As filed with the Securities and Exchange Commission on January 16, 2007

Registration Number 333-      

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

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

 

 

 

 

CALCULATION OF REGISTRATION FEE

 

 

If, as a result of stock splits, stock dividends or similar transactions, the number of securities purported to be registered on the registration statement changes, the provisions of Rule 416 shall apply to the registration statement.

 

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.

 

 

SUBJECT TO COMPLETION, DATED JANUARY 16, 2007

 

 

Offer to Exchange

 

Each Outstanding Share of Common Stock

 

of

 

CAREMARK Rx, INC.

for

 

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

 

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 letter of transmittal, to exchange (1) $29.25 in cash, less any applicable withholding taxes and without interest, and (2) 0.426 shares of Express Scripts common stock (together with the associated preferred stock purchase rights) for each outstanding share of Caremark Rx., Inc. common stock you validly tender and do not properly withdraw before the expiration date described below. In addition, you will receive cash instead of any fractional shares of Express Scripts common stock to which you may be entitled.

 

THE OFFER AND THE WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, FEBRUARY 13, 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 15.

 

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 50.

 

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 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 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 January 16, 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 FEBRUARY 7, 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 intends to solicit proxies from Caremark stockholders against approval of the merger agreement between Caremark and CVS and, if necessary, 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 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.

 

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 letter of transmittal, to exchange (1) $29.25 in cash, less any applicable withholding taxes and without interest, and (2) 0.426 shares of Express Scripts common stock (together with the associated preferred stock purchase rights) for each outstanding share of Caremark common stock you validly tender and do not properly withdraw before the expiration date. 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:

 

 

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 January 12, 2007, the last trading date prior to the printing of this prospectus/offer to exchange, the closing price of a share of Express Scripts common stock was $64.83. 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.”

 

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 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.

 

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 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 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, in its sole discretion, may choose to increase the amount of shares of Express Scripts common stock and/or cash to be exchanged for each share of Caremark common stock in our offer. However, 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.

 

What happens if Express Scripts increases the consideration to be paid in the offer when I have already tendered my shares?

 

All Caremark stockholders will receive the highest consideration received by stockholders tendering shares. Accordingly, if we were to increase the consideration to be paid in our offer and you have already tendered your shares, you would receive that increased consideration upon completion of our offer.

 

What are the conditions of the offer?

 

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

 

 

The offer is 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 in the third quarter of 2007. However, our ability to consummate the offer could be adversely affected if Caremark’s board does not support, or actively opposes, our offer. We believe that Caremark’s board has a fiduciary duty to accept our offer.

 

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

 

Express Scripts has filed preliminary proxy materials with the SEC to solicit proxies from Caremark stockholders (and, when permitted, to distribute definitive 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. 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 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 its potential proxy solicitation 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 the printing 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. 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 commitment letters 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,

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 is scheduled to expire at 12:00 midnight, New York City time, on February 13, 2007, which is the initial 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 February 13, 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 letter of transmittal and any other documents required by the letter of transmittal, to National City Bank, the exchange agent for the offer, not later than the time the offer expires. The 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 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 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 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 letter of transmittal and any other required documents for such shares.

 

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 after March 16, 2007. 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 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 January 12, 2007, the last trading day prior to the printing of this prospectus/offer to exchange, the closing price of a share of Caremark common stock was $56.83. 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. The offer will commence when we first mail this preliminary prospectus/offer to exchange and the related letter of transmittal to Caremark stockholders.

 

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 are expected to generate 2006 EBITDA in excess of $2.7 billion based on consensus and Wall Street estimates. 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.

 

 

 

		Express Scripts								Implied Value of
		Common Stock				Caremark Common				Caremark Common
		Closing Price				Stock Closing Price				Stock
December 15, 2006		$	68.66			$	50.30			$	58.50
January 12, 2007		$	64.83			$	56.83			$	56.87

 

 

 

 

 

 

Listing of Express Scripts Common Stock to be Issued Pursuant to the Offer and the Second-Step Merger (See page 48)

 

	•	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 shall have expired or 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.

 

 

 

	•	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 Caremark agrees to enter into a negotiated merger agreement with Express Scripts; and
	•	to amend the offer or waive any conditions;

 

Procedure for Tendering Shares (See page 38)

 

Withdrawal Rights (See page 40)

 

 

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA FOR EXPRESS SCRIPTS

		Nine Months Ended
		September 30,								Year Ended December 31,
		2006				2005				2005(1)				2004(2)				2003				2002(3)				2001(4)
		(In millions, except per share amounts)
Statement of Operations Data:
Revenues(5)		$	13,131			$	11,631			$	16,212			$	15,115			$	13,295			$	12,271			$	8,588
Cost of Revenues(5)			12,049				10,796				15,013				14,171				12,428				11,447				7,992
Gross Profit			1,082				835				1,199				944				867				824				596
Selling, general and administrative			501				387				556				451				417				452				359
Operating Income			581				448				643				493				450				372				237
Other expense, net			(60	)			(9	)			(28	)			(43	)			(44	)			(44	)			(30	)
Income before income taxes			521				439				615				450				406				328				207
Provision for income taxes			194				150				215				172				155				125				83
Income before cumulative effective of accounting change			327				289				400				278				251				203				124
Cumulative effective of accounting change, net of tax			—				—				—				—				(1	)			—				—
Net income		$	327			$	289			$	400			$	278			$	250			$	203			$	124
Net Earnings Per Share:(6)
Basic		$	2.32			$	1.96			$	2.72			$	1.82			$	1.60			$	1.30			$	0.80
Diluted		$	2.28			$	1.93			$	2.68			$	1.79			$	1.58			$	1.27			$	0.78
Balance Sheet Data:
Cash and cash equivalents		$	68			$	405			$	478			$	166			$	396			$	191			$	178
Working capital			(597	)			(258	)			(137	)			(371	)			(66	)			(150	)			(32	)
Total assets			5,023				3,743				5,493				3,600				3,409				3,207				2,500
Short-term debt			150				22				110				22				—				3				—
Long-term debt			1,480				346				1,401				412				455				563				346
Stockholders’ equity			971				1,333				1,465				1,196				1,194				1,003				832

		Nine Months Ended
		September 30,								Year Ended December 31,
		2006				2005				2005(1)				2004(2)				2003				2002(3)				2001(4)
		(In millions, except per share amounts)
Selected Data:
Network pharmacy claims processed			293				326				437				399				379				355				294
Home delivery prescriptions filled			31				30				40				38				32				27				21
SAAS prescriptions filled			4				3				5				5				4				3				2
Cash flows provided by operating activities		$	353			$	531			$	793			$	496			$	458			$	426			$	281
Cash flows used in investing activities			(38	)			(35	)			(1,369	)			(397	)			(43	)			(549	)			(77	)
Cash flows (used in) provided by financing activities			(725	)			(258	)			887				(330	)			(212	)			136				(80	)

(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)		Includes the acquisition of Centre d’autorisation et de paiement des services de sante, Inc. by our Canadian subsidiary effective March 1, 2001.
(5)		Excludes estimated retail pharmacy copayments of $3.2 billion and $4.4 billion for the nine months ended September 30, 2006 and 2005, respectively, and $5.8 billion, $5.5 billion, $5.3 billion, $4.4 billion and $2.9 billion for the years ended December 31, 2005, 2004, 2003, 2002 and 2001, respectively. These are amounts we instructed retail pharmacies to collect from members. We have no information regarding actual copayments collected.
(6)		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

		Nine Months Ended
		September 30,								Year Ended December 31,
		2006				2005				2005				2004(3)				2003				2002(1)				2001
		(In millions, except per share amounts)
Operations Data:
Net revenues(4)		$	27,481			$	24,624			$	32,991			$	25,801			$	9,067			$	6,805			$	5,614
Income from continuing operations			773				642				932				600				291				829				191
Loss from discontinued operations			—				—				—				—				—				(38	)			—
Net earnings		$	773			$	642			$	932			$	600			$	291			$	791			$	191
Net Earnings Per Share:
Basic		$	1.79			$	1.43			$	2.09			$	1.46			$	1.13			$	3.34			$	0.79
Diluted			1.76				1.41				2.05				1.43				1.10				3.01				0.73
Per share cash dividends		$	0.20			$	—			$	—			$	—			$	—			$	—			$	—
Balance Sheet Data:
Total assets		$	12,356			$	12,404			$	12,851			$	12,310			$	2,474			$	1,913			$	874
Long-term debt (net of current portion)(2)			—				450				387				450				693				696				696
Total stockholders’ equity (deficit)			7,471				7,899				8,181				7,540				641				258				(773	)

(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 $4.4 billion and $4.2 billion for the nine months ended September 30, 2006 and 2005, respectively, and $5.5 billion, $4.6 billion, $1.2 billion, $0.9 billion and $0.7 billion for the years ended December 31, 2005, 2004, 2003, 2002 and 2001, respectively. Such copayments are excluded from revenues for Express Scripts in the periods presented.

