<PAGE>
PROXY SOLICITATION-SECTION 14(a) 17,579
SCHEDULE 14A
[PARA 24,031] INFORMATION REQUIRED IN PROXY STATEMENT
-- > SCHEDULE 14A IS PROPOSED TO BE AMENDED IN RELEASE NOS. 33-7607
AND 33-7606A, NOVEMBER 3, 1998 AND NOVEMBER 13, 1998. SEE PARA 86,058
AND PARA 86,108.
REG. SECTION 240.14a-101.
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
QUEST DIAGNOSTICS INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
FEDERAL SECURITIES LAW REPORTS REG. SECTION 240.14a-101 PARA 24,031
<PAGE>
PRELIMINARY COPY
[GRAPHIC]
ONE MALCOLM AVENUE
TETERBORO, NEW JERSEY 07608
(201) 393-5000
-----------------------
NOTICE OF 2000 ANNUAL MEETING
TO BE HELD ON MAY 9, 2000
-----------------------
To the Stockholders of QUEST DIAGNOSTICS INCORPORATED:
The 2000 Annual Meeting of Stockholders of Quest Diagnostics
Incorporated will be held on Tuesday, May 9, 2000 at 10:00 A.M., local time, at
The Hotel Intercontinental, Whitney Room, 111 East 48th Street, New York, New
York 10017, for the purpose of considering and voting upon the following
matters:
1. To elect three 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, 2000.
3. To approve an amendment of Paragraph 11 of Quest Diagnostics'
Restated Certificate of Incorporation to conform with a recent change to
Section 145(d) of the Delaware General Corporation Law ("DGCL") by
eliminating the requirement that indemnification of employees and agents who
are not directors or officers be authorized by the Board of Directors.
4. 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 10,
2000, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the annual meeting and any adjournments or
postponements of the annual meeting.
By Order of the Board of Directors
Leo C. Farrenkopf, Jr.
Vice President and Secretary
April 10, 2000
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- -------------------------------------------------------------------------------
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 (800)
213-3198 OR ON THE INTERNET AT HTTP//WWW.HARRISBANK.COM/WPROXY. 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 April 10, 2000, and are
first being mailed to stockholders on April 10, 2000.
2
<PAGE>
[GRAPHIC]
ONE MALCOLM AVENUE
TETERBORO, NEW JERSEY 07608
(201) 393-5000
PROXY STATEMENT
-----------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 9, 2000
-----------------------
This proxy statement is furnished in connection with the
solicitation by the Board of Directors of Quest Diagnostics Incorporated
("Quest Diagnostics" or the "Company") of proxies for use at the 2000 Annual
Meeting of Stockholders of Quest Diagnostics to be held on Tuesday, May 9,
2000, 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 April 10, 2000.
Only holders of record of shares of Quest Diagnostics' common stock,
par value $.01 per share, and holders of record of shares of Quest Diagnostics'
voting cumulative preferred stock, par value $1.00 per share, at the close of
business on March 10, 2000, 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 43,718,951 shares of common stock held
by approximately 7,150 stockholders of record and 1,000 shares of voting
cumulative preferred stock, all of which shares are held by Corning
Incorporated. Each share of common stock and voting cumulative preferred stock
is entitled to one vote, voting as one class. The common stock and voting
cumulative preferred stock are collectively referred to as the "shares." A
majority of the shares issued and outstanding at March 10, 2000, 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), 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,
2000 (Proposal 2) and FOR approval of the amendment of Paragraph 11 of the
Restated Certificate of Incorporation (Proposal 3). 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 Proposal 2 is the 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.
The required vote for approval of the amendment of Paragraph 11 of the
Restated Certificate of Incorporation (Proposal 3) is approval by a majority
of the shares issued and outstanding as of March 10, 2000. 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.
1
<PAGE>
Quest Diagnostics' management does not know of any matters to be
brought before the annual meeting other than Proposals 1, 2 and 3. 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' 2000 Annual Report to Stockholders has been
distributed to stockholders and is not deemed a part of the materials for the
solicitation of proxies.
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 nine
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, three directors will be elected to hold office
until the 2003 annual meeting of stockholders and until their respective
successors shall have been duly elected and qualified.
The following tables identify the three 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.
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<PAGE>
NOMINEES FOR THE BOARD WITH TERMS EXPIRING AT THE
2003 ANNUAL MEETING
<TABLE>
<CAPTION>
POSITION WITH
NAME QUEST DIAGNOSTICS AGE
- ---- ------------------ ---
<S> <C> <C>
Kenneth W. Freeman Chairman of the Board, 49
Chief Executive Officer and Director
Gail R. Wilensky Director 56
John B. Ziegler Nominee for Director 53
</TABLE>
MEMBERS OF THE BOARD CONTINUING IN OFFICE WITH TERMS EXPIRING AT THE 2001 ANNUAL
MEETING
<TABLE>
<CAPTION>
POSITION WITH
NAME QUEST DIAGNOSTICS AGE
- ---- ----------------- ---
<S> <C> <C>
Kenneth D. Brody Director 56
Mary A. Cirillo Director 52
William R. Grant Director 75
</TABLE>
MEMBERS OF THE BOARD CONTINUING IN OFFICE WITH TERMS EXPIRING AT THE 2002 ANNUAL
MEETING
<TABLE>
<CAPTION>
POSITION WITH
NAME QUEST DIAGNOSTICS AGE
- ----- ----------------- ---
<S> <C> <C>
William F. Buehler Director 60
Van C. Campbell Director 61
Dan C. Stanzione Director 54
</TABLE>
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 adviser 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 is Vice Chairman of Xerox Corporation, which he
joined in 1991. He is responsible for the company's sales and marketing
operations in North America and Europe. Mr. Buehler is a director of A.O.
