Exhibit 10.38

QUEST DIAGNOSTICS INCORPORATED
PERFORMANCE SHARE AWARD AGREEMENT
(2007 – 2009 Performance Period)

This Performance Share Award Agreement (the “Share Agreement”) dated as of Grant
Date (the “Grant Date”) is by and between Quest Diagnostics Incorporated, 1290
Wall Street West, Lyndhurst, NJ 07071 (the “Company”) and
________________________ (the “Employee”).

1.          

Conditions. This Share Agreement is subject in all respects to the Company’s
Amended and Restated Employee Long-Term Incentive Plan (the “Plan”), the
applicable terms of which are incorporated herein by reference. Terms not
defined in this Share Agreement shall have the meaning ascribed in the Plan. The
Employee acknowledges that he/she has read the terms of the Plan. This Share
Agreement shall become void and the underlying grant will be revoked unless this
document is executed by the Employee and returned by mail to the Executive
Compensation Department to the attention of Lisa Zajac (1290 Wall Street West –
5th Floor, Lyndhurst, NJ 07071) within thirty (30) days from the date of
transmittal to the Employee.

  2.

Calculation of Potential Award. The Employee shall be eligible to vest in shares
of the Company’s stock as provided in this section (shares that have so vested,
“Vested Shares”).

   

Employee’s Target Performance Shares: ____________________

   

Performance will be measured over the Performance Period using the Baseline
results and Final Year results for the Company as well as for the companies in
the Comparator Peer Group (see Appendix A for these defined terms). After the
Final Year of the Performance Period, the results of each company in the
Comparator Peer Group will be arrayed from highest to lowest. The Company’s
results will then be compared to that of the Comparator Peer Group and, based on
the Company’s relative position in this array; Vested Shares will be awarded
based upon the following formula:

 

          
Performance Relative to Peers *
“Earnings Multiple”* multiplied by Target
    Performance Shares = Vested Shares   Greater Than or Equal to 80th%ile 2 x
Target Performance Shares = Vested Shares   Equal to 50th %ile 1 x Target
Performance Shares = Vested Shares   Less Than or Equal to 20th %ile 0 x Target
Performance Shares = 0 Shares          *Intermediate Performance and resulting
Earnings Multiple will be interpolated.

 

For example, if the Company’s EPS Compound Annual Growth Rate (CAGR) from the
Baseline to the end of the Performance Period (the end of fiscal year 2009) is
at the 65th %ile relative to the companies in the S&P500 Healthcare Index, an
Earnings Multiple of 1.5 will be applied to the Target Performance Shares to
calculate the Vested Shares.

  3.          

Adjustments to Target Performance Shares: The Target Performance Shares will
only be adjusted on a pro rata basis in the event either of the following occur:

    (a)          

the Employee’s employment with the Company ends prior to the end of the
Performance Period, except if for death, disability (as defined in Section
22(e)(3) of the Internal Revenue Code), or retirement (defined as termination
after the Employee attains age sixty and with the consent of the Company). In
that event, the Target Performance Shares will be pro-rated by dividing the
number of full months served by the Employee during the Performance Period by
the number of months in the Performance Period (“Pro Ration Factor”); provided,
however, that no Target Performance Shares shall vest under this sentence if the
Employee’s termination of employment occurs less than three months after the
Grant Date. At the end of the Performance Period, the Vested Shares will be
calculated based on the product of the Target Performance Shares, the Pro

 

1 of 4

--------------------------------------------------------------------------------

2007 Incentive Stock Agreement

 

            Ration Factor and the Earnings Multiple; provided, however, that an
Employee shall be deemed to be disabled only if on or before the first
anniversary of the Employee’s termination of employment, the Employee delivers
to the Company evidence satisfactory to the Company that the Social Security
Administration has determined that the Employee is disabled (as defined in
Section 22(e)(3) of the Internal Revenue Code); or         (b)          

the Employee’s employment with the Company ends prior to the end of the
Performance Period as a result of (1) a separation which would entitle the
Employee to severance benefits under the Company’s Severance Policy or an
employment agreement between such Employee and the Company or (2) a divestiture
and the Employee is employed by the purchasing entity. In that event, the Target
Performance Shares will be pro-rated by adding the number of full months served
by the Employee during the Performance Period plus twelve (but not to exceed the
number of months remaining in the Performance Period) and then dividing that
total by the number of months in the Performance Period (“Severance Pro Ration
Factor”). At the end of the Performance Period, the Vested Shares will be
calculated based on the product of the Target Performance Shares, the Severance
Pro Ration Factor and the Earnings Multiple; or

