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:
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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.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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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)----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
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(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)