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Express Scripts DEF 14A 2008

Documents found in this filing:

  1. Def 14A
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def14a
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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:
o   Preliminary Proxy Statement
o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ   Definitive Proxy Statement
o   Definitive Additional Materials
o   Soliciting Material Pursuant to §240.14a-12
Express Scripts, Inc.
 
(Name of Registrant as Specified In Its Charter)
 
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ   No fee required.
o   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)   Title of each class of securities to which transaction applies:
 
     
     
 
 
  (2)   Aggregate number of securities to which transaction applies:
 
     
     
 
 
  (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
     
     
 
 
  (4)   Proposed maximum aggregate value of transaction:
 
     
     
 
 
  (5)   Total fee paid:
 
     
     
 
o   Fee paid previously with preliminary materials.
 
o   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)   Amount Previously Paid:
 
     
     
 
 
  (2)   Form, Schedule or Registration Statement No.:
 
     
     
 
 
  (3)   Filing Party:
 
     
     
 
 
  (4)   Date Filed:
 
     
     
 


Table of Contents

(EXPRESS SCRIPTS LOGO)
EXPRESS SCRIPTS, INC.
One Express Way
Saint Louis, Missouri 63121
 
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 28, 2008
 
The 2008 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 28, 2008, at 9:30 a.m. Central Time (the “meeting”), to consider and act upon the following matters:
 
  1.  to elect eleven (11) directors to serve until the next Annual Meeting of Stockholders or until their respective successors are elected and qualified;
 
  2.  to approve and ratify an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of the Company’s common stock from 650,000,000 shares to 1,000,000,000 shares;
 
  3.  to approve and ratify an increase in the number of shares of the Company’s common stock authorized for issuance under the Express Scripts, Inc. Employee Stock Purchase Plan from 2,000,000 shares to 3,500,000 shares;
 
  4.  to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accountants for the Company’s current fiscal year;
 
  5.  to transact such other business as may properly come before the meeting or any adjournments or postponements thereof.
 
Only stockholders of record at the close of business on March 31, 2008, 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
 
-s- Thomas M. Boudreau
Thomas M. Boudreau
Executive Vice President, Law & Strategy and
Corporate Secretary
 
One Express Way
Saint Louis, Missouri 63121
April 14, 2008
 
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.


 

 
 
 
         
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(EXPRESS SCRIPTS LOGO)
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 2008 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 28, 2008, 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 14, 2008.
 
ABOUT THE MEETING
 
 
Because you were a stockholder of our company as of March 31, 2008, 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 or made available to stockholders on or about April 14, 2008.
 
 
You are voting on four items:
 
1. Election of directors (see page 5);
 
2. Approval and ratification of an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of the Company’s common stock from 650,000,000 shares to 1,000,000,000 shares (see page 45);
 
3. Approval and ratification of an increase in the number of shares of the Company’s common stock authorized for issuance under the Express Scripts, Inc. Employee Stock Purchase Plan (the “ESPP”) from 2,000,000 shares to 3,500,000 shares (see page 46); and
 
4. Ratification of PricewaterhouseCoopers LLP as independent registered public accountants for 2008 (see page 50).
 
 
Stockholders of Record:  If you are a stockholder of record, there are four ways to vote:
 
  •  by toll-free telephone at 1-800-690-6903
 
  •  by Internet at www.proxyvote.com
 
  •  by completing and returning your proxy card
 
  •  by written ballot at the meeting


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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 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.
 
Regardless of how your shares are registered, if you complete and properly sign the accompanying proxy card and return it to the address indicated, or vote via the telephone or internet, your shares will be voted as you direct.
 
 
Our board recommends the following votes:
 
1. FOR each of the nominees as directors;
 
2. FOR the approval and ratification of an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of the Company’s common stock from 650,000,000 shares to 1,000,000,000 shares;
 
3. FOR the approval and ratification of an increase in the number of shares of the Company’s common stock authorized for issuance under the ESPP from 2,000,000 shares to 3,500,000 shares; and
 
4. FOR the ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accountants for 2008.
 
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 or electronic 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.
 
 
Approximately 251,100,000, 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 approximately 125,550,000 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


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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.
 
For the proposal to approve and ratify the Amendment to the Company’s Amended and Restated Certificate of Incorporation, the affirmative vote of a majority of the outstanding shares of common stock entitled to vote at the meeting will be required for approval. Accordingly, abstentions and broker non-votes will have the effect of votes against this proposal.
 
For each of the proposal to approve and ratify the increase of shares authorized for issuance under the ESPP and 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 each of these proposals 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. Broker non-votes on a proposal (shares held by brokers that do not have discretionary authority to vote on the matter and have not received voting instructions from their clients) are not counted or deemed present or represented for determining whether stockholders have approved that proposal. Please note that brokers that have not received voting instructions from their clients cannot vote on their clients’ behalf on the proposal to approve the increase of shares available under the ESPP.
 
 
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 year we are taking advantage of the new Securities and Exchange Commission (“SEC”) rules that allow companies to furnish proxy materials to stockholders via the Internet. If you received a Notice of Internet Availability of Proxy Materials, or “Notice,” by mail, you will not receive a printed copy of the proxy materials, unless you specifically request one. The Notice instructs you on how to access and review all of the important information contained in the proxy statement and annual report as well as how to submit your proxy over the Internet. If you received the Notice and would still like to receive a printed copy of our proxy materials, you should follow the instructions for requesting these materials included in the Notice. We plan to mail the Notice to stockholders by April 18, 2008.
 
 
Any Express Scripts stockholder as of March 31, 2008 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 submit a proxy card without indicating your vote, your shares will be voted as follows:
 
  •  for the nominees for director named in this proxy statement;


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  •  for the approval and ratification of the amendment to the Company’s Amended and Restated Certificate of Incorporation which would increase the number of authorized shares of the Company’s common stock from 650,000,000 shares to 1,000,000,000;
 
  •  for the approval and ratification of an increase in the number of shares of the Company’s common stock authorized for issuance under the ESPP from 2,000,000 shares to 3,500,000 shares;
 
  •  for the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accountants for 2008; and
 
  •  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.


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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 eleven of our current directors to be elected to serve until the next Annual Meeting of Stockholders or until their successors are duly elected and qualified. Howard Waltman is retiring from the board upon the expiration of his current term, but will continue to serve as a non-voting emeritus member of the board. Mr. Waltman’s retirement will result in one vacancy on the board. The Corporate Governance Committee of the board is currently in the process of identifying a candidate to fill this vacancy. Proxies cannot be voted for a greater number of persons than the number of nominees named below. Unless otherwise specified, all proxies will be voted in favor of the eleven 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 are independent, as defined by the listing standards of The Nasdaq Global Select Market, as of the date of this Proxy Statement.
 
The following information is furnished as of March 1, 2008, for each of the nominees for our Board of Directors:
 
 
Gary G. Benanav, 62, 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 is also a director of Barnes Group, Inc.
 
Frank J. Borelli, 72, 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 where he served as Senior Vice President, among other positions.. 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, 52, 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.
 
Nicholas J. LaHowchic, 60, 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, 61, 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


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a director of LabCorp since April 1995, continues to serve as Chairman of the Board of LabCorp, a position he has held since April 1996. Mr. Mac Mahon also serves as a director of Pharmerica Corporation and Golden Pond Healthcare, Inc.
 
Woodrow A. Myers Jr., M.D., 54, was elected a director of Express Scripts in May 2007. 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., 63, 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 also serves on the boards of PHT Corporation and Medical Present Value, Inc., both privately held companies.
 
George Paz, 52, 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 Financial Officer following his election to the office of President until his successor joined Express Scripts in April 2004.
 
Samuel K. Skinner, 69, 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, 64, 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, 60, 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.
 
The Board of Directors unanimously recommends a vote FOR the election of each of the nominees listed above.
 
 
Our bylaws authorize the board to elect one or more directors emeritus to serve at the pleasure of the board. Each director emeritus serves as an advisor and consultant to the board, and may also be appointed by the board to serve as an advisor and consultant to one or more committees of the board. A director emeritus is invited to attend meetings of the board and any such committees, and may participate in discussions during such meetings. However, no director emeritus shall be entitled to vote on any business that comes before the board or any committee.
 
Howard L. Waltman, 75, is retiring from the board at the end of his current term, which expires on the date of the annual meeting. The Board currently intends to elect Mr. Waltman to serve as Director Emeritus following his retirement. Mr. Waltman 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 Emergent Group, Inc.


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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 14 times in 2007. 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 2007. 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 of the board’s twelve members attended the annual meeting in 2007. The following table lists the members, primary functions and number of meetings held for each of the committees:
 
                 
            Meetings
Members       Principal Functions   in 2007
 
Audit Committee
Frank J. Borelli (Chair)*
Maura C. Breen
Nicholas J. LaHowchic
John O. Parker, Jr.
* Mr. Borelli has been
determined by the Board, in
its judgment, to be an audit
committee financial expert, as
defined under applicable SEC rules
               
    Assist the board in its oversight of (i) the integrity of our financial statements; (ii) our compliance with securities laws, including financial and disclosure requirements; (iii) our system of internal controls and the performance of our internal audit function; and (iv) the qualifications, independence and performance of our independent accountants.     7  
    Select, retain and oversee our independent accountants.        
    Review our annual and interim financial statements.        
    Establish procedures for the receipt and handling of complaints regarding accounting, internal accounting controls or auditing matters.        
                 
 
 
Compensation & Development
Committee
Gary G. Benanav (Chair)
Thomas P. Mac Mahon
Howard L. Waltman
               
    Review and approve our stated compensation strategy.     5  
    Review annually the performance of our Chief Executive Officer.        
    Review and approve compensation, and set performance criteria for compensation programs, for all of our senior executives.        
    Review and make recommendations to the Corporate Governance Committee regarding compensation of directors.        
      Approve forms of employment agreements for our senior executives.        
      Approve and oversee the administration of our employee benefit plans and incentive compensation programs.        
                 
 
 
Compliance Committee
Nicholas J. LaHowchic (Chair)
Woodrow A. Myers, Jr.
Samuel K. Skinner
Seymour Sternberg
               
    Review and make recommendations to the board addressing our legal and regulatory compliance practices generally (other than SEC and financial reporting matters).     3  
    Review our Corporate Code of Conduct at least annually and make recommendations to the board with respect to changes to the Code of Conduct.        
    Meet regularly with our management to assess our compliance policies and procedures.        
      Review and approve a Code of Business Conduct and Ethics, and oversee implementation by management of procedures intended to ensure compliance with such Code.        
                 
 
 
Corporate Governance Committee
Howard L. Waltman (Chair)
Frank J. Borelli
John O. Parker, Jr.
Seymour Sternberg
               
    Establish criteria for membership on our board of directors and its committees.     5  
    Select and nominate candidates for election or reelection as directors at our annual stockholders’ meeting.        
    Consider stockholder recommendations for and nominations of candidates for election as directors.        
    Recommend candidates to fill any vacancies on our board of directors.        
    Review and make recommendations to the board regarding our Corporate Governance Guidelines and the nature and duties of the committees of the board.        
    Approve and make adjustments to our policies regarding compensation of directors.        
               
 
 
 
The Board also formed a special Transaction Committee to consider matters related to our efforts to acquire Caremark Rx, Inc. in early 2007. Messrs. Borelli, Mac Mahon and Waltman served on the Transaction Committee, which is no longer active.


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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:
 
  •  chair all meetings or executive sessions of the non-employee or independent directors; and
 
  •  review and provide input to the scheduling of, and agendas for, the board and committee meetings.
 
Mr. Waltman was elected as Presiding Director of our board in October 2006. A new Presiding Director will be selected following Mr. Waltman’s retirement.


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Directors who are employed by our company or its subsidiaries do not receive compensation for serving as directors. Directors who are not employees of our company or its subsidiaries are entitled to receive:
 
  •  an annual retainer as follows:
 
  •  $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;
 
  •  a meeting fee of $2,000 for each meeting attended in person; and
 
  •  a meeting fee of $1,000 for each meeting attended telephonically.
 
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:
 
  •  an equity grant with a notional value of $115,000 on the date of the first board meeting each such director attends as a non-employee director, and
 
  •  annual equity grants with a notional value of $200,000 granted on the date of each annual meeting of stockholders, with new directors who have taken office since the previous annual meeting receiving a pro-rated grant for the partial first year.
 
