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 / /
/ x / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e) (2))
/ / 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.
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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
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 two 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
Table of Contents
The Annual Meeting and Voting
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
Proposal 1 - Nominees for Directors
The Board of Directors
Directors' Compensation
Transactions with Directors' Companies
Committees and Meetings of the Board
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 Plan Table
Proposal 2 - Approve an amendment to Alcoa's Articles
increasing authorized common stock
Proposal 3 - Approve an amendment to the Long Term Stock
Incentive Plan
Proposal 4 - Shareholder proposal regarding charitable
contributions
Other Information
Relationship with Independent Accountants
Shareholder Proposals for the 1999 Meeting
Other Matters
Appendix A - Description of Long Term Stock Incentive Plan
Glossary
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,--------------------- 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.
*See glossary for definition
In cases where no voting directions are received from
participants for shares in the employee savings plan, the
independent trustee will vote the shares in the same
proportion (for, against or abstain) expressed by the votes
of participants in all employee 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
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
Name and address of beneficial owner Shares Owned Percent of class
[TABLE TO BE INSERTED]
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 one
percent of this class of stock. The stock ownership shown
for all directors, nominees and executive officers as a group
represents less than 2% of outstanding shares.
*See glossary for definition
<TABLE>
<CAPTION>
Beneficial Ownership Table
Exercisable Number of
stock Number of deferred share
Name options (a) shares owned equivalent units (b)
<S> <C> <C> <C>
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
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 as a
group (24 individuals) 2,595,625 586,691 35,622
<FN>
(a) Shares the officers had a right to acquire within 60
days through exercise of employee stock options.
(b) Share-equivalent units credited to an individual's
account under deferred fee or deferred compensation plans.
</TABLE>
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.
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 Aluminum 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.
<TABLE>
<CAPTION>
Comparison of five-year cumulative return
(graph)
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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 index and $151.79 for
the peer-group index.
PROPOSAL 1 - NOMINEES FOR 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.
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
Nominees to serve for a three-year term expiring in 2001
Henry B. Schacht
Age: 63
Director since: 1994
Principal occupation: Chairman, Lucent Technologies Inc.,
a communications systems and
technology company.
Recent business experience: Mr. Schacht had been Chairman and
Chief Executive Officer of Lucent
Technologies 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 Corporation from its
founding in 1967 until 1977.
Other directorships: Citicorp/Citibank, NA, Cummins
Engine Company, Inc., Lucent
Technologies Inc. and PepsiCo, Inc.
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 Presi-
dent for Law and External Relations
of IBM Corporation from 1985 to
1992, Deputy Secretary of State from
1982 to 1985 and Provost of the
University 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
since 1986.
Recent business experience: Dr. Gueron was MDRC's Executive Vice
President for research and evaluation
from 1978 to 1986, and director of
special projects and studies and a
consultant for the New York City
Human Resources Administration.
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.
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. Advi-
sory 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 Chemical
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.
Other directorships: British Aerospace PLC.
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 Administration
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.
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, and we do not consider them
material.
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 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 finan-
cial 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 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 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. 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.
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 (other than the CEO) 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 $ , 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.
* See glossary for definition.
The Compensation Committee
/s/ Franklin A. Thomas, Chairman
/s/ Kenneth W. Dam
/s/ Joseph T. Gorman
/s/ John P. Mulroney
/s/ Sir Arvi Parbo
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.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------
Number of Securities
Name and Underlying Option All Other
Principal Position (1) Year Salary (2) Bonus Grants (3) Compensation (4)
- ---------------------- ---- ----------- ------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Paul H. O'Neill 1997 $850,020 324,584 $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 610,200 304,354 195,781
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 368,577 144,314 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 395,200 179,199 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 395,200 170,052 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
<FN>
(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 in the Report of the
Compensation Committee on page xx. See also the Option
Grants in 1997 table on page xx.
(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 $450 of unused health care credits received as cash.
</TABLE>
Option Grants in 1997
The following table shows options granted to the named
executive officers in 1997.
<TABLE>
<CAPTION>
Individual Grants
- ---------------------------------------------------------------------------
% of Total
Number of Securities Options Granted
Underlying Options to Employees in Exercise or Base Grant Date
Name Granted (1) Fiscal Year Price ($/Sh) Expiration Date Present Value (2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
P. H. O'Neill 175,000 2.74% $70.7500 January 7, 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
A. Belda 125,000 1.96% $70.7500 January 7, 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
G. E. Bergeron 46,000 0.72% $70.7500 January 7, 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
R. L. Fischer 65,000 1.02% $70.7500 January 7, 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
R. R. Hoffman 60,000 0.94% $70.7500 January 7, 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
<FN>
(1) Annual option grants (the first grant listed for
each officer) are currently granted 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 in
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.
</TABLE>
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.
