Exhibit (10) (xvi)
UNITED TECHNOLOGIES CORPORATION
SPECIAL RETENTION
AND STOCK APPRECIATION PROGRAM
INTRODUCTION
The Board of Directors Committee on Compensation and Executive Development
(the `Committee') of United Technologies Corporation (the `Corporation')
has established a special award program for certain key employees whose
continued performance and retention is deemed to be important to the future
success of the Corporation. The purpose of the Special Retention and Stock
Appreciation Program (the `Program') is: (i) to provide certain of the
Corporation's employees as selected by the Committee (the `Participants')
with a specific performance based incentive award directly linked to
shareowner value; and (ii) to enhance the Corporation's ability to retain
those of its most valuable employees whom the Committee has selected to
participate herein.
PROGRAM AWARDS
Under the Program, certain of the Corporation's senior executives, as
determined by the Committee, will be awarded stock appreciation units (the
`Units'), as more fully described hereafter and in each Participant's
Statement of Award (an `Award'). Units are performance-based Awards that
will vest if the Corporation or the Participant's business unit achieves
certain objectives as established by the Committee (the `Performance
Target'). The Performance Target applicable to an Award and the date by
which such Performance Target must be achieved (the `Award Expiration
Date') are described in the Statement of Award (see `Vesting of Units').
Awards may also be subject to a combination of time-based vesting criteria
and performance-based vesting criteria. The Units can be settled only in
cash. In no event may the Committee grant Awards of more than 1,000,000
Units in any calendar year.
VESTING OF UNITS
Units will vest and become immediately redeemable following the achievement
of the performance-based and time-based vesting criteria (if applicable),
as set forth in the Statement of Award (the `Vesting Date'). Performance-
based vesting criteria may be based on a Performance Target such as a
specified increase in the value of the Corporation's Common Stock, total
shareholder return, or other quantitative performance criteria applicable
to the Corporation or the Participant's business unit, as specified by the
Committee. If the applicable Performance Target is not achieved prior to
the Award Expiration Date or termination of employment, the Units will be
forfeited without value (except in the case of death, disability, the
occurrence of an event described in `Change of Control' or if otherwise
extended by the Committee, as hereafter provided).
VALUE AND PAYMENT OF UNITS
Beginning on the Vesting Date (but in no event prior to the earlier of the
date that is six months following the date of the Award or the date of
termination of employment by reason of disability, retirement or death), a
Participant will be entitled to redeem all or a portion of the Units and
receive in exchange a cash payment per Unit equal to the excess of the
closing price of Common Stock on the New York Stock Exchange on the date
the Participant notifies the Director, Compensation of his or her intention
to redeem Units over the closing price of Common Stock on the date the
Committee awards the Unit (the `Unit Value'). Following the Vesting Date,
the value of the Units will be continuously variable by reference to the
price of Common Stock. Accordingly, there can be no guarantee that the
future value of the Units will not be less than the value on the Vesting
Date.
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EXPIRATION OF PROGRAM
The Program expires on June 27, 2005 (the `Program Expiration Date'). No
Awards shall be granted after the Program Expiration Date.
EXPIRATION OF AWARDS
Participants will automatically receive a cash payment promptly following
an Award Expiration Date equal to the aggregate Unit Value of outstanding
vested Units, determined as of the Award Expiration Date.
TERMINATION OF EMPLOYMENT
A.Termination Before Vesting Date
If a Participant's employment with the Corporation terminates prior to the
Vesting Date (other than by reason of the death or disability of the
Participant or the occurrence of an event described in `Change of Control',
as hereafter provided for), all non-vested Units held by the Participant
will be forfeited without value as of the termination date, unless the
Committee, in its sole discretion, decides to either: (i) extend all or a
portion of the non-vested Units for a period of time, as determined by the
Committee (not to exceed the Award Expiration Date), in which case such
Units will vest if the applicable Performance Target is achieved during the
extension period; or (ii) immediately vest all or a portion of the Units
without regard to the achievement of the Performance Target, in which case
the vested Units will be immediately redeemable, for a period of time as
specified by the Committee.
B.Termination After Vesting Date
If a Participant's employment with the Corporation terminates on or after
the Vesting Date, the vested Units will be redeemable by the Participant
for a period of time following the Termination Date, as determined by the
Committee, in its sole discretion (but not beyond the Award Expiration
Date).
C.Death
In the event of the death of a Participant, all Units of such Participant
then outstanding will be immediately vested (without regard to whether any
applicable Performance Target or other vesting criteria have been
achieved), effective as of the date of death. Such Units may be redeemed
at the applicable Unit Value by the Participant's estate for a period of up
to one year following the date of death.
D.Disability
In the event of the termination of a Participant's employment as a result
of the Participant's total and permanent disability (as determined under
the Corporation's long term disability program), the Participant's then
outstanding Units shall be extended until the Award Expiration Date.