The equity grants are divided between shares of restricted stock and stock-settled stock appreciation rights, or “SSARs”, as follows:
 
  •  One-third of the value of the equity grant in shares of restricted stock, valued based on the fair market value of our common stock as of the grant date; and
 
  •  Two-thirds of the value of the equity grant in SSARs, valued using the method we utilize in valuing the grants for financial reporting purposes (currently the Black-Scholes valuation model).
 
Historically we have granted non-qualified stock options or “stock options” to our non-employee directors instead of SSARs and we may consider returning to the use of stock options in the future. All of the SSARs and stock options 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.


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The following table provides information regarding our compensation of non-employee directors for 2007:
 
 
                                 
    Fees Earned or
                   
    Paid in Cash
    Stock Awards
    Option Awards
    Total
 
Name
  ($)(1)
    ($)(2)
    ($)(3)
    ($)
 
(a)
  (b)     (c)     (d)     (h)  
 
Gary Benanav(4)
  $ 68,000     $ 53,081     $ 133,084     $ 254,165  
Frank Borelli(5)
  $ 84,000     $ 53,081     $ 137,577     $ 274,658  
Maura Breen(6)
  $ 60,000     $ 53,081     $ 138,416     $ 251,497  
Nicholas LaHowchic(7)
  $ 70,000     $ 53,081     $ 136,054     $ 259,135  
Thomas P. Mac Mahon(8)
  $ 61,000     $ 53,081     $ 137,577     $ 251,658  
Woodrow A. Myers(9)
  $ 34,000     $ 42,764     $ 73,118     $ 149,882  
John O. Parker(10)
  $ 71,000     $ 53,081     $ 136,054     $ 260,135  
Samuel K. Skinner(11)
  $ 55,000     $ 53,081     $ 139,351     $ 247,432  
Seymour Sternberg(12)
  $ 61,000     $ 53,081     $ 133,084     $ 247,165  
Barrett Toan(13)
  $ 50,000     $ 53,081     $ 92,364     $ 195,445  
Howard Waltman(14)
  $ 76,000     $ 53,081     $ 137,577     $ 266,658  
 
 
(1) This column reports the amount of cash compensation received for 2007 Board and committee service.
 
(2) Each director received a Restricted Stock award on May 23, 2007 of 1,352 shares which vests 331/3% per year on each of the first three anniversaries of the date of the grant. Grant date fair value was $66,627. In addition, on May 23, 2007, in accordance the Company’s policy for new non-employee directors attending their first board meeting, Mr. Myers also received 778 shares of Restricted Stock. Grant date fair value was $38,340. Stock awards have been valued in the same manner as described in footnote 1 to the Summary Compensation Table on page 24.
 
(3) Each director received a grant of 8,484 SSARs on May 23, 2007, which vests 331/3% per year on each of the first three anniversaries of the date of the grant. Grant date fair value was $132,084. In addition, on May 23, 2007, in accordance with the Company’s policy for new non-employee directors attending their first board meeting, Mr. Myers also received 4,878 SSARs. Grant date fair value was $76,658. SSARs have been valued in the same manner as described in footnote 2 to the Summary Compensation Table on page 24.
 
(4) At year-end, Mr. Benanav held 55,232 vested options, 8,000 unvested options, 2,588 shares of unvested Restricted Stock, 3,124 vested SSARs and 14,730 unvested SSARs.
 
(5) At year-end, Mr. Borelli held 224,000 vested options, 8,000 unvested options, 2,588 shares of unvested Restricted Stock, 3,124 vested SSARs and 14,730 unvested SSARs.
 
(6) At year-end, Ms. Breen held 0 vested options, 8,000 unvested options, 2,588 shares of unvested Restricted Stock, 3,124 vested SSARs and 14,730 unvested SSARs.
 
(7) At year-end, Mr. LaHowchic held 0 vested options, 8,000 unvested options, 2,588 shares of unvested Restricted Stock, 3,124 vested SSARs and 14,730 unvested SSARs.
 
(8) At year-end, Mr. Mac Mahon held 40,000 vested options, 8,000 unvested options, 2,588 shares of unvested Restricted Stock, 3,124 vested SSARs and 14,730 unvested SSARs.
 
(9) At year-end, Mr. Myers held 0 vested options, 0 unvested options, 2,130 shares of Restricted Stock, 0 vested SSARs and 13,362 unvested SSARs.
 
(10) At year-end, Mr. Parker held 16,000 vested options, 8,000 unvested options, 2,588 shares of unvested Restricted Stock, 3,124 vested SSARs and 14,730 unvested SSARs.
 
(11) At year-end, Mr. Skinner held 0 vested options, 8,000 unvested options, 2,588 shares of unvested Restricted Stock, 3,124 vested SSARs and 14,730 unvested SSARs.
 
(12) At year-end, Mr. Sternberg held 23,232 vested options, 8,000 unvested options, 2,588 shares of unvested Restricted Stock, 3,124 vested SSARs and 14,730 unvested SSARs.
 
(13) At year-end, Mr. Toan held 591,200 vested options, 0 unvested options, 2,588 shares of unvested Restricted Stock, and 3,124 vested SSARs and 14,730 unvested SSARs.
 
(14) At year-end, Mr. Waltman held 40,000 vested options, 0 unvested options, 2,588 shares of unvested Restricted Stock, 3,124 vested SSARs and 14,730 unvested SSARs.
 
Compensation for any director emeritus is established by the board at the time such director emeritus is elected to serve.


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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:
 
  •  the nominee’s independence;
 
  •  the nominee’s relevant professional skills and depth of business experience;
 
  •  the nominee’s character, judgment, and personal and professional integrity;
 
  •  the nominee’s ability to read and understand corporate financial statements;
 
  •  the nominee’s willingness to commit sufficient time to attend to his or her duties and responsibilities as a member of the board;
 
  •  the nominee’s qualifications for membership on certain committees of the board;
 
  •  any potential conflicts of interest involving the nominee; and
 
  •  the make up and diversity of our existing board.
 
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. The Corporate Governance Committee will also consider candidates recommended by stockholders on the same basis as other candidates.
 
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


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Bylaws (see “Stockholder Proposals” beginning on page 51). For a nominee to be considered, the following information must be submitted in accordance with the required procedures:
 
  •  the name, age, business and residence addresses, principal occupation or employment of both the nominee and the recommending stockholder;
 
  •  the nominee’s general biographical information, including the identification of any other boards on which the nominee serves;
 
  •  with respect to our common stock, the current ownership information and trading history over the preceding 24 months for both the nominee and the recommending stockholder;
 
  •  a description of any transactions or relationships between the nominee and/or the recommending stockholder on one hand, and our company or our management on the other hand;
 
  •  a description of any material proceedings to which the nominee or the recommending stockholder, or either of their associates or affiliates, is a party that are adverse to our company;
 
  •  a description of all arrangements and understandings between the stockholder and the nominee or any other person (including their names) pursuant to which the nomination is made; and
 
  •  any other information relating to the nominee or the recommending stockholder that is required to be disclosed in solicitations for proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
 
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.


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EXECUTIVE COMPENSATION
 
 
 
The Compensation Discussion and Analysis provides a narrative commentary on the company’s compensation policies, programs and practices for our Chief Executive Officer, Chief Financial Officer and other members of our executive management team. Throughout this Proxy Statement we will refer to our Chief Executive Officer, Chief Financial Officer and the three other officers named in the Summary Compensation Table on page 24 as the “named executives” or the “named executive officers.”
 
The broad topics discussed in this analysis include:
 
  •  our compensation philosophy and objectives — alignment, pay for performance and retention;
 
  •  how we implement our compensation objectives, including the role of the Compensation and Development Committee (the “Committee”), management and the Committee’s compensation consultant;
 
  •  our primary compensation vehicles, including base salary, the annual cash bonus and long-term equity awards; and
 
  •  compensation decisions for 2007.
 
 
Aligning Compensation with Stockholder Interests.  The primary goal 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:
 
  •  grants of time-vested non-qualified stock options (“stock options”) or stock settled stock appreciation rights (“SSARs”) and time-vested restricted stock awards under the Express Scripts, Inc. 2000 Long Term Incentive Plan (the “2000 LTIP”);
 
  •  grants of performance shares (the “Performance Shares”) which are intended to focus the executives on actions which are likely to enhance stockholder return, growth in earnings per share and return on invested capital;
 
  •  executive stock ownership guidelines under which executives are expected to maintain significant holdings of Express Scripts Stock; and
 
  •  an annual cash incentive bonus plan (the “Annual Bonus Plan”) the funding and calculation of which is dependent upon the achievement of certain key, financial measures which are drivers of stockholder value.
 
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, the Company’s business units, and the Company overall. This objective, in many ways, overlaps the alignment objective and is achieved through the same compensation vehicles. The elements intended to reward annual and/or long-term performance include the following:
 
  •  the Annual Bonus Plan, which is designed to focus the executives on individual, business unit and/or company-wide annual workplan goals, and which requires the achievement of certain key financial goals for funding;
 
  •  the Performance Share grants which are contingent upon our performance against a peer group of companies in certain key financial metrics over a three-year period; and
 
  •  the grants of stock options or SSARs and restricted stock grants, the value of which is dependent upon growth of the Company’s stock price over a period of several years.


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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 attracting and retaining executives include the following:
 
  •  a compensation package consisting of base salary, potential Annual Bonus Plan awards, and equity grants, which is, both as a whole and by component, competitive with that offered by a peer group of companies;
 
  •  equity awards which vest over time and thus encourage retention;
 
  •  employment agreements with our key executives containing severance and change in control provisions; and
 
  •  an Executive Deferred Compensation Plan (the “EDCP”) which provides a tax-advantaged method for executives to save for their retirement and under which we have historically made cash awards that do not vest for three years (subject to acceleration upon eligibility for retirement, as described below).
 
 
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 these Directors satisfies the independence requirements of the Nasdaq Stock 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.
 
The Committee’s principal functions under the Charter include:
 
  •  Review and approve the Company’s compensation strategy.
 
  •  Annually review the performance of the Chief Executive Officer.
 
  •  Review and approve compensation for all senior executives.
 
  •  Set performance criteria for senior executive compensation programs.
 
  •  Review and make recommendations to the Corporate Governance Committee regarding Director compensation.
 
  •  Approve employment agreements with our senior executives.
 
  •  Approve and oversee the administration of the employee benefit plans and incentive compensation programs.
 
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.  At the direction of the Chair of the Committee, 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, the Committee will consider for approval compensation changes for senior executives and equity grants for newly hired or promoted senior executives. Management may also 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 may be asked to assist in conducting the meetings and to provide applicable data, information and other resources. The Committee’s independent compensation consultant also participates as requested by the


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Committee. 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 to review alternatives and to provide advice regarding appropriate compensation levels for the senior executive officers (the “Compensation Consultant”). 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 Compensation Consultant is independent of management and does no other executive compensation work for the company, although the Compensation Consultant has provided salary survey information to management other than for senior executives. In February 2008 the Committee adopted a policy requiring the approval of the Committee Chair, or, at the Chair’s discretion, the entire Committee, before the Compensation Consultant can be utilized to perform any other services for the Company other than those required under its engagement by Committee. 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 the 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. The Compensation 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 as 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. In 2005 the Compensation Consultant conducted a review of the long-term incentive compensation and recommended changes in the program design that were approved by the Committee and are reflected in the Components of Executive Compensation section that follows.
 
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 13 companies judged to be comparable to the company (the “Peer Group Companies”) based on their revenue and market capitalization, industry, similarity to the Company and complexity. In 2007 one of the prior Peer Group Companies (Caremark Rx, Inc.) was acquired resulting in a reevaluation of the mix of companies chosen for the peer group. As a result of such reevaluation, three new companies were added to the peer group — CVS/Caremark Corporation, Becton, Dickinson and Company,


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and Cigna Corporation. This change was also applied to previous grants of performance shares which included Caremark Rx, Inc. within the peer group. The Peer Group Companies are:
 
     
AmerisourceBergen Corp.    Humana, Inc.
Becton, Dickinson and Company    Laboratory Corporation of America Holdings
Cigna Corporation    Medco Health Solutions, Inc
Coventry Health Care, Inc.    Omnicare, Inc.
CVS/Caremark Corporation    Patterson Companies Inc.
Health Net, Inc.    Quest Diagnostics, Inc.
Henry Schein, Inc.    
 
