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[QUEST DIAGNOSTICS LOGO]
Notice of
2002 Annual Meeting &
Proxy Statement
Quest Diagnostics Incorporated
One Malcolm Avenue
Teterboro, NJ 07608
Quest Diagnostics Incorporated
One Malcolm Avenue
Teterboro, New Jersey 07608
(201) 393-5000
-----------------------------
NOTICE OF 2002 ANNUAL MEETING TO BE HELD ON MAY 7, 2002
-----------------------------
To the Stockholders of Quest Diagnostics Incorporated:
The 2002 Annual Meeting of Stockholders of Quest Diagnostics Incorporated will
be held on Tuesday, May 7, 2002 at 10:30 A.M., local time, at The Waldorf
Astoria, 301 Park Avenue, New York, NY 10022, for the purpose of considering and
voting upon the following matters:
1. To elect four directors for a three-year term.
2. To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants to audit the financial statements of Quest Diagnostics for the
year ending December 31, 2002.
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
These matters are more fully described in the Proxy Statement accompanying this
Notice.
Your Board of Directors has fixed the close of business on March 11, 2002, as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the annual meeting, and any notice of adjournments or postponements
of the annual meeting.
By Order of the Board of Directors
Leo C. Farrenkopf, Jr.
Leo C. Farrenkopf, Jr.
Vice President and Secretary
March 15, 2002
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER OR
NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON YOU ARE URGED TO COMPLETE,
DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE
PROVIDED. NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
ALTERNATIVELY, STOCKHOLDERS OF RECORD MAY VOTE BY TELEPHONE BY CALLING
1-800-213-3198 OR ON THE INTERNET AT HTTP//WWW.COMPUTERSHARE.COM/US/PROXY. EACH
PROXY IS REVOCABLE AND WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IN THE EVENT
YOU ATTEND THE ANNUAL MEETING.
This notice and the proxy statement are dated March 15, 2002, and are first
being mailed to stockholders on or about March 26, 2002.
Proxy Statement
-----------------------------
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 7, 2002
-----------------------------
This proxy statement is furnished in connection with the solicitation by the
Board of Directors of Quest Diagnostics Incorporated of proxies for use at the
2002 Annual Meeting of Stockholders of Quest Diagnostics to be held on Tuesday,
May 7, 2002, and at any adjournments or postponements of the annual meeting, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.
This proxy statement and the accompanying proxy card are first being mailed to
stockholders on or about March 26, 2002.
Only holders of record of shares of Quest Diagnostics' common stock, par
value $.01 per share, at the close of business on March 11, 2002, are entitled
to notice of the annual meeting and to vote on all matters presented to the
annual meeting. On that date, there were issued, outstanding and entitled to
vote 96,582,340 shares of common stock held by approximately 6,200 stockholders
of record. Each share of common stock is entitled to one vote, voting as one
class. A majority of the shares issued and outstanding at March 11, 2002,
constitutes a quorum for the transaction of business.
All proxies on the enclosed card which are properly executed and returned to
Quest Diagnostics or are properly voted by telephone or Internet will be voted
as provided therein at the annual meeting and any and all adjournments thereof.
Signed, unmarked proxies will be voted FOR the election of the Board's nominees
(Proposal 1) and FOR ratification of the selection of PricewaterhouseCoopers LLP
as the independent accountants to audit the financial statements of Quest
Diagnostics for the year ending December 31, 2002 (Proposal 2). A stockholder
executing and returning a proxy may revoke it at any time before it has been
voted by filing with the Secretary of Quest Diagnostics a written notice of
revocation or a duly executed proxy bearing a later date or by attending the
annual meeting and voting in person.
The required vote for election of directors (Proposal 1) is a plurality of
the votes of the shares present in person or represented by proxy at the meeting
and entitled to vote on the election of directors. The required vote FOR
approval of ratification of the selection of auditors (Proposal 2) is the
Quest Diagnostics Incorporated 2002 Proxy Statement 1
affirmative vote of a majority of the shares casting votes on the proposal
(whether present in person or represented by proxy) provided that the total
votes cast on the proposal represent over 50% of all shares entitled to vote on
the proposal. Any proxy that is properly executed and returned to Quest
Diagnostics and marked 'abstain' as to any matter will, nevertheless, be counted
in determining whether a quorum is present at the annual meeting. The number of
shares abstaining on each proposal is counted and reported as a separate total.
Broker non-votes are included in the determination of the number of stockholders
present at the meeting for quorum purposes but are not counted in the tabulation
of votes cast on proposals presented to stockholders.
Quest Diagnostics' management does not know of any matters to be brought
before the annual meeting other than Proposals 1 and 2. Quest Diagnostics'
By-Laws generally provide that no matters may be brought before any stockholder
meeting by a stockholder unless the proponent is a stockholder as of the record
date and Quest Diagnostics has received notice of the proposed matter, no later
than February 15 of the year in which the annual meeting is held, at its
principal executive office. Quest Diagnostics has not received notice of a
proposal from any stockholder.
Officers and employees of Quest Diagnostics may solicit proxies by mail,
telephone, facsimile transmission or telegraph, or in person, for which they
will receive no special compensation. Quest Diagnostics will bear all expenses
for the preparation, printing and use of Quest Diagnostics' proxy materials. In
addition, Quest Diagnostics has retained Georgeson Shareholder Communications
Inc. to assist in the solicitation for a fee of $12,000 and reimbursement of its
reasonable out-of-pocket expenses. No portion of the proxy solicitor's fee is
dependent on the number of shares (as hereinbefore defined) voting in favor of
(as opposed to those voting against or abstaining) any matter being submitted
for approval at the annual meeting. Banks, brokerage houses and other
institutions, nominees and fiduciaries will be requested to forward the proxy
materials to beneficial owners of Quest Diagnostics' stock, and to obtain
authorizations for the execution of proxies. Quest Diagnostics will, upon
request, reimburse banks, brokerage houses and other institutions, nominees and
fiduciaries for their reasonable expenses in forwarding proxy materials to
beneficial owners.
Quest Diagnostics' 2001 Annual Report to Stockholders has been distributed
to stockholders and is not deemed a part of the materials for the solicitation
of proxies.
2 Quest Diagnostics Incorporated 2002 Proxy Statement
PROPOSAL NO. 1 ELECTION OF DIRECTORS
The Restated Certificate of Incorporation of Quest Diagnostics provides that
the Board of Directors shall consist of not less than three nor more than twelve
directors, the exact number to be determined from time to time by resolution of
the Board of Directors. The Board presently consists of ten directors. The
Restated Certificate of Incorporation further provides for three classes of
directors having staggered terms of office, each class consisting, so far as
possible, of one-third of the number of directors required at the time to
constitute a full Board. If the number of directors may not be evenly divided
into thirds, the Board of Directors shall determine which class or classes shall
have one extra director.
At the annual meeting, four directors will be elected to hold office until
the 2005 annual meeting of stockholders and until their respective successors
shall have been duly elected and qualified.
The following tables identify the four persons nominated for election to the
Board of Directors at the annual meeting and the six members of the Board of
Directors whose terms will expire subsequent to the annual meeting. Each of the
nominees has consented to serve if elected. It is intended that the accompanying
form of proxy, unless otherwise specified, will be voted for the election of the
three nominees. Certain information concerning each of the nominees and
continuing directors and their business experience during the past five years is
provided following the tables below.
It is the intention of the persons named on the accompanying proxy card to
vote for the election of the nominees unless a stockholder has withheld such
authority. Management has no reason to believe that any nominee will not be
available to serve his or her prescribed term. However, the persons named on the
proxy card will have the discretionary authority to vote for substitutes if any
nominee is unable or unwilling to serve.
Directors will be elected by the plurality vote of the holders of shares
entitled to vote at the annual meeting and present in person or by proxy.
NOMINEES FOR THE BOARD WITH TERMS EXPIRING AT THE 2005 ANNUAL MEETING
Position with
Name Quest Diagnostics Age
---- ----------------- ---
William F. Buehler................ Director 62
Van C. Campbell................... Director 63
Rosanne Haggerty.................. Director 41
Dan C. Stanzione.................. Director 56
Quest Diagnostics Incorporated 2002 Proxy Statement 3
MEMBERS OF THE BOARD CONTINUING IN OFFICE WITH TERMS EXPIRING AT THE 2004 ANNUAL
MEETING
Position with
Name Quest Diagnostics Age
---- ----------------- ---
Kenneth D. Brody.................. Director 58
Mary A. Cirillo................... Director 54
William R. Grant.................. Director 77
MEMBERS OF THE BOARD CONTINUING IN OFFICE WITH TERMS EXPIRING AT THE 2003 ANNUAL
MEETING
Position with
Name Quest Diagnostics Age
---- ----------------- ---
Kenneth W. Freeman........ Chairman of the Board, 51
Chief Executive
Officer and Director
Gail R. Wilensky.......... Director 58
John B. Ziegler........... Director 56
KENNETH D. BRODY is the founding partner of Winslow Partners LLC, a Washington,
D.C. private investment firm. He is also the co-founder and principal of Taconic
Capital Advisors, an investment firm. From 1993 to early 1996, he was the
chairman and president of the Export-Import Bank of the United States, a
position to which he was appointed by President Clinton. From 1971 to 1991, Mr.