Smith. Prior to joining Xerox, Mr. Buehler spent 27 years with AT&T.
Mr. Buehler has been a director of Quest Diagnostics since July 1999.
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 and Covance
Inc. Mr. Campbell has been a director of Quest Diagnostics since January 1991.
Mary A. Cirillo 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), where she joined in 1997. From
1977 to 1997, she was with Citibank, N.A., most recently serving as Senior
Vice President. From April 1994 until she joined Bankers Trust Company, Ms.
Cirillo was responsible for Citibank's Global Relationship Banking Operations
and Technology Group, which supported the infrastructure and information
technology needs of the North America, Europe and Japan global markets. Ms.
Cirillo previously served as the Senior Corporate Officer for
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<PAGE>
Citicorp's Business Evaluation and Corporate Re-engineering Unit. Ms. Cirillo is
a director 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.
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., MiniMed, Inc., Ocular Sciences,
Vasogen Inc., and WBN.Com. 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."
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 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., Manor Care Inc.,
St. Jude Medical Corp., SMS Corporation, Syncor Corporation 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
SmithKline Beecham. 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. Mr. Ziegler has been designated by SmithKline
Beecham to replace John O. Parker 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.
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 Compliance
Committee and an Executive Committee. The Audit and Finance Committee, composed
of Mr. Campbell, Ms. Cirillo, Mr. Grant and Dr. Stanzione, examines and
considers matters relating to the financial affairs of Quest Diagnostics,
including reviewing Quest Diagnostics' annual financial statements, the scope of
independent and internal audits and
4
<PAGE>
the auditors' letters to management concerning the effectiveness of Quest
Diagnostics' internal financial and accounting controls. The Compensation and
Nominating Committee, composed of Mr. Brody, Ms. Cirillo, Mr. Grant and Dr.
Stanzione, makes recommendations to the Board with respect to programs for human
resource development and management organization and succession, and makes
recommendations to the Board with respect to compensation matters and policies
and employee benefit and incentive plans, including Quest Diagnostics' 1999
Employee Equity Participation Program. The Compliance Committee, composed of Mr.
Buehler, Mr. Campbell, Mr. Parker and Dr. Wilensky, oversees Quest Diagnostics'
compliance program, which is administered by management's Compliance Team and
the Legal and Compliance Department. 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 1999, there were eight meetings of the Board of Directors,
five meetings of the Audit and Finance Committee, ___ meetings of the
Compensation and Nominating Committee, four meetings of the Compliance
Committee and two meetings of the Executive Committee. During the year, each
director attended at least 75% of the meetings held by the Board of Directors
and each committee of which he or she was a member.
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. Directors who serve
as committee chairs receive an additional annual sum of $1,500, payable in
quarterly installments of $375. 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 9,000 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 9,000) that is proportional to the fraction of a year remaining until the
next Annual Meeting of Stockholders. 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 500,000 (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.
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 accountants to audit the financial
statements of Quest Diagnostics for its current fiscal year, which ends December
31, 2000. 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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP.
5
<PAGE>
PROPOSAL NO. 3
AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors recommends that the stockholders approve an
amendment of Paragraph 11 of Quest Diagnostics' Restated Certificate of
Incorporation to conform with a recent change to Section 145(d) of the
Delaware General Corporation Law ("DGCL") by eliminating the requirement that
indemnification of employees and agents who are not directors or officers be
authorized by the Board of Directors.
Section 145 of the DGCL provides that a Delaware corporation has
power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of the fact
that the person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by the person in connection with such action, suit or
proceeding if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the person's conduct was unlawful. In conformity
with the DGCL, Paragraph 11 of Quest Diagnostics' Restated Certificate of
Incorporation currently provides for indemnification of directors and
officers to the fullest extent permitted by law and permits Quest
Diagnostics, by action of the Board of Directors, to indemnify employees and
agents.
Unless ordered by a court, any indemnification pursuant to Section
145 of the DGCL may be made by a Delaware corporation only as authorized in
the specific case upon determination that indemnification of a present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
the DGCL. Until 1997, the determination was generally required to be made in
all cases by the Board of Directors, independent counsel or the stockholders.
In 1997, the DGCL was amended to eliminate the requirement that
indemnification of employees and agents who are not directors or officers (as
well as indemnification of former directors or officers) be authorized by
directors, independent counsel or the stockholders.
The Board of Directors has approved, subject to approval by the
stockholders, an amendment of the last sentence of Paragraph 11(b) of Quest
Diagnostics' Restated Certificate of Incorporation to conform with the change to
the DGCL by eliminating the requirement that indemnification of employees and
agents who are not officers or directors be authorized by the Board of
Directors. The proposed change to the last sentence of Paragraph 11(b) is as
follows:
"The Corporation may also provide indemnification to employees
and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers."
The full text of Paragraph 11 of the Restated Certificate of Incorporation,
indicating the proposed changes, is set forth in Exhibit A to this Proxy
Statement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF
THE AMENDMENT OF PARAGRAPH 11 OF THE RESTATED CERTIFICATE OF INCORPORATION .
