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 / /
Check the appropriate box:
/ / 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
Alcoa Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than
Registrant)
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/ x / No fee required.
/ / Fee computed on table below per Exchange Act
Rules 14a-6(i) (4) and 0-11.
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Rule 0-11 (Set forth the amount on which the
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/ / 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
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ALCOA LOGO
1999
Notice of Annual Meeting and Proxy Statement
Alcoa
201 Isabella Street at 7th Street Bridge
Pittsburgh, Pennsylvania 15212-5858
TABLE OF CONTENTS
NOTICE OF 1999 ANNUAL MEETING
THE ANNUAL MEETING AND VOTING - QUESTIONS AND ANSWERS
BOARD OF DIRECTORS
ELECTION OF DIRECTORS
ALCOA STOCK OWNERSHIP AND PERFORMANCE
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
SUMMARY COMPENSATION TABLE
OPTION GRANTS IN 1998
1998 AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
PENSION PLANS AND PENSION TABLE
PROPOSAL TO APPROVE THE ALCOA STOCK INCENTIVE PLAN
OTHER INFORMATION
ALCOA LOGO
TO ALCOA SHAREHOLDERS:
I cordially invite you to the 1999 annual meeting of Alcoa
shareholders.
The meeting this year is on Friday, May 7, 1999 at 9:30 a.m. in the
Allegheny Ballroom of the DoubleTree Hotel Pittsburgh in Pittsburgh,
Pennsylvania. The location is accessible to disabled persons, and we
will have headsets available for the hearing impaired.
I hope you will participate in this review of our company's business
and operations. This proxy statement describes the items you will
vote on at the meeting. In addition to voting, we will review the
major developments of 1998 and answer your questions.
This year we are introducing on-line voting as an option for
registered shareholders. If you have access to a computer, you may
find this to be a convenient way to vote. Instructions for on-line
voting are on your proxy form.
If you plan to attend, you will need an admission ticket. For
registered holders, we have included an admission ticket with your
proxy card. Shareholders and others may obtain tickets by contacting
the corporate secretary.
Whether or not you plan to attend the meeting, your vote is important.
Please vote by returning your signed and dated proxy card in the
postage-paid envelope or by using the new on-line voting option.
I look forward to seeing you at the annual meeting.
Sincerely,
/s/Paul H. O'Neill
Paul H. O'Neill
Chairman of the Board and
Chief Executive Officer
March 8, 1999
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ALCOA LOGO
NOTICE OF 1999 ANNUAL MEETING
March 8, 1999
Alcoa's annual meeting of shareholders will be on Friday, May 7, 1999
at 9:30 a.m. We will meet in the Allegheny Ballroom of the DoubleTree
Hotel Pittsburgh, 1000 Penn Avenue, Pittsburgh, Pennsylvania. If you
owned common stock at the close of business on February 8, 1999, you
may vote at this meeting.
At the meeting, we plan to:
- elect four directors whose terms expire in 2002, and elect one
director whose term expires in 2001
- vote on adoption of a new stock incentive plan, which will replace
the company's Long Term Stock Incentive Plan, and
- attend to other business properly presented at the meeting.
The Board is not aware of any other proposals for the May 7, 1999
meeting. Should any arise, the proxy committee will vote your proxy
according to its best judgment.
On behalf of Alcoa's Board of Directors,
/s/Denis A. Demblowski
Denis A. Demblowski
Secretary
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THE ANNUAL MEETING AND VOTING -
QUESTIONS AND ANSWERS
This booklet and proxy card contain information about the items you
will vote on at the annual meeting.
Who is entitled to vote and how many votes do I have?
If you are a common stock holder of record at the close of business on
February 8, 1999, you can vote. For each matter presented for vote,
you have one vote for each share you own.
How do I vote?
You may vote in person by attending the meeting or by completing and
returning a proxy by mail or electronically using the Internet. To
vote your proxy by mail, mark your vote on the enclosed proxy card,
then follow the directions on the card. To vote your proxy using the
Internet, see the instructions on the proxy form and have the proxy
form available when you access the Internet website. The webpage will
prompt you to enter your control number; then follow the instructions
to record your vote. The proxy committee will vote your shares
according to your directions. If you do not mark any selections, your
shares will be voted as recommended by the Board of Directors. Whether
you plan to attend the meeting or not, we encourage you to vote by
proxy as soon as possible.
What does it mean if I receive more than one proxy card?
If you are a shareholder of record or participate in Alcoa's Dividend
Reinvestment and Stock Repurchase Plan or employee savings plans, you
will receive one proxy card for all shares of common stock held in or
credited to your accounts as of the record date, if the account
registrations are the same. If your shares are registered differently
and are in more than one account, you will receive more than one proxy
card. We encourage you to have all accounts registered in the same
name and address whenever possible. You can do this by contacting our
transfer agent, First Chicago Trust Company of New York, at 1-800-317-
4445, 1-201-324-0313 (outside of the U.S. and Canada) or by e-mail at
FCTC@delphi.com.
How do I vote if I participate in one of the employee savings plans?
The plans' independent trustee will vote your Alcoa employee savings
plan shares according to your voting instructions or as recommended by
the Board of Directors if you give no instructions on the proxy form.
The trustee will vote plan shares not voted in person or by proxy in
proportion to the way the other plan participants voted their shares.
Can I change my vote?
You can revoke your proxy before the time of voting at the meeting in
several ways:
- by mailing in a revised proxy dated later than the first
- by voting again at the Internet website
- by voting in person at the meeting or
- by notifying Alcoa's corporate secretary in writing that you are
revoking your proxy.
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 Alcoa, counts the votes and acts as the inspector of election for
the meeting.
Who can attend the annual meeting, and how do I obtain an admission
ticket?
You may attend the meeting if you were a shareholder on February 8,
1999. If you plan to attend the meeting, you will need an admission
ticket, which is part of your proxy form. If a broker holds your
shares and you would like to attend, please write to: Secretary,
Alcoa, 201 Isabella Street, Pittsburgh, PA 15212-5858. Please include
a copy of your brokerage account statement or an omnibus proxy (which
you can get from your broker), and we will send you an admission
ticket.
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What constitutes a "quorum" for the meeting?
A majority of the outstanding shares, present or represented by proxy,
constitutes a quorum. A quorum is necessary to conduct business at the
annual meeting. You are part of the quorum if you have voted by proxy.
Abstentions, broker non-votes and votes withheld from director
nominees count as "shares present" at the meeting for purposes of
determining a quorum. However, abstentions and broker non-votes do not
count in the voting results. A broker non-vote occurs when a broker or
other nominee who holds shares for another does not vote on a
particular item because the nominee does not have discretionary voting
authority for that item and has not received instructions from the
owner of the shares.
Director candidates who receive the highest number of votes cast will
be elected. Approval of each other item being considered requires a
majority of the votes cast.
At the close of business on February 8, 1999, the record date for the
meeting, Alcoa had 368,378,446 shares of common stock issued and
outstanding. This number reflects the two-for-one split of Alcoa's
common stock that the Board of Directors approved in January 1999. We
have adjusted all share information in this proxy statement to reflect
this stock split.
Who pays for the solicitation of proxies?
Alcoa pays the cost of soliciting proxies. We retained Morrow &
Company, Inc. to assist with the solicitation for a fee of $11,500
plus reasonable out-of-pocket expenses. We will reimburse brokerage
firms and other custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses for sending proxy materials to
shareholders and obtaining their votes.
How do I comment on company business?
There is space for your comments on the proxy card or you may send
your comments to us in care of the corporate secretary. Although it is
not possible to respond to each shareholder, your comments help us to
understand your concerns and address your needs.
May I nominate someone to be a director of Alcoa?
If you are a shareholder entitled to vote at an annual meeting, you
may nominate one or more persons for election as directors of Alcoa
at that meeting. You may do this by sending a written notice to:
Secretary, Alcoa, 201 Isabella Street, Pittsburgh, PA 15212-5858.
The notice must include certain information about the persons you
nominate, and we must receive it at least 90 days before the annual
meeting date. For complete details, contact the corporate secretary.
When are the 2000 shareholder proposals due?
Alcoa will hold its next annual meeting on May 12, 2000. You must
submit shareholder proposals in writing by November 12, 1999 for them
to be considered for the 2000 proxy statement. No proposals received
after January 28, 2000 may be raised at the annual meeting. Address
all shareholder proposals to the corporate secretary of Alcoa at the
above address.
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BOARD OF DIRECTORS
COMMITTEES AND MEETINGS OF THE BOARD
The Board of Directors considers all major decisions of Alcoa. The
Board met nine times in 1998. Attendance by directors at Board and
committee meetings averaged 90%. All directors attended at least 75%
of the meetings. The Board has the following five standing committees:
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, health and safety audits and monitors compliance with
Alcoa business conduct policies. The independent accountants, the vice
president of audit and internal auditors have access to the committee
without management's presence. The committee met seven times in 1998.
The Compensation Committee determines cash compensation for Alcoa
officers, approves post-termination contracts and performs other
functions specified by the company's compensation plans. The committee
also reviews the participation of officers in other benefit programs
for salaried employees. In addition, this committee issues the Report
of the Compensation Committee on executive compensation (see page 14
of this proxy statement). The committee met six times in 1998.
The Executive Committee has authority to act on behalf of the Board.
It meets when specific action must be taken between Board meetings.
This committee met once in 1998.
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 corporate
secretary. This committee met once in 1998.
The Pension and Savings Plan Investment Committee reviews and approves
the investment management of Alcoa's retirement plans and principal
savings plans. This committee met twice in 1998.
DIRECTORS' COMPENSATION
Alcoa pays each director who is not an Alcoa employee an annual
retainer fee, which was $85,000 in 1998. Alcoa does not pay any
additional fees, such as meeting or committee fees. The company has
increased the annual retainer to $100,000 for 1999.
Directors may elect to defer some or all of their annual retainer
under the company's deferred fee plan for nonemployee directors. Alcoa
encourages its directors to defer the maximum amount that their
individual circumstances allow. The company credits all fee deferrals
to an Alcoa stock investment account, except that directors may invest
deferrals exceeding 50% of the annual retainer fee in other investment
options under the plan. Alcoa credits deferred accounts as if invested
in the investment options under Alcoa's principal savings plan for
salaried employees. Directors may change among investment options once
each month. Directors cannot, however, transfer from the Alcoa stock
investment option. Alcoa does not fund directorsO deferred accounts,
but pays them 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.
-5-
ELECTION OF DIRECTORS
Alcoa's Board of Directors has 11 members, who are divided into three
classes. Directors are elected for three-year terms. The terms for
members of each class end in successive years.
The Board of Directors has nominated the four members of the class of
directors whose terms of office are expiring to serve for new three-
year terms that will end in 2002. In addition, the Board has nominated
Alain J. P. Belda to serve for a two-year term expiring at the 2001
annual meeting.
The proxy committee will vote your proxy for the election of these
nominees unless you withhold authority to vote for any one or more of
them. If any director is unable to stand for election, the Board may
reduce its size or choose a substitute.