The Peer Group Companies recommended by the Compensation Consultant and approved by the Committee include companies which are different from those in the peer group index in the Stock Performance Graph included in the Company’s annual report to stockholders. All of the Peer Group Companies are public companies in the health care industry. 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.
 
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 public compensation information available through 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.
 
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 are expected to be most effective. In developing the mix of components, the Committee has sought to balance the need for fixed compensation provided in base pay with variable compensation provided in the annual and long-term incentive plans.
 
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 the Company. 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.
 
Salary levels are typically reviewed 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.  The Annual Bonus Plan provides the Company with a powerful tool to assist in focusing the executive 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


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Committee taking into consideration the annual incentive pay levels existing at the Peer Group Companies for similar positions and other factors. Payouts under the annual incentive program are determined as follows:
 
  •  Each year during the fourth quarter, the Board of Directors meets and approves a Company-wide budget for the next calendar year which includes budgeted targets for earnings per share (“EPS”) and earnings before interest, taxes, depreciation and amortization (“EBITDA”). The Committee also meets during the fourth quarter at which time it establishes the EPS and EBITDA targets for the Annual Bonus Plan based on the budgeted numbers, as well as separate EBITDA targets for our various operating groups. For the 2007 performance year, the Committee also approved certain key non-financial corporate goals to be considered in determining the actual payouts under the Annual Bonus Plan.
 
  •  Funding of the bonus pool is first dependent on achievement of the EPS target. If the EPS target is achieved or exceeded, then funding of the bonus pool is initially set at 100%. If the EPS target is not achieved then an adjusted bonus pool may be submitted to the Committee for approval.
 
  •  Assuming the EPS target is achieved or exceeded, funding above or below the 100% funding level is governed by the Company’s performance against the EBITDA target. If the EBITDA target is exceeded, then 50% of incremental EBITDA is used to supplement the bonus pool up to a maximum of 200%. If the EBITDA target is not met, the pool is reduced by 50% of the EBITDA shortfall until the EBITDA target is achieved.
 
  •  The bonus pool remaining after any required adjustment is further adjusted by operating group (pharmacy benefit management, specialty and ancillary services, and Canadian operations) to reflect the attainment of each such group’s individual EBITDA goals.
 
  •  Actual bonus awards for executive officers are determined based on the following factors:
 
  •  the appropriate operating group’s bonus pool funding factor, which can range from 0% to 200% based on financial results for the operating group and the Company as a whole; and
 
  •  the executive officers’ respective bonus targets, which range from 60% to 130% of base salary. Each individual’s award can be adjusted from 0% to 150% of target based on performance against individual goals as determined through an evaluation by the Committee (and, in the case of senior executives, also by the Chief Executive Officer) of the extent to which non-financial goals were achieved.
 
  •  Once all of the factors have been determined, each executive’s individual award (between 0% and 150% of target) is multiplied by the percentage factor for the Company target, or the relevant operating group (in either case between 0% and 200%) with a maximum of payout of 200% of target for the chief executive officer and 250% of target for the other executive officers.
 
In 2006, the 2000 LTIP was amended to permit cash awards to be granted under the plan. This permits the Company to enhance the tax deductibility of Annual Bonus Plan awards made to the named executive officers (see Deductibility of Compensation on page 22). Annual bonus awards for 2007 made under the 2000 LTIP have a maximum achievable level (i.e. 250% of target for named executive officers and 200% of target for the CEO), are conditioned upon the achievement of a minimum EPS target, and are subject to the downward discretion of the Committee.
 
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 options, restricted stock and performance shares (in some previous years the Company has granted SSARs in lieu of stock options). These equity grants increase in value if the market value of the stock appreciates over time. For that reason, the executives are motivated to engage in behaviors that will increase the long-term value of the 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


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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 the stock. Several of the senior executives have also received special grants of non-qualified stock options, SSARs and/or restricted stock in connection with their entering into employment agreements. 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 compensation they may have forfeited when leaving their prior employer.
 
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:
 
  •  50% of the equity package is awarded in the form of time-vested stock options. The stock options have an exercise price equal to the fair market value of the stock on the grant date. They vest in three equal annual installments and expire seven years from the date of grant. Stock options only provide compensation value if the stock price increases after they are granted. The actual number of stock options awarded is determined by applying the method utilized by the Company to value the stock options for financial reporting purposes (currently the Black-Scholes valuation model).
 
  •  25% of the equity package is awarded in the form of time-vested restricted stock which vests in three equal, annual installments. The Committee believes that grants of restricted stock closely align the executive with the position of stockholders because restricted stock represents equity value regardless of whether the price of the stock falls below its value at the date of grant. The actual number of shares of restricted stock granted is determined based on the fair market value of the stock on the date of grant.
 
  •  The final 25% of the equity package is awarded in the form of performance share awards, which are settled in shares of the stock on a share-for-share basis, with the actual number of shares of stock to be delivered upon settlement of the performance shares based upon the Company’s performance over a specified period versus the Peer Group Companies selected by the Committee. One of the peer group companies, Medco Health Solutions, Inc., is weighted more heavily than the others in the peer group because the Committee has determined that it represents a more direct business competitor. Given the acquisition of Caremark Rx, Inc. (which had also been a more heavily-weighted company) by CVS Corporation, the Committee decided to replace it in the peer group with three new companies. The period for measurement of the performance shares is three years commencing as of January 1 of the year during which they are granted. The number of shares of the stock ultimately delivered is determined based on performance against the Peer Group Companies in three performance categories: total stockholder return, three-year compound annual growth in earnings per share, and three-year average return on invested capital. Assuming the Company’s performance for the performance period is at the 40th percentile, the actual shares of stock issued will equal 35% of the award targeted for the participating executive; at the 50th percentile, the actual shares of stock issued will equal 100% of the award targeted for the executive; and at the 80th percentile, the actual shares of common stock issued will equal 250% of the targeted award which is the maximum number of shares that can be awarded. If the performance falls between these percentile rankings, the actual shares of stock issued will be determined by interpolation. Realization of the performance share awards and their actual value, if any, will depend on the applicable targets being met and the market value of the stock on the date the performance share awards are settled. The actual target number of performance shares granted is determined based on the fair market value of the stock on the date of grant.
 
The Committee grants all three types of awards in order to meet several objectives. The Committee believes that measuring performance against the Company’s competitors with respect to important financial metrics adds a significant dimension to the long-term program design. By including performance shares, the program provides motivation both to achieve results that will be positively responded to in the marketplace and to produce results that


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will exceed equivalent measures among the competitors. 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.
 
In February 2008, the Committee concluded that it was appropriate to bring the chief executive officer’s total direct compensation (base pay, annual incentive bonus pay and long term incentives) up to or near the 50th percentile among the Peer Group Companies. However, in keeping with the Company’s increased emphasis on pay-for-performance, the Committee concluded that a larger portion of the chief executive officer’s long term incentive grant (35%) should be represented by performance shares, as compared to the 25% for the Company’s other executive officers. As a result, Mr. Paz’s 2008 long term incentive awards were allocated as follows: 40% stock options, 25% restricted stock, and 35% performance shares.
 
The Committee has discretion to determine the vesting schedule for each time-based equity 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.
 
The size of an executive’s equity compensation award is based upon the evaluation by the Committee and, for executives other than 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. While the Company maintains stock ownership guidelines, the Committee does not take into account existing stock ownership levels of individual executives in determining the amount of equity awards.
 
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.
 
Perquisites.  In accordance with the compensation philosophy to pay for results, no perquisites are provided to the senior executive officers that we would be required to report under the rules applicable to this Proxy Statement. In fact, the only perquisite available to the 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.
 
Deferred Compensation.  The Company provides 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 participating executives 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 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. At such time as an executive becomes eligible for retirement under the EDCP (which occurs upon reaching a minimum of age 55 and having a combined age plus years of service with the Company of 65), all contributions made to such executive’s account under the EDCP immediately become vested. Other than the 6% annual cash contribution to the EDCP and the opportunity to participate in the ESI qualified 401(k) plan, the Company provides no retirement benefit to its executives.


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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 the Company contributions is intended to serve as a retention device for the executives. Amounts contributed to the EDCP by either the participant or the Company are assumed to have been invested in one or more of a number of publicly available mutual funds and 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. As a result, the Committee believes that the Company has 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 pay of the named executive officers, including the Chief Executive officer, to better align them with the pay for comparable jobs at the Peer Group Companies and as disclosed in various compensation surveys. The Committee determined that these salary adjustments should be implemented over two years, with the initial market-based increase put in place in 2006. The adjustments effective April 1, 2007, as set out in the chart below, reflect the second portion of the market-based increase as well standard merit adjustments resulting from our annual review process and an assessment of each individual’s performance.
 
In addition, during 2007 the Company reorganized certain internal operations resulting in the assumption of additional duties by certain members of our senior management team, including Mr. Boudreau and Mr. Ignaczak. In May 2007, the Committee determined that these additional duties warranted certain compensation adjustments (effective as of May 21, 2007) which are also reflected in the chart below.
 
 
                         
    Effective Date   Base Salary   Increase %
 
George Paz
    January 1, 2006     $ 780,000          
      April 1, 2007     $ 920,000       17.95 %
David Lowenberg
    January 1, 2006     $ 482,000          
      April 1, 2007     $ 496,000       2.90 %
Edward Stiften
    January 1, 2006     $ 409,000          
      April 1, 2007     $ 445,000       8.80 %
Thomas Boudreau
    January 1, 2006     $ 411,000          
      April 1, 2007     $ 440,000       7.06 %
      May 21, 2007     $ 465,000       5.68 %
Edward Ignaczak
    July 1, 2006     $ 294,800          
      April 1, 2007     $ 311,000       5.50 %
      May 21, 2007     $ 350,000       12.54 %
 
Annual Incentive Bonus Program.  As described above, each named executive officer’s bonus target under the Annual Bonus Plan for 2007 was determined based on a percentage of his base salary, and the bonus potential for each of the named executive officers for 2007 ranged from 0% to 250% 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 2007 would have been 0%, 25% and 100% respectively, and the maximum payout for the achievement of “stretch” performance goals


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would have been 250% of the target payout (200% of the target payout for Mr. Paz). For the 2007 performance period, the various bonus targets and payouts for the named executive officers (paid in March 2008) were as follows:
 
 
                                             
    Target
  Payout
              Actual
    Payout as
  Range as
  Target
  Maximum
  Actual
  Award as
    a % of
  a % of
  Bonus
  Bonus
  Bonus
  a % of
Name
  Salary   Target   Award ($)(a)   Award ($)   Award ($)   Target
 
G. Paz
    120 %   0%-200%   $ 1,062,000     $ 2,124,000     $ 2,124,000       200 %
D. Lowenberg
    75 %   0%-250%   $ 369,375     $ 923,438     $ 0       0 %
E. Stiften
    80 %   0%-250%   $ 348,800     $ 872,000     $ 697,600       200 %
T. Boudreau
    70 %   0%-250%   $ 313,075     $ 782,688     $ 626,150       200 %
E. Ignaczak
    69 %(b)   0%-250%   $ 228,445     $ 571,113     $ 456,890       200 %
 
 
(a) In determining the target bonus award each executive’s target bonus percentage is applied to his base salary, with the effect of any salary adjustments during the year pro-rated for the portion of the year during which they were in effect.
 
(b) Mr. Ignaczak’s target bonus percentage as of January 1, 2007 was 60% of his base salary, and was increased to 75% as of May 21, 2007. This change was pro-rated over the portion of the year during which it was in place, resulting in a target bonus payout of approximately 69% for the full year.
 
The payouts under the Annual Bonus Plan for 2007 were based on our actual EPS of $2.15 versus a budgeted EPS of $1.98, and actual EBITDA of $1,115.7 million against a budgeted EBITDA of $1,045.5 million.
 
2007 Long Term Incentive Awards.  Specific 2007 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 26. The awards include regular awards, granted in February 2007, along with special grants of performance shares and restricted stock made in May 2007. These special grants were authorized by the Committee to make up for an error in calculating the peer group benchmarking data for use in determining the annual grants.
 
