-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EerxLoYgmex+Q/eETIxdfkADK1584OKJE8TW4+rhVB6AWpSpzSUSiNSEe/Wqtd/R WhAupLepAj0EDVMTk4Fu2w== 0000004281-98-000003.txt : 19980317 0000004281-98-000003.hdr.sgml : 19980317 ACCESSION NUMBER: 0000004281-98-000003 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980508 FILED AS OF DATE: 19980313 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALUMINUM CO OF AMERICA CENTRAL INDEX KEY: 0000004281 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 250317820 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-03610 FILM NUMBER: 98565238 BUSINESS ADDRESS: STREET 1: 425 SIXTH AVENUE STREET 2: ALCOA BUILDING CITY: PITTSBURGH STATE: PA ZIP: 15219-1850 BUSINESS PHONE: 412-553-3042 MAIL ADDRESS: STREET 1: 425 SIXTH AVENUE STREET 2: ALCOA BUILDING CITY: PITTSBURGH STATE: PA ZIP: 15219-1850 DEF 14A 1 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: ------------------------------------------------- ------------------------------------------------- 2) Aggregate number of securities to which transaction applies: ------------------------------------------------- ------------------------------------------------- 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth in the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------- ------------------------------------------------- 4) Proposed maximum aggregate value of transaction: ------------------------------------------------- ------------------------------------------------- 5) Total fee paid: ------------------------------------------------- ------------------------------------------------- / / 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: ------------------------------------------------- 2) Form, Schedule or Registration Statement No.: ------------------------------------------------- 3) Filing Party: ------------------------------------------------- 4) Date Filed: ------------------------------------------------- 1998 Notice of Annual Meeting and Proxy Statement TO ALCOA SHAREHOLDERS: It is my privilege to invite you to the 1998 annual meeting of Alcoa shareholders. The meeting is on Friday, May 8, 1998 at 9:30 a.m. in the Westin William Penn Hotel, Pittsburgh, Pennsylvania. The hotel is fully accessible to disabled persons and headsets will be available for the hearing-impaired. I hope you will participate in this review of your company's business and operations. This proxy statement describes the items we will vote on at the meeting. In addition to those items, we will review the major developments of 1997 and answer your questions. If you plan to attend, you will need an admission ticket. For registered shareholders, there is an admission ticket attached to the enclosed proxy (voting) card. Shareholders and others also may obtain tickets by contacting the corporate secretary. Whether or not you plan to attend the meeting, please sign and date the enclosed proxy card and return it promptly. Sincerely, /s/Paul H. O'Neill Paul H. O'Neill Chairman of the Board and Chief Executive Officer March 11, 1998 Alcoa 425 Sixth Avenue Pittsburgh, Pennsylvania 15219-1850 Notice of 1998 Annual Meeting March 11, 1998 Alcoa's annual meeting of shareholders will take place on Friday, May 8, 1998 beginning at 9:30 a.m. We will meet in the William Penn Ballroom of the Westin William Penn Hotel in Pittsburgh, Pennsylvania. Owners of common stock of record at the close of business on February 9, 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 to conduct business at the meeting. This requirement will be satisfied if the holders of a majority of the shares entitled to vote are present, either in person or by proxy. If a quorum is not present, the shareholders in attendance may adjourn the meeting and decide on another time and place to meet. The shareholders present at the following meeting will constitute a quorum for electing directors and, if the adjourned meeting is held at least 15 days after the scheduled annual meeting date, will constitute a quorum for acting on all other matters being voted on. On behalf of Alcoa's Board of Directors, /s/Denis A. Demblowski Denis A. Demblowski Secretary 3 CONTENTS 5 The Annual Meeting and Voting 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 Directors' Compensation Transactions with Directors' Companies Committees and Meetings of the Board 13 Compensation of Executive Officers Report of the Compensation Committee Summary Compensation 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 26 Glossary 27 Alcoa's Visions and Values 4 The Annual Meeting and Voting We have sent you this booklet and proxy card because Alcoa's Board of Directors is soliciting your proxy to vote at the company's 1998 annual meeting of shareholders on May 8, 1998. This booklet contains information about the items being voted on at the annual meeting. Who Is Entitled to Vote? Alcoa common stock holders of record at the close of business on February 9, 1998 are entitled to vote. Shareholders have one vote per share on each matter being voted on. How Do I Vote by Proxy? When you sign and return the