NOMINEES TO SERVE FOR A THREE-YEAR TERM EXPIRING IN 2002
PHOTO
Joseph T. Gorman
Age: 61
Director since: 1991
Alcoa Board Committees: Compensation Committee, Nominating Committee
and Pension and Savings Plan Investment
Committee (chair).
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.
-6-
PHOTO
Sir Ronald Hampel
Age: 66
Director since: 1995
Alcoa Board Committees: Nominating Committee and Pension and Savings
Plan Investment Committee.
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 Chairman of
the UK Committee on Corporate Governance.
Other directorships: British Aerospace PLC.
PHOTO
John P. Mulroney
Age: 63
Director since: 1987
Alcoa Board Committees: Compensation Committee and Nominating
Committee (chair).
Principal occupation: Former President and Chief Operating Officer,
Rohm and Haas Company, a specialty chemicals
manufacturer.
Recent business experience: Mr. Mulroney was President and Chief
Operating Officer of Rohm and Haas
Company from 1986 until his retirement on
December 31, 1998. He served as a director
of Rohm and Haas from 1982 to 1998.
Other directorships: Teradyne, Inc.
-7-
PHOTO
Marina v.N. Whitman
Age: 63
Director since: 1994
Alcoa Board Committees: Audit Committee and Pension and Savings Plan
Investment Committee.
Principal occupation: Professor of Business Administration and
Public Policy, School of Business Adminis-
tration and the School of Public Policy at
the University of Michigan, since 1992.
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.
NOMINEE TO SERVE FOR A TWO-YEAR TERM EXPIRING IN 2001
PHOTO
Alain J. P. Belda
Age: 55
Director since: 1998
Principal occupation: President and Chief Operating Officer of
Alcoa since January 1997.
Recent business experience: Mr. Belda was elected Vice Chairman in 1995
and Executive Vice President in 1994. From
1979 to March 1994, he was President of
Alcoa Aluminio S.A. in Brazil. In August
1991, he was named President-Latin America
for the company after he had been given
responsibility for all of Alcoa's interests
in Latin America (other than Suriname) in
1989.
Other directorships: Citigroup Inc. and Cooper Industries, Inc.
-8-
DIRECTORS WHOSE TERMS EXPIRE IN 2001
PHOTO
Hugh M. Morgan
Age: 58
Director since: 1998
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 and a director of Alcoa of
Australia Limited from 1977 to 1998.
Other directorships: Reserve Bank of Australia and a number of
industry, business, trade and international
associations and advisory groups.
PHOTO
Henry B. Schacht
Age: 64
Director since: 1994
Alcoa Board Committee: Audit Committee (chair).
Principal occupation: Senior Advisor, Lucent Technologies Inc., a
communications systems and technology
company, since February 1998.
Recent business experience: Mr. Schacht was Chairman of Lucent
Technologies from February 1996 to February
1998 and its Chief Executive 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, Knoll, Inc. and
Lucent Technologies Inc.
-9-
PHOTO
Franklin A. Thomas
Age: 64
Director since: 1977
Alcoa Board Committees: Audit Committee, Compensation Committee
(chair), Executive Committee, Nominating
Committee and Pension and Savings Plan
Investment Committee.
Principal occupation: Consultant, TFF Study Group, a nonprofit
institution assisting development in South
Africa, since 1996.
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: Citigroup Inc., Conoco Inc., Cummins Engine
Company, Inc., Lucent Technologies Inc. and
PepsiCo, Inc.
DIRECTORS WHOSE TERMS EXPIRE IN 2000
PHOTO
Kenneth W. Dam
Age: 66
Director since: 1987
Alcoa Board Committees: Audit Committee, Compensation Committee and
Executive Committee.
Principal occupation: Max Pam Professor of American and Foreign
Law, University of Chicago Law School, since
1992.
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
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.
-10-
PHOTO
Judith M. Gueron
Age: 57
Director since: 1988
Alcoa Board Committees: Audit Committee and Pension and Savings
Plan Investment Committee.
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. Before joining MDRC,
she was director of special projects and
studies and a consultant for the New
York City Human Resources Administration.
PHOTO
Paul H. O'Neill
Age: 63
Director since: 1986
Alcoa Board Committee: Executive Committee (chair).
Principal occupation: Chairman of the Board and Chief Executive
Officer of Alcoa since 1987.
Recent business experience: From 1985 to 1987, Mr. O'Neill was
President and a director of
International Paper Company.
Other directorships: Eastman Kodak Company, Gerald R. Ford
Foundation, Lucent Technologies Inc.,
Manpower Demonstration Research
Corporation, National Association of
Securities Dealers, Inc. and The RAND
Corporation.
-11-
ALCOA STOCK OWNERSHIP AND PERFORMANCE
This table shows beneficial ownership of Alcoa common stock
by directors, nominees for director and executive officers as
of December 31, 1998. The named executive officers are the
chief executive officer and the officers who were the highest
paid in 1998.
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.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
Name Exercisable stock Number of shares Number of deferred
options(1) owned share equivalent
units(2)
Alain J. P. Belda 607,774 156,559 5,659
Kenneth W. Dam 0 5,400 3,946
Joseph T. Gorman 0 4,586 4,979
Judith M. Gueron 0 5,959 4,736
Sir Ronald Hampel 0 4,516 0
Hugh M. Morgan 0 200 1,257
John P. Mulroney 0 6,230 3,925
Paul H. O'Neill 1,490,968 495,016 11,234
Henry B. Schacht 0 5,064 7,850
Franklin A. Thomas 0 6,374 12,103
Marina v.N. Whitman 0 3,800 3,946
George E. Bergeron 394,730 78,974 3,432
Richard L. Fischer 464,612 78,496 7,129
L. Patrick Hassey 245,058 14,386 1,662
Richard B. Kelson 249,466 49,086 2,146
Directors and
executive officers 4,503,770 1,200,110 82,555
as a group
(22 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.
Compliance With Section 16(a) Reporting: The rules of the Securities
and Exchange Commission require that Alcoa disclose late filings of
reports of stock ownership by its directors and executive officers.
Due to the complexity of the reporting rules, the company has assumed
certain responsibilities for filing compliance and has instituted
procedures to assist officers and directors with these obligations.
In December, we were five days late in filing a report covering
one sale transaction for Richard L. Fischer.
-12-
Owners of More than 5% of Alcoa Stock: The following shareholders
reported to the Securities and Exchange Commission that they owned
more than 5% of our common stock on December 31, 1998.
Name and address of Number of Percentage of outstanding
beneficial owner shares owned Alcoa common stock owned
FMR Corp.(1)
82 Devonshire Street 40,177,324 10.94
Boston, MA 02109
Wellington Management Company, LLP(2)
75 State Street 36,249,812 9.87
Boston, MA 02109
(1) FMR is a parent holding company and its report also covered
interests owned or controlled by its affiliates. FMR reported sole
power to vote 3,549,614 shares and sole power to dispose of all
shares shown. It did not share power to vote or dispose of any
shares.
(2) Wellington reported these amounts as an investment advisor; the
shares are owned by its clients. Wellington reported that it had
shared power to dispose of all shares and shared voting power over
7,373,576 of the shares shown; it did not have sole power to vote
or dispose of any shares. Vanguard Windsor Fund is the only
Wellington client that owned more than 5% of Alcoa's common stock.
STOCK PERFORMANCE GRAPH
This graph compares the most recent five-year performance of Alcoa
common stock with the S&P 500 Index and a peer group index. It shows
an investment of $100 on December 31, 1993 and the reinvestment of
all dividends. Over the five-year period, your $100 investment in
Alcoa stock would have grown to $236.70 by the end of 1998. This
compares with $293.91 for the S&P 500 Index and $138.43 for the peer
group index. The peer group index, which is weighted for market
capitalization, includes Alcan Aluminium Limited and Reynolds Metals
Company. Alcoa uses the peer group index instead of the S&P Aluminum
Industry Index, which includes Alcoa as well as Alcan and Reynolds,
because Alcoa's heavy market capitalization weighting would distort
a comparison with the full index.
1993 1994 1995 1996 1997 1998
Alcoa $100.00 $127.40 $158.40 $195.36 $218.59 $236.70
S&P 500 $100.00 $101.32 $139.40 $171.40 $228.59 $293.91
Peer Group $100.00 $118.74 $145.42 $155.90 $144.12 $138.43
-13-
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
Our committee, the Compensation Committee, is responsible for
determining compensation for Alcoa executive officers. All committee
members are independent directors who have never been Alcoa
employees. We base Aloca decisions on our understanding of Alcoa's
businesses and long-term strategy and our knowledge of the
capabilities and performance of the company and its executives.
Compensation Philosophy - We believe that managing the company with
a long-term perspective, while striving to deliver consistently good
annual results, will best serve Alcoa shareholders. The company,
therefore, designs its executive compensation program to hire,
reward, motivate and retain high-performing employees worldwide.
Alcoa's total compensation program includes:
- annual salary
- annual cash incentives
- long-term, stock-based incentives and
- employee benefits.
We determine compensation based on certain principles:
- pay for performance - both individual and team performance
- competitive total compensation compared with leading industrial
companies and
- total compensation that is highly leveraged to financial and
nonfinancial business performance.
Our committee places less emphasis on high base salaries in favor of
at-risk, short-term and long-term incentives based on performance. We
believe that the company's executives will more effectively represent
Alcoa shareholders if they are shareholders themselves and have a
meaningful portion of their personal assets invested in Alcoa stock.
Annual Cash Compensation - Each year we review comparative market
compensation information prepared by internal and outside consultants.
The outside consultants survey leading manufacturing companies for
both total cash compensation and long-term incentive information.
These companies are among the largest and best performing in a broad
range of industries and serve as a sample of the larger market. We
also compare the level of responsibility for executive positions
surveyed within these companies.
Total annual cash compensation for Alcoa senior managers includes base
salary and cash incentive awards. We set the annual cash compensation
levels above the median of high-performing industrial companies. In
order to tie annual cash compensation more closely to performance, we
set base salaries below the median and annual cash incentive levels
above it.
Annual Cash Incentives - Alcoa establishes targets for cash incentive
awards, which vary by position as a percentage of base salary. Our
committee may make adjustments in payout, however, to recognize and
reward individual performance. The maximum payout, before any
adjustment for individual performance, is 200% of the target.
Alcoa revised its cash incentive programs in 1992 to provide more
consistent performance measures for both executives and, under a
performance-based pay plan, most other U.S. employees.
Alcoa measures its business unit employees according to the goals of
their individual units. The company bases annual cash incentive
payouts for most executive officers 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,
employee development and succession planning, 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, there will be long-term growth in shareholder
value.
Long-Term Incentives - A goal of our committee is to closely align
management's interests with those of the shareholders. The company's
long-term incentives are, therefore, entirely stock-based. We believe
this encourages stock ownership among Alcoa executives. Alcoa grants
annual long-term awards as stock options. The stock option program
allows us to provide awards that are competitive with the sample of
leading industrial companies. The performance of Alcoa stock
determines the actual amount earned.
-14-
The guidelines used to establish the size of a stock option award
include an executive's level of responsibility, the size of prior
grants and comparative award information. Individual grants typically
follow the guideline amounts.