 

SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

		Unaudited Proforma Combined
		Nine Months Ended				Fiscal Year Ended
		September 30,				December 31,
		2006				2005
		(In millions, except per share amounts)
Statement of Operations Data:
Net revenues		$	36,212			$	45,239
Net earnings			587				647
Average number of common shares outstanding — basic			325				337
Average number of common shares outstanding — diluted			332				343
Earnings per common share:
Basic			1.81				1.92
Diluted			1.77				1.89
Balance Sheet Data:
Cash and cash equivalents			1,062
Total assets			36,788
Long-term debt			13,064
Total stockholders’ equity			13,496
Per share cash dividends			—

 

HISTORICAL AND PRO FORMA PER SHARE DATA

		As of and for the:
		Nine Months Ended				Fiscal Year Ended
		September 30, 2006				December 31, 2005
Express Scripts Per Share Data:
Historical net earnings per common share — basic		$	2.32			$	2.72
Pro forma net earnings per common share — basic			1.81				1.92
Historical net earnings per common share — diluted			2.28				2.68
Pro forma net earnings per common share — diluted			1.77				1.89
Historical cash dividends			—				—
Pro forma cash dividends(2)			—				—
Historical book value per common share — basic(3)			6.89
Pro forma book value per common share — basic(3)			41.53
Caremark Per Share Data:
Historical net earnings per common share — basic		$	1.79			$	2.09
Equivalent pro forma net earnings per common share — basic(1)			0.77				0.82
Historical net earnings per common share — diluted			1.76				2.05
Equivalent pro forma net earnings per common share — diluted(1)			0.75				0.81
Historical cash dividends			0.20				—
Equivalent pro forma cash dividends(2)			—				—
Historical book value per common share — basic(3)			17.29
Equivalent pro forma book value per common share — basic(1)			17.69

(1)		Pro forma amounts for Express Scripts multiplied by 0.426 (the exchange ratio).
(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
2004
First Quarter		$	38.10			$	31.56				—			$	34.19			$	23.50				—
Second Quarter		$	40.60			$	36.40				—			$	35.31			$	30.50				—
Third Quarter		$	38.95			$	29.92				—			$	32.94			$	27.56				—
Fourth Quarter		$	39.75			$	29.15				—			$	39.95			$	28.29				—
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 January 12, 2007		$	72.03			$	64.64				—			$	57.50			$	54.92				—

		Express Scripts								Implied Value of
		Common Stock				Caremark Common				Caremark Common
		Closing Price				Stock Closing Price				Stock in the Offer
December 15, 2006		$	68.66			$	50.30			$	58.50
January 12, 2007		$	64.83			$	56.83			$	56.87

 

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), and $29.25 in cash, less any applicable withholding taxes and without interest, upon consummation of 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 2004 through 2006.

 

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 September 30, 2006 was approximately $1.6 billion. Express Scripts’ pro forma total indebtedness as of September 30, 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 $13.4 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 consents 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 the approval of the Tennessee Department of Commerce and Insurance with respect to Caremark’s Tennessee domiciled insurance company subsidiary. If Express Scripts does not receive these approvals, 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 factual assumptions are satisfied. 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 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 185,427,776 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, 2005, and Part II, Item 1A of Caremark’s quarterly report on Form 10-Q for the quarter ended September 30, 2006, each of which has been filed by Caremark with the SEC and all of which are 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

 

Express Scripts operates in a very competitive industry, and competition could impair its ability to attract and retain clients, which could adversely affect its business

 

Express Scripts’ ability to maintain its growth rate is dependent upon its ability to attract new clients and retain existing clients, as well as cross-sell additional services to its existing clients. Express Scripts operates in a very competitive environment. Some of Express Scripts’ competitors may offer services and pricing terms that Express Scripts may not be able to offer. Express Scripts’ contracts with clients generally do not have terms longer than three years and, in some cases, are terminable by the client on relatively short notice. This competition may make it difficult for Express Scripts to retain its existing clients, sell to new clients and cross-sell additional services to its clients, which could materially adversely affect its business and financial results.

 

Over the last several years, competition in the marketplace has also caused many PBMs, including Express Scripts, to reduce the prices charged to clients for core services and share a larger portion of the formulary fees and related revenues received from pharmaceutical manufacturers with clients. This combination of lower pricing and increased revenue sharing, as well as increased demand for enhanced service offerings and higher service levels, has put pressure on operating margins. This pressure may continue, and Express Scripts can give no assurance that new services provided to its clients will fully compensate for these reduced margins.

 

Express Scripts believes the managed care industry is undergoing substantial consolidation, and another party that is not its client could acquire some of its managed care clients. In such case, the likelihood such client would renew its contract with Express Scripts, as opposed to one of its competitors, could be reduced.

 

Changes in industry pricing benchmarks could adversely affect Express Scripts’ financial performance

 

Contracts in the prescription drug industry, including Express Scripts’ contracts with its retail pharmacy networks and with its PBM and specialty pharmacy clients, generally use certain published benchmarks to establish pricing for prescription drugs. These benchmarks include average wholesale price (“AWP”), average manufacturer price (“AMP”) and wholesale acquisition cost (“WAC”). Most of Express Scripts’ client contracts utilize the AWP standard.

 

Recent events have raised uncertainties as to whether payors, pharmacy providers, PBMs and others in the prescription drug industry will continue to utilize AWP as it has previously been calculated or whether other pricing benchmarks will be adopted for establishing prices within the industry.

 

Specifically, in the recently announced proposed settlement in the case of New England Carpenters Health Benefits Fund, et al. v. First DataBank, et al., Civil Action No. 1:05-CV-11148-PBS (D. Mass.), a civil class action case brought against First DataBank (“FDB”), one of several companies that report data on prescription drug prices, FDB has agreed to reduce the reported AWP of certain drugs by four percent. At this time the proposed settlement has received preliminary but not final court approval. Express Scripts cannot predict the outcome of the case or, if the settlement is approved, the precise timing of any of the proposed AWP changes.

 

In the absence of any mitigating action on Express Scripts’ part, the proposed reduction in FDB’s AWP would have a material adverse effect on the margin Express Scripts earns on home delivery transactions. It may also create disruption in Express Scripts’ retail networks due to the adverse impact on AWP-based retail pharmacy pricing. However, most of Express Scripts’ contracts with its clients and retail pharmacies contain terms that Express Scripts believes will enable it to mitigate the adverse effect of this proposed reduction in FDB’s reported AWP.

 

Due to these and other uncertainties, Express Scripts can give no assurance that the short or long-term impact of changes to industry pricing benchmarks will not have a material adverse effect on its business and financial results in future periods.

 

Client demands for additional services or enhanced service levels could put pressure on Express Scripts’ margins

 

As Express Scripts’ clients face the continued rapid growth in prescription drug costs, they may demand additional services and enhanced service levels to help mitigate the increase in spending. Express Scripts operates in

a very competitive environment, and may not be able to increase its fees to compensate for these increased services, which could put pressure on its margins.

 

If Express Scripts loses relationships with one or more key pharmaceutical manufacturers or if the payments made or discounts provided by pharmaceutical manufacturers decline, its business and financial results could be adversely affected

 

Express Scripts maintains contractual relationships with numerous pharmaceutical manufacturers that may provide it with, among other things:

 

 

If several of these contractual relationships are terminated or materially altered by the pharmaceutical manufacturers, Express Scripts’ business and financial results could be materially adversely affected. In addition, formulary fee programs have been the subject of debate in federal and state legislatures and various other public and governmental forums. Changes in existing laws or regulations or in interpretations of existing laws or regulations or the adoption of new laws or regulations relating to any of these programs may materially adversely affect Express Scripts’ business.

 

If Express Scripts loses its relationship with one or more key pharmacy providers, or its relationship is modified in an unfavorable manner, its business could be impaired

 

More than 57,000 retail pharmacies, which represent more than 95% of all United States retail pharmacies, participate in one or more of Express Scripts’ networks. However, the top ten retail pharmacy chains represent approximately 54% of the total number of stores in Express Scripts’ largest network, and these pharmacy chains represent even higher concentrations in certain areas of the United States. Express Scripts’ contracts with retail pharmacies, which are non-exclusive, are generally terminable on relatively short notice by either party. If one or more of the top pharmacy chains elects to terminate its relationship with Express Scripts, or attempts to renegotiate the terms of the relationship in a manner that is unfavorable to Express Scripts, its members’ access to retail pharmacies and its business could be materially adversely affected.

