As filed with the Securities and Exchange Commission on March 9, 2007

Registration Number 333-140001

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

Amendment No. 2

 

to

 

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

EXPRESS SCRIPTS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

 

 

 

 

 

13900 Riverport Drive

Maryland Heights, Missouri 63043

(314) 770-1666

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

 

 

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

 

 

 

 

Copies to:

 

Lou R. Kling

Howard L. Ellin

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, New York 10036

(212) 735-3000

 

 

 

 

Approximate date of commencement of proposed sale of securities to the public: As soon as practicable after the effective date of this Registration Statement.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering  o

 

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

Offer to Exchange

 

Each Outstanding Share of Common Stock

of

CAREMARK Rx, INC.

for

$29.25 in Cash,
0.426 Shares of Express Scripts, Inc. Common Stock
(together with the associated preferred stock purchase rights)

and an additional $0.00481 in cash per day commencing on April 1, 2007 until the earlier of (A) Express Scripts’ acceptance for exchange of shares of Caremark common stock or (B) forty-five (45) days following the later of (i) expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or (ii) if applicable, termination or expiration of any agreement with the Federal Trade Commission not to accept shares of Caremark common stock for exchange

by

EXPRESS SCRIPTS, INC.

 

Express Scripts, Inc. is offering, upon the terms and subject to the conditions set forth in this prospectus/offer to exchange and in the accompanying revised blue letter of transmittal, to exchange (1) $29.25 in cash, less any applicable withholding taxes and without interest, (2) 0.426 shares of Express Scripts common stock (together with the associated preferred stock purchase rights) and (3) an additional $0.00481 in cash per day, less any applicable withholding taxes and without interest, commencing on April 1, 2007 until the earlier of (A)  Express Scripts’ acceptance for exchange of shares of Caremark common stock in the exchange offer or (B) forty-five (45) days following the later of (i) expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), or (ii) if applicable, termination or expiration of any agreement with the Federal Trade Commission (the “FTC”) not to accept shares of Caremark common stock for exchange in the offer, for each outstanding share of Caremark Rx, Inc. common stock you validly tender and do not properly withdraw before the expiration date described below. The last day the additional cash consideration will accrue on the shares of Caremark common stock will (1) in the case of clause (B), include the forty-fifth (45th) day following the date of such applicable expiration or termination and (2) in the case of clause (A), include the expiration date. The additional cash consideration is conditioned upon acceptance of shares of Caremark common stock for exchange in the offer and will be paid at the same time as the other consideration paid in the offer. In addition, you will receive cash instead of any fractional shares of Express Scripts common stock to which you may be entitled.

 

This prospectus/offer to exchange amends and supersedes information included in the prospectus/offer to exchange filed with the Securities and Exchange Commission on February 6, 2007.

THE OFFER AND THE WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, APRIL 17, 2007, OR THE “EXPIRATION DATE,” UNLESS EXTENDED. SHARES TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION OF OUR OFFER TO EXCHANGE, BUT NOT DURING ANY SUBSEQUENT OFFERING PERIOD.

Express Scripts common stock trades on the NASDAQ Global Select Market under the symbol “ESRX.” Caremark common stock trades on the New York Stock Exchange under the symbol “CMX.”

FOR A DISCUSSION OF RISKS AND OTHER FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE OFFER, PLEASE CAREFULLY READ THE SECTION OF THIS PROSPECTUS/OFFER TO EXCHANGE ENTITLED “RISK FACTORS” BEGINNING ON PAGE 17.

Express Scripts’ obligation to accept for exchange, and to exchange, shares of Caremark common stock for a combination of shares of Express Scripts common stock and cash is subject to a number of conditions which are described in the section of this prospectus/offer to exchange entitled “The Exchange Offer — Conditions of the Offer” beginning on page 52.

Express Scripts has not authorized any person to provide any information or to make any representation in connection with the offer other than the information contained or incorporated by reference in this prospectus/offer to exchange, and if any person provides any of this information or makes any representation of this kind, that information or representation must not be relied upon as having been authorized by Express Scripts.

EXPRESS SCRIPTS IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND A PROXY TO EXPRESS SCRIPTS. As described in this prospectus/offer to exchange, Express Scripts is soliciting proxies pursuant to a proxy statement filed with the Securities and Exchange Commission on January 24, 2007 and a proxy supplement dated March 9, 2007 and intends to solicit proxies through separate proxy solicitation material in connection with matters which are related to the exchange offer contained within this prospectus/offer to exchange. Any such proxy solicitation is being or will be made only pursuant to separate proxy materials complying with the requirements of the rules and regulations of the Securities and Exchange Commission.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus/offer to exchange. Any representation to the contrary is a criminal offense.

The dealer managers for the offer are:

 

The date of this prospectus/offer to exchange is March 9, 2007

 

TABLE OF CONTENTS

 

 

THIS PROSPECTUS/OFFER TO EXCHANGE INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT EXPRESS SCRIPTS AND CAREMARK FROM DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, OR THE “SEC,” THAT HAVE NOT BEEN INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS/OFFER TO EXCHANGE.

 

THIS INFORMATION IS AVAILABLE AT THE INTERNET WEBSITE THE SEC MAINTAINS AT http://www.sec.gov, AS WELL AS FROM OTHER SOURCES. PLEASE SEE THE SECTION OF THIS PROSPECTUS/OFFER TO EXCHANGE ENTITLED “WHERE YOU CAN FIND MORE INFORMATION.” YOU ALSO MAY REQUEST COPIES OF THESE DOCUMENTS FROM EXPRESS SCRIPTS, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST TO EXPRESS SCRIPTS’ INFORMATION AGENT AT ITS ADDRESS OR TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS PROSPECTUS/OFFER TO EXCHANGE. IN ORDER TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS, YOU MUST MAKE YOUR REQUEST NO LATER THAN APRIL 10, 2007, OR FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE OF THE OFFER, WHICHEVER IS LATER.

 

This offer does not constitute a solicitation of proxies for any meeting of stockholders of Caremark. Any solicitation of proxies which Express Scripts might make will be made only pursuant to separate proxy solicitation materials complying with the requirements of Section 14(a) of the Securities Exchange Act of 1934, as amended, or the “Exchange Act.” For instance, Express Scripts is soliciting proxies from Caremark stockholders against the approval of the merger agreement between Caremark and CVS (as amended) pursuant to a proxy statement filed on January 24, 2007 and intends to solicit proxies from Caremark stockholders in favor of a slate of director nominees submitted by Express Scripts. Each stockholder is urged to read any proxy statement regarding the business to be conducted at the applicable meeting, if and when it becomes available, because it will contain important information. Any such proxy statement will be filed with the SEC. Caremark stockholders will be able to obtain a free copy of any proxy statement, as well as other filings containing information about the parties (including information regarding the participants in any proxy solicitation (which may include Express Scripts’ officers and directors and other persons) and a description of their direct and indirect interests, by security holdings or otherwise), at the SEC’s web site at http://www.sec.gov. Each such proxy statement (when available) and these other documents may also be obtained for free from Express Scripts’ web site at http://www.express-scripts.com.

 

Below are some of the questions that you as a holder of shares of Caremark Rx, Inc., or “Caremark,” common stock may have regarding the exchange offer and answers to those questions. The answers to these questions do not contain all information relevant to your decision whether to tender your shares of Caremark common stock, and Express Scripts, Inc., or “Express Scripts” or “we,” urges you to read carefully the remainder of this prospectus/offer to exchange and the revised blue letter of transmittal.

 

Who is offering to buy my shares of Caremark common stock?

 

The offer is made by Express Scripts, Inc., a Delaware corporation. Express Scripts is one of the largest pharmacy benefit managers in North America and it provides a full range of pharmacy benefit management services, including retail drug card programs, home delivery pharmacy services, specialty services, drug formulary management programs and other clinical management programs for thousands of client groups that include health maintenance organizations, health insurers, third party administrators, employers, union-sponsored benefit plans and government health programs.

 

What are the classes and amounts of Caremark securities Express Scripts is offering to exchange in the offer?

 

We are seeking to acquire all issued and outstanding shares of common stock, par value $0.001 per share, of Caremark.

 

How has the offer changed?

 

Express Scripts has amended the offer to increase the per share cash payment to be paid to Caremark stockholders in the amount of an additional $0.00481 in cash per day, less any applicable withholding taxes and without interest, commencing on April 1, 2007 until the earlier of (A) Express Scripts’ acceptance for exchange of shares of Caremark common stock in the exchange offer or (B) forty-five (45) days following the later of (i) expiration of the applicable waiting period under the HSR Act, or (ii) if applicable, termination or expiration of any agreement with the FTC not to accept shares of Caremark common stock for exchange in the offer. The additional cash consideration is conditioned upon acceptance of shares of Caremark common stock for exchange pursuant to the offer and will be paid at the same time as the other consideration in the offer. Additionally, Express Scripts has extended the expiration date of the offer to 12:00 midnight on Tuesday, April 17, 2007 and has modified the conditions to the offer to clarify that Express Scripts will have the right to terminate the offer immediately if the Caremark/CVS merger agreement is adopted by Caremark stockholders or if a business combination between Caremark and CVS is consummated.

 

If I have already tendered my shares of Caremark common stock, do I need to do anything to tender into the revised offer? What happens if Express Scripts increases the consideration to be paid in this offer again?

 

If you have already tendered your shares of Caremark common stock, you do not need to do anything to tender into the revised offer. Shares of Caremark common stock validly tendered and not properly withdrawn prior to the date of this prospectus/offer to exchange will automatically be considered to have been tendered pursuant to the revised terms of the offer set forth in this prospectus/offer to exchange. All Caremark stockholders will receive the highest consideration received by stockholders whose shares are tendered and accepted for exchange in the offer. Therefore, if you have already tendered your shares, including if you did so with the original green letter of transmittal, you do not have to take any action to be entitled to receive the offer consideration described in this prospectus/offer to exchange if your shares are accepted for exchange and exchanged pursuant to the offer.

 

What will I receive for my shares of Caremark common stock?

 

Express Scripts is offering, upon the terms and subject to the conditions set forth in this prospectus/offer to exchange and in the accompanying revised blue letter of transmittal, to exchange (1) $29.25 in cash, less any applicable withholding taxes and without interest, (2) 0.426 shares of Express Scripts common stock (together with the associated preferred stock purchase rights) and (3) an additional $0.00481 in cash per day, less any applicable

withholding taxes and without interest, commencing on April 1, 2007 until the earlier of (A) Express Scripts’ acceptance for exchange of shares of Caremark common stock in the exchange offer or (B) forty-five (45) days following the later of (i) expiration of the applicable waiting period under the HSR Act, or (ii) if applicable, termination or expiration of any agreement with the FTC not to accept shares of Caremark common stock for exchange in the offer, for each outstanding share of Caremark common stock you validly tender and do not properly withdraw before the expiration date. The last day the additional cash consideration will accrue on the shares of Caremark common stock will (1) in the case of clause (B), include the forty-fifth (45th) day following the date of such applicable expiration or termination and (2) in the case of clause (A), include the expiration date. The additional cash consideration is conditioned upon acceptance of shares of Caremark common stock for exchange in the offer and will be paid at the same time as the other consideration paid in the offer. Because no fractional shares of Express Scripts common stock will be issued, to the extent that you would be entitled to receive fractional shares, you will receive cash in an amount equal to such fraction (expressed as a decimal and rounded to the nearest 0.01 of a share) multiplied by the closing price of Express Scripts common stock on the expiration date.

 

Solely for purposes of illustration, the following table sets forth the implied value of each share of Caremark common stock in the offer at different, assumed market prices of Express Scripts common stock and different exchange dates:

 

 

The market prices of Express Scripts common stock used in the above table are for purposes of illustration only. The price of Express Scripts common stock fluctuates and may be higher or lower than in these examples at the time shares of Caremark common stock are exchanged pursuant to this offer. On March 8, 2007, the closing price of a share of Express Scripts common stock was $76.00. Stockholders are encouraged to obtain current market quotations for shares of Caremark and Express Scripts common stock prior to making any decision with respect to the offer.

 

Please also see the section of this prospectus/offer to exchange entitled “Risk Factors” for, among other things, the effect of fluctuations in the market price of Express Scripts common stock.

 

Will I have to pay any fee or commission to exchange shares of Caremark common stock?

 

If you are the record owner of your shares and you tender your shares in the offer, you will not have to pay any brokerage fees, commissions or similar expenses. If you own your shares through a broker, dealer, commercial bank, trust company or other nominee and your broker, dealer, commercial bank, trust company or other nominee tenders your shares on your behalf, your broker or such other nominee may charge a fee for doing so. You should consult your broker, dealer, commercial bank, trust company or other nominee to determine whether any charges will apply.

 

Why is Express Scripts making this offer?

 

We believe that the combination of Express Scripts’ and Caremark’s businesses will create superior value for both Express Scripts’ and Caremark’s current stockholders, as well as for plan sponsors and patients. In addition, by tendering your shares in our offer, you will also be demonstrating that you recognize the superior value of our offer over CVS Corporation’s proposed acquisition of Caremark at little or no premium pursuant to its November 1, 2006 merger agreement with Caremark (which Caremark and CVS amended on January 16, 2007 pursuant to a Waiver Agreement that was subsequently amended on February 12, 2007 and March 8, 2007), which we refer to as the

“Caremark/CVS merger agreement.” Please see the section of this prospectus/offer to exchange entitled “Background and Reasons for the Offer — Reasons for the Offer.”

 

The purpose of our offer is for Express Scripts to acquire control of, and ultimately the entire equity interest in, Caremark. Our offer is the first step in our plan to acquire all the outstanding shares of Caremark common stock. We intend to, promptly after completion of the offer, seek to consummate a merger of Caremark into a wholly-owned subsidiary of Express Scripts. Under certain circumstances described in the section of this prospectus/offer to exchange entitled “The Exchange Offer,” Express Scripts may reverse the direction of the second-step merger and elect to consummate a merger of one of our wholly-owned subsidiaries with and into Caremark, followed by merger of Caremark into Express Scripts or a wholly-owned limited liability company subsidiary of Express Scripts (we sometimes refer to this merger in this prospectus/offer to exchange as the “second-step merger”). The purpose of this second-step merger is for Express Scripts to acquire all outstanding shares of Caremark common stock that were not acquired in the offer. In this second-step merger, each remaining share of Caremark common stock (other than shares held in treasury by Caremark or shares already owned by Express Scripts (or their respective wholly-owned subsidiaries) and other than shares held by Caremark stockholders who properly exercise applicable dissenter’s rights under Delaware law, if available) will be converted into the right to receive the same number of shares of Express Scripts common stock and the same amount of cash as are received by Caremark stockholders pursuant to the offer. After this second-step merger, former Caremark stockholders will no longer have any ownership interest in Caremark and will become stockholders of Express Scripts. Please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Plans for Caremark.”

 

Why is Express Scripts’ offer better than the proposed transaction between Caremark and CVS?

 

Our offer represents a far superior proposal to the proposed transaction between Caremark and CVS. The advantages of an Express Scripts-Caremark combination are compelling, and we believe a combination of our two companies creates superior value for our respective stockholders, plan sponsors and patients. Since the announcement of our proposal on December 18, 2006, Caremark stockholders and the marketplace have expressed their strong support for our offer, which clearly provides Caremark stockholders with superior value to the proposed transaction between Caremark and CVS.

 

In particular, we believe that our combined cash and stock offer is far superior to the proposed CVS merger because, among other reasons:

 

 

 

 

Have you discussed this exchange offer with the board of Caremark?

 

No, we have not, and Caremark’s board of directors announced on January 7, 2007 that it could not, under the terms and conditions of the Caremark/CVS merger agreement, discuss our December 18, 2006 proposal to it with us based upon the board’s determination that our proposal would not constitute, and is not reasonably likely to lead to, a “superior proposal” within the meaning of the Caremark/CVS merger agreement. Additionally, Caremark disclosed in a Form 8-K on January 8, 2007 that its board of directors “cannot envision any scenario where it would be willing to trigger the imposition of a $675 million break up fee [under the Caremark/CVS merger agreement] without having a competing party obligated to fund that payment.” Because Caremark’s board has determined that it will not speak to us, we have made this exchange offer without discussing it with Caremark. On January 24, 2007, Caremark filed a Solicitation/Recommendation Statement on Schedule 14D-9 reporting that Caremark’s board had met on January 24, 2007 and determined to unanimously recommend that Caremark stockholders reject our exchange offer and not tender their shares of Caremark common stock to us. We have repeatedly requested that the Caremark board meet with us. See the section of this prospectus/offer to exchange entitled “Background and Reasons for the Offer. ”

 

Will I be taxed on the Express Scripts common stock and cash I receive?