For U.S. federal income tax purposes, Alcoa may deduct compensation
paid as the result of option exercises under the shareholder-approved
Long Term Stock Incentive Plan. The company may not, however, deduct
portions of salary, bonus and other cash and noncash compensation in
excess of $1 million paid to a named executive officer.
Stock Option Reload Feature - In 1989, Alcoa amended the Long Term
Stock Incentive Plan to add a stock option reload feature that
encourages increased stock ownership not only for executive officers,
but for allparticipants who are active employees (currently about 900
individuals). This feature promotes the early exercise of options and
the retention of Alcoa shares.
The reload feature accomplishes these goals in the following way.
First, by exercising an outstanding option, the optionee realizes, in
shares, the net profit or growth in value of that option (the excess
of the current fair market value over the option grant price), less
applicable withholding for taxes. The optionee may not sell or
transfer one-half of the profit shares for a period of time, currently
until the optionee's employment with Alcoa ends. In return for
agreeing to this transfer condition, the optionee receives a new
reload option grant at the current market price and with the same
expiration date as the exercised option. The reload option covers the
number of shares exercised in the underlying option less the number of
profit shares delivered to the optionee after withholding for taxes.
The reload option is exercisable after six months and allows the
optionee to continue to gain from future appreciation on the stock.
Share ownership by executive officers and other optionees has
increased significantly in the last several years due to the reload
feature.
In 1997, we approved a dividend equivalent compensation plan. Under
this plan, Alcoa pays cash dividend equivalents, when approved by the
Board, on a portion of the exercisable options held by active and
retired participants.
Compensation of Executive Officers in 1998 - Our committee increased
salary and annual cash incentive targets this year, reflecting
similar increases in the comparison group. Annual incentive payouts
to executive officers for 1998 averaged about 129% of target based
on attainment of business unit financial and nonfinancial goals.
In January 1998, Alcoa granted stock options to executive officers at
target levels for their positions. The majority of stock option
exercises in 1998 by executive officers also included the grant of
reload options.
Compensation of the Chief Executive Officer - Alcoa bases the chief
executive officer's compensation on the same philosophy and policies
as for all executive officers. This compensation 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 1998, Mr. O'Neill's base salary was $850,020. In accordance with
company compensation policy, the midpoint salary for the CEO position
remains below the median for the comparison group. Mr. O'Neill's 1998
annual stock option award was at the guideline number of shares for
his position. In January 1999, we awarded him a bonus of $1,600,000,
which was 157% of his target incentive award for 1998. We based this
amount on total business unit results compared with plan goals and in
recognition, by our committee and all other nonemployee directors, of
Mr. O'Neill's outstanding leadership of Alcoa during 1998. In
addition, the bonus amount reflects our judgment of the benefit to the
company of Mr. O'Neill's stature and leadership position in the
aluminum industry and industry in general.
In recognition of these accomplishments and in light of his
relinquishment of the CEO position in May 1999, we awarded a stock
option grant to Mr. O'Neill in January 1999 for double the guideline
number of shares for his position. This award will be Mr. O'Neill's
final stock option grant as an Alcoa employee even though he will
remain an employee and chairman of the board until January 1, 2001. We
also increased his salary for 1999 to $950,400. We believe Alcoa and
its shareholders have benefited greatly from Mr. O'Neill's direction
and contributions as CEO.
-15-
Executive Compensation Changes for 1999 - In January 1999, with the
agreement of the Board, we approved two new programs and a change in
an existing program to encourage greater share ownership by Alcoa
managers. These actions were taken in anticipation of implementing the
new Alcoa Stock Incentive Plan later this year should shareholders
approve the plan. If shareholders do not approve the plan, these
changes will not go into effect. See the discussion of the Alcoa Stock
Incentive Plan proposal beginning on page 21.
We approved the following actions, subject to approval by shareholders
of the Alcoa Stock Incentive Plan:
- First, we established new share ownership guidelines for senior
executives. The guidelines, which range from 10,000 shares for
most business unit presidents to 140,000 shares for the CEO, will
apply to about 50 individuals. We expect each individual to reach
his or her target ownership level within five years.
- Next, to assist employees in these senior positions who have a
relatively short tenure with Alcoa to achieve these ownership
levels, we approved a program that provides a 25% match in Alcoa
stock when the employee elects to invest all or a portion of
eligible incentive compensation in additional Alcoa stock or stock
units. The match shares will be issued as a contingent stock award
under the new Alcoa Stock Incentive Plan and are subject to
forfeiture if the employee leaves Alcoa within three years. This
program is available for senior managers who have less than five
years of employment service when they become subject to a share
ownership guideline or an increase in a share ownership guideline.
Eligibility terminates when the employee achieves the target
ownership or after five years, whichever is earlier.
- To encourage more participants in the stock option program to use
the reload feature, we approved a change in the restriction period
that applies to one-half of the shares received on option exercise.
Currently, the restriction period during which the shares are
nontransferable is the remainder of the employee's career with
Alcoa. Beginning in the second half of 1999 or later as determined
by our committee, if shareholders approve the Alcoa Stock Incentive
Plan at the 1999 annual meeting, the restriction period will change
to the shorter of the employee's remaining Alcoa career or five
years from the date the shares are issued. This change will make
participation in the reload program more attractive for employees
earlier in their Alcoa careers. The change will apply to
outstanding restricted shares as well as to shares issued in option
exercises after the effective date of the change.
We, as a committee, believe that these 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
-16-
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Name and Principal Year Salary(1) Bonus Number of Securities All Other
Position Underlying Option Compensation(3)
Grants(2)
Paul H. O'Neill 1998 $850,020 $1,600,000 816,220 $153,236
Chairman of the Board 1997 850,020 1,250,000 649,168 171,206
and Chief Executive Officer 1996 750,000 810,000 1,386,054 172,062
Alain J. P. Belda 1998 640,707 1,100,000 523,518 185,211
President and 1997 610,200 850,000 608,708 195,781
Chief Operating Officer 1996 540,600 525,000 240,608 100,670
George E. Bergeron 1998 397,038 700,000 180,448 73,358
Executive Vice President- 1997 368,577 381,300 288,628 77,754
Allied Products 1996 339,200 245,000 410,812 77,867
Richard L. Fischer 1998 400,200 500,000 234,746 61,858
Executive Vice President, 1997 395,200 500,000 358,398 68,186
Chairman's Counsel 1996 370,200 345,000 511,314 69,188
L. Patrick Hassey 1998 354,231 584,700 83,600 165,433
Vice President and 1997 316,000 329,800 134,306 64,824
President, Alcoa Europe 1996 293,000 185,600 185,438 48,956
Richard B. Kelson 1998 400,200 500,000 251,324 91,677
Executive Vice President and 1997 318,000 308,700 150,018 59,829
Chief Financial Officer 1996 288,000 258,000 186,012 58,460
(1) The most highly compensated executive officers are those with
the highest annual salary and bonus for 1998. In addition to base
salary, the salary column includes, when chosen by the employee, an
extra week's pay instead of vacation for employees with 25 or more
years of service.
(2) New option grants made in 1998 totaled 350,000 for Mr. O'Neill;
210,000 for Mr. Belda; 83,600 for Mr. Hassey; and 105,600 each for
Messrs. Bergeron, Fischer and Kelson. The company granted all of
these options at 100% of the fair market value of Alcoa common
stock on the grant date. The other option awards relate to
previous yearsO option grants and the use of the reload feature
described earlier in the Report of the Compensation Committee.
See also the table, Option Grants in 1998.
(3) Company matching contributions to 401(k) and excess savings plans
for 1998 were: Mr. O'Neill, $51,001; Mr. Belda, $37,750;
Mr. Bergeron, $23,400; Mr. Hassey, $20,880; and Messrs. Fischer
and Kelson, $24,012 each. The present value costs of the company's
portion of 1998 premiums for split-dollar life insurance, above
the term coverage level provided generally to salaried employees,
were: Mr. O'Neill, $102,235; Mr. Belda, $146,561; Mr. Bergeron,
$49,958; Mr. Fischer, $37,846; Mr. Hassey, $49,877; and
Mr. Kelson, $67,665. The 1998 amount for Mr. Belda also includes
$900 of unused health care credits received as cash. The 1998
amount for Mr. Hassey includes $94,676 relating to his assignment
in Europe. This amount is paid under standard company programs
for U.S. employees on international assignments.
-17-
OPTION GRANTS IN 1998
Individual Grants
Name Number of % of Total Exercise or Expiration Date Grant Date
Securities Options Base Price Present
Underlying to Employees ($/Sh) Value(2)
Options in Fiscal Year
Granted(1)
Paul H. O'Neill 350,000 2.97 $33.0625 January 13, 2008 $2,096,858
271,040 2.30 34.8438 January 11, 2006 1,308,496
49,192 0.42 34.8438 January 14, 2004 237,484
145,988 1.24 34.8438 January 15, 2003 704,784
Alain J. P. Belda 210,000 1.78 33.0625 January 13, 2008 1,258,115
235,102 1.99 39.6094 January 13, 2007 1,290,233
28,956 0.25 38.6875 January 15, 2003 155,211
19,290 0.16 38.6875 January 20, 2002 103,399
6,048 0.05 38.6875 January 23, 2001 32,419
12,316 0.10 38.6875 January 22, 2000 66,017
11,806 0.10 38.6875 May 4, 1999 63,283
George E. Bergeron 105,600 0.90 33.0625 January 13, 2008 632,652
13,624 0.12 39.6094 January 14, 2004 74,768
1,732 0.01 36.5469 January 14, 2004 8,770
29,030 0.25 36.5469 January 15, 2003 146,998
6,456 0.05 39.2969 January 20, 2002 35,151
8,142 0.07 36.5469 January 20, 2002 41,228
7,496 0.06 36.5469 January 23, 2001 37,957
3,850 0.03 36.5469 January 22, 2000 19,495
4,518 0.04 36.5469 May 4, 1999 22,878
Richard L. Fischer 105,600 0.90 33.0625 January 13, 2008 632,652
42,178 0.36 39.6094 January 13, 2007 231,472
5,170 0.04 39.6094 January 14, 2004 28,373
27,390 0.23 35.9531 January 15, 2003 136,440
1,034 0.01 38.6875 January 20, 2002 5,542
27,138 0.23 35.9531 January 20, 2002 135,185
3,872 0.03 38.6875 January 23, 2001 20,755
5,512 0.05 35.9531 January 23, 2001 27,457
16,334 0.14 35.9531 January 22, 2000 81,366
518 0.00 39.6094 January 22, 2000 2,843
L. Patrick Hassey 83,600 0.71 33.0625 January 13, 2008 500,849
Richard B. Kelson 105,600 0.90 33.0625 January 13, 2008 632,652
62,786 0.58 39.6509 January 13, 2007 344,929
27,674 0.23 36.7031 January 13, 2005 140,731
14,846 0.14 36.5969 January 14, 2004 75,278
18,090 0.15 36.5469 January 15, 2003 91,602
7,782 0.07 36.5469 January 20, 2002 29,838
4,442 0.04 36.5469 January 23, 2001 17,032
3,540 0.03 36.5469 January 22, 2000 17,925
6,564 0.06 36.7031 May 4, 1999 33,380
-18-
(1) Alcoa grants annual options (the first grant listed for each officer) in January.