Brody was with Goldman, Sachs & Co., where he was a partner and member of the
management committee. Mr. Brody is a director of Federal Realty Investment
Trust. Mr. Brody has been a director of Quest Diagnostics since January 1997.
WILLIAM F. BUEHLER retired in 2001 as Vice Chairman of Xerox Corporation, which
he joined in 1991. Prior to joining Xerox, Mr. Buehler spent 27 years with AT&T,
primarily in sales, marketing and general management positions. Mr. Buehler is a
director of A.O. Smith. Mr. Buehler has been a director of Quest Diagnostics
since July 1998.
VAN C. CAMPBELL retired in 1999 as Vice Chairman of Corning Incorporated, which
he joined in 1965. He was elected treasurer in 1972, a vice president in 1973,
financial vice president in 1975 and senior vice president for finance in 1980.
He became general manager of the Consumer Products Division in 1981. Mr.
Campbell was elected vice chairman and a director in 1983 and during 1995 was
appointed to the additional position of chairman of Corning Life Sciences Inc.
He is a director of Armstrong World Industries, Inc. Mr. Campbell has been a
director of Quest Diagnostics since January 1991.
4 Quest Diagnostics Incorporated 2002 Proxy Statement
MARY A. CIRILLO is Chairman and Chief Executive Officer of OPCENTER, which
provides help desk and network operations services. She was Chief Executive
Officer of Global Institutional Services of Deutsche Bank from July 1999 until
February 2000. Previously, she served as Executive Vice President and Managing
Director of Bankers Trust Company which was acquired by Deutsche Bank), which
she joined in 1997. From 1977 to 1997, she was with Citibank, N.A., most
recently serving as Senior Vice President. Ms. Cirillo is a director of Digital
Island, Inc. and is on the Advisory Board of Cisco Systems, Inc. Ms. Cirillo has
been a director of Quest Diagnostics since April 1997.
KENNETH W. FREEMAN is Chairman of the Board and Chief Executive Officer of Quest
Diagnostics. Mr. Freeman joined Quest Diagnostics in May 1995 as President and
Chief Executive Officer, was elected a director in July 1995 and was elected
Chairman of the Board in December 1996. Prior to 1995, he served in a variety of
financial and managerial positions at Corning Incorporated, which he joined in
1972. He was elected Controller and a Vice President of Corning in 1985, Senior
Vice President in 1987, and General Manager of the Science Products Division in
1989. He was appointed President and Chief Executive Officer of Corning Asahi
Video Products Company in 1990. In 1993, he was elected Executive Vice President
of Corning. Mr. Freeman is a director of TRW, Inc.
WILLIAM R. GRANT has been Chairman of Galen Associates, a New York investment
firm, since 1989. From 1987 to 1989 he was Chairman of New York Life
International and from 1979 to 1987 of MacKay-Shields Financial Corp. He is also
a former director and Vice-Chairman of SmithKline Beecham plc, and is currently
a director of Allergan, Inc., Massey Energy Co., Vasogen, Inc. and Ocular
Sciences. He has been a director of Quest Diagnostics since August 1999. Mr.
Grant was designated by SmithKline Beecham to be a director of Quest Diagnostics
pursuant to the Stockholders Agreement with SmithKline Beecham. See 'Certain
Relationships and Related Transactions -- Stockholders Agreement.'
ROSANNE HAGGERTY is the founder and Executive Director of Common Ground, a
not-for-profit housing development and management organization in New York City.
Prior to founding Common Ground, she was the coordinator of housing development
at Brooklyn Catholic Charities. Ms. Haggerty is a 2001 MacArthur Foundation
Fellow. Ms. Haggerty has been a director of Quest Diagnostics since February
2002.
Quest Diagnostics Incorporated 2002 Proxy Statement 5
DAN C. STANZIONE is President Emeritus of Bell Laboratories at Lucent
Technologies Incorporated. Dr. Stanzione began his career in 1972 with Bell
Labs, where he led the teams working on the first microprocessors and digital
signal processors. He was appointed president of Network Systems, Lucent's
largest business unit, in 1996 and was appointed Chief Operating Officer of
Lucent in 1997. Dr. Stanzione is a director of Avaya Inc. Dr. Stanzione has been
a director of Quest Diagnostics since January 1997.
GAIL R. WILENSKY is the John M. Olin Senior Fellow at Project HOPE, an
international non-profit health foundation, which she joined in 1993. She is
currently the chair of the Medicare Payment Advisory Commission, which advises
Congress on all issues relating to Medicare. From 1995 to 1997 she chaired the
Physician Payment Review Commission, which advised Congress on physician payment
and other Medicare issues. In 1992 and 1993, Dr. Wilensky served as a deputy
assistant to the President for policy development relating to health and welfare
issues. From 1990 to 1992, she was the administrator of the Health Care
Financing Administration where she directed the Medicare and Medicaid programs.
Dr. Wilensky is a director of Advanced Tissue Sciences Inc., Gentiva Health
Services, Inc., Manor Care Inc., Syncor International Corp and United Healthcare
Corporation. Dr. Wilensky has been a director of Quest Diagnostics since January
1997.
JOHN B. ZIEGLER is the President, Worldwide Consumer Healthcare, of
GlaxoSmithKline (the parent of SmithKline Beecham plc). Mr. Ziegler joined
SmithKline Beecham in 1991 as the head of SB Consumer Healthcare-North American
Division. He became Executive Vice President of SmithKline Beecham in 1996 and
assumed his current responsibilities in 1998. He has been a director of Quest
Diagnostics since May 2000. Mr. Ziegler was designated by SmithKline Beecham as
a director of Quest Diagnostics pursuant to the Stockholders Agreement with
SmithKline Beecham. See 'Certain Relationships and Related
Transactions -- Stockholders Agreement.'
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE 'FOR' THE ELECTION OF ALL
NOMINEES FOR DIRECTOR.
6 Quest Diagnostics Incorporated 2002 Proxy Statement
DIRECTORS
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has four standing committees: an Audit and Finance
Committee, a Compensation and Nominating Committee, a Quality, Safety and
Compliance Committee and an Executive Committee. The Audit and Finance Committee
is composed of Mr. Campbell, Mr. Grant and Dr. Stanzione. Its charter is
attached to this Proxy Statement as Appendix A. The Compensation and Nominating
Committee, composed of Mr. Brody, Ms. Cirillo, Mr. Grant and Dr. Stanzione,
approves executive officer compensation and the issue of options and share
grants under Quest Diagnostics' Employee Equity Participation Programs and makes
recommendations to the Board with respect to programs for human resource
development and management organization and succession, and employee benefit and
incentive plans. The Quality, Safety and Compliance Committee, composed of Mr.
Buehler, Mr. Campbell, Ms. Haggerty, Mr. Ziegler and Dr. Wilensky, oversees
Quest Diagnostics' compliance program, which is administered by management's
Compliance Team and the Legal and Compliance Department, and oversees the
administration of Quest Diagnostics' Quality and Safety programs. The Executive
Committee, composed of Mr. Brody, Mr. Campbell and Mr. Freeman, has and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of Quest Diagnostics except with respect
to certain major corporate matters, such as mergers, the election of directors,
the amendment of Quest Diagnostics' certificate of incorporation and By-laws,
incurring indebtedness in excess of $20 million and such matters as are
delegated to other committees of the Board of Directors.
During 2001, there were six meetings of the Board of Directors, five
meetings of the Audit and Finance Committee, five meetings of the Compensation
and Nominating Committee and five meetings of the Quality, Safety and Compliance
Committee. There were no formal meetings of the Executive Committee. Several
actions were taken on unanimous written consent of the Executive Committee.
During the year, each director attended at least 75% of the meetings held by the
Board of Directors and the committees of which he or she was a member, except
for Mr. Brody who attended 73% of the meetings.
DIRECTORS' COMPENSATION
Each non-employee director is entitled to receive a fee in an annual sum of
$26,000, payable in quarterly installments of $6,500.
Quest Diagnostics Incorporated 2002 Proxy Statement 7
Directors who serve as committee chairs receive an additional annual sum of
$3,000, payable in quarterly installments of $750. In addition, each
non-employee director also participates in Quest Diagnostics' stock option plan
for non-employee directors. The option plan authorizes the grant on the date of
the Annual Meeting of Stockholders of non-qualified stock options to acquire
18,000 shares of common stock of Quest Diagnostics to each non-employee
director. In the event that a person is elected as a director of Quest
Diagnostics other than on the date of the Annual Meeting of Stockholders, the
Board of Directors may grant to such director, on his/her election, an option to
acquire a number of shares (not to exceed 18,000) that is proportional to the
fraction of a year remaining until the next Annual Meeting of Stockholders
consistent with the most recent annual option grant to other directors at the
previous Annual Meeting of Stockholders. At the 2001 Annual Meeting of
Stockholders, the directors reduced the annual option grant for the most recent
year to 10,000 shares of common stock. A director may elect to receive his or
her annual retainer in options in lieu of cash. Currently two directors have
elected to receive options in lieu of cash. The aggregate number of shares of
common stock of Quest Diagnostics which may be issued pursuant to the exercise
of options granted under the plan may not exceed 1,000,000 (subject to
adjustments in certain circumstances). The exercise price of all stock options
issued under the plan is the fair market value of Quest Diagnostics' common
stock on the date of grant. All share information reflects the two-for-one stock
split dividend that occurred on May 31, 2001.
