Quest Diagnostics 2004 Annual Report Download - page 17

Mr. Freeman’s salary and bonus for years prior to 2004, Mr. Freeman would receive under the
SRP (together with the benefits under the Corning defined benefit plans), an annual benefit of
approximately $1,239,300 payable as a straight life annuity commencing at age 55. The
employment agreement also provides Mr. Freeman the right to a lump sum payment option
payable on his 55th birthday (or, if later, his termination of employment).
In November 2003, the Company entered into an employment agreement with Dr. Mohapatra
under which the Company agreed to develop and make available a supplemental executive
retirement plan (the “New SERP’’) prior to the end of 2004. The agreement provides that the
New SERP is intended to provide an enhanced benefit to Dr. Mohapatra should he leave the
Company after eight full years of service, taking into account all service since his employment in
February 1999, provided that if his employment is terminated for any reason (other than by the
Company for “cause’’ or by Dr. Mohapatra other than for “good reason’’ or disability) prior to his
obtaining 8 full years of service, Dr. Mohapatra shall be deemed to have obtained 8 full years of
service. The terms of the New SERP have not been established and remain subject to approval by
the Board of Directors.
Employment Agreements
Employment Agreement of Mr. Freeman
In February 2003, Mr. Freeman entered into an employment agreement with Quest
Diagnostics dated January 1, 2003, which provides for:
•a term ending on the earlier of (a) December 31, 2005 or (b) one year following the date
(if any) that Mr. Freeman relinquishes, with the consent of the Board, the position of Chief
Executive Officer;
•an annual base salary of no less than $1,100,000, with any increases subject to the discretion
of the Board of Directors or the Compensation Committee;
•an annual target cash bonus not less than 140% of annual base salary in effect at the time
performance goals are established;
•a grant of 700,000 stock options on the terms described in note 1 to the Option Grant
Table on page 13 and a grant of 100,000 restricted shares of common stock on the terms
described in note 2 to the Summary Compensation Table on page 12;
•modification of the provisions of the SRP as described above under “Pension Plans’’;
•severance payments in an amount equal to three times his base salary and three times his
target annual bonus award (and gross-up payments for excise taxes, if applicable) plus
continued coverage for three years under the Company’s insurance and medical plans in
the event Mr. Freeman terminates his employment for “good reason’’ or the Company
terminates his employment without cause;
•a one year non-compete and a one year non-solicit of customers and employees following
termination for any reason; and
•“good reason’’ would include (1) a material change in Mr. Freeman’s duties or
responsibilities, (2) removal or a failure to re-elect Mr. Freeman to the position of
Chairman of the Board and Chief Executive Officer, (3) a greater than 75-mile relocation
without his consent, (4) a reduction in compensation or benefits, (5) a “change in control’’
or (6) material breach by the Company of the agreement. “Change of control’’ would
include (1) a sale or disposition of all or substantially all of Quest Diagnostics’ assets or a
partial or complete liquidation of Quest Diagnostics, (2) a merger or consolidation in which
the surviving entity becomes a subsidiary of a publicly traded parent and Mr. Freeman is not
the Chairman and Chief Executive Officer of such parent, (3) the acquisition by any third
party of at least 51% of the outstanding shares of capital of Quest Diagnostics in a
transaction not covered by clause (2) following which Quest Diagnostics ceases to be an
independent public company or (4) a change in the membership of the Quest Diagnostics
Quest Diagnostics Incorporated ?2004 Proxy Statement ?15