|
|
 | | | |
- close
- close
- close
- close
| |||||||||
Express Scripts DEF 14A 2007 Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
SCHEDULE 14A
(Rule
14a-101)
SCHEDULE
14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ) Filed by the Registrant þ
Filed by a Party other than the Registrant o Check the appropriate box:
Express Scripts, Inc.
Payment of Filing Fee (Check the appropriate box):
Table of Contents
EXPRESS SCRIPTS, INC.
One Express Way
Saint Louis, Missouri 63121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 23, 2007
The 2007 Annual Meeting of Stockholders of EXPRESS SCRIPTS,
INC., a Delaware corporation (the “Company”), will
be held at the principal executive offices of the Company, One
Express Way, Saint Louis, Missouri 63121, on Wednesday,
May 23, 2007, at 9:30 a.m. Central Time (the
“meeting”), to consider and act upon the following
matters:
Only stockholders of record at the close of business on
March 30, 2007, are entitled to notice of and to vote at
the meeting. At least ten days prior to the meeting, a complete
list of stockholders entitled to vote will be available for
inspection by any stockholder for any purpose germane to the
meeting, during ordinary business hours, at the office of the
Secretary of the Company at One Express Way, Saint Louis,
Missouri 63121. As a stockholder of record, you are cordially
invited to attend the meeting in person. Regardless of whether
you expect to be present at the meeting, please either complete,
sign and date the enclosed proxy and mail it promptly in the
enclosed envelope, or vote electronically via the Internet or
telephone as described in greater detail in the proxy statement.
Returning the enclosed proxy, or voting electronically or
telephonically, will not affect your right to vote in person if
you attend the meeting.
By Order of the Board of Directors
Thomas M. Boudreau
Senior Vice President, General Counsel and Secretary
One Express Way
Saint Louis, Missouri 63121
April 23, 2007
Even though you may plan to attend the meeting in person,
please vote by telephone or the Internet, or execute the
enclosed proxy card and mail it promptly. A return envelope
(which requires no postage if mailed in the United States) is
enclosed for your convenience. Telephone and Internet voting
information is provided on your proxy card. Should you attend
the meeting in person, you may revoke your proxy and vote in
person.
Table of Contents
EXPRESS SCRIPTS, INC.
One Express Way
Saint Louis, Missouri 63121
This proxy statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Express
Scripts, Inc., a Delaware corporation, which we refer to as the
“Company”, to be voted at our 2007 Annual Meeting of
Stockholders, which we refer to as the “annual
meeting” or the “meeting”) and any adjournment or
postponement of the meeting. The meeting will be held at our
principal executive offices, One Express Way, Saint Louis,
Missouri 63121, on Wednesday, May 23, 2007, at
9:30 a.m. Central Time, for the purposes contained in
the accompanying Notice of Annual Meeting of Stockholders and in
this proxy statement. This proxy statement and the accompanying
proxy will be first sent or given to stockholders on or about
April 23, 2007.
ABOUT THE
MEETING
Because you were a stockholder of our company as of
March 30, 2007, or the “record date”, and are
entitled to vote at the annual meeting, our board of directors
is soliciting your proxy to vote at the meeting.
This proxy statement summarizes the information you need to know
to vote at the meeting. This proxy statement and form of proxy
were first mailed to stockholders on or about April 23,
2007.
You are voting on two items:
1. Election of directors (see page 3); and
2. Ratification of PricewaterhouseCoopers LLP as
independent registered public accountants for 2007 (see
page 39).
Stockholders of Record: If you are a
stockholder of record, there are four ways to vote:
Street Name Holders: Shares which are held in
a brokerage account in the name of the broker are said to be
held in “street name.” If your shares are held in
street name you should follow the voting instructions provided
by your broker. You may complete and return a voting instruction
card to your broker, or, in many cases, your broker may also
allow you to vote via the telephone or internet. Check your
proxy card for more information. If you hold your shares in
street name and wish to vote at the meeting, you must obtain a
legal proxy from your broker and bring that proxy to the meeting.
Table of Contents
Regardless of how your shares are registered, if you complete
and properly sign the accompanying proxy card and return it to
the address indicated, it will be voted as you direct.
Our board recommends the following votes:
1. FOR each of the nominees as directors; and
2. FOR the ratification of the appointment of
PricewaterhouseCoopers LLP as independent registered public
accountants for 2007.
Unless you give instructions on your proxy card, the persons
named as proxy holders will vote your shares in accordance with
the recommendations of our board of directors.
We do not know of any other matters that will be brought before
the stockholders for a vote at the annual meeting. If any other
matter is properly brought before the meeting, your signed proxy
card gives authority to George Paz and Thomas M. Boudreau to
vote on such matters in their discretion.
Only stockholders of record at the close of business on the
record date are entitled to receive notice of and to participate
in the annual meeting. If you were a stockholder of record on
that date, you will be entitled to vote all of the shares that
you held on that date at the meeting, or any postponements or
adjournments of the meeting.
You will have one vote for every share of our common stock you
owned on the record date.
136,069,935, consisting of one vote for each share of our common
stock outstanding on the record date. There is no cumulative
voting.
The holders of a majority of the aggregate voting power of our
common stock outstanding on the record date, or 68,034,968
votes, must be present in person, or by proxy, at the meeting in
order to constitute a quorum necessary to conduct the meeting.
If you vote, your shares will be part of the quorum. Abstentions
and broker non-votes will be counted in determining the quorum.
A broker non-vote occurs when a bank or broker holding shares in
street name submits a proxy that states that the broker does not
vote for some or all of the proposals, because the broker has
not received instructions from the beneficial owners on how to
vote on the proposals and does not have discretionary authority
to vote in the absence of instructions.
We urge you to vote by proxy even if you plan to attend the
meeting so that we will know as soon as possible that a quorum
has been achieved.
In the election of directors, the affirmative vote of a
plurality of the votes present in person or by proxy and
entitled to vote at the meeting is required. A proxy that has
properly withheld authority with respect to the election of one
or more directors will not be voted with respect to the director
or directors indicated, although it will be counted for the
purposes of determining whether there is a quorum.
Table of Contents
For the proposal to ratify the appointment of
PricewaterhouseCoopers LLP as our independent registered public
accountants, the affirmative vote of the holders of a majority
of the shares represented in person or by proxy and entitled to
vote on the proposal will be required for approval. An
abstention with respect to this proposal will not be voted,
although it will be counted for the purposes of determining
whether there is a quorum. Accordingly, an abstention will have
the effect of a negative vote.
Yes. Just send in a new proxy card with a later date, or cast a
new vote by telephone or Internet, or send a written notice of
revocation to our Corporate Secretary at the address on the
cover of this proxy statement. Also, if you attend the meeting
and wish to vote in person, you may request that your previously
submitted proxy not be used.
This proxy statement and the 2006 annual report are available in
the Investor Information section of our website at
www.express-scripts.com. Information on our
website does not constitute part of this proxy statement. Most
stockholders can elect to view future proxy statements and
annual reports over the Internet instead of receiving paper
copies in the mail by registering at our website. By electing to
receive these materials electronically, you can save us the cost
of producing and mailing these documents.
Any Express Scripts stockholder as of March 30, 2007 may
attend the meeting. If you own shares in street name, you should
ask your broker or bank for a legal proxy to bring with you to
the meeting. If you do not receive the legal proxy in time,
bring your most recent brokerage statement so that we can verify
your ownership of our stock and admit you to the meeting.
However, you will not be able to vote your shares at the meeting
without a legal proxy.
If you return a proxy card without indicating your vote, your
shares will be voted as follows: (i) for the nominees for
director named in this proxy statement; (ii) for
ratification of the appointment of PricewaterhouseCoopers LLP as
our independent registered public accountants for 2007; and
(iii) in accordance with the recommendation of management
on any other matter that may properly be brought before the
meeting and any adjournment or postponement of the meeting.
The current term of office of all of our directors expires at
the meeting or when their successors are duly elected and
qualified. The Corporate Governance Committee of our board has
nominated the eleven current directors and one new candidate,
Dr. Woodrow Myers, to be elected to serve until the next
Annual Meeting of Stockholders or until their successors are
duly elected and qualified. Unless otherwise specified, all
proxies will be voted in favor of the twelve nominees listed
below for election as directors of our company.
Our board of directors has no reason to expect that any of the
nominees will be unable to stand for election on the date of the
meeting or will not serve. If a vacancy occurs among the
original nominees prior to the meeting, the proxies will be
voted for a substitute nominee named by our board and for the
remaining nominees. Directors are elected by a plurality of the
votes present in person or by proxy and entitled to vote at the
meeting. Our board has determined that, in its judgment, with
the exception of Mr. Paz, who is also an executive officer
of our company, and Mr. Toan who retired as an executive
officer of our company in March 2005, all of the members of our
board of directors and the new candidate, Dr. Myers, are
independent, as defined by the listing standards of The Nasdaq
Global Select Market, as of the date of this Proxy Statement.