 
Additional Benefits.  Except as specifically described in this Compensation Discussion and Analysis, the executive officers participate 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. The Company provides equivalent health insurance to all of our employees, and the employee paid portions of the premiums on such insurance are 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 executives have offices that are no larger than those of the regular offices in our headquarters building and reserved parking is not provided for employees at any level. No financial counseling programs are provided and the Company does 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 our CEO and each of our Executive Vice Presidents, which also contain severance and change in control provisions. The Committee believes these agreements are appropriate for a number of reasons including the following:
 
  •  the agreements assist in attracting and retaining executives as we compete for talented employees in a marketplace where such agreements are commonly offered;
 
  •  the severance provisions require terminated executives to execute a release in order to receive severance benefits and such benefits are conditioned upon compliance with various terms of the agreement including those related to non-competition, non-solicitation and non-disparagement; and
 
  •  the change in control and severance provisions help retain key personnel during rumored or actual acquisitions or similar corporate changes.


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These agreements do not materially affect the Committee’s annual compensation determinations, as they only restrict its ability to reduce base salary. All of the employment agreements with the exception of the agreement with Mr. Paz were re-executed in 2006 in order to make them consistent among the executive officers. Mr. Paz executed a new employment agreement effective April 1, 2008, which replaced an agreement entered into in April 2005. Additional information about the severance and change in control provisions of the agreements can be found under the caption “Employment Agreement and Potential Payments Upon Termination or Change in Control” on page 30.
 
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 2007 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 in 2008 and future years.
 
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 the company and to the stockholders by holding a prescribed number of full value shares or restricted stock. While restricted stock, performance shares and phantom stock equivalents under the EDCP are included in determining compliance with these thresholds, stock options and SSARs, whether vested or unvested are not included. 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 Office, 3.5x for the Chief Operating Officer, 3.0x for all Executive Vice Presidents, 2.5x for all Senior Vice Presidents, and 1.5x for all Vice Presidents. In 2007 the Committee increased the ownership requirements for Senior Vice Presidents from 2x to 2.5x.
 
As of December 31, 2007, each of the Named Executive Officers has met his stock ownership requirements through holdings of shares of the stock, including restricted stock, performance shares or share equivalents beneficially owned under the deferred compensation plan.
 
Option 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:
 
  •  annual awards of equity will be approved by the Committee during the first quarter of each fiscal year, or at a special meeting, normally in advance of the annual earnings release, with an effective grant date as of the third trading date following the date of the earnings release;
 
  •  special awards for new hires, retention, promotional and special recognition may be granted during an “open window” trading period or, if the Chief Executive Officer or the Committee acts outside of such a period, with an effective date as of the third trading date following the next succeeding earnings release (the Chief Executive Officer may only approve grants to employees below the level of Vice President);
 
  •  the exercise price of stock options and stock appreciation rights will be not less than the closing trading price of the stock on the grant date; and
 
  •  equity grants with a prospective grant date will be made on a nominal value basis consistent with the method the Company uses to value options for financial reporting purposes under FAS 123R.


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Derivatives Trading.  Because a primary goal of equity-based incentive compensation is to align the interests of our executives with our stockholders, Company policy prohibits the trading of derivative securities related to the 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.
 
March 31, 2008
 
COMPENSATION AND DEVELOPMENT COMMITTEE
 
Gary Benanav, Chairman
Thomas P. Mac Mahon
Howard Waltman
 
 
The Compensation and Development 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.”


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The following table summarizes the compensation of our “named executive officers” listed in the table for the year ended December 31, 2007.
 
                                                                         
                            Change In
       
                            Pension
       
                            Value and
       
                            Nonqualified
       
                        Non-Equity
  Deferred
       
                Stock
  Option
  Incentive Plan
  Compensation
  All Other
   
        Salary
  Bonus
  Awards
  Awards
  Compensation
  Earnings
  Compensation
  Total
Name and Principal Position
  Year
  ($)
  ($)
  (1)($)
  (2)($)
  (3)($)
  ($)
  ($)
  ($)
(a)
  (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)   (j)
 
George Paz
    2007     $ 882,308             $ 2,552,140     $ 2,290,983     $ 2,124,000             $ 114,732 (4)   $ 7,964,163  
President, Chief Executive
    2006     $ 780,000             $ 1,513,542     $ 1,826,498     $ 842,400             $ 129,680 (5)   $ 5,092,120  
Officer, Chairman
                                                                       
Edward Stiften(6)
    2007     $ 435,308             $ 999,747     $ 870,048     $ 697,600             $ 45,996 (7)   $ 3,048,699  
Former Executive Vice
    2006     $ 409,000             $ 755,788     $ 870,345     $ 331,290             $ 51,878 (7)   $ 2,418,301  
President, Chief Financial Officer
                                                                       
David A. Lowenberg(8)
    2007     $ 492,231             $ 815,557     $ 735,893     $ 0             $ 49,460 (9)   $ 2,093,141  
Former President, Chief
    2006     $ 482,000             $ 619,834     $ 1,008,755     $ 144,600             $ 78,875 (10)   $ 2,334,064  
Executive Officer, CuraScript, Inc.
                                                                       
Thomas M. Boudreau
    2007     $ 447,096             $ 614,579     $ 510,498     $ 626,150             $ 55,387 (11)   $ 2,253,710  
Executive Vice President,
    2006     $ 411,000             $ 369,230     $ 616,459     $ 288,522             $ 65,270 (12)   $ 1,750,481  
Law and Strategy, General Counsel
                                                                       
Edward B. Ignaczak
    2007     $ 329,888             $ 436,950     $ 487,034     $ 456,890             $ 40,161 (13)   $ 1,750,923  
Executive Vice President,
    2006     $ 294,800             $ 471,754     $ 284,927     $ 157,626             $ 48,770 (14)   $ 1,257,877  
Sales and Account Management
                                                                       
 
 
(1) The amounts in column (e) represent the dollar amount of expense recognized for financial statement reporting purposes in stated year for the fair value of restricted stock and performance share awards granted in stated year and in prior years, in accordance with SFAS 123R. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. These amounts reflect our accounting expense for these awards and do not correspond to the actual value that will be recognized by the named executives. For restricted stock and performance share awards, fair value is calculated using the closing price of our common stock on the date of grant. For additional information regarding stock-based compensation, refer to the Note 11 to the Consolidated Financial Statements included in the financial statements in our Annual Report on Form 10-K for the year ended December 31, 2007 (our “2007 10-K”) and Note 10 to the Consolidated Financial Statements included in the financial statements in our Annual Report on Form 10-K for the year ended December 31, 2006 (our “2006 10-K”).
 
(2) The amounts in column (f) represent the dollar amount of expense recognized for financial statement reporting purposes in the stated year for the fair value of stock options and SSARs granted in the stated year and in prior years, in accordance with SFAS 123R. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. These amounts reflect our accounting expense for these awards and do not correspond to the actual value that will be recognized by the named executives. The fair value of options and SSARs granted is estimated on the date of grant using a Black-Scholes multiple option-pricing model. For additional information regarding stock-based compensation, including the assumptions used in the Black-Scholes model, refer to the Note 11 to the Consolidated Financial Statements included in the financial statements in our 2007 10-K and Note 10 to the Consolidated Financial Statements included in the financial statements in our 2006 10-K.
 
(3) The amounts in column (g) reflect the cash awards paid to the named executives under our annual bonus plan, as discussed in the Compensation Discussion and Analysis above. These amounts were paid in March 2008 and March 2007 for performance during 2007 and 2006, respectively.
 
(4) Consists of (i) basic company credit contribution of $103,482 by the Company under the EDCP and (ii) $11,250 matching contribution in connection with the Company’s 401(k) Plan.
 
(5) Consists of (i) basic company credit contribution of $118,680 by the Company under the EDCP and (ii) $11,000 matching contribution in connection with the Company’s 401(k) Plan.
 
(6) Mr. Stiften has announced his intention to retire from the Company. His last day as Chief Financial Officer was March 31, 2008.
 
(7) Reflects the basic company credit contribution made by the Company under the EDCP.
 
(8) Mr. Lowenberg’s last day as an employee of the Company was March 1, 2008. In connection with his termination Mr. Lowenberg forfeited a total of 61,499 unvested SSARs which were granted during 2006 and 2007, and 14,941 unvested


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shares of restricted stock originally granted between 2004 and 2007. Mr. Lowenberg also forfeited a portion of his performance share grants from 2006 and 2007. The total number of performance shares forfeited would be 13,158 based on an assumed award of the targeted number of shares following the end of the relevant performance periods (or 32,895 performance shares assuming the maximum award).
 
(9) Consists of (i) basic company credit contribution of $38,210 by the Company under the EDCP and (ii) $11,250 matching contribution in connection with the Company’s 401(k) Plan.
 
(10) Consists of (i) basic company credit contribution of $67,875 by the Company under the EDCP and (ii) $11,000 matching contribution in connection with the Company’s 401(k) Plan.
 
(11) Consists of (i) basic company credit contribution of $44,137 by the Company under the EDCP and (ii) $11,250 matching contribution in connection with the Company’s 401(k) Plan.
 
(12) Consists of (i) basic company credit contribution of $54,270 by the Company under the EDCP and (ii) $11,000 matching contribution in connection with the Company’s 401(k) Plan.
 
(13) Consists of (i) basic company credit contribution of $28,911 by the Company under the EDCP and (ii) $11,250 matching contribution in connection with the Company’s 401(k) Plan.
 
(14) Consists of (i) basic company credit contribution of $35,501 by the Company under the EDCP and (ii) $13,269 matching contribution in connection with the Company’s 401(k) Plan, $2,269 of which is a catch-up contribution for 2005.


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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 2007:
 
                                                                                         
                                All Other
  All Other
       
                                Stock
  Option
       
                                Awards:
  Awards:
  Exercise
   
        Estimated Future Payouts Under
              Number of
  Number of
  or Base
   
        Non-Equity Incentive Plan
  Estimated Future Payouts Under
  Shares of
  Securities
  Price of
  Grant Date Fair
        Awards(1)   Equity Incentive Plan Awards(2)   Stock or
  Underlying
  Option
  Value of Stock
    Grant
  Threshold
  Target
  Maximum
  Threshold
  Target
  Maximum
  Units(3)
  Options(4)
  Awards
  Option Awards(5)
Name
  Date
  ($)
  ($)
  ($)
  (#)
  (#)
  (#)
  (#)
  (#)
  ($/Sh)
  ($)
(a)
  (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)   (j)   (k)   (l)
 
George Paz
    2/22/2007                               12,238       34,966       87,415                     $ 39.325     $ 3,437,595  
      2/22/2007                                                       34,966             $ 39.325     $ 1,375,038  
      2/22/2007                                                               205,074     $ 39.325     $ 2,750,042  
      5/23/2007                                                       3,458             $ 49.28     $ 170,410  
      5/23/2007                               1,992       5,692       14,230                     $ 49.28     $ 701,254  
            $ 0     $ 1,062,000     $ 2,124,000                                                          
Edward Stiften
    2/22/2007                               3,560       10,172       25,430                     $ 39.325     $ 1,000,035  
      2/22/2007                                                       10,172             $ 39.325     $ 400,014  
      2/22/2007                                                               59,658     $ 39.325     $ 800,014  
      5/23/2007                                                       1,006             $ 49.28     $ 49,576  
      5/23/2007                               580       1,656       4,140                     $ 49.28     $ 204,019  
            $ 0     $ 348,800     $ 872,000                                                          
David A. Lowenberg
    2/22/2007                               3,783       10,808       27,020                     $ 39.325     $ 1,062,562  
      2/22/2007                                                       10,808             $ 39.325     $ 425,025  
      2/22/2007                                                               63,386     $ 39.325     $ 850,006  
      5/23/2007                                                       1,068             $ 49.28     $ 52,631  
      5/23/2007                               616       1,760       4,400                     $ 49.28     $ 216,832  
            $ 0     $ 369,375     $ 923,438                                                          
Thomas M. Boudreau
    2/22/2007                               2,781       7,946       19,865                     $ 39.325     $ 781,191  
      2/22/2007                                                       7,946             $ 39.325     $ 312,476  
      2/22/2007                                                               46,608     $ 39.325     $ 625,013  
      5/23/2007                                                       786             $ 49.28     $ 38,734  
      5/23/2007                               453       1,294       3,235                     $ 49.28     $ 159,421  
            $ 0     $ 313,075     $ 782,688                                                          
Edward B. Ignaczak
    2/22/2007                               1,669       4,768       11,920                     $ 39.325     $ 468,754  
      2/22/2007                                                       4,768             $ 39.325     $ 187,502  
      2/22/2007                                                               27,964     $ 39.325     $ 374,997  
      5/23/2007                                                       472             $ 49.28     $ 23,260  
      5/23/2007                               272       776       1,940                     $ 49.28     $ 95,603  
            $ 0     $ 228,445     $ 571,113                                                          
 