 

Pending and future litigation could subject Express Scripts to significant monetary damages and/or require it to change its business practices

 

Express Scripts is subject to risks relating to litigation and other proceedings in connection with its PBM operations, including the dispensing of pharmaceutical products by its home delivery pharmacies, and the services rendered in connection with its disease management and its pharmaceutical services operations. A list of a number of the more significant proceedings pending against Express Scripts is included under Item 3 — Legal Proceedings in Express Scripts’ Form 10-K for the year ended December 31, 2005 and Part II, Item 1 — Legal Proceedings in Express Scripts’ quarterly reports on Form 10-Q for the quarters ended March 31, 2006, June 30, 2006 and September 30, 2006 (such litigation, the “Previously Disclosed Legal Proceedings”). These proceedings generally seek unspecified monetary damages and injunctive relief on behalf of a class of plaintiffs that are either clients or individual members of health plans. While Express Scripts believes that these suits are without merit and intend to contest them vigorously, it can give no assurance that an adverse outcome in one or more of these suits would not have a material adverse effect on its business and financial results. Express Scripts is presently responding to several subpoenas and requests for information from governmental agencies, as described in the Previously Disclosed Legal Proceedings. Express Scripts cannot predict with certainty what the result of any such inquiry might be. In addition to potential monetary liability arising from these suits and proceedings, Express Scripts is incurring costs in the defense of the suits and in providing documents to government agencies. Certain of the costs are covered by its

insurance, but certain other costs are not insured. Such costs have become material to Express Scripts’ financial performances and Express Scripts can give no assurance that such costs will not increase in the future.

 

Commercial liability insurance coverage continues to be difficult to obtain for companies in Express Scripts’ business sector which can cause unexpected volatility in premiums and/or retention requirements dictated by insurance carriers. Express Scripts has established certain self-insurance reserves to cover anticipated losses within its retained liability for previously reported claims and the cost to defend these claims. There can be no assurance that general, professional, managed care errors and omissions, and/or other liability insurance coverage will be reasonably available in the future or that such insurance coverage, together with Express Scripts’ self-insurance reserves, will be adequate to cover future claims. A claim, or claims, in excess of Express Scripts’ insurance coverage could have a material adverse effect on its business and financial results.

 

Medicare Part D may adversely impact Express Scripts’ business

 

In connection with the enactment of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “MMA”), the Department of Health and Human Services Centers for Medicare and Medicaid Services (“CMS”) promulgated a substantial volume of new regulations implementing the federal government’s Voluntary Prescription Drug Benefit Program, known as Medicare “Part D.” The Office of Inspector General has also proposed new safe harbors and other regulation pursuant to the MMA. Both of these federal regulatory agencies continue to issue guidance with regard to the Part D program and compliance with related federal laws and regulations by Part D sponsors and their subcontractors. The receipt of federal funds made available through this program by Express Scripts, its affiliates, or clients may be subject to compliance with these new regulations as well as the established laws and regulations governing the federal government’s payment for health care goods and services, including the Anti-Kickback Laws, the Stark Law, and the False Claims Act. There are many uncertainties about the financial and regulatory risks of participating in the Medicare Part D program, and we can give no assurance that these risks will not be material to Express Scripts’ business in future periods.

 

In addition, due to the implementation of Medicare Part D, some of Express Scripts’ employer clients may decide to stop providing pharmacy benefit coverage to retirees, instead allowing the retirees to choose their own Part D plans, which could result in Express Scripts losing members. Extensive competition among Medicare Part D plans could also result in the loss of Medicare members by Express Scripts’ managed care customers, which would also result in a decline in its membership base.

 

State and Federal regulations could restrict Express Scripts’ ability to conduct its business

 

Numerous state and federal laws and regulations affect its business and operations. The categories include, but are not necessarily limited to:

 

 

 

These and other regulatory matters are discussed in more detail under “Item 1 — Business — Government Regulation” in Express’ Scripts form 10-K for the year ended December 31, 2005.

 

Express Scripts believes that it is operating its business in substantial compliance with all existing legal requirements material to the operation of its business. There are, however, significant uncertainties regarding the application of many of these legal requirements to Express Scripts’ business, and a number of state and federal law enforcement agencies and regulatory agencies have initiated investigations or litigation that involve certain aspects of its business or its competitors’ businesses. Accordingly, Express Scripts cannot provide any assurance that one or more of these agencies will not interpret or apply these laws differently, or, if there is an enforcement action brought against Express Scripts, that Express Scripts’ interpretation would prevail. In addition, there are numerous proposed health care laws and regulations at the Federal and state levels, many of which could materially affect Express Scripts’ ability to conduct its business or adversely affect its financial results. Express Scripts is unable to predict what additional Federal or state legislation or regulatory initiatives may be enacted in the future relating to its business or the health care industry in general, or what effect any such legislation or regulations might have on Express Scripts.

 

Various governmental agencies, including the U.S. Attorney General’s Office in Philadelphia and a number of State Attorneys General, have conducted investigations into certain PBM business practices. Many of these investigations have resulted in PBMs, including Medco and AdvancePCS (now part of Caremark), agreeing to civil penalties, including the payment of money and corporate integrity agreements. Express Scripts has received subpoenas from the U.S. Attorney’s Office in Boston and a number of State Attorneys General. Express Scripts has also received a letter of inquiry from the Department of Labor. Express Scripts cannot predict what effect, if any, these investigations may ultimately have on it or on the PBM industry generally (see the Previously Disclosed Legal Proceedings).

 

The State of Maine and the District of Columbia have each enacted statutes that purport to declare that a PBM is a fiduciary with respect to its clients. Express Scripts’ trade association, PCMA, filed suit in Federal District Courts in Maine and the District of Columbia alleging, among other things, that these statutes are preempted by ERISA with respect to welfare plans that are subject to ERISA. The Federal District Court in Maine ruled the statute valid, and the First Circuit Court of Appeals affirmed. The case challenging the D.C. statute is still pending. Other states are considering but have not yet enacted similar fiduciary statutes, and Express Scripts cannot predict what effect, if any, these and similar statutes may have on its business and financial results.

 

Most of Express Scripts’ activities involve the receipt or use of confidential medical information concerning individuals. In addition, Express Scripts uses aggregated and anonymized data for research and analysis purposes and in some cases provides access to such data to pharmaceutical manufacturers. Various federal and state laws, including HIPAA, regulate and restrict the use, disclosure and security of confidential medical information and new legislation is proposed from time to time in various states. To date, no such laws have been adopted that adversely impact Express Scripts’ ability to provide its services, but there can be no assurance that federal or state governments will not enact legislation, impose restrictions or adopt interpretations of existing laws that could have a material adverse effect on Express Scripts’ business and financial results.

 

Effective as of 2007, Express Script’s subsidiary, Express Scripts Insurance Company (“ESIC”), began offering a prescription drug plan (“PDP”) in connection with the Medicare Part D program for purposes of making employer/union-only group waiver plans (known as “EGWP” plans) available for applicable clients. As a licensed

insurer organized and licensed under the laws of the State of Arizona, ESIC will be subject to state and federal laws regulating the business of insurance in all jurisdictions in which ESIC offers its PDP. CMS regulations and applicable guidance currently require that ESIC be authorized to offer its prescription drug plan to individuals residing in all fifty states and Puerto Rico. As a PDP sponsor, ESIC will be subject to compliance with all federal laws and regulations applicable to such sponsors as a result of the MMA and the regulations promulgated in connection with implementation of the Medicare Part D drug benefit. While many state insurance laws and regulations are well-established, CMS continues to provide guidance and promulgate new regulations in an attempt to assist PDPs and state regulators to determine the appropriate applicability of state insurance laws in the context of the federal Part D drug benefit provided through an EGWP plan. Uncertainty as to the applicability of state and federal laws to ESIC’s operations could have an impact on its ability to successfully offer products and services under the Part D drug benefit and its ability to comply with applicable laws in doing so.

 

Efforts to reduce health care costs and alter health care financing practices could adversely affect Express Scripts’ business

 

Certain proposals have been made in the United States to control health care costs, including prescription drug costs, in response to increases in prescription drug utilization rates and drug prices. These proposals include “single-payer” government funded health care, and price controls on prescription drugs. If these or similar efforts are successful or if prescription drug utilization rates were to decrease significantly, whether due to a reversal in the growing role of prescription drugs in medical treatment or otherwise, Express Scripts’ business and consolidated results of operations could be materially adversely affected.

