Exhibit 10.3
Quest Diagnostics Incorporated
Procedures for the Exercise of Designated Options by Covered Employees
As Approved by the Committee on May 13, 2003
Under the 1996 and 1999 Employee Equity Participation Programs
1. Purpose. The purpose of these Procedures is to provide for the
mandatory deferral of proceeds of certain option exercises. These Procedures
have been adopted by the Committee in accordance with Sections 2 and 6(a)(v) of
the Company's 1996 Employee Equity Participation Program and Sections 2(b) and
5(b) of the Company's 1999 Employee Equity Participation Program and are an
integral part of such Programs.
2. Definitions.
(a) "Account" means the Account maintained by the Company pursuant to
Section 4 with respect to each Participant.
(b) "Base Options" has the meaning set forth in Section 5(b).
(c) "Committee" has the meaning ascribed to such term in the Employee
Equity Participation Programs.
(d) "Common Stock" means the common stock of the Company, par value
$.01 per share.
(e) "Company" means Quest Diagnostics Incorporated.
(f) "Employee Equity Participation Programs" means the Company's 1996
Employee Equity Participation Program and the Company's 1999 Employee Equity
Participation Program, each as amended from time to time.
(g) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(h) "Notice Options" has the meaning set forth in Section 5(a).
(i) "Option" means an option listed on Schedule A hereto, as amended
from time to time.
(j) "Participant" means a person listed on Schedule A hereto, as
amended from time to time.
(k) "Procedures" means these procedures for the exercise of Options by
Participants under the Employee Equity Participation Programs as set forth
herein and as amended from time to time. These Procedures are effective as of
May 13, 2003.
(l) "Qualifying Shares" means shares of Common Stock that have been
owned by a Participant and have been fully vested and fully transferable by such
Participant for at least six months preceding the date of exercise of a Notice
Option.
(m) "Remaining Options" has the meaning set forth in Section 5(d).
(n) "Year" means the Company's taxable year.
3. Applicability of these Procedures. Unless otherwise determined by
the Committee, these Procedures shall apply to each Participant and Option until
each Participant's Account has been distributed and each Option has been
exercised.
4. Accounts. The Company shall establish an Account for each
Participant on its books to which there shall be credited the Participant's
stock units issued under these Procedures. The Participant at all times shall be
fully vested in his or her Account.
5. Procedures for Exercise of Options.No Option shall be exercised
unless the following provisions shall have been satisfied:
(a) Each Participant shall provide the Secretary of the Company with
notice of exercise of any Options specifying the number of such Options that he
or she elects to then exercise (the "Notice Options");
(b) The Company shall determine the Notice Options to be exercised by
the Participant without causing the total amount of taxable compensation
realized by the Participant for the Year in connection with the exercise of
Options to exceed two million dollars ($2,000,000) or such other amount as may
be determined by the Committee (the "Base Options"), the determination of the
Company being final and binding;
(c) The Base Options shall be exercised in accordance with the regular
procedures for the exercise of Options in effect from time to time under the
Employee Equity Participation Programs and the applicable Option agreements;
(d) The balance of the Notice Options that are not Base Options (the
"Remaining Options") can be exercised during that Year only by the Participant
"attesting" to his or her ownership of the number of Qualifying Shares required
to pay for the shares of Common Stock to be acquired upon exercise of the
Remaining Options, with the Qualifying Shares being valued as provided in the
applicable Employee Equity Participation Program; provided, however, any
election to exercise the Remaining Options shall not be valid to the extent that
such Participant's Qualifying Shares are insufficient to pay the purchase price
and such Remaining Options shall continue to be outstanding and exercisable at a
later time in accordance with their terms and these Procedures; and
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(e) In lieu of delivering shares of Common Stock to the Participant
upon exercise of the Remaining Options by attestation pursuant to Section 5(d),
the Company shall credit to the Participant's Account that number of stock units
equal to the number of shares of Common Stock to which the Participant would
have been entitled upon exercise of the Remaining Options, net of the "attested"
Qualifying Shares.
6. Dividend Equivalent Rights. Whenever a cash dividend is paid on
Common Stock, each Participant shall be paid, as soon as practicable after the
dividend payment date, a cash amount equal to the product of (i) the cash
dividend payable on a share of Common Stock and (ii) the number of stock units
credited to such Participant's Account.
7. No Rights as Stockholder. No Participant shall have any of the
rights of a stockholder of the Company with respect to stock units credited to
his or her Account until a stock certificate has been issued to such Participant
for shares of Common Stock in respect of such stock units.