Under the Quest Diagnostics deferred compensation plan for directors, each
director may elect to defer, until a date specified by him or her, receipt of
all or a portion of his or her cash compensation. Such plan provides that
amounts deferred may be allocated to (i) a cash account upon which amounts
deferred may earn interest, compounded quarterly, at the base rate of Citibank,
N.A. in effect on certain specified dates, (ii) a market value account, the
value of which will be based upon the market value of Quest Diagnostics' common
stock from time to time, or (iii) a combination of such accounts. All
non-employee directors are eligible to participate in the plan. Currently, two
directors have elected to defer compensation pursuant to the plan.
PROPOSAL NO. 2 RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP
The Board of Directors recommends the ratification of its selection of
PricewaterhouseCoopers LLP as the independent
8 Quest Diagnostics Incorporated 2002 Proxy Statement
accountants to audit the financial statements of Quest Diagnostics for its
current fiscal year, which ends December 31, 2002. PricewaterhouseCoopers LLP
has served as Quest Diagnostics' independent accountants since 1982. Should the
selection of PricewaterhouseCoopers LLP by the Board of Directors not be
ratified, the Board will consider the selection of a different firm to serve as
independent accountants of Quest Diagnostics.
It is expected that representatives of PricewaterhouseCoopers LLP will
attend the Annual Meeting, will have the opportunity to make a statement if they
elect to do so, and will be available to respond to appropriate questions.
During 2001, Quest Diagnostics was billed for the following services
provided by PricewaterhouseCoopers LLP:
Audit Fees........................... $414,261
Financial Information Systems Design
and Implementation Fees............ $ 0
SEC Registrations.................... $321,913
Due Diligence Assistance............. $283,555
All Other Fees....................... $179,396
The Audit and Finance Committee of the Board of Directors has considered the
other services rendered and does not believe that they are incompatible with
PricewaterhouseCoopers LLP remaining independent.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE 'FOR' RATIFICATION OF
THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP.
OTHER MATTERS
As of the date hereof, the Board does not know of any matter that will come
before the annual meeting other than Proposals 1 and 2. If any other matter is
properly presented at the annual meeting or any adjournment or postponement of
the annual meeting, it is intended that the persons named in the accompanying
proxy will vote thereon in accordance with their best judgment. Quest
Diagnostics' By-Laws generally provide that no matters may be brought before any
stockholder meeting by a stockholder unless the proponent is a stockholder as of
the record date and Quest Diagnostics has received notice of the proposed
matter, no later than the February 15 preceding the date of an annual meeting,
at its principal executive office at One Malcolm Avenue, Teterboro, NJ 07608.
Quest Diagnostics has not received notice of any such proposal.
Quest Diagnostics Incorporated 2002 Proxy Statement 9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table shows the compensation for the
past three years of the Chief Executive Officer and each of Quest Diagnostics'
other four most highly compensated executive officers the 'named executive
officers').
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and -------------------
Principal Position Year Salary
------------------ ---- ------
Kenneth W. Freeman 2001 $784,523
Chairman & Chief Executive Officer 2000 747,116
1999 598,078
Surya N. Mohapatra 2001 $519,615
President & 2000 498,077
Chief Operating Officer(5) 1999 361,539
Gerald C. Marrone 2001 $345,535
Vice President, Administration & 2000 331,587
Chief Information Officer 1999 310,299
Robert A. Hagemann 2001 $311,769
Vice President & 2000 298,878
Chief Financial Officer 1999 241,247
Michael E. Prevoznik 2001 $280,600
Vice President, Legal & 2000 274,888
Compliance and General Counsel 1999 260,000(6)
(1) Represents Management Incentive Plan amounts for 2001 using a payout factor
of 1.05x based on Quest Diagnostics' financial and non-financial goals.
(2) Includes $78,503, $38,704, and $39,207 in tax gross-up payments on forgiven
loan amounts for Mr. Freeman, Dr. Mohapatra and Mr. Prevoznik, respectively
in 2001. The loans were provided in connection with the relocation of the
executives, bear no interest and are forgiven over a five year period. The
principal balance of the loan to Mr. Freeman was $80,000 at January 1, 2001
and $0 at December 31, 2001. The principal balance of the loan to
Dr. Mohapatra was $150,000 at January 1, 2001 and $100,000 at December 31,
2001. The principal balance of the loan to Mr. Prevoznik was $150,000 at
January 1, 2001 and $100,000 at December 31, 2001. No interest is charged on
any relocation loans to executive officers. Includes $80,664 in tax and
financial planning assistance for Mr. Freeman in 2001. Also includes
$125,000 Year 2000 bonus for Mr. Marrone.
(3) All amounts reflect the two-for-one stock split dividend that occurred on
May 31, 2001.
(4) Includes forgiven principal on relocation loans of $80,000, $50,000, and
$50,000 for Mr. Freeman, Dr. Mohapatra, and Mr. Prevoznik, respectively in
2001. Includes payment for 2001 of $64,199 to Mr. Freeman under the
Transferee Supplemental Pension Plan. Includes $6,800, $6,800, $6,800,
$6,800 and $6,800 contributed for 2001 to the Company's Profit Sharing Plan
for Mr. Freeman, Dr. Mohapatra, Mr. Marrone, Mr. Hagemann, and
Mr. Prevoznik, respectively. Includes $41,625, $25,062, $17,065, and $14,642
contributed for 2001 to the Company's Supplemental Deferred Compensation
Plan for Dr. Mohapatra, Mr. Marrone, Mr. Hagemann, and Mr. Prevoznik,
respectively. Includes ESOP contribution of $3,400, $3,400, $3,400, $3,400,
$3,400 for Mr. Freeman, Dr. Mohapatra, Mr. Marrone, Mr. Hagemann, and
Mr. Prevoznik, respectively.
(5) Dr. Mohapatra joined Quest Diagnostics on February 1, 1999.
(6) Mr. Prevoznik joined Quest Diagnostics on August 16, 1999. His base salary
is annualized for 1999.
10 Quest Diagnostics Incorporated 2002 Proxy Statement
Long-Term
Annual Compensation Compensation Awards
---------------------- -------------------------
Other Restricted Securities All
Annual Stock Underlying LTIP Other
Bonus (1) Comp. (2) Awards Options (3) Payouts Comp. (4)
--------- --------- ------ ----------- ------- ---------
$1,158,600 $230,870 $ 0 200,000 $0 $ 154,399
1,623,300 257,175 0 300,000 0 128,946
1,200,000 231,203 2,126,875 664,302 0 1,711,848
$ 438,500 $ 38,704 $ 0 78,975 $0 $ 101,825
618,400 40,493 2,564,877 0 0 91,508
400,000 197,750 1,094,250 280,000 0 443,955
$ 218,700 $125,000 $ 0 35,055 $0 $ 35,262
282,300 125,000 1,154,195 0 0 32,364
203,378 50,000 382,838 110,000 0 362,143
$ 197,300 $ 0 $ 0 37,875 $0 $ 27,265
255,090 0 833,585 0 0 23,518
158,290 0 276,494 80,000 0 329,036
$ 162,800 $ 39,207 $ 0 36,075 $0 $ 74,842
229,921 0 1,154,195 0 0 69,555
65,600 0 162,323 92,000 0 2,688
Quest Diagnostics Incorporated 2002 Proxy Statement 11
OPTION GRANTS. The following table sets forth certain information regarding
options granted in 2001 to the named executive officers pursuant to stock option
plans. No stock appreciation rights (SARs) were granted in 2001.
OPTION/SAR GRANTS IN 2001
Potential Realizable Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciation for Option Term
-------------------------------------------------- ----------------------------------
% of
Total
Number of Options
Securities Granted to
Underlying All Employees Gain Gain Gain
Options In Fiscal Exercise Expiration At At At
Executive Granted Year Price Date 0% 5% 10%
---------------------------------------------------------------------------------------------------------------
Kenneth W. Freeman 200,000 8.6% $52.15 2/21/2011 $0 $6,559,371 $16,622,734
Surya N. Mohapatra 76,000 3.3% 52.15 2/21/2011 0 2,492,561 6,316,639
Surya N. Mohapatra 2,975 0.1% 64.07 2/3/2009 0 83,149 196,004
Gerald C. Marrone 28,000 1.2% 52.15 2/21/2011 0 918,312 2,327,183
Gerald C. Marrone 4,548 0.2% 52.99 1/13/2008 0 96,456 224,174
Gerald C. Marrone 2,507 0.1% 64.07 1/13/2008 0 58,869 134,989
Robert A. Hagemann 34,000 1.5% 52.15 2/21/2011 0 1,115,093 2,825,865
Robert A. Hagemann 3,875 0.2% 69.58 1/20/2008 0 82,984 185,788
Michael E. Prevoznik 34,000 1.5% 52.15 2/21/2011 0 1,115,093 2,825,865
Michael E. Prevoznik 2,075 0.1% 63.48 8/16/2009 0 9,428 19,045
OPTION EXERCISES AND FISCAL YEAR-END VALUES. The following table sets forth
certain information regarding stock option exercises by the named executive
officers during 2001 and the number of shares of Quest Diagnostics' common stock
covered by both exercisable and unexercisable stock options as of December 31,
2001, for the named executive officers.