enclosed proxy card, your shares will be voted in accordance with your directions. If you do not mark any selections, your shares will be voted as recommended by the Board of Directors. You may vote in person if you attend the meeting, but whether you plan to attend or not, we urge you to return the proxy card promptly. May I Change My Vote? You may revoke your proxy at any time before it is voted at the meeting in several ways: by sending in a revised proxy dated later than the first; by voting in person at the meeting; or by notifying 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 conduct business at the annual 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 votes cast by shareholders. If you are a shareholder of record or participate 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 by participants in all plans. Is My Vote Confidential? Yes. Proxy cards, ballots and voting tabulations that identify shareholders are kept confidential. There are exceptions for contested proxy solicitations or where necessary to meet legal requirements. Corporate Election Services, Inc., an 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. We have hired Morrow & Company, Inc. to assist in the solicitation process for a fee of $11,500 plus reasonable out-of-pocket expenses. Alcoa officers and employees also may solicit proxies in person, by telephone or by fax. Alcoa will request that persons who hold shares for others, such as banks, brokerage firms and trustees, obtain voting instructions from the beneficial owners* of the shares. The company will reimburse these persons for their reasonable expenses in providing proxy materials to beneficial owners and obtaining voting instructions. How Do I Comment on Company Business? There is space for comments on the proxy card or you may send them to us in care of the corporate secretary. Although it is not possible to respond to each individual, your ideas help us to better understand your concerns and answer shareholders' needs. *See glossary for definition 5 Alcoa Common Stock Ownership The following table shows shareholders who reported to the Securities and Exchange Commission (SEC) beneficial ownership of 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 Alcoa's Board of Directors has 11 members. The Board is divided into three classes whose terms of office end in successive years. Two current Alcoa directors, Sir Arvi Parbo and Forrest N. Shumway, are retiring from the Board. Sir Arvi has served as a director since 1980, and Mr. Shumway was first elected to the Alcoa Board in 1982. The Board extends its best wishes to them for long and happy retirements. Their sound judgment, wise counsel and good humor will be greatly missed. Henry B. Schacht and Franklin A. Thomas, two directors whose terms of office 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 term starting at the May 1998 meeting. Your proxy will be voted for the election of these nominees unless you withhold authority to vote for any one or more of them. In the event that any nominee is unable or unwilling to stand for election (which is not anticipated), the Board may provide for a lesser number of directors or 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 School. Recent business experience: Mr. Dam served as President and Chief Executive Officer for United Way of America in 1992, Vice President for Law and External Relations of IBM Corpo- ration from 1985 to 1992, Deputy Secretary of State from 1982 to 1985 and Provost of the Univer- sity of Chicago from 1980 to 1982. Other directorships: Council on Foreign Relations, the Brookings Institution and a number of nonprofit organizations. Judith M. Gueron Age: 56 Director since: 1988 Principal occupation: President, Manpower Demonstration Research Corporation (MDRC), a nonprofit research organization. Recent business experience: Dr. Gueron has been President of MDRC since 1986. She was MDRC's Executive Vice President for research and evaluation from 1978 to 1986. Dr. Gueron was director of special projects and studies and a consultant for the New York City Human Resources 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 since June 1987. Recent business experience: From 1985 to 1987, Mr. O'Neill was President and a director of International 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. 9 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, space and defense markets. Recent business experience: Mr. Gorman was TRW's President from 1985 to 1991 and Chief Operating Officer from 1985 to 1988. He has served as Chairman and Chief Executive Officer of TRW since 1988. Other directorships: In addition to serving as a director of TRW, Mr. Gorman is a director of The Procter & Gamble Company and 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 was Deputy Chairman and Chief Executive of Imperial Chemi- cal Industries from 1993 to 1995 and 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 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 manufacturer. Recent business experience: Mr. Mulroney has served as President and Chief Operating Officer of Rohm and Haas Company since 1986. He has been a director of Rohm and Haas since 1982. Other directorships: In addition to Rohm and Haas, Mr. Mulroney also is a director of Teradyne, Inc. Marina v.N. Whitman Age: 62 Director since: 1994 Principal occupation: Professor of Business Administra- 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. Other directorships: Browning-Ferris Industries, Inc., The Chase Manhattan Corporation, The Procter & Gamble Company and Unocal Corporation. 