Table of Contents
The following information is furnished as of March 1, 2007,
for each of the nominees for our Board of Directors:
Gary G. Benanav, 61, was elected a director of Express
Scripts in January 2000. Mr. Benanav served as Vice
Chairman and a Director of New York Life Insurance Company or
“New York Life”, a life insurance and financial
services company, from November 1999 until his retirement in
March 2005. Mr. Benanav also served as Chairman and Chief
Executive Officer of New York Life International from December
1997 until his retirement in March 2006. He was Executive Vice
President of New York Life from December 1997 until November
1999. He is also a director of Barnes Group, Inc.
Frank J. Borelli, 71, was elected a director of Express
Scripts in January 2000. Mr. Borelli has been a Senior
Advisor to Stone Point Capital, an investment management company
and formerly a wholly-owned subsidiary of Marsh &
McLennan Companies, Inc. or “M&MC”, a global
professional services firm, since his retirement from M&MC
in January 2001. Prior thereto, he was Senior Vice President of
M&MC from April 2000 to December 2000. He is also a director
and Audit Committee Chairman of Genworth Financial, Inc. and is
a director of the Interpublic Group of Companies and a director
of Signal Holdings Inc., an investee company of Trident Fund,
which is managed by Stone Point Capital LLC.
Maura C. Breen, 51, was elected a director of Express
Scripts in July 2004. Ms. Breen is Senior Vice President
and General Manager for the New York Region for Verizon
Communications, Inc. or “Verizon”, a provider of
communications services, a post to which she was appointed in
March 2006. Previously, Ms. Breen was Senior Vice
President/Support Services, Network Services Group for Verizon,
from December 2003 through March 2006. Ms. Breen also
served as Senior Vice President & Chief Marketing
Officer, Retail Market Groups for Verizon from July 2001 through
December 2003, and as Group Vice President, Verizon Long
Distance from April 1999 through July 2001.
Nicholas J. LaHowchic, 59, was elected a director of
Express Scripts in July 2001. Mr. LaHowchic has served as
President and Chief Executive Officer of Limited Logistics
Services, Inc. or “LLS”, from October 1997, and as
Executive Vice President for Limited Brands, Inc., a retail
apparel company and the parent of LLS, from April 2004 until his
retirement in February 2007. LLS provides supply chain,
compliance and procurement services to retailers including
Limited Brands, Inc. Mr. LaHowchic is also a director of
Advance Auto Parts Inc.
Thomas P. Mac Mahon, 60, was elected a director of
Express Scripts in March 2001. Mr. Mac Mahon served as
President and Chief Executive Officer and a member of the
Executive and Management Committees of Laboratory Corporation of
America Holdings or “LabCorp”, the second largest
independent clinical laboratory company in the U.S., from
January 1997 until his retirement on December 31, 2006.
Mr. Mac Mahon, who has been a director of LabCorp since
April 1995, will continue serving as Chairman of the Board of
LabCorp, a position he has held since April 1996.
Woodrow A. Myers Jr., M.D., 53, is being nominated
for election as a director at the upcoming annual meeting.
Dr. Myers has served as the Managing Director of Myers
Ventures, LLC, a healthcare consulting company, since December
2005. Previously, Dr. Myers served as Executive Vice
President and Chief Medical Officer of Wellpoint, Inc, a health
benefits company, from September 2000 through December 2005.
Dr. Myers is also a director of Genomic Health, Inc. and
ThermoGenesis Corp.
John O. Parker, Jr., 62, was elected a director of
Express Scripts in July 2001. Mr. Parker has served as a
Venture Partner with Rho Ventures LLC, a venture capital firm,
since January 2002. Mr. Parker was a General Partner of
Care Capital, LLC, a venture capital firm, from October 2000 to
December 2001. Mr. Parker also serves on the boards of PHT
Corporation and Medical Present Value, Inc., both privately held
companies.
George Paz, 51, was elected a director of Express Scripts
in January 2004 and has served as Chairman of the Board since
May 2006. Mr. Paz was first elected President of Express
Scripts in October 2003 and also assumed the role Chief
Executive Officer of Express Scripts on April 1, 2005.
Mr. Paz joined Express Scripts and was elected Senior Vice
President and Chief Financial Officer in January 1998 and
continued to serve as Express Scripts’ Chief
Table of Contents
Financial Officer following his election to the office of
President until his successor joined Express Scripts in April
2004.
Samuel K. Skinner, 68, was elected a director of Express
Scripts in February 2004. Mr. Skinner has been Of Counsel
with the law firm of Greenberg Traurig, LLP since 2004.
Mr. Skinner previously served as President, Chief Executive
Officer and a director of USF Corporation (formerly
USFreightways Corporation) or “USF”, a transportation,
freight forwarding and supply chain management company, from
2000 until his retirement in 2003. Mr. Skinner was also
Chairman of the Board of USF from 2001 until his retirement.
Mr. Skinner is also a director of Navigant Consulting,
Inc., Midwest Air Group, Inc., Diamond Management and Technology
Inc., Dade Behring Holdings, Inc., and the Chicago Board Options
Exchange.
Seymour Sternberg, 63, was elected a director of Express
Scripts in March 1992. Mr. Sternberg currently is the
Chairman of the Board and Chief Executive Officer of New York
Life and has served in this capacity since April 1997. From
October 1995 until October 2002, he was the President of New
York Life, and from October 1995 until March 1997 he also held
the position of Chief Operating Officer of New York Life.
Mr. Sternberg is also a director of CIT Group, Inc., and is
a director/manager of various New York Life subsidiaries.
Barrett A. Toan, 59, was elected a director of Express
Scripts in October 1990 and served as Chairman of the Board from
November 2000 until May 2006. Mr. Toan was Express
Scripts’ Chief Executive Officer from March 1992 until his
retirement in March 2005. Mr. Toan was an executive
employee of Express Scripts from May 1989 until his retirement
and served as President of Express Scripts from October 1990 to
April 2002. Mr. Toan is also a director of Sigma-Aldrich
Corporation, a specialty chemical company, and Genworth
Financial, Inc., an insurance and financial services company.
Howard L. Waltman, 74, has been a director of Express
Scripts since its inception in September 1986, and has served as
Presiding Director since October 2006. Mr. Waltman served
as Chairman of the Board of Express Scripts from March 1992
until November 2000. Mr. Waltman is also a director of
Infocrossing, Inc. and Emergent Group, Inc.
The Board of Directors unanimously recommends a vote FOR
the election of each of the nominees listed above.
Our board of directors is responsible for establishing broad
corporate policies and for overseeing the overall management of
the Company. In addition to considering various matters which
require board approval, our board provides advice and counsel
to, and ultimately monitors the performance of, our senior
management.
Committees of the Board. Our board has four
standing committees of the Board of Directors: the Audit
Committee, the Compensation and Development Committee or the
“Compensation Committee”, the Corporate Governance
Committee, and the Compliance Committee. Each committee has a
written charter and is composed entirely of directors deemed to
be, in the judgment of our board, independent in accordance with
Nasdaq listing standards. Our board of directors met seven times
in 2006. Each director attended at least 75% of the total number
of meetings of the board and the board committees of which he or
she was a member in 2006. While we do not have a formal policy
requiring members of the board to attend the annual meeting, we
encourage all directors to attend. All
Table of Contents
of the board’s eleven members attended the annual meeting
in 2006. The following table lists the members, primary
functions and number of meetings held for each of the committees:
Table of Contents
Our board has not determined which committee(s) Dr. Myers
may sit on if elected to the board.
Presiding Director. Our corporate governance
guidelines were revised in October 2006 to call for the
selection of a Presiding Director of the board at such times as
the position of chairman of the board is held by a member of
management. The Presiding Director is a non-employee director
selected by the other non-employee directors whose duties
include the following:
Mr. Waltman was elected as Presiding Director of our board
in October 2006.
Directors who are employed by our company or its subsidiaries do
not receive compensation for serving as directors. Directors who
were not employees of our company or its subsidiaries are
entitled to receive:
• $45,000 for the Audit Committee Chairperson,
• $40,000 for the Compensation and Development
Committee Chairperson,
• $35,000 for other Committee Chairpersons, and
• $30,000 for the other non-employee directors;
We also reimburse non-employee directors for
out-of-pocket
expenses incurred in connection with attending board and
committee meetings.
Our non-employee directors also receive equity awards under our
2000 Long-Term Incentive Plan, as amended or the “2000
LTIP”, as follows:
The equity grants are divided between shares of restricted stock
and stock-settled stock appreciation rights, or
“SSARs”, as follows:
All of the SSARs granted to the non-employee directors under the
2000 LTIP have an exercise price of 100% of the fair market
value of the shares on the date they are granted, and a
seven-year term. The SSARs and restricted stock vest ratably
over three years, with accelerated vesting upon the
director’s retirement, provided that the director’s
combined age and years of service on the Board total at least
75, or upon the failure by the Company to renominate the
director for election.
