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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED(dollars in thousands unless otherwise indicated)
13. STOCK
OWNERSHIP AND COMPENSATION PLANS
Employee and Non-employee Directors Stock Ownership Programs
In 1999, the Company established the 1999
Employee Equity Participation Program (the “1999 EEPP”) to replace the
Company’s prior plan established in 1996 (the “1996 EEPP”). The 1999 EEPP provides for three types of
awards: (a) stock options, (b) stock appreciation rights and (c) incentive
stock awards. The 1999 EEPP provides
for the grant to eligible employees of either non-qualified or incentive stock
options, or both, to purchase shares of Quest Diagnostics common stock at no
less than the fair market value on the date of grant. The stock options are subject to forfeiture if employment
terminates prior to the end of the prescribed vesting period, as determined by
the Board of Directors. The stock options expire on the date designated by the
Board of Directors but in no event more than eleven years from date of
grant. Grants of stock appreciation
rights allow eligible employees to receive a payment based on the appreciation
of Quest Diagnostics common stock in cash, shares of Quest Diagnostics common
stock or a combination thereof. The
stock appreciation rights are granted at an exercise price at no less than the
fair market value of Quest Diagnostics common stock on the date of grant. Stock
appreciation rights expire on the date designated by the Board of Directors but
in no event more than eleven years from date of grant. No stock appreciation rights have been
granted under the 1999 EEPP. Under the
incentive stock provisions of the plan, the 1999 EEPP allows eligible employees
to receive awards of shares, or the right to receive shares, of Quest
Diagnostics common stock, the equivalent value in cash or a combination
thereof. These shares are generally
earned on achievement of financial performance goals and are subject to
forfeiture if employment terminates prior to the end of the prescribed vesting
period, which ranges primarily from three to four years. The market value of the shares awarded is
recorded as unearned compensation. The
amount of unearned compensation is subject to adjustment based upon changes in
earnings estimates, if any, during the initial year of grant and is amortized
to compensation expense over the prescribed vesting period. Key executive, managerial and technical
employees are eligible to participate in the 1999 EEPP. The provisions of the 1996 EEPP were similar
to those outlined above for the 1999 EEPP.
The 1999 EEPP increased the maximum number of
shares of Quest Diagnostics common stock that may be optioned or granted to 18
million shares. In addition, any
remaining shares under the 1996 EEPP are available for issuance under the 1999
EEPP.
In 1998, the Company established the Quest
Diagnostics Incorporated Stock Option Plan for Non-employee Directors (the
“Director Option Plan”). The Director
Option Plan provides for the grant to non-employee directors of non-qualified
stock options to purchase shares of Quest Diagnostics common stock at no less
than fair market value on the date of grant. The maximum number of shares that may be issued under the Director
Option Plan is 1 million shares. The stock options expire ten years from date
of grant and generally vest over three years. During 2003, 2002 and 2001, grants
under the Director Option Plan totaled 94, 94 and 81 thousand shares,
respectively.
Transactions under the stock option plans were
as follows (options in thousands, except per share amounts):
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Options
outstanding, beginning of year.........................................
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8,922
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8,695
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9,246
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Options
granted..................................................................................
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3,176
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2,052
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2,413
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Options
exercised...............................................................................
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(1,616)
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(1,543)
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(2,576)
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Options
terminated.............................................................................
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(242) |
(282) |
(388) |
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Options
outstanding, end of year....................................................
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10,240
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8,922
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8,695
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Exercisable...........................................................................................
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5,706
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3,943
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3,168
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Weighted
average exercise price:
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Options granted..........................................................................
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$ 53.33
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$ 74.92
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$ 55.08
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Options exercised.......................................................................
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20.29
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18.70
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11.37
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Options terminated.....................................................................
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58.31
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26.05
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25.31
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Options outstanding, end of year............................................
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44.85
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38.83
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26.33
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Exercisable, end of year.............................................................
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34.01
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22.09
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13.97
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Weighted
average fair value of options at grant date..................
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$ 23.21
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$ 33.74
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$ 25.79
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