 
(1) The amounts in columns (c), (d) and (e) represent the threshold, target and maximum payouts under the annual bonus plan for 2007. The actual payouts for 2007 can be found in our Compensation Discussion and Analysis on page 13.
(2) The amounts in columns (f), (g) and (h) represent the threshold, target and maximum payouts under the performance share grants made to the named executives for the January 1, 2007 through January 1, 2010 performance period. The number of shares of our common stock to be delivered upon settlement of the performance shares will be determined based upon our performance over a set period versus the peer group companies identified in our Compensation Discussion & Analysis on page 13. For our 2007 performance awards, in order for any shares to be issued under the performance share awards, our composite performance over the three year period commencing in 2007 is required to rank in at least the 40th percentile in relation to the peer group companies. Assuming our composite performance for the performance period is/was at the 40th percentile, the actual shares of common stock issued will equal 35% of the award targeted for the named executive officer; at the 50th percentile, the actual shares of common stock issued will equal 100% of the award targeted for the named executive officer; and at the 80th percentile, the actual shares of common stock issued will equal 250% of the award targeted for the named executive officer, which is the maximum number of shares that can be awarded. If our composite performance falls between these percentile rankings, the actual shares of common stock issued will be determined by interpolation. Realization of the performance share awards and their actual value, if any, will depend on the applicable targets being met and the market value of our common stock on the date the performance share awards are settled.
(3) The numbers in column (i) represent the restricted stock awards granted to the named executives on February 22, 2007 and May 23, 2007. For each of these grants one-third of these restricted stock awards are scheduled to vest on each of February 22, 2008, February 22, 2009 and February 22, 2010, subject to acceleration under the terms of the 2000 LTIP. The restricted stock awards include the right to receive all dividends paid on the shares and the right to vote the shares.
(4) The numbers in column (j) represent the SSAR awards granted to the named executives on February 22, 2007. The SSARs have an exercise price of $39.325 (the closing price of our common stock on the grant date), are scheduled to vest on each of the first three anniversaries of the date of grant subject to acceleration under the terms of the 2000 LTIP, and will expire seven years following the grant.
(5) The amounts in column (l) for restricted stock and performance share awards are based on the market value of our common stock on the grant date ($39.325 per share on February 22, 2007, and $49.28 on May 23, 2007), with the Maximum number of performance shares used. The amounts in column (l) for SSARs is estimated on the date of grant using a Black-Scholes multiple option-pricing model. For additional information regarding stock-based compensation, including the assumptions used in the Black-Scholes model, refer to the Note 11 to the Consolidated Financial Statements included in the financial statements in our 2007 10-K.


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The following table provides information on vested and unvested equity awards held by the named executive officers as of December 31, 2007:
 
                                                                                 
          Option Awards     Stock Awards  
                                                          Equity
 
                                                          Incentive
 
                                                    Equity
    Plan
 
                                                    Incentive
    Awards:
 
                                                    Plan
    Market or
 
                      Equity
                            Awards:
    Payout
 
                      Incentive
                            Number of
    Value of
 
                      Plan
                      Market
    Unearned
    Unearned
 
                      Awards:
                Number of
    Value of
    Shares,
    Shares,
 
          Number of
    Number of
    Number of
                Shares or
    Shares or
    Units or
    Units or
 
          Securities
    Securities
    Securities
                Units of
    Units of
    Other
    Other
 
          Underlying
    Underlying
    Underlying
    Option
          Stock That
    Stock That
    Rights That
    Rights That
 
          Unexercised
    Unexercised
    Unexercised
    Exercise
    Option
    Have Not
    Have Not
    Have Not
    Have Not
 
          Options
    Options
    Unearned
    Price
    Expiration
    Vested
    Vested
    Vested
    Vested
 
Name
  Grant
    Exercisable
    Unexercisable
    Options
    ($)
    Date
    (#)
    ($)
    (#)
    ($)
 
(a)
  Date     (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)  
 
George Paz
    5/26/99       40,000                     $ 8.21       5/26/09                                  
      11/23/99       104,000                     $ 6.4525       11/23/09                                  
      12/18/02       44,400                     $ 11.9875       12/18/09                                  
      2/10/04       72,008                     $ 17.3275       2/10/11                                  
      3/5/04       83,156                     $ 18.79       3/5/11                                  
      3/1/05       69,014       34,506 (1)           $ 19.32       3/1/12                                  
      4/11/05       106,667       53,333 (2)           $ 21.40       4/11/12                                  
      2/28/06       45,950       91,898 (3)           $ 43.635       2/28/13       18,196 (5)   $ 1,328,308       27,294 (7)   $ 1,992,462  
      2/22/07               205,074 (4)           $ 39.325       2/22/14       34,966 (6)   $ 2,552,518       34,966 (8)   $ 2,552,518  
      5/23/07                                               3,458 (6)   $ 252,434       5,692 (8)   $ 415,516  
Edward Stiften
    4/20/04       26,956                     $ 19.5375       4/20/11                                  
      4/20/04       80,860                     $ 19.5375       4/20/11                                  
      4/20/04       43,126               21,562 (9)   $ 19.5375       4/20/11                       17,142 (10)   $ 1,251,366  
      3/1/05       24,198       12,098 (1)           $ 19.32       3/1/12                                  
      2/28/06       18,452       36,902 (3)           $ 43.635       2/28/13       7,306 (5)   $ 533,338       10,960 (7)   $ 800,080  
      2/22/07               59,658 (4)           $ 39.325       2/22/14       10,172 (6)   $ 742,556       10,172 (8)   $ 742,556  
      5/23/07                                               1,006 (6)   $ 73,438       1,656 (8)   $ 120,888  
David A. Lowenberg
    8/31/04                                                               3,214 (11)   $ 234,622  
      3/1/05               15,132 (1)           $ 19.32       3/1/12                                  
      2/28/06       19,242       38,484 (3)           $ 43.635       2/28/13       7,620 (5)   $ 556,260       11,430 (7)   $ 834,390  
      2/22/07               63,386 (4)           $ 39.325       2/22/14       10,808 (6)   $ 788,984       10,808 (8)   $ 788,984  
      5/23/07                                               1,068 (6)   $ 77,964       1,760 (8)   $ 128,480  
Thomas M. Boudreau
    12/18/02       12,000                     $ 11.9875       12/18/09                                  
      3/5/04       26,520                     $ 18.79       3/5/11                                  
      10/29/04       38,620                     $ 16.0025       10/29/11                       1,608 (12)   $ 117,384  
      3/1/05       25,622       12,810 (1)           $ 19.32       3/1/12                                  
      2/28/06       11,719       23,437 (3)           $ 43.635       2/28/13       4,640 (5)   $ 338,720       6,962 (7)   $ 508,226  
      2/22/07               46,608 (4)           $ 39.325               7,946 (6)   $ 580,058       7,946 (8)   $ 580,058  
      5/23/07                                               786 (6)   $ 57,378       1,294 (8)   $ 94,462  
Edward B. Ignaczak
    10/29/04                                                               6,760 (13)   $ 493,480  
      3/1/2005               10,050 (1)           $ 19.32       3/1/12                                  
      2/28/06       6,511       13,021 (3)           $ 43.635       2/28/13       2,578 (5)   $ 188,194       3,868 (7)   $ 282,364  
      2/22/07               27,964 (4)           $ 39.325       2/22/14       4,768 (6)   $ 348,064       4,768 (8)   $ 348,064  
      5/23/07                                               472 (6)   $ 34,456       776 (8)   $ 56,648  
 
 
(1) The unvested portion of this option grant is scheduled to vest on March 1, 2008.
 
(2) The unvested portion of this option grant is scheduled to vest on March 31, 2008.


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(3) The unvested portion of SSARs grant is scheduled to vest in two (2) substantially equal installments on February 28, 2008 and February 28, 2009.
 
(4) The unvested portion of this SSARs grant is scheduled to vest in three (3) substantially equal installments on February 22, 2008, February 22, 2009, and February 22, 2010.
 
(5) The unvested portion of this restricted stock award is scheduled to vest in two (2) substantially equal installments on February 28, 2008, and February 28, 2009.
 
(6) The unvested portion of this restricted stock award is scheduled to vest in three (3) substantially equal installments on February 22, 2008, February 22, 2009 and February 22, 2010.
 
(7) Performance shares become payable following the end of the performance period on January 1, 2009; the number of shares payable may increase or decrease from the target shares stated, based upon the achievement of performance criteria.
 
(8) Performance shares become payable following the end of the performance period on January 1, 2010; the number of shares payable may increase or decrease from the target shares stated, based upon the achievement of performance criteria.
 
(9) Stock option grant with original vesting date of September 20, 2010, with potential for accelerated vesting based on the achievement of certain financial performance targets. Based upon achievement of certain financial performance targets, 43,126 options vested on March 31, 2007. The balance of 21,562 options remain scheduled to vest on September 30, 2010.
 
(10) Restricted stock grant with original vesting date of April 20, 2014, with potential for accelerated vesting based on the achievement of certain financial performance targets. Based upon achievement of certain financial performance targets, 34,286 shares vested on March 31, 2007. The balance of 17,142 shares remain scheduled to vest April 20, 2014.
 
(11) Restricted stock grant with original vesting date of August 31, 2011, with potential for accelerated vesting based on the achievement of certain financial performance targets. Based upon achievement of certain financial performance targets, 54,590 shares vested on March 31, 2006, with the balance of 3,214 shares scheduled to vest August 31, 2011.
 
(12) Restricted stock grant with original vesting date of October 29, 2014, with potential for accelerated vesting based on the achievement of certain financial performance targets. Based upon achievement of certain financial performance targets, vesting of 27,296 shares was accelerated to March 31, 2006 and the balance of 1,608 shares scheduled to vest on October 29, 2011.
 
(13) Restricted stock grant with original vesting date of October 29, 2014, with potential for accelerated vesting based on the achievement of certain financial performance targets. Based upon achievement of certain financial performance targets, vesting of 35,388 shares was accelerated to March 31, 2007 and the balance of 6,670 shares are scheduled to vest on October 29, 2014.


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The following table provides information on the value realized by the executive officers for stock options exercised during 2007, and for restricted stock awards which vested during 2007:
 
                                 
    Option Awards     Stock Awards  
    Number of Shares
    Value Realized on
    Number of Shares
    Value Realized on
 
    Acquired on Exercise
    Exercise(1)
    Acquired on Vesting
    Vesting (2)
 
Name
  (#)
    ($)
    (#)
    ($)
 
(a)
  (b)     (c)     (d)     (e)  
 
George Paz
    40,000     $ 1,717,524       9,098     $ 343,040  
      158,400     $ 6,549,539                  
      114,000     $ 4,174,463                  
      64,000     $ 2,459,398                  
Edward Stiften
                3,654     $ 137,774  
                      34,286     $ 1,383,783  
David A. Lowenberg
    15,132     $ 435,662       3,810     $ 143,656  
      15,132     $ 421,441                  
      70,216     $ 2,202,743                  
      24,312     $ 689,998                  
      12,156     $ 356,423                  
      3,392     $ 116,394                  
      14,940     $ 525,641                  
Thomas M. Boudreau
                2,322     $ 87,551  
Edward B. Ignaczak
    20,102     $ 558,739       1,290     $ 48,639  
      35,108     $ 1,088,260       35,388     $ 1,428,260  
      3,092     $ 87,225                  
      14,588     $ 413,208                  
 
 
(1) The amount in column (c) reflects value of the options exercised based on the difference between the exercise price for the options exercised and the closing price for our stock on the exercise date.
 
(2) The amount in column (e) reflects value of the vested stock based on the closing price for our stock on the vesting date.