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, 2 and 3. 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.
6
<PAGE>
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
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- AWARDS
------------------------
OTHER RESTRICTED SECURITIES ALL
NAME AND ANNUAL STOCK UNDERLYING LTIP OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) COMP. (2) AWARDS (3) OPTIONS PAYOUTS COMP. (4)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenneth W. Freeman 1999 $598,078 $1,200,000 $231,203 $2,126,875 332,151 $0 $1,711,848
Chairman & CEO (5) 1998 500,000 460,000 183,292 926,316 180,000 0 131,963
1997 500,000 187,485 125,403 145,002 137,000 0 320,474
Surya Mohapatra (6) 1999 $361,539 $400,000 $197,750 $1,094,250 140,000 $0 $443,955
President &
Chief Operating Officer
James D. Chambers 1999 $349,039 $275,100 $35,182 $595,525 85,000 $0 $592,993
President 1998 298,845 189,751 35,901 257,310 50,000 0 57,593
Business Services 1997 226,160 105,429 0 32,290 30,500 0 6,880
Gerald C. Marrone 1999 $310,299 $203,378 $50,000 $382,838 55,000 $0 $362,143
Corporate Vice President & 1998 300,000 172,500 100,000 180,117 35,000 0 8,190
Chief Information Officer 1997 40,385 0 0 0 10,000 0 0
Robert A. Hagemann (7) 1999 $241,247 $158,290 $0 $276,494 40,000 $0 $329,143
Corporate Vice President & 1998 194,566 102,784 0 154,386 27,000 0 23,747
Chief Financial Officer
</TABLE>
(1) 1999 bonus includes 1999 Management Incentive Plan bonus paid in cash and
vested shares.
(2) Includes $77,499, $37,750 and $35,182 in tax gross-up payments on forgiven
loan amounts for Mr. Freeman, Dr. Mohapatra and Mr. Chambers, respectively.
The loans were provided in connection with the relocation of the
executives, bear no interest and are forgiven over five year periods. The
principal balance of the loan to Mr. Freeman was $240,000 at January 1,
1999 and $160,000 at December 31, 1999. The principal balance of the loan
to Dr. Mohapatra was $250,000 at June 18, 1999 and $200,000 at December 31,
1999. Also includes tax and financial planning assistance payment of
$123,592 for Mr. Freeman. Includes $160,000 and $50,000 sign on bonus
payments for Dr. Mohapatra and Mr. Marrone, respectively.
(3) 1999 values are based on a per share price of $34.03 at February 29, 2000
and represent shares of incentive stock that were awarded based on 1999
financial performance results, subject to forfeiture and transfer
restrictions until vested. Performance shares earned for Mr. Freeman, Dr.
Mohapatra, Mr. Chambers, Mr. Marrone, and Mr. Hagemann are 62,500, 25,000,
17,500, 11,250, and 8,125 shares, respectively. The shares vest in three
equal annual installments beginning February 28, 2001. In addition, Dr.
Mohapatra was awarded 8,000 shares (subject to forfeiture and transfer
restrictions) as a sign-on bonus. The shares vest in four equal annual
installments beginning February 1, 2000.
(4) Includes a special share grant, subject to restrictions on transfer, of
60,805, 14,000, 15,478, 9,950 and 7,186 shares for Mr. Freeman, Dr.
Mohapatra, Mr. Chambers, Mr. Marrone and Mr. Hagemann, respectively.
Includes forgiven principal on relocation loans of $80,000, $50,000 and
$50,000 for Mr. Freeman, Dr. Mohapatra and Mr. Chambers, respectively.
Includes special Integration Bonus award of 3,470 shares and $42,370 for
Mr. Chambers, 2,080 shares and $25,470 for Mr. Marrone, 2,780 shares and
$33,800 for Mr. Hagemann, which shares are subject to forfeiture and
transfer restrictions. Includes payments of $20,164 and $1,000 to Mr.
Freeman and Mr. Chambers, respectively, under the Transferee
Supplemental Pension Plan. Includes $6,880, $6,880, $6,880, $6,880 and
$6,880 contributed to the Company's Profit Sharing Plan for Mr. Freeman,
Dr. Mohapatra, Mr. Chambers, Mr. Marrone and Mr. Hagemann, respectively.
Includes $15,546, $16,030 and $7,914 contributed to the Company's
Supplemental Deferred Compensation Plan for Dr. Mohapatra, Mr. Marrone
and Mr. Hagemann, respectively. Includes $23,291 contributed to MetPath
Deferred Compensation Plan for Mr. Hagemann. Includes ESOP contribution
of $3,200, $2,769, $2,423, $2,150 and $1,673 for Mr. Freeman, Dr.
Mohapatra, Mr. Chambers, Mr. Marrone, and Mr. Hagemann, respectively.
(5) As of December 31, 1999, 10,778 shares (with a value of $328,055) remained
unvested from an award in 1996 that was reflected as compensation in 1996.
(6) Dr. Mohapatra began employment and was elected an executive officer in
February 1999.
(7) Mr. Hagemann was elected an executive officer in October 1998.
7
<PAGE>
OPTION GRANTS. The following table sets forth certain information
regarding options granted in 1999 to the named executive officers pursuant to
stock option plans.