AGGREGATE OPTION/SAR EXERCISES IN FISCAL YEAR 2001
& 2001 FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities
Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 2001 December 31, 2001(2)
Shares --------------------------- ---------------------------
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------------------------------------------------------------------------------------------------------------
Kenneth W. Freeman 480,000 $27,392,266(1) 920,522 730,000 $55,621,400 $33,762,950
Surya N. Mohapatra 60,000 2,829,200 106,664 192,311 6,379,302 8,275,620
Gerald C. Marrone 50,000 2,469,600 95,000 90,055 5,729,425 3,842,416
Robert A. Hagemann 33,200 2,040,330 76,000 77,875 4,531,080 2,989,604
Michael E. Prevoznik 16,000 768,370 38,000 90,075 2,212,170 3,814,013
------- ----------- --------- --------- ----------- -----------
Totals 639,200 35,499,766 1,236,186 1,180,316 $74,473,377 $52,684,603
(1) Mr. Freeman's options were exercised under a plan pursuant to SEC Rule
10b5-1 which calls for systematically selling company stock on a
regular basis over a 12 month period excluding 'black out' periods
per company policy.
(2) Based on a value of $71.71 at December 31, 2001.
VARIABLE COMPENSATION. Quest Diagnostics maintains a Management Incentive Plan,
which is an annual incentive cash compensation plan for approximately 1,600
supervisory, management and
12 Quest Diagnostics Incorporated 2002 Proxy Statement
executive employees. The terms of the Management Incentive Plan are described
below.
The performance-based annual cash incentive awards payable under the
Management Incentive Plan are grounded in financial goals such as net income,
cash flow, operating margin, return on equity, or earnings per share, or a
combination thereof, and quantifiable non-financial goals. Each participant is
assigned a target award, as a percentage of base salary in effect at the end of
the performance year for which the target is set, payable if the target is
achieved. Actual results are compared to the scale of targets with each
gradation of desired result corresponding to a percentage, which are multiplied
by the employee's assigned target award. If the actual result is below target,
awards are to be less than target, down to a point below which no awards are
earned. If the desired result is above target, awards are greater than target,
up to a stated maximum award. The maximum award assigned to the Chief Executive
Officer may not exceed 200% of his target annual bonus. The Compensation and
Nominating Committee retains the right to reduce any award if it believes that
individual performance does not warrant the award calculated by reference to the
result.
PENSION PLANS. None of the executive officers of Quest Diagnostics is currently
an active participant in a qualified defined benefit plan of Quest Diagnostics.
Effective as of January 1, 1997, Quest Diagnostics adopted a Transferee
Supplemental Pension Plan, a nonqualified, unfunded defined benefit plan for the
benefit of key employees and executive officers of Quest Diagnostics who are
former employees of Corning Incorporated, including Mr. Freeman. The Transferee
Supplemental Pension Plan is intended to provide benefits approximately equal to
the difference between the benefits provided for under the Corning Salaried
Pension Plan and the Executive Supplemental Pension Plan and the benefits which
would have been payable thereunder but for the termination of employment with
Corning of such employees.
Prior to June 1, 1995, Mr. Freeman was eligible to participate in, and
accrue benefits under, Corning's Salaried Pension Plan, a defined benefit plan,
contributions to which are determined by Corning's actuaries and are not made on
an individual basis. Benefits paid under this plan are based upon career
earnings (regular salary and cash awards paid under Corning's variable
compensation plans) and years of credited service. The Corning Salaried Pension
Plan provides that salaried employees of Corning
Quest Diagnostics Incorporated 2002 Proxy Statement 13
who retire on or after December 31, 1996 will receive pension benefits equal to
1% of the first $27,000 of average earnings for the highest five consecutive
years in the ten years immediately prior to 1997 plus 1.5% of such average
earnings in excess of $27,000 for all years of credited service prior to 1997,
and 1.5% of annual earnings up to the social security wage base and 2% of annual
earnings in excess of such base for 1997 and each year of credited service
thereafter. Salaried employees may contribute to the Corning Salaried Pension
Plan 2% of their annual earnings up to the social security wage base. Such
employees will receive for each year of credited service after December 31,
1990, an additional amount of pension benefit reflecting the value of the
increased voluntary contribution.
Corning maintains non-qualified supplemental pension plans pursuant to which
it will pay amounts approximately equal to the difference between the benefits
provided under the Corning Salaried Pension Plan and benefits which would have
been paid thereunder but for the limitations of the Employee Retirement Income
Security Act of 1974 and the Internal Revenue Code. Certain employees including
Mr. Freeman, participate in the Corning Executive Supplemental Pension Plan
which pays benefits based upon final average compensation (the highest five
consecutive calendar years in the ten calendar years immediately preceding
termination) and years of service.
Maximum annual benefits calculated under the straight life annuity option
form of pension payable to participants at age 65, the normal retirement age
specified in the Corning Salaried Pension Plan with at least five years of
credited service, are illustrated in the table set forth below. The table below
does not reflect any limitations on benefits imposed by ERISA. It is estimated
that Mr. Freeman would receive each year if he worked to age 65, $462,000 under
the Corning Salaried Pension Plan, the Corning non-qualified supplemental
pension plans and the Transferee Supplemental Pension Plan. Mr. Freeman has 30
years of credited service and $794,000 in compensation covered under the
Transferee Supplemental Pension Plan.
14 Quest Diagnostics Incorporated 2002 Proxy Statement
Annual Pension Benefit at Various Years of Service
5-Year
Average Years of Service
Final ---------------------------------------------------------------
Compensation 15 20 25 30 35 40
(AFC) Years Years Years Years Years Years
------------------------------------------------------------------------------
$ 100,000 $ 19,800 $ 26,400 $ 33,000 $ 39,600 $ 46,200 $ 53,700
200,000 42,300 56,400 70,500 84,600 98,700 113,700
300,000 64,800 86,400 108,000 129,600 151,200 173,700
400,000 87,300 116,400 145,500 174,600 203,700 233,700
500,000 109,800 146,400 183,000 219,600 256,200 293,700
600,000 132,300 176,400 220,500 264,600 308,700 353,700
700,000 154,800 206,400 258,000 309,600 361,200 413,700
800,000 177,300 236,400 295,500 354,600 413,700 473,700
900,000 199,800 266,400 333,000 399,600 466,200 533,700
1,000,000 222,300 296,400 370,500 444,600 518,700 593,700
EMPLOYMENT AGREEMENT
Mr. Freeman entered into a three-year employment agreement with Quest
Diagnostics in December 1999, which provides for:
an annual base salary of no less than $750,000, with any increases subject
to the discretion of the Board of Directors or the Compensation and
Nominating Committee;
an annual target participation in the Management Incentive Plan in amounts
no less than 140% of annual base salary in effect at the time performance
goals are established;
a retirement pension benefit, which is secured by a letter of credit,
equivalent to benefits under Corning's qualified salaried pension plan and
Corning's non-qualified executive supplemental pension plan based upon not
less than 34 years of credited service in the event of termination for
reasons other than for cause;
the opportunity to receive grants of stock options and restricted shares
under the 1999 Employee Equity Participation Program; and
severance payments in an amount equal to three times his base salary and
three times his target annual bonus award in the event Mr. Freeman
terminates his employment for good reason or the Company terminates his
employment without a cause.
Good reason would include (1) a material change in Mr. Freeman's duties or
responsibilities, (2) removal or a failure to re-elect Mr. Freeman to the
position of Chairman
Quest Diagnostics Incorporated 2002 Proxy Statement 15
of the Board and Chief Executive Officer, (3) a greater than 75-mile
relocation without his consent, (4) a reduction in compensation or
benefits, (5) a change in control or (6) a failure to renew his employment
agreement. Change of control would include (1) a sale or disposition of all
or substantially all of Quest Diagnostics' assets or a partial or complete
liquidation of Quest Diagnostics, (2) a merger of consolidation in which
the surviving entity becomes a subsidiary of a publicly traded parent and
Mr. Freeman is not the Chairman and Chief Executive Officer of such parent,
(3) the acquisition by any third party of at least 51% of the outstanding
shares of capital of Quest Diagnostics in a transaction not covered by
clause (2) following which Quest Diagnostics ceases to be an independent
public company or (4) a change in the membership of the Quest Diagnostics
Board of Directors as a result of a contested election such that a majority
of the Board members at any particular time were initially placed on the
Board as a result of such contested election.
SEVERANCE ARRANGEMENTS
Quest Diagnostics has a severance policy for certain executive officers,
other than Mr. Freeman, whereby:
Severance is paid to an executive officer if his or her employment is
terminated by Quest Diagnostics (1) other than for cause and (2) upon a
determination that the business needs of Quest Diagnostics require the
replacement of the executive officer, in an amount not to exceed two times
the executive officer's annual base salary at the annual rate in effect on
the date of termination of employment and an amount not to exceed two times
the annual award of variable compensation at the most recent target level.