Table of Contents
The following table provides information regarding our
compensation of non-employee directors for 2006:
DIRECTOR
COMPENSATION IN 2006
On March 24, 2005, we entered into a consulting agreement
with Mr. Toan which expired on May 24, 2006. Under the
consulting agreement, Mr. Toan agreed to serve as
non-executive Chairman of the Board, and to provide us with
certain consulting services. As compensation for services
performed as non-executive Chairman, Mr. Toan received only
compensation at such times and in such amount as we pay under
the policy generally in effect for non-
Table of Contents
employee directors. In addition, Mr. Toan received
compensation for up to thirty-five hours per month of consulting
services in the amount of $30,000 per month. The consulting
agreement ended on the date of our 2006 annual meeting and was
not renewed.
Corporate Governance Guidelines and Committee
Charters. We have adopted Corporate Governance
Guidelines to outline our corporate governance structure and
address significant corporate governance issues. Copies of these
Guidelines as well as the Charters for each of our board
committees can be found on the Corporate Governance page in the
Investor Information section of our website at
www.express-scripts.com (information on our
website does not constitute part of this proxy statement).
Code of Ethics. We have adopted a Code of
Ethics which applies to all of our directors, officers, and
employees including our senior financial officers. A copy of the
Code of Ethics is available in the Investor Information section
of our website at www.express-scripts.com. We will post any
amendments to the Code of Ethics, or any waivers of the Code of
Ethics for any of our directors, executive officers or senior
financial officers, in the same section of our website.
Communicating with the Directors. Stockholders
wishing to communicate with our board of directors or with an
individual board member with respect to our company may do so by
writing to the board or the specific board member, and mailing
the correspondence to: Attention: Corporate Secretary, Express
Scripts Inc., One Express Way, Saint Louis, Missouri 63121. The
outside of the envelope should clearly indicate that it contains
a stockholder communication. Our board of directors has approved
a process pursuant to which the office of the Corporate
Secretary will review and forward the correspondence to the
appropriate person or persons for response, with the exception
of correspondence which is inappropriate or unrelated to the
duties and responsibilities of the board.
Selection of Nominees for the Board of
Directors. The Corporate Governance Committee is
responsible for evaluating potential candidates to serve on our
board of directors, and for selecting nominees to be presented
for election to the board at our annual meeting of stockholders.
In evaluating potential director candidates, the Corporate
Governance Committee considers the skills and characteristics
possessed by each candidate in the context of the perceived
needs of the board at that point in time. Among the factors
considered by the Corporate Governance Committee in considering
a potential nominee are the following:
In identifying potential candidates for the board, the Corporate
Governance Committee relies on recommendations from a number of
possible sources, including current directors and officers. The
Corporate Governance Committee may also retain outside
consultants or search firms to help in identifying potential
candidates for membership on the board. In the past, the
Corporate Governance Committee has engaged the firm of Spencer
Stuart to assist with director searches, including the search
which resulted in the nomination of Dr. Myers. The
Corporate Governance Committee will also consider candidates
recommended by stockholders, and will consider them on the same
basis as other candidates.
Table of Contents
Any stockholder wishing to recommend a candidate for
consideration by the Corporate Governance Committee to become a
nominee for election to the board may do so by submitting a
written recommendation to the committee in accordance with our
procedures for the submission of “Stockholder
Proposals,” as set out in our Bylaws (See “Stockholder
Proposals” beginning on page 40). For a nominee to be
considered, the following information must be submitted in
accordance with the required procedures:
The request for nomination must also be accompanied by a written
consent of the proposed nominee to being named as a nominee and
to serve as a director if elected. Our Corporate Secretary will
review all such stockholder recommendations, and will forward
those that comply with the above-described requirements to the
Corporate Governance Committee for evaluation and consideration.
We are a party to a Stockholder and Registration Rights
Agreement with New York Life which, among other things,
originally gave New York Life the right to nominate two
candidates for election to our board, subject to certain stock
ownership and other conditions as described in “Certain
Relationships and Related Party Transactions —
Relationship with New York Life — Stockholder and
Registration Rights Agreement” beginning on page 37.
Following a series of transactions in 2003, New York Life’s
nomination right was reduced to one candidate, and, following
additional transactions in 2006, New York Life’s right to
nominate a candidate to our board was eliminated.
EXECUTIVE
COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Our Compensation Discussion and Analysis explains our
compensation policies, programs and practices for our Chief
Executive Officer, Chief Financial Officer and our three other
most highly compensated officers, as named in the Summary
Compensation Table on page 21. We refer to these
individuals collectively as the “named executives” or
the “named executive officers.”
The broad topics discussed in this analysis include:
Table of Contents
Aligning Compensation with Stockholder
Interests. One of the primary goals of our
compensation structure is to align the interests of our
executives with our stockholders through compensation vehicles
which reward the achievement of established intermediate and
long-term goals with the ultimate objective of increasing
long-term stockholder value. The elements utilized to help
achieve this goal of alignment include the following:
Rewarding Annual and Long-Term
Performance. Our compensation structure is also
intended to reward the achievement of certain annual and
long-term performance objectives by the individual executives,
our distinct business units, and our company overall. This
objective, in many ways, overlaps the alignment objective and is
achieved through some of the same compensation vehicles. The
elements intended to reward annual
and/or
long-term performance include the following:
Attracting and Retaining Talented
Executives. In a constantly growing and changing
business, it is vital that we be able to continually attract and
retain superior employees in key executive positions. The key
compensation elements aimed at accomplishing this goal include
the following:
Compensation Committee Members and the Compensation Committee
Charter. The Committee is responsible for
establishing, overseeing and reviewing executive compensation
policies and for approving, validating and benchmarking the
compensation and benefits for named executive officers. The
Committee includes three independent directors — Gary
G. Benanav (Chair), Thomas P. Mac Mahon and Howard L. Waltman.
Each of
Table of Contents
these directors satisfies the independence requirements of the
Nasdaq Global Select Market. A Charter for the Compensation
Committee was adopted in November 2000 and amended in December
2002. A copy of the Charter can be found on the Corporate
Governance page in the Investor Information section of the
website at www.express-scripts.com (information on our website
does not constitute part of this proxy statement).
The Committee’s principal functions, as set forth in the
Charter, include:
The Committee may, and has, delegated its authority to make
certain equity grants to employees below the level of vice
president to our Chief Executive Officer. Despite this
delegation, the Committee generally considers and approves all
such grants whenever practicable.
The Charter is reviewed at least annually by both the Committee
and the Corporate Governance Committee of the board. The
Committee is scheduled to meet four times per year to consider
compensation activities applicable to senior executives and
other matters. Additional meetings may be scheduled as required
by the Committee.
Role of Management in Establishing
Compensation. Management generally prepares the
meeting materials for the Committee in advance of its meetings.
The compensation consultant retained by the Committee may also
prepare materials depending on the topics to be covered. In the
meetings, management generally will request that the Committee
consider and approve compensation changes for senior executives
and equity grants for newly hired or promoted senior executives.
Management also may ask that additional issues involving
compensation policies or design be considered. During the annual
evaluation process, the Chief Executive Officer is given the
opportunity to evaluate senior executives for purposes of annual
merit increases, annual incentive payments and long term equity
grants. The Committee makes all compensation decisions for the
named executives and other members of our senior management
team. However, the Chief Executive Officer and certain other
members of management may also provide recommendations to the
Committee on these matters.
Management is asked to assist in conducting the meetings and to
provide applicable data, information and other resources. The
Committee’s independent compensation consultant also
participates on an as-needed basis. As part of their regular
meetings, Committee members generally meet in executive session
during which members of management are not present.
In consultation with the Committee, management establishes
compensation parameters below the senior executive level which
generally reflect the compensation philosophy and direction
established by the Committee in setting compensation for senior
management.
Role of the Compensation Consultant. The
Committee has traditionally engaged a nationally recognized
consulting firm, or the “compensation consultant”, to
review alternatives and to provide advice regarding appropriate
compensation levels for the senior executive officers. As
requested, the compensation consultant also provides data and
analysis to support its recommendations and advice. The current
compensation consultant, Watson Wyatt Worldwide, was selected in
2005 following a detailed RFP process managed by the Committee.
The Committee considered several national consulting firms and,
following interviews and evaluation by the Committee, Watson
Wyatt Worldwide was retained. The Committee is solely
responsible for commissioning the work of the compensation
consultant. The consultant is independent of management and does
no other executive compensation work for the company, although
the consultant has provided salary survey information to
management for
Table of Contents
employees other than senior executives. The Committee has
authority to hire and dismiss the compensation consultant and
budgetary authority to establish engagements with the
consultant. Management is copied on the work by the compensation
consultant and discusses work in progress at the discretion of
the Committee. The bills for consulting work go first to the
Committee and then to our company for payment. As requested, a
representative of the compensation consultant may attend the
meetings of the Committee in person or by telephone.