 

The offer and the second-step merger are intended to qualify as component parts of an integrated transaction that qualifies as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the “Internal Revenue Code,” provided that certain factual assumptions are correct and certain other conditions are satisfied. If the integrated transaction does not qualify as a reorganization, your exchange of shares of Caremark common stock for the Express Scripts common stock portion of the consideration in the offer or the second-step merger could be a taxable transaction, depending on the surrounding facts. If the integrated transaction qualifies as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, the cash consideration you receive (including any cash received as additional cash accruing on a daily basis as provided herein) will be taxed to you as either a capital gain or a dividend in an amount equal to the lesser of (i) the excess of the fair market value of the consideration you receive in the transaction over your basis in your shares or (ii) the amount of cash you receive in the transaction, including any cash you receive in lieu of a fractional share, depending on your circumstances. If the offer does not constitute part of an integrated transaction that qualifies as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, the consideration you receive will be taxed to you as either a capital gain or a capital loss to the extent of the difference between your adjusted tax basis in your shares and the fair market value of the consideration you receive. For more information, please see the section of this prospectus/offer to exchange under the caption “The Exchange Offer — Material Federal Income Tax Consequences.”

 

Express Scripts urges you to contact your own tax advisor to determine the particular tax consequences to you as a result of the offer and/or the second-step merger.

 

Will you increase the consideration being offered in the offer?

 

Express Scripts is under no obligation to increase the amount of consideration it is offering for shares of Caremark common stock and does not currently intend to do so. In the event that Express Scripts were to choose to increase the consideration, Express Scripts would extend the offer, if required, in compliance with applicable U.S. securities laws. If Express Scripts increases the consideration, all Caremark stockholders will receive the highest consideration received by stockholders whose shares are tendered and accepted for exchange in the offer.

 

What are the conditions of the offer?

 

Our offer is conditioned upon, among other things, the following:

 

 

 

 

 

 

Additionally, the offer is conditioned on the Caremark/CVS merger agreement not being adopted by Caremark stockholders and there shall have been no business combination consummated between Caremark and CVS. The offer is also subject to a number of additional conditions referred to below in the section entitled “The Exchange Offer — Conditions of the Offer.”

 

How long will it take to complete your proposed transaction?

 

We believe that we will be able to complete our offer no later than the third quarter of 2007. However, our ability to consummate the offer could be adversely affected if Caremark’s board continues to not support, or actively opposes, our offer. We believe that Caremark’s board has a fiduciary duty to recommend our offer to stockholders and to facilitate its consummation.

 

What actions do you propose to take with respect to the proposed CVS merger?

 

Express Scripts filed a definitive proxy statement on January 24, 2007 to solicit proxies from Caremark stockholders (and has commenced distribution of proxy materials and proxy cards to Caremark stockholders) to vote against the adoption of the Caremark/CVS merger agreement and against the approval of the merger contemplated by that agreement.

 

This offer does not constitute a solicitation of proxies in connection with such matter and such solicitation is being made only pursuant to separate proxy materials (including the above-referenced proxy statement) complying with the requirements of the rules and regulations of the SEC.

 

Do you intend to replace Caremark’s board of directors?

 

In addition to soliciting proxies against the proposed CVS merger, Express Scripts submitted a notice letter to Caremark on January 8, 2007, nominating four persons to be considered for election to the board of directors of Caremark at Caremark’s 2007 annual meeting of stockholders, which Express Scripts expects, based on Caremark’s practice, to be held in May 2007. We are proposing to nominate and elect these individuals to the Caremark board in order to facilitate the consideration and approval by the Caremark board of our offer which we believe is clearly in the best interests of Caremark stockholders. Caremark’s board of directors currently consists of eleven directors, divided into three separate classes which are elected in staggered three year terms. Only one class of directors is elected per year. As a result, if Express Scripts’ nominees are elected to Caremark’s board of directors, they will still not constitute a majority of Caremark’s board of directors, absent the resignation or removal for cause of Caremark’s other directors. If necessary, Express Scripts intends to nominate additional persons to be considered for election to Caremark’s board of directors at Caremark’s 2008 annual meeting of stockholders and to ultimately replace a majority of the directors of Caremark with its own nominees. According to Caremark’s public filings, in the event that the proposed CVS merger is approved by Caremark stockholders prior to the 2007 annual meeting of stockholders, no annual meeting will be held in 2007. However, we are confident that stockholders will reject the proposed CVS merger and, consequently, there will be a 2007 annual meeting of Caremark stockholders.

 

Express Scripts intends to solicit proxies from Caremark stockholders (and, when permitted, to distribute definitive proxy materials and proxy cards to Caremark stockholders) to vote in favor of the election of such nominees at Caremark’s 2007 annual meeting of stockholders. This offer does not constitute a solicitation of proxies in connection with such matter. Any such solicitation will be made only pursuant to separate proxy materials complying with the requirements of the rules and regulations of the SEC.

 

Do I need to grant proxies to Express Scripts in connection with these proxy solicitations if I wish to accept the offer? Do I have to vote against the proposed CVS merger?

 

No. Your ability to tender your shares of Caremark common stock in the offer is not conditioned on Caremark stockholders granting proxies to Express Scripts in connection with the proxy solicitations discussed above. However, a tendering stockholder will irrevocably appoint designees of Express Scripts as such stockholder’s agents, attorneys-in-fact and proxies, effective as of and only to the extent that Express Scripts accepts such tendered shares for exchange.

 

You may validly tender your shares of Caremark common stock in the offer, regardless of whether or how you vote on the proposed CVS merger. However, assuming a quorum is present at the special meeting, a sufficient number of Caremark stockholders MUST either vote “AGAINST” the proposed CVS merger or abstain from voting in order to ensure that the proposed CVS merger will not be approved. This will guarantee that the proposed CVS merger will not go forward, which is one of the conditions to the offer. We do not intend to waive this condition.

 

Similarly, stockholders would not be required to vote for our nominees to Caremark’s board in order to accept our offer. However, as of the date of this prospectus/offer to exchange, Caremark’s board of directors has not been willing to meet or negotiate with us and there is no guaranty that its position will change in the future unless the current members of Caremark’s board of directors are replaced.

 

Do I have to vote to approve the offer or the second-step merger?

 

No. Your vote is not required. You simply need to tender your shares if you choose to do so. However, the offer can only be completed if Express Scripts (or a wholly-owned subsidiary of Express Scripts) acquires a majority of the outstanding shares on a fully-diluted basis in the offer or otherwise.

 

If we accept shares for exchange but do not acquire at least 90% of the outstanding common stock of Caremark in the offer or otherwise, then both board approval and Caremark stockholder approval will be required to effect the second-step merger. If this is the case, Caremark stockholders will receive proxy materials at the appropriate time. If

Express Scripts owned more than a majority of Caremark common stock at such time, it would have the voting power to approve the second-step merger without the vote of any other stockholder. We are not asking for your vote at this time.

 

However, if Express Scripts owns 90% or more of the outstanding common stock of Caremark after the offer is completed, under Delaware law the approval and adoption of the second-step merger can be accomplished without the consent of any stockholder (other than Express Scripts) and without the approval of Caremark’s board of directors.

 

Is Express Scripts’ financial condition relevant to my decision to tender shares of Caremark common stock in the offer?

 

Yes. Express Scripts’ financial condition is relevant to your decision to tender your shares of Caremark common stock because part of the consideration you will receive if your shares of Caremark common stock are exchanged in the offer will consist of shares of Express Scripts common stock. You should therefore consider Express Scripts’ financial condition before you decide to become one of Express Scripts’ stockholders through the offer. You also should consider the likely effect that Express Scripts’ acquisition of Caremark will have on Express Scripts’ financial condition. This prospectus/offer to exchange contains financial information regarding Express Scripts and Caremark, as well as pro forma financial information (which does not reflect any of our expected synergies) for the proposed combination of Express Scripts and Caremark, all of which we encourage you to review.

 

In addition, Express Scripts’ financial condition is relevant because the offer is contingent upon Express Scripts having received proceeds under the financing commitments described in this prospectus/offer to exchange. For additional details on the proposed financing, please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Source and Amount of Funds.”

 

Does Express Scripts have the financial resources to complete the offer and the second-step merger?

 

Yes. Express Scripts has received a commitment letter from Credit Suisse Securities (USA) LLC, Credit Suisse, Cayman Islands Branch, Citigroup Global Markets Inc. and Citicorp North America, Inc. to provide, subject to certain conditions, senior bank financing of up to $15.0 billion under a proposed new credit facility, of which a maximum of $12.55 billion will be available for financing the cash portion of the consideration to be paid for each share of Caremark common stock, as well as for other payments made in connection with the offer. The offer is contingent on Express Scripts having received proceeds from the commitments that, together with Express Scripts’ cash on hand, are sufficient to complete the offer and having remaining commitments sufficient to fund the second-step merger and to pay fees, expenses and other related amounts. For additional details on the proposed financing, including the conditions thereto, please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Source and Amount of Funds.”

 

What percentage of Express Scripts common stock will former holders of Caremark common stock own after the offer?

 

Express Scripts estimates that if all shares of Caremark common stock are exchanged pursuant to the offer and the second-step merger, former Caremark stockholders would own, in the aggregate, approximately 57% of the outstanding shares of Express Scripts common stock, representing approximately 57% of the aggregate voting power of all Express Scripts common stock. For a detailed discussion of the assumptions on which this estimate is based, please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Ownership of Express Scripts After the Offer.”

 

When does your offer expire? Can the offer be extended and, if so, under what circumstances?

 

The offer has been amended and is now scheduled to expire at 12:00 midnight, New York City time, on Tuesday, April 17, 2007, which is the expiration date, unless further extended by Express Scripts. For more information, please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Extension, Termination and Amendment.”

 

Express Scripts may, in its sole discretion, extend the offer at any time or from time to time. For instance, the offer may be extended if any of the conditions specified in “The Exchange Offer — Conditions of the Offer” are not satisfied prior to the scheduled expiration date of the offer. Express Scripts may also elect to provide a “subsequent offering period” for the offer. A subsequent offering period would not be an extension of the offer. Rather, a subsequent offering period would be an additional period of time, beginning after Express Scripts has accepted for exchange all shares tendered during the offer, during which stockholders who did not tender their shares in the offer may tender their shares and receive the same consideration provided in the offer.

 

Our offer is conditioned upon, among other things, the approval by our stockholders of the issuance of Express Scripts common stock in our offer and the second-step merger and the expiration or termination of any applicable waiting period under the HSR Act. Additionally, we have not commenced the process of obtaining the approval of our stockholders by filing a preliminary proxy statement with the SEC, and therefore we do not expect to be in a position to obtain the requisite approval of our stockholders prior to the current expiration date of the offer. Accordingly, we currently intend to extend the expiration date of our offer beyond April 17, 2007. However, any decision to extend the offer, including for how long, will be made at such time. The expiration date may also be subject to multiple extensions. Any decision to extend the offer will be made public by an announcement regarding such extension as described under “The Exchange Offer — Extension, Termination and Amendment.”

 

How do I tender my shares?

 

To tender shares into the offer, you must deliver the certificates representing your shares, together with a completed revised blue letter of transmittal and any other documents required by the revised blue letter of transmittal, to National City Bank, the exchange agent for the offer, not later than the time the offer expires. The revised blue letter of transmittal is enclosed with this prospectus/offer to exchange. If your shares are held in street name (i.e., through a broker, dealer, commercial bank, trust company or other nominee), your shares can be tendered by your nominee by book-entry transfer through The Depository Trust Company.

 

If you are unable to deliver any required document or instrument to the exchange agent by the expiration of the offer, you may gain some extra time by having a broker, a bank or other fiduciary that is an eligible guarantor institution guarantee that the missing items will be received by the exchange agent by using the enclosed revised pink notice of guaranteed delivery. For the tender to be valid, however, the exchange agent must receive the missing items within three New York Stock Exchange, Inc. trading days after the date of execution of such revised pink notice of guaranteed delivery. If you cannot deliver all necessary documents to the exchange agent in time, you may be able to complete and deliver to the exchange agent, in lieu of the missing documents, the enclosed revised pink notice of guaranteed delivery, provided you are able to comply fully with its terms. In all cases, an exchange of tendered shares will be made only after timely receipt by the exchange agent of certificates for such shares (or a confirmation of a book-entry transfer of such shares) and a properly completed and duly executed revised blue letter of transmittal and any other required documents for such shares.

 

Tendering stockholders may continue to use the original green letter of transmittal and the original yellow notice of guaranteed delivery previously circulated with the prospectus/offer to exchange dated January 16, 2007, or they may use the revised blue letter of transmittal and the revised pink notice of guaranteed delivery circulated with this prospectus/offer to exchange. Stockholders using the original green letter of transmittal to tender their shares will nevertheless be deemed to be tendering pursuant to the terms and conditions contained in this prospectus/offer to exchange and the enclosed revised blue letter of transmittal and will receive (1) $29.25 in cash, less any applicable withholding taxes and without interest, (2) 0.426 shares of Express Scripts common stock (together with the associated preferred stock purchase rights) and (3) an additional $0.00481 in cash per day, less any applicable withholding taxes and without interest, commencing on April 1, 2007 until the earlier of (A) Express Scripts’ acceptance for exchange of shares of Caremark common stock in the exchange offer or (B) forty-five (45) days following the later of (i) expiration of the applicable waiting period under the HSR Act, or (ii) if applicable, termination or expiration of any agreement with the FTC not to accept shares of Caremark common stock for exchange in the offer, for each outstanding share of Caremark common stock validly tendered and not properly withdrawn before the expiration date if shares are accepted for exchange and exchanged by Express Scripts pursuant to this prospectus/offer to exchange. The last day the additional cash consideration will accrue on the

shares of Caremark common stock will (1) in the case of clause (B), include the forty-fifth (45th) day following the date of such applicable expiration or termination and (2) in the case of clause (A), include the expiration date. The additional cash consideration is conditioned upon acceptance of shares of Caremark common stock for exchange in the offer and will be paid at the same time as the other consideration paid in the offer.

 

For a complete discussion on the procedures for tendering your shares, please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Procedure for Tendering.”

 

Until what time can I withdraw tendered shares?

 

You may withdraw previously tendered shares at any time prior to the expiration of the offer, and, unless Express Scripts has accepted the shares for exchange pursuant to the offer, you may also withdraw any tendered shares at any time. Shares of Caremark common stock tendered during the subsequent offering period, if any, may not be withdrawn. For a complete discussion on the procedures for withdrawing your shares, please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Withdrawal Rights.”

 

How do I withdraw previously tendered shares?

 

To withdraw previously tendered shares, you must deliver a written or facsimile notice of withdrawal with the required information to the exchange agent while you still have the right to withdraw. If you tendered shares by giving instructions to a broker, dealer, commercial bank, trust company or other nominee, you must instruct the broker, dealer, commercial bank, trust company or other nominee to arrange for the withdrawal of your shares. For a complete discussion on the procedures for withdrawing your shares, please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Withdrawal Rights.”

 

When and how will I receive the offer consideration in exchange for my tendered shares?

 

Express Scripts will exchange all validly tendered and not properly withdrawn shares promptly after the expiration date of the offer, subject to the terms thereof and the satisfaction or waiver of the conditions to the offer, as set forth in the section of this prospectus/offer to exchange entitled “The Exchange Offer — Conditions of the Offer.” Express Scripts will deliver the consideration for your validly tendered and not properly withdrawn shares of Caremark common stock by depositing the cash and stock consideration therefore with the exchange agent, which will act as your agent for the purpose of receiving the offer consideration from Express Scripts and transmitting such consideration to you. In all cases, an exchange of tendered shares of Caremark common stock will be made only after timely receipt by the exchange agent of certificates for such shares (or a confirmation of a book-entry transfer of such shares as described in the section of this prospectus/offer to exchange entitled “The Exchange Offer — Procedure for Tendering”) and a properly completed and duly executed original green letter of transmittal or revised blue letter of transmittal and any other required documents for such shares.

 

If a majority of shares are tendered and are accepted for exchange and exchanged, will Caremark continue as a public company?

 

If the second-step merger occurs, Caremark will become a wholly-owned subsidiary of Express Scripts and will no longer be publicly owned. Even if the second-step merger does not occur, if Express Scripts exchanges all shares of Caremark common stock which have been tendered, there may be so few remaining stockholders and publicly held shares that such shares will no longer be eligible to be traded through the New York Stock Exchange or any other securities market, there may not be a public trading market for such shares, and Caremark may cease making filings with the SEC or otherwise cease being required to comply with applicable law and SEC rules relating to publicly held companies. However, assuming the number of remaining shares of common stock is not less than 10% of the number of stockholders prior to our acceptance for exchange of shares of Caremark common stock and such shares are widely dispersed, we do not believe that the results described in the previous sentence are likely to occur. Please see the sections of this prospectus/offer to exchange entitled “The Exchange Offer — Plans for Caremark” and “The Exchange Offer — Effect of the Offer on the Market for Shares of Caremark Common Stock; New York Stock Exchange Listing; Registration Under the Exchange Act; Margin Regulations.”

 

Are dissenters’ rights available in either the offer or the second-step merger?

