan Alcoa and its subsidiaries have transactions in the ordinary course of business with many people and organizations, including corporations of which certain nonemployee directors are executive officers. Transactions with any of these corporations did not exceed 5% of Alcoa's or the other corporation's consolidated gross revenues for its last fiscal year. Alcoa does not consider these transactions to be material. Directors' compensation The Board revised its compensation structure for nonemployee directors in 1996. All nonemployee directors receiveemployee an annual cash retainer of $85,000. No additional fees, (suchsuch as meeting or committee fees)fees, are paid. Directors may elect to defer receipt of some or all cash fees, and they are encouraged to defer the maximum amount that their individual circumstances allow. All fee deferrals by directors are credited to thean Alcoa stock investment option,account, except that deferred amounts in excess ofdeferrals exceeding 50% of the annual retainer fee may be invested in anyother investment option ofoptions under the directors' deferred fee plan selected by the director.plan. Deferred accounts are credited with investment results comparable with those of the investment options under Alcoa's principal savings plan for salaried employees. Changes among investment options are permitted once each month, except that no transfers may be made from the Alcoa stock investment option. DeferredDirectors' deferred accounts are unfundednot funded and are paid out in cash from general funds of the company after Board service ends. Security ownership The following table showsTransactions with Directors' Companies In the beneficial ownershipcourse of ordinary business, Alcoa common stock as of January 31, 1997 for each director and the CEO and four other highest paidits subsidiaries may have transactions with corporations whose executive officers are also Alcoa directors. None of these transactions exceeded 5% of the gross revenues of either Alcoa or the other corporation. Committees and Meetings of the Board The Board met six times in 1997. Overall attendance by directors at Board and committee meetings averaged over 95%. All directors attended at least 75% of the meetings. The Board has several standing committees, five of which are described below. The Audit Committee reviews Alcoa's auditing, financial reporting and internal control functions and recommends the firm that Alcoa should retain as its independent accountant. It also reviews the company's environmental audits and monitors compliance with Alcoa business conduct policies. The independent accountants, Vice President - Audit and internal auditors have access to the committee without management's presence. Members include Directors Dam, Gueron, Schacht (chairman), Shumway, Thomas and Whitman. The committee met eight times in 1997. The Executive Committee has authority to act on behalf of the Board. It meets when specific action must be taken between Board meetings. Members include Directors Dam, O'Neill (chairman) and Thomas. This committee met once in 1997. The Nominating Committee considers and recommends nominees for allelection as directors and executive officers as a group. The first column shows shares that the officers had the right to acquire within 60 days through the exercise of employee options. The second column includes the number of shares beneficially owned, and the third column lists the number of share equivalent units credited to the individual director's or officer's account under deferred fee or deferred compensation plans. Total beneficial ownership for the group represented approximately 1.5% of the total shares outstanding and deemed outstanding. -8-
- --------------------------------------------------------------------------------- Exercisable Shares stock beneficially Deferred share Name options owned equivalent units - --------------------------------------------------------------------------------- Kenneth W. Dam 0 2,700 903 John P. Diesel 0 2,700 2,502 Joseph T. Gorman 0 2,219 1,409 Judith M. Gueron 0 2,879 903 Sir Ronald Hampel 0 1,509 0 John P. Mulroney 0 3,011 895 Paul H. O'Neill 761,901 196,478 4,151 Sir Arvi Parbo 0 3,539 1,771 Henry B. Schacht 0 2,514 1,791 Forrest N. Shumway 0 9,200 0 Franklin A. Thomas 0 3,080 3,873 Marina v.N. Whitman 0 1,900 903 Alain J. P. Belda 242,593 15,984 1,896 Richard L. Fischer 95,030 41,956 2,555 Ronald R. Hoffman 157,560 42,754 1,641 J. H. M. Hommen 159,714 44,092 2,783 Directors and executive officers as a group 2,008,743 495,077 32,605 - --------------------------------------------------------------------------------
FMR Corp., 82 Devonshire Street, Boston, Massachusetts 02109, a parent holding company, reported to the Securities and Exchange Commission (SEC) that it and its affiliates (including Fidelity Management & Research Company, an investment adviser; Fidelity Management Trust Company, a bank; Edward C. Johnson 3rd, FMR's chairman; and Abigail P. Johnson, a director of FMR) beneficially owned 13,375,143 shares, or 7.71% of the company's common stock as of December 31, 1996. It reported sole power to dispose of all of these shares and sole voting power over 929,509 shares. The Capital Group Companies, Inc., 333 South Hope Street, Los Angeles, California 90071, a parent holding company, reported to the SEC that it and its affiliates (including Capital Research and Management Company and other investment management companies) own 14,238,830 shares, or 8.2% of the company's common stock as of December 31, 1996. It reported sole power to dispose of all these shares and sole voting power over 3,774,830 shares. The shares reported include 9,758,000 shares (or 5.6% of the outstanding shares) over which Capital Research and Management Company has sole dispositive power, but disclaims beneficial ownership. Wellington Management Company LLP, 75 State Street, Boston, Massachusetts 02109, an investment adviser and parent holding company, reported to the SEC that it beneficially owned 11,329,724 shares, or 6.53% of the company's common stock as of December 31, 1996. It reported shared power to dispose of all of these shares and shared voting power over 2,195,000 shares. The Wellington holdings included shares owned by Wellington Trust Company NA (a bank and wholly owned subsidiary of Wellington) and various investment advisory clients. Section 16(a) Beneficial Ownership Reporting Compliance - ------------------------------------------------------- The company believes that all Alcoa directors and officers who are subject to the requirements of Section 16 of the Securities Exchange Act of 1934 filed on a timely basis all reports required to be filed by them during 1996 with respect to their beneficial ownership of Alcoa common stock, except that R. R. Hoffman, an executive officer, was 18 days late in filing a report disclosing one common stock sale transaction. Performance graph The following graph illustratesreviews the performance of Alcoa common stock overincumbent directors. The committee reviews the most recent five-year period compared withnames and qualifications of nominees that shareholders submit in writing to the performancecompany secretary. Members include Directors Gorman, Hampel, Mulroney (chairman), Parbo and Thomas. This committee met twice in 1997. The Pension and Savings Plan Investment Committee reviews and approves the investment management of the S&P 500 IndexAlcoa's retirement plans and a peer-group index, all with dividends reinvestedprincipal savings plans. Members include Directors Gorman, Gueron, Hampel, Shumway (chairman), Thomas and Whitman. This committee met twice in additional shares on the dates paid.1997. The peer-group index (market capitalization weighted) consists of Alcan Aluminium Limited and Reynolds Metals Company. The peer-group index is being used rather than the S&P Aluminum Industry Index, which includes Alcoa as well as Alcan and Reynolds, because Alcoa's heavy market capitalization weighting would distort a comparison with the full index.
Comparison of five-year cumulative total return * 1991 1992 1993 1994 1995 1996 Alcoa 100.00 113.82 112.78 143.68 178.64 220.33 S&P 100.00 107.62 118.46 120.03 165.13 203.05 Peer Group 100.00 117.83 144.29 154.70 94.22 99.23 * Assumes the investment of $100 on December 31, 1991 and the reinvestment of all dividends.
-9- Compensation of executive officers Compensation Committee report on executive compensation The company's Compensation Committee determines the salary and bonus for Alcoa executive officers, approves 12 post-termination contracts and performs other functions specified by the company's compensation plans. The committee reviews the participation of allofficers in other benefit programs for salaried employees. Members include Directors Dam, Gorman, Mulroney, Parbo and Thomas (chairman). The committee met five times in 1997. A subcommittee, comprised of Directors Dam, Parbo and Thomas, administers Alcoa's Long Term Stock Incentive Plan. Compensation of Executive Officers The Compensation Committee determines pay and incentives for Alcoa executive officers. The Committee is composed solelymembers of this committee are required to be independent nonemployee directors.directors who have never been Alcoa employees. No member of this committee member is a current or former officer or employee, and no member receives any compensation from Alcoathe company in any capacity other than as a director. The company'scommittee's report for 1997 follows. REPORT OF THE COMPENSATION COMMITTEE Alcoa's Compensation Philosophy - The purpose of Alcoa's total compensation policy as developed by the Committee, is to provide compensation and benefit programs from a total compensation perspective which enable Alcoa to hire, retain and motivate high-performing employees worldwide. TotalIn determining compensation, includes salary, annual cash incentives, long-term incentives and employee benefits. Guiding principles include paywe use the following principles: - - Pay for performance - both individual and groupteam performance competitive- - Competitive total compensation compared with leading industrial companies and, particularly for executives, total- - Total compensation that is highly leveraged to financial and nonfinancial business performance. Alcoa's total compensation program includes four components: annual salary, cash incentives, long-term, stock-based incentives and employee benefits. Our committee places less emphasis on high base salaries in favor of at-risk, short-term and long-term incentives based on business performance -- both financial and nonfinancial. The company engages executive compensation consulting firmsperformance. Stock-based incentives are an important element because they help to provideassure that executives focus on increasing shareholder value. Annual Cash Compensation - Each year we review comparative market compensation datainformation prepared by outside consultants, who also help analyze and to assist in analysis and interpretation of comparativeinterpret compensation practices. The comparison groupsgroup, which is surveyed for both total cash compensation and long-term incentives, include a cross section of over 20includes leading manufacturing companies -- a select sample of well- managed companies with whom Alcoa competes for talent. These companies are among the largest and most highly regarded corporationsbest performing in a broad range of industries and serve as a proxy forsample of the market at large. Similar approaches are usedlarger market. In addition to compensation, we also compare position sizea position's level of responsibility within these companies, which facilitate compensation comparisons. Since 1987 the Committee has