OPTION/SAR GRANTS IN 1999(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION FOR OPTION TERM(2)
-------------------------------------------------------- -------------------------------------------
NUMBER OF % OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO GAIN GAIN GAIN
OPTIONS ALL EMPLOYEES EXERCISE EXPIRATION AT AT AT
EXECUTIVE GRANTED IN FISCAL YEAR PRICE DATE 0% 5% 10%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth W. Freeman 330,000 (3) 10.0% $26.34 8/16/2009 $0 $5,466,478 $13,853,128
2,151 (4) 0.1% $31.00 12/05/2005 0 41,935 106,272
Surya N. Mohapatra 80,000 (5) 2.4% $19.06 2/03/2009 0 958,939 2,430,139
60,000 (3) 1.8% $26.34 8/16/2009 0 993,905 2,518,751
James D. Chambers 85,000 (3) 2.6% $26.34 8/16/2009 0 1,408,032 3,568,230
Gerald C. Marrone 55,000 (3) 1.7% $26.34 8/16/2009 0 911,080 2,308,855
Robert A. Hagemann 40,000 (3) 1.2% $26.34 8/16/2009 0 662,603 1,679,167
</TABLE>
(1) No stock apprecation rights ("SARs") were granted. All options provide
that an additional option may be granted when the optionee uses shares of
Quest Diagnostics common stock to pay the purchase price of an option. The
additional option will be exercisable for the number of shares tendered in
payment of the option price, will be exercisable at the then fair market
value of Quest Diagnostics common stock, will become exercisable only after
the lapse of twelve months and will expire on the expiration date of the
original option.
(2) The dollar amounts set forth under these columns are the result of
calculations at the 5% and 10% rates established by the Securities and
Exchange Commission and therefore, are not intended to forecast future
appreciation of Quest Diagnostics common stock.
(3) The options vest in four equal annual installments in August 2000, 2001,
2002 and 2003.
(4) The options vest in December 2000.
(5) The options vest in three equal annual installments in February 2000,
2001 and 2002.
OPTION EXERCISES AND FISCAL YEAR-END VALUES. The following table sets
forth certain information regarding stock option exercises by the named
executive officers during 1999 and the number of shares of Quest Diagnostics'
Common Stock covered by both exercisable and unexercisable stock options as of
December 31, 1999, for the named executive officers.
AGGREGATE OPTION/SAR EXERCISES IN 1999
& 1999 YEAR-END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT DECEMBER IN-THE-MONEY OPTIONS AT DECEMBER
31, 1999 31, 1999(2)
----------------------------------- -----------------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth W. Freeman 6,344 $196,664 396,883 418,378 $6,145,716 $3,122,492
Surya N. Mohapatra 0 0 0 140,000 0 1,173,550
James D. Chambers 0 0 95,367 99,866 1,453,677 657,013
Gerald C. Marrone 0 0 45,000 55,000 646,013 232,238
Robert A. Hagemann 0 0 34,600 40,000 420,523 168,900
</TABLE>
<PAGE>
(1) There are no SARs outstanding.
(2) Based on a price of $30.5625 per share.
VARIABLE COMPENSATION. Quest Diagnostics maintains a Management
Incentive Plan, which is an annual incentive cash compensation plan for
approximately 1,600 supervisory, management and 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.
EMPLOYEE EQUITY PARTICIPATION PROGRAM. Effective June 29, 1999, Quest
Diagnostics adopted the 1999 Employee Equity Participation Program. The types of
awards that may be granted under the 1999 Employee Equity Participation Program
are stock options, stock appreciation rights and stock awards. An award may be
granted separately or with another award. An award may also be granted in
tandem, so that the exercise or vesting of one award cancels another award held
by the same participant.
The 1999 Employee Equity Participation Program authorizes the issuance
of up to six million shares of Quest Diagnostics' common stock. The 1999
Employee Equity Participation Program also authorizes the issuance of shares of
common stock of Quest Diagnostics that are represented by awards granted under
the 1996 Employee Equity Participation Program or the 1999 Employee Equity
Participation Program that are forfeited, expired or canceled. No additional
options or stock awards can be issued under the 1996 Employee Equity
Participation Program. In determining the number of shares of common stock of
Quest Diagnostics available for delivery under the 1999 Employee Equity
Participation Program, shares issued through the settlement, assumption or
substitution of outstanding awards or obligations to grant future awards as a
condition of Quest Diagnostics acquiring another entity will not reduce the
maximum number of shares available.
Except in connection with certain transactions such as stock dividends
or stock splits or mergers, Quest Diagnostics may not (1) grant new options or
stock appreciation rights with a lower exercise price in exchange for previously
granted options or stock appreciation rights, or (2) lower the price of
outstanding stock options or stock appreciation rights. A maximum of 1,800,000
shares of Quest Diagnostics common stock awards may be issued as incentive stock
awards under the 1999 Employee Equity Participation Program. No one individual
may receive awards granted as options or stock appreciation rights covering more
than 1,000,000 shares of Quest Diagnostics common stock under the 1999 Employee
Equity Participation Program. No one individual may receive awards granted as
stock awards covering more than 300,000 shares of Quest Diagnostics common stock
under the 1999 Employee Equity Participation Program. Vesting of outstanding
stock options and stock awards are subject to acceleration in the case of a
change in control. Change of control, for purposes of existing options and
grants, would be (1) any person becoming the beneficial owner of 40% or more of
the voting stock of Quest Diagnostics, (2) 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, or (3) approval by
Quest Diagnostics' stockholders of a transaction in which Quest Diagnostics
ceases to be an independent public company, or a sale or disposition of all or
substantially all of Quest Diagnostics' assets or a plan of partial or complete
liquidation.
