Quest Diagnostics 2004 Annual Report Download - page 25

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Mr. Ziegler, President, Worldwide Consumer Healthcare of GlaxoSmithKline, disclaims
beneficial ownership of the shares of common stock owned by SmithKline Beecham.
(7) Includes 932 shares owned by the spouses and children of certain executive officers and
directors as to which such officers and directors disclaim beneficial ownership.
Certain Relationships and Related Transactions
OPCENTER
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. As of May
4, 2004, Mary Cirillo will retire as a director of Quest Diagnostics. Quest Diagnostics expects to
continue to receive services from OPCENTER during 2004.
GlaxoSmithKline
SmithKline Beecham Corporation, a subsidiary of GlaxoSmithKline plc, owns 22,128,672 shares
of Quest Diagnostics’ common stock, which it obtained on August 16, 1999 as consideration,
together with $1.025 billion in cash (prior to giving effect to a $95 million post-closing purchase
price reduction), for its sale of SBCL to Quest Diagnostics. SmithKline Beecham Corporation
(“SmithKline Beecham’’) originally received 25,128,672 shares in the transaction (adjusted for the
stock split in May 2001). In addition to the two agreements discussed below, in connection with
the purchase of SBCL, SmithKline Beecham agreed to indemnify Quest Diagnostics, on an after
tax basis, against certain matters primarily related to taxes and billing and professional liability
claims. At December 31, 2003, accounts payable and accrued expenses included $21 million due to
SmithKline Beecham, primarily related to tax benefits associated with indemnifiable matters.
Stockholders Agreement
At the closing of the acquisition of SBCL, SmithKline Beecham and Quest Diagnostics entered
into a stockholders agreement. 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, if required by UK GAAP, 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 of the acquisition of SBCL, SmithKline Beecham and Quest Diagnostics entered
into a global clinical trials testing agreement, under which SmithKline Beecham would use Quest
Diagnostics as the primary provider of SmithKline Beecham’s clinical trials testing requirements for
ten years. In December 2002, Quest Diagnostics entered into a new long-term agreement with
GlaxoSmithKline plc (formed from the SmithKline Beecham and Glaxo Wellcome merger in
December 2000) under which Quest Diagnostics will be the exclusive provider of central laboratory
testing services to support GlaxoSmithKline’s global clinical testing requirements. In addition, on a
selected basis, Quest Diagnostics will provide support for other early stage research and
development activity. GlaxoSmithKline will pay Quest Diagnostics based upon a fee schedule
attached to the global clinical trials agreement, subject to adjustment. During 2003, Quest
Diagnostics billed approximately $50 million to GlaxoSmithKline with respect to services primarily
performed under the clinical trials agreement. This amount represents approximately 1% of Quest
Diagnostics’ net revenues for 2003 and about 0.1% of GlaxoSmithKline’s net revenues for 2003.
Quest Diagnostics Incorporated ?2004 Proxy Statement ?23