shifted executive compensation away from higher fixed salaries and toward more at-risk short- term and long-term performance-based incentives. Stock-based incentives are an important element, helping to assure that executives are focused on increasing shareholder value. Cash compensation -- Targets forcompanies. Total annual cash compensation - ----------------- (salaryfor Alcoa senior managers includes base salary and cash incentives)incentive awards. The targets for the sum of base salary and cash incentives are set above the median for the comparison group of high-performing industrial companies. Payouts at target provide competitive levels of total cash compensation when predeterminedWhen performance measures of excellence are achieved. For senior management, the Committee has movedmet, this provides a very competitive level of cash compensation. In order to tie annual cash compensation more leverage based onclosely to performance, with thewe set base salary structuresalaries below the median and annual cash incentive targets above it. Annual Cash Incentives - Targets for cash incentive awards vary by position and are established as a percentage of base salary. Our committee may make adjustments in payout to recognize and reward individual performance. For most executive officers, annual incentive targets are based on the mediantotal performance of all business units compared with planned goals. The maximum payout, before any adjustment for individual performance, is 150% of the comparison group.target. We increased the maximum payout to 200% of target beginning in 1998. The new maximum will apply, however, only for years when shareholders become entitled to a bonus dividend due to Alcoa earnings exceeding a threshold per share amount (currently, that threshold is $3.00 per share). Alcoa's cash incentive programs were revised in 1992 to provide more consistent performance measures for both executives and, under a performance-based pay plan, for most other U.S. employees. Business unit employees are measured according to the goals of their individual units. Annual cash incentive payouts for executive officers are based on 13 the achievement of business plan goals for the year by all of the company's various business units. At least 50%About 40% of the business unitthese goals are based on financial measurements. Other goalsnonfinancial. They may include nonfinancial measurements such as electrical efficiency per pound of aluminum produced,for environmental, health and safety performance, customer satisfaction, product innovation, on-time delivery, manufacturing excellence, reduced cycle time, inventory reduction and product quality improvements and safety performance.improvements. The Committeecompany believes that if managers focus on the company focuses on achievingachievement of excellence in those areas within itstheir control, as measured by the proper nonfinancial indicators, long-term growth in shareholder value will result. Target awards, established as a percentage of base salary, vary by position level. Adjustments to target awards and special award flexibility may be made by the Committee in its discretion to reflect individual performance. To provide further congruency throughout the company, cash incentive programs were revised in 1992 so that similar performance measures apply both to executives and, under the performance pay plan, to most other U.S. employees. The measures for employees in business units are the goals of their individual business unit. For most executive officers, the aggregate performance against these goals for all business units is the measure that determines the payout of their annual cash incentive target. The maximum payout before adjustment for individual performance is 150% of the target award. Long-term incentives -- Long-term incentives are stock-based,Long-Term Incentives - -------------------- consistent with the Committee'sA goal of encouraging stock ownership andour committee is to closely aligningalign management's interests with those of the shareholders. AnnualIn order to encourage stock ownership among Alcoa executives, the company's long-term incentives are entirely stock-based. Alcoa grants annual long-term awards are granted in the form of stock options. They are designedThe stock option program allows us to provide aawards that are competitive award opportunity versuswith the comparison groupsample of leading industrial companies; stock performance then determinescompanies. The actual amount earned is determined by the amount earned. The Committee has established guidelines on the target number of shares to be covered by annual option grants for executive officer and other management positions.stock's performance. The guidelines reflectused to establish the Committee's assessmentsize of levelsa stock option award include a position's level of responsibility, of the company's manager and officer positions as well as the relationship to the size of prior grants and comparative award data.information. Individual annual grants are ordinarily made attypically follow the guideline amount. The continuation (reload) feature of the stock option program was added in 1989 to provide further incentive for increased stock ownership, not only for senior management but for about 750 other optionees. This feature encourages early exercise of options and retention of the Alcoa shares. -10- As a condition to obtaining continuation options, one-half of the "appreciation" shares received upon exercise, after any share withholding for taxes, is restricted against sale or pledge during the employee's Alcoa career. These shares may be used for further option exercises, after satisfaction of a minimum holding period. Share ownership by optionees, including executive officers, has increased significantly in the last five years through use of the reload feature. Deductibility of compensation -- To the extent practicable, - ----------------------------- the company intends to preserve deductibility for federal income tax purposes of compensation paid to executive officers. In this regard, compensationamounts. Compensation paid as the result of option exercises under the shareholder-approved Long Term Stock Incentive Plan is deductible. A portiondeductible by Alcoa. The company may not deduct portions of the salary, bonus and other cash and non-cash compensation in excess of $1 million paid to any onea named executive officer. Stock Option Reload Feature - In 1989 the plan was amended to add a stock option reload feature to encourage increased stock ownership not only for executive officers, but for all optionees who are active employees (currently about 850 individuals). This feature promotes the early exercise of options and the retention of Alcoa shares. The reload feature of the namedplan permits previously granted options to be exercised for additional shares, along with a new reload option grant for fewer shares that is priced at current fair market value.* One-half of the shares received on option exercise cannot be sold or transferred until after employment ends. These shares may be used to exercise additional options after a minimum six-month holding period. Share ownership by executive officers may not be deductible toand other optionees has increased significantly in the extent exceeding $1 million annually. Reportlast several years because of the reload feature. In 1997 we approved a dividend equivalent compensation plan under which cash dividend equivalents are paid, when approved by the Board, on 1996 compensationa portion of executive officers includingthe exercisable options held by active employees. Compensation of Executive Officers in 1997 - ----------------------------------------------------------- the named officers --SalaryOur committee increased 1997 salary and annual cash incentive dollar - ------------------ targets were increased from 1995,1996, reflecting comparablesimilar increases in the comparison survey data. Cashgroup. Annual incentive payouts forto executive officers under the annual incentive plan based on 1996 performance averaged about 93%105% of target awards. Stock option awards are granted annually. The Committee has established guideline option awards by job grade based on competitive data. Thein 1997. January 19961997 stock option grants forto executive officers were made at full levels for these positions, in accordance with the established guidelines, at the full levels for these positions. A large numberguidelines. The majority of optionees exercised stock optionsoption exercises in 1996. Most of the exercises1997 by executive officers involved the grant of continuationreload options. Consistent with*See glossary for definition 14 Compensation of the intent of this feature, the exercises resulted in a large percentage increase in Alcoa share ownership by executive officers. Report on 1996 CEO compensation--TheChief Executive Officer - The chief executive - ------------------------------- officer's compensation is established based on the same philosophy and policies stated above for all executive officers. Thisofficers, and includes cash compensation (basebase salary, and annual cash incentive payouts)incentives and long-term incentives (stockstock option awards). The Compensation Committeeawards. Our committee meets annually without the CEO and evaluates his performance in relation tocompared with previously established financial and nonfinancial goals previously established. Agoals. We reach a consensus is reachedas a committee and commensuratemake the appropriate compensation adjustments are made. This process is reportedadjustments. Finally, we report in full to the entireother members of the Board for itstheir consideration and concurrence.agreement. This meeting is an executive session of nonemployee directors only. More specifically,In 1997, Mr. O'Neill's base salary in 1996 ($750,000) was the same as in 1995.$850,020. By design, Mr. O'Neill's salary remains below the median for the comparison group. In January 1997,1998, Mr. O'Neill was awarded a bonus of $810,000,$1,250,000, which was 90%122.5% of his target incentive award for 1996.1997. The bonus amount was based in partpartly on aggregatetotal business unit results compared with plan goals, and in part,partly in recognition, by our committee and the Committeeexecutive session of the Board, of Mr. O'Neill's outstanding leadership during 1996.1997. Mr. O'Neill's 19961997 annual stock option award grant was made at the established guideline number of shares for his position, as established by the Committeecommittee in November 1995. Compensation Committee interlocks and insider - --------------------------------------------- participation -- In addition to the five current - ------------- Committee members identified below, during 1996, Henry B. Schacht served as a member of the Compensation Committee from January until early September. Mr. Schacht is Chairman and Chief Executive Officer of Lucent Technologies Inc. In October 1996, Paul H. O'Neill was elected a director of Lucent Technologies. Summary--The Committee1996. This committee believes that the company's compensation programs help to maintain Alcoa's leadership position among global industrial companies. The Compensation Committee John P. Diesel,Franklin A. Thomas, Chairman Kenneth W. Dam Joseph T. Gorman John P. Mulroney Sir Arvi Parbo Franklin A. Thomas 1996 executive compensation A summary of15 SUMMARY COMPENSATION TABLE The following table shows the compensation for the company's chief executive officerCEO and for the four other executive officers who were the highest paid forin the fiscal year ended December 31, 1996 for services to Alcoa and its subsidiaries is shown in the following table. -11-1997.
