Quest Diagnostics 2004 Annual Report Download - page 9

The Board of Directors has determined that, following the 2004 annual meeting of
stockholders, assuming election of the Board’s three nominees for director, seven of the ten
directors are independent in accordance with the standards specified above. The three directors
who the Board has determined are not independent are Kenneth W. Freeman, the Chairman of
the Board and Chief Executive Officer of the Company, Surya N. Mohapatra, the President and
Chief Operating Officer, and William R. Grant. While Mr. Grant does not have any relationships
that implicate the “bright line’’ tests under the NYSE’s listing standards, the Company has made
investments in several companies in which Mr. Grant and/or Galen Associates has made
investments. In light of these investments and additional investment opportunities that Mr. Grant
brings to the attention of the Company from time to time, the Board has determined that
Mr. Grant should not be considered independent. However, any such transactions will be reviewed
by the Governance Committee before they are completed. Mary A. Cirillo, who is retiring from the
Board, is not considered independent by reason of the Company’s relationship with OPCENTER as
described under “Certain Relationships and Related Transactions.’’
The Board of Directors has determined that John M. Ziegler and James F. Flaherty III are
independent notwithstanding that they have certain relationships with the Company that the Board
believes are not material. Mr. Ziegler is the President, Worldwide Consumer Healthcare of
GlaxoSmithKline plc, which beneficially owns approximately 21% of the outstanding common stock
of the Company. The common stock of Quest Diagnostics that GlaxoSmithKline plc
(“GlaxoSmithKline’’) beneficially owns was issued in August 1999 in connection with the
acquisition of SmithKline Beecham Clinical Laboratories, Inc. (“SBCL’’). In connection with the
acquisition, the Company entered into a clinical trials agreement. These transactions are described
under “Certain Relationships and Related Transactions’’. In 2003, the Company billed
approximately $50 million to GlaxoSmithKline with respect to services performed primarily under
the clinical trials agreement. This amount represents about 0.1% of GlaxoSmithKline’s net
revenues for 2003. Mr. Ziegler was not involved with the negotiation of any of these arrangements.
Mr. Flaherty is the President and Chief Executive Officer of Health Care Property Investors
(“HCPI’’), a qualified real estate investment trust specializing in healthcare real estate. HCPI, or
an affiliate, is the lessor of 14 of the Company’s patient service centers. The Company has almost
2,000 patient service centers. The aggregate annual rent for the 14 patient service centers is
approximately $530,000, which constitutes less than 0.2% of HCPI’s annual revenues. Mr. Flaherty
was not involved with the negotiation of any of these lease arrangements. In addition,
Mr. Flaherty’s brother-in-law is a tax partner with PricewaterhouseCoopers LLP, independent
auditor of the Company. To the best knowledge of the Company, the Company has never had any
professional relationship or contact with Mr. Flaherty’s brother-in-law. Under the new NYSE
director independence listing standards, Mr. Flaherty may not be eligible to continue to serve on
the Company’s Audit and Finance Committee and Governance Committee after the Company’s
2005 annual meeting of stockholders. The Company is currently seeking guidance from the NYSE
whether the relationship of Mr. Flaherty’s brother-in-law would cause Mr. Flaherty not to be
considered independent under the new NYSE director independence listing standards.
Selection of Lead Independent Director
The Board of Directors has elected Dr. Dan C. Stanzione as the Lead Independent Director.
The principal responsibilities of the Lead Independent Director are to (a) preside over any
executive session of the non-management directors or the independent directors; (b) participate
with the Chairman of the Board and the Chief Executive Officer in the preparation of the agenda
for Board meetings; (c) serve as a member of the Executive Committee; (d) coordinate providing
timely feedback from the directors to the Chairman of the Board and Chief Executive Officer;
(e) be identified on the Company’s website and in the Company’s annual proxy statement as the
principal contact for stockholder communications with the Board; and (f) monitor on behalf of,
and discuss with, the non-management directors of the Company any stockholder communications
received by such non-management directors.
Quest Diagnostics Incorporated ?2004 Proxy Statement ?7