Exhibit 10.5
As Amended as of October 30, 2002
QUEST DIAGNOSTICS INCORPORATED
EMPLOYEE EQUITY PARTICIPATION PROGRAM
QUEST DIAGNOSTICS INCORPORATED
EMPLOYEE EQUITY PARTICIPATION PROGRAM
1. Purpose
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The Employee Equity Participation Program (the "Program") is intended to
encourage executive, managerial, technical and other employees of (i) Quest
Diagnostics Incorporated (the "Corporation"), (ii) any "subsidiary corporation"
of the Corporation within the meaning of Section 424 of the Internal Revenue
Code of 1986, as amended (the "Code") or of any successor section, or (iii) any
other entity in which the Corporation holds beneficially at least one-half of
the ownership interest (such entity or "subsidiary corporation" being referred
to herein as a "Subsidiary") to become owners of stock of the Corporation in
order to increase their proprietary interest in the Corporation's success; to
stimulate the efforts of certain key executive, managerial, technical and other
employees by giving suitable recognition to services which contribute materially
to the Corporation's success; and to provide such employees with additional
incentive and reward opportunity based, in part, upon the attainment of
predetermined goals over specified periods. The Program shall consist of two
plans: (a) the Stock Option Plan and (b) the Incentive Stock Plan.
2. Administration
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The Program shall be administered by a committee appointed by the Board of
Directors of the Corporation, to be known as the "Compensation Committee" (the
"Committee"), consisting of not less than two members of the Corporation's Board
of Directors, each member of which shall be a "non-employee director" within the
meaning of Rule 16b-3(b)(3)(i) promulgated under the Securities Exchange Act of
1934 (the "1934 Act") or any successor thereto and an "outside director" within
the meaning set forth in regulations promulgated under Section 162(m) of the
Code. Without limiting the foregoing, unless and to the extent those definitions
are amended, no member of the Committee shall be an officer or employee of the
Corporation or a subsidiary thereof, a former officer of the Corporation, a
former employee of the Corporation who receives compensation for prior services
(other than benefits under a tax-qualified retirement plan) during the taxable
year, any other person who receives directly or indirectly in any capacity
(other than as a director) remuneration in excess of the lesser of $60,000 or 5
percent of the gross income realized by the entity employing such member during
such entity's taxable year ending with or within the Corporation's taxable year
or any person who is a member of a law firm retained by, or a partner or
executive officer of an investment banking firm that performs services for, the
Corporation. No member of the Committee shall have been eligible to participate
in the Program in the preceding year nor be eligible to participate in the
Program while serving on the
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Committee. The Committee shall select periodically the executive, managerial,
technical and other employees who shall participate in the Program and the
extent of their participation in any particular Plan under the Program and shall
report such selections and levels of participation to the Board of Directors.The
Committee's interpretation and construction of any provisions of this Program or
any Plan or any right, option or award granted or contract executed under it
shall be final unless otherwise determined by the Board of Directors, which
determination shall be final. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith.
3. Eligibility
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The Committee shall from time to time select the executive, managerial,
technical and other employees (including officers and employees who are
directors) of the Corporation and of any Subsidiary who shall be eligible to
participate in any Plan under the Program.
4. Stock
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The shares subject to options, grants or incentive stock rights under the
Program shall be shares of the Corporation's Common Stock par value $.01 per
share, either authorized but unissued or issued and held in treasury or such
other securities as may be issued by the Corporation in substitution therefor.
The total amount of the Common Stock of the Corporation which may be (i) sold
pursuant to options granted under the Stock Option Plan and (ii) granted, or
issued pursuant to incentive stock rights awarded, under the Incentive Stock
Plan shall not exceed 3,000,000 shares. There may be awarded under the Incentive
Stock Plan in lieu of shares the cash equivalent thereof valued at the date that
the Committee determines whether, or to what extent, performance objectives have
been met. In each case, the number of shares shall be subject to adjustment in
accordance with the provisions of Section 5.