The role of the compensation consultant is to provide
independent, expert advice to the Committee on the design and
level of compensation paid to our senior executives. To do this,
the consultant compares the compensation elements for the senior
executive officers, including the Chief Executive Officer, with
the compensation received by executives in comparable positions
at a peer group of companies. The Committee considers these peer
group pay levels one of the factors utilized in arriving at its
final compensation decisions. It is the Committee’s current
intention to conduct a benchmark study annually to assure that
the senior executives are compensated appropriately from a
competitive and design perspective. Following its analysis, the
compensation consultant makes recommendations for consideration
by the Committee.
Management does not currently engage a separate executive
compensation consultant.
Benchmarking of Executive Compensation
Programs. Our compensation approach is to combine
base pay, annual incentive pay, and long-term incentive awards
to create a total package that is, in general, approximately at
the median compensation level for executive officers of a peer
group of companies if financial and non-financial objectives are
achieved, and that can be at or above the 75th percentile
of such compensation level if “stretch” financial and
non-financial goals are achieved.
Analysis by the compensation consultant identified a group of
11 companies judged to be comparable to the company, which
we refer to as the “peer group companies”, based on
their revenue and market capitalization, industry, similarity to
our company and complexity. These peer group companies are:
The peer group companies recommended by the compensation
consultant and approved by the Committee include companies
different from those in the peer group index in the stock
performance graph included in our annual report to stockholders.
With the exception of Caremark Rx, Inc, which was recently
acquired, all of the peer group companies are public companies
in the health care industry. The compensation consultant also
compiled a secondary peer group of 54 companies from
various industries; however, this group did not substantially
influence any compensation decisions. The Committee expects it
will be necessary, as a result of mergers, acquisitions and
other changes, to update the list of peer group companies
periodically in order to maintain a sufficient number of
companies for pay comparisons. For example, the Committee will
consider and decide how to account for the recent acquisition of
Caremark Rx, Inc.
The Committee annually reviews and assesses the compensation
levels provided by the compensation consultant for executive
officers at the peer group companies, and also evaluates the
financial and market performance of the peer group companies in
making compensation decisions. In addition, the Committee also
reviews publicly available compensation information contained in
SEC filings and published survey information provided by various
consulting firms. This review constitutes one of the factors the
Committee uses in determining the appropriate pay levels for the
senior executives. The review involves compensation received by
executives in comparable positions and looks at the various
elements of the compensation package and how these elements
support corporate objectives.
Table of Contents
Components
of Executive Compensation
The Committee has structured an executive compensation program
comprised of three primary components: base pay, annual
incentive pay, and long-term incentive pay. Segmenting and
stratifying the elements of executive compensation helps focus
compensation resources where they will be most effective.
Base Pay. Adequate and competitive base pay
allows for the recruitment of high caliber executives and helps
to reduce turnover. The Committee uses base pay at the peer
group companies as a reference point for equivalent or similar
positions with us. The Committee determines the salary for each
of the executive officers by considering the value and
performance of the executive, recommendations by management (for
executives other than the Chief Executive Officer) and the
compensation consultant, the level and scope of responsibilities
of the position, and the pay levels of similarly positioned
executive officers in the peer group companies. Competitive pay
levels are represented in median pay for the positions at the
peer group companies and other sources as well as recommended
pay range alternatives provided by the compensation consultant.
At the senior executive level, results applicable to the
business unit or functional division headed by the executive are
also factored into decisions related to changes in the base pay
of the executive.
The Committee typically reviews salary levels annually as part
of our performance review process or upon a promotion or
significant change in an executive’s responsibilities.
Salary increases are based on both individual performance and
changes in our overall budget for compensation. Changes in
salary for the named executives and other members of senior
management are approved by the Committee and annual changes are
generally effective each year as of April 1.
Annual Incentive Bonus Pay. We believe the
annual bonus plan provides us with a valuable tool to assist in
focusing executives on accomplishing current operational and
financial objectives over a one-year period. Each executive has
a bonus target which is stated as a percentage of his or her
annual base salary. The targets are set by the Committee taking
into consideration the annual incentive pay levels existing at
the peer group companies for similar positions as well as the
other factors described above with respect to the determination
of base pay. Payouts under the annual incentive program are
determined as follows:
Table of Contents
In 2006, the 2000 LTIP was amended to permit cash awards to be
granted under the plan. This permits us to enhance the tax
deductibility of annual bonus plan awards made to the named
executive officers, as discussed under “Deductibility of
Compensation” on page 19. Bonus awards made under the
2000 LTIP are granted at the maximum achievable level (i.e. 250%
of target for most of the named executives), are conditioned
upon the achievement of a minimum EPS target, and are subject to
the downward discretion of the Committee. The annual bonus
awards for the named executives for 2007 (to be paid in
2008) are the first to be awarded under the 2000 LTIP.
Long-Term Incentive Awards. The Committee
believes that our long-term compensation program should orient
and align senior executives with the interests of stockholders
and focus the executives’ efforts on our long-term success.
The long-term incentive awards are designed to retain executives
and motivate them toward results that exceed those of the peer
group companies. The long-term compensation program consists of
grants of stock-settled stock appreciation rights, or
“SSARs,” restricted stock and performance shares.
These equity grants increase in value if the market value of our
common stock appreciates over time. For that reason, our
executives are motivated to engage in behaviors that will
increase the long-term value of our common stock and thereby
benefit all stockholders.
Each executive officer receives an equity grant upon employment
(or upon promotion to senior executive status) and, in the past,
typically has received an additional annual equity grant each
succeeding year. The Committee believes that providing equity
compensation opportunities provides a clear and powerful
motivation to the executive team to achieve financial and
operational objectives that will, over time, increase the market
price of our common stock. The purpose of these grants for
newly-hired executives is to provide incentive for high
potential individuals to join the company
and/or to
compensate them for equity compensation they may have forfeited
when leaving their prior employer. In the past, several of our
senior executives also received special grants of non-qualified
stock options
and/or
restricted stock in connection with their entering into
employment agreements. Our current form of employment agreement
for our executives does not provide for equity grants.
In connection with the 2005 executive compensation study, the
Committee revised its approach with respect to long-term
incentive compensation. Factors involved in determining the
appropriate equity vehicles to use included consideration of the
prevalence of equity grants in the peer group companies and
general industry, the desired equity mix, rewarding share price
improvement, retention, and relative stock and financial
performance. Starting in 2006, the Committee implemented a
long-term compensation program under which senior executives
receive annual grants of long-term equity compensation divided
among three different types of equity grants. The annual awards
are approved by the Committee based on the dollar value of the
entire equity package, which is allocated among the forms of
equity as follows:
Table of Contents
The weighting of the equity components that comprise the
long-term plan package is subject to change based on the
Committee’s evaluation and discretion. The Committee grants
all three types of awards in order to meet several objectives.
The Committee believes that measuring performance against our
competitors with respect to important financial metrics adds a
significant dimension to the long-term program design. By
including performance shares, the Committee believes that the
program provides motivation both to achieve results that will be
positively responded to in the marketplace and to produce
results that will exceed equivalent measures among the
competitors.
The Committee has discretion to determine the vesting schedule
for each SSAR grant and generally makes grants that become
exercisable in equal amounts over three years. Except in the
cases of retirement, disability or death, in general, executives
must be employed by the company at the scheduled vesting time
for their equity awards in order for such vesting to occur.
The Committee has historically made annual equity grants,
including stock options and SSARs, during the first calendar
quarter, following the finalization of our year-end financial
results. By making grants at this time the Committee is able to
consider the previous year financial performance in determining
the size and structure of such grants, both in the aggregate and
with respect to individual executives. Additionally, by making
the awards during the first quarter, such grants are coordinated
with the annual bonus awards and annual salary adjustments. For
information regarding our current policy, see “Other
Compensation Related Matters — Equity Granting
Policy” below.
The size of an executive’s equity compensation awards are
based upon the evaluation by the Committee and, for awards other
than his own, by the Chief Executive Officer, regarding the
contribution that the executive officer is expected to make to
the overall growth and profitability during the vesting period.
The Committee also considers long-term incentive compensation
levels at the peer group companies, and for initial equity
grants any equity compensation which may have been forfeited by
an executive upon leaving his or her former employer. While we
maintain stock ownership guidelines, the Committee does not take
into account existing stock ownership levels of individual
executives in determining the amount of equity awards.
Table of Contents
If a business transaction occurs that would change the basis for
determining the results for incentive compensation payments, the
Committee may adjust the metrics to reflect the new business
circumstances in a manner that provides equivalent opportunity
and results requirements. The Committee may also make similar
adjustments to account for changes in accounting principles or
practices, changes in the number of shares outstanding, and
similar changes, and may determine whether adjustments should be
made for one-time or extraordinary items, prior period
adjustments, discontinued operations and similar items. Such
adjustments could occur for the metrics in the annual bonus plan
or the performance share portion of the equity grants.