These options 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 company uses the Black-Scholes option pricing model 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 - 5.2%;
dividend yield - 2.1%; expected life, annual grants - 2.5 years; expected life,
reload grants - 1.5 years. The real value of the options in this table depends
on the actual performance of Alcoa stock and the timing of exercises.
1998 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 1998.
Shares Value Number of Securities Value of Unexercised
Acquired on Realized Underlying Unexercised In-the-Money Options at
Name Exercise Options at Fiscal Year-End Fiscal Year-End(1)
Exercisable Unexercisable Exercisable Unexercisable
Paul H. O'Neill 527,086 $3,804,215 1,140,968 816,220 $8,138,212 $2,612,974
Alain J. P. Belda 335,636 1,471,224 397,774 445,102 432,229 885,938
George E. Bergeron 82,012 372,579 289,130 173,992 998,057 485,722
Richard L. Fischer 155,330 718,160 359,012 229,840 953,222 546,936
L. Patrick Hassey 0 0 161,458 83,600 328,283 352,688
Richard B. Kelson 159,616 820,494 143,866 212,332 371,460 477,774
(1) We calculated the value of unexercised options using the
difference between the option exercise price and the
fiscal year-end stock price of $37.28125 per share,
multiplied by the number of shares underlying the option.
-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 nontax-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 15 20 25 30 35 40
Compensation
$ 100,000 $ 20,720 $ 27,630 $ 34,530 $ 41,440 $ 48,760 $ 56,910
300,000 64,520 86,020 107,530 129,040 150,540 172,050
500,000 108,770 145,020 181,280 217,540 253,790 290,050
750,000 164,080 218,770 273,470 328,160 382,860 437,550
1,000,000 219,390 292,520 365,660 438,790 511,920 585,050
1,250,000 274,710 366,270 457,840 549,410 640,980 732,550
1,500,000 330,020 440,020 550,030 660,040 770,040 880,050
1,750,000 385,330 513,770 642,220 770,660 899,110 1,027,550
2,000,000 440,640 587,520 734,410 881,290 1,028,170 1,175,050
2,500,000 551,270 735,020 918,780 1,102,540 1,286,290 1,470,050
The company bases the employee's amount of pension upon the average
compensation for the highest five years in the last ten years of
service. For the executive level, covered compensation includes base
salary and annual cash bonus. We calculate the amounts in the table
using salary at target and bonus at target. We also make payments as a
straight life annuity, reduced by 5% when an employee takes a
surviving spouse pension. The table shows benefits at age 65, before
any reduction for surviving spouse coverage.
At March 1, 1999, pension service for the named officers was:
Mr. Belda, 30 years; Mr. Bergeron, 30 years; Mr. Fischer, 33 years;
Mr. Hassey, 31 years; Mr. Kelson, 24 years; and Mr. O'Neill, 26 years,
reflecting an employment contract that provides somewhat more than
double credit for his years with the company. The resulting pension
for Mr. O'Neill will be offset by pension payments from his previous
employer.
-20-
PROPOSAL TO APPROVE THE ALCOA STOCK INCENTIVE PLAN
(item 2 on the proxy card)
In January 1999, Alcoa's Board of Directors approved the Alcoa Stock
Incentive Plan (the Plan), subject to approval by shareholders at the
1999 annual meeting. If approved, the Plan will become effective on
June 1, 1999 and will replace the company's Long Term Stock Incentive
Plan (the Prior Plan) under which Alcoa currently awards stock
options. The Board recommends that you vote for approval of the Plan.
In the following pages we have summarized the principal features of
the Plan. For a copy of the Plan, please call 1-800-522-6757 (in the
U.S. or Canada) or 1-402-990-6397 (all other calls) or write to the
Secretary at the address on the cover of this proxy statement.
Purpose of the Plan
The Plan authorizes the Board of Directors or an authorized committee
or subcommittee of the Board to make stock-based awards to company
employees. The purpose of the Plan is to motivate and reward employees
by giving them an ownership interest in Alcoa and a proprietary and
vested interest in the company's growth and financial success. The
Board believes that the Plan will enhance the company's ability to
attract and retain individuals of exceptional managerial, technical
and professional talent upon whom, in large measure, the sustained
progress, growth and profitability of Alcoa depend.
Differences Between the Plan and the Prior Plan
The principal difference between the Plan and the Prior Plan is the
variety of stock-based awards available for granting under the Plan.
Under the Prior Plan, only nonqualified stock options and reload
options were granted. In contrast, the Plan authorizes awards of:
- nonqualified stock options (including reload options)
- stock appreciation rights
- contingent (forfeitable) stock
- performance shares and performance units conditioned upon meeting
performance criteria over a period of time and
- stock or other awards valued by reference to or based on Alcoa
stock or other property.
Shares Authorized and Award Limits
We are asking you to authorize 14 million shares of Alcoa common stock
for issuance under this Plan. In addition to the 14 million shares,
the following also would be available to grant under the Plan:
- Shares subject to awards under the Plan or the Prior Plan that are
forfeited, settle for cash, expire or otherwise terminate without
issuance of the shares
- Shares tendered in payment of the purchase price of an option award
under the Plan or the Prior Plan or tendered or withheld to pay
required with-holding taxes
- Shares repurchased by Alcoa and designated by the Board as
available for issuance under the Plan.
Of the total number of shares authorized for grant under the Plan, the
company may issue no more than 1,000,000 shares as awards of contingent
stock, performance shares or in settlement of other stock unit awards.
The Plan also contains annual limits on awards to individual
participants. In any calendar year, no participant may be granted
stock options or stock appreciation rights covering more than
2,000,000 shares or contingent stock or performance shares covering
more than 25,000 shares. The maximum dollar value payable to an
individual with respect to performance unit awards and other stock
unit awards granted in any calendar year is $2,000,000.
Administration
The Compensation Committee of the Board or a subcommittee of the
Compensation Committee will administer the Plan. Committee members
must be Ononemployee directorsO and Ooutside directorsO for applicable
regulatory requirements. This means that they cannot be current or
former Alcoa officers or employees, and they may not receive
compensation from Alcoa except in their capacity as directors. The
Board may assume responsibilities otherwise assigned to the Committee
and may amend, alter or discontinue the Plan at any time. The Board or
the Committee also may amend the terms of any award previously
granted. However, none of these actions by the Board or the Committee
may impair the existing rights of
-21-
a participant without the participant's consent, and neither the
Board nor the Committee may amend the terms of an option to reduce
its price. The Board also may not amend the Plan without shareholder
approval if that approval is necessary to qualify for or comply with
tax or regulatory requirements.
The Committee has the authority to select employees to whom it will
grant awards, to determine the types of awards and the number of
shares covered, to set the terms and conditions of the awards and to
cancel or suspend awards. The Committee also has authority to
interpret the Plan, to establish, amend and rescind rules applicable
to the Plan or awards under the Plan, to approve the terms and
provisions of any agreements relating to Plan awards and to make all
determinations relating to awards under the Plan.
The Plan permits delegation of certain authority to senior officers in
limited instances to make, cancel or suspend awards to employees who
are not Alcoa directors or executive officers.
Eligibility and Participation
All employees of Alcoa and its subsidiaries are eligible to be
selected as participants. About 1,000 current and former employees
hold stock option awards under the Prior Plan.
Term
If shareholders approve the Plan, it will become effective on June 1,
1999. No award may be granted under the Plan after May 31, 2009.
Stock Option Awards
The Committee may grant nonqualified stock option awards under the
Plan. Stock option awards entitle a participant to purchase shares of
Alcoa stock at a fixed price during the option term. The Committee
determines the option grant price, but the price may not be less than
the fair market value per share on the grant date. The term of the
option is set by the Committee, with a maximum of ten years from the
grant date. An option is exercisable at such times as the Committee
determines.
The participant must pay the option grant price in full upon exercise.
The participant 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,
shares or other consideration approved by the Committee.
The Committee may authorize the grant of reload options to active
employees when they exercise stock option awards under the Plan or the
Prior Plan. As a condition to the grant of a reload option, a
participant must elect that a portion of the shares issued upon
exercise of the prior option award may not be sold or transferred for
a period of time, as selected by the Committee. The participant then
receives a new reload option having a grant price equal to the current
market price and the same expiration date as the option being
exercised. The reload option covers the number of shares exercised
less the net number of OprofitO shares delivered to the optionee after
withholding for taxes. Reload options may be granted where the
exercise price of the prior award is paid using shares owned for a
minimum period set by the Committee or, in limited instances, using
cash. One-half of the profit shares will be nontransferable for the
participant's remaining career with Alcoa. Beginning in the second
half of 1999 or later as selected by the Committee, the restriction
period will change to the shorter of five years from the issuance date
of the shares or the remainder of the participant's career with Alcoa.
This change is designed to encourage participants to use the reload
feature earlier in their careers. See the Report of the Compensation
Committee on page 14.
The Committee may permit participants to transfer stock option awards
to immediate family members or family trusts. Otherwise, stock option
awards are not transferable during the participant's lifetime.
Stock Appreciation Rights
A stock appreciation right (SAR) entitles the holder to receive, on
exercise, the excess of the fair market value of the shares on the
exercise date (or, if the Committee so determines, as of any time
during a specified period before the exercise date) over the SAR grant
price. The Committee may grant SAR awards as stand-alone awards or in
combination with a related option award under the Plan. The SAR grant
price is set by the Committee and may not be less than the fair market
value of the shares on the date of grant. Payment upon exercise will
be in cash, stock or other property or any combination of cash, stock
or other property as the Committee may determine. Unless otherwise
determined by the Committee, any related option will no longer be
exercisable to the extent the SAR has
-22-
been exercised and the exercise of an option will cancel the related
SAR.
Due to current accounting treatment, SAR awards likely will be granted
only to nonU.S. residents in locales where option awards have onerous
tax implications for
participants.
Contingent Stock
Contingent stock means shares issued with conditions or contingencies
and, until the conditions or contingencies are satisfied or lapse, the
stock is subject to forfeiture. The Committee establishes the terms
and conditions applicable to a contingent stock award. The minimum
contingency period for a contingent stock award that is not subject to
performance conditions is three years from the date of grant, except
that the Committee may approve contingent stock awards covering up to
100,000 shares with contingency periods of less than three years.
A recipient of a contingent stock award has the right to vote the
shares and receive dividends on them unless the Committee decides
otherwise. If the participant ceases to be an employee before the end
of the contingency period, the award is forfeited, subject to such
exceptions as authorized by the Committee.
Performance Awards
A performance award may be in the form of performance shares (units
valued by reference to shares of stock) or performance units (units
valued by reference to cash or property other than stock). The
Committee may select periods of at least one year during which
performance criteria chosen by the Committee are measured for the
purpose of determining the extent to which a performance award has
been earned. The Committee decides whether the performance levels
have been achieved, what amount of the award will be paid and the form
of payment, which may be cash, stock or other property or any
combination.
Other Stock Unit Awards
The Committee may make other awards of shares or of units valued by
reference to shares or other property. The Committee determines all
conditions and terms that apply to these awards. A participant may not
sell, assign, transfer, pledge or encumber any award issued with
conditions or contingencies until after those conditions lapse. If the
only condition to vesting is passage of time, the minimum vesting
period is three years.