CHANGE OF CONTROL
Notwithstanding any other provision herein to the contrary, in the event of
a Change of Control of the Corporation, Participants will be fully vested
in their Units without regard to the achievement of any Performance Target
or other vesting criteria and Participants will be entitled to redeem then
outstanding Units at any time following the Change of Control until the
Award Expiration Date. The Committee will provide for such other
adjustments or modifications with respect to outstanding Units as the
Committee may deem appropriate to assure fair and equitable treatment of
Participants under the Program in response to: (i) a Change of Control;
(ii) an event, which if consummated, would constitute a Change of Control;
or (iii) any other significant change pertaining to the ownership of the
Corporation and the involuntary or constructive termination of the
Participant within two years of such change. With respect to Participants
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who participate in the Corporation's Senior Executive Severance Plan,
amounts realized from the redemption of Units following accelerated vesting
pursuant to this Section are subject to additional `gross up' payments to
the extent that excise taxes may be imposed under Internal Revenue Code
Section 4999, the amount of such gross up payments to be determined in
accordance with the procedures set forth in the Corporation's Senior
Executive Severance Program.
For purposes of the Plan, a `Change of Control' means the acquisition of
20% or more of the Corporation's outstanding voting shares by a person or
group (as defined in Section 13 (d) (3) of the Securities Exchange Act of
1934) of which such person is a member or a change in the majority of the
Board of Directors such that, within any consecutive two-year period, the
members of the new majority are not approved by two-thirds of the members
incumbent at the beginning of such two-year period. Members approved after
such date by two-thirds of such incumbents as of the beginning of such two-
year period shall be deemed to be incumbents as of the beginning of such
two-year period for purposes of this computation. A merger or
consolidation of the Corporation with another company where the Corporation
is not the surviving company, a sale of substantially all of the assets of
the Corporation, a dissolution or liquidation of the Corporation or other
event or transaction having similar effect also constitutes a `Change of
Control' for purposes of this Program.
ADJUSTMENT OF PERFORMANCE TARGET, NUMBER OF UNITS
If the Corporation effects a subdivision or consolidation of shares of
Common Stock, the number of Units and any Performance Target established by
reference to the value of Common Stock on the date of the Award shall be
adjusted by the Committee so that the relative value of a Unit, a share of
Common Stock and the Performance Target are not affected as a result of any
significant change to the Corporation's capital structure. In the case of
a stock split with respect to Common Stock, the number of Units will be
proportionately increased and the Performance Target and the Unit grant
price will be proportionately decreased. Conversely, in the case of a
reverse stock split with respect to Common Stock, the number of Units will
be decreased proportionately and the Performance Target and the Unit grant
price will be increased proportionately. The Committee shall make such
adjustments with respect to Units awarded hereunder as it deems necessary
or appropriate to prevent the enlargement or dilution of the rights of
Participants in the Program in the event of a change in the Corporation's
capital structure resulting from: the payment of a special dividend (other
than regular quarterly dividends) or other special distributions to
shareowners without receiving consideration therefore; the spin-off of a
subsidiary; the sale of a substantial portion of the Corporation's assets;
the merger, consolidation or acquisition of the Corporation; or other
extraordinary non-recurring events or transactions affecting the
Corporation's capital structure that the Committee determines to be
significant for purposes of this Program.
NONASSIGNABILITY
No assignment or transfer of any interest of the Participant in any of the
rights represented by any Award hereunder or any Deferred Account that may
be established (as hereinafter described), whether voluntary or
involuntary, by operation of law or otherwise shall be permitted except by
will or by the laws of descent and distribution. Any attempt to assign
such interests shall be void and shall be without force or effect.
AWARDS NOT TO AFFECT OR BE AFFECTED BY CERTAIN TRANSACTIONS
Neither the Program nor the award of Units hereunder shall affect in any
way the right or power of the Corporation or its shareowners to make or
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authorize: (a) any or all adjustments, recapitalizations, reorganizations
or other changes in the Corporation's capital structure or its business;
(b) any merger or consolidation of the Corporation; (c) any issue of bonds,
debentures, preferred or prior preference stocks holding any priority or
preferred to, or otherwise affecting in any respect the Common Stock of the
Corporation or the rights of the holders of such Common Stock; (d) the
dissolution or liquidation of the Corporation; (e) any sale or transfer of
all or any part of its assets or business; or (f) any other corporate act
or proceeding.
NOTICES
Every notice or other communication relating to this Program and any Award
hereunder shall be in writing, and shall be mailed to or delivered to the
party for whom it is intended at such address as may from time to time be
designated by such party. Unless and until some other address has been so
designated, all notices by the Participant to the Corporation shall be
mailed to or delivered to the Corporation's Director, Compensation at
United Technologies Building, MS 504, Hartford, Connecticut 06101, and all
notices by the Corporation to the Participant shall be given to the
Participant personally or be mailed to the Participant at his or her
address as shown on the records of the Corporation.
