UNITED TECHNOLOGIES CORPORATION LONG TERM INCENTIVE PLAN AMENDMENT 1 The United Technologies Corporation Long Term Incentive Plan (the 'LTIP') is hereby amended, effective January 1, 1995, subject to the approval of shareowners at the Corporation's Annual Meeting to be held April 25, 1995. 1. Section 5(e) is amended and restated as follows: Dividend Equivalents. A Dividend Equivalent is the right to receive a cash payment equal to the amount of dividends paid on Common Stock for a period of time, as specified in the Award Agreement. Dividend Equivalent Awards are subject to performance based vesting criteria. 2. Section 6, 'Limitation on Number of Shares' is amended by adding the following sub-section (c) thereto: (c) The Plan shall be subject to an individual share award limitation of 1.5 million shares over any consecutive 36 month period. For purposes of this limitation, all awards of shares of stock, options to acquire shares of stock or any other award which can be converted into shares shall be subject to this limit, determined in a manner consistent with Section 6(b) hereof. Any award that is forfeited or canceled within a thirty-six month period shall continue to count against this limitation for the remainder of the thirty-six month period. 3. Section 17 is hereby added to the Plan as follows: 17. Continuous Improvement Incentive Plan. (a) Introduction. The Committee has approved the Continuous Improvement Incentive Program (the 'CIIP'), a performance based program of Plan Awards. Under the CIIP, Dividend Equivalent Awards ('DEs') are granted subject to performance based vesting criteria related to key financial performance measurements of the Corporation and the business units. Non-qualified stock options awarded along with DEs become exercisable three years after the date of grant. Exercisability of stock options is not contingent upon achievement of CIIP performance based vesting criteria because the value of stock option awards is directly linked to share price appreciation measured from the date of grant and is therefore performance based independent of CIIP vesting criteria. (b) Performance Targets. Under the CIIP, Participants shall be eligible to receive awards of dividend equivalents ('DEs'), with one DE granted for each stock option granted. A DE is the right to receive a cash payment equal to the amount of dividends paid on Common Stock for a period of time as specified in the Award Agreement, but in no event more than seven years, provided, however, that DE payments will cease if the stock option associated with the vested DE is exercised. The vesting of DEs shall be contingent upon the achievement of certain minimum performance targets measured over a period of time of not less than one year, as established by the Committee. DEs that do not vest will be forfeited without value. The vesting of each years award shall be based upon the achievement of pre-established performance targets as established by the Committee for one or more of the following performance measurements: earnings per share ('EPS'); total shareholder return ('TSR'); return on equity ('ROE'); return on sales ('ROS'); return on net operating asset ('RNOA') and working capital turnover ('WCT'). ROS, RNOA and WCT targets may be specifically formulated for each business unit. Business unit Participants may be subject to performance targets specifically applicable to their business unit or to a combination of corporate and business unit performance targets. If vesting is subject to more than one performance target, the relative weighting of each performance target to be used for determining the cumulative vesting percentage shall be as determined by the Committee. Performance targets shall be measured on the basis of audited consolidated financial statements of the Corporation and financial statements of the business units which are used in the audited consolidated financial statements of the Corporation. For purposes of this Section 17, performance targets shall be defined as follows: Earnings Per Share means primary or fully diluted earnings per share determined under generally accepted accounting principles. Return on Equity means net income available to Common Stock owners divided by average equity. Return on Sales means operating profit before interest expense and income taxes divided by sales. Return on Net Operating Assets means operating profit before interest expense and income taxes divided by average net operating assets. Total Shareholder Return means the percentage change in the value of a share of Common Stock between the beginning and end of the measurement period, including the amount of dividends paid during the measurement period. Working Capital Turnover means the ratio obtained by dividing sales by average working capital. For purposes of this definition, working capital means external accounts receivable plus net inventory less external accounts payable and advances on sales contracts. (c) Establishment of Performance Targets. The Committee shall be exclusively responsible for establishing performance targets applicable to CIIP Awards with respect to EPS, ROE, ROS, RNOA, TSR, and WCT, as the case may be. The Committee shall grant CIIP awards and establish performance targets no later than 90 days following the commencement of the performance measurement period. The Committee shall also establish the relative weightings of multiple performance targets no later than 90 days following the commencement of the performance measurement period. (d) Measurement of Achievement of Performance Targets. The Committee shall certify to the measurement of performance by the Corporation and the business units relative to CIIP performance targets and the resulting vesting percentage. The Committee shall rely on such financial information and other materials as it deems necessary and appropriate to enable it to certify to the percentage of achievement of CIIP performance targets. Performance targets will be adjusted by the Committee to eliminate: (i) restructuring charges to the extent they are separately disclosed in the Corporation's Annual Report on Form 10K; (ii) the effects of changes in accounting methods; (iii) the translation impact of changes in foreign currency exchange rates; and (iv) 'extraordinary items' determined under generally accepted accounting principles. The Committee shall make its vesting determination not later than the end of the first quarter following the end of the performance measurement period. (e) Vesting Schedule. DE payments will commence following the vesting determination date. CIIP Participants shall vest in 100% of their DEs if 100% of their applicable CIIP performance targets are achieved as of the end of the three year performance measurement period. If the cumulative weighted achievement equals 90% of target, 50% of associated DEs will vest. To the extent that cumulative weighted achievement is greater than 90% but less than 100%, the vesting percentage will be determined in accordance with the following formula: Vesting Percentage = (Cumulative Weighted Performance Achievement Percentage -90) X 5 + 50 If the cumulative weighted performance achievement percentage is less than 90, all DEs will be forfeited without value. (f) Transfers. If a Participant transfers from one business unit to another business unit (for this purpose including Corporate Headquarters as a business unit) after the date of a CIIP Award but before the end of the three-year measurement period applicable to the Award, the number of vested DE's will equal the sum of (i) plus (ii) where: (i) equals DEs granted, multiplied by a fraction, where the numerator equals the number of months in the unit where the Participant was employed at the time the Award was granted and the denominator equals 36, multiplied by the performance achievement percentage applicable to such business unit; and (ii) equals DEs granted, multiplied by a fraction where the numerator equals the number of months employed in the unit to which the Participant was transferred and the denominator equals 36, multiplied by the performance achievement percentage applicable to such business unit. If there are subsequent transfers to other business units, vesting calculations will be done using the same formula. (g) Amendment. The Committee shall have the authority to amend the CIIP, provided however, that the Committee may not amend the CIIP after the first 90 days of a performance measurement period in a manner that would, directly or indirectly: (i) change the method of measuring performance for that year's CIIP award; (ii) increase the maximum amount payable to any CIIP Participant for that year; or (iii) remove the amendment restriction set forth in this sentence with respect to that year.
Long Term Incentive Plan - United Technologies Corp.
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