 

Express Scripts has designed its business model to compete within the current structure of the U.S. health care system. Changing political, economic and regulatory influences may affect health care financing and reimbursement practices. If the current health care financing and reimbursement system changes significantly, Express Scripts’ business could be materially adversely affected. Congress periodically considers proposals to reform the U.S. health care system. These proposals may increase government involvement in health care and regulation of PBM services, or otherwise change the way Express Scripts’ clients do business. Health plan sponsors may react to these proposals and the uncertainty surrounding them by reducing or delaying purchases of cost control mechanisms and related services that Express Scripts provides. Express Scripts cannot predict what effect, if any, these proposals may have on its business. Other legislative or market-driven changes in the health care system that Express Scripts cannot anticipate could also materially adversely affect its business and financial results.

 

If Express Scripts fails to successfully complete the integration of the Priority Healthcare business into its operations, Express Scripts’ business and financial results could be adversely affected

 

In October 2005, Express Scripts acquired Priority Healthcare Corporation for approximately $1.3 billion. Express Scripts is in the process of integrating the Priority business with its other operations. There are risks associated with integrating and operating a newly acquired business. Express Scripts can give no assurance that it will successfully operate this new business.

 

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 were 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 the other. This diligence effort 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 (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. On 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.

 

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 announced 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 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 the registration statement of which this prospectus/offer to exchange is a part 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.

 

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 the material obligations of Caremark under the Caremark/CVS merger agreement, which is derived from amendment number 1 to the preliminary S-4 statement filed by CVS on January 9, 2007. 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 which is attached as Annex A to the preliminary S-4 statement, as amended, originally filed by CVS on December 19, 2006. 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 Twain MergerSub Corp., a wholly-owned subsidiary of CVS that was formed for the purpose of the merger, with and into Caremark, with Caremark surviving the merger as a wholly-owned subsidiary of CVS. 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.

 

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 exchange offer (including a self-exchange 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.

 

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, and (2) 0.426 shares of Express Scripts common stock (together with the associated preferred stock purchase rights), upon the terms and subject to the conditions contained in this prospectus/offer to exchange and the accompanying letter of transmittal. 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 February 13, 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 February 13, 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 the printing 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. 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 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, immediately 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. Please see the section of this prospectus/offer to exchange entitled “The Exchange Offer — Plans for Caremark.”

 

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 February 13, 2007, which is the initial expiration date, 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 is being 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. Upon compliance by Caremark with this request, this offer, the letter of transmittal and all other relevant materials will be mailed to record holders of shares of Caremark common stock and will be furnished 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 for subsequent transmittal to beneficial owners of shares of Caremark common stock by Express Scripts or, if it so elects, the materials will be mailed by Caremark. 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.

 

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 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 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 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. 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), as promptly as practicable following the expiration or termination of the offer.

 

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 letter of transmittal (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 the 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.

 

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 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 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 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 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 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 letter of transmittal.

 

Determination of Validity.  Express Scripts’ interpretation of the terms and conditions of the offer (including the 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 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 the 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 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 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 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 after March 16, 2007. 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 general 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. Based on the advice 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.

 

Treatment as a reorganization.  Express Scripts intends that the offer and the second-step merger be treated 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 relating to the offer and the merger are satisfied, including, among others, that:

 

(1) the value of the Express Scripts common stock issued to Caremark stockholders pursuant to the offer and the merger as a percentage of the total consideration furnished to Caremark stockholders in the offer and the merger will satisfy the continuity of shareholder interest requirement for corporate reorganizations, which, for Internal Revenue Service purposes, will in all cases be satisfied if the percentage is 40 or more, taking into account any acquisitions, in connection with the offer and the merger, by Express Scripts or any party related to Express Scripts, of shares of Express Scripts common stock issued to Caremark stockholders, such percentage generally being determined using the value of the Express Scripts common stock on the date of announcement of the offer unless certain exceptions apply,

 

(2) Express Scripts will continue Caremark’s historic business or will use a significant portion of Caremark’s historic business assets in a business,

 

(3) Express Scripts will acquire substantially all of Caremark’s assets pursuant to the offer and the merger, and

 

(4) the offer and the merger will be consummated in accordance with the terms of this prospectus/offer to exchange.

 

We will not seek a ruling from the IRS with regard to the transactions. Accordingly, there can be no certainty that the IRS will not challenge the conclusions described below or that a court would not sustain such a challenge.

 

If, as Express Scripts intends, the offer and the second-step merger are properly treated as part of an integrated transaction that qualifies as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, the following are the material federal income tax consequences:

 

 

Possible treatment of cash as a dividend.  In general, the determination of whether the gain recognized by a Caremark stockholder will be treated as capital gain or a dividend distribution will depend upon whether and to what extent the exchange reduces the Caremark stockholder’s deemed percentage stock ownership interest in Express Scripts. For purposes of this determination, a Caremark stockholder will be treated as if such stockholder first exchanged all of such stockholder’s Caremark common stock solely for Express Scripts common stock and then Express Scripts immediately redeemed a portion of such Express Scripts common stock in exchange for the cash that the stockholder actually received. The gain recognized in the exchange followed by a deemed redemption will be treated as capital gain if, with respect to the Caremark stockholder, the deemed redemption is (i) “substantially disproportionate” or (ii) “not essentially equivalent to a dividend.” In general, the deemed redemption will be “substantially disproportionate” with respect to a Caremark stockholder if the percentage described in (ii) below is less than 80% of the percentage described in (i) below. Whether the deemed redemption is “not essentially equivalent to a dividend” with respect to a Caremark stockholder will depend on the stockholder’s particular circumstances. In order for the deemed redemption to be “not essentially equivalent to a dividend,” the deemed

redemption must result in a “meaningful reduction” in such Caremark stockholder’s deemed percentage stock ownership of Express Scripts common stock. In general, that determination requires a comparison of (i) the percentage of the outstanding voting stock of Express Scripts that such Caremark stockholder is deemed actually and constructively to have owned immediately before the deemed redemption by Express Scripts and (ii) the percentage of the outstanding voting stock of Express Scripts actually and constructively owned by such stockholder immediately after the deemed redemption by Express Scripts. In applying the foregoing tests, a stockholder may be deemed to own stock that is owned by other persons in addition to stock actually owned.

 

Because the constructive ownership rules are complex, each stockholder should consult its own tax advisor as to the applicability of these rules. The Internal Revenue Service has ruled that a minority stockholder in a publicly traded corporation whose relative stock interest is minimal and that exercises no control with respect to corporate affairs is considered to have a “meaningful reduction” if such stockholder has any reduction in such stockholder’s percentage stock ownership.

 

Cash received in lieu of fractional shares.  Cash received in lieu of a fractional share of Express Scripts common stock will be treated as received in redemption of such fractional share interest, and a Caremark stockholder will recognize gain or loss measured by the difference between the amount of cash received and the portion of the basis of the Express Scripts common shares allocable to such fractional interest. Such gain or loss generally will constitute capital gain or loss and will be long-term capital gain or loss if the Caremark stockholder’s holding period in the Caremark common stock exchanged was greater than one year as of the date of the exchange.

 

Failure of offer to be treated as part of an integrated transaction that qualifies as a reorganization

 

Treatment of stockholders who tender their shares pursuant to the offer

 

If, contrary to expectations, the offer and the second-step merger are not treated as a single integrated transaction or if the offer is completed but the second-step merger does not occur, the offer would fail to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. Accordingly:

 

 

Treatment of stockholders who exchange their shares pursuant to the second-step merger

 

If the offer and the second step merger are both consummated but are not treated as part of an integrated transaction, the treatment described above in “Treatment as a reorganization” would apply to Caremark stockholders who exchange their shares pursuant to the second-step merger.

 

Treatment if the reverse merger is consummated.  As discussed above, if Skadden, Arps, Slate, Meagher and Flom LLP does not render an opinion that the second-step merger will qualify as a reorganization under Section 368(a) of the Internal Revenue Code, Express Scripts may, at its sole discretion, choose to effect the reverse merger. If the reverse merger is completed, stockholders who tender their shares in the offer and/or exchange their shares in the reverse merger may, if the assumptions set forth above under the subheading entitled “Treatment as a reorganization” and certain other requirements are satisfied, be treated as described in that section. If the assumptions set forth above under the subheading “Treatment as a reorganization” and certain other requirements are not satisfied, then such stockholders may be treated as described above under the subheading “Failure of offer to be treated as part of an integrated transaction that qualifies as a reorganization — Treatment of stockholders who tender their shares pursuant to the offer.”

 

THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL FEDERAL INCOME TAX

CONSEQUENCES OF THE OFFER AND THE SECOND-STEP MERGER. CAREMARK STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE OFFER AND THE SECOND-STEP MERGER TO THEM.