 

No dissenters’ or appraisal rights are available in connection with the offer. However, upon consummation of the second-step merger, Caremark stockholders who have not tendered their shares of Caremark common stock in the offer and who, if a stockholder vote is required, vote against approval of the second-step merger will have rights under Delaware law to dissent from the second-step merger and demand appraisal, and to receive payment in cash of the fair value, of their shares of Caremark common stock. Stockholders at the time of a “short form” merger under Delaware law would also be entitled to exercise dissenters’ rights pursuant to such a “short form” merger. Stockholders who perfect dissenters’ rights by complying with the procedures set forth in Section 262 of the DGCL will be entitled to receive a cash payment equal to the “fair value” of their shares of Caremark common stock, as determined by a Delaware court. Please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Appraisal/Dissenters’ Rights.”

 

What is the market value of my shares of Caremark common stock as of a recent date?

 

On December 15, 2006, the last full trading day before Express Scripts made its offer for Caremark public, the closing price of a share of Caremark common stock was $50.30. On March 8, 2007, the closing price of a share of Caremark common stock was $62.16 Caremark stockholders are encouraged to obtain a recent quotation for shares of Caremark common stock before deciding whether or not to tender such shares.

 

Why does the cover page to this prospectus/offer to exchange state that this offer is subject to change and that the registration statement filed with the SEC is not yet effective? Does this mean that the offer has not commenced?

 

No. Completion of this preliminary prospectus/offer to exchange and effectiveness of the registration statement are not necessary for the offer to commence. We cannot, however, accept for exchange any shares tendered in the offer or exchange any shares of Caremark common stock until the registration statement is declared effective by the SEC and the other conditions to our offer have been satisfied or waived.

 

Where can I find more information on Express Scripts and Caremark?

 

You can find more information about Express Scripts and Caremark from various sources described in the section of this prospectus/offer to exchange entitled “Where You Can Find More Information.”

 

Whom can I talk to if I have questions about the offer?

 

You can call the information agent or the dealer managers for the offer.

 

The information agent for the offer is:

 

105 Madison Avenue
New York, NY 10016
E-mail: expressscripts@mackenziepartners.com
Toll Free: (800) 322-2885
Collect: (212) 929-5500

 

The dealer managers for the offer are:

 

 

SUMMARY OF THE OFFER

 

 

 

	•	Highly Complementary Businesses:  As a combined company, Express Scripts and Caremark will continue to offer the high-quality service that plan sponsors and patients have come to expect. The combined company will be a recognized leader in generic utilization and other drug cost management programs. It will benefit from the unique growth opportunities in the industry, as well as from broader and more comprehensive specialty management capabilities.
	•	Scale Provides Efficiencies:  Express Scripts believes the combined business of Express Scripts and Caremark can be operated more efficiently than either company on its own. We believe that net pre-tax operating synergies of approximately $500 million can be achieved from improved purchasing scale and operating efficiencies:

	•	Express Scripts estimates that 70% – 80% of these net synergies will be derived from improved purchasing scale. Specifically, these savings will be derived from lower retail and home delivery drug costs, lower specialty pharmacy drug costs, and increased manufacturing discounts.
	•	The remaining 20% – 30% of these net synergies are expected to be derived from improved operating efficiencies. These savings include eliminating duplicative facilities and/or functions resulting in lower direct processing costs and general support and administrative costs. We also expect the elimination of certain duplicative fees and expenses such as SEC reporting, auditing, and other public company costs that Caremark currently absorbs.

	•	Strong Financial Profile:  The combined company will have a strong financial profile driven by consistent and increasing cash flow. Before synergies, the two companies generated 2006 EBITDA of approximately $2.8 billion. In addition, Express Scripts expects that the transaction will be neutral to GAAP earnings per share in the first full year following consummation, and significantly accretive thereafter. Excluding transaction-related amortization, the combination of Express Scripts and Caremark will be significantly accretive to earnings per share beginning the first full year following consummation.

 

 

 

		Assumed
		Value of
		0.426				Cash
		Shares of				Consideration				Implied Value per Share of Caremark
		Express				per Share of				Common Stock in the Offer
		Scripts				Caremark				April 30,				June 30,				August 31,
		Common				Common				2007				2007				2007
		Stock				Stock				exchange				exchange				exchange
December 15, 2006		$	29.25			$	29.25			$	58.64			$	58.94			$	59.24
March 8, 2007		$	32.38			$	29.25			$	61.77			$	62.06			$	62.36

 

 

 

 

 

 

Listing of Express Scripts Common Stock to be Issued Pursuant to the Offer and the Second-Step Merger (See page 51)

 

	•	Caremark stockholders shall have validly tendered and not withdrawn prior to the expiration of the offer at least that number of shares of Caremark common stock that, when added to the shares of Caremark common stock then owned by Express Scripts or any of its subsidiaries, shall constitute a majority of the then outstanding shares of Caremark common stock on a fully-diluted basis.

	•	The Caremark/CVS merger agreement shall have been validly terminated on terms reasonably satisfactory to Express Scripts, and Express Scripts reasonably believing that Caremark could not have any liability, and CVS not having asserted any claim of liability or breach against Caremark, in connection with the Caremark/CVS merger agreement other than with respect to the possible payment of the termination fee required thereby.

	•	The board of directors of Caremark shall have approved the offer and the second-step merger described herein or any other business combination satisfactory to Express Scripts between Caremark and Express Scripts (and/or any of Express Scripts’ subsidiaries) pursuant to the requirements of Section 203 of the DGCL or Express Scripts shall be satisfied that Section 203 does not apply to or otherwise restrict the offer, the second-step merger described herein or any such business combination.

	•	Any applicable waiting period under the HSR Act, and, if applicable, any agreement with the FTC not to accept shares of Caremark common stock for exchange in the offer, shall have expired or shall have been terminated prior to the expiration of the offer.

	•	The registration statement of which this prospectus/offer to exchange is a part shall have become effective under the Securities Act, no stop order suspending the effectiveness of the registration statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC and Express Scripts shall have received all necessary state securities law or “blue sky” authorizations.
	•	The stockholders of Express Scripts shall have approved the issuance of shares of Express Scripts common stock pursuant to the offer and the second-step merger as required under the rules of the NASDAQ Global Select Market, and such shares shall have been authorized for listing on the NASDAQ Global Select Market, subject to official notice of issuance.
	•	Express Scripts shall have received proceeds under the facilities contemplated by its commitments from Credit Suisse Securities (USA) LLC, Credit Suisse, Cayman Islands Branch, Citigroup Global Markets Inc. and Citicorp North America, Inc. that, together with Express Scripts’ cash on hand, are sufficient to permit Express Scripts to complete the transactions contemplated by the offer and shall have remaining commitments sufficient to fund the second-step merger and to pay fees, expenses and other related amounts.
	•	Express Scripts shall have completed to its satisfaction confirmatory due diligence of Caremark’s non-public information on Caremark’s business, assets and liabilities and shall have concluded, in its reasonable judgment, that there are no material adverse facts or developments concerning or affecting Caremark’s business, assets and liabilities that have not been publicly disclosed prior to the commencement of the offer.

	•	Caremark stockholders shall have not adopted the Caremark/CVS merger agreement and there shall have been no business combination consummated between Caremark and CVS.

 

 

 

	•	to extend, for any reason, the period of time during which the offer is open;
	•	to delay acceptance for exchange of, or exchange of, any shares of Caremark common stock in order to comply in whole or in part with applicable law;

	•	to amend or terminate the offer without accepting for exchange, or exchanging, any shares of Caremark common stock if any of the individually subheaded conditions referred to in the section of this prospectus/offer to exchange entitled “The Exchange Offer — Conditions of the Offer” have not been satisfied or if any event specified in the section of this prospectus/offer to exchange entitled “The Exchange Offer — Conditions of the Offer” under the subheading “Other Conditions” has occurred; and

	•	to amend the offer or waive any conditions;

 

Procedure for Tendering Shares (See page 40)

 

Withdrawal Rights (See page 43)

 

 

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA FOR EXPRESS SCRIPTS

		Year Ended December 31,
		2006				2005(1)				2004(2)				2003				2002(3)
		(In millions, except per share amounts)
Statement of Operations Data:
Revenues(4)		$	17,660			$	16,212			$	15,115			$	13,295			$	12,271
Cost of Revenues(4)			16,163				15,013				14,171				12,428				11,447
Gross Profit			1,497				1,199				944				867				824
Selling, general and administrative			673				556				451				417				452
Operating Income			824				643				493				450				372
Other expense, net			(84	)			(28	)			(43	)			(44	)			(44	)
Income before income taxes			740				615				450				406				328
Provision for income taxes			266				215				172				155				125
Income before cumulative effective of accounting change			474				400				278				251				203
Cumulative effective of accounting change, net of tax			—				—				—				(1	)			—
Net income		$	474			$	400			$	278			$	250			$	203
Net Earnings Per Share:(5)
Basic		$	3.39			$	2.72			$	1.82			$	1.60			$	1.30
Diluted		$	3.34			$	2.68			$	1.79			$	1.58			$	1.27
Balance Sheet Data:
Cash and cash equivalents		$	131			$	478			$	166			$	396			$	191
Working capital			(657	)			(137	)			(371	)			(66	)			(150	)
Total current assets			1,772				2,257				1,443				1,560				1,394
Non-current assets			3,336				3,236				2,157				1,849				1,813
Total assets			5,108				5,493				3,600				3,409				3,207
Short-term debt			180				110				22				—				3
Total current liabilities			2,429				2,394				1,814				1,626				1,544
Long-term debt			1,270				1,401				412				455				563
Total non-current liabilities			1,553				1,634				591				589				660
Stockholders’ equity			1,126				1,465				1,196				1,194				1,003

		Year Ended December 31,
		2006				2005(1)				2004(2)				2003				2002(3)
		(In millions, except per share amounts)
Selected Data:
Network pharmacy claims processed			390				437				399				379				355
Home delivery prescriptions filled			41				40				38				32				27
SAAS prescriptions filled			6				5				4				4				3
Cash flows provided by operating activities		$	659			$	793			$	496			$	458			$	426
Cash flows used in investing activities			(101	)			(1,369	)			(397	)			(43	)			(549	)
Cash flows (used in) provided by financing activities			(905	)			887				(330	)			(212	)			136

(1)		Includes the acquisition of Priority Healthcare Corporation, Inc. effective October 14, 2005.
(2)		Includes the acquisition of CuraScript, Inc. effective January 30, 2004.
(3)		Includes the acquisition of Phoenix Marketing Group effective February 25, 2002, National Prescription Administrators and certain related entities effective April 12, 2002 and Managed Pharmacy Benefits, Inc. effective December 20, 2002.

(4)		Excludes estimated retail pharmacy copayments of $4.2 billion, $5.8 billion, $5.5 billion, $5.3 billion and $4.4 billion for the years ended December 31, 2006, 2005, 2004, 2003 and 2002, respectively. These are amounts we instructed retail pharmacies to collect from members. We have no information regarding actual copayments collected.

(5)		Earnings per share has been restated to reflect the two-for-one stock split effective June 24, 2005.

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA FOR CAREMARK

		Year Ended December 31,
		2006				2005				2004(3)				2003				2002(1)
		(In millions, except per share amounts)
Operations Data:
Net revenues(4)		$	36,750			$	32,991			$	25,801			$	9,067			$	6,805
Income from continuing operations			1,074				932				600				291				829
Loss from discontinued operations			—				—				—				—				(38	)
Net earnings		$	1,074			$	932			$	600			$	291			$	791
Per Share Data:
Income from continuing operations
Basic		$	2.50			$	2.09			$	1.46			$	1.13			$	3.50
Diluted			2.46				2.05				1.43				1.10				3.15
Net earnings
Basic		$	2.50			$	2.09			$	1.46			$	1.13			$	3.34
Diluted			2.46				2.05				1.43				1.10				3.01
Per share cash dividends		$	0.30			$	—			$	—			$	—			$	—
Balance Sheet Data:
Current assets		$	4,122			$	4,645			$	4,220			$	1,947			$	1,226
Non-current assets			8,110				8,206				8,090				527				687
Total assets			12,232				12,851				12,310				2,474				1,913
Current liabilities			3,993				3,712				3,764				1,064				877
Long-term obligations (net of current portion)(2)			—				387				450				693				696
Total non-current liabilities			559				958				1,006				769				778
Total stockholders’ equity			7,680				8,181				7,540				641				258

(1)		The 2002 period includes amounts related to adjustments to the deferred income tax asset valuation allowance. This adjustment resulted in the recognition of: (i) a $520 million deferred tax benefit included in income from continuing operations and related statement of operations and per common share line items, (ii) a $615 million deferred tax asset included in total assets, and (iii) a direct increase to stockholders’ equity of approximately $70 million.
(2)		The December 31, 2005 long-term debt (net of current portion) reflects the classification of $387 million of 7.375% senior notes due 2006 as long-term debt due to Caremark’s intent and ability to refinance this amount on a long-term basis at the time of filing its Annual Report on Form 10-K. The amount classified as long-term debt (net of current portion) was limited to Caremark’s availability under its revolving credit facility, and the remaining $63 million of its 7.375% senior notes were classified as a current liability. Caremark ultimately did not refinance these notes and repaid them using cash on hand when they matured in October 2006. The December 31, 2004 long-term debt (net of current portion) amount excludes Caremark’s $147 million term loan which was repaid on February 18, 2005, and the repurchase of remaining senior notes of a recently acquired business at 104.25% of face value on April 1, 2005.

(3)		Caremark acquired AdvancePCS on March 24, 2004. The Statement of Operations data includes the results of operations of AdvancePCS beginning on March 24, 2004. The Statement of Operations, Per Common Share and Balance Sheet data were significantly impacted by the AdvancePCS acquisition.

(4)		Revenues for Caremark include retail copayments of $5.8 billion, $5.5 billion, $4.6 billion, $1.2 billion and $0.9 billion for the years ended December 31, 2006, 2005, 2004, 2003 and 2002, respectively. Such copayments are excluded from revenues for Express Scripts in the periods presented.

 

SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

		Unaudited Pro Forma Combined
		December 31, 2006
		(In millions, except per share amounts)
Statement of Operations Data:
Net revenues		$	48,610
Net income			848	(1)
Average number of common shares outstanding — basic			323
Average number of common shares outstanding — diluted			327
Earnings per common share:
Basic		$	2.63
Diluted			2.59
Balance Sheet Data:
Cash and cash equivalents			804
Total current assets			5,763
Non-current assets			32,215
Total assets			37,978
Current liabilities			7,772
Long-term debt			13,258	(1)
Total non-current liabilities			15,218
Total stockholder’s equity			14,988
Per share cash dividends			—

	(1)	As disclosed in the Notes to the Unaudited Pro Forma Condensed Combined Financial Statements, the debt incurred and the related interest expense have been estimated based on Express Scripts paying Caremark Shareholders cash consideration of $29.69 per share, which includes the additional cash payment of $0.00481 per share per day, calculated for the period from April 1, 2007 (the date the calculation of the additional cash payment commences) through July 1, 2007 (the approximate midpoint between September 30, 2007, the end of the third quarter, and April 1, 2007). It is possible that the actual cash consideration paid to Caremark Shareholders could be more or less, depending on when the proposed transaction receives anti-trust clearance from the FTC or when the closing date of the transaction occurs.

 

HISTORICAL AND PRO FORMA PER SHARE DATA

		As of and for the:
		Twelve Months Ended
		December 31,2006
Express Scripts Per Share Data:
Historical net earnings per common share — basic		$	3.39
Pro forma net earnings per common share — basic			2.63
Historical net earnings per common share — diluted			3.34
Pro forma net earnings per common share — diluted			2.59
Historical cash dividends			—
Pro forma cash dividends(2)			—
Historical book value per common share — basic(3)			8.04
Pro forma book value per common share — basic(3)			46.40
Caremark Per Share Data:
Historical net earnings per common share — basic		$	2.50
Equivalent pro forma net earnings per common share — basic(1)			1.12
Historical net earnings per common share — diluted			2.46
Equivalent pro forma net earnings per common share — diluted(1)			1.10
Historical cash dividends(4)			0.30
Equivalent pro forma cash dividends(2)			—
Historical book value per common share — basic(3)			17.89
Equivalent pro forma book value per common share — basic(1)			19.77

(1)		Pro forma amounts for Express Scripts multiplied by 0.426 (the ratio of exchange).

(2)		Express Scripts has never paid a cash dividend and the pro forma cash dividends per share are reflected as such.
(3)		Calculated as total stockholders’ equity divided by weighted average shares outstanding — basic.