11 Directors' Compensation Alcoa pays each director who is not an Alcoa employee an annual cash retainer of $85,000. No additional fees, such as meeting or committee fees, are paid. Directors may elect to defer some or all cash fees, and they are encouraged to defer the maximum amount that their individual circumstances allow. All fee deferrals are credited to an Alcoa stock investment account, except that deferrals exceeding 50% of the annual retainer fee may be invested in other investment options under the directors' deferred fee 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. Directors' deferred accounts are not funded and are paid out in cash from general funds of the company after Board service ends. Transactions with Directors' Companies In the course of ordinary business, Alcoa and its 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 election as directors and reviews the performance of incumbent directors. The committee reviews the names and qualifications of nominees that shareholders submit in writing to the company 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 Alcoa's retirement plans and principal savings plans. Members include Directors Gorman, Gueron, Hampel, Shumway (chairman), Thomas and Whitman. This committee met twice in 1997. The 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 officers 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 members of this committee are required to be independent directors who have never been Alcoa employees. No member of this committee receives compensation from the company in any capacity other than as a director. The committee's report for 1997 follows. REPORT OF THE COMPENSATION COMMITTEE Alcoa's Compensation Philosophy - The purpose of Alcoa's total compensation policy is to hire, retain and motivate high-performing employees worldwide. In determining compensation, we use the following principles: - - Pay for performance - both individual and team performance - - Competitive total compensation compared with leading industrial companies - - 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 performance. Stock-based incentives are an important element because they help to assure that executives focus on increasing shareholder value. Annual Cash Compensation - Each year we review comparative market compensation information prepared by outside consultants, who also help analyze and interpret compensation practices. The comparison group, which is surveyed for both total cash compensation and long-term incentives, includes leading manufacturing companies with whom Alcoa competes for talent. These companies are among the largest and best performing in a broad range of industries and serve as a sample of the larger market. In addition to compensation, we also compare a position's level of responsibility within these companies. Total annual cash compensation for Alcoa senior managers includes base salary and cash incentive awards. The targets for the sum of base salary and cash incentives are set above the median of high-performing industrial companies. When performance measures of excellence are met, this provides a very competitive level of cash compensation. In order to tie annual cash compensation more closely to performance, we set base salaries 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 total performance of all business units compared with planned goals. The maximum payout, before any adjustment for individual performance, is 150% of the 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 by all of the company's business units. About 40% of these goals are nonfinancial. They may include measurements for environmental, health and safety performance, customer satisfaction, product innovation, on-time delivery, manufacturing excellence, reduced cycle time, inventory reduction and product quality improvements. The company believes that if managers focus on the achievement of excellence in those areas within their control, long-term growth in shareholder value will result. Long-Term Incentives - A goal of our committee is to closely align management's interests with those of the shareholders. In order to encourage stock ownership among Alcoa executives, the company's long-term incentives are entirely stock-based. Alcoa grants annual long-term awards in the form of stock options. The stock option program allows us to provide awards that are competitive with the sample of leading industrial companies. The actual amount earned is determined by the stock's performance. The guidelines used to establish the size of a stock option award include a