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 and Mr.
Chambers. The Transferee Supplemental Pension Plan is intended to provide
benefits approximately equal to the difference between the benefits provided for
under the Corning Salaried
<PAGE>
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, and prior to January
1, 1995, Mr. Chambers 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 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 a non-qualified Executive Supplemental Pension Plan
pursuant to which it will pay to certain executives amounts approximately equal
to the difference between the benefits provided for under the Corning Salaried
Pension Plan and benefits which would have been payable thereunder but for the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
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 Messrs. Freeman and Chambers, who have 28 and 14 years of credited service,
respectively, would receive each year if they worked to age 65, $______ and
$______, respectively, under the Corning Salaried Pension Plan, the Executive
Supplemental Pension Plan and the Transferee Supplemental Pension Plan.
<TABLE>
<CAPTION>
Years of Service
Average Final Compensation --------------------------------------------------------------------------------------------
- -------------------------- 15 20 25 30 35 40
------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 20,500 27,300 34,100 41,000 47,800 55,300
200,000 43,000 57,300 71,600 86,000 100,300 115,300
300,000 65,500 87,300 109,100 131,000 152,800 175,300
400,000 88,000 117,300 146,600 176,000 205,300 235,300
500,000 110,500 147,300 184,100 221,000 257,800 295,300
600,000 133,000 177,300 221,600 266,000 310,300 355,300
700,000 155,500 207,300 259,100 311,000 362,800 415,300
800,000 178,000 237,300 296,600 356,000 415,300 475,300
900,000 200,500 267,300 334,100 401,000 467,800 535,300
1,000,000 223,000 297,300 371,600 446,000 520,300 595,300
1,100,000 245,500 327,300 409,100 491,000 572,800 655,300
1,200,000 268,000 357,300 446,600 536,000 625,300 715,300
</TABLE>
EMPLOYMENT AGREEMENT
Mr. Freeman entered into a new 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;
<PAGE>
- 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 the event of a termination of Mr. Freeman's
employment without cause in an amount equal to three times his base
salary and three times his target annual bonus award.
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 base annual 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, 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 base annual salary at the annual rate in
effect on 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, 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 were
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:
- - Recruit and retain highly qualified executive officers by offering overall
compensation and benefits that are competitive with comparable companies.
- - Reward executive officers based upon their position, performance, and
potential.
<PAGE>
- - Motivate and align the interests of executive officers with those of the
Quest Diagnostics' stockholders by tying a significant portion of executive
total compensation to the Quest Diagnostics' performance through
participation in the Management Incentive Plan and equity-based incentive
compensation program.
- - Maximize, as appropriate, the deductibility of executive compensation for
tax purposes.
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 corporate executive officers,
the 1999 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.
LONG-TERM INCENTIVES
Long-term incentive compensation is based on annual grants of stock
options and shares of incentive stock under the terms of the 1999 Employee
Equity Participation Program. The Committee believes that these grants directly
align stockholder and executive officer interests.
Stock option and incentive stock target grant levels and terms are
established to deliver executive total compensation ranging from 50th to 90th
percentile competitive levels, depending an executive's responsibilities, future
potential, individual performance, and Company performance.
In 1999, the Committee approved grants of non-qualified stock options
and shares of incentive stock for the Chief Executive Officer and each named
executive officer disclosed in the Summary Compensation Table. The grants of
stock options approved by the Committee in 1999 were designed to cover both 1999
and 2000.
COMPENSATION OF THE CHAIRMAN OF THE BOARD & CHIEF EXECUTIVE OFFICER
The compensation of Mr. Freeman consists of the same elements as that
of other senior executives, namely base salary, annual incentive, and grants of
stock options and shares of incentive stock. The Committee determined the level
for each of these elements using methods consistent with those used for other
executive officers. For 1999, the Committee authorized an annual incentive
payout equal to 131% of the target award. In addition to the $787,200 Management
Incentive Plan award, the Committee approved a special incentive award in the
amount of $412,800. The Committee also authorized an award of 330,000
non-qualified stock options and a target award of 50,000 shares of incentive
stock in August 1999 in accordance with the 1999 Employee Equity Participation
Program. Based on Quest Diagnostics' 1999 financial results, the Committee
determined that 62,500 shares of incentive stock were earned (125% of the target
award), subject to vesting restrictions that extend into 2003.
<PAGE>
1999 COMPENSATION ACTIONS: OTHER EXECUTIVE OFFICERS
The other executive officers, including the named executives disclosed
in the Summary Compensation Table, received salary increases that ranged from 4%
to 23% of salary, averaging 8.3% (excluding salary adjustments tied to
promotions). The Committee authorized annual incentive awards under the terms of
the Management Incentive Plan that ranged from 109% to 131% of target. Each
executive officer also received a grant of stock options and a target award of
incentive stock under the terms of the Program. Based on Quest Diagnostics'
1999 financial results, the Committee determined that 106% to 125% of each
target grant of incentive stock was earned, subject to vesting restrictions
that extend into 2003.
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 1999 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 stockholders.