The executive would also be entitled to participate in Quest Diagnostics'
health and welfare plans (or a comparable plan after 18-month COBRA
eligibility lapses), to the extent permitted by the terms of the plans and
applicable law, for a period of up to two years or until the officer is
covered by a successor employer's benefit plans, whichever occurs first.
If, however, an executive officer's employment is terminated by Quest
Diagnostics other than for cause, during the 12-month period following a
change in control, the severance benefit may be up to three times the
executive officer's annual base salary at the annual rate in effect on
16 Quest Diagnostics Incorporated 2002 Proxy Statement
the date of termination of employment and three times the annual award of
variable compensation at the most recent target level. The executive
officer would also be entitled to participate in Quest Diagnostics' health
and welfare plans (or a comparable plan after 18-month COBRA eligibility
lapses), to the extent permitted by the terms of these plans and applicable
law, for a period of up to three years or until the officer is covered by a
successor employer's benefit plans, whichever is first. A 'Change of
Control' is defined in the policy to include the following: the acquisition
by a person of 20% or more of the voting stock of the Company; the
membership of the Board of Directors changes as a result of a contested
election such that a majority of the Board members at any particular time
was initially placed on the Board as a result of such contested election;
approval by the Company's stockholders of a merger or consolidation in
which the Company ceases to be an independent public company; or a sale or
disposition of all or substantially all of the Company's assets or a plan
of partial or complete liquidation.
COMPENSATION AND NOMINATING COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The compensation of Quest Diagnostics' executive officers is determined by
the Compensation and Nominating Committee of the Board of Directors. The
Committee has four members, each of whom is independent of management. None of
the Committee members has any insider or interlocking relationship with the
Company, and each of them is a non-employee director, as these terms are defined
in applicable rules and regulations of the Securities and Exchange Commission.
COMPENSATION PHILOSOPHY
The Compensation and Nominating Committee is responsible for ensuring that
executive compensation is aligned with the Quest Diagnostics' values and
strategic objectives and is based on corporate, applicable business unit, and
individual performance measures. The Committee intends to design and administer
its compensation plans to:
Be competitive in design and potential to attract and retain talented
executives who have the skills and experience required to achieve our
strategic intent.
Quest Diagnostics Incorporated 2002 Proxy Statement 17
Incent executives to balance appropriately the interests of our employees,
customers and shareholders in accordance with our satisfaction model.
Pay for performance, with above-market pay opportunity only for performance
that exceeds targets and delivers significant value for shareholders.
Be flexible to adjust for changing business conditions as well as the
growth and diversification of the company.
Be fiscally responsible and aligned with the company's budget.
The key elements of executive compensation are base salary, annual incentive
awards, and equity participation. Each year the Committee evaluates Quest
Diagnostics' performance and executive target and actual compensation levels
compared to an executive compensation peer group and a broader group of U.S.
corporations comparable in scope of operations.
BASE SALARY
Quest Diagnostics sets salaries for most executive officers to approximate
median levels in its executive compensation peer group and broader surveys of
U.S. corporate executive salary levels. Base salary adjustments are determined
following an assessment of each executive officer's position, performance,
potential, and current salary level in relation to market data for similar
positions with comparable scope of responsibilities. For critical positions and
high-performance and high-potential executives, salary levels may be set above
median competitive levels.
ANNUAL INCENTIVES
Quest Diagnostics' Management Incentive Plan is designed to reward
executives for the achievement of objectives linked to the Company's critical
success factors. Individual incentive targets are established for plan
participants based on competitive levels in the compensation peer group of
companies. Incentive target levels are set so as to result in annual cash
compensation in the range of 50th to 75th percentile of competitive practice,
depending on an executive's responsibilities, future potential, individual
performance, and Quest Diagnostics' performance.
For the Chief Executive Officer and all other named executive officers, the
2001 Management Incentive Plan award was based 70% on financial performance
results of the Company and 30% on quantitative operational performance results
relative to objective performance targets set at the beginning of the year.
18 Quest Diagnostics Incorporated 2002 Proxy Statement
LONG-TERM INCENTIVES
Long-term incentive compensation is based on annual grants of stock options
under the terms of the Employee Equity Participation Program. The Committee
believes that these grants directly align stockholder and executive officer
interests.
Stock option grant levels and terms are established to deliver executive
total compensation ranging from 50th to 90th percentile competitive levels,
depending upon an executive's responsibilities, future potential, individual
performance, and Company performance.
In 2001, the Committee approved the grant of time-vested stock options and
performance accelerated non-qualified stock options for the Chief Executive
Officer and each named executive officer disclosed in the Summary Compensation
Table.
COMPENSATION OF THE CHAIRMAN OF THE BOARD &
CHIEF EXECUTIVE OFFICER
The compensation of Mr. Freeman consists of base salary, annual incentive,
and grants of stock options. The Committee determined the level for each of
these elements using methods consistent with those used for other executive
officers.
For 2001, the Committee authorized an annual incentive payout under the
terms of the Management Incentive Plan. The Committee also authorized an award
of 100,000 time-vested stock options and 100,000 performance-accelerated stock
options. For 2002, Mr. Freeman will not receive an increase in base salary
consistent with a company-wide effort to manage costs effectively.
2001 COMPENSATION ACTIONS: OTHER EXECUTIVE OFFICERS
The other executive officers, including the named executives disclosed in
the Summary Compensation Table, received salary increases for 2001 that ranged
from 3.8% to 11.2%, averaging 5.2% (excluding salary adjustments tied to special
adjustments and promotions). The Committee authorized annual incentive awards
under the terms of the Management Incentive Plan to each named executive officer
based on the achievement of key financial and operational goals. In addition,
each named executive received grants of time-vested stock options and
performance accelerated stock options in 2001.
For 2002, as a part of a company-wide effort to manage costs effectively,
none of the other executive officers received a base pay increase.
Quest Diagnostics Incorporated 2002 Proxy Statement 19
INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code of 1986, as amended, precludes a
public corporation from taking a deduction for compensation in excess of $1
million for its chief executive officer or any of its other proxy-disclosed
executive officers, unless certain specific and detailed criteria are satisfied.
The committee considers the anticipated tax treatment to Quest Diagnostics
and to the executive officers in its review and establishment of compensation
programs and payments. The deductibility of some types of compensation payments
can depend upon the timing of an executive's vesting or exercise of previously
granted rights. Interpretations of and changes in applicable tax laws and
regulations as well as other factors beyond the control of the committee also
can affect deductibility of compensation. Quest Diagnostics' general policy is
to preserve the tax deductibility of compensation paid to its executive
officers, including annual incentive awards paid under the Management Incentive
Plan and grants of stock options and shares of incentive stock under the terms
of the Employee Equity Participation Program.
The committee will continue to monitor developments and assess alternatives
for preserving the deductibility of compensation payments and benefits to the
extent reasonably practicable, consistent with its compensation policies and as
determined to be in the best interests of Quest Diagnostics and its
shareholders.
THE COMPENSATION AND NOMINATING COMMITTEE:
Kenneth D. Brody, Chairman
Mary A. Cirillo
William R. Grant
Dan C. Stanzione
20 Quest Diagnostics Incorporated 2002 Proxy Statement
REPORT OF THE AUDIT AND FINANCE COMMITTEE
The audit activities of the Audit and Finance Committee of the Board of
Directors are focused on three areas:
The adequacy of Quest Diagnostics' internal controls and financial
reporting process and the reliability of Quest Diagnostics' financial
statements.
The independence and performance of Quest Diagnostics' internal auditors
and independent auditors.
Quest Diagnostics' compliance with legal and regulatory requirements
relating to securities and financial reporting.
The Audit and Finance Committee meets with management periodically to
consider the adequacy of Quest Diagnostics' internal controls and the
objectivity of its financial reporting. The Committee discusses these matters
with Quest Diagnostics' independent auditors and with appropriate Quest
Diagnostics financial personnel and internal auditors. The Committee regularly
meets privately with both the independent auditors and the internal auditors,
each of whom has unrestricted access to the Committee. The Committee also
recommends to the Board of Directors the appointment of the independent auditors
and reviews periodically their performance and independence from management.
In addition, as part of the Committee's finance activities, the Committee
reviews Quest Diagnostics' financing plans and other significant financial
policies and actions, and makes recommendations to the full Board of Directors
for approval of certain actions.
The Directors who serve on the Committee are all 'independent' for purposes
of the New York Stock Exchange listing standards. That is, the Board of
Directors has determined that none of the Committee members has a relationship
to Quest Diagnostics that may interfere with the Committee's independence from
Quest Diagnostics and its management.
The Board of Directors has adopted a written charter setting out the
functions the Committee is to perform. You can find a copy of that charter
attached to this proxy statement as Appendix A.
Management has primary responsibility for Quest Diagnostics' financial
statements and the overall reporting process, including Quest Diagnostics'
system of internal controls.