Shares from the unexercised portion of the options which expire or of the
options which are terminated during the period when options may be granted and
shares forfeited or not earned under the Incentive Stock Plan may again either
(i) be the subject of an option under the Stock Option Plan or (ii) be awarded
or be the subject of rights granted under the Incentive Stock Plan. Shares of
the Common Stock of the Corporation used by an optionee as full or partial
payment to the Corporation for the purchase price of shares subject to an option
agreement, the terms of which explicitly provide for the grant of an additional
option as contemplated by Section 6(a)(i) hereof, shall again be made available
for use under the Program. Shares otherwise surrendered upon the exercise of
stock options may not again be the subject of options or awards granted under
the Program. Shares surrendered under the Program in payment of taxes due upon
the exercise of stock options or upon the recognition of income for shares
issued under the Incentive Stock Plan may not be issued again under the Program.
No single eligible employee under the Stock Option Plan may receive grants of
stock options covering in excess of 600,000, or 20% of the total, shares
authorized under the Program.
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5. Recapitalization
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The number of shares of Common Stock which may be granted, awarded or earned
under the Incentive Stock Plan or made subject to options granted under the
Stock Option Plan in the aggregate and to any single eligible employee, the
number of shares covered by each outstanding option, and the price per share
thereunder, and the number of shares granted or subject to incentive stock
rights under the Incentive Stock Plan shall all be proportionally adjusted for
any increase or decrease in the number of issued shares of Common Stock of the
Corporation resulting from a subdivision or consolidation of shares or other
capital adjustment, the distribution of shares of capital stock to stockholders
of the Corporation, the payment of a stock dividend or other increase or
decrease in such shares effected without receipt of consideration by the
Corporation, or any distribution or spin-off of assets (other than a normal cash
dividend) to the stockholders of the Corporation.
Subject to any required action by the stockholders, if the Corporation shall be
the surviving corporation in any merger or consolidation, any option granted
under the Stock Option Plan and any incentive stock right granted under the
Incentive Stock Plan shall apply to the securities to which a holder of the
number of shares of Common Stock subject to the option or such right, as the
case may be, would have been entitled before the occurrence of such event. A
dissolution or liquidation of the Corporation, or a merger or consolidation in
which the Corporation is not the surviving corporation, shall cause every option
outstanding under the Stock Option Plan to terminate, except that the surviving
corporation may, in its absolute and uncontrolled discretion, tender an option
or options to purchase its shares on terms and conditions, both as to number of
shares and otherwise, which will substantially preserve the rights and benefits
of any option then outstanding under the Stock Option Plan. Upon the dissolution
or liquidation of the Corporation, or upon the effective date of any merger or
consolidation in which the Corporation is not the survivor and in which the
survivor has not tendered options as provided in the preceding sentence, the
Corporation shall deliver to each optionee whose incentive stock options are
being terminated an amount in cash equal to the difference between the option
price and the fair market value of a share of the Corporation's Common Stock
determined in good faith by the Committee. In the case of such a merger or
consolidation in which the Corporation is not the survivor, the Corporation
shall also deliver to each person whose incentive stock options are being
terminated and to each person who had exercised an incentive stock option and
who was holding the shares so purchased for long-term capital gains treatment an
amount equal to the difference between the federal income tax which the person
would be required to pay as a result of being unable to hold such shares for
long-term capital gains purposes (assuming a sale price equal to the fair market
value as provided above) and the tax such person is required to pay as a result
of having to dispose of shares on account of such merger or consolidation.
In the event of a change in the Corporation's presently authorized Common Stock
which is limited to a change of authorized shares with par value into the same
number of shares with a different par value or into the same number of shares
without par value, the shares resulting from any such change shall be deemed to
be Common Stock within the meaning of the Program.