    (c)

if prior to the end of the Performance Period, the Employee’s employment status
in the Company is changed such that the Employee will no longer be eligible to
receive performance shares pursuant to the Equity Award Eligibility Policy of
the Company as in effect on the date hereof and attached as Appendix B to this
Agreement and such changed status continues for a consecutive 90-day period,
then, notwithstanding any other provision in this Agreement to the contrary, the
Target Performance Shares will be pro-rated by dividing (x) the number of full
months served by the Employee during the Performance Period through such 90th
day (not to exceed 36) by (y) the number of months in the Performance Period
(“Pro Ration Factor”). At the end of the Performance Period, the Vested Shares
will be calculated based on the product of the Target Performance Shares, the
Pro Ration Factor and the Earnings Multiple. The balance of the Target
Performance Shares will be forfeited. Notwithstanding the foregoing, there will
be no pro- ration under the first sentence of this Section 3(c) (and no Target
Performance Shares will be forfeited as a result of the Employee being no longer
eligible to receive performance shares pursuant to the Equity Award Eligibility
Policy of the Company) if, (i) before the end of such 90- day period, the
Employee has attained age 60 or (ii) the Compensation Committee in its absolute
discretion determines to waive the application of this Section 3(c).

    (d)

Notwithstanding anything to the contrary contained herein, if the Employee is on
a leave of absence approved by the Corporation for medical, personal,
educational and/or other permissible purposes pursuant to policies of the
Corporation as in effect on the date hereof, for a consecutive twelve-month
period, the Employee will be deemed terminated for purposes of this Agreement on
the first anniversary of the commencement of such leave of absence (with the
result that the Target Performance Shares will be pro-rated in accordance with
Section 3(a)); provided, however, that on or before the first anniversary of the
commencement of the leave of absence, the Compensation Committee may, in its
absolute discretion, determine to waive the application of this Section 3(d), in
which case the Employee will not be deemed terminated for purposes of this
Agreement and the Target Performance Shares will continue to vest in accordance
with this Agreement. Notwithstanding the foregoing, if the Employee’s employment
is terminated pursuant to this Section 3(d) at the end of a medical or
disability leave, then the Target Performance Shares shall cease to vest as of
the end of the twelve-month leave but shall not be forfeited until the first
anniversary of the Employee’s termination of employment unless, prior to such
first anniversary, the Employee delivers to the Company evidence satisfactory to
the Company that the Social Security Administration has determined that the
Employee is disabled as provided in Section 3(a).

 

2 of 4

--------------------------------------------------------------------------------

2007 Incentive Stock Agreement

 

  (e)          

If the Employee shall be transferred from the Corporation to a subsidiary
company (being a 50% owned entity within the meaning of Section 424(f) of the
Code), or joint venture or similar entity existing as of the date of this
Agreement in which the Corporation has at least a 33.33% interest (“joint
venture”) or vice versa or from one subsidiary company (or joint venture) to
another, the Employee’s employment shall not be deemed to have terminated. If,
while the Employee is employed by such a subsidiary company or joint venture,
such subsidiary company or joint venture shall cease to be a subsidiary company
or joint venture as described above and the Employee is not thereupon
transferred to and employed by the Corporation or another subsidiary company or
joint venture as described above, then the Employee’s employment will be treated
as a termination due to a divestiture under Section 3(b)(2) above as of the date
that the Employee’s employer ceases to be such a subsidiary company or joint
venture of the Corporation.

  4.          

Vesting and Exceptions to Vesting:

   

Subject to the exception enumerated at the end of this Section 4, the Employee
will vest at the end of the Performance Period. Vested Shares, net of required
tax withholding as described in Section 8 below, will be transferred into the
Employee’s account at the Company’s dedicated broker as soon as practicable
after the final calculation of the number of Vested Shares.

