UNITED TECHNOLOGIES CORPORATION ANNUAL EXECUTIVE INCENTIVE COMPENSATION PLAN AMENDMENT 1 VI. COVERED EMPLOYEE PERFORMANCE POOL A. INTRODUCTION. The Covered Employee Performance Pool shall be added to the Annual Incentive Plan, effective January 1, 1995, for the purpose of establishing a fund from which annual incentive awards to the Corporation's Chief Executive Officer and four other most highly compensated executives who are considered 'covered employees' within the meaning of Internal Revenue Code Section 162(m) shall be paid. The five individuals who will participate in the Covered Employee Performance Pool shall be determined as of the last day of each fiscal year and shall be referred to as the 'Performance Pool Participants.' The Covered Employee Performance Pool shall be the exclusive source of Annual Incentive Plan Awards for Performance Pool Participants. In no event will a Performance Pool Participant be eligible to receive an Annual Incentive Award from either the Corporate Fund or the Operating Unit Funds. B. DEFINITIONS. For purposes of this Section VI the following terms shall have the following meanings: Committee means the Corporation's Board of Directors Committee on Compensation and Executive Development. Adjusted Net Income means, for each fiscal year of the Corporation, net income reported on its consolidated financial statement included in its Annual Report on Form 10-K for such year, adjusted to eliminate: (i) restructuring charges to the extent they are separately disclosed in the Corporation's Annual Report; (ii) the effects of changes in accounting principles; and (iii) 'extraordinary items' determined under generally accepted accounting principles. C. ALLOCATIONS TO THE COVERED EMPLOYEE PERFORMANCE POOL (i) Aggregate Annual Allocation. Each year an amount equal to 0.75% of the Corporation's Adjusted Net Income shall be allocated to the Covered Employee Performance Pool. Such amount is the maximum amount that may be distributed from the Covered Employee Performance Pool to the Performance Pool Participants. (ii) Allocation of Individual Awards. Each year the maximum award payable to a Performance Pool Participant shall be as follows: the Chief Executive Officer - 30% of the amount allocated to the Covered Employee Performance Pool; and the four other Covered Employee Pool Participants - 17.5% of the amount allocated to the Covered Employee Performance Pool. D. Discretion to Reduce Annual Incentive Plan Awards for Performance Pool Participants. Performance Pool Participants will be eligible to receive Annual Incentive Plan Awards with respect to each year for which an amount is allocated to the Covered Employee Performance Pool. The Committee may, in its sole discretion, reduce the amount of any Performance Pool Participant's Annual Incentive Plan Award, taking into account such factors as it deems relevant, including, without limitation: (i) the Corporation's Adjusted Net Income; (ii) other significant financial or strategic achievements during the year; (iii) its subjective assessment of each Performance Pool Participant's overall performance for the year; and (iv) information about compensation practices at other peer group companies for the purpose of evaluating competitive compensation levels so that the Committee may determine that the amount of the annual incentive award is within the targeted competitive compensation range of the Corporation's executive compensation program. The Committee shall determine the amount of any reduction in a Performance Pool Participant's Award on the basis of the foregoing and other factors it deems relevant and shall not be required to establish any allocation or weighting formula with respect to the factors it considers. The Committee shall have no obligation to disburse the full amount allocated to the Covered Employee Performance Pool. Amounts allocated but not actually disbursed to a Performance Pool Participant may not be re-allocated to other Performance Pool Participants or utilized for awards in respect of other years. In no event shall any Performance Pool Participant's Annual Incentive Plan Award exceed the amount allocated to the Covered Employee Performance Pool with respect to such Participant. E. ADMINISTRATION. The Committee shall have exclusive authority to interpret this Section VI and to administer the Covered Employee Performance Pool. The Committee shall be responsible for certifying the amount of Adjusted Net Income to be allocated to the Covered Employee Pool each year. The Committee shall rely on such financial information and other materials as it deems necessary and appropriate to certify the amount of Adjusted Net Income to be allocated to the Covered Employee Performance Pool. The Committee shall administer the Covered Employee Performance Pool so that Annual Incentive Plan Awards paid therefrom will meet the requirements of 'performance-based compensation' as defined in Code Section 162(m). F. AMENDMENT. The Committee shall have the authority to amend the Annual Incentive Plan, provided however, that the Committee may not amend the Annual Incentive Plan after the first 90 days of any award year in a manner that would, directly or indirectly: (i) change the method of calculating the amount allocated to the Covered Employee Performance Pool for that year; (ii) increase the maximum award payable to any Performance Pool Participant for that year; or (iii) remove the amendment restriction set forth in this sentence with respect to that year.