Summary Compensation Table Long Term Annual Compensation Compensation ------------------- ------------ Number of Securities Underlying All Other Name and Underlying Option All OtherCompen- Principal Position (1) Year Salary (1)(2) Bonus Grants (2) Compensation (3)Grants(3) sation (4) - ---------------------------------------- ---- ---------- ----- -------------------- ------------------------- ---------- Paul H. O'Neill 1996 $750,000 $ 810,000 693,027 $172,0621997 $850,020 $1,250,000 324,584 $171,206 Chairman of the Board and 1996 750,000 810,000 693,027 172,062 Chief Executive Officer 1995 750,000 1,250,000 587,250 174,759 Chief Executive Officer 1994 700,200 750,000 433,042 159,012 Alain J. P. Belda 1997 610,200 850,000 304,354 195,781 President and Chief 1996 540,600 525,000 120,304 100,670 Vice Chairman (4)Operating Officer 1995 446,823 600,000 65,000 90,809 1994 413,500 260,000 54,754 113,010George E. Bergeron 1997 368,577 381,300 144,314 77,754 Vice President and Pres- 1996 339,200 245,000 205,406 77,867 ident, Alcoa Rigid Packaging 1995 316,800 363,000 176,618 73,449 Richard L. Fischer 1996 370,200 325,000 255,657 69,1881997 395,200 500,000 179,199 68,186 Executive Vice President - 1996 370,200 345,000 255,657 69,188 Chairman's Counsel 1995 366,900 400,000 275,736 69,945 Chairman's Counsel 1994 350,400 180,000 197,242 65,024 Ronald R. Hoffman 1996 370,200 325,000 271,073 74,6421997 395,200 400,000 170,052 73,208 Executive Vice President - 1996 370,200 345,000 271,073 74,642 Human Resources and 1995 366,900 400,000 305,686 72,335 Human Resources and 1994 350,400 180,000 196,810 69,024 Communications Jan H. M. Hommen 1996 356,377 325,000 198,717 62,095 (1) Effective January 1, 1998, Mr. Bergeron was elected an Executive Vice President, 1995 316,776 400,000 204,233 88,036 and Chief Financial Officer 1994 310,800 180,000 118,106 56,648 (1)Mr. Hoffman became Special Assistant to the Chairman. Mr. Hoffman has announced that he will retire in August 1998. (2) The most highly compensatedhighly-compensated executive officers are those with the highest annual salary and bonus for the last completed fiscal year.1997. In addition to base salary, the salary column in this table includes, when selected by the employee, an extra week's pay in lieu of vacation as permitted under the company's vacation plan for employees with 25 or more years of service. (2)(3) New option grants made in 19961997 totaled 160,000175,000 for Mr. O'Neill, 100,000125,000 for Mr. Belda, 46,000 for Mr. Bergeron, 65,000 for Mr. Fischer and 52,800 each60,000 for Messrs. Fischer, Hoffman and Hommen.Mr. Hoffman. All of these options were granted at 100% of the fair market value of Alcoa common stock on the grant date. The other option awards relate to previous years' optionsoption grants and the use of the continuation (reload)reload feature described earlier in the next section.Report of the Compensation Committee. See also the Option Grants in Last Fiscal Year1997 table on page 14. (3)the next page. (4) Company matching contributions to 401(k) and excess savings (defined contribution) plans for 1996 were as follows:1997 were: Mr. O'Neill, $45,000;$51,001; Mr. Belda, $31,824;$35,500; Mr. Bergeron, $21,720; and Messrs. Fischer $22,212; Mr.and Hoffman, $22,212; and Mr. Hommen, $21,024.$23,712 each. The present value costs of the company's portion of 19961997 premiums for split-dollar life insurance, above the term coverage level provided generally to salaried employees, were as follows:were: Mr. O'Neill, $127,062;$120,205; Mr. Belda, $67,946;$159,831; Mr. Bergeron, $56,034; Mr. Fischer, $46,976;$44,474; and Mr. Hoffman, $52,430; and$49,496. The 1997 amount for Mr. Hommen, $41,071. This columnBelda also includes excess$450 of unused health care credits received as cash for Mr. Belda of $900. (4) Mr. Belda was elected President and Chief Operating Officer of Alcoa in January 1997.cash.
-12- Long Term Stock Incentive Plan This plan provides long-term incentives in the form of options on Alcoa common stock to employees who may influence the long- term performance of Alcoa and its subsidiaries. New stock options are granted annually, currently in the month of January. The option exercise price may not be less than 100% of the fair market value of Alcoa stock on the grant date. In 1989, a "reload" or continuation feature was added to the plan for the purpose of encouraging early option exercise and increased share ownership by optionees. This feature permits the optionee to exercise a previously granted option and receive option appreciation as shares, together with a continuation option for a lesser number of shares and having a new option price at current market value. The option expiration date is the same as for the prior grant. The continuation option covers the previous number of option shares less the net "appreciation" shares received after any share withholding for taxes. One-half of the net appreciation shares is restricted against sale or pledge during the employee's Alcoa career. The reload feature has resulted in substantially increased share ownership by Alcoa executive officers and other optionees. In 1996, in connection with the exercise of options granted in prior years, Mr. O'Neill received continuation option grants covering 533,027 shares at exercise prices ranging from $62.31 to $63.32 per share. Continuation grants were made to the other named officers as follows: Mr. Belda, 20,304 shares at exercise prices ranging from $60.44 to $63.43 per share; Mr. Fischer, 202,857 shares at exercise prices ranging from $52.52 to $65.07 per share; Mr. Hoffman, 218,273 shares at exercise prices ranging from $51.07 to $65.88 per share; and Mr. Hommen, 145,917 shares at exercise prices ranging from $50.70 to $64.80 per share. These continuation option grants have expiration dates which range from July 1997 to January 2005. The following table shows annual options granted by the Compensation Committee in 1996 to the named officers. It also shows continuation (reload) options resulting from the exercise in 1996 of options granted in prior years. The price of Alcoa stock must appreciate in order for optionees to realize any gain. As the stock price increases, all shareholders benefit proportionately. -13-16
Option Grants in Last Fiscal Year - --------------------------------------------------------------------------------------OPTION GRANTS IN 1997 Individual Grants - ------------------------------------------------------------------------------------------------------- % of Total Number of Options Securities Granted to Exercise Underlying Employees or Base Expira-Grant Date Options in Fiscal Price tion Grant DatePresent Name Granted (1)(2) Year ($/Sh) Expiration Date Present Value (3)Value(2) - ------------------------------------------------------------------------------------------ ----------- ---------- -------- --------------- ---------- P.Paul H. O'Neill 160,000 1.84% $ 50.56 1/11/06 $1,617,629 133,045 1.53% 63.19 1/13/05 985,568 95,261 1.09% 62.50 1/14/04 695,103 92,265 1.06% 62.50 1/15/03 673,242 46,131 0.53% 62.31 1/20/02 336,158 24,634 0.28% 62.31 1/23/01 179,509 25,895* 0.30% 62.42 1/22/00 189,026 25,243* 0.29% 63.32 5/04/99 183,673 27,490 0.32% 63.19 7/21/98 203,640 63,063 0.72% 62.31 6/15/97 459,542 A.175,000 2.74% $70.7500 January 13, 2007 $2,529,126 13,499 0.21% 74.3828 January 15, 2003 121,268 41,958 0.66% 74.3828 January 20, 2002 376,928 22,406 0.35% 74.3828 January 23, 2001 201,284 23,574 0.37% 74.3828 January 22, 2000 211,776 22,963 0.36% 74.3828 May 4, 1999 206,287 25,184 0.39% 74.3828 July 21, 1998 226,240 Alain J. P. Belda 100,000 1.15% 50.56 1/11/06 1,011,018 6,547 0.08% 60.44 1/23/01 44,015 7,013* 0.08% 63.43 1/22/00 51,565 6,744 0.08% 63.13 5/04/99 49,084 R.125,000 1.96% 70.7500 January 13, 2007 1,806,518 78,614 1.23% 82.0312 January 11, 2006 778,844 49,899 0.78% 76.1875 January 13, 2005 459,142 20,598 0.32% 76.3750 January 14, 2004 189,997 15,029 0.24% 73.1875 January 15, 2003 132,843 2,380 0.04% 88.6250 January 15, 2003 25,474 10,482 0.16% 68.2500 January 20, 2002 86,401 2,352 0.04% 88.6250 January 23, 2001 25,175 George E. Bergeron 46,000 0.72% 70.7500 January 13, 2007 664,799 43,834 0.69% 71.2500 January 11, 2006 377,196 20,528 0.32% 72.7500 January 13, 2005 180,365 11,238 0.18% 69.7812 January 13, 2005 94,711 19,097 0.30% 69.7812 January 14, 2004 160,944 550 0.01% 69.7812 January 15, 2003 4,635 422 0.01% 69.7812 January 22, 2000 3,556 2,645 0.04% 84.3125 July 21, 1998 26,933 Richard L. Fischer 52,800 0.61% 50.56 1/11/06 533,817 48,31565,000 1.02% 70.7500 January 13, 2007 939,390 44,979 0.70% 68.8750 January 11, 2006 374,148 4,452 0.07% 88.6250 January 13, 2005 47,652 35,409 0.55% 52.52 1/13/05 282,025 44,174 0.51% 61.99 1/13/05 315,461 26,900* 0.31% 65.07 1/14/04 204,012 26,697* 0.31% 62.36 1/15/03 189,150 17,850* 0.20% 62.59 1/20/02 126,930 3,603 0.04% 60.94 1/23/01 25,030 5,231* 0.06% 62.83 1/23/01 37,343 9,220 0.11% 62.94 1/22/00 66,014 9,107* 0.10% 61.25 5/04/99 63,319 7,966* 0.09% 62.11 7/21/98 56,214 3,794* 0.04% 62.39 7/09/97 26,893 R.70.5625 January 13, 2005 301,758 10,528 0.17% 72.6875 January 14, 2004 92,422 2,158 0.03% 72.6875 January 15, 2003 18,944 3,209 0.05% 72.6875 January 22, 2000 28,171 8,137 0.13% 72.6875 May 4, 1999 71,432 5,327 0.08% 72.6875 July 21, 1998 46,764 17 Individual Grants % of Total Number of Options Securities Granted to Exercise Underlying Employees or Base Grant Date Options in Fiscal Price Present Name Granted (1) Year ($/Sh) Expiration Date Value(2) - ---- ----------- ---------- -------- --------------- ---------- Ronald R. Hoffman 52,800 0.61% 50.56 1/11/06 533,817 49,057 0.56% 51.07 1/13/05 277,274 46,434 0.53% 56.49 1/13/05 305,879 11,656 0.13% 58.88 1/14/04 77,053 27,722* 0.32% 61.60 1/14/04 199,699 7,03260,000 0.94% $70.7500 January 13, 2007 867,129 45,452 0.71% 67.4375 January 11, 2006 370,191 29,452 0.46% 73.1875 January 13, 2005 260,329 4,340 0.07% 88.2500 January 13, 2005 46,257 5,119 0.08% 63.13 1/15/03 51,223 19,480* 0.22% 62.43 1/15/03 141,275 13,127* 0.15% 63.48 1/20/02 96,152 8,664* 0.10% 63.00 1/23/01 62,909 9,224 0.11% 62.38 1/22/00 66,531 6,470* 0.07% 62.00 5/04/99 46,601 2,406 0.03% 65.88 5/04/99 18,320 1,722 0.02% 65.88 7/21/98 13,112 6,161 0.07% 62.38 7/21/98 44,438 9,118* 0.10% 62.46 7/09/97 65,851 J. H. M. Hommen 52,800 0.61% 50.56 1/11/06 533,817 39,003 0.45% 50.70 1/13/05 218,840 36,761 0.42% 56.53 1/13/05 242,334 21,521* 0.25% 64.80 1/14/04 161,858 17,288* 0.20% 62.45 1/15/03 125,739 3,840* 0.04% 64.72 1/15/03 28,919 8,447* 0.10% 62.17 1/20/02 61,231 4,270* 0.05% 64.73 1/23/01 32,163 18469.4687 January 13, 2005 42,948 25,596 0.40% 69.4687 January 14, 2004 214,750 93 0.00% 64.63 1/22/00 1,371 4,345 0.05% 62.31 1/22/00 31,204 3,404 0.04% 62.25 5/04/99 24,708 2,636 0.03% 64.75 7/21/98 19,811 426 0.00% 62.25 7/21/98 3,092 3,792 0.04% 64.75 7/09/97 28,499 - --------------------------------------------------------------------------------- -14-69.4687 January 15, 2003 780 (1) Annual optionsoption grants (the first grant listed for each named officer) are currently made in January and become exercisable one year after date of grant.the grant date. All other grants are reload options,option grants, which become exercisable after six months. For all options, optioneesOptionees may use shares they own to pay the exercise price and may have shares withheld for payment of required taxes. (2) Data on continuation (reload)The exercise price of all options reflect consolidation of certain individual grants into groupings (marked by an *) based on common expiration date and a spread of grant prices not exceeding 3%is 100% of the lowest price for that option grouping. Individual continuation grants totaled 11 for Mr. O'Neill, 4 for Mr. Belda, 20 for Mr. Fischer, 23 for Mr. Hoffman and 19 for Mr. Hommen. (3) In accordance with SEC rules,fair market value of Alcoa stock on the Black Scholesgrant date. (2) The Black-Scholes option pricing model was chosenis used to estimate the Grant Date Present Value of the options set forth in this table. The company'sValue. Our use of this model shouldis not be construed as an endorsement of the model's accuracy of this model atin valuing options. All stock option models require a prediction about the future movement ofstock prices. We used the stock price. The following assumptions were made for purposes ofin calculating Grant Date Present Value: volatility - - 25%; average risk-free rate of return - 5.7%6.10%; dividend yield - - 2.2%1.30%; expected life, - annual grants - 32.5 years, continuationexpected life, reload grants - 1 year. The real value of the options in this table depends uponon the actual performance of Alcoa stock duringand the applicable period and upon when the options are exercised.timing of exercises.