THE COMPENSATION AND NOMINATING COMMITTEE:
Kenneth D. Brody, Chairman
Mary A. Cirillo
William R. Grant
Dan C. Stanzione
PERFORMANCE COMPARISON
Set forth below is a line graph comparing the cumulative total
stockholder return on Quest Diagnostics' common stock since December 17, 1996
(when the Company's common stock became listed on the New York Stock Exchange on
a when issued basis), 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 a group
consisting of 23 publicly traded companies that are engaged primarily in the
healthcare services and medical products and pharmaceuticals manufacturing
industries: Alpharma Inc., Bard (C.R.) Inc., Beckman Coulter Inc., Becton
Dickinson & Co., Caremark Rx Inc., Chiron Corp., Covance Inc., Express Scripts
Inc., Fisher Scientific International Inc., Genentech Inc., Genzyme General
Corp., IVAX Corp., Laboratory Corporation of America Holdings Inc., Mallinckrodt
Inc., Manor Care Inc., Novacare Inc., Omnicare Inc., Oxford Health Plans Inc.,
Pacificare Health Systems Inc., Quintiles Transnational Corp., Quorum Health
Group Inc., St. Jude Medical Inc., and Tenet Healthcare Corporation.
INSERT PERFORMANCE GRAPH
<PAGE>
<TABLE>
<CAPTION>
12/17/96 12/31/96 12/31/97 12/31/98 12/31/99 TOTAL RETURN
- -------------------------------------- ------------ ---------------- --------------- ------------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Quest Diagnostics Incorporated $100 $108.04 $120.54 $127.24 $218.30 118.3%
S & P 500 $100 $102.20 $136.29 $175.23 $212.10 112.1%
23-Company Peer Group $100 $102.20 $103.19 $120.30 $146.81 46.8%
(former peer group)
S & P Midcap Healthcare Index $100.00 $103.43 $132.19 $142.79 42.8%
(new peer group)
</TABLE>
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 29, 2000 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, excluding shares held under the Corning
Investment Plans. Corning Incorporated owns all 1,000 outstanding shares of
Quest Diagnostics' voting cumulative preferred stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME BENEFICIALLY OWNED OF CLASS(8)
- ---- ------------------ -----------
<S> <C> <C>
SmithKline Beecham plc 12,564,336 (1) 28.7%
FMR Corp. 3,904,200 (2) 8.9%
Wellington Management Company, LLP 3,800,700 (3) 8.7%
Mellon Financial Corporation 2,857,169 (4) 6.5%
Vanguard Specialized Funds - Vanguard 2,312,000 (5) 5.3%
Healthcare Fund
Kenneth D. Brody 7,306 (6) ---
William F. Buehler 4,750 (6) ---
Van C. Campbell 29,717 (6)(7) ---
James D. Chambers 158,504 (8) ---
Mary A. Cirillo 7,306 (6)(7) ---
Kenneth W. Freeman 711,345 (8) 1.6%
William R. Grant 8,014 (6)(9) ---
Robert A. Hagemann 59,693 (8) ---
Gerald S. Marrone 71,761 (8) ---
Surya N. Mohapatra 56,482 (8) ---
John O. Parker 930 (6)(10) ---
Dan C. Stanzione 7,306 (6) ---
Gail R. Wilensky 7,306 (6) ---
John B. Ziegler 0(11) ---
All Directors, Nominees and Executive
Officers as a Group (18 persons) 1,169,608(6)(8)(12) 2.7%
</TABLE>
(1) The business address of SmithKline Beecham plc is New Horizons Court,
Brentford, Middlesex TW8 9EP, England. This information is based solely on
the information contained on a Schedule 13D filed by SmithKline Beecham
with the Securities and Exchange Commission in August 1999. The shares are
held of record by SmithKline Beecham Corporation, a wholly owned subsidiary
of SmithKline Beecham plc.
(2) The business address of FMR Corp., which is the parent of Fidelity
Management & Research Corporation, is 82 Devonshire Street, Boston, MA
02109. FMR Corp. has sole dispositive power (but does not have voting
power) over all these shares. This information is based solely on the
information contained in a Schedule 13-G filed by FMR Corp. with the
Securities and Exchange Commission on February 14, 2000.
<PAGE>
(3) The business address of Wellington Management Company, LLP ("WMC") is 75
State Street, Boston, MA 02109. WMC has shared dispositive power (but not
shared voting power) over all these shares. This information is based
solely on the information contained on a Schedule 13-G filed by WMC with
the Securities and Exchange Commission on February 9, 2000.
(4) The business address of Mellon Financial Corporation ("MFC") is One Mellon
Center, Pittsburgh, PA 15258. MFC beneficially owns all these shares,
together with Boston Group Holdings, Inc. This information is based solely
on the information contained in a Schedule 13-G filed by MFC with the
Securities and Exchange Commission on January 20, 2000.
(5) The business address of Vanguard Specialized Funds - Vanguard Healthcare
Fund ("Vanguard") is P.O. Box 2600, Valley Forge, PA 19482. Vanguard
beneficially owns all these shares and has sole voting power (but not sole
dispositive power). This information is based solely on the information
contained in a Schedule 13-G filed by Vanguard with the Securities and
Exchange Commission on February 4, 2000.
(6) Includes options issued under the Stock Option Plan for Non-Employee
Directors that are presently exercisable or exercisable within 60 days.
(7) In addition, Mr. Campbell and Ms. Cirillo have credited to their accounts
the equivalent of 4,493 and 3,028 shares, respectively, of common stock
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.