 

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 of 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 (this merger is sometimes referred to as the second-step merger). Under certain circumstances described in the section 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 a merger of Caremark into Express Scripts or a wholly-owned limited liability company subsidiary of Express Scripts. 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, the former Caremark stockholders will no longer have any ownership interest in Caremark but in Express Scripts.

 

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 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.

 

Under the DGCL, the second-step merger would require the approval of Caremark’s board of directors and of the holders of a majority of the outstanding shares of Caremark common stock. If Express Scripts acquired, pursuant to the offer or otherwise, at least a majority of the outstanding shares of Caremark common stock, Express Scripts would, subject to approval of Caremark’s board of directors, have sufficient voting power to approve the second-step merger without the affirmative vote of any other stockholder of Caremark.

 

The exact timing and details of the second-step merger or any other merger or other business combination involving Caremark will necessarily depend upon a variety of factors, including the number of shares of Caremark common stock Express Scripts acquires pursuant to the offer. Although Express Scripts currently intends to propose the second-step merger generally on the terms described herein, it is possible that, as a result of substantial delays in its ability to effect such a transaction, actions Caremark may take in response to the offer, information Express Scripts obtains hereafter, changes in general economic or market conditions or in the business of Caremark or other currently unforeseen factors, such a transaction may not be so proposed, may be delayed or abandoned or may be proposed on different terms. Express Scripts reserves the right not to propose the second-step merger or any other merger or other business combination with Caremark or to propose such a transaction on terms other than those described above.

 

Under the DGCL, if Express Scripts acquires, pursuant to the offer or otherwise, at least 90% of the then outstanding shares of Caremark common stock, Express Scripts will be able to effect the second-step merger without approval of Caremark’s board of directors or a vote of Caremark stockholders. In such event, Express Scripts intends to take all necessary and appropriate action to cause the second-step merger to become effective as

promptly as reasonably practicable after such acquisition, without a meeting of Caremark stockholders. If, however, Express Scripts does not acquire at least 90% of the outstanding shares of Caremark common stock pursuant to the offer or otherwise and a vote of Caremark stockholders is required under Delaware law, a significantly longer period of time would be required to effect the second-step merger (please see the section entitled “The Exchange Offer — Statutory Requirements; Approval of the Second-Step Merger” above).

 

You do not have appraisal rights in connection with the offer. However, if the second-step merger is subsequently consummated between Express Scripts and Caremark, stockholders who have not tendered their shares of Caremark common stock in the offer will have certain rights under the DGCL 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 who perfect such rights by complying with the procedures set forth in Section 262 of the DGCL will have the “fair value” of their shares of Caremark common stock (exclusive of any element of value arising from the accomplishment or expectation of the second-step merger) determined by the Delaware Court of Chancery and will be entitled to receive a cash payment equal to such fair value for the corporation surviving the second-step merger. In addition, such dissenting stockholders would be entitled to receive payment of a fair rate of interest from the date of consummation of the second-step merger on the amount determined to be the fair value of their shares of Caremark common stock. In determining the fair value of the shares of Caremark common stock, the court is required to take into account all relevant factors. Accordingly, such determination could be based upon considerations other than, or in addition to, the market value of the shares of Caremark common stock, including, among other things, asset values and earning capacity. In Weinberger v. UOP, Inc., the Delaware Supreme Court stated, among other things, that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered in an appraisal proceeding. The Weinberger court also noted that under Section 262, fair value is to be determined “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., however, the Delaware Supreme Court stated that, in the context of a two-step cash merger, “to the extent that value has been added following a change in majority control before cash-out, it is still value attributable to the going concern,” to be included in the appraisal process. As a consequence, the value so determined in any appraisal proceeding could be the same, more or less than the aggregate offer consideration per share of Caremark common stock in the offer or the consideration in the second-step merger.

 

In addition, several decisions by Delaware courts have held that, in certain circumstances, a controlling stockholder of a company involved in a merger has a fiduciary duty to other stockholders, which requires that the merger be fair to such other stockholders. In determining whether a merger is fair to minority stockholders, Delaware courts have considered, among other things, the type and amount of consideration to be received by the stockholders and whether there was fair dealing among the parties. The Delaware Supreme Court stated in Weinberger and Rabkin v. Philip A. Hunt Chemical Corp. that the remedy ordinarily available to minority stockholders in a cash-out merger is the right to appraisal described above. However, a damages remedy or injunctive relief may be available if a merger is found to be the product of procedural unfairness, including fraud, misrepresentation or other misconduct.

 

Express Scripts does not intend to object, assuming the proper procedures are followed, to the exercise of appraisal rights by any stockholder in the second-step merger and the demand for appraisal of, and payment in cash for the fair value of, the shares of Caremark common stock. Express Scripts would, however, cause the corporation surviving from the second-step merger to argue in an appraisal proceeding that, for purposes of such proceeding, the fair value of each Share is less than or equal to the consideration being offered in the second-step merger. In this regard, stockholders should be aware that opinions of investment banking firms, if any, as to the fairness from a financial point of view are not necessarily opinions as to “fair value” under Section 262.

 

THE FOREGOING SUMMARY OF THE RIGHTS, IF ANY, OF DISSENTING STOCKHOLDERS DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY STOCKHOLDERS DESIRING TO EXERCISE DISSENTERS’ RIGHTS UNDER DELAWARE LAW IN CONNECTION WITH THE SECOND-STEP MERGER. FAILURE TO FOLLOW THE STEPS REQUIRED FOR PERFECTING DISSENTERS’ RIGHTS, IF ANY, MAY RESULT IN THE LOSS OF THOSE RIGHTS.

 

The purpose of the offer is for Express Scripts to acquire control of, and ultimately the entire interest in, Caremark. 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 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, immediately followed by the liquidation of Caremark or merger of Caremark with and into Express Scripts or a wholly-owned limited liability company subsidiary of Express Scripts. 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. If the offer is successful, Express Scripts intends to consummate the second-step merger as promptly as practicable.

 

Express Scripts has filed preliminary proxy materials with the SEC in connection with the proxy solicitation to vote against adoption of Caremark/CVS merger agreement and the approval of the merger contemplated thereby. Caremark has set January 15, 2007 as the record date for determining which stockholders are entitled to vote on the adoption of the Caremark/CVS merger agreement and the approval of the merger contemplated thereby but as of the filing of this prospectus/offer to exchange has not announced a meeting date for the special meeting at which such matter will be considered. Assuming a quorum is present at the special meeting, a majority of outstanding shares of Caremark common stock must either be voted “AGAINST,” or abstain from voting on, the adoption of the Caremark/CVS merger agreement and the approval of the merger contemplated thereby in order to ensure that the merger is not approved. This will guarantee that the proposed CVS merger will not go forward, which is one of the conditions to this offer. However, the merger will be approved by Caremark stockholders if there is a quorum at such meeting and a majority of outstanding shares of Caremark common stock votes in favor of the proposed CVS merger. We do not intend to waive the condition relating to the proposed CVS merger. Express Scripts believes that Caremark’s board of directors has a fiduciary obligation to recommend against approval of the adoption of the Caremark/CVS merger agreement and the approval of the merger contemplated thereby and is obligated to recommend the offer to Caremark stockholders.

 

In furtherance of facilitating its offer, Express Scripts submitted a notice letter to Caremark on January 9, 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 upon Caremark’s past 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 as currently constituted. 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. Express Scripts reserves the right, however, at any time to determine not to commence either proxy solicitation with respect to the election of these nominees (or to terminate any solicitation which has previously been commenced) if Express Scripts determines it to be in its best interests to do so or if Express Scripts determines that such solicitation is unnecessary, including, if Express Scripts determines, that the Board has (x) recommended against adoption of the Caremark/CVS merger agreement and the approval of the merger contemplated thereby, (y) recommended that Caremark stockholders accept the offer and (z) not adopted a “poison pill” or shareholders rights plan.

 

Express Scripts expects that its nominees to the Caremark board of directors, if elected to serve as directors of Caremark, would in their independent judgment and good faith, and subject to their fiduciary duties, support the offer and the second-step merger and use their best endeavors to convince a majority of the board of directors of

Caremark to take actions necessary to render Section 203 of the DGCL inapplicable to the offer and the second-step merger and seek or grant other consents or approvals as may be desirable or necessary to expedite the prompt consummation of the offer and the second-step merger. Accordingly, election of these nominees could allow Caremark stockholders to determine whether to accept the offer and could be critical to the ultimate consummation of the offer and the second-step merger if Caremark’s current board of directors does not negotiate with Express Scripts. Express Scripts believes that Caremark’s board of directors has a fiduciary obligation to approve the offer and take any action necessary to render Section 203 of the DGCL inapplicable to the offer and the second-step merger and Express Scripts hereby requests that the Board do so.