Deferrals of Awards; Dividends
The Committee may permit participants to defer the distribution of all
or part of an earned award. The Committee also may provide that
payments will be made in installments and that dividends or dividend
equivalents will be paid on shares covered by outstanding awards.
Substitute Awards
The Committee may grant awards to employees of companies acquired by
Alcoa or a subsidiary in exchange for or assumption of outstanding
stock-based awards issued by the acquired company. Shares covered by
substitute awards do not reduce the number of shares otherwise
available for award under the Plan.
Option and SAR Repricing Prohibited
The Plan prohibits repricing of options or SARs. Repricing means the
grant of a new option, SAR or other award in return for the
cancellation, exchange or forfeiture of an award that has a higher
grant price than the new award or the amendment of an outstanding
award to reduce the grant price. The grant of a substitute award is
not a repricing.
Adjustments
The Plan provides for adjustments of awards and shares authorized for
issuance under the Plan in the event of stock splits, recapitalizations,
mergers, consolidations, and other changes in the stock. In that event,
the Committee will make such substitutions or adjustments in the
aggregate number or class of shares that may be distributed under the
Plan (including the substitution of similar awards denominated in the
shares of another company) and in the number, class and option price
or other price of shares subject to outstanding awards as it believes
equitable or appropriate to maintain the purpose of the original grant.
Change in Control Provisions
In order to preserve the value of outstanding awards for participants
in the event of a change in control of Alcoa, unless the Committee
determines otherwise at the time of grant of a particular award:
- all outstanding option and SAR awards vest and are
immediately exercisable
- any restrictions or forfeitability conditions on contingent stock
awards or other stock unit awards lapse
-23-
- all reload-restricted shares become fully transferable and
- all performance awards will be earned pro rata for the period up
to the date of the change in control event.
Holders of options and SARs may elect to receive a cash settlement of
their awards in the event of a change in control. The cash settlement
per share is equal to the excess of the highest sales price during the
60-day period leading up to a change in control or, if the change in
control event is a merger or tender offer or similar transaction, the
highest price paid in that transaction over the grant price per share
of the option or SAR. The Committee may elect to pay the cash
settlement value amount in the form of shares in order to preserve
pooling-of-interests accounting treatment for certain change-in-
control transactions.
Change in control of Alcoa means any of the following events:
- the acquisition of a 20% ownership position by any person or
group, other than: (i) acquisitions by or from Alcoa;
(ii) acquisitions by an Alcoa benefit plan; and (iii) corporate
reorganizations in which no person or group becomes a 20% owner
or in which the relative equity interests of current share-
holders are the same before and after the reorganization
- a change in a majority of the members of the Alcoa Board (other
than by individuals whose nomination for director is approved
by at least 75% of the incumbent Board members)
- a merger, consolidation, or similar transaction, except for
(i) mergers and other corporate transactions in which Alcoa
common stock converts into or continues to represent at least
55% of the voting securities of the combined or surviving
entity or (ii) reorganizations in which no entity becomes a
20% holder
- a sale of substantially all assets of Alcoa, except to an entity
owned at least 55% by the holders of Alcoa common stock in the
same proportion as their Alcoa holdings or
- a shareholder-approved dissolution or liquidation of Alcoa.
Performance-Based Compensation
Section 162(m) of the Internal Revenue Code limits the amount of the
deduction that the company may take on its U.S. federal tax return
for compensation paid to any of the named officers in the proxy
statement (the Code refers to these officers as "covered employees").
The limit is $1 million per covered employee per year, with certain
exceptions. This deductibility cap does not apply to "performance-
based compensation," if approved by shareholders. We believe that
awards under the Plan will qualify as performance-based compensation,
if shareholders vote to approve the Plan and it is otherwise
administered in compliance with Code section 162(m).
The Plan contains a number of measurement criteria that the Committee
may use to determine whether and to what extent any covered employee
has earned a contingent stock award, performance award or other stock
unit award. The measurement criteria that the Committee may use to
establish specific levels of performance goals include any one or a
combination of the following: cumulative net income or cumulative net
income per share; return on sales; return on assets; return on share-
holders' equity; cash flow; economic value added; cumulative operating
income; total shareholders' return; cost reductions; or achievement of
environment, health and safety goals. The Committee may set perfor-
mance goals based on the achievement of specified levels of corporate-
wide performance or performance of the Alcoa subsidiary or business
unit in which the participant works. The Committee may make downward
adjustments in the amounts payable under an award, but it may not
increase the award amounts or waive the achievement of a performance
goal.
Tax Aspects of the Plan
The grant of a nonqualified stock option or SAR under the Plan has no
U.S. federal income tax consequences for the participant or the
company. Upon exercise of a stock option or SAR, Alcoa may take a tax
deduction and the participant realizes ordinary income. The amount of
this deduction and income is equal to the difference between the fair
market value of the shares on the date of exercise and the grant price
of the stock option or SAR. The Committee may permit participants to
surrender Alcoa shares in order to satisfy the required withholding
tax obligation.
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Regarding Plan awards (other than options or SARs) that are settled
either in cash or in stock or other property that is either
transferable or not subject to substantial risk of forfeiture, the
participant must recognize ordinary income equal to the cash or the
fair market value of shares or other property received. Alcoa may take
a deduction for the same amount.
Regarding Plan awards (other than options or SARs) that are settled in
stock or other property that is subject to contingencies restricting
transfer and to a substantial risk of forfeiture, the participant must
recognize ordinary income equal to the fair market value of the shares
or other property received (less any amount paid by the participant)
when the shares or other property first become transferable or not
subject to substantial risk of forfeiture, whichever occurs first.
Alcoa may take a deduction at the same time and for the same amount.
The Committee may adjust awards to employees who are not U.S. citizens
or U.S. residents to recognize differences in local law or tax policy
and may impose conditions on the exercise or vesting of awards to
minimize tax equalization obligations for expatriate employees.
Recent Share Price
On February 8, 1999 (the record date for the annual meeting), the
closing market price for Alcoa common stock was $44.25 per share.
Awards to Named Officers and Other Employees
The Plan is new and no awards have been made under it. The Committee
has not yet established guidelines or standards on the types of awards
it may grant under the Plan to the named officers or other
participants or the number of shares that the awards will cover.
Other Executive Program Changes
If the Plan becomes effective, the Compensation Committee has
authorized two new programs and a change in administration of the
reload option program to encourage increased ownership by employees
who participate in the Plan. See page 16 of the Report of the
Compensation Committee for a description of these changes.
Share Repurchases to Prevent Dilution
To prevent or minimize the dilutive effect of stock-based compensation
plans, Alcoa's practice is to repurchase shares in the open market in
amounts at least equal to the number of shares issued under employee
stock option and other stock incentive plans. The company intends to
use the proceeds of stock option award exercises under the Plan for
this purpose as well as other funds available from time to time. The
continuation of this practice is subject to the company's capital
needs and resources and compliance with corporate, securities and
regulatory requirements that apply to share repurchases.
Vote Required for Approval
For this proposal to be adopted, a majority of the votes cast by
shareholders must be voted for approval.
Alcoa's Board of Directors recommends that you vote FOR approval of
this proposal.
OTHER INFORMATION
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP has been the independent accounting firm
that audits the financial statements of Alcoa and most of its
subsidiaries since 1950. In accordance with standing policy,
PricewaterhouseCoopers periodically changes the personnel who work on
the audit.
During 1998, PricewaterhouseCoopers 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 nonaudit services provided by PricewaterhouseCoopers and the
related fees.
On recommendation of the Audit Committee, the Board has reappointed
PricewaterhouseCoopers to audit the 1999 financial statements.
Representatives from this firm will be at the annual meeting to make a
statement, if they choose, and answer any questions you may have.
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ALCOA LOGO
201 Isabella Street at 7th Street Bridge
Pittsburgh, Pennsylvania 15212-5858
Printed in USA 9903 Form A07-15905
APPENDIX
Alcoa Stock Incentive Plan
ALCOA LOGO
ALCOA STOCK INCENTIVE PLAN
SECTION 1. PURPOSE. The purposes of the Alcoa Stock
Incentive Plan are to encourage selected employees of the Company
and its Subsidiaries to acquire a proprietary and vested interest
in the long-term growth and financial success of the Company, to
generate an increased incentive to promote its well-being and
profitability, to link the interests of such employees to the
long-term interests of shareholders and to enhance the ability of
the Company and its Subsidiaries to attract and retain
individuals of exceptional managerial, technical and professional
talent upon whom, in large measure, the sustained progress,
growth and profitability of the Company depend.
SECTION 2. DEFINITIONS. As used in the Plan, the following
terms have the meanings set forth below:
"Award" means any Option, Stock Appreciation Right,
Contingent Stock Award, Performance Share, Performance Unit,
Other Stock Unit Award, or any other right, interest, or option
relating to Shares or other property granted pursuant to the
provisions of the Plan.
"Award Agreement" means any written agreement, contract, or
other instrument or document evidencing any Award granted by the
Committee hereunder, which may, but need not, be executed or
acknowledged by both the Company and the Participant.
"Beneficial Owner" means beneficial owner as defined in
Rule 13d-3 under the Exchange Act.
"Board" means the Board of Directors of the Company.
"Change in Control" means the first to occur of any of the
following events:
(a) An Entity, other than a trustee or other fiduciary
of securities held under an employee benefit plan of the
Company or any of its Subsidiaries, is or becomes a
Beneficial Owner, directly or indirectly, of stock of the
Company representing 20% or more of the total voting power
of the Company's then outstanding stock and securities;
provided, however, that for purposes of this subsection (a),
the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by
the Company or (iv) any acquisition by any corporation
pursuant to a transaction that complies with clauses (i) or
(ii) of subsection (c) of this definition;
(b) individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board"), cease for any reason to
constitute a majority thereof; provided,
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however, that any individual becoming a director whose election,
or nomination for election by the Company's shareholders, was
approved by a vote of at least 75% of the directors then
comprising the Incumbent Board shall be considered as though such
individual was a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by
or on behalf of an Entity other than the Board;
(c) there is consummated a merger, consolidation or
other corporate transaction, other than (i) a merger,
consolidation or transaction that would result in the voting
securities of the Company outstanding immediately prior to
such merger, consolidation or transaction continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving Entity or
any parent thereof) at least 55% of the combined voting
power of the stock and securities of the Company or such
surviving Entity or any parent thereof outstanding
immediately after such merger, consolidation or transaction,
or (ii) a merger, consolidation or transaction effected to
implement a recapitalization of the Company (or similar
transaction) in which no Entity is or becomes the Beneficial
Owner, directly or indirectly, of stock and securities of
the Company representing more than 20% of the combined
voting power of the Company's then outstanding stock and
securities;
(d) the sale or disposition by the Company of all or
substantially all of the Company's assets other than a sale
or disposition by the Company of all or substantially all of
the assets to an Entity at least 55% of the combined voting
power of the stock and securities of which is owned by
Persons in substantially the same proportions as their
ownership of the Company's voting stock immediately prior to
such sale; or
(e) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company.