18 1997 AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES This chart shows the number and value of stock options, both exercised and unexercised, for the named executive officers during 1997. Value of unexercised options is calculated using the difference between the option exercise price and the year-end stock price of $70.375 per share, multiplied by the number of shares underlying the option.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values - --------------------------------------------------------------------------------------------------------- Number of Securities Value of Unexercised Shares Underlying Unexercised In-the-Money Options Acquired on Value Options at Fiscal Year-End at Fiscal Year-End - ---------------------------------------------------------------------------------------------------------- Shares Acquired on Value-------------------------- ------------------ Name Exercise (1) Realized (2) Exercisable Unexercisable Exercisable Unexercisable - -------------------------------------------------------------------------------------------------------------- ------------ ------------ ----------- ------------- ----------- ------------- P.Paul H. O'Neill 587,250 $6,113,630 68,874 693,027 $4,356,281 $2,697,514 A.227,274 $2,713,350 684,211 175,000 $10,298,907 $0 Alain J. P. Belda 25,754 610,588 143,336 120,304 3,674,376 1,346,924 R.240,497 8,112,881 119,151 208,346 562,970 0 George E. Bergeron 115,981 1,756,194 105,036 79,952 686,451 18,590 Richard L. Fischer 218,901 1,720,017 50,856 158,160 144,089 857,228 R.133,497 1,847,543 149,851 104,861 685,017 0 Ronald R. Hoffman 234,074 1,678,898 99,753 110,607 120,970 1,058,113 J. H. M. Hommen 158,040 1,297,586 70,153 89,561 47,784 961,542 - ----------------------------------------------------------------------------------------------------------136,174 2,060,108 149,090 95,148 688,717 27,921 (1) The net number of shares issued to these five officers was 103,641.172,010. The table shows the gross shares underlying option exercises, as required by SEC rules. However, most of the shares were not issued, since in essentially alla majority of exercises by these officers, shares were used to pay the exercise price and shares were withheld for taxes. (2) Values were realized in shares and are shown before reductionwithholding for payment of applicable withholding taxes. Most of the shares received after taxes (all for Mr. O'Neill) are still are owned by the officers.
-15- Pension plans The company's19 PENSION PLANS Alcoa's pension plans cover a majority of its salaried employees on a noncontributory basis. Theemployees. Alcoa pays the full cost of these plans, which include both tax-qualified plans and non tax-qualified excess plans, provideplans. This table shows the following annual benefits payable at executive remunerationcompensation levels.
Pension Plan Table - ------------------------------------------------------------------------------PENSION PLAN TABLE Annual Benefits for Years of Service - ------------------------------------------------------------------------------ RemunerationIndicated ---------------------------------------------------------------- Average Annual Compensation 15 20 25 30 35 40 - ------------------------------------------------------------------------------------------ -- -- -- -- -- -- $ 100,000 $ 20,93020,740 $ 27,90027,650 $ 34,88034,560 $ 41,85041,480 $ 49,22048,000 $ 57,37056,950 300,000 57,170 76,220 95,280 114,330 129,020 144,49059,530 79,370 99,210 119,060 134,350 150,470 500,000 94,650 126,200 157,750 189,300 213,550 238,57094,460 125,950 157,440 188,930 213,130 238,150 700,000 131,500 175,330 219,170 263,000 296,630 331,050132,460 176,610 220,760 264,920 298,800 333,510 900,000 168,600 224,800 281,000 337,200 380,300 424,170169,940 226,590 283,240 339,890 383,330 427,590 1,100,000 203,540 271,380 339,240 407,070 459,070 511,850206,660 275,550 344,440 413,330 466,130 519,750 1,300,000 241,150 321,530 401,920 482,300 543,880 606,250242,110 322,810 403,510 484,220 546,050 608,710 1,500,000 274,680 366,240 457,800 549,360 619,500 690,410 - ------------------------------------------------------------------------------277,300 369,730 462,160 554,600 625,400 697,030 1,700,000 311,600 415,460 519,330 623,190 702,740 783,110 1,900,000 348,700 464,930 581,160 697,400 786,400 876,230
The amount of pension is based upon the employee's average compensation for the highest five years in the last ten years of service. For the executive level, covered compensation includes base salary and 50% of annual cash bonus. Data shownAmounts in the table reflectare calculated using salary at target plusand bonus at target. Payments are made as a straight life annuity, reduced by 5% wherewhen a surviving spouse pension is taken. The table shows benefits at age 65, before applicable reductionsany reduction for surviving spouse coverage. At March 1, 1997,1998, pension service for the named officers was as follows:was: Mr. Belda, 2829 years; Mr. Bergeron, 29 years; Mr. Fischer, 3132 years; Mr. Hoffman, 42 years; Mr. Hommen, 2643 years; and Mr. O'Neill, 2224 years, reflecting an employment contract that provides somewhat more than double credit for his years with the company, with thecompany. The resulting pension is offset by pension payments from his previous employer. Proposal to approvePROPOSAL 2 - APPROVE AN AMENDMENT TO ALCOA'S ARTICLES INCREASING AUTHORIZED COMMON STOCK Alcoa's Board of Directors has proposed an amendment to Article FIFTH of the Long TermArticles of the company. This amendment would increase the company's authorized common stock from 300 million shares to 600 million shares. The company has no specific plans for the issuance of these additional shares. However, the Board of Directors believes that the proposed increase is desirable so that, as the need may arise, the company will have more financial flexibility and be able to issue additional shares of common stock without the expense and delay associated with a special shareholders' meeting, except where shareholder approval is required by applicable law or stock exchange regulations. The additional common shares might be used, for example, in connection with an expansion of Alcoa's business through investments or acquisitions, sold in a financing transaction or issued under an employee stock option, savings or other benefit plan or in a stock split or dividend to shareholders. The Board does not intend to issue any shares except on terms that it considers to be in the best interests of the company and its shareholders. The additional shares of common stock for which authorization is sought would be a part of the existing class of common stock. If and when issued, these shares would have the same rights and privileges as the shares of common stock presently outstanding. No holder of common stock has any preemptive rights to acquire additional shares of the common stock. On February 9, 1998, 168,100,787 shares of Alcoa common stock were outstanding, and approximately 23.6 million shares were reserved for issuance under various benefit plans of the company. The issuance of additional shares could reduce existing shareholders' percentage ownership and voting power 20 in Alcoa and, depending on the transaction in which they are issued, could affect the per share book value or other per share financial measures. Text of Proposed Articles Amendment The first paragraph of Article FIFTH of the Articles of the company is proposed to be amended to read as follows: "FIFTH. The authorized capital stock of the corporation shall be 660,000 shares of Serial Preferred Stock Incentive Planof the par value of $100 per share, 10,000,000 shares of Class B Serial Preferred Stock of the par value of $1.00 per share and 600,000,000 shares of Common Stock of the par value of $1.00 per share." Vote Required for Approval For this amendment to be approved, a majority of the votes cast by shareholders must be voted for approval. Alcoa's Board of Directors recommends that the shareholders vote FOR adoption of the proposed amendment to Alcoa's Articles. PROPOSAL 3 - APPROVE AN AMENDMENT TO THE LONG TERM STOCK INCENTIVE PLAN The Long Term Stock Incentive Plan (formerly the Employees' Stock Option Plan) has been in effect since 1965, and was last approved by shareholders in 1995.1965. The Plan is designed to provide long-term incentives based on Alcoa common stock to key employees who may contribute to the company's continued growth and profitability. These incentives encourage participating employees to manage the company's business to promote its long-term growth and success, as measured by Alcoa's stock price, and thus create an identity of interest with Alcoa's shareholders. RecentProposed Plan Changes In January and February 1997, Alcoa's Board of Directors, through its Compensation Committee, adopted amendmentsAmendment Periodically, shareholders are asked to approve additional shares for use in the Plan. The principalBoard has adopted an amendment provides additionalto the Plan that will replenish and increase the shares available for the ongoing operation of the Plan. Thisissuance in certain instances without further shareholder action. The amendment will become effective only if approved by shareholders. The additional shares will be used for new annual stock option awards and for awards of reload or continuation options under the Plan. In recent years, optionees have been encouraged to exercise their options and acquire Alcoa common stock through the use of the reload feature of the Plan (see "Reload Options" below). In order to assure continued compliance with applicable external requirements, the Plan's administrative rules for reload options were clarified and restated by the committee in January 1997. The purpose of the committee's action is to preserve the incentives of the reload program for optionees without any appreciable increase in cost to the company or shareholders. Specifically, the Compensation Committee decided to permit optionees to use cash or already-owned shares to pay the purchase price of original grant options where the reload feature was being elected. This action is designed to further encourage optionees, particularly new participants in the program, to use the reload feature to increase share ownership. As a result, however,proposed amendment provides that the number of shares used for purposes of the Plan is expected to increase, although the benefits realized by individual participants will be no greater than those previously available to optionees electing reload grants. Shares available for future grantsissuance under the Plan atwill be increased automatically by the number of shares that Alcoa purchases or acquires with the cash proceeds of option exercises after January 1, 1997 were less than1998. The shares so acquired would be added to the number required to operateof shares available for issuance under the Plan for a full year. Therefore, the Board approved an amendment authorizing an additional 8.6without further shareholder approval. In 1997, Alcoa purchased approximately 8.1 million shares for useof its common stock in the Plan (approximately 4.9% of allopen market. Of this number, approximately 2.7 million shares currently outstanding) and recommends that shareholders approve this additional authorization. Two other amendmentswere acquired for an aggregate price equal to the Plan also were madecash proceeds received by Alcoa in 1997. These changes (1) permit new options1997 from employee stock option exercises. If this amendment had been in effect in 1997, these 2.7 million shares would have been added to be transferred to immediate family members or trusts for their benefit (see "Transferability" below); and (2) eliminate the Plan's performance share feature, which has not beenreserve. Shares issued in settlement of Plan awards result in some dilution to shareholders' interests, since more shares are subsequently outstanding. This dilutive effect is reduced when the proceeds of the stock option exercises are used since 1992. Implementation of these two changesto reacquire outstanding shares. If the amendment is not dependent upon shareholder approval underapproved, the reacquired shares would be used in the Plan. The major features of the Plan as amended, are summarized below.in Appendix A to this proxy statement and are incorporated by reference in this section. Shareholders are encouraged to read Appendix A for a full understanding of the Plan, description Purpose--Theits purposes and operation. 