   

In the event a Change in Control of the Company occurs prior to the end of the
Performance Period (or prior to the determination of the final approved Earnings
Multiple), then, upon the consummation of such transaction, a number of Vested
Shares will be delivered to the Employee equal to the greater of: (1) the Target
Performance Shares (as pro rated, if applicable, pursuant to section 3 above) or
(2) the number of Performance Shares that would be Vested Shares had the
calculation been based on the Performance Period including the most recent
fiscal year end results of the Company and the companies in the Comparator Peer
Group. For purposes of this Share Agreement, Change of Control shall mean and
shall be deemed to occur if and when:

    (a)

Any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 40% of more of the
combined voting power of the Company’s then outstanding securities; or

    (b)

The individuals who, as of the grant date, constituted the Company’s Board of
Directors (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual (other than any
individual whose initial assumption of office is in connection with an actual or
threatened election contest (as such term is used in Rule 14a-11 of Regulation A
promulgated under the Securities Exchange Act of 1934)), becoming a director
subsequent to the Grant Date, whose election, or nomination for election by the
stockholders of the Company, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board, shall be considered as though
such individual was a member of the Incumbent Board; or

    (c)

Shareholders of the Company approve an agreement, providing for (a) a
transaction in which the Company will cease to be an independent publicly owned
corporation, or (b) the sale or other disposition of all or substantially all of
the Company’s assets, or (c) a plan of partial or complete liquidation of the
Company.

   

The Employee will not vest and will forfeit all Performance Shares if, either:

 

3 of 4

--------------------------------------------------------------------------------

2007 Incentive Stock Agreement

 

  (x)          

The Employee was terminated for Cause where “Cause” shall be defined as the
Employee committing any act that shall or could cause the Company to suffer
financial harm or damage to its reputation (either before or after termination
of employment) through (i) dishonesty, (ii) violation of law in the course of
the Employee’s employment or violation of the Company’s Corporate Compliance
Manual and compliance bulletins or other written policies, or (iii) material
deviation from the duties owed the Company by the Employee; or

    (y)

The Employee breaches any non solicit, non compete or confidentiality covenant
or any other restrictive covenants of his or hers that may be in place. The
Employee understands and acknowledges that he or she is a key employee of the
Company which was a reason, in part, for being provided with this Grant, and, as
such, may have restrictive covenants in place. Forfeiture under this subsection
(y) shall not constitute a release of any claim that the Company may have for
damages, past, present, or future in respect of any such breach. In addition, a
breach by the Employee of any non solicit, non compete or confidentiality
covenant or any other restrictive covenants of his or hers that may be in place
that occurs after any shares have been delivered pursuant to this Agreement
(including any breach occurring after termination of employment) shall cause
such delivery to be rescinded (and if the Employee has previously sold the
shares issued pursuant to this Agreement, the Employee would be required to pay
back to the Company the pre-tax proceeds received from the sale of such shares).

  5.          

Executive Share Ownership Guidelines: If the Employee has been designated as a
participant in the Company’s Executive Share Ownership Guidelines, which have
been established by the Compensation Committee of the Board of Directors, Vested
Shares earned by the Employee (net of tax withholdings) pursuant to this Share
Agreement would qualify under and are subject to such guidelines.

  6.

Non-Transferability. Except pursuant to the laws of descent and distribution,
the Performance Shares described in this Share Agreement may not be sold,
assigned, transferred, pledged or otherwise encumbered by or on behalf of or for
the benefit of the Employee. Unless otherwise provided at the time of delivery
of the Vested Shares to the Employee, the Vested Shares may be so sold,
assigned, transferred, pledged or encumbered.

  7.

Interpretation. Any dispute, disagreement or matter of interpretation which
shall arise under this Share Agreement shall be finally determined by the
Company’s Compensation Committee in its absolute discretion.

  8.

Taxes: Any Vested Shares under this program will be considered taxable income
and subject to tax and tax withholdings as appropriate. The Company will reduce
the number of Vested Shares to be delivered to the Employee by the amount of the
taxes due (with the shares valued at the average of the high and low selling
prices on the date that the Vested Shares are valued for purposes of reporting
compensation for Federal income tax purposes).

  9.