"Change in Control Price" means the higher of (a) the
highest reported sales price, regular way, of a Share in any
transaction reported on the New York Stock Exchange Composite
Tape or other national exchange on which Shares are listed or on
NASDAQ during the 60-day period prior to and including the date
of a Change in Control or (b) if the Change in Control is the
result of a tender or exchange offer or a merger, consolidation
or other corporate transaction, the highest price per Share paid
in such tender or exchange offer or corporate transaction. To
the extent that the consideration paid in any such transaction
described above consists all or in part of securities or other
non-cash consideration, the value of such securities or other non-
cash consideration shall be determined in the sole discretion of
the Board.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
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"Committee" means the Compensation Committee of the Board, or
any successor to such committee, or a subcommittee thereof,
composed of no fewer than two directors, each of whom is a Non-
Employee Director and an "outside director" within the meaning of
Section 162(m) of the Code, or any successor provision thereto.
"Company" means Alcoa Inc., a Pennsylvania corporation.
"Contingent Stock" means any Share issued with the
contingency or restriction that the holder may not sell,
transfer, pledge or assign such Share and with such other
contingencies or restrictions as the Committee, in its sole
discretion, may impose (including, without limitation, any
contingency or restriction on the right to vote such Share and
the right to receive any cash dividends), which contingencies and
restrictions may lapse separately or in combination, at such time
or times, in installments or otherwise, as the Committee may deem
appropriate.
"Contingent Stock Award" means an award of Contingent Stock
under Section 8 hereof.
"Covered Employee" means a "covered employee" within the
meaning of Section 162(m)(3) of the Code, or any successor
provision thereto.
"Employee" means any employee of the Company or of any
Subsidiary.
"Entity" means any individual, entity, person (within the
meaning of Section 3(a)(9) of the Exchange Act) or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act),
other than (a) any employee plan established by the Company,
(b) any affiliate (as defined in Rule 12b-2 promulgated under the
Exchange Act) of the Company, (c) an underwriter temporarily
holding securities pursuant to an offering of such securities, or
(d) a corporation owned, directly or indirectly, by shareholders
of the Company in substantially the same proportions as their
ownership of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means, with respect to any property, the
market value of such property determined by such methods or
procedures as shall be established from time to time by the
Committee.
"Non-Employee Director" has the meaning set forth in Rule 16b-
3(b)(3) under the Exchange Act, or any successor definition
adopted by the Securities and Exchange Commission.
"Option" means any right granted to a Participant under the
Plan allowing such Participant to purchase Shares at such price
or prices and during such period or periods as the Committee
shall determine. All Options granted under the Plan are intended
to be nonqualified stock options for purposes of the Code.
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"Other Stock Unit Award" means any right granted to a
Participant by the Committee pursuant to Section 10 hereof.
"Participant" means an Employee who is selected by the
Committee to receive an Award under the Plan.
"Performance Award" means any Award of Performance Shares or
Performance Units pursuant to Section 9 hereof.
"Performance Period" means that period established by the
Committee at the time any Performance Award is granted or at any
time thereafter during which any performance goals specified by
the Committee with respect to such Award are to be measured. A
Performance Period may not be less than one year.
"Performance Share" means any grant pursuant to Section 9
hereof of a unit valued by reference to a designated number of
Shares, which value may be paid to the Participant by delivery of
such property as the Committee shall determine, including,
without limitation, cash, Shares or any combination thereof, upon
achievement of such performance goals during the Performance
Period as the Committee shall establish at the time of such grant
or thereafter.
"Performance Unit" means any grant pursuant to Section 9
hereof of a unit valued by reference to a designated amount of
property other than Shares, which value may be paid to the
Participant by delivery of such property as the Committee shall
determine, including, without limitation, cash, Shares or any
combination thereof, upon achievement of such performance goals
during the Performance Period as the Committee shall establish at
the time of such grant or thereafter.
"Person" means any individual, corporation, partnership,
association, joint stock company, trust, unincorporated
organization or government or political subdivision thereof.
"Plan" means this Alcoa Stock Incentive Plan.
"Prior Plan" means the Company's Long Term Stock Incentive
Plan.
"Reload Option" means an Option described in Section 6(e) of
the Plan, granted in connection with the exercise of an option
under the Prior Plan or an Award under the Plan (an "antecedent
award"). As a condition to the grant of a Reload Option, a
Participant must elect at the time of exercise of the antecedent
award that a designated portion, as determined by the Committee,
of the Shares issued upon exercise of the antecedent award shall
be restricted in terms of transfer for such period of time as the
Committee may determine at the time of grant of the Reload Option
or at a later date.
"Shares" means the shares of common stock of the Company,
$1.00 par value.
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"Stock Appreciation Right" means any right granted to a
Participant pursuant to Section 7 hereof to receive, upon
exercise by the Participant, the excess of (a) the Fair Market
Value of one Share on the date of exercise or, if the Committee
shall so determine, at any time during a specified period before
the date of exercise over (b) the grant price of the right on the
date of grant, or if granted in connection with an outstanding
Option on the date of grant of the related Option, as specified
by the Committee in its sole discretion, which, except in the
case of Substitute Awards or in connection with an adjustment
provided in Section 4(g), shall not be less than the Fair Market
Value of one Share on such date of grant of the right or the
related Option, as the case may be. Any payment by the Company
in respect of such right may be made in cash, Shares, other
property or any combination thereof, as the Committee, in its
sole discretion, shall determine.
"Subsidiary" means any corporation in which the Company
owns, directly or indirectly, stock possessing 50 percent or more
of the total combined voting power of all classes of stock in
such corporation, and any corporation, partnership, joint
venture, limited liability company or other business entity as to
which the Company possesses a significant ownership interest,
directly or indirectly, as determined by the Committee.
"Substitute Awards" means Awards granted or Shares issued by
the Company in assumption of, or in substitution or exchange for,
awards previously granted, or the right or obligation to make
future awards, by a company acquired by the Company or any of its
Subsidiaries or with which the Company or any of its Subsidiaries
combines.
SECTION 3. ADMINISTRATION. The Plan shall be administered
by the Committee. The Committee shall have full power and
authority, subject to such orders or resolutions not inconsistent
with the provisions of the Plan as may from time to time be
adopted by the Board, to: (i) select the Employees of the Company
and its Subsidiaries to whom Awards may from time to time be
granted hereunder; (ii) determine the type or types of Award to
be granted to each Participant hereunder; (iii) determine the
number of Shares to be covered by each Award granted hereunder;
(iv) determine the terms and conditions, not inconsistent with
the provisions of the Plan, of any Award granted hereunder;
(v) determine whether, to what extent and under what
circumstances Awards may be settled in cash, Shares or other
property or canceled or suspended; (vi) determine whether, to
what extent and under what circumstances cash, Shares and other
property and other amounts payable with respect to an Award under
this Plan shall be deferred either automatically or at the
election of the Participant; (vii) interpret and administer the
Plan and any instrument or agreement entered into under the Plan;
(viii) establish such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration
of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for
administration of the Plan. Decisions of the Committee shall be
final, conclusive and binding upon all persons, including the
Company, any Participant, any shareholder and any Employee.
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SECTION 4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the adjustment provisions of Section 4(g)
below and the provisions of Section 4(b) through (f), up to 14
million Shares may be issued under the Plan.
(b) In addition to the Shares authorized by Section 4(a),
the following Shares may be issued under the Plan:
(i) Shares that were authorized to be issued under the
Prior Plan, but that are not issued under that plan because of
the cancellation, termination or expiration of awards under the
Prior Plan shall be available for issuance under this Plan.
(ii) If a Participant tenders, or has withheld, Shares
in payment of all or part of the option price under a stock
option granted under the Plan or the Prior Plan, or in
satisfaction of withholding tax obligations thereunder, the
Shares tendered by the Participant or so withheld shall become
available for issuance under the Plan.
(iii) If Shares that are the issued under the Plan
are subsequently forfeited in accordance with the terms of the
Award or an Award Agreement, the forfeited Shares shall become
available for issuance under the Plan.
(iv) If the Company repurchases any Shares and, in
connection therewith, the Board designates that any or all of the
repurchased Shares shall be available for issuance under the
Plan, those repurchased Shares allocated to the Plan shall become
available for issuance under the Plan.
(c) Subject to the adjustment provisions of Section 4(g),
not more than one million Shares shall be issued under Awards
other than Options and Stock Appreciation Rights.
(d) If an Award may be paid only in Shares or in either
cash or Shares, the Shares shall be deemed to be issued hereunder
only when and to the extent that payment is actually made in
Shares. However, the Committee may authorize a cash payment
under an Award in lieu of Shares if there are insufficient Shares
available for issuance under the Plan.
(e) Any Shares issued hereunder may consist, in whole or in
part, of authorized and unissued shares, treasury shares or
shares purchased in the open market or otherwise.
(f) Shares issued or granted in connection with Substitute
Awards shall not reduce the Shares available for issuance under
the Plan or to a Participant in any calendar year.
(g) In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split,
reverse stock split, spin-off or similar transaction or other
change in corporate structure affecting the Shares, such
adjustments and other substitutions shall be made to the Plan and
to Awards as the Committee in its sole discretion deems equitable
or appropriate, including, without limitation, such adjustments
in the aggregate number, class and kind of
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securities that may be delivered under the Plan, in the aggregate
or to any one Participant, in the number, class, kind and option
or exercise price of securities subject to outstanding Options,
Stock Appreciation Rights or other Awards granted under the Plan,
and in the number, class and kind of securities subject to Awards
granted under the Plan (including, if the Committee deems
appropriate, the substitution of similar options to purchase the
shares of, or other awards denominated in the shares of, another
company) as the Committee may determine to be appropriate in its
sole discretion; provided that the number of Shares subject to
any Award shall always be a whole number.
SECTION 5. ELIGIBILITY. Any Employee shall be eligible to
be selected as a Participant.
SECTION 6. STOCK OPTIONS. Options may be granted hereunder
to Participants either alone or in addition to other Awards
granted under the Plan. Any Option granted under the Plan may be
evidenced by an Award Agreement in such form as the Committee
from time to time approves. Any such Option shall be subject to
the terms and conditions required by this Section 6 and to such
additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee may deem appropriate in
each case.
(a) Option Price. The purchase price per Share purchasable
under an Option shall be determined by the Committee in its sole
discretion; provided that, except in connection with an
adjustment provided for in Section 4(g), such purchase price
shall not be less than the Fair Market Value of the Share on the
date of the grant of the Option.
(b) Option Period. The term of each Option shall be fixed
by the Committee in its sole discretion, not to exceed ten years
from the date the Option is granted.
(c) Exercisability. Options shall be exercisable at such
time or times as determined by the Committee at or subsequent to
grant.
(d) Method Of Exercise. Subject to the other provisions of
the Plan, any Option may be exercised by the Participant in whole
or in part at such time or times, and the Participant may make
payment of the option price in such form or forms, including,
without limitation, payment by delivery of cash, Shares or other
consideration (including, where permitted by law and the
Committee, Awards) having a Fair Market Value on the exercise
date equal to the total option price, or by any combination of
cash, Shares and other consideration as the Committee may specify
in the applicable Award Agreement.