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6. Stock Option Plan
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(a) The Committee may from time to time grant options, including but not
limited to performance-based stock options and to incentive stock options
permitted by Section 422 of the Code, to purchase shares of Common Stock,
evidenced by agreements in such form as the Committee may, from time to
time, approve, containing in substance the following terms and
conditions:
(i) The option price may be paid either in United States dollars, or
under rules established and maintained from time to time by the
Committee, in shares of the Common Stock of the Corporation owned
by the optionee, or a combination of cash and shares, at such time
(but in no event later than the date on which any shares are
issued on exercise of an option) as is determined by the
Committee. Under such rules, an optionee paying the purchase price
of an option in already-owned, freely transferable, unencumbered
shares of Common Stock of the Corporation may receive new options
to purchase shares of Common Stock of the Corporation at the then
current market price (being the mean between the high and low
selling prices of the Corporation's Common Stock on the New York
Stock Exchange Composite Transactions list on the date of
exercise; provided, however, that if on the date of exercise, an
optionee sells through a broker designated by the Corporation any
of the shares purchased as a result of the exercise of the option,
then the shares shall be valued at the average sales price of such
shares sold on such date as reported to the Corporation by such
broker) for the same number of shares surrendered upon exercise of
the original option. In no circumstance will the total number of
shares subject to the new option granted exceed the number of
shares surrendered upon exercise of the original option, will the
new option be exercisable within twelve months of the date of
exercise or will the new option have a life beyond that of the
original option.
Shares of the Corporation's Common Stock tendered for payment
(either actually or by attestation) shall be valued at the mean
between the high and low selling prices of the Corporation's
Common Stock on the New York Stock Exchange Composite Transactions
list on the date of exercise; provided, however, that if on the
date of exercise, an optionee sells through a broker designated by
the Corporation any of the shares purchased as a result of the
exercise of the option, then the shares shall be valued at the
average sales price of such shares sold on such date as reported
to the Corporation by such broker).
(ii) The option shall state the total number of shares to which it
pertains.
(iii) The option price shall be not less than 100% of the fair market
value of the shares on the date of the granting of the option.
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(iv) Each option granted under the Stock Option Plan shall expire on
the date designated by the Committee but in no event more than ten
years from the date the option is granted.
(v) The Committee may in its discretion provide that an option may not
be exercised in whole or in part for any period or periods of time
specified by the Committee. Except as may be so provided by the
Committee and except as otherwise provided herein, any option may
be exercised in whole at any time or in part from time to time
after the option has vested in accordance with the terms of the
applicable agreement and during its term; provided, however, that,
except in the event of a change of control (as determined by the
Committee) in no circumstance will an option under the Stock
Option Plan become exercisable in less than twelve months from the
date of grant.
(vi) The aggregate fair market value (determined as of the time the
option is granted) of the stock for which any employee may be
granted incentive stock options under this Plan or any other plans
of the Corporation or any subsidiary of the Corporation shall not
exceed $100,000 (or such other limit as may be in effect from time
to time under Section 422 of the Code or any statutory successor
thereto) in any calendar year in which such option or any portion
thereof first becomes exercisable pursuant to the terms of the
agreement between such employee and the Corporation.
(vii) If, in the opinion of counsel for the Corporation, the listing,
registration or qualification of the shares subject to option
under any securities exchange or under any state or Federal law,
or the consent or approval of any governmental regulatory body, or
an exemption from registration, is necessary or desirable, each
option shall be subject to the requirement that such option may
not be exercised in whole or in part unless such listing,
registration, qualification, consent, approval or exemption shall
have been effected or obtained free of any conditions not
acceptable to the Committee.
(viii) An optionee shall have no rights as a stockholder with respect to
shares covered by his option to purchase until the date of the
issuance or transfer of the shares to him and only after such
shares are fully paid. No adjustment will be made for dividends or
other rights for which the record date is prior to the date of
such issuance or transfer, except as provided in Section 5.
(ix) The option agreements authorized under the Stock Option Plan shall
contain such other provisions not inconsistent with this Program
as the Committee may deem advisable.