Deferred Compensation. We provide an
opportunity for executives to participate in the EDCP, a
deferred compensation program that is intended to comply with
the rules provided under section 409A of the Internal
Revenue Code. Under the EDCP, participants can elect to defer up
to 50% of their annual base pay and up to 100% of their annual
bonus. In addition, we have historically made matching
contributions to each executive’s account under the EDCP
equal to 6% of the executive’s annual cash compensation,
with the contributions subject to a cliff vesting at the end of
the third calendar year following the year for which they are
awarded. However, in the case of executive officers who are
eligible for retirement under the plan, including
Mr. Boudreau and Mr. Lowenberg, company contributions
are fully vested. Other than the 6% annual cash contribution to
the EDCP and the opportunity to participate in the ESI qualified
401(k) plan, we do not provide any retirement benefits to our
executives.
Deferred compensation gives executives a tax favored method of
accumulating assets for current or retirement living expenses.
The three-year vesting schedule that applies to our
contributions is intended to serve as a retention device for the
executives. Amounts contributed to the EDCP by either the
participant or us are assumed to have been invested in one or
more of a number of publicly available mutual funds
and/or a
company common stock fund. The plan is not formally funded and
the returns that are paid on the participants’ accounts are
equal to the gain or loss on the hypothetical market
investments. Due to these factors, and because, with the
exception of the company common stock fund, the hypothetical
investment options under the EDCP are identical to those under
our 401(k) plan available to all employees, the Committee
believes that we have not promised to pay above-market returns
on any participant’s account under the EDCP.
Base Pay. During 2005, the Committee evaluated
how we were paying our executive officers in comparison to the
peer group companies and determined, based upon the
recommendation of the compensation consultant, that they were
generally paid below the market median. As a result, in 2006,
the Committee decided to increase the base pay of the executive
officers, including the Chief Executive Officer, to better align
them with the pay for comparable jobs at peer group companies
and as disclosed in various compensation surveys. Specific 2006
base salary amounts for the named executive officers are
contained in the table below. Recommendations were based in part
upon merit as a part of the annual review process and an
assessment of the individual’s performance. In 2006, the
salary increases for the named executive officers, as a
percentage of base pay, were as follows:
Annual Incentive Bonus Program. As described
above, each named executive officer’s bonus target under
the annual bonus plan for 2006 was determined based on a
percentage of his base salary, and the bonus potential for
Table of Contents
each named executive officer for 2006 ranged from 0% to 300% of
such target (other than for Mr. Paz for whom the range was
0% to 200% of target). Generally, the bonus payouts for
performance below the threshold performance level, at the
threshold performance level, and at the target performance level
for 2006 would have been 0%, 25% and 100% respectively, and the
maximum payout for the achievement of “stretch”
performance goals would have been 300% (200% for Mr. Paz).
For the 2006 performance period, the various bonus targets and
payouts for the named executive officers (paid in March
2007) were as follows:
The payouts under the annual bonus plan for 2006 were based on
our actual EPS of $3.29 (excluding certain non-recurring
benefits related to non-cash net tax benefits) versus a budgeted
EPS of $3.16, and actual EBITDA of $925.1 million against a
target of $919.6 million. Individual payouts were also
adjusted based on the achievement of various workplan goals for
the individual, our various business units or operating groups,
as applicable,
and/or our
company. For 2007, the maximum payout under the annual bonus
plan has been capped at 250% of target (200% of target for Mr.
Paz).
2006 Long Term Incentive Awards. Specific 2006
long term incentive awards to the named executive officers are
contained in the table under the caption “Grants of Plan
Based Awards Table” on page 22.
Perquisites and Additional Benefits. The
Committee does not believe it is in the best interests of our
company or its stockholders to provide our executive officers
with significant perquisites which are not available to all
employees. In accordance with our compensation philosophy to pay
for results, no perquisites are provided to the senior executive
officers that exceed SEC reporting thresholds. In fact, the only
perquisite available to our named executives is a company-paid
comprehensive physical examination and wellness recommendations
at a nationally recognized medical facility. These examinations
are available to our senior executives every two years before
age 50 and annually thereafter. The estimated value of this
program is about $5,000 per examination.
Except as specifically described in this Compensation Discussion
and Analysis, our executive officers participate only in
employee benefit plans generally available to all employees on
the same terms as similarly situated employees, including our
401(k) plan and health and welfare plans. We provide equivalent
health insurance to all employees, and the employee paid portion
of the premiums on such insurance is tiered such that more
highly-compensated employees pay higher premiums in order to
subsidize the premiums for lower-paid employees. As a result,
the employee contributions paid by our executives are more than
300% higher than those paid by our lower paid employees.
All of the offices in our headquarters building are the same
size regardless of title and position, including those for our
Chief Executive Officer and other senior executives, and
reserved parking is not provided for employees at any level. No
financial counseling programs are provided and we do not permit
personal use of corporate aircraft without express prior
approval of the Committee, which approval has never been sought
nor granted.
Employment Agreements. We have entered into
employment agreements with each of our senior executive
officers, which also contain severance and change in control
provisions. The Committee believes these agreements are
appropriate for a number of reasons including the following:
Table of Contents
These agreements do not materially affect the Committee’s
annual compensation determinations, as they only restrict its
ability to reduce base salary and target bonus percentage below
the amounts stated in the agreement. All of the employment
agreements with the exception of the agreement with Mr. Paz
were re-executed in 2006 in order to make them generally
consistent among the executive officers. Additional information
about the severance and change in control provisions of the
agreements can be found under the caption “Employment
Agreements and Potential Payments Upon Termination or Change in
Control” on page 25.
Deductibility of Compensation. The goal for
the deductibility of compensation is to comply with the
requirements of Section 162(m) of the Internal Revenue Code
of 1986, as amended, to the extent deemed practicable or
appropriate by the Committee. Section 162(m) places a limit
of $1 million on the amount of compensation that a
publicly-traded company may deduct in any one year for any of
its “named executive officers”. This limitation does
not apply to performance-based compensation meeting certain
requirements (including the requirement that such compensation
be paid under a stockholder approved plan). For 2006, the grants
of SSARs and performance shares were designed to satisfy the
deductibility requirements of Section 162(m).
As discussed above, in 2006, the stockholders approved
amendments to the 2000 LTIP which, among other things, provided
for the annual bonus awards to be awarded and paid under the
plan, thus satisfying the requirement under Section 162(m)
that performance based compensation be paid pursuant to a
stockholder approved plan. Accordingly, the Committee intends
for these awards under the annual incentive program to be
deductible.
Stock Ownership Guidelines. In 2001, the
Committee established guidelines for stock ownership among its
executive group. The purpose of the guidelines is to have each
executive assert his or her commitment to our company and
stockholders by holding a prescribed number of full value
shares. Shares owned outright and fully-vested phantom share
equivalents under the EDCP are included in these thresholds;
however, unvested performance shares and restricted stock, all
stock options and SSARs, (whether vested or unvested), and
unvested phantom share equivalents under the EDCP are not
included in the guidelines. Even though these guidelines are not
mandatory, each executive’s status with respect to stock
ownership is annually reviewed and communicated. Each executive
has five years from the time of becoming an executive officer to
attain the recommended ownership level. The guidelines require
each individual to hold a number of eligible shares with a value
at least equal to a multiple of his or her base annual salary as
follows: 4.0x for the Chief Executive Officer, 3.5x for the
Chief Operating Officer, 3.0x for all Senior Vice Presidents,
and 1.0x for all Vice Presidents. Currently, each of our Named
Executive Officers has met his stock ownership requirements.
Equity Granting Policy. Effective in November
2006, the Committee adopted a Policy for Grant Approvals and for
Establishing Grant Date for Equity Grants. Under this policy:
Table of Contents
In connection with our offer to acquire the stock of Caremark
Rx, Inc., our annual earnings release for 2006 was accelerated
by several weeks. At the date of the earnings release our annual
compensation review process had not been completed. As a result,
the Committee authorized the granting of annual equity awards
for 2007 at a regular Committee meeting held during the open
trading window following the earnings release. Accordingly,
these grants had a grant date on the actual date of the
Committee meeting.
Derivatives Trading. Because a primary goal of
equity-based incentive compensation is to align the interests of
our executives with our stockholders, our trading policy
prohibits the trading of derivative securities related to our
common stock.
The Compensation Committee and Development Committee of Express
Scripts, Inc. has reviewed and discussed the Compensation
Discussion and Analysis section of this proxy statement with
management, and based on such review and discussions the
Committee recommended to the board of directors that the
Compensation Discussion and Analysis be included in this proxy
statement.
April 23, 2007
COMPENSATION AND DEVELOPMENT COMMITTEE
Gary Benanav, Chairman
Thomas P. Mac Mahon
Howard Waltman
The Compensation Committee is comprised of Gary Benanav (Chair),
Thomas Mac Mahon and Howard Waltman, none of whom are employees
or current or former officers of our company, or had any
relationship with our company required to be disclosed under
“Certain Relationships and Related Party Transactions.”