21 Vote Required for Approval For this amendment to be approved, a majority of the votes cast by shareholders must be voted for approval. Alcoa's Board of Directors recommends that the shareholders vote FOR approval of this amendment to the company's Long Term Stock Incentive Plan. PROPOSAL 4 - SHAREHOLDER PROPOSAL REGARDING CHARITABLE CONTRIBUTIONS Mrs. Frances Phillips, 822 Wilfred Avenue, Dayton, Ohio 45410, custodian for her minor daughter who owns 40 shares of Alcoa common stock, has written that she intends to introduce the following resolution at the meeting: "Whereas, corporate charitable contributions should serve to enhance shareholder value. Therefore be it resolved that the Shareholders request the Board of Directors of the corporation to refrain from making any charitable contributions. Money normally allocated for such purposes could be distributed in a special `charitable' dividend payable to the individual owners of the company. It could be suggested they give it to the charity of their choice." Supporting Statement "Charitable giving is most beneficial to society when it is done by individuals and not by corporate entities or the federal government. Shareholders entrust their money to Alcoa to get a good return, not to see it given to someone else's favorite charity. Let's hear it for choice - the choice of the individual shareholders to decide where their money should be given." Board Statement in Response to the Proposal Alcoa makes, on average, only a modest number and amount of charitable contributions annually. In 1996, for instance, Alcoa's charitable contributions were less than $250,000. Alcoa is not in business to make charitable contributions and cannot commit the time and resources necessary to properly evaluate the many requests for assistance that most corporate employers receive from well-meaning and valued social and educational groups. These reasons led Alcoa over 45 years ago to establish Alcoa Foundation, a non-profit organization whose sole purpose is to engage in philanthropic activities. Alcoa Foundation makes grants principally in the areas of education, health and human services, civic and community development, youth organizations and cultural activities, particularly in areas in which Alcoa facilities are located. Alcoa Foundation is a separate legal entity that is separately funded. The proposal mistakenly assumes that the Foundation's assets would be available for distributions to Alcoa's shareholders if not used for philanthropic purposes. The Board believes it to be in Alcoa's best interests to continue to make limited corporate contributions to charitable organizations and to sponsor Alcoa Foundation's broader philanthropic purposes. Vote Required for Approval For this proposal to be approved, a majority of the votes cast must be voted for approval. Alcoa's Board of Directors recommends that shareholders vote AGAINST approval of this proposal. 22 Other Information RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS Since 1950 Coopers & Lybrand L.L.P. has been the independent accounting firm that audits the financial statements of Alcoa and most of its subsidiaries. In accordance with standing policy, Coopers & Lybrand personnel who work on the audit are changed periodically. During 1997, Coopers & Lybrand reviewed Alcoa's filings with the SEC, prepared or reviewed financial and audit reports to lenders, including governmental agencies, conducted audits and due diligence reviews for acquisitions and evaluated the effects of various accounting issues, information systems and cost reduction opportunities. They also helped in tax planning and the preparation of tax returns for expatriate employees, executives and various foreign locations of the company. The Audit Committee of Alcoa's Board reviews summaries of the audit and non-audit services rendered by Coopers & Lybrand and the related fees. On recommendation of the Audit Committee, the Board has reappointed Coopers & Lybrand to audit the 1998 financial statements. Representatives will be present at the annual meeting to make a statement, if they choose, and answer questions you may have. SHAREHOLDER PROPOSALS FOR THE 1999 MEETING Alcoa's 1999 annual meeting of shareholders will be held on May 7, 1999. If you wish to submit a proposal to be included in the 1999 proxy statement, it must be received by the corporate secretary by November 11, 1998. OTHER MATTERS The Board knows of no other proposals for the May 8, 1998 meeting. Should another arise, however, the proxy committee will vote proxies according to its best judgment. 23 Appendix A - Description of Long Term Stock Incentive Plan Purpose - The purposes of the Plan are to motivate key employees, to permit them to share in Alcoa's long-term growth and financial success by giving them an increased incentive to promote its well-being and to link the interest of key employees to the long-term interests of Alcoa's shareholders. -16- Administration--TheAdministration - The Plan is administered by a committeesubcommittee of directors appointed by Alcoa'sthe Compensation Committee of the Board. CommitteeBoard members who administer the Plan must not have been eligible to participate in the Plan for at least 12 months. No committee member of the subcommittee is a current or former officer or employee, and no member receivesnone receive any compensation from Alcoa in any capacity other than as a director. The Plan permits the committee to delegatedelegation of certain authority to senior officers in limited instances. Term--TheTerm - The Plan has no fixed expiration date; however, no new awards may be granted under the Plan after January 1, 2002. Types of Awards--AwardsAwards - Awards under the Plan are in the form of stock option grants. Stock option awards entitle an optionee to purchase shares of the company's common stock at a fixed price during the option term. Participation--ParticipationParticipation - Participation in the Plan is limited to employees who playhave a key role in the management, operation, growth or protection of a part or all of the business of the company and who are selected from time to time by the committee. Approximately 1,100committee administering the Plan. About 1,000 current and former employees hold stock options. 1997 Awards--In1998 Awards - In January 1997, the committee1998, 876 employees were awarded stock options to 824 employees. If shareholders do not approve the amendment to the Plan, those options will be null and void.options. The January 19971998 options covered 3,321,7503,605,600 shares at an exercise price of $70.75$66.125 per share. Awards to the named executive officers were as follows:were: Mr. O'Neill, 175,000 shares; Mr. Belda, 125,000105,000 shares; Mr.Messrs. Bergeron, Fischer 65,000 shares; Mr.and Hoffman, 60,000 shares; and Mr. Hommen, 52,800 shares;shares each; and all executive officers as a group (13 individuals), 722,000728,600 shares. Employees other than executive officers were awardedLimitation on Awards - No individual may be granted options for a total of 2,599,750 shares. Nonemployee directors are not eligible to participate in this plan. Limitation on Awards--The Plan was amended in 1995 to provide a limit ofmore than one million shares that may be granted as stock options in a calendar year to any individual optionee.year. Option Price--ThePrice - The option price is determined under a formula set by the committee.subcommittee. This price cannot be less thanis generally 100% of the fair market value of Alcoa stock on the grant date, except for earnout options delivered upon earning of performance shares. The performance share feature is no longer in effect and no new earnout options are granted under the Plan. The Plan also permits the committee to use 100% of an average market value, as determined by the committee, over a period of up to 10 business days instead of the value on the grant date. Duration of Options--TheOptions - The option period is generally limited to a maximum of 10 years, except foryears. A small number of outstanding earnout options which expire five years after the end of the optionee's Alcoa career. If the optionee dies during employment or retires, existing options must be exercised within five years. Shorter periods, generally three months, apply following most other terminations of employment. The Plan authorizes the committeesubcommittee to establish other rules regarding the treatment of options upon termination of employment by reason of death, disability, retirement or other approved reason. The committeesubcommittee may shorten the period of any option if the optionee takes any action whichthat is not in Alcoa's best interests. Transferability--EffectiveTransferability - Effective with option grants beginning January 1997, options may be transferred to immediate family members or trusts for their benefit. No other transfers are permitted. This feature, if elected, will affordaffords optionees an estate-planning opportunity. There is no appreciable additional cost to the company for this feature. Exercise--TheTransferees are not eligible to elect the reload grant feature. Exercise - The option price must be paid in full upon exercise. The optionee may pay the price in cash, by surrendering shares of Alcoa common stock that were owned for a certain minimum period and whose value equals the option price or by a combination of cash and shares. Reload Options--ReloadOptions - Reload options are designed to increase ownership of Alcoa shares by encouraging early exercise of options and retention of the shares. An employee exercising an option may elect reload treatment if the spreadappreciation is at least $2.50 per share and if the exercise price is paid using already-owned shares or, where originalannual grant options are being exercised, using shares or cash. With a reload 24 election, a new option is granted at the market price at the time of exercise and with the same expiration date as the option being exercised. The reload option covers the number of shares exercised less the net number of "profit" shares delivered to the optionee after withholding for taxes. Half of the profit shares are restricted--theyrestricted - they are not transferable for the optionee's remaining career with Alcoa. A reload stock option may not be exercised for six months. Under a separate dividend equivalent compensation plan, the Board may authorize payment of a dividend equivalent on a portion of the exercisable options held by active employees under a formula approved by the committee.months after it is granted. Employment Obligation--TheObligation - The optionee must agree to remain in employment for at least one year or until retirement at least six months after the granting of the option. An option is not exercisable unless this obligation is met. This obligation does not apply to reload options. Plan Amendments--TheAmendments - The Board may amend, modify, suspend or terminate the Plan, but no such action (1) shallmay impair, without the optionee's consent, any outstanding option or (2) shallwill be taken without shareholder approval under certain circumstances. Under the Plan, shareholder approval is required for any action that would materially increase the benefits accruing to participants, materially increase the maximum number of shares that may be issued under the Plan or materially modify the Plan's eligibility requirements. -17- Shares Available--OnAvailable - On January 1, 1997,1998, there were 14,689,87719,447,255 shares of Alcoa common stock reserved for issuance under the Plan. Options granted in 1996 and in prior yearsOutstanding options covered 10,033,94210,548,725 of those shares. Thus, 4,655,9358,898,530 shares were then available for the future granting of stock option awards. In addition, except as otherwise specifieddetermined by the