(212) 848-4376
November 26, 2001
Quest Diagnostics Incorporated
One Malcolm Avenue
Teterboro, NJ 07608
1.75% Contingent Convertible Debentures due 2021
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Ladies and Gentlemen:
We have acted as special United States federal income tax counsel
("Special Tax Counsel") to Quest Diagnostics Incorporated (the "Company") in
connection with (i) its offering (the "Offering") of $250,000,000 aggregate
principal amount at maturity of 1.75% Contingent Convertible Debentures due 2021
(the "Debentures") pursuant to a Prospectus Supplement dated November 19, 2001
(the "Prospectus Supplement") and the accompanying Prospectus dated July 9, 2001
(the "Prospectus"). The Debentures were sold subject to the terms and conditions
set forth in the Underwriting Agreement dated November 19, 2001 (the
"Underwriting Agreement") by and among the Company, Banc of America Securities
LLC, First Union Securities, Inc., and Credit Lyonnais Securities (USA) Inc.,
and are being issued under an Indenture, dated as of June 27, 2001, as
supplemented by the First Supplemental Indenture dated as of June 27, 2001, and
as further supplemented by the Second Supplemental Indenture dated as of
November 26, 2001 in connection with the Offering (collectively, the
"Indenture"), between the Company, the subsidiary guarantors as parties thereto,
and The Bank of New York, as indenture trustee. The Debentures described above
include $25,000,000 aggregate principal amount at maturity of Debentures sold to
cover over-allotments pursuant to Section 2(c) of the Underwriting Agreement. In
our capacity as Special Tax Counsel, we have been asked to provide the Company
with our opinion of counsel concerning certain United States federal income tax
consequences of the Debentures.
For purposes of rendering our opinion set forth below, we have reviewed
the Prospectus Supplement, the Prospectus, the Underwriting Agreement, the
Indenture and such other documents and corporate records as we have deemed
necessary or appropriate (the "Transaction Documents"). In this regard, we have
assumed that (i) all disclosures, representations and warranties in the
Transaction Documents were true, correct and complete when made, and continue to
be true, correct and complete as of the date hereof, (ii) there has been, and
will continue to be, full compliance with all agreements and covenants contained
in the Transaction Documents, and (iii) the statements made to the Company by
Banc of America Securities LLC in its letter to the Company dated as of the date
hereof and delivered to the Company for purposes of our reliance thereon in
connection with this opinion (which statements have not been independently
verified by us) are and will as of the date of the Offering remain true, correct
and complete. Additionally we have relied upon the statements of employees and
representatives of the Company as to certain factual matters, and upon financial
calculations and projections provided to us by Banc of America Securities LLC
(which statements, calculations and projections have not been independently
verified by us), including estimates of the net present value of all payments of
contingent interest that may be made by the Company over the term of the
Debentures.
Based upon the foregoing, in reliance thereon and subject thereto, and
based further upon the United States Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations promulgated thereunder, administrative
pronouncements of the United States Internal Revenue Service (the "IRS") and
judicial decisions, all is in effect on the date hereof (and all of which may be
subject to change, possibly on a retroactive basis), we are of the opinion that:
(1) the Debentures sold pursuant to the Offering will be treated as
indebtedness for United States federal income tax purposes;
(2) the Debentures sold pursuant to the Offering will be subject to the
rules governing contingent payment debt instruments under section
1.1275-4 of the Treasury regulations (and, in particular, paragraph (b)
thereof);
(3) in applying such Treasury regulations to the Debentures sold pursuant
to the Offering, the term "comparable yield" means the yield at which
the Company would issue, as of the issue date of the Debentures,
fixed-rate, non-convertible debt instruments providing for no
contingent payments, but with terms and conditions otherwise comparable
to those of the Debentures; and
(4) the discussions contained in the Prospectus Supplement under the
captions "Summary - The Offering - United States Federal Income Tax
Consequences" and "Certain United States Federal Income Tax
Considerations," insofar as such discussions constitute statements of
United States federal income tax law or legal conclusions, subject to
the assumptions, limitations and conditions set forth therein,
accurately describe the material United States federal income tax
consequences of the Debentures to holders thereof.
You should be aware that, depending on the identity of the persons to whom the
Debentures were marketed or sold, there may be a presumption that the comparable
yield is the "applicable federal rate," as such term is used in Treasury
regulation section 1.1275-4(b)(4). This presumption may be overcome only with
clear and convincing evidence that the comparable yield should be a specific
yield other than the applicable federal rate.
No opinion is expressed as to any matter not specifically addressed
above, including the tax consequences of the issuance of the Debentures under
state, local or non-United States tax laws, and the reasonableness of the
assumptions relied upon by us in rendering our opinion above. Moreover, this
opinion of counsel is based upon current United States federal income tax law
and administrative practice, and we do not undertake to advise you as to any
changes in such law or practice unless you request us to do so in writing, and
we are specifically retained by you for that purpose. Furthermore, the
conclusions set forth in this opinion of counsel are not binding on the IRS or
the courts, and no assurance can be given that the IRS will not take contrary
positions upon an examination, or that a court will agree with such conclusions
if litigated.
We hereby consent to the use of this letter in connection with the
Offering, and to the use of our name under the heading "Legal Matters" in the
Prospectus Supplement. In giving such consent, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended.
Very truly yours,
/s/ SHEARMAN & STERLING
DJL/EJP