(b) Options may be granted under the Stock Option Plan from time to time in
substitution for (i) stock options held by consultants to or directors or
employees of other corporations who are about to become and who do
concurrently with the grant of such options become consultants to or
directors or employees of the Corporation or a Subsidiary as the result
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of a merger or consolidation of the employing corporation with the
Corporation or a Subsidiary, or the acquisition by the Corporation or a
Subsidiary of the assets of the employing corporation, or the acquisition
by the Corporation or a Subsidiary of stock of the employing corporation
as the result of which it becomes a Subsidiary or (ii) in substitution
stock options to acquire common stock of Corning Incorporated
("Corning"), which options are held by employees of the Corporation and
are canceled as a result of the spinoff distribution by Corning of all of
the Corporation's outstanding common stock to the stockholders of
Corning. The terms and conditions of the substitute options so granted
may vary from the terms and conditions set forth in Section 6 of this
Program to such extent as the Committee at the time of grant may deem
appropriate to conform, in whole or in part, to the provisions of the
stock options in substitution for which they are granted. Options granted
under this paragraph (b) or pursuant to the terms of the agreements
contemplated by Section 6(a)(i) hereof shall not reduce the shares
available for options, grants or incentive stock rights under the Program
as set forth in Section 4 hereof.
(c) If the optionee's employment by the Corporation or a Subsidiary shall
terminate, his option shall terminate unless otherwise determined by the
Committee, or specific provision has been otherwise made as evidenced by
the terms of the option agreement approved by the Committee. The
Committee shall have full power and authority to determine whether, to
what extent and under what circumstances any option shall be exercisable,
suspended or canceled in the event of an optionee's termination of
employment.
If an optionee dies while in the employ of the Corporation or a
Subsidiary, or within three months after termination of employment with
options exercisable pursuant to action taken by the Committee or
otherwise in accordance with the preceding sentences, the optionee's
estate, personal representative or beneficiary shall have the right to
exercise such option in accordance with the terms of the option agreement
with respect to all shares subject to option on the date of death.
If an optionee shall be transferred from the Corporation to a Subsidiary
or from a Subsidiary to the Corporation or from a Subsidiary to another
Subsidiary, his employment shall not be deemed to have terminated. If an
optionee shall be employed by a corporation or an entity which ceases to
be a Subsidiary, the Committee may, subject to the provisions of clauses
(iv) and (v) of Paragraph (a) of this Section 6, permit the participant
to exercise options held for such period of time as it determines with
respect to all shares which were available for purchase by the optionee
on the date the corporation or entity ceased to be a Subsidiary.
7. Incentive Stock Plan
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The Committee may from time to time award shares of Incentive Stock and grant
incentive stock rights, or either, to eligible employees on the terms set forth
herein.
(a) "Incentive Stock" shall be shares of the Corporation's Common Stock
awarded pursuant to the terms of the Incentive Stock Plan.
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(b) An "incentive stock right" shall, subject to the terms, conditions and
limitations of this Section 7, give the holder thereof the right to
receive in consideration of services performed for, but without payment
of cash to, the Corporation such shares of Common Stock, cash or a
combination of the two as the Committee may determine.
(c) Subject to the limitations of Section 4, the Committee shall from time to
time select, and report to the Board of Directors, (i) the individual
employees who are to receive shares of Incentive Stock or incentive stock
rights, or a combination thereof, (ii) the number of shares of Incentive
Stock a designated employee is to receive, either directly or upon
maturation of an incentive stock right, (iii) whether ownership of, or
any portion of, such shares of Incentive Stock is to be vested in the
designated employee without the possibility of forfeiture or other
restrictions at the time of the Committee's action or at one or more
specified dates in the future, (iv) whether ownership of such, or any
portion of such, shares of Incentive Stock is to be vested in the
designated employee at the time of the Committee's action, but subject to
the possibility of forfeiture or other restrictions, and (v) the specific
dates from the date of the Committee's award over which the possibility
of forfeiture or other restrictions are to lapse.