8. Adjustments. Any adjustment made to outstanding awards by the
Committee in accordance with Section 5 of the 1996 Employee Equity Participation
Program and Section 3(d) of the 1999 Employee Equity Participation Program shall
also apply to the stock units credited to the Accounts in respect of Options
exercised under such Program.
9. Distribution of Accounts. Within 60 days after the end of the Year
in which the Participant ceases to be listed on Schedule A hereto or at such
earlier time that the Committee determines that a Participant is not a "covered
employee" (as defined in Section 162(m)(3) of the Internal Revenue Code of 1986,
as amended) for the Year, the Company shall transfer to the Participant one
share of Common Stock for each stock unit credited to the Participant's Account,
at which time the Participant's stock units shall be canceled. If, at the time
shares of Common Stock are delivered in payment of stock units credited to a
Participant's Account in respect of the exercise of Remaining Options, such
shares would still be subject to any restrictions had the Participant received
shares of Common Stock at the time of exercise (instead of stock units), then
the same restrictions shall also apply to the shares of Common Stock delivered
to the Participant in respect of his or her Account. Any shares of Common Stock
delivered in respect of an Account shall be subject to any other restrictions as
may be provided by the Committee under the Employee Equity Participation
Programs and the applicable agreements relating to the Remaining Options that
were exercised.
10. Contractual Obligation. The obligation of the Company to make
payments hereunder shall be contractual only and all such payments shall be made
from the general assets of the Company. Each Participant and any other person or
persons having or claiming a right to payments hereunder shall rely solely on
the unfunded unsecured promise of the Company, and nothing herein shall be
construed to give a Participant, or any other person or persons any right,
title, interest or claim in or to any
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specific asset, fund, reserve, account or property of any kind whatsoever owned
by the Company or in which it may have any right, title or interest now or in
the future.
11. Administration. The Committee shall have the authority to decide
all questions involving the administration, interpretation or application of
these Procedures. Any decision by the Committee concerning these Procedures
shall be final and binding on all persons to which these Procedures apply. No
member of the Committee shall be personally liable for any action or
determination under these Procedures.
12. Nonassignment. No rights of any Participant with respect to his or
her Account may be sold, exchanged, transferred, assigned, pledged, hypothecated
or otherwise disposed of (including through the use of any cash-settled
instrument), either voluntarily or involuntarily by operation of law, other than
by will or by the laws of descent and distribution. Any sale, exchange,
transfer, assignment, pledge, hypothecation or other disposition in violation of
the provisions of this Section shall be void. In the event of a Participant's
death, the Participant's Account shall be distributed to the Participant's
estate, and all of the provisions of these Procedures shall be binding upon any
such Participant's estate.
13. No Right to Continued Employment. Neither the provisions of these
Procedures nor any action taken hereunder shall be construed to give any
Participant any right to continue to be employed by or to perform services for
the Company, any subsidiary or related entity. The right to terminate the
employment of or performance of services by any Participant at any time and for
any reason is specifically reserved to the Company, its subsidiaries and related
entities.
14. Tax Withholding. As a condition to the distribution of any shares
of Common Stock in respect of an Account, or in connection with any other event
that gives rise to a federal or other governmental tax withholding obligation on
the part of the Company relating to an Account (including without limitation
FICA tax), the Company shall be entitled to deduct from other cash compensation
payable to the Participant or require that the Participant remit to the Company
or any of its subsidiaries an amount sufficient in the opinion of the Company to
satisfy such withholding obligation. If the event giving rise to the withholding
obligation is a transfer of shares of Common Stock, then the Company shall be
entitled to retain shares of Common Stock in an amount sufficient to satisfy
such withholding obligation. In such case, the Company shall transfer the net
number of shares of Common Stock to the Participant by deducting the shares of
Common Stock retained from the shares of Common Stock to be distributed in
respect of such Participant's Account.
15. Amendment or Termination. The Committee reserves the right at any
time and from time to time to modify, alter, amend, suspend, discontinue or
terminate these Procedures. Notwithstanding anything contained herein to the
contrary, the Committee may direct at any time that shares of Common Stock (or
the cash equivalent
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value of such shares) shall be distributed to Participants in full satisfaction
of their Accounts.
16. ERISA. In the event that it is determined that the establishment
and maintenance of the Accounts pursuant to these Procedures constitutes a
"pension plan" under Section 3(2)(A) of ERISA, such plan shall be considered a
plan which is unfunded and is maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees under ERISA Sections 201(2), 301(a)(3), and 401(a)(1).
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SCHEDULE A
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[Participants] [Options]
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