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The following table provides information on contributions, earnings and account balances for the named executives in our Executive Deferred Compensation Plan, or “EDCP”:
 
                                                 
    Executive
    Registrant
    Aggregate
    Aggregate
    Aggregate
       
    Contributions in
    Contributions in
    Earnings
    Withdrawals/
    Balance
       
    Last FY
    Last FY(1)
    in Last FY
    Distributions
    at Last FYE
       
Name
  ($)
    ($)
    ($)
    ($)
    ($)
       
(a)
  (b)     (c)     (d)     (e)     (f)        
 
George Paz
  $ 0     $ 118,680     $ 1,214,269     $ 0     $ 3,636,427          
Edward Stiften
  $ 0     $ 51,878     $ 40,256     $ 0     $ 158,933          
David A. Lowenberg
  $ 59,068 (2)   $ 67,875     $ 1,251,858     $ 0     $ 4,808,816          
Thomas M. Boudreau
  $ 0     $ 54,270     $ 971,336     $ 0     $ 3,203,322          
Edward B. Ignaczak
  $ 0     $ 35,501     $ 66,469     $ 0     $ 233,091          
 
 
(1) The amounts in column (c) reflect contributions made by us during 2007 to the named executives’ accounts under the EDCP. These amounts are equal to 6% of all cash compensation (salary and annual bonus) received by the named executives during 2006, and were reported in the 2006 Summary Compensation Table included in our 2007 Proxy Statement. These contributions vest as of December 31 of the third year after the year with respect to which they were calculated, in this case December 31, 2009, unless the executive is eligible for retirement under the EDCP in which case these contributions vest immediately. Messrs. Lowenberg and Boudreau are both eligible for retirement under the EDCP.
 
(2) This amount reflects Mr. Lowenberg’s deferral of a portion of his base salary during 2007, and is included in Mr. Lowenberg’s base salary in the 2007 Summary Compensation Table above.
 
The material terms of the EDCP are described in our Compensation Discussion and Analysis under “Components of Executive Compensation — Deferred Compensation” on page 19.
 
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 agreement with Mr. Paz, which we refer to as the “2005 agreement” was effective as of April 1, 2005 with an initial term through March 31, 2008. On April 1, 2008, we entered into a new employment agreement with Mr. Paz, with a term through March 31, 2011, which we refer to as the “2008 agreement”. The terms of the 2008 agreement are described in “New Employment Agreement with Mr. Paz” beginning on page 39.
 
The 2005 agreement provided for:
 
  •  an initial base salary of $650,000, which could not be reduced after any increase (current base salary is $950,000);
 
  •  a guaranteed minimum annual bonus target under our bonus plan of 100% of his annual base salary, with a bonus opportunity for each calendar year during the employment period of up to 200% of his guaranteed minimum annual bonus in the event we achieve certain financial goals (current annual bonus target is 130% of base salary);
 
  •  participation in our employee benefit and incentive plans (other than bonus and incentive plans) on the same basis as such plans are generally made available to similarly situated senior executives;
 
  •  the crediting of a deferred bonus in the amount of $200,000 to his retirement account in the EDCP, subject to the terms and conditions of the EDCP, generally vesting at the end of the initial employment period except as described below;
 
  •  a grant under the 2000 LTIP of an option to purchase 80,000 shares of our common stock, vesting in three equal increments on March 31, 2006, 2007 and 2008;


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  •  the reimbursement of reasonable business expenses incurred in performing his duties under the 2005 agreement; and
 
  •  such perquisites and fringe benefits to which similarly situated executives are entitled and which are suitable for Mr. Paz’s position.
 
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 2005 agreement, or by Mr. Paz other than for “good reason” or “retirement,” as those terms are defined in the 2005 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”:
 
  •  all previously earned and accrued but unpaid base salary;
 
  •  any annual bonus earned for a prior completed year but unpaid prior to termination;
 
  •  reimbursement for unreimbursed, properly incurred business expenses; and
 
  •  any employee benefits to which he may be entitled, including with respect to stock options subject to the terms and conditions of the applicable plan.
 
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 2005 agreement, he will receive:
 
  •  the accrued rights referred to above;
 
  •  a severance benefit equal to 18 months of his annual base salary plus a specified portion of his bonus potential for the year based on the average percentage of the bonus potential earned for the three prior years;
 
  •  reimbursement for the cost of continuing medical insurance for Mr. Paz, his spouse and any eligible dependents for 36 months after termination of employment; and
 
  •  if termination occurs before March 31, 2008, a pro rata portion of the deferred bonus based on the number of days worked during the initial employment period.
 
Termination upon Death.  If Mr. Paz dies before the employment period expires, his estate will receive:
 
  •  the accrued rights referred to above;
 
  •  if his death occurs before March 31, 2008, a pro rata portion of the deferred bonus based on the number of days worked during the initial employment period; and
 
  •  reimbursement for the cost of continuing medical insurance for his spouse and any eligible dependents for 36 months after termination of employment;
 
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:
 
  •  the accrued rights referred to above
 
  •  if termination occurs before March 31, 2008, a pro rata portion of the deferred bonus; and
 
  •  reimbursement for the cost of continuing medical insurance for Mr. Paz, his spouse and any eligible dependents for 36 months after termination of employment, provided, in the case of retirement, he retires no earlier than six months prior to March 31, 2008.


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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:
 
  •  if he remains employed through the 90th day following the “change in control date,” as defined in the 2000 LTIP, he will become vested with respect to one-half of the deferred bonus, with the other half vesting in accordance with its terms; and
 
  •  if his employment is terminated prior to March 31, 2008 other than for “cause” or “disability,” or by him for “good reason,” he shall become vested with respect to the entire deferred bonus; and
 
  •  if the change in control date occurs within the 90 day period prior to March 31, 2008, he shall become vested with respect to the entire deferred bonus on March 31, 2008, whether or not he remains employed after such change in control date.
 
Post-Employment Restrictive Covenants.  Upon termination of employment, Mr. Paz is prohibited from:
 
  •  soliciting certain clients or prospective clients for a period of two years after termination;
 
  •  soliciting or hiring any of our employees for a period of two years after termination;
 
  •  soliciting or encouraging not to work for us any consultant then under contract with us for a period of two years;
 
  •  competing with us for a period of eighteen months after termination, if his employment is terminated before the 2005 agreement expires for any reason, including any renewal period in effect, or for one year after termination, if his employment terminates solely as a result of expiration of the 2005 agreement; and
 
  •  disclosing certain confidential information or disparaging our company.
 
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, 2007, and that the price of our common stock upon which certain of the calculations are made was the closing price of $73.00 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 2005 agreement above or in the accompanying footnotes. Some of these amounts are payable pursuant to the terms of the 2005 agreement while others arise from the terms of the applicable grant and/or benefit plan. Those amounts payable pursuant to the 2005 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


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benefit as a result of the termination. The estimated payments upon termination and change in control are as follows:
 
GEORGE PAZ
 
                                                         
                Good Reason or
                Change in Control(1)  
Executive Benefits and
              Involuntary Not
                With Offer of
    Without Offer of
 
Payments Upon
  Voluntary
          for Cause
    For Cause
    Death or
    Comparable
    Comparable
 
Termination
  Termination     Retirement     Termination     Termination     Disability     Employment     Employment  
 
Compensation:
                                                       
Severance Benefit
  $ 0     $ 0     $ 2,677,908 (2)   $ 0     $ 0     $ 0     $ 2,677,908 (2)(3)
Accrued but Unpaid
                                                       
Annual Bonus
    0       0       0       0       0       0       0  
Long-term Incentives
                                                       
Performance Shares
    0       0 (4)     2,317,421 (5)     0       2,317,421 (5)     4,960,496 (6)     4,960,496 (6)
Stock Options/SSARs Unvested & Accelerated
    0       0 (4)     0       0       14,208,717       14,208,717       14,208,717  
Restricted Stock Unvested & Accelerated
    0       0 (4)     0       0       2,211,106       1,900,592 (7)     3,801,183  
Deferred Compensation Unvested & Accelerated
    0       0 (4)     295,936       0       521,168       386,612 (8)   $ 547,991 (3)
Benefits:
                                                       
Post-termination Health Care
    0       0       46,372 (9)     0       46,372 (9)     0       46,372 (9)
Accrued Vacation/PTO
    123,846       123,846       123,846       0       123,846       123,846 (10)     123,846 (11)
280G Tax Gross-up
    0       0       0       0       0       0       0  
Total:
  $ 123,846     $ 123,846     $ 5,461,483     $ 0     $ 19,428,630     $ 21,580,263     $ 26,366,513  
 
 
(1) The 2000 LTIP generally defines a change in control as:
 
  i. a change in the composition of a majority of our board of directors without the approval of the incumbent directors;
 
  ii. An acquisition of more than 25% of our Common Stock or voting power;
 
  iii. any merger, unless (1) our stockholders possess more than 50% of the surviving company’s outstanding stock, (2) no person or group who did not own 25% or more of our common stock before the change in control owns 25% or more of the stock of the surviving company, and (3) at least a majority of the board of directors of the surviving company were members of the incumbent directors of our company before the change in control;
 
  iv. the sale of all or substantially all of our assets; or
 
  v. a stockholder-approved dissolution of our company.
 
The 2000 LTIP defines “comparable employment” as employment with us or our successor following a change in control pursuant to which:
 
the responsibilities and duties of the executive are substantially the same as before the change in control, and the other terms and conditions of employment following the change in control do not impose obligations materially more burdensome;
 
the aggregate compensation is substantially economically equivalent to or greater than the executive’s aggregate compensation immediately prior to the change in control; and
 
the executive remains employed in the metropolitan area in which he was employed immediately preceding the change in control. The definitions of change in control and comparable employment appear in Section 2 of the 2000 LTIP, which should be reviewed for a complete statement of its terms.
 
(2) Severance Benefit under Mr. Paz’s employment agreement equal to (a) 18 months of base salary, plus (b) 100% of a specified portion of his bonus potential for the year based on the average percentage of the potential earned for the three prior years, prorated for the portion of the calendar year completed prior to termination. The Severance Benefit is payable in 18 substantially equal monthly installments beginning the first full month after termination; provided that if he is determined to be a specified employee in accordance with Section 409A of the Internal Revenue Code, then payment of such benefit will be delayed six months to the extent required under Section 409A.


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(3) Assumes termination of employment agreement concurrent with change in control, either by us without cause or by the executive for good reason.
 
(4) Mr. Paz had not reached the eligible retirement age as of December 31, 2007 for retirement under either his employment agreement or the 2000 LTIP. If he were eligible for retirement, the payments would be similar to those for death or disability.
 
(5) Pro rated based on assumed award of the targeted number of shares following end of relevant performance periods. Payable in shares of our common stock following the end of such periods. This amount is based on involuntary not for cause termination; the amount would be $0 for a good reason termination.
 
(6) Payable in cash following change in control. Performance shares would be terminated.
 
(7) This amount assumes the offer of comparable employment is accepted; however, if offer of comparable employment is not accepted then the amount is $0.
 
(8) Assumes Mr. Paz remains employed for at least 90 days following the change in control.
 
(9) Reimbursement for cost of continuing health insurance under COBRA for 36 months after termination for himself as well as his spouse and eligible dependents under his employment agreement, as described above. Also, Mr. Paz’s right to reimbursement following termination by the Company other than for cause or disability, or by Mr. Paz for good reason, would end at such time as he becomes eligible for group insurance from another employer. Amounts calculated based on the current monthly cost for COBRA for the highest cost options under our current health plans.
 
(10) Payable if the comparable offer is not accepted and employment is terminated.
 
(11) Assumes termination of employment agreement concurrent with change in control, either by the Company without cause or by executive for good reason.
 
 
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 ran 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; provided, however, that Mr. Lowenberg’s employment with the Company, along with his employment agreement, terminated as of March 1, 2008, and Mr. Stiften’s employment with the Company, along with his employment agreement, are currently scheduled to terminate in April 2008.
 
Each employment agreement generally provides for:
 
  •  the payment of an annual base salary, which may not be reduced after any increase;
 
  •  a guaranteed minimum annual bonus target equal to a fixed percentage of the executive’s base salary pursuant to the terms of our bonus plan;
 
  •  participation in our employee benefit plans, other than bonus and incentive plans, on the same basis as such plans are generally made available to similarly situated senior executives;
 
  •  the executive’s right to receive restricted stock, stock options and other equity awards and deferred compensation, to the extent determined by us, our board of directors or the Compensation Committee from time to time;
 
  •  the reimbursement of reasonable business expenses incurred by the executive in performing his duties under the agreement; and
 
  •  such perquisites and fringe benefits to which similarly situated executives are entitled and which are suitable for the executive’s position.
 
