Quest Diagnostics 2000 Annual Report Download - page 93

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands unless otherwise indicated)
F-23
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 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 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.
Under the 1996 EEPP, the maximum number of shares of Quest Diagnostics’ common stock that may be
optioned or granted was 3 million shares. The 1999 EEPP increased the maximum number of shares of Quest
Diagnostics’ common stock that may be optioned or granted by 6 million shares. 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 500 thousand
shares. The stock options expire ten years from date of grant and generally vest over three years. During 2000, 1999 and
1998, grants under the Director Option Plan totaled 75, 69 and 52 thousand shares, respectively.
Transactions under the stock option plans were as follows (options in thousands):
2000 1999 1998
Options outstanding, beginning of year....................................................... 5,741 2,950 1,896
Options granted............................................................................................ 748 3,359 1,336
Options exercised ........................................................................................ (1,662) (294) (27)
Options terminated ...................................................................................... (204) (274) (255)
Options outstanding, end of year ................................................................. 4,623 5,741 2,950
Exercisable .................................................................................................. 1,809 2,222 405
Weighted average exercise price:
Options granted .................................................................................... $ 63.23 $ 26.37 $ 16.39
Options exercised ................................................................................. 16.88 15.98 16.36
Options terminated ............................................................................... 28.20 25.77 14.65
Options outstanding, end of year.......................................................... 29.19 21.15 15.14
Exercisable, end of year........................................................................ 18.72 15.61 16.50
Weighted average fair value of options at grant date $ 29.95 $ 12.79 $ 7.31
The increase in options exercisable during 1999 was primarily related to the completion of the SBCL acquisition
which accelerated the vesting of certain grants made in previous years in accordance with the original terms of such
option grants.