Shares of Incentive Stock shall be issued in the name of, and distributed
to, those employees from time to time designated by the Board as
recipients of Incentive Stock as follows:
(1) Each employee designated as a recipient of shares of Incentive
Stock shall receive, promptly after the date or dates the
Committee determines the number of such shares which such employee
is to receive not subject to the possibility of forfeiture and
other restrictions, one or more stock certificates registered in
the name of the designated employee for such number of shares, the
ownership of which is vested non-forfeitably and without
restriction in such employee; and
(2) Certificates covering shares of Incentive Stock subject to the
possibility of forfeiture and other restrictions shall be issued
promptly after the date or dates the Committee determines the
number of such shares to be issued in the name of the designated
employee but held by the Corporation as provided in clause (e)
below.
(d) The shares which are granted subject to restrictions and the possibility
of forfeiture (and all shares issued or distributed by means of
dividends, splits, combinations, reclassifications, or other capital
changes thereon) (i) may not be sold, assigned, transferred, pledged or
otherwise encumbered, except (a) for gifts to a spouse, ancestors, or
descendants, or to trusts for their benefit and (b) pursuant to the
qualified domestic relations orders referred to in Section 9 hereof,
subject, however, in each such case to the restrictions and possibility
of forfeiture applicable to such shares and (ii) except as otherwise
provided in an agreement approved by the Committee are to be forfeitable
to the Corporation upon termination of employment for any reason other
than death, disability approved by the Corporation or retirement with the
consent of the Corporation. The restrictions and possibility of
forfeiture
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imposed by this clause (d) shall lapse at such time and in such
proportions as the Committee shall, subject to limitations of clause (c)
above, determine.
(e) Each certificate issued in respect of shares granted under the Incentive
Stock Plan subject to restrictions on transfer and the possibility of
forfeiture shall be registered in the name of the employee but shall be
held by the Corporation in safekeeping for the employee and until such
restrictions and the possibility of forfeiture shall lapse. Such
certificates shall bear a legend substantially as follows:
"The transferability of this certificate and the shares of stock
represented hereby are restricted and the shares are subject to the
further terms and conditions (including forfeiture) contained in the
Incentive Stock Plan of Quest Diagnostics Incorporated and an agreement
executed pursuant thereto. A copy of such Plan and such agreement are on
file in the office of the Secretary of Quest Diagnostics Incorporated,
Teterboro, New Jersey."
(f) An employee who is to receive shares of Incentive Stock only upon the
expiration of certain specified periods or who is the holder of an
incentive stock right shall have no rights as a stockholder with respect
to any shares which may become vested in, or be awarded to, him, as the
case may be, until such shares have been actually issued.
(g) The value of shares of the Incentive Stock or the value of the shares of
Common Stock granted by the Corporation to the holder of an incentive
stock right shall be the mean between the high and low selling prices of
the Corporation's Common Stock on the New York Stock Exchange Composite
Transactions list on the date the Committee determines that the
applicable performance objectives were met or the date the possibility of
forfeiture shall terminate, as the case may be.
(h) At the time an incentive stock right is granted, the Committee shall
establish with respect to each holder one or more performance periods and
performance objectives. If the objectives have been met and are being
maintained at the end of the applicable performance period to the
satisfaction of the Committee, the holder of the incentive stock right
shall receive promptly the shares and/or cash which are subject to the
agreement referred to below.
(i) Any provisions hereof the contrary notwithstanding, the Committee shall
have the authority and the power to adjust performance periods,
performance objectives and the number of shares which may be awarded
pursuant to an incentive stock right if it determines that conditions so
warrant. Such conditions may include, but need not be limited to, changes
in functional responsibilities of a holder of an incentive stock right,
changes in laws or government regulations, changes in accounting
treatment or in generally accepted accounting principles, acquisitions,
dispositions or distributions deemed to be material, or extraordinary
events which significantly impact consolidated financial performance.