 

COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION

		Express Scripts Common Stock												Caremark Common Stock
		Market Price												Market Price
		High				Low				Dividend				High				Low				Dividend
2005
First Quarter		$	43.88			$	36.54				—			$	42.30			$	37.00				—
Second Quarter		$	52.50			$	42.05				—			$	46.83			$	37.23				—
Third Quarter		$	62.47			$	45.04				—			$	50.43			$	41.02				—
Fourth Quarter		$	90.80			$	59.40				—			$	53.90			$	47.24				—
2006
First Quarter		$	95.00			$	82.15				—			$	53.00			$	48.14				—
Second Quarter		$	88.88			$	63.83				—			$	50.66			$	42.40			$	0.10
Third Quarter		$	84.97			$	68.81				—			$	59.89			$	49.40			$	0.10
Fourth Quarter		$	77.80			$	58.79				—			$	58.08			$	44.30			$	0.10
2007
January 1, 2007 to March 8, 2007		$	79.58			$	64.64				—			$	64.34			$	54.92				—

		Assumed Value				Cash
		of 0.426				Consideration				Implied Value per Share of Caremark
		Shares of				per Share of				Common Stock in the Offer
		Express Scripts				Caremark				April 30, 2007				June 30, 2007				August 31, 2007
		Common Stock				Common Stock				exchange				exchange				exchange
December 15, 2006		$	29.25			$	29.25			$	58.64			$	58.96			$	59.24
March 8, 2007		$	32.38			$	29.25			$	61.77			$	62.06			$	62.36

 

RATIO OF EARNINGS TO FIXED CHARGES

		Historical																				Pro Forma Combined(1)(2)
		Year Ended December 31,																				Year Ended
		2006				2005				2004				2003				2002				December 31, 2006
Ratio of earnings to fixed charges			8.0				14.6				10.3				9.7				7.8				2.5

(1)		The Pro Forma Combined reflects the acquisition and related adjustments using the pro forma financial information presented pursuant to Article 11 of Regulation S-X. For a discussion of the assumptions and adjustments made in preparation of the pro forma financial information presented in this prospectus/offer to exchange, see the section of this prospectus/offer to exchange entitled “Selected Unaudited Pro Forma Combined Financial Data.”

(2)		As disclosed in the Notes to the Unaudited Pro Forma Condensed Combined Financial Statements, the interest expense reflected in the Pro Forma Combined ratio of earnings to fixed charges is based on Express Scripts paying Caremark Shareholders cash consideration of $29.69 per share, which includes the additional cash payment of $0.00481 per share per day, calculated for the period from April 1, 2007 (the date the additional cash payment commences) through July 1, 2007 (the approximate mid-point between September 30, 2007, the end of the third quarter, and April 1, 2007). It is possible that the actual cash consideration paid could be significantly different from this estimate. Any increase in the cash consideration could result in an increase in the amount of debt incurred to finance the transaction and a corresponding increase in annual interest expense. See the section of this prospectus/offer to exchange entitled “Unaudited Pro Forma Condensed Combined Financial Statements.”

 

In addition to the other information included and incorporated by reference in this prospectus/offer to exchange (see the section entitled “Where You Can Find More Information”), including the matters addressed in the section entitled “Forward-Looking Statements,” you should carefully consider the following risks before deciding whether to tender your shares of Caremark common stock in the offer.

 

Risk Factors Relating to the Offer

 

The exchange ratio of the offer is fixed and will not be adjusted. Because the market price of shares of Express Scripts common stock may fluctuate, Caremark stockholders cannot be sure of the market value of the shares of Express Scripts common stock that will be issued in connection with the offer

 

Each outstanding share of Caremark common stock will be converted into the right to receive 0.426 shares of Express Scripts common stock (together with the associated preferred stock purchase rights), $29.25 in cash, less any applicable withholding taxes and without interest, and an additional $0.00481 in cash per day, less any applicable withholding taxes and without interest, commencing on April 1, 2007 until the earlier of (A) Express Scripts’ acceptance for exchange of shares of Caremark common stock in the exchange offer or (B) forty-five (45) days following the later of (i) expiration of the applicable waiting period under the HSR Act, or, (ii) if applicable, termination or expiration of any agreement with the FTC not to accept shares of Caremark common stock for exchange in the offer upon consummation of the offer. The last day the additional cash consideration will accrue on the shares of Caremark common stock will (1) in the case of clause (B), include the forty-fifth (45th) day following the date of such applicable expiration or termination and (2) in the case of clause (A), include the expiration date. The additional cash consideration is conditioned upon acceptance of shares of Caremark common stock for exchange in the offer and will be paid at the same time as the other consideration paid in the offer. This exchange ratio is fixed and will not be adjusted in case of any increases or decreases in the price of Express Scripts common stock or Caremark common stock. If the price of Express Scripts common stock declines (which may occur as the result of a number of reasons (many of which are out of our control), including as a result of the risks described in the section of this prospectus/offer to exchange entitled “Risk Factors”), Caremark stockholders will

 

receive less value for their shares upon exchange of tendered shares in the offer or consummation of the second-step merger than the value calculated pursuant to the exchange ratio on the date the offer was announced. Because the offer and the second-step merger may not be completed until certain conditions have been satisfied or waived (please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Conditions of the Offer”), a significant period of time may pass between the commencement of the offer and the time that Express Scripts accepts shares of Caremark common stock for exchange. Therefore, at the time you tender your shares pursuant to the offer, you will not know the exact market value of the shares of Express Scripts common stock that will be issued if Express Scripts accepts such shares for exchange. However, tendered shares of Caremark common stock may be withdrawn at any time prior to the time they are accepted for exchange pursuant to the offer. Please see the section entitled “Comparative Market Price and Dividend Information” for the historical high and low sales prices per share of Express Scripts and Caremark common stock, as well as cash dividends per share of Express Scripts and Caremark common stock respectively, for each quarter of the period 2005 through 2006 and for the first quarter of 2007.

 

Caremark stockholders are urged to obtain market quotations for Express Scripts and Caremark common stock when they consider whether to tender their shares of Caremark common stock pursuant to the offer.

 

The offer may adversely affect the liquidity and value of non-tendered shares of Caremark common stock

 

In the event that not all of the shares of Caremark common stock are tendered in the offer and we accept for exchange those shares tendered into the offer, the number of stockholders and the number of shares of Caremark common stock held by individual holders will be greatly reduced. As a result, Express Scripts’ acceptance of shares for exchange in the offer could adversely affect the liquidity and could also adversely affect the market value of the remaining shares of Caremark common stock held by the public. Subject to the rules of the New York Stock Exchange, Express Scripts may delist the shares of Caremark common stock on the New York Stock Exchange. As a result of such delisting, shares of Caremark common stock not tendered pursuant to the offer may become illiquid

and may be of reduced value. Please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Plans for Caremark.”

 

Express Scripts must incur additional indebtedness to acquire the shares of Caremark common stock pursuant to the offer and the second-step merger. Express Scripts expects, but cannot guarantee, that the combined company will be able to make all required principal and interest payments when due

 

Express Scripts’ indebtedness following the offer is expected to be higher than its current indebtedness and higher than the sum of Express Scripts’ and Caremark’s current indebtedness. Express Scripts’ total indebtedness as of December 31, 2006 was approximately $1.5 billion. Assuming acceptance of shares of Caremark common stock for exchange on July 1, 2007, Express Scripts’ pro forma total indebtedness as of December 31, 2006, after giving effect to the acquisition of 100% of the outstanding shares of Caremark common stock, as described in the section of this prospectus/offer to exchange entitled “Unaudited Pro Forma Condensed Combined Financial Statements,” would be approximately $13.6 billion. Express Scripts’ indebtedness following the offer and the second-step merger will be approximately $15 billion. Based upon current levels of operations and anticipated growth and past experience in paying down past acquisitions, Express Scripts expects, but cannot guarantee, that the combined company will be able to generate sufficient cash flow to make all of the principal and interest payments under this indebtedness when such payments are due.

 

Express Scripts’ anticipated level of indebtedness could impact its operations and liquidity

 

Express Scripts’ increased indebtedness could, during the period in which it is outstanding, have important consequences to holders of its common stock. For example, it could:

 

 

If Express Scripts is unable to comply with restrictions in the proposed credit facilities, the indebtedness thereunder could be accelerated

 

The credit facilities contemplated by the commitment letter received by Express Scripts will impose restrictions on Express Scripts and require certain payments of principal and interest over time. A failure to comply with these restrictions or to make these payments could lead to an event of default that could result in an acceleration of the indebtedness. Express Scripts cannot make any assurances that its future operating results will be sufficient to ensure compliance with the covenants in its agreements or to remedy any such default. In the event of an acceleration of this indebtedness, Express Scripts may not have or be able to obtain sufficient funds to make any accelerated payments.

 

Please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Source and Amount of Funds” for more information about the credit facilities envisaged by the commitment letter received by Express Scripts and the restrictions contained therein and payments required thereby.

 

After Express Scripts accepts shares of Caremark common stock for exchange in the offer, it is possible that Express Scripts will not have effective control over the governance or operations of Caremark or be able to promptly consummate a second-step merger with Caremark

 

If Express Scripts does not acquire at least 90% of the issued and outstanding shares of Caremark common stock pursuant to the offer, Express Scripts could be limited in its ability to control the operations of Caremark or to effect the second-step merger promptly. Caremark’s board of directors currently consists of three separate classes, and members within each class serve three year terms. If Caremark’s board does not negotiate a merger agreement with Express Scripts, a total of two Caremark stockholder meetings (including the 2007 annual meeting of stockholders) could be required before Express Scripts nominees, or other persons who support a transaction with Express Scripts, would constitute a majority of Caremark’s board of directors. During this period, Caremark’s existing board of directors could take actions, or refuse to consent to actions, which would permit the integration of Express Scripts and Caremark.

 

Uncertainties exist in integrating the business and operations of Express Scripts and Caremark

 

Express Scripts intends, to the extent possible, to integrate Caremark’s operations with those of Express Scripts. Although Express Scripts believes that the integration of Caremark’s operations into Express Scripts will be achievable, there can be no assurance that Express Scripts will not encounter substantial difficulties integrating Caremark’s operations with Express Scripts’ operations, which could result in a delay or the failure to achieve the anticipated benefits and synergies of the combination and, therefore, the expected increases in earnings and cost savings. Additionally, these cost savings and increases in earnings may be lower than Express Scripts currently expects, or may not be realized. The difficulties of combining the operations of the companies include, among other things:

 

 

Also, our proposal is not dependent upon the retention or cooperation of Caremark’s senior management. There can be no assurance that there will not be some level of uncooperativeness on the part of Caremark’s senior executive management and/or its other employees which could adversely affect the integration process.

 

Express Scripts must obtain governmental and regulatory approvals and exemptions to consummate the offer, which, if delayed, not granted or granted with unacceptable conditions, may jeopardize or delay the offer, result in additional expenditures of money and resources and/or reduce the anticipated benefits of the combination contemplated by the offer

 

The offer is conditioned on the receipt of all material governmental authorizations, consents, orders and approvals, including the expiration or termination of the applicable waiting periods under the HSR Act and regulatory clearance from the Tennessee Insurance Commissioner with respect to Caremark’s Tennessee domiciled insurance company subsidiary. If Express Scripts does not receive these approvals or exemptions, or does not receive them on terms that satisfy the conditions set forth in this prospectus/offer to exchange, then Express Scripts will not be obligated to accept shares of Caremark common stock for exchange in the offer.

 

The governmental agencies from which Express Scripts will seek these approvals have broad discretion in administering the governing regulations. As a condition to their approval of the transactions contemplated by this prospectus/offer to exchange, agencies may impose requirements, limitations or costs or require divestitures or place restrictions on the conduct of the combined company’s business. These requirements, limitations, costs, divestitures or restrictions could jeopardize or delay the consummation of the offer or may reduce the anticipated benefits of the combination contemplated by the offer. Further, no assurance can be given that the required consents and approvals will be obtained or that the required conditions to the offer will be satisfied, and, if all required consents and approvals are obtained and the conditions to the consummation of the offer are satisfied, no assurance can be given as to the terms, conditions and timing of the approvals. If Express Scripts agrees to any material requirements, limitations, costs, divestitures or restrictions in order to obtain any approvals required to consummate the offer, these requirements, limitations, additional costs or restrictions could adversely affect the two companies’ ability to integrate their operations or reduce the anticipated benefits of the combination contemplated by the offer. This could result in a failure to complete the offer and the second-step merger or have a material adverse effect on the business and results of operations of the combined company. Please see the section entitled “The Exchange Offer — Conditions of the Offer” for a discussion of the conditions to the offer and the section entitled “The Exchange Offer — Certain Legal Matters; Regulatory Approvals” for a description of the regulatory approvals necessary in connection with the offer and the second-step merger.

 

The receipt of Express Scripts common stock pursuant to the offer and the second-step merger could be taxable to Caremark stockholders depending on facts surrounding the exchange offer and the second-step merger

 

We do not plan to request a ruling from the Internal Revenue Service with regard to the tax consequences of the exchange offer and/or the second-step merger. The exchange offer and the second-step merger are intended to qualify as component parts of an integrated transaction that qualifies as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code provided that certain assumptions are correct and certain other conditions relating to the offer and the second-step merger are satisfied, including, among others, that the value of the Express Scripts common stock issued to Caremark stockholders pursuant to the offer and the second-step merger (as a percentage of the total consideration furnished to Caremark shareholders in the offer and the second-step merger) will satisfy the continuity of shareholder interest requirement for corporate reorganizations, which, for Internal Revenue Service purposes, should be satisfied if such percentage is 40 percent or more (taking into account any additional cash accruing on a daily basis as provided herein, any cash issued in payments to persons perfecting appraisal rights and any acquisitions, in connection with the offer and the second-step merger, by Express Scripts or any party related to Express Scripts, of shares of Express Scripts common stock issued to Caremark stockholders). Because the value of Express Scripts common stock may be determined using the lesser of the value on the date shares of Caremark common stock are accepted for exchange in the offer and the value on the date the second-step merger is consummated, in the event that the value of Express Scripts common stock declines and/or the cash component of the transaction increases before the closing of the offer and/or the second-step merger, this condition could fail to be satisfied and the integrated transaction could fail to be treated as a reorganization within the meaning of Section 368(a) of the Code. If the exchange offer and the second-step merger are not treated as part of an integrated transaction, the exchange offer would not qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. As discussed above, it is possible that Express Scripts may not be able to

consummate a second-step merger with Caremark; if that were the case, the exchange offer would not qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code.

 

If the integrated transaction does not qualify as a reorganization, your exchange of shares of Caremark common stock for the Express Scripts common stock portion of the consideration in the offer or the second-step merger could be a taxable transaction, depending on the surrounding facts. If the integrated transaction qualifies as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, the cash consideration you receive (including any cash received as additional cash accruing on a daily basis as provided herein) will be taxed to you as either a capital gain or a dividend in an amount equal to the lesser of (i) the excess of the fair market value of the consideration you receive in the transaction over your basis in your shares or (ii) the amount of cash you receive in the transaction, including any cash you receive in lieu of a fractional share, depending on your circumstances. If the offer does not constitute part of an integrated transaction that qualifies as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, the consideration you receive will be taxed to you as either a capital gain or a capital loss to the extent of the difference between your adjusted tax basis in your shares and the fair market value of the consideration you receive. You are urged to consult your tax advisor concerning the United States Federal income and other tax consequences of participation in the offer and/or the second-step merger. For more information, please see the section of this prospectus/offer to exchange under the caption “The Exchange Offer — Material Federal Income Tax Consequences.”

 

The offer could trigger certain provisions contained in Caremark’s employee benefit plans or agreements that could require Express Scripts to make change of control payments or permit a counter-party to an agreement with Caremark to terminate that agreement

 

Certain of Caremark’s employee benefit plans or agreements contain change of control clauses providing for compensation to be granted to certain members of Caremark senior management either upon a change of control, or if, following a change of control, Caremark terminates the employment relationship between Caremark and these employees, or if these employees terminate the employment relationship because their respective positions with Caremark have materially changed. If successful, the offer would constitute a change of control, thereby giving rise to potential change of control payments.

 

Because Express Scripts has not had the opportunity to review Caremark’s non-public information, there may be other agreements that permit a counter-party to terminate an agreement because the offer or the second-step merger would cause a default or violate an anti-assignment, change of control or similar clause. If this happens, Express Scripts may have to seek to replace that agreement with a new agreement. Express Scripts cannot assure you that it will be able to replace a terminated agreement on comparable terms or at all. Depending on the importance of a terminated agreement to Caremark’s business, failure to replace that agreement on similar terms or at all may increase the costs to Express Scripts of operating Caremark’s business or prevent Express Scripts from operating part or all of Caremark’s business.

 

The consummation of the offer may accelerate Caremark’s existing indebtedness

 

Under Caremark’s existing credit agreement, Express Scripts’ acceptance for exchange of a majority of the outstanding shares of common stock of Caremark may be deemed a “change of control” which would cause the indebtedness under Caremark’s credit agreement to become immediately due and payable. Caremark may not be able to refinance its existing debt or only on conditions less favorable for Caremark, either of which may have an adverse effect on the value of the stock of Caremark and, indirectly on the value of the stock of Express Scripts. If Express Scripts does not control Caremark and is unable to complete the second-step merger, Express Scripts may not be able to assist Caremark in obtaining alternative financing.