ADMINISTRATION
This Program and all rights in respect of Units awarded hereunder shall be
interpreted and administered by the Committee. The Committee shall
establish such procedures as it deems necessary and appropriate to
administer the Units in a manner that is consistent with the objectives of
the Program.
Any question of administration or interpretation arising under this Program
shall be determined by the Committee, such determination to be final and
binding upon all parties in interest. The Program is intended to meet the
requirements of Rule 16a-1(c)(3)(i) under Section 16(a) of the Securities
Exchange Act of 1934, as amended, and shall be interpreted accordingly.
TAXES/WITHHOLDING
The Participant shall be responsible for any income or other tax liability
attributable to amounts realized from the Units, except to the extent
provided in `Change of Control' with respect to gross up payments for
excise taxes under Section 4999 of the Internal Revenue Code. The
Corporation shall take such steps as are appropriate to assure compliance
with applicable federal, state and local tax withholding requirements. The
Corporation shall, to the extent required by law, have the right to deduct
directly from any payment due the Participant or from the Participant's
regular compensation, all federal, state and local taxes of any kind
required by law to be withheld with respect to payments in respect of the
redemption of Units.
LIMITATIONS IMPOSED BY SECTION 162(m)
No Award shall be granted hereunder to any individual who at the time of
the Award is a `covered employee' within the meaning of Section 162(m) of
the Internal Revenue Code. Notwithstanding any other provision hereunder,
if and to the extent that the Committee determines that the Company's
federal tax deduction in respect of the payment of any amounts due upon
the redemption of a Unit may be limited as a result of Section 162(m) of
the Internal Revenue Code, the Committee and the Participant may agree to
delay the payment in respect of such Units until a date that is within 30
days after the earlier to occur of: (i) the date the Participant ceases to
be a `covered employee' within the meaning of Section 162(m) of the Code;
or (ii) the occurrence of a Change in Control. In the event that a
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Participant desires to redeem Units at a time when the Participant is a
`covered employee,' and the Committee and the Participant agree to delay
the payment in respect of such Units, the Committee shall then establish a
book account for such Participant (the `Deferred Account'). The amount
initially credited to such account will equal the cash amount that would
otherwise have been paid to the Participant. The Committee will credit
additional amounts to such Deferred Account as it may determine in its sole
discretion, provided however, that in no event will the amount so credited
be less than the average interest rate on 10 year U.S. Treasury Bonds over
the preceding 12 month period, plus 1%. Any Deferred Account created
hereunder will not be funded in advance and represents only an unfunded
unsecured promise by the Company to pay the amount credited thereto to the
Participant in the future. In this regard, the Participants' interests in
a Deferred Account will be those of a general, unsecured creditor of the
Corporation.
RIGHT OF DISCHARGE RESERVED
Nothing in the Program or in any Award granted hereunder shall confer upon
any Participant the right to continue in the employment or service of the
Corporation or any affiliate thereof for any period of time or affect any
right that the Corporation may have to terminate the employment or service
of such Participant at any time for any reason.
RIGHT OF COMMITTEE TO REVOKE AWARDS
Notwithstanding any other provision herein, the Committee reserves the
right, prior to a Change of Control of the Corporation, to cancel any
Award, whether or not the Performance Target has been achieved or the Award
has otherwise vested, if the Committee determines that the Participant has
engaged in any act or practice with respect to the affairs of the
Corporation, whether or not employed by the Corporation at the time, that
is materially detrimental to the Corporation, provided, however that the
Committee shall not take any such action in an arbitrary or capricious
manner.
NATURE OF PAYMENTS
All Awards made pursuant to the Program are in consideration of services
performed for the Corporation. Any gains realized pursuant to such Awards
constitute a special incentive payment to the Participant and shall not be
taken into account as compensation for purposes of any of the employee
benefit plans of the Corporation.
UNFUNDED PROGRAM
The Program is unfunded. Neither the Corporation nor the Board of
Directors shall separate assets or establish a trust for the purpose of
funding the obligations represented by the Units awarded hereunder. The
Corporation's liability to the Program Participants in respect of the Units
is based solely upon its contractual obligations created by the Program.
In this regard, the Program Participants' rights for payment in respect of
the Units or any Deferred Accounts shall be those of a general, unsecured
creditor of the Corporation.
AMENDMENT AND TERMINATION
The Committee reserves the right to amend, suspend or terminate the Program
at any time provided that any such actions shall not have the effect of
reducing the value of Participants' interests in this Program, determined
as of the date of any such action. Upon the termination of the Program and
without regard to any other provision hereof, the Committee may, in its
discretion, elect to cancel all of the outstanding Units by paying each
Participant the Unit Value with respect to each canceled Unit.
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GOVERNING LAW
The Program shall be governed by and construed in accordance with the laws
of the State of Connecticut.
ELECTION TO PARTICIPATE
An Award recipient may elect to participate in this Program by returning one
signed copy of the Statement of Award to the Director, Compensation, United
Technologies Corporation, MS-504, United Technologies Building, Hartford, CT
06101.