position's level of responsibility, the size of prior grants and comparative award information. Individual grants typically follow the guideline amounts. Compensation paid as the result of option exercises under the shareholder-approved Long Term Stock Incentive Plan is deductible by Alcoa. The company may not deduct portions of salary, bonus and other cash and non-cash compensation in excess of $1 million paid to a 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 plan 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 and other optionees has increased significantly in the last 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 a portion of the exercisable options held by active employees. Compensation of Executive Officers in 1997 - Our committee increased 1997 salary and annual cash incentive targets from 1996, reflecting similar increases in the comparison group. Annual incentive payouts to executive officers averaged about 105% of target in 1997. January 1997 stock option grants to executive officers were made at full levels for these positions, in accordance with the guidelines. The majority of stock option exercises in 1997 by executive officers involved the grant of reload options. *See glossary for definition 14 Compensation of the Chief Executive Officer - The chief executive officer's compensation is based on the same philosophy and policies for all executive officers, and includes base salary, annual cash incentives and stock option awards. Our committee meets annually without the CEO and evaluates his performance compared with previously established financial and nonfinancial goals. We reach a consensus as a committee and make the appropriate compensation adjustments. Finally, we report in full to the other members of the Board for their consideration and agreement. This meeting is an executive session of nonemployee directors only. In 1997, Mr. O'Neill's base salary was $850,020. By design, Mr. O'Neill's salary remains below the median for the comparison group. In January 1998, Mr. O'Neill was awarded a bonus of $1,250,000, which was 122.5% of his target incentive award for 1997. The amount was based partly on total business unit results compared with plan goals, and partly in recognition, by our committee and the executive session of the Board, of Mr. O'Neill's outstanding leadership during 1997. Mr. O'Neill's 1997 annual stock option award grant was made at the guideline number of shares for his position, as established by the committee in November 1996. This committee believes that the company's compensation programs help to maintain Alcoa's leadership position among global industrial companies. The Compensation Committee Franklin A. Thomas, Chairman Kenneth W. Dam Joseph T. Gorman John P. Mulroney Sir Arvi Parbo 15 SUMMARY COMPENSATION TABLE The following table shows the compensation for the company's CEO and four other executive officers who were the highest paid in the fiscal year ended December 31, 1997.
Long Term Annual Compensation Compensation ------------------- ------------ Number of Securities Underlying All Other Name and Option Compen- Principal Position (1) Year Salary (2) Bonus Grants(3) sation (4) - ---------------------- ---- ---------- ----- --------- ---------- Paul H. O'Neill 1997 $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 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 Operating Officer 1995 446,823 600,000 65,000 90,809 George 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 1997 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 Ronald R. Hoffman 1997 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 Communications (1) Effective January 1, 1998, Mr. Bergeron was elected an Executive Vice President, and Mr. Hoffman became Special Assistant to the Chairman. Mr. Hoffman has announced that he will retire in August 1998. (2) The most highly-compensated executive officers are those with the highest annual salary and bonus for 1997. In addition to base salary, the salary column includes, when selected by the employee, an extra week's pay in lieu of vacation for employees with 25 or more years of service. (3) New option grants made in 1997 totaled 175,000 for Mr. O'Neill, 125,000 for Mr. Belda, 46,000 for Mr. Bergeron, 65,000 for Mr. Fischer and 60,000 for 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' option grants and the use of the reload feature described earlier in the Report of the Compensation Committee. See also the Option Grants in 1997 table on the next page. (4) Company matching contributions to 401(k) and excess savings plans for 1997 were: Mr. O'Neill, $51,001; Mr. Belda, $35,500; Mr. Bergeron, $21,720; and Messrs. Fischer and Hoffman, $23,712 each. The present value costs of the company's portion of 1997 premiums for split-dollar life insurance, above the term coverage level provided generally to salaried employees, were: Mr. O'Neill, $120,205; Mr. Belda, $159,831; Mr. Bergeron, $56,034; Mr. Fischer, $44,474; and Mr. Hoffman, $49,496. The 1997 amount for Mr. Belda also includes $450 of unused health care credits received as cash.