 

The market for Express Scripts common stock may be adversely affected by the issuance of shares pursuant to the offer and the second-step merger

 

In connection with the offer and the second-step merger, Express Scripts estimates to issue approximately 185,785,839 shares of Express Scripts common stock. The increase in the number of shares of Express Scripts common stock may lead to sales of such stock or the perception that such sales may occur, either of which may adversely affect the market for, and the market price of, Express Scripts common stock.

 

Caremark common stock and Express Scripts common stock confer different rights and privileges on respective stockholders

 

Upon your receipt of shares of Express Scripts common stock in the offer, Caremark stockholders will become stockholders of Express Scripts, which may change certain stockholder rights and privileges such stockholders hold as a stockholder of Caremark. These changes will pertain to differences in the certificate of incorporation of Express Scripts and Caremark respectively. For a detailed discussion of the rights of Express Scripts stockholders compared to the rights of Caremark stockholders, please see the section of this prospectus/offer to exchange entitled “Comparison of Stockholders’ Rights.”

 

Risk Factors Relating to Caremark’s Businesses

 

You should read and consider other risk factors specific to Caremark’s businesses that will also affect the combined company after the merger, described in Part I, Item 1A of Caremark’s annual report on Form 10-K for the year ended December 31, 2006, which has been filed by Caremark with the SEC and which is incorporated by reference into this document.

 

The potential impact of the investigations into Caremark’s option grant practices is not known and could have an adverse effect on Caremark

 

On May 18, 2006, Caremark announced that it received a grand jury document subpoena from the U.S. Attorney for the Southern District of New York requesting records pertaining to the granting of stock options and that, on the same day, it received a letter of informal inquiry from the SEC requesting documents related to the granting of stock options and the company’s relocation program. Because we have not had access to any of Caremark’s non-public information, Express Scripts is unable to determine whether Caremark’s historical stock options granting practices were properly reflected in Caremark’s historical financial statements and other public reports and, if any issues exist, what the impact of those issues could be.

 

Risk Factors Relating to Express Scripts’ Businesses

 

You should read and consider other risk factors specific to Express Scripts’ business described in Part I, Item 1A of Express Scripts’ annual report on Form 10-K for the year ended December 31, 2006, which has been filed by Express Scripts with the SEC and which is incorporated by reference into this document.

 

Express Scripts, Inc. is one of the largest full-service pharmacy benefit management (“PBM”) companies in the United States. Express Scripts provides health care management and administration services on behalf of clients, which include health maintenance organizations, health insurers, third party administrators, employers, union-sponsored benefit plans and government health programs. Express Scripts’ integrated PBM services include network claims processing, home delivery services, benefit design consultation, drug utilization review, formulary management, disease management, and drug data analysis services.

 

Through its Specialty and Ancillary Services Segment (“SAAS”), Express Scripts provides specialty services, including patient care and direct specialty home delivery to patients; distribution of infusion drugs to patient homes, physician offices, and infusion centers; distribution of pharmaceuticals and medical supplies to providers and clinics; third party logistics services for contracted pharma clients; fertility services to providers and patients; and bio-pharma services including marketing, reimbursement and customized logistics solutions. The SAAS segment also includes distribution of specialty pharmaceuticals requiring special handling or packaging where Express Scripts has been selected by the pharmaceutical manufacturer as part of a limited distribution network; distribution of pharmaceuticals to low-income patients through manufacturer-sponsored and company-sponsored generic patient assistance programs; and distribution of sample units to physicians and verification of practitioner licensure.

 

Prescription drugs are dispensed to members of the health plans Express Scripts serves primarily through networks of retail pharmacies that are under non-exclusive contracts with us and through three home delivery fulfillment pharmacies and over thirty specialty drug pharmacies. More than 57,000 retail pharmacies, representing more than 95% of all United States retail pharmacies, participate in one or more of our networks.

 

Express Scripts’ executive offices are located at 13900 Riverport Drive, Maryland Heights, Missouri 63043, and its telephone number is (314) 770-1666.

 

Caremark, a Delaware corporation, is a leading pharmaceutical services company in the United States. Caremark’s operations are conducted primarily through its subsidiaries, Caremark Inc. and CaremarkPCS (f/k/a AdvancePCS), and involve the design and administration of programs aimed at reducing the costs and improving the safety, effectiveness and convenience of prescription drug use. Caremark’s customers are primarily employers, insurance companies, unions, government employee groups, managed care organizations and other sponsors of health benefit plans and individuals throughout the United States. In addition, Caremark, through its SilverScript insurance subsidiary, is a national provider of drug benefits to eligible beneficiaries under the federal government’s Medicare Part D program.

 

Caremark operates a national retail pharmacy network with over 60,000 participating pharmacies (including CVS’ pharmacy stores), seven mail service pharmacies, 21 specialty mail service pharmacies and the industry’s only repackaging plant regulated by the Food & Drug Administration. Through its Accordant disease management offering, Caremark also provides disease management programs for 27 conditions. Twenty-one of these programs are accredited by the National Committee for Quality Assurance.

 

Caremark’s executive offices are located at 211 Commerce Street, Suite 800, Nashville, Tennessee 37201, and its telephone number is (615) 743-6600.

 

Since February 2001, management and representatives from Express Scripts and Caremark have had several series of discussions and meetings concerning potential strategic transactions, including the acquisition of Caremark by Express Scripts and the acquisition of Express Scripts by Caremark. The last of these series of discussions was terminated in mid-2005. In connection with one of the early series of discussions, Express Scripts, Caremark and their respective legal and financial advisors conducted due diligence on the businesses of one another. These diligence efforts included the retention by the parties of two independent third party experts to evaluate and analyze the potential synergies that could be achieved by a combination of the businesses of Express Scripts and Caremark. None of these discussions led to the entry into any definitive agreement involving a business combination between Express Scripts and Caremark (other than for customary confidentiality agreements).

 

In our judgment, these prior series of discussions were terminated primarily as a result of valuation and not because of a lack of strategic rationale, antitrust considerations or perceived risks relating to client retention.

 

On November 1, 2006, Caremark and CVS announced that they had entered into the Caremark/CVS merger agreement. The joint proxy/prospectus contained in CVS’s Registration Statement on S-4 filed with the SEC on December 19, 2006, as amended on January 9, January 16, 2006 and January 18, 2006 (referred to herein as the “CVS/Caremark S-4”) provides a summary of the events leading to CVS and Caremark entering into the Caremark/CVS merger agreement.

 

On the evening of December 17, 2006, various news sources reported that Express Scripts intended to make an offer to acquire Caremark. In the early morning of December 18, 2006, George Paz, the Chief Executive Officer, President and Chairman of the Board of Express Scripts, placed a telephone call to Edwin M. Crawford, the Chief Executive Officer, President and Chairman of the Board of Caremark. Mr. Paz was unable to reach Mr. Crawford, but left him a message explaining that Express Scripts intended to make an offer for Caremark for (1) $29.25 in cash and (2) 0.426 shares of Express Scripts stock for each share of Caremark Stock, subject to confirmatory due diligence and the termination of the Caremark/CVS merger agreement.

 

Following this telephone call, in the early morning hours of December 18, 2006, Express Scripts delivered a proposal letter containing an offer to Caremark’s Board in care of Mr. Crawford and issued a press release announcing the proposal letter. The proposal letter read as follows:

 

December 18, 2006

 

Board of Directors

Caremark Rx, Inc.

c/o Edwin M. Crawford

Chairman of the Board, President and Chief Executive Officer

211 Commerce Street

Suite 800

Nashville, Tennessee 37201

 

Dear Mac:

 

On behalf of the board of directors of Express Scripts, Inc. (“Express Scripts”), I am pleased to submit this offer to combine the businesses of Express Scripts and Caremark Rx, Inc. (“Caremark”). This transaction would represent a compelling combination and excellent strategic fit, and create superior value for our respective stockholders. Under our offer, Express Scripts would acquire all outstanding shares of Caremark common stock for (1) $29.25, less any applicable withholding taxes and without interest, in cash and (2) 0.426 shares of Express Scripts stock for each share of Caremark stock. Based on our closing stock price on Friday, the offer has a value of $58.50 per share for each share of Caremark stock. The offer is structured so that the receipt of stock by your stockholders would be tax free. Upon consummation of our proposed transaction,

which we expect would be completed in the third quarter of 2007, Caremark stockholders would own approximately 57% of the combined company.

 

Our offer represents a 15% premium over the all-stock purchase price to be paid to your stockholders pursuant to the proposed acquisition of Caremark by CVS Corporation (“CVS”) based on Friday’s closing price of CVS and our common stock. Furthermore, our offer represents a 22% premium over $47.99, the average closing price of Caremark since the announcement of the proposed acquisition of Caremark by CVS on November 1, 2006.

 

Our board of directors and management have great respect for Caremark, including its business, operations and employees. Express Scripts and Caremark share a strong commitment to providing quality service and benefits to plan sponsors and patients. This combination would further enhance our product and service offerings, allowing us to strengthen the value proposition that we offer to our plan sponsors and patients.

 

Express Scripts has completed five successful acquisitions since 1998, and has a proven track record of integrating and optimizing the performance of the acquired businesses and thereby creating additional value for stockholders. As such, we are confident that we can successfully integrate our businesses in a way that would quickly maximize the benefits for our respective stockholders.

 

We are aware that Caremark is currently a party to a merger agreement with CVS. We believe that our offer constitutes a “Superior Proposal” under the terms of that merger agreement for the following compelling reasons. Our offer:

 

 

The board of directors of Express Scripts has unanimously approved this offer and has authorized us to proceed expeditiously. We are prepared, promptly following the termination of your agreement with CVS, to enter into a merger agreement that would provide greater value to your stockholders. Such a merger agreement would be subject to the final approval of our board of directors and our respective stockholders. We are confident that any regulatory requirements will be met in a timely manner.

 

Our offer is subject to completion of a confirmatory due diligence review of your company and the termination of your merger agreement with CVS, whether by your stockholders voting against approval of your merger with CVS or otherwise. We have received commitment letters from Citigroup Corporate and Investment Banking and Credit Suisse to fully finance the proposed transaction.

 

It was necessary to communicate our offer to you by letter because of the provisions of your merger agreement with CVS. Given the importance of our offer to our respective stockholders, we have determined to make this letter public. We would unquestionably prefer to work cooperatively with you to complete a negotiated transaction that would produce substantial benefits for our respective stockholders. Alternatively, we are prepared to take our transaction directly to your stockholders. In this regard, you should also know that we are prepared to solicit proxies against approval of your proposed merger with CVS.

 

We are confident that, after you have considered our offer, you will agree that its terms are considerably more attractive to your stockholders than the CVS transaction and that our offer constitutes a “Superior Proposal” under the terms of the CVS merger agreement. We understand that, after you have provided the appropriate notice to CVS under your merger agreement, you can authorize your management to enter into discussions with us and to provide information to us, subject to our entering into a confidentiality agreement

with you. We respectfully request that you make this determination as soon as possible. We are prepared to enter into a customary confidentiality agreement with you so long as it does not contain any standstill or similar limitation.

 

This letter does not create or constitute any legally binding obligation, liability or commitment by us regarding the proposed transaction, and, other than any confidentiality agreement we may enter into with you, there will be no legally binding agreement between us regarding the proposed transaction unless and until a definitive merger agreement is executed by Caremark and Express Scripts.

 

We believe that time is of the essence, and are prepared to move forward expeditiously by committing all necessary resources to promptly complete a transaction. We have engaged Citigroup Corporate and Investment Banking and Credit Suisse as financial advisors and Skadden, Arps, Slate, Meagher & Flom LLP as legal counsel to advise us in this transaction. In addition, we have retained MacKenzie Partners, Inc. as proxy advisor. We and our advisors are ready to meet with you and your advisors at any time to discuss this offer and to answer any questions you or they may have about our offer. Although we have already completed a thorough due diligence review based solely on publicly available information, we would like to commence confirmatory due diligence as soon as possible and are ready to begin promptly. We look forward to hearing from you.

 

Sincerely,

 

George Paz

President, Chief Executive Officer and

Chairman of the Board

 

 

On the afternoon of December 18, 2006, Mr. Paz placed a second telephone call to Mr. Crawford to express his regret that they had been unable to discuss the terms of the offer contained in the proposal letter prior to the time rumors of the proposal letter began to circulate in the press. Mr. Crawford told Mr. Paz that Caremark’s board of directors intended to review the proposal letter subject to the requirements of the Caremark/CVS merger agreement.

 

On December 19, 2006, CVS filed the CVS/Caremark S-4 with the SEC.

 

On December 20, 2006, CVS announced that the waiting period under the HSR Act had expired with respect to the proposed CVS merger.

 

On January 3, 2007, Express Scripts filed its premerger notification statement under the HSR Act with the FTC and the Antitrust Division.

 

On January 4, 2007, Express Scripts sent a letter to Caremark stockholders encouraging them to vote “AGAINST” the proposed CVS merger and issued a press release that contained the full text of the letter.

 

On January 7, 2007, Caremark issued a press release announcing that its board of directors had determined that our proposal did not constitute, and was not reasonably likely to lead to, a superior proposal under the terms of the Caremark/CVS merger agreement and that Caremark’s board reaffirmed its support of the proposed CVS merger. The press release stated that CVS and Caremark anticipated realizing approximately 25% more synergies in the proposed CVS merger than initially anticipated. The press release also set forth several factors considered by Caremark’s board of directors in making its determination. These reasons were restated by Caremark in a Form 8-K filed on the morning of January 8, 2007.

 

During the early morning of January 8, 2007, Express Scripts issued a press release stating that Express Scripts remained committed to pursuing a business combination with Caremark and believed its proposal represented a superior proposal to the proposed CVS merger. This press release noted Express Scripts’ belief that Caremark was

using antitrust risk as a “red herring” to distract stockholders from the differences in value between our proposal and the proposed CVS merger. An excerpt from the press release is set forth below:

 

Our cash and stock offer provides Caremark stockholders with a premium of approximately 13% to the proposed CVS acquisition price, based on the closing stock prices as of January 5, 2007. Importantly, the Express Scripts offer also allows Caremark stockholders the ability to participate in the combined company’s substantial upside potential. We expect to enhance value for stockholders through an increase in the value of the combined company’s stock price resulting from EPS growth driven by estimated annualized cost synergies of $500 million. Since the time of our announcement, Caremark has conveniently found in excess of 25% in additional synergies, which had not been evident since they announced their transaction on November 1, 2006.

 

During the afternoon of January 8, 2007, Express Scripts delivered a notice to Caremark, in accordance with Caremark’s bylaws, nominating four individuals for election as Caremark directors at Caremark’s 2007 Annual Meeting of Stockholders. Express Scripts also issued a press release in connection with this notice.

 

Also during the afternoon of January 8, 2007, Caremark issued a press release stating that it anticipated that it would be able to close the proposed CVS merger prior to the date of its 2007 Annual Meeting of Stockholders and that it did not anticipate holding such meeting. Express Scripts remains confident that stockholders will reject the proposed CVS merger and, accordingly, there will be a 2007 Annual Meeting of Stockholders of Caremark.

 

On January 9, 2007, CVS filed an amendment to the CVS/Caremark S-4 with the SEC.

 

On January 10, 2007, Express Scripts filed a complaint in the Delaware Court of Chancery against CVS, Caremark, a subsidiary of Caremark and Caremark’s directors challenging the validity of the deal protection provisions, including a $675 million termination fee, in the Caremark/CVS merger agreement.

 

Also on January 10, 2007, Express Scripts filed a preliminary proxy statement with the SEC in respect of soliciting votes against the approval of the proposed CVS merger.

 

Also on January 10, 2007, Caremark issued press releases responding to the litigation which had been filed by Express Scripts in the Delaware Court of Chancery and reiterating its support of the proposed CVS merger.

 

On January 16, 2007, Express Scripts commenced the exchange offer by filing a Registration Statement on Form S-4 containing a prospectus/offer to exchange with the SEC, delivering a request to Caremark pursuant to Rule 14d-5 promulgated under the Exchange Act and issuing a press release regarding the commencement of the exchange offer.

 

Following Express Scripts’ filing of its Registration Statement on Form S-4 on January 16, 2007, CVS and Caremark issued a joint press release announcing that the Caremark’s stockholders would be paid a special one time cash dividend of $2.00 per share following the consummation of the proposed CVS merger. Caremark and CVS also announced that they would retire 150 million of the outstanding shares in the new company following the closing of the proposed CVS merger. Later that afternoon, CVS filed an amendment to the CVS/Caremark S-4 with the SEC which described these amendments to the CVS merger agreement.

 

On January 18, 2007, CVS filed an amendment to the CVS/Caremark S-4 with the SEC.

 

On January 19, 2007, Caremark announced that it had begun mailing the joint proxy statement/prospectus regarding the proposed CVS merger to Caremark stockholders.