Quest Diagnostics Incorporated 2002 Proxy Statement 21
The independent accountants audit the annual financial statements prepared
by management, express an opinion as to whether those financial statements
fairly present the financial position, results of operations and cash flows of
Quest Diagnostics in conformity with accounting principles generally accepted in
the United States of America and discuss with the Committee any issues they
believe should be raised.
This year, the Committee reviewed Quest Diagnostics' audited financial
statements and met with both management and PricewaterhouseCoopers LLP, the
independent auditors, to discuss those financial statements. Management has
represented to the Committee that the financial statements were prepared in
accordance with generally accepted accounting principles.
The Committee has received from and discussed with PricewaterhouseCoopers
LLP the written disclosure and the letter required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees). These
items relate to that firm's independence from Quest Diagnostics. In addition,
the Committee reviewed all services provided by PricewaterhouseCoopers LLP to
Quest Diagnostics, and the corresponding fees, in considering whether non-audit
services were compatible with maintaining PricewaterhouseCoopers' independence
from Quest Diagnostics. The Committee also discussed with PricewaterhouseCoopers
LLP any matters required to be discussed by Statement on Auditing Standards No.
61 (Communication with Audit Committees).
Based on these reviews and discussions, the Committee recommended to the
Board of Directors that Quest Diagnostics' audited financial statements be
included in the Annual Report on Form 10-K for the fiscal year ended December
31, 2001 and the Board of Directors gave its approval at a Board of Directors
meeting held on February 27, 2002.
THE AUDIT AND FINANCE COMMITTEE:
Van C. Campbell, Chairman
William R. Grant
Dan C. Stanzione
22 Quest Diagnostics Incorporated 2002 Proxy Statement
PERFORMANCE COMPARISON
Set forth below is a line graph comparing the cumulative total stockholder
return on Quest Diagnostics' common stock since December 31, 1996, based on the
market price of the Company's common stock and assuming reinvestment of
dividends, with the cumulative total stockholder return of companies on the
Standard & Poor's 500 Stock Index and the S & P Midcap Healthcare Index.
QUEST DIAGNOSTICS INCORPORATED PROXY PERFORMANCE GRAPH
[GRAPH]
Total Shareholder Return Performance Graph Values
------------------------ ---------------------------
S&P S&P
Closing S&P Midcap S&P Midcap
Date DGX Price(1) DGX 500 H.C. DGX 500 H.C.
---- ------------ --- --- ---- --- --- ----
12/31/1996 $ 7.5625 $100.00 $100.00 $100.00
12/31/1997 $ 8.4375 11.57% 33.35% 3.43% $111.57 $133.35 $103.43
12/31/1998 $ 8.9063 5.56% 28.57% 27.81% $117.77 $171.45 $132.19
12/31/1999 $15.2813 71.58% 21.04% 8.02% $202.07 $207.52 $142.79
12/31/2000 $71.00 364.62% -9.11% 54.16% $938.84 $188.61 $220.12
12/31/2001 $71.71 1.00% -11.88% -7.31% $948.23 $166.20 $204.02
(1) All values are adjusted to reflect the two-for-one stock split dividend that
occurred on May 31, 2001.
Quest Diagnostics Incorporated 2002 Proxy Statement 23
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Quest Diagnostics'
common stock beneficially owned as of February 28, 2002 by (1) each person who
is known to Quest Diagnostics to own beneficially more than 5% of the common
stock, (2) each director of Quest Diagnostics and each nominee, (3) each named
executive officer and (4) all directors, nominees and executive officers of
Quest Diagnostics as a group.
Number of Shares Percentage
Name Beneficially Owned of Class (2)(4)
---- ------------------ ---------------
GlaxoSmithKline plc............ 22,128,672(1) 22.9%
Kenneth D. Brody............... 38,612(2) --
William F. Buehler............. 36,500(2) --
Van C. Campbell................ 35,058(2)(3) --
Mary A. Cirillo................ 46,144(2)(3) --
Kenneth W. Freeman............. 1,273,530(4) 1.3%
William R. Grant............... 19,164(2)(5) --
Robert A. Hagemann............. 122,900(4) --
Rosanne Haggerty............... 0
Gerald C. Marrone.............. 167,861(4) --
Surya N. Mohapatra............. 223,254(4) --
Michael E. Prevoznik........... 66,160(4) --
Dan C. Stanzione............... 8,612(2) --
Gail R. Wilensky............... 20,612(2) --
John B. Ziegler................ 7,202(2)(6) --
All Directors, Nominees and
Executive Officers as a Group
(17 persons)................. 2,168,007(2)(4)(7) 2.2%
-------------
(1) The business address of GlaxoSmithKline plc is Glaxo Wellcome House,
Berkeley Avenue, Greenford, Middlesex UB6 ONN, England. The ownership
information is based solely on the information contained on a Schedule 13D
filed by GlaxoSmithKline plc with the Securities and Exchange Commission in
May 2001. The shares are held of record by SmithKline Beecham Corporation, a
wholly owned subsidiary of GlaxoSmithKline plc.
(2) Includes options issued under the Stock Option Plan for Non-Employee
Directors that are presently exercisable or exercisable within 60 days. Mr.
Brody, Mr. Buehler, Mr. Campbell, Ms. Cirillo, Mr. Grant, Dr. Stanzione,
Ms. Wilensky and Mr. Ziegler have the right to purchase 36,000, 31,500,
12,000, 36,000, 19,164, 6,000, 18,000, and 7,202 shares, respectively,
pursuant to such presently exercisable options.
(footnotes continued on next page)
24 Quest Diagnostics Incorporated 2002 Proxy Statement
(footnotes continued from previous page)
(3) Includes the equivalent of 10,559 and 7,532 shares, respectively, of common
stock credited to the accounts of Mr. Campbell and Ms. Cirillo under Quest
Diagnostics' Deferred Compensation Plan for Directors. Deferred fees will be
paid solely in cash at or following termination of service as a director,
with the amount of the payment based on the then value of Quest Diagnostics'
common stock.
(4) Includes shares of common stock which are subject to options issued under
Quest Diagnostics' Stock Option Plan that are presently exercisable or
exercisable within 60 days. Mr. Freeman, Mr. Hagemann, Mr. Marrone, Dr.
Mohapatra, and Mr. Prevoznik have the right to purchase 920,522, 76,000,
95,000, 106,664 and 38,000 shares, respectively, pursuant to such presently
exercisable options.
(5) Mr. Grant was nominated to be a director of the Company by SmithKline
Beecham plc, a subsidiary of GlaxoSmithKline plc, pursuant to the
Stockholders Agreement discussed below. Mr. Grant, a former director of
SmithKline Beecham, disclaims beneficial ownership of the shares of common
stock owned by SmithKline Beecham.
(6) Mr. Ziegler was nominated to be a director of the Company by SmithKline
Beecham plc, a subsidiary of GlaxoSmithKline plc, pursuant to the
Stockholders Agreement discussed below. Mr. Ziegler, President, Worldwide
Consumer Healthcare of GlaxoSmithKline, disclaims beneficial ownership of
the shares of common stock owned by SmithKline Beecham.
(7) Includes 882 shares owned by the spouses and minor children of certain
executive officers and directors as to which such officers and directors
disclaim beneficial ownership.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OPCENTER
During 2001, Quest Diagnostics paid to OPCENTER approximately $1,200,000 for
services provided in help desk and network operations as well as services in
connection with facility moves. Mary Cirillo, a director of Quest Diagnostics,
is a majority stockholder and the Chief Executive Officer of OPCENTER. Quest
Diagnostics expects to continue to receive such services from OPCENTER during
2002.
Quest Diagnostics Incorporated 2002 Proxy Statement 25
GLAXOSMITHKLINE
SmithKline Beecham Corporation, a subsidiary of GlaxoSmithKline plc, owns
22,128,672 shares of Quest Diagnostics' common stock which it obtained on August
16, 1999 as consideration, together with $1.025 billion in cash (prior to giving
effect to a $95 million post-closing purchase price reduction), for its sale of
SmithKline Beecham Clinical Laboratories, Inc. ('SBCL') to Quest Diagnostics.
STOCKHOLDERS AGREEMENT
Quest Diagnostics entered into a stockholders agreement with SmithKline
Beecham upon the closing of the purchase of SBCL. During the ten-year term of
the stockholders agreement, SmithKline Beecham has the right to designate two
nominees to the Quest Diagnostics' Board of Directors (or three nominees if the
Company's Board of Directors consists of more than ten directors) as long as
SmithKline Beecham owns at least 20% of the outstanding common stock of Quest
Diagnostics. The stockholders agreement imposes limitations on the right of
SmithKline Beecham to sell or vote its shares and prohibits SmithKline Beecham
from acquiring in excess of 29.5% of the outstanding common stock of Quest
Diagnostics.
CLINICAL TRIALS AGREEMENT
At the closing, SmithKline Beecham and Quest Diagnostics entered into a
global clinical trials testing agreement. Under this agreement, SmithKline
Beecham will use Quest Diagnostics as the provider of SmithKline Beecham's
clinical trials testing requirements for ten years. The services that Quest
Diagnostics will provide to SmithKline Beecham include support for studies
conducted by SmithKline Beecham of the effects of pharmacological compounds on
humans. SmithKline Beecham will pay Quest Diagnostics fees based upon a fee
schedule attached to the global clinical trials agreement, subject to
adjustment. Quest Diagnostics billed approximately $29 million to SmithKline
Beecham with respect to services performed during 2001.