16
OPTION GRANTS IN 1997 Individual Grants ----------------- % of Total Number of Options Securities Granted to Exercise Underlying Employees or Base Grant Date Options in Fiscal Price Present Name Granted (1) Year ($/Sh) Expiration Date Value(2) - ---- ----------- ---------- -------- --------------- ---------- Paul H. O'Neill 175,000 2.74% $70.7500 January 13, 2007 $2,529,126 13,499 0.21% 74.3828 January 15, 2003 121,268 41,958 0.66% 74.3828 January 20, 2002 376,928 22,406 0.35% 74.3828 January 23, 2001 201,284 23,574 0.37% 74.3828 January 22, 2000 211,776 22,963 0.36% 74.3828 May 4, 1999 206,287 25,184 0.39% 74.3828 July 21, 1998 226,240 Alain J. P. Belda 125,000 1.96% 70.7500 January 13, 2007 1,806,518 78,614 1.23% 82.0312 January 11, 2006 778,844 49,899 0.78% 76.1875 January 13, 2005 459,142 20,598 0.32% 76.3750 January 14, 2004 189,997 15,029 0.24% 73.1875 January 15, 2003 132,843 2,380 0.04% 88.6250 January 15, 2003 25,474 10,482 0.16% 68.2500 January 20, 2002 86,401 2,352 0.04% 88.6250 January 23, 2001 25,175 George E. Bergeron 46,000 0.72% 70.7500 January 13, 2007 664,799 43,834 0.69% 71.2500 January 11, 2006 377,196 20,528 0.32% 72.7500 January 13, 2005 180,365 11,238 0.18% 69.7812 January 13, 2005 94,711 19,097 0.30% 69.7812 January 14, 2004 160,944 550 0.01% 69.7812 January 15, 2003 4,635 422 0.01% 69.7812 January 22, 2000 3,556 2,645 0.04% 84.3125 July 21, 1998 26,933 Richard L. Fischer 65,000 1.02% 70.7500 January 13, 2007 939,390 44,979 0.70% 68.8750 January 11, 2006 374,148 4,452 0.07% 88.6250 January 13, 2005 47,652 35,409 0.55% 70.5625 January 13, 2005 301,758 10,528 0.17% 72.6875 January 14, 2004 92,422 2,158 0.03% 72.6875 January 15, 2003 18,944 3,209 0.05% 72.6875 January 22, 2000 28,171 8,137 0.13% 72.6875 May 4, 1999 71,432 5,327 0.08% 72.6875 July 21, 1998 46,764 17 Individual Grants % of Total Number of Options Securities Granted to Exercise Underlying Employees or Base Grant Date Options in Fiscal Price Present Name Granted (1) Year ($/Sh) Expiration Date Value(2) - ---- ----------- ---------- -------- --------------- ---------- Ronald R. Hoffman 60,000 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% 69.4687 January 13, 2005 42,948 25,596 0.40% 69.4687 January 14, 2004 214,750 93 0.00% 69.4687 January 15, 2003 780 (1) Annual option grants (the first grant listed for each officer) are currently made in January and become exercisable one year after the grant date. All other grants are reload option grants, which become exercisable after six months. Optionees may use shares they own to pay the exercise price and may have shares withheld for payment of required taxes. The exercise price of all options is 100% of the fair market value of Alcoa stock on the grant date. (2) The Black-Scholes option pricing model is used to estimate Grant Date Present Value. Our use of this model is not an endorsement of the model's accuracy in valuing options. All stock option models require a prediction about future stock prices. We used the following assumptions in calculating Grant Date Present Value: volatility - 25%; average risk-free rate of return - 6.10%; dividend yield - 1.30%; expected life, annual grants - 2.5 years, expected life, reload grants - 1 year. The real value of the options in this table depends on the actual performance of Alcoa stock and the 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.
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 -------------------------- ------------------ Name Exercise (1) Realized (2) Exercisable Unexercisable Exercisable Unexercisable - ---- ------------ ------------ ----------- ------------- ----------- ------------- Paul H. O'Neill 227,274 $2,713,350 684,211 175,000 $10,298,907 $0 Alain J. P. Belda 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 133,497 1,847,543 149,851 104,861 685,017 0 Ronald R. Hoffman 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 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 a 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 withholding for taxes. Most of the shares received after taxes (all for Mr. O'Neill) are still owned by the officers.
19 PENSION PLANS Alcoa's pension plans cover a majority of salaried employees. Alcoa pays the full cost of these plans, which include both tax-qualified and non tax-qualified excess plans. This table shows the annual benefits payable at executive compensation levels.