 

On January 24, 2007, Express Scripts filed a definitive proxy statement to solicit proxies against the approval of the proposed CVS merger and began distributing proxy materials to Caremark stockholders.

 

Also on January 24, 2007, Caremark filed a Solicitation/Recommendation Statement on Schedule 14D-9 reporting that Caremark’s board had met on January 24, 2007 and determined to unanimously recommend that Caremark stockholders reject our offer and not tender their shares of Caremark common stock to us.

 

On January 26, 2007, Caremark filed an amended Solicitation/Recommendation Statement on Schedule 14D-9.

 

On January 31, 2007, Express Scripts announced that it intended voluntarily to withdraw, and on February 2, 2007 it voluntarily withdrew, the required notification and report form with respect to the offer and second-step merger filed with the FTC and Antitrust Division.

 

On February 6, 2007, Express Scripts re-filed the required notification and report form with the FTC and Antitrust Division.

 

On the afternoon of February 9, 2006, Express Scripts delivered the following letter to Caremark’s board:

 

February 9, 2007

 

Board of Directors

Caremark Rx, Inc.

211 Commerce Street, Suite 800

Nashville, Tennessee 37201

 

Ladies and Gentlemen:

 

Since our initial proposal to you more than seven weeks ago, setting out the terms of our proposed acquisition of Caremark Rx, Inc., Caremark stockholders and the marketplace as a whole have demonstrated their strong support for our offer. It clearly provides Caremark stockholders with superior value to the proposed acquisition of Caremark by CVS Corporation.

 

We feel that it is time to sit down and discuss our superior proposal to acquire Caremark. We are ready, willing and able to commence confirmatory due diligence immediately, and with your cooperation should be able to complete the process in a few weeks. It is time to level the playing field and negotiate a transaction that would create superior value and benefits for our respective stockholders, plan sponsors and patients.

 

Over the past weeks, we have had the opportunity to meet with many of your stockholders across the country as we explained the benefits of an Express Scripts/Caremark combination to stockholders, plan sponsors and patients. We have also met with many of our stockholders. The consensus has been clear — Caremark and Express Scripts stockholders have clearly stated their desire to see Caremark and Express Scripts sit down at the table and talk.

 

In light of this, it is not too late to begin discussions regarding our offer, nor is it necessary to bring the CVS proposal to a vote of your stockholders on February 20th 2007. We do not believe that rushing your stockholders to a vote on such an important question is in the best interests of your Board or your stockholders. In any case, we strongly believe that there will be only one result at this meeting — the rejection of the CVS transaction by Caremark’s stockholders.

 

Let me reiterate that we and our advisors are ready to meet with you and your advisors at any time to discuss our offer and to answer any questions you or they may have. We look forward to hearing from you so that we can promptly begin working together to bring about the best outcome for our respective stockholders.

 

Sincerely,

 

George Paz

President, Chief Executive Officer and

Chairman of the Board

 

 

On February 9, 2007 and February 12, 2007, four investment advisory groups, including Institutional Shareholder Services and CtW Investment Group, recommended that Caremark stockholders vote against the proposed CVS merger.

 

On February 12, 2007, Caremark filed a current report on Form 8-K providing an update and supplemental disclosures to the CVS/Caremark S-4. Many of the disclosures in Caremark’s Form 8-K related to events and matters existing or known on January 18, 2007, the day CVS and Caremark mailed the joint proxy/prospectus contained within the CVS/Caremark S-4 to their respective stockholders.

 

On February 13, 2007, Express Scripts extended the expiration date of the offer to March 16, 2007.

 

On February 13, 2007, CVS and Caremark issued a joint press release announcing that they had increased the special one time cash dividend payable to Caremark stockholders following the consummation of the proposed CVS merger by $4.00 to $6.00 per share.

 

Also on February 13, 2007, the Delaware Court of Chancery issued an order enjoining any stockholder vote concerning a merger between Caremark and any other party until at least March 9, 2007 because of the materiality of the disclosures made by Caremark in its February 12, 2007 Form 8-K and the fact that timing of these disclosures was precariously close to Caremark stockholders’ scheduled vote on the Proposed CVS Merger. Following this ruling, Caremark and CVS each put out press releases announcing that they would be postponing their respective meetings to approve the proposed CVS merger and would inform stockholders as promptly as possible regarding the new date for each meeting.

 

On February 23, 2007, the Delaware Court of Chancery issued an order enjoining the Caremark stockholder meeting for at least twenty days following Caremark’s delivery to the Caremark stockholders of proper disclosure regarding their right to seek appraisal in the proposed CVS merger and the structure of the contingent fees payable to Caremark’s investment bankers. The Court of Chancery declined, in the context of a motion for preliminary injunction, to address the merits of the $675 million termination fee and other deal protection provisions contained in the Caremark/CVS merger agreement on the grounds that the availability of both a fully informed stockholder vote and appraisal rights served as a basis of protection for stockholders, but noted that the availability of appraisal rights would not excuse any violations of fiduciary duties under Delaware law.

 

On February 24, 2007, Caremark mailed a proxy supplement to its stockholders which contained supplement disclosures regarding the contingent fees payable to its investment bankers and its stockholders’ right to appraisal under Delaware law in connection with the proposed CVS merger. The proxy supplement also gave notice that Caremark would hold its special meeting of stockholders to vote on the proposed CVS merger on March 16, 2007.

 

On February 26, 2007, CVS issued a press release announcing that, on February 23, 2007, it had adjourned its special meeting of stockholders to approve the proposed CVS merger to March 9, 2007. CVS also stated that it intended to re-adjourn the meeting to a later date in March and would inform stockholders of the new meeting date as promptly as possible.

 

On February 28, 2007, Express Scripts sent a letter to the Delaware Court of Chancery to bring to the Court’s attention various alleged violations by Caremark of the injunction order entered on February 23, 2007. Following a conference with the Court on March 1, 2007, Express Scripts filed a motion with the Court to enforce the injunction ordered on February 23, 2007. Among other things, Express Scripts sought an order from the Delaware Court of Chancery enforcing its order that Caremark not hold its special meeting of stockholders to approve the proposed CVS merger for at least twenty days after Caremark provides its stockholders with corrected and proper disclosures because Caremark had not properly cured the disclosure deficiencies identified by the Court.

 

Also on February 28, 2007, Express Scripts filed an application for leave to pursue an interlocutory appeal with the Delaware Court of Chancery in regards to the decision rendered by the Court on February 23, 2007. On March 1, 2007, Express Scripts filed a motion for injunction of the Caremark stockholders meeting pending decision on its application to pursue an interlocutory appeal.

 

On March 6, 2007 certain Caremark stockholders filed a motion in the Delaware Court of Chancery requesting that the Special Meeting scheduled for March 16, 2007 be delayed and that Caremark be held in contempt of the Court’s February 23, 2007 order.

 

On March 7, 2007, the Court of Chancery denied Express Scripts’ motion for leave to pursue an interlocutory appeal and for an injunction pending such appeal, as well as Express’ Scripts March 1, 2007 motion to enforce the

injunction ordered on February 23, 2007. The Court also denied the motion for contempt filed by the other Caremark stockholder plaintiffs.

 

Later in the afternoon on March 7, 2007, prior to the expiration of the waiting period under the HSR Act, Express Scripts announced that it expected that it would receive a request for additional information, commonly referred to as a second request, from the FTC.

 

Also on March 7, 2007, Express Scripts announced that it was amending the Offer to increase the amount of cash to be paid to Caremark stockholders whose shares are accepted for exchange in the Offer and delivered the following letter to the Caremark’s board:

 

March 7, 2007

 

Board of Directors
Caremark Rx, Inc.
211 Commerce Street, Suite 800
Nashville, Tennessee 37201

 

Ladies and Gentlemen:

 

We remain committed to effecting a combination of our respective businesses, and we remain steadfast that we can close the transaction no later than the third quarter of 2007. In this regard, our board of directors has authorized an increase to the cash portion of our offer of an additional $0.00481 in cash per day. This represents an increase to our offer of approximately 6% per annum on the $29.25 cash portion of our offer. This increased cash consideration will accrue commencing on April 1, 2007 through the closing of the acquisition of Caremark by Express Scripts, or 45 days after Express Scripts receives Federal Trade Commission approval of the transaction, whichever comes first. This additional cash consideration will be paid to Caremark stockholders upon the acquisition of Caremark.

 

In light of the observations made by the Delaware Court of Chancery regarding Caremark’s process, we continue to believe that it is time, for the sake of your stockholders, that we sit down and talk. It is time that you acknowledge the undeniable merits of a horizontal PBM transaction. This course is in the best interests of your stockholders. We also firmly believe that our respective stockholders, the market and plan sponsors and patients want to see us talking and moving forward as a combined stand-alone PBM.

 

As I have said before, we and our advisors are ready to meet with you and your advisors to discuss our offer and to begin confirmatory due diligence immediately, a process that, with your cooperation, we should be able to complete very quickly. In this regard, we remain willing to sign a confidentiality agreement and, concurrently with the due diligence process, negotiate a merger agreement with you. I also want to be clear that if we were able to identify additional value during due diligence, including if we determine that there are greater net synergies beyond what we have reflected in our analysis thus far, it could result in an increase to our offer price.

 

It has been and remains an unwavering truth that the Express Scripts offer is in the best interests of Caremark stockholders — it offers them better value and is predicated on a model with proven strategic rationale. We have repeatedly cited stockholder affirmation of our position, and indeed, the market has consistently valued our offer higher than the CVS offer.

 

The future of our combined companies would be bright and our respective stockholders, plan sponsors and patients would thank us for the value we would create and the benefits we would offer.

 

Sincerely,

 

George Paz

President, Chief Executive Officer

and Chairman of the Board

 

On March 8, 2007, CVS issued a press release announcing that CVS and Caremark had agreed to increase the special one time cash dividend payable to Caremark stockholders following the consummation of the Proposed CVS Merger to $7.50 per Share. CVS also announced its intention to commence a cash tender offer for 150 million of its shares of common stock at a price of $35 per share following successful consummation of the proposed CVS merger.

 

Also, on March 8, 2007, Express Scripts received a second request for information from the FTC.

 

On March 9, 2007, the Supreme Court of the State of Delaware refused to grant Express Scripts’ request for interlocutory appeal. Also on March 9, 2007, Express Scripts announced that it had amended its offer to reflect the terms set forth in this prospectus/offer to exchange.

 

Express Scripts believes the offer will significantly benefit both Express Scripts and Caremark stockholders, plan sponsors and patients. The Express Scripts common stock to be issued to Caremark stockholders in the offer and the second-step merger will allow such stockholders to participate in the growth and opportunities of the combined company.

 

 

 

 

The following is a summary of certain material obligations of Caremark under the Caremark/CVS merger agreement, which is derived from amendment number 3 to the CVS/Caremark S-4 filed by CVS on January 18, 2007 and subsequent filings made by CVS and Caremark. This summary does not purport to describe all the terms of the Caremark/CVS merger agreement and is qualified by reference to the complete Caremark/CVS merger agreement (and the amendment thereto) which is attached as Annex A to the CVS/Caremark S-4. The rights and obligations of

the parties are governed by the express terms and conditions of the Caremark/CVS merger agreement and not this summary or any other information contained in this document.

 

The Caremark/CVS merger agreement provides for the merger of Caremark with and into Twain MergerSub LLC, a wholly-owned subsidiary of CVS that was formed for the purpose of the proposed CVS merger, with Twain MergerSub LLC surviving such merger. Twain MergerSub LLC was originally formed as a Delaware corporation under the name Twain MergerSub Corp. The entity was since converted into a Delaware limited liability company, and its name has been changed to Twain MergerSub LLC. Following the merger, CVS Corporation will be renamed CVS/Caremark Corporation. At the effective time of the merger, each issued and outstanding share of Caremark common stock will be converted into the right to receive 1.670 shares of CVS common stock. Caremark stockholders will receive cash in lieu of any fractional shares of CVS common stock that would have otherwise been received in the merger.

 

Pursuant to the amended terms of the Caremark/CVS merger agreement, the Caremark’s stockholders would be paid a special one time cash dividend of $7.50 per share following the consummation of the proposed CVS merger. CVS also announced its intention to commence a cash tender offer for 150 million of its shares of common stock at a price of $35 per share following successful consummation of the proposed CVS merger.

 

Each of CVS and Caremark has agreed that it and its subsidiaries and their respective officers, directors, employees and advisers will not:

 

 

Nonetheless, either party is permitted to engage in discussions or negotiations with, and provide information to, any person in response to an unsolicited bona fide acquisition proposal that is reasonably likely to lead to a superior proposal if:

 

 

CVS and Caremark must keep the other reasonably informed of the status and details of any acquisition proposal. Before changing its recommendation, CVS or Caremark, as applicable, must satisfy the conditions in the preceding paragraph and provide the other party with a period of five business days to adjust the terms of the merger agreement so as to enable it to proceed without changing its recommendation. Following such five business day period, if the board of directors of CVS or Caremark, as applicable, remains committed to changing its recommendation in favor of a superior proposal (as defined below), such party will be permitted to enter into

a conditional merger agreement with the third party making the superior proposal that will only become effective upon (1) termination of the merger agreement in accordance with its terms as described herein and (2) payment by the third party, on behalf of CVS or Caremark, as applicable, of the termination fee set forth in the merger agreement. Until the termination of the merger agreement in accordance with its terms, (1) in no event will the party entering into such conditional merger agreement make any SEC or other regulatory filings in connection with the transactions contemplated by such conditional merger agreement and (2) the party entering into the conditional merger agreement will otherwise remain subject to all of its obligations under the merger agreement, including those described above and the “Covenant to Recommend” described below.

 

An “acquisition proposal” is, with respect to either CVS or Caremark, any offer, proposal or inquiry relating to, or any third party indication of interest in, (1) any acquisition or purchase, direct or indirect, of 20% or more of the consolidated assets of that person and its subsidiaries or over 20% of any class of equity or voting securities of that person or any of its subsidiaries whose assets, individually or in the aggregate, constitute more than 20% of the consolidated assets of that person, (2) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in such third party beneficially owning 20% or more of any class of equity or voting securities of that person or any of its subsidiaries whose assets, individually or in the aggregate, constitute more than 20% of the consolidated assets of that person or (3) a merger, consolidation, share exchange, business combination, sale of substantially all the assets, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving that person or any of its subsidiaries whose assets, individually or in the aggregate, constitute more than 20% of the consolidated assets of that person. A “superior proposal” is a bona fide, unsolicited written acquisition proposal (which definition shall be read, for this purpose, without the word “inquiry”) for at least a majority of the outstanding shares of common stock of Caremark or CVS (as the case may be) on terms that the board of directors of such party determines in good faith by a majority vote, after consultation with its legal and financial advisors and taking into account such matters deemed relevant in good faith by such board of directors, including among other things, all the terms and conditions of the acquisition proposal, including any break-up fees, expense reimbursement provisions, conditions to completion and long-term strategic considerations, are more favorable from a financial point of view to the stockholders of such party than the merger and for which financing, if a cash transaction (whether in whole or in part), is then fully committed or reasonably determined to be available by the board of directors of that party. Each party has agreed to terminate any discussions or negotiations with any person that began before November 1, 2006.

 

The Caremark board of directors has agreed to recommend the approval by Caremark stockholders of a proposal to adopt the merger agreement and approve the merger, and has agreed to call a meeting of its stockholders for this purpose. Each party’s board of directors, however, can make a change in recommendation, including by approving, recommending or endorsing a potential superior proposal, if (1) it has not received the approval of its stockholders in connection with the merger, (2) it has received an unsolicited bona fide written acquisition proposal from a third party, (3) its board of directors has determined in good faith (after consultation with its outside legal counsel and financial advisors) that the acquisition proposal constitutes a superior proposal and (4) its board of directors, after consultation with outside legal counsel, determines in good faith that failing to take such action would be inconsistent with its fiduciary duties to stockholders. Unless CVS has otherwise terminated the merger agreement, whether or not (a) Caremark’s board of directors has made a change in recommendation or (b) an acquisition proposal has been publicly proposed or announced or otherwise submitted to Caremark or any of its advisors, the Caremark proposals described above in this paragraph must be submitted to Caremark stockholders at a meeting of its stockholders called for this purpose. In addition, Caremark has agreed to use all reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to complete the merger and the other transactions contemplated by the Caremark/CVS merger agreement, including filing requisite documents with governmental entities or other third parties and obtaining and maintaining all necessary approvals, consents and authorizations. Caremark is, in particular, to hold a meeting of its stockholders to vote on the merger agreement and merger, even if the Caremark board of directors changes its recommendation.

 

The merger agreement may be terminated at any time before the effective time of the merger in any of the following ways:

 

(a) by mutual written consent of CVS and Caremark;

 

(b) by either CVS or Caremark, if:

 

 

(c) by CVS, if:

 

 

(d) by Caremark, if:

 

 

If the merger agreement is validly terminated, the agreement will become void without any liability on the part of any party unless the party is in willful breach of its obligations. However, the provisions of the merger agreement relating to termination fees and expenses will continue in effect notwithstanding termination of the merger agreement to the extent described below.