Table of Contents
SUMMARY
COMPENSATION TABLE
The following table summarizes the compensation of our
“named executive officers” listed in the table for the
year ended December 31, 2006.
Table of Contents
GRANTS OF
PLAN-BASED AWARDS IN 2006
The following table provides additional information about awards
of restricted stock, stock-settled stock appreciation rights and
performance shares granted to the named executive officers in
2006:
Table of Contents
OUTSTANDING
EQUITY AWARDS AT 2006 FISCAL YEAR-END
The following table provides information on vested and unvested
equity awards held by the named executive officers as of
December 31, 2006:
Table of Contents
The following table provides information on the value realized
by the executive officers for stock options exercised during
2006, and for restricted stock awards which vested during 2006:
Table of Contents
The following table provides information on contributions,
earnings and account balances for the named executives in our
Executive Deferred Compensation Plan, or “EDCP”:
The material terms of the EDCP are described in our Compensation
Discussion and Analysis under “Components of Executive
Compensation — Deferred Compensation” on
page 17.
EMPLOYMENT
AGREEMENTS AND POTENTIAL PAYMENTS
UPON TERMINATION OR CHANGE IN CONTROL
Employment
Agreement with Mr. Paz
General Terms. On April 1, 2005, we
entered into an employment agreement with Mr. Paz in
connection with his promotion to the office of Chief Executive
Officer. This new agreement terminated the our previous
employment agreement with Mr. Paz except those terms
addressing the stock option and restricted stock grants under
the agreement, all of which had vested by the end of 2006.
The new agreement with Mr. Paz was effective as of
April 1, 2005 with an initial term through March 31,
2008. The agreement provides for:
Table of Contents
Termination by Us for Cause or by Mr. Paz other than for
Good Reason or Retirement. If Mr. Paz’s
employment is terminated before the employment period expires
for “cause,” as defined in the agreement, or by
Mr. Paz other than for “good reason” or
“retirement,” as those terms are defined in the
agreement, he is not entitled to receive any further payments or
benefits that have not already been paid or provided, including
any unvested portion of the option grant or restricted stock
awards. However, Mr. Paz is entitled to the following
“accrued rights”:
Termination by Us (other than for Cause or Disability) or
Termination by Mr. Paz for Good Reason. If
Mr. Paz is terminated other than for “cause” or
“disability,” or by him for “good reason,”
as those terms are defined in the agreement, he will receive:
Termination upon Death. If Mr. Paz dies
before the employment period expires, his estate will receive:
Termination for Disability or Retirement. If
Mr. Paz is terminated for disability or retirement (i.e.,
voluntary retirement on or after age 591/2 but not within
90 days after a change in control of us) before the
employment period expires, he will receive:
Effect of Change in Control on Deferred
Bonus. If a “change in control,” as
defined in the 2000 LTIP, occurs prior to March 31, 2008
Mr. Paz will receive:
Table of Contents
Post-Employment Restrictive Covenants. Upon
termination of employment, Mr. Paz is prohibited from:
Mr. Paz must comply with these restrictions in order to
receive the severance benefits described above.
Section 409A Adjustments. If any
severance payments made to Mr. Paz following termination
(other than payments under the EDCP) should be subject to the
restrictions of Section 409A of the Internal Revenue Code,
then we must negotiate in good faith to amend his employment
agreement to the extent necessary to create payment terms with
respect to such post-termination payments which are as close as
possible to those originally set forth in his employment
agreement while not violating the terms of Section 409A.
Excise Tax
Gross-Up
Payment. If any severance payments would result
in Mr. Paz’s liability for the payment of an excise
tax under Section 4999 of the Internal Revenue Code, or any
similar state or local tax, we will make a
“gross-up”
payment to him to fully offset such tax provided the aggregate
present value of the benefit amount is equal to or exceeds 125%
of the maximum total payment which could be made to him without
triggering the excise tax. If the aggregate present value of the
amount of the benefit, however, exceeds such maximum amount, but
is less than 125% of such maximum amount, then we may reduce the
benefit so that no portion of the amount is subject to the
excise tax, and no
gross-up
payment will be made.
Estimated Benefits. The table below reflects
the amount of incremental compensation which would be paid to
Mr. Paz upon the termination of his employment or upon a
change in control. These amounts assume that such termination or
change in control was effective as of December 31, 2006,
and that the price of our common stock upon which certain of the
calculations are made was the closing price of $71.60 per
share on that date. Accordingly, the computation of these
amounts requires the company to make certain estimates which are
further described in the description of Mr. Paz’s
employment agreement above or in the accompanying footnotes.
Some of these amounts are payable pursuant to the terms of the
employment agreement while others arise from the terms of the
applicable grant
and/or
benefit plan. Those amounts payable pursuant to the employment
agreement generally require the executive to sign a general
release and to comply with certain contractual terms including
those related to noncompetition, nonsolicitation and
non-disparagement.
Because the incremental amount of payments to be made depend on
several factors, the actual amounts to be paid out upon
termination of employment or a change in control can only be
determined at the time of the event. The tables do not include
the nonqualified deferred compensation that would be paid, which
is set forth in the “Nonqualified Deferred Compensation
Table” above, except to the extent an individual is
entitled to an additional
Table of Contents
benefit as a result of the termination. The estimated payments
upon termination and change in control are as follows:
GEORGE
PAZ
Table of Contents
General Terms. On May 1, 2006, we entered
into executive employment agreements with several key
executives, including each of the named executive officers other
than Mr. Paz. These employment agreements are substantially
identical, except as indicated below. The initial employment
period under these agreements runs from May 1, 2006 through
March 31, 2007, and, under each of the agreements, is
automatically extended for successive one-year renewal periods
unless either party gives notice of non-renewal at least ninety
days prior to the end of the then current term. Neither party
under any of the agreements gave such notice prior to
March 31, 2007 termination date, and, as a result, each of
these agreement has been renewed through March 31, 2008.
Each employment agreement generally provides for:
The initial base salary and minimum bonus target amounts
(expressed as a percentage of base salary for each of the
officers under the new agreements were:
Table of Contents
Termination by Us for Cause or by Executive other than for
Good Reason or Retirement. If the
executive’s employment is terminated before the employment
period expires by us for “cause,” as defined in the
agreement, or by him other than for “good reason” or
“retirement,” as those terms are defined in the
agreement, he is not entitled to receive any further payments or
benefits that have not already been paid or provided, including
any unvested portion of the option grant or restricted stock
awards. However, he is entitled to the following “accrued
rights”:
Termination by Us (other than for Cause or Disability) or for
Good Reason. If the executive’s employment
is terminated by us other than for “cause” or
“disability,” or by the executive for “good
reason,” as those terms are defined in the agreement, the
executive is entitled to receive:
Termination due to Death, Disability or
Retirement. If the executive’s employment
terminates on account of death, disability or retirement, as
those terms are defined in the agreement, before the end of his
employment period, he (or his estate) generally is entitled to
receive:
Post-Employment Restrictive Covenants. Upon
termination of employment, each executive is prohibited from:
Excise Tax
Gross-Up
Payment. If any benefit to be paid would result
in the executive’s liability for the payment of an excise
tax under Section 4999 of the Internal Revenue Code or any
similar state or local tax, we will make a
“gross-up”
payment to the executive to fully offset the excise tax provided
the aggregate present value of the amount of the benefit is
equal to or exceeds 125% of the maximum total payment which
could be made to the executive without triggering the excise
tax. If the aggregate present value of the amount of the benefit
exceeds such
Table of Contents
maximum amount, but is less than 125% of such maximum amount,
then we may reduce the amount of the benefit so that no portion
of the benefit is subject to the excise tax, and no
gross-up
payment would be made.
Estimated Benefits. The tables below reflect
the amount of incremental compensation which would be paid to
each of Messrs. Boudreau, Lowenberg, Ignaczak and Stiften
upon the termination of his employment or upon a change in
control. These amounts assume that such termination or change in
control was effective as of December 31, 2006, and that the
price of our common stock upon which certain of the calculations
are made was the closing price of $71.60 per share on that
date. Accordingly, the computation of these amounts requires the
company to make certain estimates which are further described in
the description of the employment agreements above or in the
accompanying footnotes. Some of these amounts are payable
pursuant to the terms of the employment agreements while others
arise from the terms of the applicable grant
and/or
benefit plan. Those amounts payable pursuant to the employment
agreements generally require the executive to sign a general
release and to comply with certain contractual terms including
those related to noncompetition, nonsolicitation and
non-disparagement.
