Terms and Conditions for Stock Option Awards – Alcoa

ALCOA INC.

TERMS AND CONDITIONS FOR STOCK OPTION AWARDS

Effective January 1, 2011

These terms and conditions are authorized by the Compensation and Benefits
Committee of the Board of Directors. They are deemed to be incorporated into and
form a part of every Stock Option award issued on or after January 1, 2011 under
the 2009 Alcoa Stock Incentive Plan, as last amended prior to the grant (the
“Plan”).

Terms that are defined in the Plan have the same meanings in these terms and
conditions, except that Alcoa or Company means Alcoa Inc. or any of its
controlled subsidiaries or affiliates.

General Terms and Conditions

1. Stock Option awards are subject to the terms and conditions set forth in
the Participant’s account at Merrill Lynch’s OnLine^® website
www.benefits.ml.com, the provisions of the Plan and the
provisions of these terms and conditions.

2. The grant price of a stock option is 100% of the Fair Market Value per
Share on the date of grant, unless the Participant’s account at Merrill Lynch’s
OnLine^® website www.benefits.ml.com, specifies a higher grant
price.

3. “Fair Market Value” per Share on any given date is the closing price per
Share on that date as reported on the New York Stock Exchange or other stock
exchange on which the Shares principally trade. If the New York Stock Exchange
or such other exchange is not open for business on the date Fair Market Value is
being determined, the closing price as reported for the next business day on
which that exchange is open for business will be used.

4. The expiration date of a Stock Option is ten years after the date of
grant.

Vesting and Exercisability

5. Stock Options vest as to one-third of the Award on the first anniversary
of the grant date, as to one-third of the Award on the second anniversary of the
grant date and as to one-third of the Award on the third anniversary of the
grant date.

6. Except as provided in paragraph 8, once vested, a Stock Option may be
exercised until its expiration date, as long as the Participant remains an
active employee of the Company.

2011 Stock Option Terms and Conditions (January 2011)

7. Except as provided in paragraph 8:

as a condition to exercise of a Stock Option, a Participant must
remain an Alcoa employee actively at work until the date the option vests, and
if a Stock Option vests as to some but not all Shares covered by the Award, the
Participant must be an active employee on the date the relevant portion of the
Award vests; and

if the Participant’s employment with Alcoa terminates prior to
the vesting date of the Stock Option (or relevant option portion), the Stock
Option (or relevant option portion) is forfeited and is automatically canceled.

8. The following are exceptions to the vesting and exercisability rules:

Death: a Stock Option held by a Participant who dies
while an employee vests in accordance with the original vesting date and must be
exercised by a legal representative or beneficiary on the earlier of five years
from the date of death or the original expiration date of the Stock Option.

Change in Control: a Stock Option vests if a Replacement
Award is not provided following certain Change in Control events, as described
in the Plan.

Retirement: a Stock Option is not forfeited if it is held
by a Participant who retires at least 6 months after the grant date under a
Company plan (or if there is no Company plan, a government retirement plan) in
which the Participant is eligible for an immediate payment of a retirement
benefit. In that event, any unvested portion of the Stock Option vests in
accordance with the original vesting schedule of the grant, and any Stock Option
that is vested will remain exercisable until the earlier of five years from the
date of retirement or the original expiration date of the Stock Option.

Divestiture: if a Stock Option is held by a Participant
identified by the Company to be terminated from employment with the Company as a
result of a divestiture of a business or a portion of a business of the Company
and the Participant either becomes an employee of (or is leased or seconded to)
the entity acquiring the business on the date of the closing, or the Participant
is not offered employment with the entity acquiring the business and is
terminated by the Company within 90 days of the closing of the sale, then, at
the discretion of the Chief Executive Officer of Alcoa Inc.:

Any unvested portion of the Stock Option will continue to vest
under the original vesting schedule and once vested, will be exercisable on the
earlier of the original expiration date of the Stock Option or three years from
the date the Participant’s employment with the Company has been terminated; and

2011 Stock Option Terms and Conditions (January 2011)

Any vested portion of the Stock Option will remain exercisable
on the earlier of the original expiration date of the Stock Option or two years
from the date the Participant’s employment with the Company has been terminated.

For purposes of this paragraph, employment by “the entity acquiring the
business” includes employment by a subsidiary or affiliate of the entity
acquiring the business; and “divestiture of a business” means the sale of assets
or stock resulting in the sale of a going concern. “Divestiture of a business”
does not include a plant shut down or other termination of a business.

Termination of Employment: if a Stock Option is held by a
Participant whose employment with the Company is terminated for any reason other
than those described above in this paragraph 8, any unvested Stock Options will
be forfeited on the date of termination of employment and any vested Stock
Options will remain exercisable for 90 days after the date employment is
terminated.

Option Exercise and Payment of Exercise Price

9. A vested, exercisable option is exercised when a signed notification of
exercise is received by Merrill Lynch’s OnLine^® website
www.benefits.ml.com.

10. Payment in full of the purchase price of a Stock Option is due on the
exercise date. Payment of the option purchase price may be made:

in cash (including a “broker-assisted cashless exercise”
described in the next paragraph); or

by the delivery or presentation of Shares that have been owned
by the Participant for the Minimum Holding Period (as defined below) and that
have an aggregate Fair Market Value on the date of exercise, which, together
with any cash payment, equals or exceeds the Stock Option purchase price.

11. A Participant may elect to pay the cash purchase price of the option
through a “broker-assisted cashless exercise,” using Merrill Lynch’s
OnLine^® website www.benefits.ml.com. On or prior to the
exercise date, the Participant must deliver the Participant’s instruction
directing and obligating the broker to (a) sell Shares (or a sufficient portion
of the Shares) acquired upon exercise of the option and (b) remit to the Company
a sufficient portion of the sale proceeds to pay the entire purchase price and
any tax withholding resulting from the exercise. Such proceeds are due not later
than the third trading day after the exercise date.