(e) Reload Options. The Committee shall have the authority
to specify, either at the time of grant of an Option or at a
later date, that upon exercise of all or a portion of that Option
a Reload Option shall be granted under specified conditions. A
Reload Option entitles the Participant to purchase Shares (i)
that are covered by an antecedent award at the time of its
exercise, but are not issued upon such exercise, or (ii) whose
aggregate grant price equals the purchase price of the exercised
antecedent award and any related tax withholdings. The grant
price per Share of the Reload Option shall be the Fair Market
Value per Share at the time of
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grant. The duration of a Reload Option shall not extend beyond
the expiration date of the antecedent award. The specific terms
and conditions applicable to Reload 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
such Options.
(f) Transferability of Options. Notwithstanding the
provisions of Section 14(a) of the Plan, at the discretion of the
Committee and in accordance with rules it establishes from time
to time, Participants may be permitted to transfer some or all of
their Options to one or more immediate family members.
SECTION 7. STOCK APPRECIATION RIGHTS. Stock Appreciation
Rights may be granted hereunder to Participants either alone or
in addition to other Awards granted under the Plan and may, but
need not, relate to a specific Option granted under Section 6.
The provisions of Stock Appreciation Rights need not be the same
with respect to each recipient. Any Stock Appreciation Right
related to an Option may be granted at the same time such Option
is granted or at any time thereafter before exercise or
expiration of such Option. In the case of any Stock Appreciation
Right related to any Option, the Stock Appreciation Right or
applicable portion thereof shall terminate and no longer be
exercisable upon the termination or exercise of the related
Option, except that a Stock Appreciation Right granted with
respect to less than the full number of Shares covered by a
related Option shall not be reduced until the exercise or
termination of the related Option exceeds the number of Shares
not covered by the Stock Appreciation Right. Any Option related
to any Stock Appreciation Right shall no longer be exercisable to
the extent the related Stock Appreciation Right has been
exercised. The Committee may impose such conditions or
restrictions on the exercise of any Stock Appreciation Right as
it shall deem appropriate.
SECTION 8. CONTINGENT STOCK
(a) Issuance. A Contingent Stock Award shall be subject to
contingencies or restrictions imposed by the Committee during a
period of time specified by the Committee (the "Contingency
Period"). Contingent Stock Awards may be issued hereunder to
Participants, for no cash consideration or for such minimum
consideration as may be required by applicable law, either alone
or in addition to other Awards granted under the Plan. The
provisions of Contingent Stock Awards need not be the same with
respect to each recipient.
(b) Registration. Any Contingent Stock issued hereunder
may be evidenced in such manner as the Committee in its sole
discretion shall deem appropriate, including, without limitation,
book-entry registration or issuance of a stock certificate or
certificates. In the event any stock certificate is issued in
respect of shares of Contingent Stock awarded under the Plan,
such certificate shall be registered in the name of the
Participant and shall bear an appropriate legend referring to the
terms, conditions, contingencies and restrictions applicable to
such Award.
(c) Forfeiture. Except as otherwise determined by the
Committee at the time of grant or thereafter, upon termination of
employment for any reason during the Contingency Period, all
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Shares of Contingent Stock still subject to contingency or
restriction shall be forfeited by the Participant and reacquired
by the Company. Noncontingent Shares, evidenced in such manner
as the Committee shall deem appropriate, shall be issued to the
Participant promptly after the Contingency Period, as determined
or modified by the Committee, shall expire.
(d) Minimum Vesting Condition. The minimum Contingency
Period applicable to any Contingent Stock Award that is not
subject to performance conditions restricting transfer shall be
three (3) years from the date of grant; provided, however, that a
Contingency Period of less than three (3) years may be approved
for such Awards with respect to up to 100,000 Shares under the
Plan.
SECTION 9. PERFORMANCE AWARDS. Performance Awards may be
granted hereunder to Participants, for no cash consideration or
for such minimum consideration as may be required by applicable
law, either alone or in addition to other Awards granted under
the Plan. The performance criteria to be achieved during any
Performance Period and the length of the Performance Period shall
be determined by the Committee upon the grant of each Performance
Award. Except as provided in Section 11, Performance Awards will
be paid only after the end of the relevant Performance Period.
Performance Awards may be paid in cash, Shares, other property or
any combination thereof in the sole discretion of the Committee
at the time of payment. The performance levels to be achieved
for each Performance Period and the amount of the Award to be
paid shall be conclusively determined by the Committee.
Performance Awards may be paid in a lump sum or in installments
following the close of the Performance Period or, in accordance
with procedures established by the Committee, on a deferred
basis.
SECTION 10. OTHER STOCK UNIT AWARDS.
(a) Other Awards of Shares and other Awards that are valued
in whole or in part by reference to, or are otherwise based on,
Shares or other property ("Other Stock Unit Awards") may be
granted hereunder to Participants, either alone or in addition to
other Awards granted under the Plan. Other Stock Unit Awards may
be paid in Shares, cash or any other form of property as the
Committee shall determine. Subject to the provisions of the
Plan, the Committee shall have sole and complete authority to
determine the Employees of the Company and its Subsidiaries to
whom, and the time or times at which, such Awards shall be made,
the number of Shares to be granted pursuant to such Awards and
all other conditions of the Awards. The provisions of Other
Stock Unit Awards need not be the same with respect to each
recipient.
(b) Subject to the provisions of this Plan and any
applicable Award Agreement, Awards and Shares subject to Awards
granted under this Section 10, may not be sold, assigned,
transferred, pledged or otherwise encumbered prior to the date on
which the Shares are issued, or, if later, the date on which any
applicable contingency, restriction, performance or deferral
period lapses. For any Award or Shares subject to any Award
granted under this Section 10 the transferability of which is
conditioned only on the passage of time, such restriction period
shall be a minimum of three (3) years. Shares (including
securities convertible into Shares) subject to Awards granted
under this Section 10 may be issued for no cash consideration or
for such minimum consideration as may be required by applicable
law. Shares (including
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securities convertible into Shares) purchased pursuant to a
purchase right granted under this Section 10 thereafter shall
be purchased for such consideration as the Committee shall in
its sole discretion determine, which shall not be less than
the Fair Market Value of such Shares or other securities as of
the date such purchase right is granted.
SECTION 11. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. Notwithstanding any other provision
of the Plan to the contrary, unless the Committee shall determine
otherwise at the time of grant with respect to a particular
Award, in the event of a Change in Control:
(i) any Options and Stock Appreciation Rights
outstanding as of the date such Change in Control is determined
to have occurred, and which are not then exercisable and vested,
shall become fully exercisable and vested to the full extent of
the original grant;
(ii) the contingencies, restrictions and deferral
limitations applicable to any Contingent Stock shall lapse, and
such Contingent Stock shall become free of all contingencies,
restrictions and limitations and become fully vested and
transferable to the full extent of the original grant;
(iii) all Performance Awards shall be considered to
be earned and payable pro rata and shall be immediately settled
or distributed. The pro rata portion of a Performance Award
shall be calculated by multiplying the number of Shares or other
property underlying the Performance Award by a fraction, the
numerator of which is the number of days from the beginning of
the applicable Performance Period to the date of the Change in
Control and the denominator of which is the number of days
originally determined by the Committee as the term of the
applicable Performance Period. Any deferral, contingency or
other restriction applicable to such Performance Awards shall
lapse.
(iv) the contingencies, restrictions and deferral
limitations and other conditions applicable to any Other Stock
Unit Awards or any other Awards shall lapse, and such Other Stock
Unit Awards or such other Awards shall become free of all
contingencies, restrictions, limitations or conditions and become
fully vested and transferable to the full extent of the original
grant; and
(v) the restrictions applicable to any Shares received
in connection with the grant of a Reload Option shall lapse and
such Shares shall be freely and fully transferable.
(b) Change In Control Settlement. Notwithstanding any
other provision of the Plan, during the 60-day period from and
after a Change in Control (the "Change in Control Election
Period"), a Participant holding an Option or Stock Appreciation
Right shall have the right, whether or not the Option or Stock
Appreciation Right is fully exercisable and in lieu of the
payment of the purchase price for the Shares being purchased
under the Option or Stock Appreciation Right and by giving notice
to the Company, to elect (within the Change in Control Election
Period) to surrender all or part of the Option or Stock
Appreciation Right to the
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Company and to receive cash, within 30 days of such notice,
in an amount equal to the amount by which the Change in Control
Price per Share on the date of such election shall exceed the
purchase price per Share under the Option or Stock Appreciation
Right multiplied by the number of Shares granted under the Option
or Stock Appreciation right as to which the right granted under
this Section 11(b) shall have been exercised.
(c) Alternate Settlement. Notwithstanding any other
provision of this Plan, if any right granted pursuant to this
Plan would make a Change in Control transaction ineligible for
pooling-of-interests accounting under APB No. l6 (or any
successor standard), that (after giving effect to any other
actions taken to cause such transaction to be eligible for such
pooling-of-interests accounting treatment) but for the nature of
such right would otherwise be eligible for such accounting
treatment, the Committee shall have the ability to substitute for
the cash payable pursuant to such right Shares with a Fair Market
Value equal to the cash that would otherwise be payable pursuant
thereto.
(d) Other Forms of Settlement. The foregoing provisions of
this Section 11 shall not preclude other forms of settlement of
outstanding Awards in the event of a Change in Control, including
a conversion or exchange of Awards for awards or securities of
any person that is a party to or initiates the Change in Control
transaction; provided that no Participant shall be required to
accept any such substituted or exchanged award or security
without such Participant's written consent.
SECTION 12. CODE SECTION 162(m) PROVISIONS.
(a) Notwithstanding any other provision of this Plan, if
the Committee determines at the time Contingent Stock, a
Performance Award or an Other Stock Unit Award is granted to a
Participant that such Participant is, or is likely to be as of
the end of the tax year in which the Company would claim a tax
deduction in connection with such Award, a Covered Employee, then
the Committee may provide that this Section 12 is applicable to
such Award.
(b) If an Award is subject to this Section 12, then the
lapsing of contingencies or restrictions thereon and the
distribution of cash, Shares or other property pursuant thereto,
as applicable, shall be subject to the achievement of one or more
objective performance goals established by the Committee, which
shall be based on the attainment of specified levels of one or
any combination of the following: cumulative net income or
cumulative net income per share during the performance period;
return on sales; return on assets; return on shareholders'
equity; cash flow; economic value added; cumulative operating
income; total shareholders' return; cost reductions; or
achievement of environment, health & safety goals of the Company
or the Subsidiary or business unit of the Company for or within
which the Participant is primarily employed. Such performance
goals shall be set by the Committee within the time period
prescribed by, and shall otherwise comply with the requirements
of Section 162(m) of the Code, or any successor provision
thereto, and the regulations thereunder.
(c) Notwithstanding any provision of this Plan other than
Section 11, with respect to any Award that is subject to this
Section 12, the Committee may adjust downwards, but not
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upwards, the amount payable pursuant to such Award, and the
Committee may not waive the achievement of the applicable
performance goals.
(d) The Committee shall have the power to impose such other
restrictions on Awards subject to this Section 12 as it may deem
necessary or appropriate to ensure that such Awards satisfy all
requirements for "performance-based compensation" within the
meaning of Section 162(m)(4)(C) of the Code, or any successor
provision thereto.