DATA ACCESS AGREEMENTS
At the closing of the acquisition of SBCL, Quest Diagnostics entered into a
data access agreement under which SmithKline Beecham would have the right to use
Quest Diagnostics' laboratory data. The agreement restricts disclosure of data
that would identify the patient or payor without appropriate authorization. As a
result
26 Quest Diagnostics Incorporated 2002 Proxy Statement
of the change in control of SmithKline Beecham in December 2000, the fee payable
with respect to 2001 became based on a fair market value. The parties have not
yet agreed on the value and SmithKline Beecham has made an advance of
approximately $800,000 for 2001.
INDEMNIFICATION
The stock and asset purchase agreement for the acquisition of SBCL provides
that SmithKline Beecham will indemnify Quest Diagnostics against monetary
payments required to be made to the United States government or any state
government, or any agency or subdivision of any of them, arising out of alleged
violations of applicable federal fraud and healthcare statutes and relating to
billing practices, in any case, that have been settled prior to or are pending
as of the closing date. SmithKline Beecham will also indemnify Quest Diagnostics
against monetary payments required to be made to private parties, such as
insurance companies, relating to or arising out of the governmental claims
described in the prior sentence. The indemnification with respect to
governmental claims is for 100% of these claims while the indemnification with
respect to the private party claims is for 100% of those claims, up to an
aggregate amount of $80 million, 50% of those claims to the extent they exceed
$80 million but are less than $130 million and 100% of such claims to the extent
that the aggregate amount exceeds $130 million. The indemnification also covers
80% of out-of-pocket costs and expenses relating to investigations of the claims
indemnified against by SmithKline Beecham.
The special indemnification does not cover:
Governmental claims that arise after the closing date from service of a
subpoena or other notice of such investigation after the closing date;
private claims unrelated to the indemnified governmental claims or
investigations; or
any consequential or incidental damages relating to the billing claims,
including losses of revenues and profits as a consequence of exclusion from
participation in federal or state health care programs.
SmithKline Beecham is also required to indemnify Quest Diagnostics against
any action, matter or claim arising from SmithKline Beecham's conduct of its
business prior to the closing date (including medical professional liability
claims) to the extent that these claims are covered by its insurance policies or
would
Quest Diagnostics Incorporated 2002 Proxy Statement 27
have been covered by policies if not for existing alternative arrangements made
by SmithKline Beecham for the payment of such claims. SmithKline Beecham is also
required to indemnify Quest Diagnostics and its affiliates for the out-of-pocket
costs of the counseling and testing, for liabilities arising out of the civil
actions, and for other losses arising out of the conduct of an SBCL employee at
a patient service center in Palo Alto, California who, at times, reused certain
needles when drawing blood from patients, other than consequential damages.
At December 31, 2001, accounts payable and accrued expenses included $29
million due to SmithKline Beecham, primarily related to tax benefits associated
with indemnified matters. During 2001, substantially all of the billing-related
claims indemnified by SmithKline Beecham were settled. At December 31, 2001 and
2000, other assets included $10.1 million and $14.1 million, respectively, due
from SmithKline Beecham, primarily related to management's best estimate of the
amounts required to satisfy certain professional liability claims indemnified by
SmithKline Beecham.
CORNING
Until the fourth quarter of 2001, Corning Incorporated owned all of the
1,000 outstanding shares of Quest Diagnostics' voting cumulative preferred
stock. The shares were redeemed by Quest Diagnostics during the fourth quarter
of 2001 for $1 million plus accrued dividends. Quest Diagnostics authorized
payments to Corning of $117,500 in preferred stock dividends with respect to
fiscal year 2001.
TRANSACTION AGREEMENT
Under the Transaction Agreement entered into in connection with the 1996
spin-off of Quest Diagnostics, Corning agreed to indemnify Quest Diagnostics
against all monetary penalties, fines or settlements for any government claims
that (1) arise out of alleged violations of applicable federal fraud and
healthcare statutes; (2) relate to billing practices of Quest Diagnostics and
its predecessors; and (3) were pending in December 31, 1996.
Corning also agreed to indemnify Quest Diagnostics in respect of private
claims relating to indemnified or previously settled government claims that
alleged overbilling by Quest Diagnostics or any of its existing subsidiaries for
services provided before January 1, 1997. Corning agreed to indemnify Quest
Diagnostics for 50% of the aggregate of all judgment or settlement payments made
by December 31, 2001 that exceed $42 million. The 50% share was
28 Quest Diagnostics Incorporated 2002 Proxy Statement
limited to a total amount of $25 million and was reduced to take into account
any deductions or tax benefits realized by Quest Diagnostics. At December 31,
2001, there were no amounts due from Corning under the Indemnity. In accordance
with the indemnity described above, Quest Diagnostics received $8.1 million from
Corning in January 2001 in connection with a 2000 settlement of claims and
$600,000 in the fourth quarter of 2001 in connection with a 2001 settlement of
claims.
TAX SHARING AGREEMENT
In connection with the 1996 spin-off from Corning, Quest Diagnostics and
another former Corning subsidiary entered into a tax sharing agreement with
Corning which allocates responsibility for federal income and various other
taxes for 1996 and prior years among the three companies. Quest Diagnostics also
entered into tax indemnification agreements with the same entities that provide
the parties with certain rights of indemnification against each other.
COMPENSATION AND NOMINATING COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of Forms 3 and 4 and amendments thereto furnished
to Quest Diagnostics during 2001, Forms 5 and amendments thereto furnished to
Quest Diagnostics, Quest Diagnostics believes that all reports required by
Section 16(a) of the Exchange Act were filed on a timely basis.
PROPOSALS OF STOCKHOLDERS
The proposals of stockholders intended to be presented at Quest Diagnostics'
2003 Annual Meeting of Stockholders must be received by Quest Diagnostics at its
office at One Malcolm Avenue, Teterboro, New Jersey 07608, Attention: Corporate
Secretary, on or before November 20, 2002, if they are to be considered for
possible inclusion in the 2002 Proxy Statement and form of proxy, in accordance
with the rules and regulations of the Securities and Exchange Commission.
Quest Diagnostics Incorporated 2002 Proxy Statement 29
ADDITIONAL INFORMATION
Quest Diagnostics files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that we file
at the Securities and Exchange Commission's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the public reference rooms. Our Securities and Exchange Commission filings are
also available to the public from commercial document retrieval services and at
the Internet web site maintained by the Securities and Exchange Commission at
http://www.sec.gov. Reports, proxy statements and other Information should also
be available for inspection at the offices of the New York Stock Exchange.
The annual report to stockholders is being sent in connection with this
proxy statement includes (other than the signature page and the exhibits
thereto) the entire annual report on Form 10-K for the year ended December 31,
2001. UPON REQUEST, THE COMPANY WILL PROVIDE WITHOUT CHARGE A COPY OF ITS ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001 TO EACH RECORD OR
BENEFICIAL OWNER OF ITS COMMON STOCK. Such requests should be directed to:
Quest Diagnostics Incorporated
One Malcolm Avenue
Teterboro, New Jersey 07608
Attn: Investor Relations
(201) 393-5000
By Order of the Board of Directors
Leo C. Farrenkopf, Jr.
Vice President and Secretary
30 Quest Diagnostics Incorporated 2002 Proxy Statement
APPENDIX A
QUEST DIAGNOSTICS INCORPORATED
AUDIT AND FINANCE COMMITTEE CHARTER
ORGANIZATION
The Quest Diagnostics Incorporated Audit and Finance Committee is composed of at
least three directors. The committee members are independent of the management
of the Corporation, as defined by the New York Stock Exchange, are free of any
relationship that, in the opinion of the Board of Directors, would interfere
with their exercise of independent judgement. All committee members are
financially literate and at least one of the members has accounting or related
financial management experience, as determined by the Board of Directors.
STATEMENT OF POLICY
The Quest Diagnostics Incorporated Audit and Finance Committee assists the Board
of Directors in fulfilling its oversight responsibility over the management of
the Corporation by reviewing financial information to be reported to the public
and shareholders; by recommending and overseeing a system of internal financial
and other controls to protect the Corporation's assets and business; by
overseeing the internal and external audit processes; and by providing advice on
financing activities and other financial matters. It is the responsibility of
the Audit and Finance Committee to maintain free and open means of communication
between the Board of Directors, the independent accountants, the internal
auditors and the financial management of the corporation.
RESPONSIBILITIES
In carrying out its responsibilities, the Audit and Finance Committee will:
AUDIT RESPONSIBILITIES:
Review the performance of and make recommendations to the Board of Directors
regarding the independent accountants to be selected to audit the financial
statements of the Corporation. The independent accountants are accountable to
the Board of Directors and the Audit and Finance Committee as representatives
of the shareholders.
Review and concur in the appointment of the Director of Internal Audit.
Obtain a formal written statement from the independent accountants on an annual
basis delineating all relationships between the independent accountants and the
Corporation. The committee will discuss with the independent accountants any
relationships that may impact objectivity and independence as well as recommend
to the Board of Directors the appropriate actions, if any, to be taken to
ensure the independence of the accountants.