Because the incremental amount of payments to be made depend on
several factors, the actual amounts to be paid out upon
termination of employment or a change in control can only be
determined at the time of the event. The tables do not include
the nonqualified deferred compensation that would be paid, which
is set forth in the “Nonqualified Deferred Compensation
Table” above, except to the extent an individual is
entitled to an additional benefit as a result of the
termination. The estimated payments upon termination and change
in control are as follows:
EDWARD
STIFTEN
Table of Contents
DAVID
LOWENBERG
THOMAS
BOUDREAU
Table of Contents
EDWARD
IGNACZAK
Table of Contents
On the Record Date there were 136,069,935 outstanding shares of
our common stock. Unless otherwise provided, all references to
shares of our common stock in this proxy statement have been
adjusted to reflect all of our previous stock splits, including
the two separate
two-for-one
stock splits effective June 24, 2005 and June 22,
2001, each of which was effected in the form of a stock dividend
of one share for each outstanding share to holders of record.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains certain information regarding the
beneficial ownership of our common stock as of March 1,
2007 (unless otherwise noted) by (i) each person known by
us to own beneficially more than five percent of the outstanding
shares of our common stock, (ii) each of our directors and
nominees, (iii) each of our current or former executive
officers named in the Summary Compensation Table on
page 21, and (iv) all of our current executive
officers and directors as a group. The table includes shares
that may be acquired on March 1, 2007, or within
60 days of March 1, 2007, upon the exercise of stock
options by employees or outside directors. Unless otherwise
indicated, each of the persons or entities listed below
exercises sole voting and investment power over the shares that
each of them beneficially owns.
Table of Contents
Table of Contents
The following table summarizes information as of
December 31, 2006 relating to our equity compensation plans
under which equity securities are authorized for issuance:
The Audit Committee of Express Scripts, Inc. is composed of four
directors who, in the judgment of our board of directors, meet
the independence requirements of the Nasdaq Global Select
Market. Since 1992 the Audit Committee has operated under a
Charter adopted by our board of directors. The Charter, as
amended, is available through the “Investor
Information” section of our website at
www.express-scripts.com. The primary function of the
Audit Committee is to assist our board of directors in its
oversight of the integrity of our company’s financial
reporting processes and system of internal controls with respect
to finance and accounting. Management is responsible for our
financial statements and overall reporting process, including
the system of internal controls. The independent registered
public accountants are responsible for conducting annual audits
and quarterly reviews of our financial statements and expressing
an opinion as to the conformity of the annual financial
statements with generally accepted accounting principles.
The Audit Committee submits the following report pursuant to the
Securities and Exchange Commission rules:
Table of Contents
Respectfully submitted,
Frank Borelli, Chairman
Maura C. Breen
Nicholas J. LaHowchic
John O. Parker, Jr.
The Report of the Audit Committee will not be deemed
incorporated by reference by any general statement incorporating
by reference this proxy statement or portions thereof into any
filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that we specifically
incorporate this information by reference, and will not
otherwise be deemed filed under such Acts.
Section 16(a) of the Securities Exchange Act of 1934
requires our directors and executive officers, persons who
beneficially own more than ten percent of a registered class of
our equity securities, and certain other persons to file reports
of ownership and changes in ownership on Forms 3, 4 and 5
with the Securities and Exchange Commission (“SEC”)
and Nasdaq, and to furnish the Company with copies of the forms.
Based solely on our review of the forms we received or filed
with the SEC, or written representations from reporting persons,
we believe that all of our directors, executive officers and
greater than ten percent beneficial owners complied with all
such filing requirements during 2006.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Stock Ownership. New York Life currently owns
20,000,000 shares (or approximately 14.72%) of our
outstanding common stock, based on Amendment No. 7 to
Schedule 13G filed February 14, 2007.
In August 2001, New York Life and its subsidiary NYLIFE, LLC, or
“NYLife” entered into a ten-year forward sale contract
with an affiliate of Credit Suisse First Boston Corporation, or
“CSFB”, with respect to 9,000,000 of its shares of our
common stock, and, in April 2003, New York Life entered into a
five-year forward sale contract with CSFB and one of CSFB’s
affiliates with respect to 11,000,000 of its shares of our
Common Stock. New York Life has reported that, absent the
occurrence of certain accelerating events, it will retain the
right to vote the shares under the forward sale contracts, or
the “Forward Sale Shares”, during the term of each
forward sale contract.
Stockholder and Registration Rights
Agreement. We are a party to a Stockholder and
Registration Rights Agreement with New York Life. The rights
agreement was originally entered into in connection with the
November 2000 offering of a portion of the shares of our common
stock then held by New York Life. The principal terms of this
agreement are as follows:
Rights Regarding the Board of Directors. The
rights agreement originally provided New York Life with the
right to designate for nomination two directors to our board of
directors as long as the aggregate number of shares of our
common stock held by New York Life and its non-investment
subsidiaries exceeded certain minimum levels. As a result of a
series of transactions involving the shares held by New York
Life and its affiliates completed during 2003, New York
Life’s nomination right was reduced to one, and, following
certain transactions completed during 2006 New York Life’s
nomination right was eliminated. Under the terms of the rights
agreement, New York Life’s nomination right cannot be
resurrected.
Registration Rights. As long as New York Life
and its non-investment subsidiaries, in the aggregate,
beneficially hold more than 6,000,000 shares of our common
stock, New York Life may request that we effect up to three
registrations of all or part of such shares with the SEC. One of
these registrations may be requested to be
Table of Contents
effected as a “shelf registration” (allowing
registration prior to the actual offering), and two of these
registrations may be requested to be effected as firm
underwritten offerings under the Securities Act of 1933. We are
not obligated to file a registration statement at the request of
New York Life: (1) within a period of 90 days after
the effective date of any other registration statement filed by
us (other than a registration statement concerning employee
benefit plans); or (2) while a registration statement
relating to a shelf registration filed at the request of New
York Life is effective under the Securities Act. In addition, so
long as New York Life and its non-investment subsidiaries, in
the aggregate, beneficially hold in excess of
6,000,000 shares of the common stock, if we propose to
register shares of common stock for our account under the
Securities Act (other than a registration concerning employee
benefit plans), New York Life will have piggy-back rights with
respect to such registration. The underwriters of any such
offering have the right to limit the number of shares included
by New York Life in any such registration if the managing
underwriter indicates that, in its opinion, the number of shares
to be included by New York Life would adversely affect the
offering. We would bear the expenses of any registration
described in this paragraph.
Voting of Common Stock. New York Life and its
subsidiaries have agreed to vote any shares of our common stock
held by them in favor of the slate of nominees for the our Board
of Directors recommended by us. However, this voting requirement
does not apply to any of the Forward Sale Shares held by third
parties and which New York Life would have to recall in order to
vote, provided that (i) New York Life gives us notice
indicating that such shares are being held by third parties, and
(ii) we do not require New York Life to nonetheless recall
such shares. We do not presently intend to call for the recall
of such shares to be voted at the meeting.
Term. The Stockholder and Registration Rights
Agreement will terminate on the earlier of:
(1) November 7, 2008 or (2) at such time as New
York Life and its non-investment subsidiaries, in the aggregate,
own less than 6,000,000 shares of our common stock.
Other Relationships and Transactions. Pursuant
to agreements with New York Life, we provide pharmacy benefit
management services to employees and retirees of New York Life
and certain New York Life health insurance policyholders. During
2006, we derived approximately $30.1 million, or 0.17% of
our total revenues for 2006, from all services provided to New
York Life.
New York Life Benefit Services, Inc., a subsidiary of New York
Life, administers our 401(k) and deferred compensation plans. We
paid New York Life Benefit Services approximately $56,000 for
such services during 2006.
Our Corporate Governance Committee is responsible for reviewing
and approving all material transactions with any related
persons. This obligation is set forth in our Corporate
Governance Committee’s Charter. A copy of the Corporate
Governance Committee Charter is available in the Investor
Information section of our website at www.express-scripts.com
under the “Corporate Governance Documents”.
(Information on our website does not constitute part of this
registration statement).
To identify related person transactions, each year we submit and
require our directors and officers to complete director and
officer questionnaires identifying any transactions with us in
which the officer or director or their family members have a
material interest. We review related party transactions due to
the potential for a conflict of interest. Our Code of Ethics and
Corporate Code Business Conduct require all directors, officers
and employees who may have a conflict of interest to promptly
notify our General Counsel, Board, Compliance Committee or Chief
Compliance Officer.
We expect our directors, officers and employees to act and make
decisions that are in our best interests and encourage them to
avoid situations which present a conflict between our interests
and their own personal interests. In addition, we are strictly
prohibited from extending personal loans to, or guaranteeing the
personal loans of, any director or officer. A copy of our Code
of Ethics is available in the Investor Information section of
our website at www.express-scripts.com. (Information on our
website does not constitute part of this proxy statement).
Table of Contents
The firm of PricewaterhouseCoopers LLP served as our independent
registered public accountants for the year ended
December 31, 2006. The Audit Committee of the board of
directors has appointed PricewaterhouseCoopers LLP to act in
that capacity for the year ending December 31, 2007. A
representative of PricewaterhouseCoopers LLP is expected to be
present at the annual meeting with the opportunity to make a
statement if he or she desires to do so and to be available to
respond to appropriate questions from stockholders.