(e) Notwithstanding any provision of this Plan other than
Section 4(g), no Participant may be granted Options and/or Stock
Appreciation Rights in any calendar year with respect to more
than two million (2,000,000) Shares or Contingent Stock Awards or
Performance Share Awards covering more than 25,000 Shares. The
maximum dollar value payable with respect to Performance Units
and/or Other Stock Unit Awards that are valued with reference to
property other than Shares and granted to any Participant in any
one calendar year is $2,000,000.
SECTION 13. AMENDMENTS AND TERMINATION. The Board may
amend, alter, suspend, discontinue or terminate the Plan or any
portion thereof at any time; provided that no such amendment,
alteration, suspension, discontinuation or termination shall be
made without (i) shareholder approval if such approval is
necessary to qualify for or comply with any tax or regulatory
requirement for which or with which the Board deems it necessary
or desirable to qualify or comply or (ii) the consent of the
affected Participant, if such action would impair the rights of
such Participant under any outstanding Award. Notwithstanding
anything to the contrary herein, the Committee may amend the Plan
in such manner as may be necessary so as to have the Plan conform
to local rules and regulations in any jurisdiction outside the
United States.
The Committee may amend the terms of any Award theretofore
granted, prospectively or retroactively, but no such amendment
shall impair the rights of any Participant without his or her
consent. Notwithstanding any provision of this Plan, the
Committee may not amend the terms of any Option to reduce the
option price.
SECTION 14. GENERAL PROVISIONS.
(a) Nontransferability of Awards. Unless the Committee
determines otherwise at the time the Award is granted or
thereafter and except for transfers of Options permitted by
Section 6(f) of the Plan: (i) no Award, and no Shares subject to
Awards described in Section 10 which have not been issued or as
to which any applicable contingency, restriction, performance or
deferral period has not lapsed, may be sold, assigned,
transferred, pledged or otherwise encumbered, except by will or
by the laws of descent and distribution; provided that, if so
determined by the Committee, a Participant may, in the manner
established by the Committee, designate a beneficiary to exercise
the rights of the Participant with respect to any Award upon the
death of the Participant, and (ii) each Award shall be
exercisable, during the Participant's lifetime, only by the
Participant or, if permissible under applicable law, by the
Participant's guardian or legal representative.
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(b) Award Term. The term of each Award shall be for such
period of months or years from the date of its grant as may be
determined by the Committee.
(c) Award Entitlement. No Employee or Participant shall
have any claim to be granted any Award under the Plan and there
is no obligation for uniformity of treatment of Employees or
Participants under the Plan.
(d) Requirement of an Award Agreement. The prospective
recipient of any Award under the Plan shall not, with respect to
such Award, be deemed to have become a Participant, or to have
any rights with respect to such Award, until and unless such
recipient shall have executed an agreement or other instrument
evidencing the Award and delivered a copy thereof to the Company
and otherwise complied with the then applicable terms and
conditions.
(e) Award Adjustments. Except as provided in Section 12,
the Committee shall be authorized to make adjustments in
Performance Award criteria or in the terms and conditions of
other Awards in recognition of unusual or nonrecurring events
affecting the Company or its financial statements or changes in
applicable laws, regulations or accounting principles. The
Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award in the
manner and to the extent it shall deem desirable to carry it into
effect.
(f) Committee Right to Cancel. The Committee shall have
full power and authority to determine whether, to what extent and
under what circumstances any Award shall be canceled or
suspended. In particular, but without limitation, all
outstanding Awards to any Participant shall be canceled if the
Participant, without the consent of the Committee, while employed
by the Company or after termination of such employment, becomes
associated with, employed by, renders services to or owns any
interest in (other than any nonsubstantial interest, as
determined by the Committee) any business that is in competition
with the Company or with any business in which the Company has a
substantial interest as determined by the Committee or otherwise
takes any action that in the judgment of the Committee is not in
the best interests of the Company.
(g) Stock Certificate Legends. All certificates for Shares
delivered under the Plan pursuant to any Award shall be subject
to such stock transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and
other requirements of the Securities and Exchange Commission, any
stock exchange upon which the Shares are then listed and any
applicable Federal or state securities law, and the Committee may
cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(h) Compliance with Securities Laws. No Award granted
hereunder shall be construed as an offer to sell securities of
the Company, and no such offer shall be outstanding, unless and
until the Committee in its sole discretion has determined that
any such offer, if made, would be in compliance with all
applicable requirements of the U.S. Federal securities laws and
any other laws to which such offer, if made, would be subject.
(i) Award Deferrals; Dividends. The Committee shall be
authorized to establish procedures pursuant to which the payment
of any Award may be deferred. Subject to the
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provisions of the Plan and any Award Agreement, the recipient of
an Award (including, without limitation, any deferred Award) may,
if so determined by the Committee, be entitled to receive, currently
or on a deferred basis, cash dividends, or cash payments in amounts
equivalent to cash dividends on Shares ("Dividend Equivalents"),
with respect to the number of Shares covered by the Award, as
determined by the Committee, in its sole discretion, and the
Committee may provide that such amounts (if any) shall be deemed
to have been reinvested in additional Shares or otherwise
reinvested.
(j) Consideration for Awards. Except as otherwise required
in any applicable Award Agreement or by the terms of the Plan,
recipients of Awards under the Plan shall not be required to make
any payment or provide consideration other than the rendering of
services.
(k) Delegation of Authority by Committee. The Committee
may delegate to one or more executive officers (as that term is
defined in Rule 3b-7 under the Exchange Act) or a committee of
executive officers the right to grant Awards to Employees who are
not executive officers or directors of the Company and to cancel
or suspend Awards to Employees who are not executive officers or
directors of the Company.
(l) Withholding Taxes. The Company shall be authorized to
withhold from any Award granted or payment due under the Plan the
amount of withholding taxes due in respect of an Award or payment
hereunder and to take such other action as may be necessary in
the opinion of the Company to satisfy all obligations for the
payment of such taxes. The Committee shall be authorized to
establish procedures for election by Participants to satisfy such
obligations for the payment of such taxes by delivery of or
transfer of Shares to the Company or by directing the Company to
retain Shares otherwise deliverable in connection with the Award.
(m) Other Compensatory Arrangements. Nothing contained in
this Plan shall prevent the Board from adopting other or
additional compensation arrangements, subject to shareholder
approval if such approval is required; and such arrangements may
be either generally applicable or applicable only in specific
cases.
(n) Governing Law. The validity, construction, and effect
of the Plan and any rules and regulations relating to the Plan
shall be determined in accordance with the laws of the
Commonwealth of Pennsylvania and applicable Federal law.
(o) Severability. If any provision of this Plan is or
becomes or is deemed invalid, illegal or unenforceable in any
jurisdiction, or would disqualify the Plan or any Award under any
law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws or if
it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent of
the Plan, it shall be stricken and the remainder of the Plan
shall remain in full force and effect.
(p) Awards to NonU.S. Employees. Awards may be granted to
Employees who are foreign nationals or employed outside the
United States, or both, on such terms and conditions different
from those applicable to Awards to Employees employed in the
United States as may, in
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the judgment of the Committee, be necessary or desirable in order
to recognize differences in local law or tax policy. The
Committee also may impose conditions on the exercise or vesting of
Awards in order to minimize the Company's obligation with respect
to tax equalization for Employees on assignments outside their
home countries.
(q) Repricing Prohibited. The repricing of Options or
Stock Appreciation Right Awards under the Plan is expressly
prohibited. "Repricing" means the grant of a new Option, Stock
Appreciation Right or other Award in consideration of the
exchange, cancellation or forfeiture of an Award that has a
higher grant price than the new Award or the amendment of an
outstanding Award to reduce the grant price; provided, that the
grant of a Substitute Award shall not be considered to be
repricing.
SECTION 15. TERM OF PLAN. The Plan shall be effective as of
June 1, 1999. No Award shall be granted pursuant to the Plan
after May 31, 2009, but any Award theretofore granted may extend
beyond that date.
SECTION 16. TERMINATION OF PRIOR PLAN. No stock options or
other awards may be granted under the Prior Plan after May 31,
1999, but all such awards theretofore granted shall extend for
the full stated terms thereof.
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Two Ways to Vote
VOTE BY MAIL
Return your proxy in the
postage-paid envelope provided.
Vote By Mail--Please mark, sign and date your proxy card
and return it in the postage-paid envelope provided.
VOTE BY INTERNET
Access the Website and cast your vote.
http://www.votefast.com
Your Internet
Control Number is
------------
Vote By Internet--Have your proxy card available when you
access the website http://www.votefast.com. You will be prompted
to enter your control number, and then follow the directions given
to record your vote. If you vote through the Internet, there is no
need to mail your proxy card.
Vote 24 hours a day, 7 days a week! Your Internet vote must be
received by 5:00 p.m. EDT on Thursday, May 6, 1999 to be counted
in the final tabulation.
Alcoa Annual Meeting of Shareholders Admission Ticket
9:30 a.m. Friday, May 7, 1999 This ticket is not transferable.
DoubleTree Hotel Pittsburgh
Allegheny Ballroom
Pittsburgh, Pennsylvania
ALCOA LOGO
Please retain this ticket for admittance to the annual meeting.
Fold and detach here
(continued from the other side)
(RETURN IN THE ENCLOSED ENVELOPE)
PROXY
Please mark your choices clearly in the appropriate boxes. Unless
specified, the proxy committee will vote FOR both items.
DIRECTORS RECOMMEND A VOTE FOR THIS ITEM (#1)
1. Election of Directors
Nominees to serve a three-year term:
Joseph T. Gorman John P. Mulroney
Sir Ronald Hampel Marina v.N. Whitman
Nominee to serve a two-year term:
Alain J.P. Belda
/ / FOR all listed nominees
/ / WITHHOLD vote for all listed nominees
/ / WITHHOLD vote only from
------------------
DIRECTORS RECOMMEND A VOTE FOR THIS ITEM (#2)
2. Approval of the Alcoa Stock Incentive Plan
/ / VOTE FOR / / VOTE AGAINST / / ABSTAIN
PLEASE VOTE, SIGN,DATE AND RETURN
Date 1999
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(Sign exactly as name appears above, indicating position or
representative capacity, where applicable)
Shareholder comments about any aspect of company business are
welcome. There is space on the bottom of this form for your
comments. Although we do not respond to these comments on an
individual basis, they do assist management in determining and
responding to your needs as shareholders.
Please retain this ticket for admittance to the annual meeting.
Fold and detach here
ALCOA LOGO
201 Isabella St. at 7th St. Bridge
Pittsburgh, PA 15212-5858
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I authorize Earnest J. Edwards, Robert G. Wennemer and John M.
Wilson, together or separately, to represent me at the annual
meeting of shareholders of Alcoa Inc. scheduled for Friday,
May 7, 1999, and any adjournment of the meeting. I authorize
them to vote the shares of stock that I could vote if attending
the meeting, in accordance with the instructions on the reverse
side of this card. The proxies are authorized in their discretion
to vote upon such other business as may properly come before the
meeting, and they may name others to take their place.
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.
Comments:
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(continued on the other side)