Meet with the independent accountants and financial management to review the
scope of the proposed audit for the current year and, at
Quest Diagnostics Incorporated 2002 Proxy Statement 31
the conclusion thereof, review such audit, including any comments or
recommendations of the independent auditors and inquire about time pressures on
the independent auditors.
Regularly review with management and the independent accountants any non-audit
services provided by the independent accountants.
Review with the independent auditors, internal audit, and financial management,
the adequacy and effectiveness of internal controls and elicit any
recommendations for the improvement of such internal controls.(1)
Review the internal audit function, including the independence and authority of
its reporting obligations, the proposed audit plans for the coming year and the
summary of findings from completed and in progress internal audits.
Review the financial statements contained in the annual report to shareholders
with management and the independent accountants. This review should include a
discussion of the independent accountants' judgments about the appropriateness
of the Corporation's accounting principles as well as any current year changes
in accounting principles.
Review the financial statements contained in the quarterly report to
shareholders, as appropriate, with management and the independent accountants
prior to earnings release and filing with the SEC.
Periodically meet separately with the internal auditor and independent
accountants without members of management present.
Periodically meet separately with members of management without the independent
accountants present.
FINANCE RESPONSIBILITIES:
Give advice and make recommendations with regard to debt financing policies and
actions.
Give advice and make recommendations with regard to investment, stock issuance,
stock repurchases, dividend payment and other significant financial policies
and actions.
GENERAL RESPONSIBILITIES:
Report committee actions to the Board of Directors with such recommendations as
deemed appropriate.
Review and update the committee's charter annually.
Discharge such other responsibilities as may be delegated by the Board of
Directors.
---------
(1) The responsibility for reviewing internal controls related to legal and
regulatory obligations rests with the Quality, Safety and Compliance
Committee of the Board of Directors.
32 Quest Diagnostics Incorporated 2002 Proxy Statement
QUEST DIAGNOSTICS INCORPORATED
ATTACHMENT TO AUDIT & FINANCE COMMITTEE CHARTER
NYSE Independence Requirement of Audit Committee Members.
Each audit committee shall consist of at least three directors, all of whom have
no relationship to the company that may interfere with the exercise of their
independence from management and the company. Additionally, the following
restrictions shall apply to every audit committee member:
(a) Employees. A director who is an employee (including non-employee executive
officers) of the company or any of its affiliates may not serve on the audit
committee until three years following the termination of his or her
employment. In the event the employment relationship is with a former parent
or predecessor of the company, the director could serve on the audit
committee after three years following the termination of the relationship
between the company and the former parent or predecessor.
(b) Business Relationship. A director (i) who is a partner, controlling
shareholder, or executive officer of an organization that has a business
relationship with the company, or (ii) who has a direct business
relationship with the company (e.g., a consultant) may serve on the audit
committee only if the relationship does not interfere with the director's
exercise of independent judgment. In making a determination regarding the
independence of a director pursuant to this paragraph, the Board of
Directors should consider, among other things, the materiality of the
relationship to the company, to the director, and, if applicable, to the
organization with which the director is affiliated.
'Business relationships' can include commercial, industrial, banking,
consulting, legal, accounting and other relationships. A director can have
this relationship directly with the company, or the director can be a
partner, officer or employee of an organization that has such a
relationship. The director may serve on the audit committee without the
above-referenced Board of Directors' determination after three years
following the termination of, as applicable, either (1) the relationship
between the organization with which the director is affiliated and the
company, (2) the relationship between the director and his or her
partnership status, shareholder interest or executive officer position, or
(3) the direct business relationship between the director and the company.
(c) Cross Compensation Committee Link. A director who is employed as an
executive of another corporation where any of the company's executives
serves on that corporation's compensation committee may not serve on the
audit committee.
(d) Immediate Family. A director who is an Immediate Family member of an
individual who is an executive officer of the company or any of its
affiliates cannot serve on the audit committee until three years following
the termination of such employment relationship.
Quest Diagnostics Incorporated 2002 Proxy Statement 33
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[QUEST DIAGNOSTICS LOGO]
www.questdiagnostics.com
MI0894
Appendix 1
===============================================================================
Proxy - Quest Diagnostics Incorporated
===============================================================================
Proxy for Annual Meeting of Stockholders - May 7, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF QUEST DIAGNOSTICS INCORPORATED
The undersigned hereby appoints Kenneth W. Freeman, Michael E. Prevoznik and Leo
C. Farrenkopf, Jr., and each of them, proxies for the undersigned, with full
power of substitution and revocation, to vote all shares of the Quest
Diagnostics Incorporated Common Stock, par value $.01 per share, which the
undersigned is entitled to vote, with all powers the undersigned would possess
if personally present at the Annual Meeting of Stockholders of Quest Diagnostics
Incorporated, to be held on Tuesday, May 7, 2002 at 10:30 a.m., local time, in
New York, New York, and at any adjournments or postponements thereof. The
undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and accompanying Proxy Statement and the Annual Report to
Stockholders and hereby instructs said proxies to vote said shares as indicated
herein. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
A majority of the proxies present and acting at the Annual Meeting in person or
by substitute (or, if only one shall be so present, then that one) shall have
and may exercise all of the power and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY ON THE REVERSE SIDE AND
RETURN IT IN THE ENCLOSED, POSTAGE-PAID ENVELOPE,
TO QUEST DIAGNOSTICS INCORPORATED
c/o Computershare Investor Services
P.O. Box 2702
Chicago, Illinois 60690-9402
PLEASE INDICATE YOUR VOTE BY AN "X" IN THE APPROPRIATE BOX ON THE REVERSE SIDE
This proxy, if properly executed, will be voted in the manner directed by the
undersigned stockholders. If no direction is made, this proxy will be voted, FOR
the election of the Board's nominees and FOR ratification of the selection of
the independent public accountants.
NOW YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET!
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
QUEST DIAGNOSTICS INCORPORATED encourages you to take advantage of the new and
convenient ways to vote your shares. If voting by proxy, this year you may vote
by mail, or choose one of the two methods described below. Your telephone or
Internet vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed, and returned your proxy card. To vote by
telephone or Internet, read the accompanying proxy statement and then follow
these easy steps:
TO VOTE BY PHONE
----------------
Call toll free [1-800-213-3198] any time on a touch tone telephone.
There is NO CHARGE to you for the call.
Enter the 6-digit Control Number located on the reverse side of this card.
Option #1: To vote as the Board of Directors recommends on ALL
proposals: Press 1
When asked, please confirm your vote by pressing 1.
Option #2: If you choose to vote on each proposal separately, Press 0 and follow
the recorded instructions.
TO VOTE BY INTERNET
-------------------
Go to the following Website:
www.computershare.com/us/proxy
Enter the information requested on your computer screen, including the
6-digit Control Number located on the reverse side of this card.
Follow the instructions on the screen.
If you vote by telephone or the Internet, DO NOT mail back the proxy card.
THANK YOU FOR VOTING
007Q3B
CONTROL NUMBER +
Quest 000000 0000000000 0 0000
[LOGO] Diagnostics'r' 000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
MR A SAMPLE 000000000.000 ext
DESIGNATION (IF ANY) 000000000.000 ext
ADD 1
ADD 2 Holder Account Number
ADD 3
ADD 4 C 1234567890 J N T
ADD 5
ADD 6
Use a black pen. Print in
CAPITAL letters inside the grey A B C 1 2 3 X [ ] Mark this box with an X if you have made
areas as shown in this example changes to your name or address details above.
==========================================================================================================
Annual Meeting Proxy Card
==========================================================================================================
A Election of Directors PLEASE REFER TO THE REVERSE SIDE FOR INTERNET AND TELEPHONE VOTING INSTRUCTIONS.
The Board of Directors recommends a vote FOR the listed nominees for terms expiring in 2005.
For Withhold
01 - William F. Buehler [ ] [ ]
02 - Van C. Campbell [ ] [ ]
03 - Rosanne Haggerty [ ] [ ]
04 - Dan C. Stanzione [ ] [ ]
B Issues
The Board of Directors recommends a vote FOR the following resolution.
For Against Withhold
2. Ratification of the selection of [ ] [ ] [ ] Mark this box with an X if you [ ]
PricewaterhouseCoopers LLP as independent plan to attend the meeting.
public accountants to audit the financial
statements of Quest Diagnostics for Mark this box with an X to discontinue [ ]
the year ending December 31, 2002. mailing duplicate Annual Reports.
C Authorized Signatures - Sign Here - This section must be completed for your
instructions to be executed.
NOTE: Please sign above exactly as your name appears on this Proxy Card. If
shares are registered in more than one name, the signatures of all such persons
are required. A corporation should sign in its full corporate name by a duly
authorized officer stating his or her title. Trustees, guardians, executors and
administrators should sign in their official capacity, giving their full title
as such. If a partnership, please sign in the partnership name by authorized
person(s).
Signature 1 Signature 2 Date (dd/mm/yyyy)
---------------------- ----------------------- ------/--------/-------------
[ ] A5571 1 U P X 007Q1B +
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as............ 'r'