Quest Diagnostics 2004 Annual Report Download - page 12

may grant to such director, on his/her election, an option to acquire a number of shares (not to
exceed 10,000) 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.
A director may elect to receive his or her annual retainer and meeting fees in options in lieu
of cash. The number of options issued in lieu of cash for the retainer and meeting fees is based
on the estimated value of such options using the Black Scholes pricing model. Currently, three
directors have elected to receive options in lieu of cash.
The annual option grants vest in three equal annual installments beginning on the first
anniversary of the date of grant. The option grants issued in lieu of the retainer and meeting fees
vest immediately on grant. All options, once vested, are exercisable through the tenth anniversary
of the date of grant even if the director’s service on the Board terminates for any reason. The
aggregate number of shares of common stock of Quest Diagnostics, which may be issued pursuant
to the exercise of options granted under the option plan, may not exceed 1,000,000 (subject to
adjustments in certain circumstances). The exercise price of all stock options issued under the
option 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
under 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 such
plan. Currently, three directors have elected to defer compensation pursuant to such plan.
Compensation Committee Interlocks and Insider Participation
During 2003, OPCENTER billed Quest Diagnostics approximately $2.1 million for consulting
and recruiting services provided in various areas including information technology. Mary Cirillo, a
director of Quest Diagnostics, is the majority stockholder and Chairman of OPCENTER. Prior to
March, 2003, Ms. Cirillo was a member of the Company’s Compensation Committee. As of May 4,
2004, Ms. Cirillo will retire as a director of Quest Diagnostics. Quest Diagnostics expects to
continue to receive services from OPCENTER during 2004.
Proposal No. 2 Ratification of Appointment of PricewaterhouseCoopers LLP
The Audit and Finance Committee has appointed, and the Board of Directors recommends
that the stockholders ratify the selection of, PricewaterhouseCoopers LLP as the independent
auditor to audit the financial statements of Quest Diagnostics for its current fiscal year, which ends
December 31, 2004. PricewaterhouseCoopers LLP has served as Quest Diagnostics’ independent
auditor for the fiscal years ended December 31, 2002 and December 31, 2003. The Company’s
Restated Certificate of Incorporation and By-Laws do not require that the stockholders ratify the
selection of PricewaterhouseCoopers LLP as the Company’s independent auditor. We are doing so
because we believe it is a matter of good corporate practice. If the stockholders do not ratify the
selection, the Board and the Audit and Finance Committee will reconsider whether or not to
retain PricewaterhouseCoopers LLP, but still may retain PricewaterhouseCoopers LLP. Even if the
selection is ratified, the Audit and Finance Committee, in its discretion, may change the
appointment at any time during the year if it determines that such a change would be in the best
interests of Quest Diagnostics and its stockholders.
It is expected that representatives of PricewaterhouseCoopers LLP will attend the annual
meeting of stockholders, will have the opportunity to make a statement if they elect to do so, and
will be available to respond to appropriate questions.
10 ?Quest Diagnostics Incorporated ?2004 Proxy Statement