 

If, and to the extent that Express Scripts (and/or any of Express Scripts’ subsidiaries) acquires control of Caremark or otherwise obtains access to the books and records of Caremark, Express Scripts intends to conduct a detailed review of Caremark’s business, operations, capitalization and management and consider and determine what, if any, changes would be desirable in light of the circumstances which then exist. It is expected that, initially following the second-step merger, the business and operations of Caremark will, except as set forth in this offer, be continued substantially as they are currently being conducted, but Express Scripts expressly reserves the right to make any changes that it deems necessary, appropriate or convenient to optimize exploitation of Caremark’s potential in conjunction with Express Scripts’ businesses in light of Express Scripts’ and Express Scripts’ review or in light of future developments. Such changes could include, among other things, changes in Caremark’s business, corporate structure, assets, properties, marketing strategies, capitalization, management, personnel or dividend policy and changes to Caremark’s certificate of incorporation and bylaws.

 

Except as indicated in this offer, neither Express Scripts nor any of Express Scripts’ subsidiaries has any current plans or proposals which relate to or would result in (1) any extraordinary transaction, such as a merger, reorganization or liquidation of Caremark or any of its subsidiaries, (2) any purchase, sale or transfer of a material amount of assets of Caremark or any of its subsidiaries, (3) any material change in the present dividend rate or policy, or indebtedness or capitalization of Caremark or any of its subsidiaries, (4) any change in the current board of directors or management of Caremark or any change to any material term of the employment contract of any executive officer of Caremark, (5) any other material change in Caremark’s corporate structure or business, (6) any class of equity security of Caremark being delisted from a national stock exchange or ceasing to be authorized to be quoted in an automated quotation system operated by a national securities association or (7) any class of equity securities of Caremark becoming eligible for termination of registration under Section 12(g)(4) of the Exchange Act.

 

Effect of the Offer on the Market for the Shares of Caremark Common Stock

 

The exchange of shares of Caremark common stock by Express Scripts pursuant to the offer will reduce the number of shares of Caremark common stock that might otherwise trade publicly and will reduce the number of holders of shares of Caremark common stock, which could adversely affect the liquidity and market value of the remaining shares of Caremark common stock held by the public. The extent of the public market for Caremark common stock and the availability of quotations reported in the over-the-counter market depends upon the number of stockholders holding Caremark common stock, the aggregate market value of the shares remaining at such time, the interest of maintaining a market in the shares on the part of any securities firms and other factors. According to (1) Caremark’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, as of October 31, 2006, there were 426,457,837 shares of Caremark common stock (including 5,605,285 shares held in trust to be utilized in employee benefit plans) outstanding and (2) Caremark’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, there were 14,282 holders of record of Caremark common stock as of February 28, 2006.

 

New York Stock Exchange Listing

 

The shares of Caremark common stock are quoted on the New York Stock Exchange. Depending upon the number of shares of Caremark common stock exchanged pursuant to the offer and the number of Caremark stockholders remaining thereafter, the shares of Caremark common stock may no longer meet the requirements of

the New York Stock Exchange for continued listing and may be delisted from the New York Stock Exchange. According to the New York Stock Exchange’s published guidelines, the New York Stock Exchange would consider delisting the shares of Caremark common stock if, among other things, (1) the number of total stockholders of Caremark should fall below 400, (2) the number of total stockholders should fall below 1,200 and the average monthly trading volume for the shares of Caremark common stock is less than 100,000 for the most recent 12 months or (3) the number of publicly held shares of Caremark common stock (exclusive of holdings of officers and directors of Caremark and their immediate families and other concentrated holdings of 10% or more) should fall below 600,000.

 

If, as a result of the exchange of shares of Caremark common stock pursuant to the offer or otherwise, the shares of Caremark common stock no longer meet the requirements of the New York Stock Exchange for continued listing and the listing of the shares of Caremark common stock is discontinued, the market for the shares of Caremark common stock could be adversely affected. If the New York Stock Exchange were to delist the shares of Caremark common stock, it is possible that the shares of Caremark common stock would continue to trade on another securities exchange or in the over-the-counter market and that price or other quotations would be reported by such exchange or other sources. The extent of the public market therefor and the availability of such quotations would depend, however, upon such factors as the number of stockholders and/or the aggregate market value of such securities remaining at such time, the interest in maintaining a market in the shares of Caremark common stock on the part of securities firms, the possible termination of registration under the Exchange Act as described below, and other factors. Express Scripts cannot predict whether the reduction in the number of shares of Caremark common stock that might otherwise trade publicly would have an adverse or beneficial effect on the market price for or marketability of the shares of Caremark common stock or whether it would cause future market prices to be greater or less than the consideration being offered in the offer.

 

If Caremark common stock is not delisted prior to the second-step merger, then Caremark common stock will cease to be listed on the New York Stock Exchange upon consummation of the second-step merger.

 

Registration Under Exchange Act

 

Caremark common stock is currently registered under the Exchange Act. This registration may be terminated upon application by Caremark to the SEC if Caremark common stock is not listed on a “national securities exchange” and there are fewer than 300 record holders. Termination of registration would substantially reduce the information required to be furnished by Caremark to holders of Caremark common stock and to the SEC and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement in connection with stockholders’ meetings and the requirements of Exchange Act Rule 13e-3 with respect to “going private” transactions, no longer applicable to Caremark common stock. In addition, “affiliates” of Caremark and persons holding “restricted securities” of Caremark may be deprived of the ability to dispose of these securities pursuant to Rule 144 under the Securities Act. If registration of Caremark common stock is not terminated prior to the second-step merger, then the registration of Caremark common stock under the Exchange Act will be terminated upon consummation of the second-step merger.

 

Margin Regulations

 

Shares of Caremark common stock are currently “margin securities,” as such term is defined under the rules of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such securities. Depending upon factors similar to those described above regarding listing and market quotations, following the offer it is possible that the shares of Caremark common stock might no longer constitute “margin securities” for purposes of the margin regulations of the Federal Reserve Board, in which event such shares of Caremark common stock could no longer be used as collateral for loans made by brokers. In addition, if registration of the shares of Caremark common stock under the Exchange Act were terminated, the shares of Caremark common stock would no longer constitute “margin securities.”

 

Notwithstanding any other provision of the offer and in addition to (and not in limitation of) Express Scripts’ right to extend and amend the offer at any time, in its discretion, Express Scripts shall not be required to accept for exchange any shares of Caremark common stock tendered pursuant to the offer, shall not be required to make any exchange for shares of Caremark common stock accepted for exchange and may extend, terminate or amend the offer, if immediately prior to the expiration of the offer (or substantially concurrently therewith), in the judgment of Express Scripts, any one or more of the following conditions shall not have been satisfied:

 

Minimum Tender Condition

 

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.

 

Caremark/CVS Merger Condition

 

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.

 

Section 203 Condition

 

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.

 

HSR Condition

 

Any applicable waiting period under the HSR Act shall have expired or been terminated prior to the expiration of the offer.

 

Registration Statement Condition

 

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.

 

Stockholder Approval Condition

 

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.

 

NASDAQ Listing Condition

 

The shares of Express Scripts common stock to be issued to Caremark stockholders in the offer shall have been authorized for listing on the NASDAQ Global Select Market, subject to official notice of issuance.

 

Financing Condition

 

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.

 

Diligence Condition

 

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.