Although we are not required to submit this appointment to a
vote of the stockholders, the Audit Committee continues to
believe it appropriate as a matter of policy to request that the
stockholders ratify the appointment of PricewaterhouseCoopers
LLP as principal independent registered public accountants. If
the stockholders do not ratify the appointment, the Audit
Committee will investigate the reasons for stockholder rejection
and consider whether to retain PricewaterhouseCoopers LLP or
appoint another auditor. Even if the appointment is ratified,
the Audit Committee in its discretion may direct the appointment
of a different independent auditor at any time during the year
if it determines that such a change would be in the best
interests of our company and our stockholders.
The following table presents fees for professional services
rendered by PricewaterhouseCoopers LLP for the audit of our
annual financial statements for the years ended
December 31, 2005 and December 31, 2006, as well as
fees billed for other services rendered by
PricewaterhouseCoopers LLP during those periods:
The Audit Committee Charter requires the committee’s
pre-approval of all services, both audit and permitted
non-audit, to be performed for the Company by the independent
auditors. In determining whether proposed services are
permissible, the Audit Committee considers whether the provision
of such services is compatible with maintaining auditor
independence. As part of its consideration of proposed services,
the Audit Committee may (i) consult with management as part
of the decision-making process, but may not delegate this
authority to management, and (ii) delegate, from time to
time, its authority to pre-approve such services to one or more
committee members, provided that any such approvals are
presented to the full committee at the next scheduled Audit
Committee meeting.
The board of directors unanimously recommends a vote FOR
the ratification of PricewaterhouseCoopers LLP as our
independent registered public accountants for the year ending
December 31, 2007.
Table of Contents
In accordance with our bylaws, a stockholder who, at any annual
meeting of our stockholders, intends to nominate a person for
election as director or present a proposal must so notify our
Corporate Secretary, in writing, describing such nominee(s) or
proposal and providing information concerning such stockholder
and the reasons for and interest of such stockholder in the
proposal. Generally, to be timely, such notice must be received
by our Corporate Secretary not less than 90 days nor more
than 120 days in advance of the first anniversary of the
preceding year’s annual meeting, provided that in the event
that no annual meeting was held the previous year or the date of
the annual meeting has been changed by more than 30 days
from the date of the previous year’s meeting, or in the
event of a special meeting of stockholders called to elect
directors, not later than the close of business on the tenth day
following the day on which notice of the date of the meeting was
mailed or public disclosure of the date of the meeting was made,
whichever occurs first. For our annual meeting to be held in
2008, any such notice must be received by us at our principal
executive offices between January 24, 2008 and
February 23, 2008 to be considered timely for purposes of
the 2008 annual meeting. Any person interested in offering such
a nomination or proposal should request a copy of the relevant
bylaw provisions from our Corporate Secretary. These time
periods also apply in determining whether notice is timely for
purposes of rules adopted by the Securities and Exchange
Commission relating to the exercise of discretionary voting
authority, and are separate from and in addition to the
Securities and Exchange Commission’s requirements that a
stockholder must meet to have a proposal included in our proxy
statement.
Stockholder proposals intended to be presented at the 2008
annual meeting must be received by us at our principal executive
office no later than December 25, 2007, in order to be
eligible for inclusion in our proxy statement and proxy relating
to that meeting. Upon receipt of any proposal, we will determine
whether to include such proposal in accordance with regulations
governing the solicitation of proxies.
Management does not intend to bring before the meeting any
matters other than those specifically described above and knows
of no matters other than the foregoing to come before the
meeting. If any other matters or motions properly come before
the meeting, it is the intention of the persons named in the
accompanying proxy to vote such proxy in accordance with the
recommendation of management on such matters or motions,
including any matters dealing with the conduct of the meeting.
If you would like to receive next year’s proxy statement,
Annual Report and all other stockholder information
electronically, visit the Investor Overview section of our
website, which can be accessed from the Investor Information
section of our homepage at www.express-scripts.com. By
electing to receive these materials electronically, you can save
us the cost of producing and mailing these documents.
The Securities and Exchange Commission has adopted rules that
permit companies and intermediaries such as brokers to satisfy
delivery requirements for proxy statements with respect to two
or more shareholders sharing the same address by delivering a
single proxy statement addressed to those stockholders. This
process, which is commonly referred to as
“householding,” potentially provides extra convenience
for stockholders and cost savings for companies. We and some
brokers household proxy materials, delivering a single proxy
statement to multiple stockholders sharing an address unless
contrary instructions have been received from the affected
stockholders. Once you have received notice from your broker or
us that they or we will be householding materials to your
address, householding will continue until you are notified
otherwise or until you revoke your consent. If, at any time, you
no longer wish to participate in householding and would prefer
to receive a separate proxy statement, or if you currently
receive multiple proxy statements and would prefer to
participate in householding, please notify your broker if your
shares are held in a brokerage account or us if you hold
registered shares. You can notify us by sending
Table of Contents
a written request to Express Scripts, Inc., Attention: Investor
Relations, One Express Way, Saint Louis, Missouri 63121.
We will bear the cost of the solicitation of proxies for the
meeting. Brokerage houses, banks, custodians, nominees and
fiduciaries are being requested to forward the proxy material to
beneficial owners and their reasonable expenses therefor will be
reimbursed by us. Solicitation will be made by mail and also may
be made personally or by telephone, facsimile or other means by
our officers, directors and employees, without special
compensation for such activities. We have also hired MacKenzie
Partners, Inc. to assist in the solicitation of proxies.
MacKenzie will receive a fee for such services of approximately
$6,500, plus reasonable
out-of-pocket
expenses, which will be paid by us.
By Order of the Board of Directors
Thomas M. Boudreau
Senior Vice President, General Counsel and Secretary
April 23, 2007
Table of Contents
The Report of the Compensation and Development Committee on
Executive Compensation will be deemed incorporated by reference
into our Annual Report on
Form 10-K
for the year ended December 31, 2006, but will only be
deemed “furnished” and not filed under the Securities
Exchange Act of 1934. The Report of the Audit Committee and the
Report of the Compensation and Development Committee on
Executive Compensation will not be deemed incorporated by
reference by any general statement incorporating by reference
this proxy statement or portions thereof into any filing under
the Securities Act of 1933 or the Securities Exchange Act of
1934, and will not otherwise be deemed filed under such Acts,
except to the extent that we otherwise specifically incorporate
this information by reference.
Table of Contents
April 23,
2007
Dear Stockholder:
The Annual Meeting of Stockholders of Express Scripts, Inc. will
be held at the offices of the Company, One Express Way, Saint
Louis, Missouri 63121, at 9:30 a.m. on Wednesday,
May 23, 2007.
It is important that your shares be represented at this meeting.
Whether or not you plan to attend the meeting, please review the
enclosed proxy materials, vote by telephone or the Internet or
execute the attached proxy form below, and return it promptly in
the envelope provided.
PROXY VOTING INSTRUCTIONS
Please date, sign and mail your proxy card in the envelope
provided as soon as possible.
Please call toll-free
1-800-PROXIES
(1-800-776-9437)
and follow the instructions. Have your control number and the
proxy card available when you call.
Please access the web page at “www.voteproxy.com” and
follow the on-screen instructions. Have your control number
available when you access the web page.
Table of Contents
þ Please Detach and Mail in the Envelope Provided þ
(1) Election of Directors
INSTRUCTION: To withhold authority to vote for any individual
nominee, print that nominee’s name below.
This Proxy will be voted “FOR” items 1 and 2 if no instruction to the
contrary is indicated. If any other business is properly presented at the
meeting, the Proxy will be voted in accordance with the recommendation of
management.
(YOU ARE REQUESTED TO COMPLETE, SIGN AND RETURN THIS PROXY PROMPTLY)
Table of Contents
EXPRESS SCRIPTS, INC.
PROXY
FOR ANNUAL MEETING OF STOCKHOLDERS - MAY 23, 2007
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints George Paz and Thomas M. Boudreau, or either one of them,
as attorneys-in-fact, agents and proxies for the undersigned with full power of substitution, to
vote all shares of the Common Stock of the undersigned in Express Scripts, Inc. (the “Company”) at
the Annual Meeting of Stockholders of the Company to be held on May 23, 2007 at 9:30 A.M., at the
offices of the Company, One Express Way, Saint Louis, Missouri 63121, or at any adjournment or
postponement thereof, upon the matters described in the Notice of such meeting and accompanying
Proxy Statement, receipt of which is acknowledged, and upon such other business as may properly
come before the meeting or any adjournments or postponements thereof, hereby revoking any proxies
heretofore given. Please sign exactly as the name(s) appear on this proxy card. When shares are
held by joint tenants, both should sign. When signing as attorney-in-fact, executor,
administrator, personal representative, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized officers. If a
partnership, please sign in partnership name by authorized persons.
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||