(8) 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. Chambers, Mr. Freeman, Mr. Hagemann, Mr.
Marrone and Dr. Mohapatra have the right to purchase 110,233, 483,110,
34,600, 45,000 and 26,666 shares, respectively, pursuant to such presently
exercisable options.
(9) Mr. Grant was nominated to be a director of the Company by SmithKline
Beecham 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.
(10) Mr. Parker was nominated to be a director of the Company by SmithKline
Beecham pursuant to the Stockholders Agreement discussed below. Mr. Parker,
the Senior Vice President, Information Resources of SmithKline Beecham
Corporation, a subsidiary of SmithKline Beecham, disclaims beneficial
ownership of the shares of common stock owned by SmithKline Beecham. Mr.
Parker's term expires on May 9, 2000 and SmithKline Beecham has nominated
Mr. Ziegler as Mr. Parker's replacement.
(11) Mr. Ziegler has been nominated to be a director of the Company by
SmithKline Beecham pursuant to the Stockholders Agreement discussed below.
Mr. Ziegler, the President, Worldwide Consumer Healthcare of SmithKline
Beecham, disclaims beneficial ownership of the shares of common stock owned
by SmithKline Beecham.
(12) Includes 241 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
SMITHKLINE BEECHAM
SmithKline Beecham plc owns 12,564,336 shares of Quest Diagnostics'
common stock which it obtained on August 16, 1999 as consideration, together
with $1.025 billion in cash, for its sale of SmithKline Beecham Clinical
Laboratories, Inc. ("SBCL") to Quest Diagnostics.
<PAGE>
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 received approximately $10.3 million from
SmithKline Beecham with respect to services performed during 1999 after the
closing of the acquisition of SBCL.
TRANSITION SERVICES AGREEMENT
At the closing of the acquisition of SBCL, SmithKline Beecham and Quest
Diagnostics entered into a transition services agreement which requires
SmithKline Beecham to provide various administrative services that SmithKline
Beecham previously performed for its clinical laboratories testing business. The
agreement terminates on December 31, 1999. The services covered by this
agreement include treasury, payroll and benefits administration, human resource
services, telecommunications, and information resource management. Generally,
the fees associated with each respective service are substantially at cost and
are listed in a schedule attached to the transition services agreement. Quest
Diagnostics paid approximately $4.6 million to SmithKline Beecham with respect
to services performed under the Transition Services Agreement in 1999.
DATA ACCESS AGREEMENTS
At the closing of the acquisition of SBCL, Quest Diagnostics entered
into two data access agreements under which SmithKline Beecham has the right to
use Quest Diagnostics' laboratory data. Under the first agreement, SmithKline
Beecham has the right to use the data (a) within SmithKline Beecham and its
affiliates and (b) in programs or services supplied to third parties in support
of disease state categories which SmithKline Beecham is developing, marketing,
or selling pharmaceutical or vaccine products. Under the second agreement,
SmithKline Beecham has the right, through a new entity to be formed in which the
Company will receive approximately a 29.5% equity interest before any external
financing, to commercialize information programs or services that include
laboratory data (but are materially enhanced by the inclusion of non-laboratory
data). Quest Diagnostics is not required to advance funds to the new entity but
Quest Diagnostics' interest will be diluted if Quest Diagnostics does not
advance funds and/or other parties invest in the new entity. If SmithKline
Beecham does not organize the new entity by August 16, 2000, Quest Diagnostics
can terminate the second agreement. Both agreements restrict disclosure of data
that would identify the patient or payor without appropriate authorization.
Following an initial term ending 42 months following the closing, each data
access agreement can be renewed by SmithKline Beecham or Newco, as the case may
be, for seven successive one-year renewal options. No fee was required to be
paid for 1999. The fees payable during the balance of the initial term will be
below market prices, but at the time of renewal, terms will generally be
determined based on the most favorable rate that Quest Diagnostics charges
third party for similar access to and use of Quest Diagnostics' laboratory
data.
INDEMNIFICATION
The stock and asset purchase agreement for the acquisition of SBCL
includes customary indemnification agreements relating to breaches of
representations, warranties and covenants of SmithKline Beecham and Quest
Diagnostics. Except for the obligations of SmithKline Beecham and Quest
Diagnostics with respect to tax indemnification payments, the obligations of
both SmithKline Beecham and Quest Diagnostics to indemnify each
<PAGE>
other for breaches of representations and warranties and pre-closing covenants
are each subject to $25 million deductible amounts. In addition, their
obligations to indemnify each other for breach of some specified representations
and warranties and pre-closing covenants, other than those relating to taxes,
cannot be greater than $946.6 million and Quest Diagnostics' indemnification
obligation for breaches of representations and warranties and pre-closing
covenants, other than those relating to taxes, cannot be greater than $245
million. All amounts paid under these indemnification agreements are net of
amounts recovered from insurance and are calculated on an after-tax basis.
In addition to the above indemnification provisions, in the stock and
asset purchase agreement, SmithKline Beecham has agreed to 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 has also
agreed to 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 than $130 million and 100% of those
claims to a maximum pre-tax amount of $25 million plus 20% of out-of-pocket
costs and expenses.
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 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.