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:
 
  •  for Mr. Stiften: $409,000 and 75% (currently $480,000 and 80%);
 
  •  for Mr. Lowenberg: $482,000 and 75%;


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  •  for Mr. Boudreau: $411,000 and 65% (currently $500,000 and 70%); and
 
  •  for Mr. Ignaczak: $289,000 and 50% (currently $450,000 and 75%).
 
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”:
 
  •  all previously earned and accrued but unpaid base salary;
 
  •  reimbursement for unreimbursed, properly incurred business expenses; and
 
  •  any employee benefits to which he may entitled, including with respect to restricted stock, stock options and other equity awards or deferred compensation, subject to the terms and conditions of the applicable plan.
 
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:
 
  •  the accrued rights referred to above;
 
  •  any annual bonus earned for a prior completed year but unpaid as of termination, payable to the extent the corporate bonus pool is approved by the Compensation Committee;
 
  •  subject to compliance with the restrictive covenants described below, a severance benefit equal to 18 months of his annual base salary plus 150% of a specified pro-rata portion of the executive’s bonus potential for the year based on the average percentage of the potential earned for the three prior years (with a maximum of 100% for each of these years); and
 
  •  reimbursement for the cost of continuing medical insurance under COBRA for 18 months after termination of employment.
 
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:
 
  •  the accrued rights referred to above; and
 
  •  any annual bonus earned for a previously completed fiscal year but unpaid as of the termination date, payable to the extent the corporate bonus pool is approved by the Compensation Committee.
 
Post-Employment Restrictive Covenants.  Upon termination of employment, each executive is prohibited from:
 
  •  soliciting certain clients or prospective clients for a period of two years after termination;
 
  •  soliciting or hiring any of our employees for a period of two years after termination;
 
  •  soliciting or encouraging not to work for us any consultant then under contract with us for a period of two years;
 
  •  competing with us for a period of eighteen months after termination; or
 
  •  disclosing certain confidential information or disparaging our company.
 
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


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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, 2007, and that the price of our common stock upon which certain of the calculations are made was the closing price of $73.00 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
 
                                                                 
                Good Reason or
                Change in Control(1)        
Executive Benefits and
              Involuntary Not
                With Offer of
    Without Offer of
       
Payments Upon
  Voluntary
          for Cause
    For Cause
    Death or
    Comparable
    Comparable
       
Termination
  Termination     Retirement     Termination     Termination     Disability     Employment     Employment        
 
Compensation:
                                                               
Severance Benefit
  $ 0     $ 0     $ 1,120,419 (2)   $ 0     $ 0     $ 0     $ 1,120,419 (2)(3)        
Accrued but Unpaid Annual Bonus
    0       0       0       0       0       0       0          
Long-term Incentives
                                                               
Performance Shares
    0       0 (4)     821,119 (5)     0       821,119 (5)     1,663,524 (6)     1,663,524 (6)        
Stock Options/SSARs
                                                               
Unvested & Accelerated
    0       0 (4)     0       0       4,894,789       4,894,789       4,894,789          
Restricted Stock
                                                               
Unvested & Accelerated
    0       0 (4)     0       0       1,523,601       1,613,227 (7)     3,226,454          
Deferred Compensation
                                                               
Unvested & Accelerated
    0       100,731       0       0       0       0       0          
Benefits:
                                                               
Post-termination Health Care
    0       0       23,186 (9)     0       0       0       23,186 (9)        
Accrued Vacation/PTO
    59,904       59,904       59,904       0       59,904       59,904 (10)     59,904 (11)        
280G Tax Gross-up
    0       0       0       0       0       0       2,010,700          
Total:
  $ 59,904     $ 160,635     $ 2,024,629     $ 0     $ 7,299,413     $ 8,231,444     $ 12,998,977          


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DAVID LOWENBERG
 
                                                         
                Good Reason or
                Change in Control(1)  
Executive Benefits and
              Involuntary Not
                With Offer of
    Without Offer of
 
Payments Upon
  Voluntary
          for Cause
    For Cause
    Death or
    Comparable
    Comparable
 
Termination
  Termination     Retirement     Termination     Termination     Disability     Employment     Employment  
 
Compensation:
                                                       
Severance Benefit
  $ 0     $ 0     $ 1,114,000 (2)   $ 0     $ 0     $ 0     $ 1,114,000 (2)(3)
Accrued but Unpaid Annual Bonus
    0       0       0       0       0       0       0  
Long-term Incentives
                                                       
Performance Shares
    0       0 (6)     861,995 (5)     0       861,995 (5)     1,751,854 (6)     1,751,854 (6)
Stock Options/SSARs
                                                       
Unvested & Accelerated
    0       0 (4)     0       0       4,076,286       4,076,286       4,076,286  
Restricted Stock
                                                       
Unvested & Accelerated
    0       0 (4)     0       0       873,567       828,915 (7)     1,657,830  
Deferred Compensation
                                                       
Unvested & Accelerated
    0       0 (8)     0       0       0 (8)     0       0  
Benefits:
                                                       
Post-termination Health Care
    0       0       23,186 (9)     0       0       0       23,186 (9)
Accrued Vacation/PTO
    66,769       66,769       66,769       0       66,769       66,769 (10)     66,769 (11)
280G Tax Gross-up
    0       0       0       0       0       0       0  
Total:
  $ 66,769     $ 66,769     $ 2,065,950     $ 0     $ 5,878,617     $ 6,723,824     $ 8,689,925  
 
THOMAS BOUDREAU
 
                                                         
                Good Reason or
                Change in Control(1)  
Executive Benefits and
              Involuntary Not
                With Offer of
    Without Offer of
 
Payments Upon
  Voluntary
          for Cause
    For Cause
    Death or
    Comparable
    Comparable
 
Termination
  Termination     Retirement     Termination     Termination     Disability     Employment     Employment  
 
Compensation:
                                                       
Severance Benefit
  $ 0     $ 0     $ 1,104,468 (2)   $ 0     $ 0     $ 0     $ 1,104,468 (2)(3)
Accrued but Unpaid Annual Bonus
    0       0       0       0       0       0       0  
Long-term Incentives
                                                       
Performance Shares
    0       0 (4)     563,601 (5)     0       563,601 (5)     1,183,746 (6)     1,183,746 (6)
Stock Options/SSARs
                                                       
Unvested & Accelerated
    0       0 (4)     0       0       2,945,392       2,945,392       2,945,392  
Restricted Stock
                                                       
Unvested & Accelerated
    0       0 (4)     0       0       588,487       546,770 (7)     1,093,540  
Deferred Compensation
                                                       
Unvested & Accelerated
    0       0 (8)     0       0       0 (8)     0       0  
Benefits:
                                                       
Post-termination Health Care
    0       0       23,186 (9)     0       0       0       23,186 (9)
Accrued Vacation/PTO
    43,063       43,063       43,063       0       43,063       43,063 (10)     43,063 (11)
280G Tax Gross-up
    0       0       0       0       0       0       0  
Total:
  $ 43,063     $ 43,063     $ 1,734,347     $ 0     $ 4,140,544     $ 4,718,972     $ 6,392,425  


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EDWARD IGNACZAK
 
                                                         
                Good Reason or
                Change in Control(1)  
Executive Benefits and
              Involuntary Not
                With Offer of
    Without Offer of
 
Payments Upon
  Voluntary
          for Cause
    For Cause
    Death or
    Comparable
    Comparable
 
Termination
  Termination     Retirement     Termination     Termination     Disability     Employment     Employment  
 
Compensation:
                                                       
Severance Benefit
  $ 0     $ 0     $ 824,720 (2)   $ 0     $ 0     $ 0     $ 824,720 (2)(3)
Accrued but Unpaid Annual Bonus
    0       0       0       0       0       0       0  
Long-term Incentives
                                                       
Performance Shares
    0       0 (4)     323,114 (5)     0       323,114 (5)     687,076 (6)     687,076 (6)
Stock Options/SSARs
                                                       
Unvested & Accelerated
    0       0 (4)     0       0       1,863,533       1,863,533       1,863,533  
Restricted Stock
                                                       
Unvested & Accelerated
    0       0 (4)     0       0       341,606       532,097 (7)     1,064,194  
Deferred Compensation
                                                       
Unvested & Accelerated
    0       75,296       0       0       75,296       0       0  
Benefits:
                                                       
Post-termination Health Care
    0       0       23,186 (9)     0       0       0       23,186 (9)
Accrued Vacation/PTO
    37,642       37,642       37,642       0       37,642       37,642 (10)     37,642 (11)
280G Tax Gross-up
    0       0       0       0       0       0       0  
Total:
  $ 37,642     $ 112,938     $ 1,208,662     $ 0     $ 2,641,192     $ 3,120,348     $ 4,500,351  
 
 
(1) See footnote 1 to the estimated benefit chart for Mr. Paz on page 33 for a general description of the definitions of “change in control” and “comparable employment” under the 2000 LTIP. The definitions of change in control and comparable employment appear in Section 2 of the 2000 LTIP, which should be reviewed for a complete statement of its terms.
 
(2) Severance Benefit under the executive’s employment agreement, equal to (a) 150% of base salary, plus (b) 150% of specified portion of the executive’s bonus potential for the year based on the average percentage of the potential earned for the three prior years, prorated for the portion of the calendar year completed prior to termination. The Severance Benefit is payable in 18 substantially equal monthly installments beginning the first full month after termination; provided that if the executive is determined to be a specified employee in accordance with Section 409A of the Internal Revenue Code, then the payment such benefit shall be delayed six months to the extent required under Section 409A.
 
(3) Assumes termination of employment agreement concurrent with change in control, either by us without cause or by the executive for good reason.
 
(4) The executive had not reached the eligible retirement age as of December 31, 2007 for retirement under either his employment agreement or the 2000 LTIP. If he were eligible for retirement, the payments would be similar to those for death or disability.
 
(5) Pro rated based on assumed award of the targeted number of shares following end of relevant performance periods. Payable in shares of our common stock following the end of such periods. This amount is based on involuntary not for cause termination; the amount would be $0 for a good reason termination.
 
(6) Payable in cash following change in control. Performance shares would be terminated.
 
(7) This amount assumes the offer of comparable employment is accepted; however, if offer of comparable employment is not accepted then the amount is $0.
 
(8) Mr. Boudreau and Mr. Lowenberg became fully-vested in all of our contributions to the EDCP prior to December 31, 2007 when each satisfied the requirements for retirement under the EDCP based upon his attainment of age 55 together with more than 10 years of service to our company.
 
(9) Reimbursement for cost of continuing health insurance under COBRA for 18 months after termination. Amounts calculated based on the current monthly cost for COBRA for the highest cost options under our current health plans.
 
(10) Payable if the comparable offer is not accepted and employment is terminated.
 
(11) Assumes termination of employment agreement concurrent with change in control, either by us without cause or by executive for good reason.


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On April 1, 2008, we entered into the 2008 agreement with Mr. Paz. The terms of the 2008 agreement are substantially identical to the terms of the agreements with our other executives, as described in “Employment Agreements with Other Named Executive Officers” beginning on page 34, except as follows:
 
  •  the term of the 2008 agreement runs from April 1, 2008 through March 31, 2011 without renewal other than through the mutual agreement of the parties;
 
  •  Mr. Paz’s initial base salary and minimum bonus target under the 2008 agreement are $950,000 and 130%, respectively; and
 
  •  for any termination by us (other than for cause or disability) or by Mr. Paz for good reason which, in either instance, occurs within one year following a change in control, Mr. Paz would be entitled to
 
  •  all previously earned and accrued but unpaid base salary;
 
  •  reimbursement for unreimbursed, properly incurred business expenses;
 
  •  any employee benefits to which he may entitled, including with respect to restricted stock, stock options and other equity awards or deferred compensation, subject to the terms and conditions of the applicable plan;
 
  •  any annual bonus earned for a prior completed year but unpaid as of termination, payable to the extent the corporate bonus pool is approved by the Compensation Committee;
 
  •  subject to compliance with the restrictive covenants described above, a severance benefit equal to 18 months of his annual base salary plus 150% of the executive’s bonus potential for the year (without pro-ration) based on the average percentage of the potential earned for the three prior years (with no maximum for each of these years); and
 
  •  reimbursement for the cost of continuing medical insurance under COBRA for Mr. Paz, his spouse and any eligible dependants for 36 months after termination of employment.
 