 

Appraisal Rights

 

On February 23, 2007, the Delaware Court of Chancery issued a ruling that Caremark stockholders were entitled to appraisal for their Shares in connection with the Proposed CVS Merger pursuant to Section 262 of the General Corporation Law of the State of Delaware. Caremark mailed a proxy supplement to Caremark stockholders on February 24, 2007 which notified Caremark stockholders of the Court’s ruling regarding appraisal rights.

 

Termination Fee Payable by Caremark

 

Caremark has agreed to pay a fee of $675 million in any of the following circumstances:

 

 

 

 

Express Scripts is offering to exchange for each outstanding share of Caremark common stock that is validly tendered and not properly withdrawn prior to the expiration date, (1) $29.25 in cash, less any applicable withholding taxes and without interest, (2) 0.426 shares of Express Scripts common stock (together with the associated preferred stock purchase rights) and (3) an additional $0.00481 in cash per day, less any applicable withholding taxes and without interest, commencing on April 1, 2007 until the earlier of (A) Express Scripts’ acceptance for exchange of shares of Caremark common stock in the exchange offer or (B) forty-five (45) days following the later of (i) expiration of the applicable waiting period under the HSR Act, or (ii) if applicable, termination or expiration of any agreement with the FTC not to accept shares of Caremark common stock for exchange in the offer, upon the terms and subject to the conditions contained in this prospectus/offer to exchange and the accompanying revised blue letter of transmittal. The last day the additional cash consideration will accrue on the shares of Caremark common stock will (1) in the case of clause (B), include the forty-fifth (45th) day following the date of such applicable expiration or termination and (2) in the case of clause (A), include the expiration date. The additional cash consideration is conditioned upon acceptance of shares of Caremark common stock for exchange in the offer and will be paid at the same time as the other consideration paid in the offer. In addition, you will receive cash instead of any fractional shares of Express Scripts common stock to which you may be entitled.

 

The term “expiration date” means 12:00 midnight, New York City time, on Tuesday, April 17, 2007, unless Express Scripts extends the period of time for which the offer is open, in which case the term “expiration date” means the latest time and date on which the offer, as so extended, expires.

 

The offer is subject to a number of conditions which are described in the section of this prospectus/offer to exchange entitled “The Exchange Offer — Conditions of the Offer.” Express Scripts expressly reserves the right, subject to the applicable rules and regulations of the SEC, to waive any condition of the offer described herein in its discretion, except for the conditions described under the subheadings “HSR Condition,” “Stockholder Approval Condition,” “Registration Statement Condition,” and “NASDAQ Listing Condition” under the caption “The Exchange Offer — Conditions of the Offer” below, each of which cannot be waived. Express Scripts expressly reserves the right to make any changes to the terms and conditions of the offer (subject to any obligation to extend the offer pursuant to the applicable rules and regulations of the SEC), including, without limitation, with respect to increasing or decreasing the cash, stock or aggregate consideration payable per share of Caremark common stock in the offer.

 

We have not commenced the process of obtaining the approval of our stockholders by filing a preliminary proxy statement with the SEC and therefore we do not expect to be in a position to obtain the requisite approval of our stockholders prior to the current expiration date of the offer. Accordingly, we currently intend to extend the expiration date of our offer beyond April 17, 2007. However, any decision to extend the offer, and if so, for how long, will be made at such time. The expiration date may also be subject to multiple extensions.

 

If you are the record owner of your shares and you tender your shares in the offer, you will not have to pay any brokerage fees or similar expenses. If you own your shares through a broker, dealer, commercial bank, trust company or other nominee and your broker, dealer, commercial bank, trust company or other nominee tenders your shares on your behalf, your broker or such other nominee may charge a fee for doing so. You should consult your broker, dealer, commercial bank, trust company or other nominee to determine whether any charges will apply.

 

The purpose of the offer is for Express Scripts to acquire control of, and ultimately the entire interest in, Caremark. Express Scripts has publicly expressed a desire to enter into a negotiated business combination with Caremark. As of the date of this prospectus/offer to exchange, Caremark has not been willing to meet or negotiate with Express Scripts. On January 7, 2006, Caremark announced that its board of directors had determined that the offer would not reasonably be expected to constitute a “superior proposal” under the Caremark/CVS merger agreement and, on January 24, 2007, Caremark filed a Solicitation/Recommendation Statement on Schedule 14D-9, which it amended on January 26, 2007, reporting that Caremark’s board had met on January 24, 2007 and determined to unanimously recommend that Caremark stockholders reject the offer and not tender their shares of Caremark common stock to Express Scripts. Express Scripts continues to believe that its offer constitutes a “superior proposal” to the proposed transaction between Caremark and CVS and is therefore taking the offer directly to Caremark stockholders.

 

Express Scripts intends, promptly following acceptance for exchange and exchange of shares of Caremark common stock in the offer, to seek to consummate a second-step merger of Caremark with and into a wholly-owned subsidiary of Express Scripts. If, at the time the second-step merger is to be consummated, Skadden, Arps, Slate, Meagher & Flom LLP does not render an opinion to Express Scripts that the second-step merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, then, notwithstanding anything to the contrary contained herein, Express Scripts may, in its sole discretion, modify the second-step merger such that the wholly-owned subsidiary of Express Scripts merges with and into Caremark, which may be followed by the merger of Caremark with and into Express Scripts or a wholly-owned limited liability company subsidiary of Express Scripts (we refer to such alternative merger in this prospectus/offer to exchange as a “reverse merger”).

 

In the second-step merger, each remaining share of Caremark common stock (other than shares of Caremark common stock owned by Caremark or Express Scripts (or their respective wholly-owned subsidiaries) or held by Caremark stockholders who properly exercise applicable dissenters’ rights under Delaware law, if available) will be converted into the right to receive the same number of shares of Express Scripts common stock and the same amount of cash per Caremark share as are received by Caremark stockholders pursuant to the offer. Subject to applicable law, Express Scripts reserves the right to amend the offer (including amending the number of shares of common stock to be exchanged, the offer price and the cash, stock or aggregate consideration to be offered in the second-step merger) upon entering into a merger agreement with Caremark, or to negotiate a merger agreement with Caremark not involving an exchange offer, in which event we would terminate the offer and the shares of Caremark common stock would, upon consummation of such merger, be converted into the right to receive the consideration negotiated by Express Scripts and Caremark. Such negotiated consideration may or may not include an additional cash payment in respect of any delay under the HSR Act.

 

Based on certain assumptions regarding the number of Caremark shares to be exchanged, Express Scripts estimates that if all shares of Caremark common stock are exchanged pursuant to the offer and the second-step merger, former Caremark stockholders would own, in the aggregate, approximately 57% of the outstanding shares of Express Scripts common stock, representing approximately 57% of the aggregate voting power of all Express Scripts common stock. For a detailed discussion of the assumptions on which this estimate is based, please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Ownership of Express Scripts After the Offer.”

 

The offer is scheduled to expire at 12:00 midnight, New York City time, on Tuesday, April 17, 2007, unless further extended by Express Scripts. For more information, you should read the discussion below under the caption “The Exchange Offer — Extension, Termination and Amendment.”

 

Subject to the applicable rules of the SEC and the terms and conditions of the offer, Express Scripts also expressly reserves the right (but will not be obligated) (1) to extend, for any reason, the period of time during which the offer is open, (2) to delay acceptance for exchange of, or exchange of, shares of Caremark common stock in order to comply in whole or in part with applicable laws (any such delay shall be effected in compliance with Rule 14e-1(c) under the Exchange Act, which requires Express Scripts to pay the consideration offered or to return

shares of Caremark common stock deposited by or on behalf of stockholders promptly after the termination or withdrawal of the offer), (3) to amend or terminate the offer without accepting for exchange of, or exchanging, shares of Caremark common stock if any of the individually subheaded conditions referred to in the section of this prospectus/offer to exchange entitled “The Exchange Offer — Conditions of the Offer” have not been satisfied or if any event specified in the section of this prospectus/offer to exchange entitled “The Exchange Offer — Conditions of the Offer” under the subheading “Other Conditions” has occurred and (4) to amend the offer or to waive any conditions to the offer at any time, in each case by giving oral or written notice of such delay, termination, waiver or amendment to the exchange agent and by making public announcement thereof.

 

Any such extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof, which, in the case of an extension, will be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. Subject to applicable law (including Rules 14d-4(d)(i), 14d-6(c) and 14e-1 under the Exchange Act, which require that material changes be promptly disseminated to stockholders in a manner reasonably designed to inform them of such changes), and without limiting the manner in which Express Scripts may choose to make any public announcement, Express Scripts will have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release or other announcement.

 

Express Scripts acknowledges that Rule 14e-1(c) under the Exchange Act requires Express Scripts to pay the consideration offered or return the shares of Caremark common stock tendered promptly after the termination or withdrawal of the offer.

 

If Express Scripts increases or decreases the percentage of shares of Caremark common stock being sought or increases or decreases the cash, stock or aggregate consideration to be paid for shares of Caremark common stock pursuant to the offer and the offer is scheduled to expire at any time before the expiration of 10 business days from, and including, the date that notice of such increase or decrease is first published, sent or given in the manner specified below, the offer will be extended until the expiration of 10 business days from, and including, the date of such notice. If Express Scripts makes a material change in the terms of the offer (other than a change in the price to be paid in the offer or the percentage of securities sought) or in the information concerning the offer, or waives a material condition of the offer, Express Scripts will extend the offer, if required by applicable law, for a period sufficient to allow you to consider the amended terms of the offer. In a published release, the SEC has stated its view that an offer must remain open for a minimum period of time following a material change in the terms of such offer and that the waiver of a condition such as the condition described under the subheading “The Exchange Offer — Conditions of the Offer — Minimum Tender Condition” below is a material change in the terms of an offer. The release states that an offer should remain open for a minimum of five business days from the date that the material change is first published, sent or given to stockholders, and that if material changes are made with respect to information that approaches the significance of the price to be paid in the offer or the percentage of shares sought in the offer, a minimum of 10 business days may be required to allow adequate dissemination and investor response.

 

As used in this prospectus/offer to exchange, a “business day” means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time. If, prior to the expiration date, Express Scripts increases the cash, stock or aggregate consideration being paid for shares of Caremark common stock accepted for exchange pursuant to the offer, such increased consideration will be received by all stockholders whose shares of Caremark common stock are exchanged pursuant to the offer, whether or not such shares of Caremark common stock were tendered prior to the announcement of the increase of such consideration.

 

Pursuant to Rule 14d-11 under the Exchange Act, Express Scripts may, subject to certain conditions, elect to provide a subsequent offering period of from three business days to twenty business days in length following the expiration of the offer on the expiration date and acceptance for exchange of the shares of Caremark common stock tendered in the offer (we refer to this period in this prospectus/offer to exchange as a “subsequent offering period”). A subsequent offering period would be an additional period of time, following the first exchange of shares of Caremark common stock in the offer, during which stockholders could tender shares of Caremark common stock not tendered in the offer.

 

During a subsequent offering period, tendering stockholders would not have withdrawal rights and Express Scripts would promptly exchange and pay for any shares of Caremark common stock tendered at the same price paid in the offer. Rule 14d-11 under the Exchange Act provides that Express Scripts may provide a subsequent offering period so long as, among other things, (1) the initial period of at least 20 business days of the offer has expired, (2) Express Scripts offers the same form and amount of consideration for shares of Caremark common stock in the subsequent offering period as in the initial offer, (3) Express Scripts immediately accepts and promptly pays for all shares of Caremark common stock tendered during the offer prior to its expiration, (4) Express Scripts announces the results of the offer, including the approximate number and percentage of shares of Caremark common stock deposited in the offer, no later than 9:00 a.m., New York City time, on the next business day after the expiration date and immediately begins the subsequent offering period and (5) Express Scripts immediately accepts and promptly pays for shares of Caremark common stock as they are tendered during the subsequent offering period. If Express Scripts elects to include a subsequent offering period, it will notify stockholders of Caremark by making a public announcement on the next business day after the expiration date consistent with the requirements of Rule 14d-11 under the Exchange Act.

 

Pursuant to Rule 14d-7(a)(2) under the Exchange Act, no withdrawal rights apply to shares tendered during a subsequent offering period and no withdrawal rights apply during the subsequent offering period with respect to shares tendered in the offer and accepted for exchange. The same consideration will be received by stockholders tendering shares of Caremark common stock in the offer or in a subsequent offering period, if one is included. Please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Withdrawal Rights.”

 

A request was made to Caremark pursuant to Rule 14d-5 under the Exchange Act for the use of Caremark’s stockholder lists and security position listings for the purpose of disseminating the offer to stockholders. Caremark complied with this request by mailing the original prospectus/offer to exchange, the original green letter of transmittal and other materials to record holders of shares of Caremark common stock and to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on Caremark’s stockholders lists, or, if applicable, who are listed as participants in a clearing agency’s security position listing. On January 4, 2007, Express Scripts delivered a request to Caremark pursuant to Section 220(b) of the DGCL requesting the right to inspect Caremark’s stock ledger, a list of Caremark stockholders and other books and records, and Caremark delivered this list to Express Scripts’ representatives on January 24, 2007.

 

 

Upon the terms and subject to the conditions of the offer (including, if the offer is extended or amended, the terms and conditions of any such extension or amendment), Express Scripts will accept for exchange promptly after the expiration date all shares of Caremark common stock validly tendered (and not withdrawn in accordance with the procedure set out in the section of this prospectus/offer to exchange entitled “The Exchange Offer — Withdrawal Rights”) prior to the expiration date. Express Scripts shall exchange all shares of Caremark common stock validly tendered and not withdrawn promptly following the acceptance of shares of Caremark common stock for exchange pursuant to the offer. Express Scripts expressly reserves the right, in its discretion, but subject to the applicable rules of the SEC, to delay acceptance for and thereby delay exchange of shares of Caremark common stock in order to comply in whole or in part with applicable laws or if any of the conditions referred to in the section of this prospectus/offer to exchange entitled “The Exchange Offer — Conditions of the Offer” have not been satisfied or if any event specified in that section has occurred. If Express Scripts decides to include a subsequent offering period, Express Scripts will accept for exchange, and promptly exchange, all validly tendered shares of Caremark common stock as they are received during the subsequent offering period. Please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Withdrawal Rights.”

 

In all cases (including during any subsequent offering period), Express Scripts will exchange all shares of Caremark common stock tendered and accepted for exchange pursuant to the offer only after timely receipt by the exchange agent of (1) the certificates evidencing such shares of Caremark common stock or timely confirmation (a “book-entry confirmation”) of a book-entry transfer of such shares of Caremark common stock into the exchange agent’s account at The Depository Trust Company pursuant to the procedures set forth in the section of this prospectus/offer to exchange

entitled “The Exchange Offer — Procedure for Tendering,” (2) the original green letter of transmittal or revised blue letter of transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees, in the case of a book-entry transfer, or an Agent’s Message (as defined below) and (3) any other documents required under the original green letter of transmittal or revised blue letter of transmittal. This prospectus/offer to exchange refers to The Depository Trust Company as the “Book-Entry Transfer Facility.” As used in this prospectus/offer to exchange, the term “Agent’s Message” means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the exchange agent and forming a part of the book-entry confirmation which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the shares of Caremark common stock that are the subject of such book-entry confirmation, that such participant has received and agrees to be bound by the original green letter of transmittal and revised blue letter of transmittal and that Express Scripts may enforce such agreement against such participant.

 

For purposes of the offer (including during any subsequent offering period), Express Scripts will be deemed to have accepted for exchange, and thereby exchanged, shares of Caremark common stock validly tendered and not properly withdrawn as, if and when Express Scripts gives oral or written notice to the exchange agent of Express Scripts’ acceptance for exchange of such shares of Caremark common stock pursuant to the offer. Upon the terms and subject to the conditions of the offer, exchange shares of Caremark common stock accepted for exchange pursuant to the offer will be made by deposit of the cash and stock consideration being exchanged therefor with the exchange agent, which will act as agent for tendering stockholders for the purpose of receiving the offer consideration from Express Scripts and transmitting such consideration to tendering stockholders whose shares of Caremark common stock have been accepted for exchange. Except for the $0.00481 per day cash payment expressly provided for herein, under no circumstances will Express Scripts pay interest on the offer consideration for shares of Caremark common stock, regardless of any extension of the offer or other delay in making such exchange.

 

If any tendered shares of Caremark common stock are not accepted for exchange for any reason pursuant to the terms and conditions of the offer, or if certificates representing such shares are submitted evidencing more shares of Caremark common stock than are tendered, certificates evidencing unexchanged or untendered shares of Caremark common stock will be returned, without expense to the tendering stockholder (or, in the case of shares of Caremark common stock tendered by book-entry transfer into the exchange agent’s account at a Book-Entry Transfer Facility pursuant to the procedure set forth in the section of this prospectus/offer to exchange entitled “The Exchange Offer — Procedure for Tendering,” such shares of Caremark common stock will be credited to an account maintained at such Book-Entry Transfer Facility) promptly following the expiration or termination of the offer.