CORNING
Corning Incorporated owns all of the 1,000 outstanding shares of Quest
Diagnostics' voting cumulative preferred stock, which shares were issued to
Corning Life Sciences Inc. and subsequently transferred to Corning during the
fourth quarter of 1996. Prior to December 31, 1996, Quest Diagnostics was a
wholly owned subsidiary of Corning. During 1999, Quest Diagnostics paid to
Corning $117,500 in preferred stock dividends.
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 has 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 will
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 will be limited to a total amount of $25 million and will be reduced to
take into account any deductions or tax benefits realized by Quest Diagnostics,
or a consolidated group of which Quest Diagnostics is a member, to the extent
that the deductions or tax benefits are deemed to actually reduce the tax
liability of Quest Diagnostics. Corning will not indemnify Quest Diagnostics
against damages suffered as a result of, or incidental to, the billing claims
and the fees and expenses of litigation.
<PAGE>
Quest Diagnostics will control the defense of any government claim or
investigation unless Corning elects to assume the defense. However, in the case
of all non-government claims related to indemnified government claims of alleged
overbilling, Quest Diagnostics will control the defense. All disputes relating
to the Corning indemnification agreement are subject to binding arbitration.
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. The tax sharing
agreement further provides in general that if the 1996 spin-off becomes taxable,
this tax is allocated among Corning, Quest Diagnostics and the other former
Corning subsidiary in such a manner as will take into account the extent to
which the actions or inactions of each may have caused the tax and each will
indemnify and hold harmless the other from and against the taxes so allocated.
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 1999, Forms 5 and amendments thereto
furnished to Quest Diagnostics with respect to 1999 and written representations
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' 2001 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, 2000, if they are to
be considered for possible inclusion in the 2001 Proxy Statement and form of
proxy, in accordance with the rules and regulations of the Securities and
Exchange Commission.
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.
<PAGE>
The annual report to stockholders 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,
1999. UPON REQUEST, THE COMPANY WILL PROVIDE WITHOUT CHARGE A COPY OF ITS ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 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: Corporate Secretary
(201) 393-5000
By Order of the Board of Directors
Leo C. Farrenkopf, Jr.
Vice President and Secretary
<PAGE>
Exhibit A
Paragraph 11 of the Restated Certificate of Incorporation
11. INDEMNIFICATION. (a) No director of the Corporation shall have any personal
liability to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that this provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit.
(b) Each person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action either in an official
capacity as a director or officer or in any other capacity while serving as a
director or officer, shall be indemnified and held harmless by the Corporation
to the fullest extent authorized by the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expenses,
liability and loss (including attorneys' fees, judgments, fines, excise taxes
pursuant to the Employee Retirement Income Security Act of 1974, as amended, or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to be indemnified conferred in
this Paragraph 11 shall be a contract right and shall include the right to be
paid by the Corporation the expenses incurred in defending any such proceeding
in advance of its final disposition; provided, however, that the payment of such
expenses incurred by the director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is to
be rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan), in advance of the final
disposition of proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Paragraph or otherwise. The
Corporation may also provide indemnification to employees and agents of the
----
Corporation with the same scope and effect as the foregoing indemnification of
directors and officers.
(c) The indemnification provided by this Paragraph 11 shall not limit
or exclude any rights, indemnities or limitations of liability to which any
person may be entitled, whether as a matter of law, under the By-Laws of the
Corporation, by agreement, vote of the stockholders or disinterested directors
of the Corporation or otherwise.
(d) If a claim under paragraph (b) of this Paragraph 11 is not paid in
full by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard or conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the Corporation
(including its Board, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall create a
presumption that the claimant has not met the applicable standard of conduct.
(e) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense,
<PAGE>
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the General
Corporation Law of the State of Delaware.
<PAGE>
QUEST DIAGNOSTICS INCORPORATED
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - MAY 9, 2000
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 9, 2000 at 10:00 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 Harris Trust and Savings Bank
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.
<PAGE>
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS:
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) / / to vote for all nominees below / /
For terms expiring in 2003, 01-Kenneth W. Freeman,
02-Gail R. Wilensky, and 03-John B. Ziegler
INSTRUCTION. To withhold authority to vote for any individual nominee, strike
a line through the nominee's name above.
2. PROPOSAL TO RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS TO AUDIT THE FINANCIAL STATEMENTS OF QUEST DIAGNOSTICS FOR
THE YEAR ENDING DECEMBER 31, 2000.
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO APPROVE AN AMENDMENT TO PARAGRAPH 11 OF QUEST DIAGNOSTICS'
RESTATED CERTIFICATE OF INCORPORATION TO CONFORM WITH A RECENT CHANGE TO SECTION
145(D) OF THE DELAWARE GENERAL CORPORATION LAW.
/ / FOR / / AGAINST / / ABSTAIN
Date:_________________________ 2000
------------------------------------
(Signature)
------------------------------------
(Signature if held jointly)
------------------------------------
(Title or authority (if applicable))
</TABLE>
For Information Only:
Check here if you plan to attend the meeting / /
Check here to discontinue mailing duplicate
Annual Report / /
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).
- --------------------------------------------------------------------------------
<PAGE>
Detach Proxy Card Here
CONTROL NUMBER
- --------------------------------------------------------------------------------
NOW YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERENET! 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 above.
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.
<PAGE>
TO VOTE BY INTERNET Go to the following Website:
WWW.HARRISBANK.COM/WPROXY
- --------------------------------------------------------------------------------
Enter the information requested on
your computer screen, including the
6-digit CONTROL NUMBER located
above.
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