 

Other Conditions

 

Additionally, Express Scripts shall not be required to accept for exchange any shares of Caremark common stock tendered pursuant to the offer, shall not be required to make any exchange for shares of Caremark common stock accepted for exchange, and may extend, terminate or amend the offer, if at any time on or after date the date of this prospectus/offer to exchange and prior to the expiration of the offer any of the following events or facts shall have occurred:

 

(a) there shall have been threatened, instituted or be pending any litigation, suit, claim, action, proceeding or investigation before any supra-national, national, state, provincial, municipal or local government, governmental, regulatory or administrative authority, agency, instrumentality or commission or any court, tribunal or judicial or arbitral body (each of which we refer to in this prospectus/offer to exchange as a “governmental authority”) (1) challenging or seeking to, or which, in the judgment of Express Scripts, is reasonably likely to, make illegal, delay or otherwise, directly or indirectly, restrain or prohibit or make more costly, or in which there are allegations of any violation of law, rule or regulation relating to, the making of or terms of the offer or the provisions of this offer or, the acceptance for exchange of any or all of the shares of Caremark common stock by Express Scripts or any other affiliate of Express Scripts, or seeking to obtain damages in connection with the offer or the second-step merger; (2) seeking to, or which in the judgment of Express Scripts is reasonably likely to, prohibit or limit the full rights of ownership or operation by Caremark, Express Scripts or any of their affiliates of all or any of the business or assets of Caremark, Express Scripts or any of their affiliates or to compel Caremark, Express Scripts or any of their subsidiaries to dispose of or to hold separate all or any portion of the business or assets of Caremark, Express Scripts or any of their affiliates; (3) seeking to, or which in the judgment of Express Scripts is reasonably likely to, impose or confirm any voting, procedural, price or other requirements in addition to those required by federal securities laws and the DGCL (as in effect on the date of this prospectus/offer to exchange) in connection with the making of the offer, the acceptance for exchange, or exchange, of some or all of the shares of Caremark common stock by Express Scripts or any other affiliate of Express Scripts or the consummation by Express Scripts or any other affiliate of Express Scripts of the second-step merger or other business combination with Caremark, including, without limitation, the right to vote any shares of Caremark common stock acquired by Express Scripts pursuant to the offer or otherwise on all matters properly presented to Caremark stockholders; (4) seeking to require divestiture by Express Scripts or any other affiliate of Express Scripts of any shares of Caremark common stock; (5) seeking, or which in the judgment of Express Scripts is reasonably likely to result in, any material diminution in the benefits expected to be derived by Express Scripts or any other affiliate of Express Scripts as a result of the transactions contemplated by the offer, the second-step merger or any other business combination with Caremark; (6) relating to the offer or the proxy solicitation contemplated by this prospectus/offer to exchange which, in the judgment of Express Scripts, might materially adversely effect Caremark or any of its affiliates or Express Scripts or any other affiliate of Express Scripts or the value of the shares of Caremark common stock or (7) which in the judgment of Express Scripts could otherwise prevent, adversely affect or materially delay consummation of the offer, the second-step merger or the ability of Express Scripts to conduct proxy solicitations contemplated by this prospectus/offer to exchange;

 

(b) any approval, permit, authorization, waiver, determination, favorable review or consent of any governmental authority (including those referred to or described in this prospectus/offer to exchange in the section entitled “The Exchange Offer — Certain Legal Matters; Regulatory Approvals” below), other than in connection with the HSR Condition, shall not have been obtained on terms reasonably satisfactory to Express Scripts in its judgment, or any applicable waiting periods for such clearances or approvals shall not have expired;

 

(c) there shall have been action taken or any statute, rule, regulation, legislation or interpretation enacted, promulgated, amended, issued or deemed, or which becomes, applicable to (1) Express Scripts, Caremark or any subsidiary or affiliate of Express Scripts or Caremark or (2) the offer, the second-step merger or any other business combination with Caremark, by any legislative body or governmental authority with appropriate jurisdiction, other than the routine application of the waiting period provisions of the HSR Act to the offer, that in the judgment of Express Scripts might result, directly or indirectly, in any of the consequences referred to in clauses (1) through (7) of paragraph (a) above;

 

(d) any event, condition, development, circumstance, change or effect shall have occurred or be threatened that, individually or in the aggregate with any other events, condition, development, circumstances, changes and effects occurring after the date of this offer is or may be materially adverse to the business, properties, condition (financial or otherwise), assets (including leases), liabilities, capitalization, stockholders’ equity, licenses, franchises, operations, results of operations or prospects of Caremark or any of its affiliates or Express Scripts shall have become aware of any facts that, in its judgment, have or may have material adverse significance with respect to either the value of Caremark or any of its affiliates or the value of the shares of Caremark common stock to Express Scripts or any of its affiliates;

 

(e) there shall have occurred (1) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the United States, for a period in excess of three hours (excluding suspensions or limitations resulting solely from physical damage or interference with any such exchange or market not related to market conditions), (2) a declaration of a banking moratorium or any suspension of payments in respect of banks by Federal or state authorities in the United States, (3) any limitation (whether or not mandatory) by any governmental authority or agency on, or other event which, in the judgment of Express Scripts, might materially adversely affect, the extension of credit by banks or other lending institutions, (4) commencement of a war, armed hostilities or the occurrence of any other national or international calamity directly or indirectly involving the United States or any attack on, or outbreak or act of terrorism involving, the United States, (5) a material change in the United States dollar or any other currency exchange rates or a suspension of, or limitation on, the markets therefor, (6) any change in the general political, market, economic or financial conditions in the United States or other jurisdictions in which Caremark or its subsidiaries do business that could, in the judgment of Express Scripts, have a material adverse effect on the business, properties, assets, liabilities, capitalization, stockholders’ equity, condition (financial or otherwise), operations, licenses, franchises, results of operations or prospects of Caremark or any of its affiliates or the trading in, or value of, the shares of Caremark common stock, (7) any decline in either the Dow Jones Industrial Average, or the Standard & Poor’s Index of 500 Industrial Companies or the NASDAQ-100 Index by an amount in excess of 15% measured from the close of business at the time of commencement of the offer or any material adverse change in the market price in the shares of Caremark common stock or (8) in the case of any of the foregoing existing at the time of commencement of the offer, a material acceleration or worsening thereof;

 

(f) (1) a tender or exchange offer for some or all of the shares of Caremark common stock has been publicly proposed to be made or has been made by another person (including Caremark or any of its subsidiaries or affiliates), or has been publicly disclosed, or Express Scripts otherwise learns that any person or “group” (as defined in Section 13(d)(3) of the Exchange Act) has acquired or proposes to acquire beneficial ownership of more than 5% of any class or series of capital stock of Caremark (including the shares of Caremark common stock), through the acquisition of stock, the formation of a group or otherwise, or is granted any option, right or warrant, conditional or otherwise, to acquire beneficial ownership of more than 5% of any class or series of capital stock of Caremark (including the shares of Caremark common stock) and other than as disclosed in a Schedule 13D or 13G on file with the SEC on or prior to the date of this offer, (2) any such person

or group which, on or prior to the date of this offer, had filed such a Schedule 13D or 13G with the SEC has acquired or proposes to acquire beneficial ownership of additional shares of any class or series of capital stock of Caremark, through the acquisition of stock, the formation of a group or otherwise, constituting 1% or more of any such class or series, or is granted any option, right or warrant, conditional or otherwise, to acquire beneficial ownership of additional shares of any class or series of capital stock of Caremark constituting 1% or more of any such class or series, (3) any person or group has entered into a definitive agreement or an agreement in principle or made a proposal with respect to a tender or exchange offer of some or all of the shares of Caremark common stock or a merger, consolidation or other business combination with or involving Caremark or any of its subsidiaries or (4) any person (other than Express Scripts) has filed a Notification and Report Form under the HSR Act (or amended a prior filing to increase the applicable threshold set forth therein) or made a public announcement reflecting an intent to acquire Caremark or any assets, securities or subsidiaries of Caremark;

 

(g) Caremark or any of its subsidiaries has (1) split, combined or otherwise changed, or authorized or proposed the split, combination or other change of, the shares of Caremark common stock or its capitalization, (2) acquired or otherwise caused a reduction in the number of, or authorized or proposed the acquisition or other reduction in the number of, outstanding shares of Caremark common stock or other securities; (3) issued, distributed or sold, or authorized or proposed the issuance, distribution or sale of, any additional shares of Caremark common stock, shares of any other class or series of capital stock, other voting securities or any securities convertible into, or options, rights or warrants, conditional or otherwise, to acquire, any of the foregoing (other than the issuance of shares of Caremark common stock pursuant to, and in accordance with, their publicly disclosed terms in effect as of the date of this offer, of employee stock options outstanding prior to such date), or any other securities or rights in respect of, in lieu of, or in substitution or exchange for any shares of its capital stock; (4) permitted the issuance or sale of any shares of any class of capital stock or other securities of any subsidiary of Caremark; (5) declared, paid or proposed to declare or pay any dividend or other distribution on any shares of capital stock of Caremark including by adoption of a shareholders rights plan which has not otherwise been terminated or rendered inapplicable to the offer and the second-step merger prior to the expiration of the offer; (6) altered or proposed to alter any material term of any outstanding security, issued or sold, or authorized or proposed the issuance or sale of, any debt securities or otherwise incurred or authorized or proposed the incurrence of any debt other than in the ordinary course of business consistent with past practice or any debt containing, in the judgment of Express Scripts, burdensome covenants or security provisions; (7) authorized, recommended, proposed, announced its intent to enter into or entered into an agreement with respect to or effected any merger, consolidation, recapitalization, liquidation, dissolution, business combination, acquisition of assets, disposition of assets or release or relinquishment of any material contract (other than termination of the Caremark/CVS merger agreement reasonably on terms satisfactory to Express Scripts) or other right of Caremark or any of its subsidiaries or any comparable event not in the ordinary course of business consistent with past practice; (8) authorized, recommended, proposed, announced its intent to enter into or entered into any agreement or arrangement with any person or group that, in Express Scripts’ judgment, has or may have material adverse significance with respect to either the value of Caremark or any of its subsidiaries or affiliates or the value of the shares of Caremark common stock to Express Scripts or any of its subsidiaries or affiliates; (9) entered into or amended any employment, severance or similar agreement, arrangement or plan with any of its employees other than in the ordinary course of business consistent with past practice or entered into or amended any such agreements, arrangements or plans that provide for increased benefits to employees as a result of or in connection with the making of the offer, the acceptance for exchange, or exchange, some of or all the shares of Caremark common stock by Express Scripts or the consummation of any merger or other business combination involving Caremark and Express Scripts (and/or any of Express Scripts’ subsidiaries); (10) except as may be required by law, taken any action to terminate or amend any employee benefit plan (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended) of Caremark or any of its subsidiaries, or Express Scripts shall have become aware of any such action which was not previously announced; or (11 ) amended, or authorized or proposed any amendment to, its certificate of incorporation or bylaws (or other similar constituent documents) or Express Scripts becomes aware that Caremark or any of its subsidiaries shall have amended, or authorized or