 

Shares of Caremark common stock previously validly tendered (and not withdrawn) in connection with our offer will be entitled to receive the consideration described in this prospectus/offer to exchange in the event such shares are accepted for exchange by Express Scripts and exchanged for the offer consideration.

 

Express Scripts reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates, the right to exchange all or any portion of the shares of Caremark common stock tendered pursuant to the offer, but any such transfer or assignment will not relieve Express Scripts of its obligations under the offer or prejudice the rights of tendering stockholders to exchange shares of Caremark common stock validly tendered and accepted for exchange pursuant to the offer.

 

 

Express Scripts will not issue certificates representing fractional shares of Express Scripts common stock pursuant to the offer. Instead, each tendering stockholder who would otherwise be entitled to a fractional share of Express Scripts common stock will receive cash in an amount equal to such fraction (expressed as a decimal and rounded to the nearest 0.01 of a share) multiplied by the closing price of Express Scripts common stock on the expiration date.

 

 

In order for a holder of shares of Caremark common stock validly to tender shares of Caremark common stock pursuant to the offer, the exchange agent must receive prior to the expiration date the revised blue letter of transmittal or original green letter of transmittal previously circulated with the prospectus/offer to exchange dated

January 16, 2007 (or a manually signed facsimile thereof), properly completed and duly executed, together with any required signature guarantees or, in the case of a book-entry transfer, an Agent’s Message, and any other documents required by such letter of transmittal, at one of its addresses set forth on the back cover of this offer and either (1) the certificates evidencing tendered shares of Caremark common stock must be received by the exchange agent at such address or such shares of Caremark common stock must be tendered pursuant to the procedure for book-entry transfer described below and a book-entry confirmation must be received by the exchange agent (including an Agent’s Message), in each case prior to the expiration date or the expiration of the subsequent offering period, if any, or (2) the tendering stockholder must comply with the guaranteed delivery procedures described below.

 

Tendering stockholders may continue to use the original green letter of transmittal and the original yellow notice of guaranteed delivery previously circulated with the prospectus/offer to exchange dated January 16, 2007, or they may use the revised blue letter of transmittal and the revised pink notice of guaranteed delivery circulated with this prospectus/offer to exchange. Stockholders using the original green letter of transmittal to tender their shares will nevertheless be deemed to be tendering pursuant to the terms and conditions contained in this prospectus/offer to exchange and the enclosed revised blue letter of transmittal and will receive (1) $29.25 in cash, less any applicable withholding taxes and without interest, (2) 0.426 shares of Express Scripts common stock (together with the associated preferred stock purchase rights) and (3) an additional $0.00481 in cash per day, less any applicable withholding taxes and without interest, commencing on April 1, 2007 until the earlier of (A) Express Scripts’ acceptance for exchange of shares of Caremark common stock in the exchange offer or (B) forty-five (45) days following the later of (i) expiration of the applicable waiting period under the HSR Act, or (ii) if applicable, termination or expiration of any agreement with the FTC not to accept shares of Caremark common stock for exchange in the offer, for each outstanding share of Caremark common stock validly tendered and not properly withdrawn before the expiration date if shares are accepted for exchange and exchanged by Express Scripts pursuant to this prospectus/offer to exchange. The last day the additional cash consideration will accrue on the shares of Caremark common stock will (1) in the case of clause (B), include the forty-fifth (45th) day following the date of such applicable expiration or termination and (2) in the case of clause (A), include the expiration date. The additional cash consideration is conditioned upon acceptance of shares of Caremark common stock for exchange in the offer and will be paid at the same time as the other consideration paid in the offer.

 

The method of delivery of share certificates and all other required documents, including delivery through the Book-Entry Transfer Facility, is at the option and risk of the tendering stockholder, and the delivery will be deemed made only when actually received by the exchange agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery.

 

Book-Entry Transfer.  The exchange agent will establish accounts with respect to the shares of Caremark common stock at the Book-Entry Transfer Facility for purposes of the offer within two business days after the date of this offer. Any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make a book-entry delivery of shares of Caremark common stock by causing the Book-Entry Transfer Facility to transfer such shares of Caremark common stock into the exchange agent’s account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility’s procedures for such transfer. However, although delivery of shares of Caremark common stock may be effected through book-entry transfer at the Book-Entry Transfer Facility, an Agent’s Message and any other required documents must, in any case, be received by the exchange agent at one of its addresses set forth on the back cover of this offer prior to the expiration date or the expiration of the subsequent offering period, if any, or the tendering stockholder must comply with the guaranteed delivery procedure described below. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the exchange agent.

 

Signature Guarantees.  No signature guarantee is required on a letter of transmittal (1) if the letter of transmittal is signed by a registered holder of shares of Caremark common stock who has not completed either the box entitled “Special Payment Instructions” or the box entitled “Special Delivery Instructions” on the letter of transmittal or (2) if shares of Caremark common stock are tendered for the account of a financial institution that is a member of the Security Transfer Agent Medallion Signature Program, or by any other “eligible guarantor institution,” as such term is defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing being referred to as an “Eligible Institution”). In all other cases, all signatures on Letters of Transmittal must be guaranteed by an Eligible Institution. If a certificate evidencing shares of Caremark common stock is registered in

the name of a person other than the signer of the letter of transmittal, or if the offer consideration is to be delivered, or a share certificate not accepted for exchange or not tendered is to be returned, to a person other than the registered holder(s), then such certificate must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear on the Share Certificate, with the signature(s) on such certificate or stock powers guaranteed by an Eligible Institution. See Instructions 1 and 5 of the original green letter of transmittal and revised blue letter of transmittal.

 

Guaranteed Delivery.  If a stockholder desires to tender shares of Caremark common stock pursuant to the offer and such stockholder’s certificate evidencing such shares of Caremark common stock are not immediately available, such stockholder cannot deliver such certificates and all other required documents to the exchange agent prior to the expiration date, or such stockholder cannot complete the procedure for delivery by book-entry transfer on a timely basis, such shares of Caremark common stock may nevertheless be tendered, provided that all the following conditions are satisfied:

 

(1) such tender is made by or through an Eligible Institution;

 

(2) a properly completed and duly executed notice of guaranteed delivery, substantially in the form made available by Express Scripts, is received prior to the expiration date by the exchange agent as provided below; and

 

(3) the share certificates (or a book-entry confirmation) evidencing all tendered shares of Caremark common stock, in proper form for transfer, in each case together with the original green letter of transmittal or revised blue letter of transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees or, in the case of a book-entry transfer, an Agent’s Message, and any other documents required by the original green letter of transmittal and revised blue letter of transmittal are received by the exchange agent within three New York Stock Exchange trading days after the date of execution of such notice of guaranteed delivery.

 

The notice of guaranteed delivery (including the original yellow notice of guaranteed delivery previously circulated with the prospectus/offer to exchange dated January 16, 2007 or the revised pink notice of guaranteed delivery circulated with this prospectus/offer to exchange) may be delivered by hand or mail or by facsimile transmission to the exchange agent and must include a guarantee by an Eligible Institution in the form set forth in the notice of guaranteed delivery. The procedures for guaranteed delivery above may not be used during any subsequent offering period.

 

In all cases (including during any subsequent offering period), exchange of shares of Caremark common stock tendered and accepted for exchange pursuant to the offer will be made only after timely receipt by the exchange agent of the certificates evidencing such shares of Caremark common stock, or a book-entry confirmation of the delivery of such shares of Caremark common stock (except during any subsequent offering period), and the original green letter of transmittal or the revised blue letter of transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees or, in the case of a book-entry transfer, an Agent’s Message, and any other documents required by such letter of transmittal.

 

Determination of Validity.  Express Scripts’ interpretation of the terms and conditions of the offer (including the original green letter of transmittal and the revised blue letter of transmittal and the instructions thereto) will be final and binding to the fullest extent permitted by law. All questions as to the form of documents and the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of shares of Caremark common stock will be determined by Express Scripts, in its discretion, which determination shall be final and binding to the fullest extent permitted by law. Express Scripts reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance of or for exchange for which may, in the opinion of its counsel, be unlawful. Express Scripts also reserves the absolute right to waive any condition of the offer to the extent permitted by applicable law or any defect or irregularity in the tender of any shares of Caremark common stock of any particular stockholder, whether or not similar defects or irregularities are waived in the case of other stockholders. No tender of shares of Caremark common stock will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of Express Scripts or any of their respective affiliates or assigns, the dealer managers, the exchange

agent, the Information Agent or any other person will be under any duty to give any notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification.

 

A tender of shares of Caremark common stock pursuant to any of the procedures described above will constitute the tendering stockholder’s acceptance of the terms and conditions of the offer, as well as the tendering stockholder’s representation and warranty to Express Scripts that (1) such stockholder owns the tendered shares of Caremark common stock (and any and all other shares of Caremark common stock or other securities issued or issuable in respect of such shares of Caremark common stock), (2) the tender complies with Rule 14e-4 under the Exchange Act, (3) such stockholder has the full power and authority to tender, sell, assign and transfer the tendered shares of Caremark common stock (and any and all other shares of Caremark common stock or other securities issued or issuable in respect of such shares of Caremark common stock) and (4) when the same are accepted for exchange by Express Scripts will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims.

 

The acceptance for exchange by Express Scripts of shares of Caremark common stock pursuant to any of the procedures described above will constitute a binding agreement between the tendering stockholder and Express Scripts upon the terms and subject to the conditions of the offer.

 

Appointment as Proxy.  By executing the original green letter of transmittal or the revised blue letter of transmittal, or through delivery of an Agent’s Message, as set forth above, a tendering stockholder irrevocably appoints designees of Express Scripts as such stockholder’s agents, attorneys-in-fact and proxies, each with full power of substitution, in the manner set forth in such letter of transmittal, to the full extent of such stockholder’s rights with respect to the shares of Caremark common stock tendered by such stockholder and accepted for exchange by Express Scripts (and with respect to any and all other shares of Caremark common stock or other securities issued or issuable in respect of such shares of Caremark common stock on or after the date of this offer). All such powers of attorney and proxies shall be considered irrevocable and coupled with an interest in the tendered shares of Caremark common stock (and such other shares of Caremark common stock and securities). Such appointment will be effective when, and only to the extent that, Express Scripts accepts such shares of Caremark common stock for exchange. Upon appointment, all prior powers of attorney and proxies given by such stockholder with respect to such shares of Caremark common stock (and such other shares of Caremark common stock and securities) will be revoked, without further action, and no subsequent powers of attorney or proxies may be given nor any subsequent written consent executed by such stockholder (and, if given or executed, will not be deemed to be effective) with respect thereto. The designees of Express Scripts will, with respect to the shares of Caremark common stock (and such other shares of Caremark common stock and securities) for which the appointment is effective, be empowered to exercise all voting, consent and other rights of such stockholder as they in their discretion may deem proper at any annual or special meeting of Caremark stockholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. Express Scripts reserves the right to require that, in order for shares of Caremark common stock to be deemed validly tendered, immediately upon Express Scripts’ acceptance of shares of Caremark common stock for exchange, Express Scripts must be able to exercise full voting, consent and other rights with respect to such shares of Caremark common stock (and such other shares of Caremark common stock and securities).

 

The foregoing proxies are effective only upon acceptance for exchange of shares of Caremark common stock tendered pursuant to the offer. The offer does not constitute a solicitation of proxies (absent an exchange of shares of Caremark common stock) for any meeting of Caremark stockholders, which will be made only pursuant to separate proxy materials or consent solicitation materials complying with the requirements of the rules and regulations of the SEC.

 

Backup Withholding.  Under the “backup withholding” provisions of U.S. Federal income tax law, the exchange agent may be required to withhold 28% of the amount of any payments pursuant to the offer or the second-step merger. In order to prevent backup withholding with respect to payments to certain stockholders for shares of Caremark common stock sold pursuant to the offer or cash received pursuant to the second-step merger, each such stockholder must provide the exchange agent with such stockholder’s correct taxpayer identification number (“TIN”) and certify that such stockholder is not subject to backup withholding by completing the Substitute

Form W-9 in the original green letter of transmittal or revised blue letter of transmittal, or otherwise establish an exemption. Certain stockholders (including, among others, all corporations and certain non-U.S. individuals and entities) are not subject to backup withholding. If a stockholder does not provide its correct TIN or fails to provide the certifications described above, the Internal Revenue Service may impose a penalty on the stockholder and payment of cash to the stockholder pursuant to the offer or the second-step merger may be subject to backup withholding. All stockholders surrendering shares of Caremark common stock pursuant to the offer or the second-step merger that are U.S. persons should complete and sign the Substitute Form W-9 included in the original green letter of transmittal or revised blue letter of transmittal to provide the information necessary to avoid backup withholding. Non-U.S. stockholders should complete and sign an applicable Form W-8 (a copy of which may be obtained from the exchange agent) in order to avoid backup withholding. See Instruction 9 of the original green letter of transmittal and revised blue letter of transmittal.

 

Tenders of shares of Caremark common stock made pursuant to the offer are irrevocable except that such shares of Caremark common stock may be withdrawn at any time prior to the expiration date and, unless such shares of Caremark common stock have been accepted for exchange by Express Scripts pursuant to the offer, may also be withdrawn at any time. If Express Scripts elects to extend the offer, is delayed in its acceptance for exchange of shares of Caremark common stock or is unable to accept shares of Caremark common stock for exchange pursuant to the offer for any reason, then, without prejudice to Express Scripts’ rights under the offer, the exchange agent may, on behalf of Express Scripts, retain tendered shares of Caremark common stock, and such shares of Caremark common stock may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as described in this section. Any such delay will be by an extension of the offer to the extent required by law. If Express Scripts decides to include a subsequent offering period, shares of Caremark common stock tendered during the subsequent offering period may not be withdrawn. Please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Extension, Termination and Amendment.”

 

For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the exchange agent at one of its addresses set forth on the back cover page of this offer. Any such notice of withdrawal must specify the name of the person who tendered the shares of Caremark common stock to be withdrawn, the number of shares of Caremark common stock to be withdrawn and the name of the registered holder of such shares of Caremark common stock, if different from that of the person who tendered such shares of Caremark common stock. If certificates evidencing shares of Caremark common stock to be withdrawn have been delivered or otherwise identified to the exchange agent, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the exchange agent and, unless such shares of Caremark common stock have been tendered by or for the account of an Eligible Institution, the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution. If shares of Caremark common stock have been tendered pursuant to the procedure for book-entry transfer as set forth in the section of this prospectus/offer to exchange entitled “The Exchange Offer — Procedure for Tendering,” any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn shares of Caremark common stock.

 

Withdrawals of shares of Caremark common stock may not be rescinded. Any shares of Caremark common stock properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. However, withdrawn shares of Caremark common stock may be re-tendered at any time prior to the expiration date (or during the subsequent offering period, if any) by following one of the procedures described in the section of this prospectus/offer to exchange entitled “The Exchange Offer — Procedure for Tendering” (except shares of Caremark common stock may not be re-tendered using the procedures for guaranteed delivery during any subsequent offering period).

 

All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Express Scripts, in its discretion, whose determination will be final and binding to the fullest extent permitted by law. None of Express Scripts or any of their respective affiliates or assigns, the dealer managers, the exchange agent, the Information Agent or any other person will be under any duty to give any notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification.

 

Announcement of Results of the Offer

 

Express Scripts will announce the final results of the offer, including whether all of the conditions to the offer have been fulfilled or waived and whether Express Scripts will accept the tendered shares of common stock of Caremark for exchange after expiration of the offer. The announcement will be made by a press release.

 

Upon consummation of the offer and the second-step merger, former Caremark stockholders would own in the aggregate approximately 57% of the outstanding shares of Express Scripts common stock, representing approximately 57% of the aggregate voting power on a fully diluted basis assuming that:

 

 

 

 

The following is a summary of the material United States Federal income tax consequences to Caremark stockholders that exchange Caremark common stock for Express Scripts common stock and cash pursuant to the offer and the merger. This discussion is based on provisions of the Internal Revenue Code of 1986, as amended, Treasury regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as in effect as of the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion does not address all aspects of United States Federal income taxation that may be applicable to Caremark stockholders in light of their particular circumstances or to Caremark stockholders subject to special treatment under United States Federal income tax law including, without limitation:

 

 

This discussion is limited to Caremark stockholders that hold their Caremark common stock as capital assets and does not consider the tax treatment of Caremark stockholders that hold Caremark common stock through a partnership or other pass-through entity. Furthermore, this summary does not discuss any aspect of state, local or foreign taxation. In the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, the material United States Federal income tax consequences to a Caremark stockholder of the exchange of Caremark common stock for Express Scripts common stock and cash pursuant to the offer and the second-step merger are as discussed below. This