committee,subcommittee, shares used upon option exercise to pay required withholding taxes and/or shares delivered in payment of the option exercise price also will be available for issuance under the Plan. Future grants under the Plan also may cover shares that cease to be covered by awards by reason of total or partial expiration, termination or voluntary surrender of an option or failure to earn an award. The Plan also provides for adjustment of awards and the share reserve in the event of stock splits and other changes in stock. The proposed amendment adds 8.6 millionprovides that shares toavailable for use under the Plan will be increased by the number of shares purchased or acquired by the company with an aggregate price no greater than the cash proceeds received by Alcoa after January 1, 1998 from the exercise of company common stock that may be issuedoptions granted under the Plan. This is approximately 4.9% of the outstanding shares of company stock. Recent Share Price--OnPrice - On February 10, 19979, 1998 (the record date for the annual meeting), the closing market price for Alcoa common stock was $66.625$75.25 per share. Tax Consequences--TheConsequences - The grant of a stock option under the Plan has no U.S. federal income tax consequences for the optionee or the company. Upon exercise of a stock option, the company is entitled to a tax deduction, and the optionee realizes ordinary income. The amount of such deduction and income is equal to the difference between the option price and the fair market value of the shares on the date of exercise. The committeesubcommittee may permit the use of Alcoa shares to pay the required withholding taxes. Vote required for approval25 Glossary beneficial owner. The owner of a security registered in another's name, such as that of a brokerage or trust fund. broker non-votes. Under New York Stock Exchange rules, brokers who hold your shares in their names are permitted to vote your shares at their discretion on some matters (called "discretionary" items) unless you indicate a contrary vote. For this amendmentmatters that are not considered discretionary under the rules, your failure to give voting instructions means that your shares will not be approved, a majorityvoted; these non-voted shares are referred to as broker non-votes. executive officer. This is an SEC-defined term, used to identify the senior policy-making officers of the votes cast by shareholders must be voted for approval. The Alcoa Boardcorporation and officers in charge of Directors recommends that shareholders vote FOR approval of this amendment toprincipal business units. fair market value. Under the company's Long Term Stock Incentive Plan, (Item 2fair market value of a share of Alcoa common stock on any particular day is calculated as the average of the high and low trading prices of the stock on the proxy card). Other information Relationship with independent accountants Coopers & Lybrand L.L.P. has beenNew York Stock Exchange for that day (or if the independent accounting firm auditing the financial statements of Alcoa and most of its subsidiaries since 1950. In accordance with standing policy, the Coopers & Lybrand personnel who workStock Exchange is not open that day for trading, on the audit are changed periodically. In connection withlast prior date on which it was open for trading). market capitalization. The value of all outstanding shares, calculated by multiplying the audit function, Coopers & Lybrand in 1996 reviewed the company's periodic filings with the Securities and Exchange Commission, prepared or reviewed special financial or audit reports to lenders and others, including governmental agencies, and evaluated the effects of various technical accounting issues. Coopers & Lybrand also conducted audits and due diligence reviews in connection with several acquisitions mademarket price per share by the company. In addition, Coopers & Lybrand provides other professional services to the company and its subsidiaries. A substantial portiontotal number of these other services involves assistance in tax planning and preparation of tax returns for expatriate employees, executives and various foreign locations, and consultation on accounting, information systems and cost reduction opportunities. The Audit Committee of Alcoa's Board reviews summaries of the actual services, both audit and non-audit, rendered by Coopers & Lybrand and the related fees. Upon recommendation of the Audit Committee, the Board has reappointed Coopers & Lybrand to audit the 1997 financial statements. As in past years, representatives of Coopers & Lybrand will be present at the annual meeting of shareholders. They will be given the opportunity to make a statement if they desire to do so, and they will be available to respond to appropriate questions. 1998 meeting--shareholder proposals Alcoa's 1998 annual meeting of shareholders will be on May 8, 1998. To enable the Board to adequately analyze and respond to shareholder proposals, any shareholder proposal to be presented at that meeting must be received by the secretary of the company by November 18, 1997 to be timely received for inclusion in Alcoa's proxy statement for that meeting. Other matters The Board of Directors does not know of any other matters that are to be presented for action at the May 9, 1997 meeting. Should any other matter come before the meeting, the accompanying proxy will be voted with respect to the matter in accordance with the best judgment of the persons voting the proxy. -18-shares outstanding. 26 Alcoa's Vision Alcoa is a growing worldwide company dedicated to excellence through quality-creatingquality - creating value for customers, employees and shareholders through innovation, technology, and operational expertise. Alcoa will be the best aluminum company in the world, and a leader in other businesses in which we choose to compete. Alcoa's Values IntegrityINTEGRITY Alcoa's foundation is the integrity of its people. We will be honest and responsible in dealing with customers, suppliers, coworkers,co-workers, shareholders, and the communities where we have an impact. Environment, Health and SafetyENVIRONMENT, HEALTH AND SAFETY We will work safely in a manner that promotes the health and well-being of the individual and the environment. Quality and ExcellenceQUALITY AND EXCELLENCE We will provide products and services that meet or exceed the needs of our customers. We will relentlessly pursue continuous improvement and innovation in everything we do to create significant competitive advantage compared to world standards. PeoplePEOPLE People are the key to Alcoa's success. Every Alcoan will have equal opportunity in an environment that fosters communicationcommunications and involvement while providing reward and recognition for team and individual achievement. ProfitabilityPROFITABILITY We are dedicated to earning a return on assets that will enable growth and enhance shareholder value. AccountabilityACCOUNTABILITY We are accountable-individuallyaccountable - individually and in teams-forteams - for our actions and results. -19-27 Alcoa 425 Sixth Avenue Pittsburgh, Pennsylvania 15219-1850 Graphics Appendix List Page Where Graphic Appears Description of Graphic or Cross-Reference page 58 Photograph of Hugh M. Morgan, Nominee for Director page 8 Photograph of Henry B. Schacht, Nominee for Director page 8 Photograph of Franklin A. Thomas, Nominee for Director page 9 Photograph of Kenneth W. Dam, Nominee forContinuing Director page 59 Photograph of Judith M. Gueron, Nominee forContinuing Director page 59 Photograph of Paul H. O'Neill, Nominee forContinuing Director page 610 Photograph of Joseph T. Gorman, Continuing Director page 610 Photograph of Sir Ronald Hampel, Continuing Director page 611 Photograph of John P. Mulroney, Continuing Director page 611 Photograph of Marina v.N. Whitman, Continuing Director page 7 PhotographMarch 13, 1998 Dear Alcoa Shareholder: Many of Sir Arvi Parbo, Continuing Director page 7 Photographyou may know about our recent announcement to acquire Alumax Inc. We will purchase Alumax for a combination of Henry B. Schacht, Continuing Director page 7 Photographcash and shares of Forrest N. Shumway, Continuing Director page 7 PhotographAlcoa common stock, subject to the terms of Franklin A. Thomas, Continuing Director pagethe acquisition agreement. This transaction was announced after the enclosed proxy statement was printed but before it was mailed to shareholders. In light of this announcement, we are modifying Proposal No. 2, found on pages 20 and 21 of the enclosed proxy statement, to include information about this transaction. The revised Proposal No. 2 is on the back of this letter. Shareholders are not being asked to vote on the Alumax transaction and no proxy is being solicited for that purpose. Very truly yours, /s/Paul H. O'Neill Paul H. O'Neill PROPOSAL 2 - APPROVE AN AMENDMENT TO ALCOA'S ARTICLES INCREASING AUTHORIZED COMMON STOCK Alcoa's Board of Directors has proposed an amendment to Article FIFTH of the Articles of the company. This amendment would increase the company's authorized common stock from 300 million shares to 600 million shares. On March 9, Comparison1998, Alcoa announced that it would acquire all of five-year cumulative total return APPENDIX -------- LONG TERM STOCK INCENTIVE PLAN OF ALUMINUM COMPANY OF AMERICA (Revised, Effective January 1, 1997) ARTICLE I DEFINITIONSthe outstanding common stock of Alumax Inc. for a combination of cash and stock. Alcoa will commence the transaction with a cash tender offer for one-half the outstanding Alumax shares at $50.00 per share. The following words assecond step will be a merger in which each remaining outstanding Alumax share will be converted into 0.6975 of a share of Alcoa common stock. On March 9, 1998, 168,134,196 shares of Alcoa common stock were outstanding, and approximately 23.6 million shares were reserved for issuance under various benefit plans of the company. Alcoa anticipates that approximately 20 million shares of Alcoa stock will be issued in the merger with Alumax, and additional shares may be used herein shall havein connection with financing the following meanings unless the context otherwise requires. PLAN means the Long Term Stock Incentive Plancash tender offer. Alcoa currently has more than 100 million shares of Aluminum Company of America, as amended from timeunissued and unreserved common stock available to time,use in this transaction, which is a continuationmore than sufficient for this purpose. Except for the Alumax transaction and shares reserved for benefit plan purposes, the company has no other plans or commitments to issue additional shares. In particular, Alcoa has no plans for the issuance of the Employees' Stock Option Plan. COMPANY means Aluminum Companyincreased number of America. SUBSIDIARY means any corporation in whichauthorized shares that is the Company owns, directly or indirectly, stock possessing 50% or moresubject of the total combined voting power of all classes of stock in such other corporation, and any corporation, partnership, joint venture or other business entity as to which the company possesses a direct or indirect ownership interest where either (a) such interest equals 50% or more or (b) the Company directly or indirectly has power to exercise management control. BOARD meansthis proposal. However, the Board of Directors believes that the proposed increase is desirable so that, as the need may arise, the company will have more financial flexibility and be able to issue additional shares of common stock without the Companyexpense and includes any duly authorized Committee when actingdelay associated with a special shareholders' meeting, except where shareholder approval is required by applicable law or stock exchange regulations. The additional common shares might be used, for example, in lieu thereof. EMPLOYEE means anyconnection with an expansion of Alcoa's business through investments or additional acquisitions, sold in a financing transaction or issued under an employee of the Company or a Subsidiary. AWARD means any stock option, award grantedsavings or delivered under the Plan. OPTIONEE means