PENSION PLAN TABLE Annual Benefits for Years of Service Indicated ---------------------------------------------------------------- Average Annual Compensation 15 20 25 30 35 40 - ------------ -- -- -- -- -- -- $ 100,000 $ 20,740 $ 27,650 $ 34,560 $ 41,480 $ 48,000 $ 56,950 300,000 59,530 79,370 99,210 119,060 134,350 150,470 500,000 94,460 125,950 157,440 188,930 213,130 238,150 700,000 132,460 176,610 220,760 264,920 298,800 333,510 900,000 169,940 226,590 283,240 339,890 383,330 427,590 1,100,000 206,660 275,550 344,440 413,330 466,130 519,750 1,300,000 242,110 322,810 403,510 484,220 546,050 608,710 1,500,000 277,300 369,730 462,160 554,600 625,400 697,030 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. Amounts in the table are calculated using salary at target and bonus at target. Payments are made as a straight life annuity, reduced by 5% when a surviving spouse pension is taken. The table shows benefits at age 65, before any reduction for surviving spouse coverage. At March 1, 1998, pension service for the named officers was: Mr. Belda, 29 years; Mr. Bergeron, 29 years; Mr. Fischer, 32 years; Mr. Hoffman, 43 years; and Mr. O'Neill, 24 years, reflecting an employment contract that provides somewhat more than double credit for his years with the company. The resulting pension is offset by pension payments from his previous employer. 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. 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 of 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. 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. Proposed Plan Amendment Periodically, shareholders are asked to approve additional shares for use in the Plan. The Board has adopted an amendment to the Plan that will replenish and increase the shares available for issuance in certain instances without further shareholder action. The amendment will become effective only if approved by shareholders. The proposed amendment provides that the number of shares available for issuance under the Plan will be increased automatically by the number of shares that Alcoa purchases or acquires with the cash proceeds of option exercises after January 1, 1998. The shares so acquired would be added to the number of shares available for issuance under the Plan without further shareholder approval. In 1997, Alcoa purchased approximately 8.1 million shares of its common stock in the open market. Of this number, approximately 2.7 million shares were acquired for an aggregate price equal to the cash proceeds received by Alcoa in 1997 from employee stock option exercises. If this amendment had been in effect in 1997, these 2.7 million shares would have been added to the Plan's share reserve. 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 to reacquire outstanding shares. If the amendment is approved, the reacquired shares would be used in the Plan. The major features of the Plan are summarized 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, its 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. Administration - The Plan is administered by a subcommittee of the Compensation Committee of the Board. Board members who administer the Plan must not have been eligible to participate in the Plan for at least 12 months. No member of the subcommittee is a current or former officer or employee, and none receive any compensation from Alcoa in any capacity other than as a director. The Plan permits delegation of certain authority to senior officers in limited instances. Term - The Plan has no fixed expiration date; however, no new awards may be granted under the Plan after January 1, 2002. Types of Awards - 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 - Participation in the Plan is limited to employees who have 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 administering the Plan. About 1,000 current and former employees hold stock options. 1998 Awards - In January 1998, 876 employees were awarded stock options. The January 1998 options covered 3,605,600 shares at an exercise price of $66.125 per share. Awards to the named executive officers were: Mr. O'Neill, 175,000 shares; Mr. Belda, 105,000 shares; Messrs. Bergeron, Fischer and Hoffman, 52,800 shares each; and all executive officers as a group (13 individuals), 728,600 shares. Limitation on Awards - No individual may be granted options for more than one million shares in a calendar year. Option Price - The option price is determined under a formula set by the subcommittee. This price is generally 100% of the fair market value of Alcoa stock on the grant date. Duration of Options - The option period is generally limited to a maximum of 10 years. A small number of outstanding earnout options 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 subcommittee to establish other rules regarding the treatment of options upon termination of employment by reason of death, disability, retirement or other approved reason. The subcommittee may shorten the period of any option if the optionee takes any action that is not in Alcoa's best interests. Transferability - 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, affords optionees an estate-planning opportunity. There is no appreciable additional cost to the company for this feature. Transferees 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 - 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 appreciation is at least $2.50 per share and if the exercise price is paid using already-owned shares or, where annual 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 - they are not transferable for the optionee's remaining career with Alcoa. A reload stock option may not be exercised for six months after it is granted. Employment Obligation - 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 - The Board may amend, modify, suspend or terminate the Plan, but no such action (1) may impair, without the optionee's consent, any outstanding option or (2) will 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. Shares Available - On January 1, 1998, there were 19,447,255 shares of Alcoa common stock reserved for issuance under the Plan. Outstanding options covered 10,548,725 of those shares. Thus, 8,898,530 shares were then available for the future granting of stock option awards. In addition, except as otherwise determined by the subcommittee, shares used upon option exercise to pay required withholding taxes and/or shares delivered in payment of the option exercise price 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 provides that shares available 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 stock options granted under the Plan. Recent Share Price - On February 9, 1998 (the record date for the annual meeting), the closing market price for Alcoa common stock was $75.25 per share. Tax Consequences - 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 subcommittee may permit the use of Alcoa shares to pay the required withholding taxes. 25 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 matters that are not considered discretionary under the rules, your failure to give voting instructions means that your shares will not be voted; 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 corporation and officers in charge of principal business units. fair market value. Under the company's Long Term Stock Incentive Plan, fair 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 New York Stock Exchange for that day (or if the Stock Exchange is not open that day for trading, on the last prior date on which it was open for trading). market capitalization. The value of all outstanding shares, calculated by multiplying the market price per share by the total number of shares outstanding. 26 Alcoa's Vision Alcoa is a growing worldwide company dedicated to excellence through quality - 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 INTEGRITY Alcoa's foundation is the integrity of its people. We will be honest and responsible in dealing with customers, suppliers, co-workers, shareholders, and the communities where we have an impact. ENVIRONMENT, 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 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. PEOPLE People are the key to Alcoa's success. Every Alcoan will have equal opportunity in an environment that fosters communications and involvement while providing reward and recognition for team and individual achievement. PROFITABILITY We are dedicated to earning a return on assets that will enable growth and enhance shareholder value. ACCOUNTABILITY We are accountable - individually and in teams - for our actions and results. 27 Alcoa 425 Sixth Avenue Pittsburgh, Pennsylvania 15219-1850 Graphics Appendix List Page Where Graphic Appears Description of Graphic or Cross-Reference page 8 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, Continuing Director page 9 Photograph of Judith M. Gueron, Continuing Director page 9 Photograph of Paul H. O'Neill, Continuing Director page 10 Photograph of Joseph T. Gorman, Continuing Director page 10 Photograph of Sir Ronald Hampel, Continuing Director page 11 Photograph of John P. Mulroney, Continuing Director page 11 Photograph of Marina v.N. Whitman, Continuing Director March 13, 1998 Dear Alcoa Shareholder: Many of you may know about our recent announcement to acquire Alumax Inc. We will purchase Alumax for a combination of cash and shares of Alcoa common stock, subject to the terms of the 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, 1998, Alcoa announced that it would acquire all of the 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 second 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 in connection with financing the cash tender offer. Alcoa currently has more than 100 million shares of unissued and unreserved common stock available to use in this transaction, which is more 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 increased number of authorized shares that is the subject of this 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 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 additional 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. 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 660,000 shares of Serial Preferred Stock of 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. To Fellow Alcoa Shareholders: Your 1998 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 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 the meeting. Thank you in advance for voting. Denis A. Demblowski Secretary Shareholder comments about any aspect of company business are welcome. Although 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) Alcoa 425 Sixth Avenue Pittsburgh, PA 15219-1850 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The undersigned shareholder hereby authorizes Earnest J. Edwards, Russell W. Porter, Jr. and Robert G. Wennemer, 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 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 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) PROXY Please specify your choices by clearly marking the appropriate boxes. Unless specified, this proxy will be voted FOR items 1, 2 and 3 and AGAINST item 4. Directors recommend a vote FOR this item (#1) 1. Election of Directors for a three-year term: Nominees are: Henry B. Schacht and Franklin A. Thomas / / FOR all listed nominees / / WITHHOLD vote for all listed nominees / / WITHHOLD vote only from ------------------ Directors recommend a vote FOR this item (#2) 2. Proposal 2 - Amendment to Articles 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 / / Vote FOR / / Vote AGAINST / / ABSTAIN Directors recommend a vote AGAINST this item (#4) 4. Proposal 4 - Shareholder Proposal regarding Charitable Contributions / / Vote FOR / / Vote AGAINST / / ABSTAIN PLEASE VOTE, SIGN, DATE AND RETURN Date 1998 - -------------------------------- ------------------ (Sign exactly as name appears above, indicating position or representative capacity, where applicable) -----END PRIVACY-ENHANCED MESSAGE-----