(j) Incentive stock rights shall be evidenced by agreements in such form and
not inconsistent with the Incentive Stock Plan as the Committee shall
approve from time to time, which
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agreements shall, among other things, contain in substance the following
terms, conditions and provisions:
(i) The number of shares to which the incentive stock right relates
and whether such rights are to be paid in shares, in cash or in a
combination or the two;
(ii) The length of the performance period or periods;
(iii) The performance objectives applicable to an individual granted an
incentive stock right, which objectives may relate, but shall not
be limited, to overall corporate performance measures, such as
earnings per share, return on stockholders' equity and return on
capital, or to divisional, subsidiary or other business unit
performance measures, or to a combination of each; and
(iv) Such other rules, as determined by the Committee, governing the
continuation of an incentive stock right after the holder
terminates, either voluntarily or involuntarily, his employment
with the Corporation.
(k) Unless otherwise determined by the Committee or set forth in the
agreement contemplated by subsection (j) above, if the holder of an
incentive stock right shall cease to be employed by the Corporation or a
Subsidiary, his incentive stock right shall terminate immediately.
[However, if employment is terminated on account of death, retirement or
termination of employment with the consent of the Corporation (including
termination by reason of retirement, disability or a Subsidiary ceasing
to be such), the Committee may award to such employee such shares or cash
at such time and under such conditions as it shall in its sole discretion
determine.]
8. Amendment and Administration of the Program
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The Board of Directors may, upon the recommendation of the Committee, from time
to time alter, amend, suspend, or discontinue the Program or either Plan
thereunder, except that no alteration or amendment shall, without the approval
of the holders of a majority of the outstanding shares entitled to vote thereon,
increase the total number of shares which may be sold or awarded under the
Program, decrease the price at which options may be granted, change the
standards of eligibility of employees eligible to participate, materially
increase the benefits of the Program or either Plan thereunder to participants,
or extend the term of the Program or of options granted thereunder. Adjustments
in the total number of shares purchasable or awardable under the Program or
optioned to any individual and adjustments of the option price may be made,
however, without stockholder approval pursuant to the adjustment provisions
described under the provisions of Section 5 hereof. No amendment or modification
shall apply to affect adversely any employee with respect to incentive stock or
incentive stock rights already awarded to him or an option already granted.
Anything to the contrary in this Section 8 notwithstanding, should the
provisions of Rule 16b-3, or any successor rule, under the 1934 Act be amended,
the Board may amend the Program in accordance with any modifications to such
Rule.
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With respect to persons subject to Section 16 of the 1934 Act, transactions
under the Program are intended to comply with all applicable conditions of Rule
16b-3, or any successor rule, under the 1934 Act. To the extent any provision of
the Program or action by the Committee, the Board of Directors or any
administrator fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee or the Board of
Directors.
9. Assignability
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No option or right granted under the Program shall be assignable or transferable
except by Will, by the laws of descent and distribution, or except for an
incentive stock option pursuant to domestic relations orders as defined in or
meeting the requirements of the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended. During the lifetime of an optionee, an
option shall be exercisable only by him and any shares purchased upon the
exercise of an option shall be issued in the name of the optionee alone.
10. Effective Date and Term of Program.
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The Program shall become effective when approved by a majority of the votes cast
at a meeting of the Corporation's stockholders by stockholders entitled to vote
thereon. No shares may be optioned or awarded (except upon the attainment of
performance goals contemplated by Section 7(h) hereof) and no incentive stock
rights may be granted under the Program after the fifth anniversary, plus 60
calendar days, of the Program's effective date.
11. Use of Proceeds
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Proceeds from the sale of stock under the Program shall constitute general funds
of the Corporation.
12. Withholding
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Whenever under the Program shares are to be issued in satisfaction of options,
awards or rights granted thereunder, the Corporation shall have the right to
require the employee to remit to it an amount in cash, in shares of the
Corporation's Common Stock, or though the reduction of options, awards or rights
to be issued thereof, necessary to satisfy federal, state and local withholding
tax requirements prior to the delivery of any certificate or certificates for
shares. Whenever under the Program payments are to be made in cash, such payment
shall be net of an amount necessary to satisfy federal, state and local
withholding tax requirements.
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