any person who has been grantedother benefit plan or in a stock option under the Plan. COMMITTEE means the Committee established under Section 1 of Article Vsplit or dividend to administer the Plan. COMPANY STOCK means common stock of the Company and such other stock and securities, described in Section 2 of Article IV, as shall be substituted therefor. FAIR MARKET VALUE means, with respectshareholders. The Board does not intend to Company Stock, (1) the mean of the high and low sales prices of such stock (a) as reportedissue any shares except on the composite tape (or other appropriate reporting vehicle as determined by the Committee) for a specified date or, if no such report of such price shall be available for such date, as reported for the New York Stock Exchange for such date or (b) if the New York Stock Exchange is closed on such date, the mean of the high and low sales prices of such stock as reported in accordance with (a) above for the next preceding day on which such stock was traded on the New York Stock Exchange, or (2) at the option of and as determined by the Committee, the average of the mean of the high and low sales prices of such stock as reported in accordance with (1) above for a period of up to ten consecutive business days. OPTION PERIOD means the period of time provided pursuant to Section 4 of Article III within which a stock option may be exercised, without regard to the limitations on exercise imposed pursuant to Section 5 of Article III. ARTICLE II PARTICIPATION SECTION 1. Purpose. The purposes of the Plan are to motivate key employees, to permit them to share in the long-term growth and financial success of the Company and its Subsidiaries while giving them an increased incentive to promote the well-being of those companies, and to link the interests of key employees to the long-term interests of the Company's shareholders. SECTION 2. Eligibility. Employees who, in the sole opinion of the Committee, play a key role in the management, operation, growth or protection of some part or all of the business of the Company and its Subsidiaries (including officers and employees who are members of the Board) shall be eligibleterms that it considers to be granted Awards under the Plan. The Committee shall select from time to time the Employees to whom Awards shall be granted. No Employee shall have any right whatsoever to receive any Award unless selected therefor by the Committee. SECTION 3. Limitation on Optioned Shares. In no event may any stock option be granted to any Employee who owns stock possessing more than five percent of the total combined voting power or value of all classes of stock of the Company. The maximum number of shares subject to options awarded to any one individual in any calendar year may not exceed one million shares. SECTION 4. No Employment Rights. The Plan shall not be construed as conferring any rights upon any person for a continuation of employment, nor shall it interfere with the rights of the Company or any Subsidiary to terminate the employment of any person and/or take any personnel action affecting such person without regard to the effect which such action might have upon such person as an Optionee or prospective Optionee. ARTICLE III TERMS OF OPTIONS SECTION 1. General. The Committee from time to time shall select the Employees to whom stock options shall be granted, the type of stock options and the number of shares of Company Stock to be included in each such option. Each option granted under the Plan shall be subject to the terms and conditions required by this Article III, and such other terms and conditions not inconsistent therewith as the Committee may deem appropriate in each case. SECTION 2. Option Price. The price at which each share of Company Stock covered by an option may be purchased shall be determined by the Committee. In no event shall such price be less than one hundred percent of the Fair Market Value of Company Stock either on the date the option is granted or over a period of up to ten business days as specified by the Committee. The option price of each share purchased pursuant to an option shall be paid in full at the time of such purchase. The purchase price of an option shall be paid in cash, provided however that, to the extent permitted by and subject to any limitations contained in any stock option agreement or in rules adopted by the Committee, such option purchase price may be paid by the delivery to the Company of shares of Company Stock having an aggregate Fair Market Value on the date of exercise which, together with any cash payment by the Optionee, equals or exceeds such option purchase price. The Committee shall determine whether and if so the extent to which actual delivery of share certificates to the Company shall be required. The foregoing provisions relating to the delivery of Company Stock in lieu of payment of cash upon exercise of an option apply to all outstanding options. SECTION 3. Types of Options. The Committee shall have the authority, in its sole discretion, to grant to Employees from time to time non-qualified stock options and such other types of options as are permitted by law or the provisions of the Plan. SECTION 4. Period for Exercise. The Committee shall determine the period or periods of time within which the option may be exercised by the Optionee, in whole or in part, provided that the Option Period shall not exceed ten years from the date the option is granted. SECTION 5. Special Limitations. Notwithstanding the Option Period provided in Section 4 of this Article III, a stock option (other than a reload stock option) shall not be exercisable until one year after the date the option is granted. SECTION 6. Termination of Employment. (a) Subject to the provisions of Section 4 and 5 of this Article III, the Committee shall specify in administrative rules or otherwise, the rules that shall apply to stock options with respect to the exercise of any stock options upon termination of the Optionee's employment. (b) Following the Optionee's death, the option may be exercised by the Optionee's legal representative or representatives, or by the person or persons entitled to do so under the Optionee's last will and testament, or, if the Optionee shall fail to make testamentary disposition of the option or shall die intestate, by the person or persons entitled to receive said option under the intestate laws. (c) The Committee in its sole discretion may shorten the period of exercise of any such stock option in the event that the Optionee takes any action which in the judgment of the Committee is not in the best interests of the Companycompany and its Subsidiaries. SECTION 7. Transferability; Beneficiaries; Etc. Eachshareholders. The additional shares of common stock optionfor which authorization is sought would be a part of the existing class of common stock. If and when issued, these shares would have the same rights and privileges as the shares of common stock presently outstanding. No holder of common stock has any preemptive rights to acquire additional shares of the common stock. The issuance of additional shares could reduce existing shareholders' percentage ownership and voting power in Alcoa and, depending on the transaction in which they are issued, could affect the per share book value or other per share financial measures. Text of Proposed Articles Amendment The first paragraph of Article FIFTH of the Articles of the company is proposed to be amended to read as follows: "FIFTH. The authorized capital stock of the corporation shall be nontransferable by the Optionee except by last will and testament or the laws660,000 shares of descent and distribution and is exercisable during the Optionee's lifetime only by the Optionee or a legal representative. Notwithstanding the foregoing and the preceding Section 6, at the discretionSerial Preferred Stock of the Committee, (a) some or all Optionees may be permitted to transfer some or allpar value of their options to one or more immediate family members, and/or (b) some or all Optionees may be permitted to designate one or more beneficiaries to receive some or all$100 per share, 10,000,000 shares of their Awards and stock appreciation rights in the event of death prior to exercise thereof, in which event a permitted benefi- ciary or beneficiaries shall then have the right to exer- cise or receive payment for each affected Award or stock appreciation right in accordance with its other terms and conditions. SECTION 8. Employment Obligation. In consideration for the granting of each stock option, except options delivered under Section 11 of this Article III, the Optionee shall agree to remain in the employmentClass B Serial Preferred Stock of the Company or one or morepar value of its Subsidiaries, at the pleasure$1.00 per share and 600,000,000 shares of Common Stock of the Company or such Subsidiary,par value of $1.00 per share." Vote Required for Approval For this amendment to be approved, a continuous period of at least one year after the date of grant of such stock option or until retirement, on a date which is at least six months after the date of such grant, under any retirement planmajority of the Company or a Subsidiary, whichever mayvotes cast by shareholders must be earlier, atvoted for approval. Alcoa's Board of Directors recommends that the salary rate in effect on the grant date or at such changed rate as may be fixed from time to time by the Company or such Subsidiary. At the discretionshareholders vote FOR adoption of the Committee, this obligation may be deemedproposed amendment to have been fulfilled under specified circumstances, such as if the Optionee enters government service. SECTION 9. Date Option Granted. For the purposes of the Plan, a stock option shall be considered as having been granted on the date on which the Committee authorized the grant of such stock option, except where the Committee has designated a later date, in which event such designated date shall constitute the date of grant of such stock option, provided, however, that in either case notice of the grant of the option shall be given to the Employee within a reasonable time. SECTION 10. Alternative Settlement Methods. Where local law may interfere with the normal exercise of an option, the Committee in its discretion may approve stock appreciation rights or other alternative methods of settlement for stock options. SECTION 11. Reload Stock Options. The Committee shall have the authority to specify, either at the time of grant of a stock option or at a later date, that upon exercise of all or a portion of that stock option (except an option referred to in the next section, Section 12) a reload stock option shall be granted under specified conditions. A reload stock option may entitle the Optionee to purchase shares (i) which are covered by the exercised option or portion thereof at the time of exercise of such option or portion but are not issued upon such exercise, or (ii) whose value (on the date of grant) equals the purchase price of the exercised option or portion thereof and any related tax withholdings. The exercise price of the reload stock option shall be the Fair Market Value at the time of grant, determined in accordance with Section 2 of this Article III. The duration of a reload stock option shall not extend beyond the expiration date of the option it replaces. The specific terms and conditions applicable for reload stock options shall be determined by the Committee and shall be set forth in rules adopted by the Committee and/or in agreements or other documentation evidencing reload stock options. SECTION 12. Dividend Equivalents. Stock options delivered in payment of contingent awards of performance shares (effective January 1993, these types of awards are no longer granted) may provide the Optionee with dividend equivalents payable in cash, shares, additional discount options or other consideration prior to exercise. ARTICLE IV COMPANY STOCK SECTION 1. Number of Shares. The shares of Company Stock that may be issued under the Plan, out of authorized but heretofore unissued Company Stock, or out of Company Stock held as treasury stock, or partly out of each, shall not