12. Shares owned by a Participant include (a) those registered in the
Participant’s name (or registered jointly with another person), (b) those held
in a brokerage account owned by the

2011 Stock Option Terms and Conditions (January 2011)

Participant individually or jointly with another person, and (c) those held
in a trust, partnership, limited partnership or other entity for the benefit of
the Participant individually (or for the benefit of the Participant jointly with
another person). Notwithstanding the foregoing, Shares owned by a Participant do
not include Shares held in any qualified plan, IRA or similar tax deferred
arrangement or Shares that are otherwise subject to potential accounting
limitations regarding their use in stock swap transactions. The Company may
require verification or proof of ownership or length of ownership of any shares
delivered in payment of the purchase price of an option.

13. The term “Minimum Holding Period” means 6 months or such other period, if
any, as qualifies as the measurement period for “mature shares” under applicable
generally accepted accounting principles. In calculating the number of shares
available for delivery to pay the purchase price of an option, shares acquired
upon exercise of a stock option (including any shares delivered or exchanged to
pay the purchase price thereof or withholding taxes thereon) shall be
disregarded until expiration of the Minimum Holding Period after exercise.

Taxes

14. All taxes required to be withheld under applicable tax laws in connection
with a Participant’s receipt of Shares upon exercise of a Stock Option must be
paid over by the Participant, in cash, immediately upon advice, unless the
Participant complies with the following paragraphs regarding payment using
Shares.

15. A Participant may satisfy his or her obligation to pay required
withholding taxes due upon such exercise by having Alcoa withhold from the
Shares to be issued upon the exercise that number of Shares with a Fair Market
Value on the exercise date equal to the withholding amount to be paid.
Withholding taxes in the United States include applicable income taxes, federal
and state unemployment compensation taxes and FICA/FUTA taxes.

16. The amount of taxes that may be paid by a Participant using Shares
retained from the Stock Option exercise will be determined by applying the
minimum rates required by applicable tax regulations.

17. The election to use Shares to satisfy a Participant’s withholding
obligation must be made, in writing, not later than at the time of exercise of
the stock option.

Beneficiaries

18. Participants will be entitled to designate one or more beneficiaries to
receive all Stock Options that are unexercised at the time of the Participant’s
death. All beneficiary designations will be on a beneficiary designation form
approved for the Plan. Copies of the form are available from the Communications
Center on Merrill Lynch’s Benefits OnLine^®
www.benefits.ml.com.

2011 Stock Option Terms and Conditions (January 2011)

19. Beneficiary designations on an approved form will be effective at the
time received by Merrill Lynch’s OnLine^® website
www.benefits.ml.com. A Participant may revoke a beneficiary designation
at any time by written notice to Merrill Lynch’s OnLine^® website
www.benefits.ml.com or by filing a new designation form. Any designation
form previously filed by a Participant will be automatically revoked and
superseded by a later-filed form.

20. A Participant will be entitled to designate any number of beneficiaries
on the form, and the beneficiaries may be natural or corporate persons.

21. The failure of any Participant to obtain any recommended signature on the
form will not invalidate the beneficiary designation or prohibit Alcoa from
treating such designation as valid and effective. No beneficiary will acquire
any beneficial or other interest in any Stock Option prior to the death of the
Participant who designated such beneficiary.

22. Unless the Participant indicates on the form that a named beneficiary is
to receive unexercised options only upon the prior death of another named
beneficiary, all beneficiaries designated on the form will be entitled and
required to join in the exercise of the option. Unless otherwise indicated, all
such beneficiaries will have an equal, undivided interest in all such Stock
Options.

23. Should a beneficiary die after the Participant but before the option is
exercised, such beneficiary’s rights and interest in the option award will be
transferable by last will and testament of the beneficiary or the laws of
descent and distribution. A named beneficiary who predeceases the Participant
will obtain no rights or interest in a stock option award, nor will any person
claiming on behalf of such individual. Unless otherwise specifically indicated
by the Participant on the form, beneficiaries designated by class (such as
“children,” “grandchildren” etc.) will be deemed to refer to the members of the
class living at the time of the Participant’s death, and all members of the
class will be deemed to take “per capita.”

Transferable Options

24. Vested Stock Options may be transferred to one or more immediate family
members, individually or jointly. A trust, each of whose beneficiaries is the
Participant or an immediate family member, will be deemed to be a family member
for purposes of these rules.

25. A transfer shall be effective on the date written notice thereof, on a
form approved for this purpose. Copies of the form are available from the
Communications Center on Merrill Lynch’s Benefits OnLine^® website
www.benefits.ml.com. As a condition to transfer, the Participant shall
agree to remain responsible to pay in cash the applicable taxes due upon
exercise of the option by the transferee. The Participant or the Participant’s
estate will be required to provide sufficient evidence of ability to pay such
taxes upon the Company’s request.

26. A transfer shall be irrevocable; no subsequent transfer by the transferee
shall be effective. Notwithstanding the foregoing, a transferee shall be
entitled to designate a

2011 Stock Option Terms and Conditions (January 2011)

beneficiary in accordance with the provisions of paragraphs 18 through 23
above. Except where a beneficiary has been designated, in the event of death of
the transferee prior to option exercise, the transferee’s option will be
transferable by last will and testament of the beneficiary or the laws of
descent and distribution.

27. Except as modified by the provisions of paragraphs 24 through 26, all
terms applicable to option exercises by Participants are applicable to exercises
by transferees. The Plan administrator may make and publish additional rules
applicable to exercises by transferees not inconsistent with these provisions.

2011 Stock Option Terms and Conditions (January 2011)

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