  •  for any termination due to Death, Disability or Retirement, as those terms are defined in the agreement, before the end of his employment period, Mr. Paz (or his estate) generally is entitled to receive:
 
  •  all previously earned and accrued but unpaid base salary;
 
  •  reimbursement for unreimbursed, properly incurred business expenses;
 
  •  any employee benefits to which he may entitled, including with respect to restricted stock, stock options and other equity awards or deferred compensation, subject to the terms and conditions of the applicable plan;
 
  •  any annual bonus earned for a prior completed year but unpaid as of termination, payable to the extent the corporate bonus pool is approved by the Compensation Committee; and
 
  •  reimbursement for the cost of continuing medical insurance under COBRA for Mr. Paz, his spouse and any eligible dependants for 36 months after termination of employment.
 
 
On the Record Date there were approximately 251,100,000 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 three separate two-for-one stock splits effective June 22, 2007, 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.


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The following table contains certain information regarding the beneficial ownership of our common stock as of March 1, 2008 (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 24, and (iv) all of our current executive officers and directors as a group. The table includes shares that may be acquired on March 1, 2008, or within 60 days of March 1, 2008, 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.
 
                 
    Shares Beneficially Owned  
Name and Address
  Number     Percent of Class(1)  
 
George Paz(2)
    1,025,372       *  
Gary G. Benanav(3)
    69,564       *  
Frank J. Borelli(4)
    233,212       *  
Maura C. Breen(5)
    6,332       *  
Nicholas J. LaHowchic(6)
    7,208       *  
Thomas P. Mac Mahon(7)
    46,332       *  
Woodrow A. Myers(8)
    10,930       *  
John O. Parker, Jr.(9)
    22,332       *  
Samuel K. Skinner(10)
    6,332       *  
Seymour Sternberg(11)
    42,780       *  
Barrett A. Toan(12)
    502,733       *  
Howard L. Waltman(13)
    178,332       *  
David A. Lowenberg(14)
    295,361       *  
Thomas M. Boudreau(15)
    186,390       *  
Edward Stiften(16)
    322,798       *  
Edward Ignaczak(17)
    76,217       *  
Directors and Executive Officers as a Group (20 persons)(18)
    3,329,348       1.32 %
New York Life Insurance Company;
NYLIFE, LLC(19)
    40,000,000       15.82 %
 
 
Indicates less than 1%
 
(1) Percentages based on 252,899,230 shares of common stock issued and outstanding on March 1, 2008.
 
(2) Consists of options for 607,084 shares and 160,257 SSARs granted under our 2000 Long Term Incentive Plan, or the “2000 LTIP” and our Amended and Restated 1992 and 1994 Stock Option Plans, which we refer to collectively as, the “Employee Stock Option Plans”, 167,349 shares owned by Mr. Paz, 60,950 restricted shares awarded under the 2000 LTIP, and 29,732 phantom shares representing fully-vested investments in the “Company Stock Fund” under our Executive Deferred Compensation Plan, or the “EDCP”. Excluded are 1,595 phantom shares representing unvested investments in the Company Stock Fund under the EDCP.
 
(3) Consists of options for 55,232 shares and 3,124 SSARs granted under the 2000 LTIP, 2,588 restricted shares awarded under the 2000 LTIP, and 8,620 shares owned by a trust established by Mr. Benanav.
 
(4) Consists of options for 224,000 shares and 3,124 SSARs granted under the 2000 LTIP, 2,588 restricted shares awarded under the 2000 LTIP, and 3,500 shares held in trusts for family members.
 
(5) Consists of 3,124 SSARs granted under the 2000 LTIP, and 2,588 restricted shares awarded under the 2000 LTIP and 620 shares owned by Ms. Breen.
 
(6) Consists of 4,620 shares owned by Mr. LaHowchic and 2,588 restricted shares awarded under the 2000 LTIP.
 
(7) Consists of options for 40,000 shares and 3,124 SSARs granted under the 2000 LTIP, and 2,588 restricted shares awarded under the 2000 LTIP, and 620 shares owned by Mr. Mac Mahon.
 
(8) Consists of 8,800 shares owned by Dr. Myers and 2,130 restricted shares awarded under the 2000 LTIP.


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(9) Consists of options for 16,000 shares and 3,124 SSARs granted under the 2000 LTIP, and 2,588 restricted shares awarded under the 2000 LTIP, and 620 shares owned by Mr. Parker.
 
(10) Consists of and 3,124 SSARs granted under the 2000 LTIP, 2,588 restricted shares awarded under the 2000 LTIP, and 620 shares owned by Mr. Skinner.
 
(11) Consists of options for 23,232 shares and 3,124 SSARs granted under the 2000 LTIP, 2,588 restricted shares awarded under the 2000 LTIP, and 13,836 shares owned by Mr. Sternberg, but excludes 760 shares held by Mr. Sternberg’s son as to which shares Mr. Sternberg disclaims beneficial ownership.
 
(12) Consists of options for 291,200 shares and 3,124 SSARs granted under the Employee Stock Option Plans, 2,588 restricted shares awarded under the 2000 LTIP, 159,268 shares owned by Mr. Toan, and 46,553 phantom shares representing fully-vested investments in the Company Stock Fund under the EDCP.
 
(13) Consists of options for 40,000 shares and 3,124 SSARs granted under the 2000 LTIP, 2,588 restricted shares awarded under the 2000 LTIP, and 132,620 shares owned by Mr. Waltman.
 
(14) Consists of options for 15,132 shares and 59,613 SSARs granted under the Employee Stock Option Plans, 14,941 restricted shares awarded under the 2000 LTIP, 175,030 shares owned by Mr. Lowenberg, and 30,645 phantom shares representing fully-vested investments in the Company Stock Fund under the EDCP. Excluded are 1,650 shares held by Mr. Lowenberg’s minor children, as to which Mr. Lowenberg disclaims beneficial ownership.
 
(15) Consists of options for 38,432 shares and 38,974 SSARs granted under the Employee Stock Option Plans, 15,623 restricted shares awarded under the 2000 LTIP, 70,015 shares owned by Mr. Boudreau, and 23,346 phantom shares representing fully-vested investments in the Company Stock Fund under the EDCP. Excluded are 650 shares held by Mr. Boudreau’s spouse, as to which Mr. Boudreau disclaims beneficial ownership.
 
(16) Consists of options for 187,238 shares and 56,789 SSARs granted under the 2000 LTIP, 28,246 restricted shares awarded under the 2000 LTIP, and 50,106 shares owned by Mr. Stiften and 419 phantom shares representing fully-vested investments in the Company Stock Fund under the EDCP. Excluded are 714 phantom shares representing unvested investments in the Company Stock Fund under the EDCP.
 
(17) Consists of options for 10,050 shares and 22,344 SSARs granted under the 2000 LTIP, 17,023 restricted shares awarded under the 2000 LTIP, 25,571 shares owned by Mr. Ignaczak, and 1,229 phantom shares representing fully-vested investments in the Company Stock Fund under the EDCP. Excluded are 647 phantom shares representing unvested investments in the Company Stock Fund under the EDCP.
 
(18) Consists of options for 1,690,552 shares and 438,657 SSARs granted under the Outside Directors Plan and the Employee Stock Option Plans, 859,395 shares owned by directors and officers as a group, 207,674 restricted shares awarded under the 2000 LTIP, and 133,070 phantom shares representing fully-vested investments in the Company Stock Fund under the EDCP. Excluded are 4,318 phantom shares representing unvested investments in the Company Stock Fund under the EDCP.
 
(19) The information with respect to the beneficial ownership of these shares as of December 31, 2007 has been obtained from a copy of an Amendment No. 8 to Schedule 13G filed February 13, 2008. Such filing reports that the beneficial owner, New York Life Insurance Company, or “New York Life” shares voting power with respect to all of the shares reported, but has sole dispositive power as to all of the shares reported, and that NYLIFE, LLC, or “NYLife”, a subsidiary of New York Life, owns 18,000,000 of such shares. In August 2001, NYLife entered into a ten-year forward sale contract with respect to 18,000,000 of the shares of common stock, and, in April 2003 New York Life entered into a five-year forward sale contract , which matures on April 28, 2008, with respect to 22,000,000 of the shares of common stock. Absent the occurrence of certain accelerating events, New York Life or NYLife, as applicable, retains the right to vote the shares subject to such forward sale contracts, but is subject to restrictions on the transfer of such shares. The address for New York Life and NYLife is 51 Madison Avenue, New York, NY 10010. Mr. Sternberg, one of our directors, is also a director and holds various executive positions with New York Life, as described herein, and Mr. Benanav, one of our directors, was also a director and held various executive positions with New York Life, as described herein, prior to his retirement from New York Life in March 2005. Mr. Sternberg and Mr. Benanav have both disclaimed beneficial ownership of the shares owned by New York Life or its subsidiaries.


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The following table summarizes information as of December 31, 2007 relating to our equity compensation plans under which equity securities are authorized for issuance:
 
                         
                Number of securities
 
                remaining available for
 
          Weighted-average
    future issuance under
 
    Number of securities to be
    exercise price of
    equity compensation
 
    issued upon exercise of
    outstanding
    plans (excluding
 
    outstanding options,
    options, warrants,
    securities reflected
 
    warrants and rights     rights     in column (a))  
Plan Category
  (a)     (b)     (c)  
 
Equity Compensation Plans approved by security holders
    8,547,740 (1)   $ 27.22 (2)     15,113,699 (3)
Equity Compensation Plans not approved by security holders
    0             0  
                         
Total
    8,547,740 (1)   $ 27.22 (2)     15,113,699 (3)
                         
 
 
(1) Includes shares which were issued under our Employee Stock Purchase Plan for the month of January 2008. Does not include restricted stock or performance shares awarded since December 31, 2007.
 
(2) Shares allocated to the EDCP and shares which were issued for the month of January 2008 under our Employee Stock Purchase Plan are not included in the weighted average computation.
 
(3) The number of shares available for distribution under the 2000 LTIP is increased by any shares made available as a result of forfeitures of awards made under the 2000 LTIP, or any of our Amended and Restated 1992 Stock Option Plan, Amended and Restated 1994 Stock Option Plan or Amended and Restated 1992 Stock Option Plan for Outside Directors. Includes 11,934,975 shares remaining available for future issuance under the 2000 LTIP. The 2000 LTIP provides for the issuance of restricted stock awards and a portion of these remaining shares will likely be issued as restricted stock awards. Does not include the 1,500,000 million additional shares that would be authorized for issuance under the Employee Stock Purchase Plan following stockholder approval and ratification of such increase in the number of shares at the meeting. See “III. Approve and Ratify an Increase in the Number of Shares of the Company’s Common Stock Authorized for Issuance Under the Express Scripts, Inc. Employee Stock Purchase Plan from 2,000,000 Shares to 3,500,000 Shares” for further information regarding this proposal.
 
 
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:
 
  •  The Audit Committee has reviewed and discussed with management and with PricewaterhouseCoopers LLP, or “PwC”, our company’s independent registered public accountants, the audited consolidated financial statements of our company for the year ended December 31, 2007 (the “Financial Statements”).
 
  •  PwC has advised the management of our company and the Audit Committee that it has discussed with them all the matters required to be discussed by Statement of Accounting Standards 114, as modified, as adopted by the Public Company Accounting Oversight Board, or “PCAOB”, in Rule 3200T, which include among other items, matters related to the conduct of the audit of the Financial Statements.


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  •  The Audit Committee has received from PwC the written disclosures and the letter required by Independent Standards Board Standard No. 1 (which relates to the auditor’s independence from our company and its related entities), as adopted by the PCAOB in Rule 3600T, and has discussed PwC’s independence with them.
 
  •  Based upon the aforementioned review, discussions and representations of PwC, and the unqualified audit opinion presented by PwC on the Financial Statements, the Audit Committee recommended to the board of directors that the Financial Statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for filing with the SEC.
 
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 2007. However, we have determined that Michael Holmes did not timely file a report with respect to the purchase of 4,000 shares (split-adjusted) of our stock on May 11, 2006, and that Thomas Boudreau did not timely file a report with respect to the sale of 150 shares of our stock by his spouse on January 2, 2008.
 
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
 
 
Stock Ownership.  New York Life currently owns 40,000,000 shares (or approximately 15.8%) of our outstanding common stock, based on Amended Statement of Ownership on Schedule 13G filed February 13, 2008.
 
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 18,000,000 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 22,000,000 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


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a result of a series of transactions involving the shares held by New York Life and its affiliates completed during 2003, New York Li