exceed 8.6 million shares plus an additional number of share equal to the number of shares which at January 1, 1997 were reserved for issuance under the Plan as then in effect. Except as otherwise determined by the Committee, the number of shares of Company Stock so reserved shall be reduced by the number of shares issued upon an Option exercise, less (i) the shares, if any, used to pay withholding taxes and/or (ii) the shares, if any, delivered by the Optionee in full or partial payment of the option purchase price. Unless the Committee otherwise determines, shares not purchased under any option granted under the Plan which are no longer available for purchase thereunder by virtue of the total or partial expiration, termination or voluntary surrender of the option and which were not issued upon exercise of a related stock appreciation right and shares referred to in clauses (i) or (ii) of the preceding sentence shall continue to be otherwise available for the purposes of the Plan. Payments for Awards in cash shall reduce the number of shares available for issuance by such number of shares as has a Fair Market Value at the time of such payment equal to such cash. SECTION 2. Adjustments in Stock. (a) Stock Dividends. If a dividend shall be declared upon Company Stock payable in shares of said stock, (i) the number of shares of Company Stock subject to outstanding Awards and (ii) the number of shares reserved for issuance pursuant to the Plan shall be adjusted by adding to each such share the number of shares which would be distributable thereon if such share had been outstanding on the date fixed for determining the shareholders entitled to receive such stock dividend. (b) Reorganization, Etc. In the event that the outstanding shares of Company Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger or consolidation, or otherwise, then there shall be substituted for each share of Company Stock subject to outstanding Awards and for each share of Company Stock reserved for issuance pursuant to the Plan, the number and kind of shares of stock or other securities which would have been substituted therefor if such share had been outstanding on the date fixed for determining the shareholders entitled to receive such substituted stock or other securities. (c) Other Changes in Stock. In the event there shall be any change, other than as specified in subsections (a) and (b) of this Section 2, in the number or kind of outstanding shares of Company Stock or of any stock or other securities into which such Company Stock shall be changed or for which it shall have been exchanged, then and if the Committee shall at its discretion determine that such change equitably requires an adjustment in the number or kind of shares subject to outstanding Awards or which have been reserved for issuance pursuant to the Plan, such adjustments shall be made by the Committee and shall be effective and binding for all purposes of the Plan and each outstanding stock option and other Award. (d) General Adjustment Rules. No adjustment or substitution provided for in this Section 2 shall require the Company to sell or deliver a fractional share under any stock option or other Award and the total substitution or adjustment with respect to each Award shall be handled in the discretion of the Committee either by deleting any fractional shares or by appropriate rounding up to the next whole share. In the case of any such substitution or adjustment, the option price per share for each stock option shall be equitably adjusted by the Committee to reflect the greater or lesser number of shares of stock or other securities into which the stock subject to the option may have been changed. ARTICLE V GENERAL MATTERS SECTION 1. Administration. The Plan shall be administered by a Committee of not less than three Directors appointed by the Board, none of whom shall have been eligible to receive an Award under the Plan within the twelve months preceding their appointment. SECTION 2. Authority of Committee. Subject to the provisions of the Plan, the Committee shall have full and final authority to determine the Employees to whom Awards shall be granted, the type of Awards to be granted, the number of shares to be included in each Award, and the other terms and conditions of the Awards. Nothing contained in this Plan shall be construed to give any Employee the right to be granted an Award or, if granted, to any terms and conditions therein except such as may be authorized by the Committee. The Committee is empowered, in its discretion, to (i) modify, amend, extend or renew any Award theretofore granted, subject to the limitations set forth in Article III and with the proviso that no modification or amendment shall impair without the Optionees' consent any option theretofore granted under the Plan, (ii) adopt such rules and regulations and take such other action as it shall deem necessary or proper for the administration of the Plan and (iii) delegate any or all of its authority (including the authority to select eligible employees and to grant stock options) to one or more senior officers of the Company, except with respect to Awards for officers or any performance share awards, and except in the event that any such delegation would cause this Plan not to comply with Securities and Exchange Commission Rule 16b-3 (or any successor rule). The Committee shall have full power and authority to construe, interpret and administer the Plan, and the decisions of the Committee shall be final and binding upon all parties. SECTION 3. Withholding. The Company or any Subsidiary shall have the right to deduct from all amounts paid in cash under this Plan any taxes required by law to be withheld therefrom. In the case of payments of Awards in the form of Company Stock, at the Committee's discretion, (a) the Optionee may be required to pay over the amount of any withholding taxes, (b) the Optionee may be permitted to deliver to the Company the number of shares of Company Stock whose Fair Market Value is equal to or less than the withholding taxes due or (c) the Company may retain the number of shares calculated under (b) above. SECTION 4. Nonalienation. No Award shall be assignable or transferable, except by will or the laws of descent and distribution, and except that in its discretion the Committee may authorize exercise by or payment to a beneficiary designated by an Optionee. No right or interest of any Optionee in any Award shall be subject to any lien, obligation or liability. SECTION 5. General Restriction. Each Award shall be subject to the requirement that if at any time the Board or the Committee shall determine in its discretion that the listing, registration or qualification of shares upon any securities exchange or under any state or Federal law, rule, regulation or decision, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Award or the issue, purchase or delivery of shares or payment thereunder, such Award may not be exercised in whole or in part and no payment therefor shall be delivered unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board or Committee. SECTION 6. Effective Date and Duration of Plan. The Plan initially became effective May 1, 1965. The Plan as amended herein shall become effective January 1, 1997. No Awards shall be granted under the Plan after January 1, 2002 although shares thereafter may be delivered in payment of Awards granted prior thereto. SECTION 7. Amendments. The Board may from time to time amend, modify, suspend or terminate the Plan, provided, however, that no such action shall (a) impair without an Optionee's consent any option theretofore granted under the Plan or deprive any Awardee of any shares of Company Stock which that person may have acquired through or as a result of the Plan or (b) be made without the approval of the shareholders of the Company where such change would materially increase the benefits accruing to Optionees, materially increase the maximum number of shares which may be issued under the Plan or materially modify the Plan's eligibility requirements. SECTION 8. Construction. The Plan shall be interpreted and administered under the laws of the Commonwealth of Pennsylvania without application of its rules on conflict of laws. ARTICLE VI [DELETED, Effective January 1997]Alcoa's Articles. To Fellow Alcoa Shareholders: Your 19971998 Alcoa proxy card is attached below. Please read both sides of the card, and vote, sign and date it. Then detach and return it promptly using the enclosed envelope. We urge you to vote your shares. You are invited to attend the annual meeting of shareholders on Friday, May 9,8, at 9:30 a.m. in the William Penn Ballroom of the Westin William Penn Hotel in Pittsburgh, Pennsylvania. If you plan to attend the meeting, please check the appropriate box on the proxy card. Then detach and retain the admission ticket which is required for admission to attend the meeting. Thank you in advance for voting. Barbara JeremiahDenis A. Demblowski Secretary Shareholder comments about any aspect of company business are welcome. Although such comments are not answered on an individual basis, they do assist Alcoa management in determining and responding to the needs of shareholders. (IF YOU HAVE COMMENTS, PLEASE DETACH AND RETURN WITH YOUR PROXY CARD IN THE ENCLOSED ENVELOPE)---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- (If you have comments, please detach and return with your proxy card in the enclosed envelope) Alcoa 425 Sixth Avenue Pittsburgh, PA 15219-1850 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORSDIRECTORS. The undersigned shareholder hereby authorizes Earnest J. Edwards, Russell W. Porter, Jr. and Robert G. Wennemer, and John M. Wilson, or any one or more of them, with power of substitution to each, to represent the undersigned at the annual meeting of shareholders of Aluminum Company of America scheduled for Friday, May 9, 1997,8, 1998, and any adjournment of the meeting, and to vote the shares of stock which the undersigned would be entitled to vote if attending the meeting, upon the matters referred to on the reverse side of this card and in accordance with the best judgment of such persons upon other matters as may properly come before the meeting or any adjournment of the meeting. As described more fully in the proxy statement, this card votes or provides voting instructions for shares of common stock held under the same registration in any one or more of the following manners: as a shareholder of record, in the Alcoa Dividend Reinvestment and Stock Purchase Plan and in Alcoa's employee savings plan.plans. If you plan to attend the annual meeting, please check the box below. / / I will attend the annual meeting (continued on the other side) (continued from the other side) (DETACH AND RETURN IN THE ENCLOSED ENVELOPE)(detach and return in the enclosed envelope) PROXY Please specify your choices by clearly marking the appropriate boxes. Unless specified, this proxy will be voted FOR all listed nominees initems 1, 2 and 3 and AGAINST item 1, and4. Directors recommend a vote FOR the proposal inthis item 2.(#1) 1. Election of Directors for a three-year term.term: Nominees are: Kenneth W. Dam, Judith M. Gueron, Paul H. O'NeillHenry B. Schacht and Franklin A. Thomas / / FOR all listed nominees / / WITHHOLD vote for all listed nominees / / WITHHOLD vote only from DIRECTORS RECOMMEND A VOTE------------------ Directors recommend a vote FOR THIS ITEM (#1)this item (#2) 2. Approve an amendmentProposal 2 - Amendment to theArticles Increasing Authorized Common Stock / / Vote FOR / / Vote AGAINST / / ABSTAIN Directors recommend a vote FOR this item (#3) 3. Proposal 3 - Amendment to Long Term Stock Incentive Plan.Plan / / VOTEVote FOR / / VOTEVote AGAINST / / ABSTAIN DIRECTORS RECOMMEND A VOTEDirectors recommend a vote AGAINST this item (#4) 4. Proposal 4 - Shareholder Proposal regarding Charitable Contributions / / Vote FOR THIS ITEM (#2)/ / Vote AGAINST / / ABSTAIN PLEASE VOTE, SIGN, DATE AND RETURN Date 1998 - -------------------------------- Date----------------- 1997------------------ (Sign exactly as name appears above, indicating position or representative capacity, where applicable)