<TABLE>
<CAPTION>
Number of Securi-
ties Underlying
Unexercised Value of Unexercised
Shares Options at Fis- In-the-Money Options
Acquired on Value cal Year-End at Fiscal Year-End
----------------- ------------------
Exercise Realized Exer- Unexer- Exer- Unexer-
Name (1) (2) cisable cisable cisable cisable
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
P. H. O'Neill 227,274 $2,713,350 684,211 175,000 $10,298,907 $0
A. J. P. Belda 240,497 8,112,881 119,151 208,346 562,970 0
G. E. Bergeron 115,981 1,756,194 105,036 79,952 686,451 18,590
R. L. Fischer 133,497 1,847,543 149,857 104,861 685,017 0
R. R. Hoffman 136,174 2,060,108 149,090 95,148 688,717 27,921
<FN>
(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.
</TABLE>
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.
<TABLE>
<CAPTION>
Pension Plan Table
Annual Benefits for Years of Service Indicated
Average Annual
Compensation 15 years 20 years 25 years 30 years 35 years 40 years
-------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 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
</TABLE>
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, shares of Alcoa common
--------
stock were outstanding, and approximately xxx 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 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 as follows (the text in
brackets is to be deleted, replaced by the underscored text):
"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
[300,000,000] 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, 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.
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.
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 xx, 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.
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. Committee members
must not have been eligible to participate in the Plan for at
least 12 months. No subcommittee member is a current or
former officer or employee, and no member receives 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, xxx,000
shares; Mr. Belda, xxx,000 shares; Mr. Bergeron, xxx00
shares; Mr. Fischer, xxx00 shares; and Mr. Hoffman, xx,000
shares; and all executive officers as a group (13
individuals), 675,800 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 committee. 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 committee to establish other rules
regarding the treatment of options upon termination of
employment by reason of death, disability, retirement or
other approved reason. The committee may shorten the period
of any option if the optionee takes any action which 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
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 Plan's administrators, 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 $xxxx 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
committee may permit the use of Alcoa shares to pay the
required withholding taxes.
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 in their discretion on some matters (called
"discretionary" items) unless you indicate a contrary vote.
Every matter being voted on at this meeting is a
"discretionary" item. If there were non-discretionary items
being voted on, your failure to give voting instructions
would mean that your shares would not be voted; these non-
voted shares are referred to as broker non-votes.
executive officer. This is an SEC-defined term, used to
denote senior policy-making officers of the corporation,
officers in charge of principal business units and certain
others.
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 as reported for
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.
Alcoa
425 Sixth Avenue
Pittsburgh, Pennsylvania 15219-1850
Graphics Appendix List
Page Where
Graphic Appears Description of Graphic or Cross-Reference
page Photograph of Henry B. Schacht, Nominee for
Director
page Photograph of Franklin A. Thomas, Nominee for
Director
page Photograph of Kenneth W. Dam, Continuing
Director
page Photograph of Judith M. Gueron, Continuing
Director
page Photograph of Paul H. O'Neill, Continuing
Director
page Photograph of Joseph T. Gorman, Continuing
Director
page Photograph of Sir Ronald Hampel, Continuing
Director
page Photograph of John P. Mulroney, Continuing
Director
page Photograph of Marina v.N. Whitman, Continuing
Director
APPENDIX X
----------
LONG TERM STOCK INCENTIVE PLAN
OF
ALUMINUM COMPANY OF AMERICA
(Revised, Effective January 1, 1997; Amended January 1, 1998)
ARTICLE I
DEFINITIONS
The following words as used herein shall have the following
meanings unless the context otherwise requires.
PLAN means the Long Term Stock Incentive Plan of Aluminum Company
of America, as amended from time to time, which is a continuation
of the Employees' Stock Option Plan.
COMPANY means Aluminum Company of America.
SUBSIDIARY means any corporation in which the Company owns,
directly or indirectly, stock possessing 50% or more 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 means the Board of Directors of the Company and includes
any duly authorized Committee when acting in lieu thereof.
EMPLOYEE means any employee of the Company or a Subsidiary.
AWARD means any stock option award granted or delivered under the
Plan.
OPTIONEE means any person who has been granted a stock option
under the Plan.
COMMITTEE means the Committee established under Section 1 of
Article V 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 respect to Company Stock, (1) the
mean of the high and low sales prices of such stock (a) as
reported 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 eligible 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 Company and its Subsidiaries.
SECTION 7. Transferability; Beneficiaries; Etc. Each stock
option shall be nontransferable by the Optionee except by last
will and testament or the laws 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 discretion of the Committee,
(a) some or all Optionees may be permitted to transfer some or
all 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 of their Awards and
stock appreciation rights in the event of death prior to exercise
thereof, in which event a permitted beneficiary or beneficiaries
shall then have the right to exercise 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 employment of the Company or one or more of its
Subsidiaries, at the pleasure of the Company or such Subsidiary,
for 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 plan of the Company or a Subsidiary, whichever may be
earlier, at 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 discretion of the Committee,
this obligation may be deemed 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 (i) an additional number of shares equal to the number of
shares which at January 1, 1997 were reserved for issuance under
the Plan as then in effect and (ii) the number of shares
purchased or acquired by the Company with an aggregate price no
greater than the cash proceeds received by the Company after
January 1, 1998 from the exercise of stock options granted under
the Plan. 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]
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.
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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
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)