Governing Law. This Share Agreement and all rights hereunder shall be governed
by, and construed and interpreted in accordance with, the laws of the state of
New York applicable to contracts made and to be performed entirely within such
state. Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any New
York state court or federal court of the United States of America sitting in New
York City, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement, or for recognition or enforcement
of any judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in any such New York state court or, to
the extent permitted by law, in such federal court.

 

4 of 4

--------------------------------------------------------------------------------

2007 Incentive Stock Agreement

 

  Each of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Each of the parties
hereto irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, any objection that it may now or hereafter have
to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement in any state or federal court sitting in New York
City. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by Law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.     10.          

Acknowledgements. By execution of this Share Agreement, the Employee agrees that
he/she has received and reviewed a copy of:

    (a)          

the Prospectus (link to Prospectus:
http://questnet1.qdx.com/Business_Groups/Legal/policies/stock_Grant/stock_Grant.htm)
relating to the Company’s Amended and Restated Employee Long-Term Incentive
Plan;

    (b)

the Quest Diagnostics Incorporated 2006 Annual Report (link to 2006 Annual
Report: http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=DGX&script=700 to
Shareholders and Form 10-K);

    (c)

the Company’s Policy for Purchasing and Selling Securities (“the Policy”) (link
to Trading Policy:
http://questnet1.qdx.com/Business_Groups/Legal/policies/policies.htm.) The
Employee further agrees to fully comply with the terms of the Policy;

    (d)

the Company’s Executive Share Ownership Guidelines (link to guidelines:
http://questnet1.qdx.com/Business_Groups/Legal/policies/policies.htm); and

    (e)

the Company’s Equity Award Eligibility Policy attached hereto as Appendix B.

 

EMPLOYEE:

By:           ________________________________
                 (NAME)

5 of 5

--------------------------------------------------------------------------------

Appendix A
QUEST DIAGNOSTICS INCORPORATED
PERFORMANCE SHARE AWARD AGREEMENT
2007 – 2009 Performance Period

Baseline –$2.50 per share for the Company and fully-diluted earnings per share
for Fiscal Year 2006 for each company in the Comparator Peer Group.

 * Fiscal Year refers to the year during which the last full month occurs in
   each company’s annual reporting period. For most companies in the Comparator
   Peer Group, the Fiscal Year ended on December 31. For certain other
   companies, the Fiscal Year ended during other months in 2006.

Final Year – Fiscal Year 2009 for the Company and each company in the Comparator
Peer Group.

Performance Period – The Performance Period will run from January 1, 2007
through December 31, 2009, the Final Year for the Company (and corresponding
Peer Group fiscal years).

Performance Goal(s) - Compound Annual Growth Rate (CAGR) in Fully-Diluted
Earnings Per Share for the Company and each company in the Comparator Peer Group
from the Baseline to the Final Year (i.e., for Fiscal Years 2007, 2008 and
2009). .

 * The reported Fully-Diluted Earnings Per Share results will include the annual
   compensation cost of each company’s equity awards.

 * Final awards will be determined by the end of the first quarter following the
   end of the measurement period based upon publicly filed information. If any
   company in the Peer Group has not publicly reported its Fully Diluted
   Earnings Per Share by February 28, 2010, its CAGR will be computed as of its
   most recent quarterly report.

Comparator Peer Group – The Comparator Peer Group is comprised of the companies
in the Standard & Poors 500 Healthcare Index as of December 31, 2009.

 * Excluded from the list of companies in the Comparator Peer Group will be
   those companies reporting a negative EPS in fiscal Year 2006 since
   calculating CAGR will not be possible for these companies.

--------------------------------------------------------------------------------

2007 Incentive Stock Agreement

 

Appendix B
Quest Diagnostics Incorporated
"Equity Award Eligibility Policy"

Option Eligibility

Unreduced Work Schedule

 

One of the following salary grades:

         

Corporate VP or Higher

     

Salary Grade 53 or Higher

     

Research & Development - Grade RD6 or Higher

     

Medical Director - Grade MD2

For employees whose salary is administered outside the standard Quest structure
(i.e., MedPlus, International, Clinical Trials Europe), a Quest Diagnostics
salary grade has been assigned consistent with the above requirements. This
grade is stored within the Company's Stock Administration System.

IMPORTANT: Meeting the criteria for “Option Eligibility” does not guarantee an
award. All grants are subject to a separate approval process.

--------------------------------------------------------------------------------