proposed any amendment to, its certificate of incorporation or bylaws (or other similar constituent documents) which has not been publicly disclosed prior to the date of this offer;

 

(h) (1) any event shall have occurred which would result in the failure of a representation or warranty of Caremark contained within the Caremark/CVS merger agreement to be true and correct had such representation or warranty been made as of the date of such event or (2) Caremark shall have taken any action prohibited by the Caremark/CVS merger agreement, in either case without giving effect to any waiver or condition under the Caremark/CVS merger agreement, any amendment thereto or any termination thereof;

 

(i) Express Scripts or any of its affiliates enters into a definitive agreement or announces an agreement in principle with Caremark providing for a merger or other business combination with Caremark or any of its subsidiaries or the purchase or exchange of securities or assets of Caremark or any of its subsidiaries, or Express Scripts and Caremark reach any other agreement or understanding, in either case, pursuant to which it is agreed that the offer will be terminated; or

 

(j) Caremark or any of its subsidiaries shall have (1) granted to any person proposing a merger or other business combination with or involving Caremark or any of its subsidiaries or the purchase or exchange of securities or assets of Caremark or any of its subsidiaries any type of option, warrant or right which, in Express Scripts’ judgment, constitutes a “lock-up” device (including, without limitation, a right to acquire or receive any shares of Caremark common stock or other securities, assets or business of Caremark or any of its subsidiaries), (2) paid or agreed to pay any cash or other consideration to any party in connection with or in any way related to any such business combination, purchase or exchange or (3) amended the Caremark/CVS merger agreement in any material respect;

 

which in the reasonable judgment of Express Scripts in any such case, and regardless of the circumstances giving rise to any such condition, makes it inadvisable to proceed with the offer and/or with acceptance for exchange, or exchange, of shares of Caremark common stock.

 

The foregoing conditions are for the sole benefit of Express Scripts and may be asserted by Express Scripts regardless of the circumstances giving rise to any such condition or, other than the “HSR Condition,” “Stockholder Approval Condition,” “Registration Statement Condition,” and “NASDAQ Listing Condition,” may be waived by Express Scripts in whole or in part at any time and from time to time prior to the expiration of the offer in its discretion. To the extent Express Scripts waives a condition set forth in this section with respect to one tender, Express Scripts will waive that condition with respect to all other tenders. The failure by Express Scripts at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances; and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. Any determination by Express Scripts concerning any condition or event described in this prospectus/offer to exchange shall be final and binding on all parties to the fullest extent permitted by law.

 

If, on or after the date of this prospectus/offer to exchange, Caremark:

 

 

then, without prejudice to Express Scripts’ rights under the section of this prospectus/offer to exchange entitled “The Exchange Offer — Conditions of the Offer,” Express Scripts may make such adjustments to the offer

consideration and other terms of the offer and the second-step merger (including the number and type of securities to be exchanged) as it deems appropriate to reflect such split, combination or other change.

 

If, on or after the date of this prospectus/offer to exchange, Caremark declares, sets aside, makes or pays any dividend, including, without limitation, any regular quarterly cash dividend, on the shares of Caremark common stock or makes any other distribution (including the issuance of additional shares of capital stock pursuant to a stock dividend or stock split, the issuance of other securities or the issuance of rights for the purchase of any securities) with respect to the shares of Caremark common stock that is payable or distributable to stockholders of record on a date prior to the transfer to the name of Express Scripts or its nominee or transferee on Caremark’s stock transfer records of the shares of Caremark common stock exchanged pursuant to the offer, then, without prejudice to Express Scripts’ rights under “The Exchange Offer — Extension, Termination and Amendment” and “The Exchange Offer — Conditions of the Offer”:

 

 

Pending such remittance and subject to applicable law, Express Scripts will be entitled to all the rights and privileges as owner of any such non-cash dividend, distribution or right and may withhold the entire offer consideration or deduct from the offer consideration the amount or value thereof, as determined by Express Scripts in its discretion.

 

Amount of Funds Required

 

Express Scripts estimates that the total amount of cash required to complete the transactions contemplated by the offer and the second-step merger will be approximately $15.1 billion, which estimated total amount includes:

 

 

We expect to have sufficient funds to complete the transactions contemplated by the exchange offer and the second-step merger and to pay fees, expenses and other related amounts through a combination of (1) Express Scripts’ and Caremark’s cash on hand and (2) borrowings under the proposed credit facility.

 

Commitments

 

We have obtained commitments from Credit Suisse Securities (USA) LLC and Citigroup Global Markets Inc., as lead arrangers, and Credit Suisse, Cayman Islands Branch 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 that will replace our current credit facility dated October 14, 2005 with, among others, Credit Suisse, Cayman Islands Branch, and Citigroup Global Markets Inc. and to pay the cash consideration in connection with the offer and the second-step merger. Up to $12.55 billion of the funds contemplated to be provided by these commitments will be used to finance the cash portion of the consideration to be paid to Caremark stockholders in connection with the offer and the second-step merger. The following is a summary of the material terms of these commitments. The documentation governing the credit facilities contemplated by these commitments has not been finalized, and accordingly, the

actual terms may differ from the summary below. Express Scripts does not currently have any alternative arrangements or alternative plans with respect to financing the cash consideration in the offer and the second-step merger.

 

Initial Facilities

 

Upon the satisfaction of conditions to the initial financing described below, Express Scripts will have access to three senior secured borrowing facilities:

 

 

Rollover Facilities

 

Concurrently with the consummation of the second-step merger, each of the initial term loan A, the initial revolving credit facility and the initial exchange facility will be rolled over into permanent senior secured loan facilities, and any incremental term loan proceeds available under permanent facilities will be available for the cash consideration payable in the second-step merger on the terms described below:

 

 

Express Scripts will be entitled to additional loans of up to $1.0 billion under certain circumstances. The terms of the commitment letter contemplate that each of the permanent loan facilities will also be available to Express Scripts on similar terms in the event that Express Scripts is able to consummate a negotiated transaction with Caremark.

 

Interest; Unused Commitment Fee

 

Each loan will bear interest at a “LIBO Rate” or “Alternate Base Rate” (as contemplated by the commitment letter) plus the margin described in the chart below. Interest periods on LIBO Rate-based loans may be seven or fourteen days, or one, two, three or six months or, if then available to all applicable lenders, nine or twelve months, at Express Scripts’ option. Interest will accrue on the LIBO Rate-based loans on the basis of a 360-day year and will be payable on the last business day of the applicable interest period or, if earlier, at the end of each three month period after commencement of such interest period. Interest will accrue on Alternate Base Rate-based loans on the basis of a 365-day year (or 360-day year if based on the Federal Funds Rate) and shall be payable quarterly in arrears. Unused loan commitments will be subject to an unused commitment fee as described in the chart below.

 

Initial Facilities

 

 

Rollover Facilities

 

 

Commencing on the date of delivery of a quarterly compliance certificate covering a period of at least three full months after the closing date, the applicable margins for the permanent term A loan and permanent revolving facility will be determined pursuant to a to be determined leverage ratio based grid.

 

Conditions to Borrowing

 

Borrowing under the initial facilities will be subject to, among other things, the following conditions:

 

 

Borrowing under the initial facilities will also be subject to the following conditions which will also be conditions to borrowing under the rollover facilities: