SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
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[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
CENTENE CORPORATION
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(Name of Registrant as Specified In Its Charter)
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CENTENE CORPORATION
7711 CARONDELET AVENUE, SUITE 800
ST. LOUIS, MISSOURI 63105
March 31, 2003
DEAR FELLOW STOCKHOLDERS:
Our Annual Meeting of Stockholders will be held at The Ritz-Carlton, 100
Carondelet Avenue, St. Louis, Missouri, at 10:00 A.M., central daylight savings
time, on Tuesday, May 6, 2003. Annual meetings play an important role in
maintaining communications and understanding among our management, board of
directors and stockholders, and I hope that you will be able to join us.
On the pages following this letter you will find the Notice of 2003 Annual
Meeting of Stockholders, which lists the matters to be considered at the
meeting, and the proxy statement, which describes the matters listed in the
Notice. We have also enclosed our 2002 Annual Report to Stockholders.
If you are a stockholder of record, we have enclosed your proxy card, which
allows you to vote on the matters considered at the meeting. Simply mark, sign
and date your proxy card, and then mail the completed proxy card in the enclosed
postage-paid envelope. You may attend the meeting and vote in person even if you
have sent in a proxy card.
If your shares are held in the name of a bank, broker or other holder of
record, you will receive instructions from the holder of record that you must
follow in order for your shares to be voted.
Sincerely,
/s/ Michael F. Neidorff
Michael F. Neidorff
President and Chief Executive Officer
THE ABILITY TO HAVE YOUR VOTE COUNTED AT THE MEETING IS AN IMPORTANT
STOCKHOLDER RIGHT, AND I HOPE YOU WILL CAST YOUR VOTE IN PERSON
OR BY PROXY REGARDLESS OF THE NUMBER OF SHARES YOU HOLD.
CENTENE CORPORATION
7711 CARONDELET AVENUE, SUITE 800
ST. LOUIS, MISSOURI 63105
NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS
Time and Date................. 10:00 A.M., central daylight savings time, on
Tuesday, May 6, 2003
Place......................... The Ritz-Carlton
100 Carondelet Avenue
St. Louis, Missouri
Items of Business............. At the meeting, we will ask you and our other
stockholders to:
(1) elect three Class II directors to
three-year terms;
(2) adopt our 2003 Stock Incentive Plan;
(3) approve our Short-Term Executive
Compensation Plan; and
(4) transact any other business properly
presented at the meeting.
Record Date................... You may vote if you were a stockholder of
record at the close of business on March 21,
2003.
Proxy Voting.................. It is important that your shares be represented
and voted at the meeting. Whether or not you
plan to attend the meeting, please mark, sign,
date and promptly mail your proxy card in the
enclosed postage-paid envelope. You may revoke
your proxy at any time before its exercise at
the meeting.
By order of the Board of Directors,
/s/ Karey L. Witty
Karey L. Witty
Secretary
St. Louis, Missouri
March 31, 2003
PROXY STATEMENT
FOR THE
CENTENE CORPORATION
2003 ANNUAL MEETING OF STOCKHOLDERS
TABLE OF CONTENTS
INFORMATION ABOUT THE MEETING
This Proxy Statement........................................ 1
Who May Vote................................................ 1
How to Vote................................................. 1
Quorum Required to Transact Business........................ 2
DISCUSSION OF PROPOSALS
Proposal One: Election of Class II Directors................ 3
Proposal Two: Adoption of 2003 Stock Incentive Plan......... 4
Proposal Three: Approval of Short-Term Executive
Compensation Plan......................................... 7
Other Matters............................................... 8
Submission of Future Stockholder Proposals.................. 9
INFORMATION ABOUT CONTINUING DIRECTORS AND EXECUTIVE OFFICERS
Background Information about Directors Continuing in
Office.................................................... 10
Background Information about Executive Officers............. 11
INFORMATION ABOUT CORPORATE GOVERNANCE
General..................................................... 13
Board and Committee Meetings................................ 13
Compensation of Directors................................... 14
Equity Compensation Plan Information........................ 15
Audit Committee Report...................................... 15
Independent Auditors........................................ 16
Independent Auditor Fees and Other Matters.................. 17
Certain Relationships and Related-Party Transactions........ 17
INFORMATION ABOUT EXECUTIVE COMPENSATION
Summary Compensation........................................ 18
Employment Agreements....................................... 19
Compensation Committee Report............................... 21
Compensation Committee Interlocks and Insider
Participation............................................. 22
OTHER MATTERS
Information About Stock Ownership........................... 23
Stock Performance Graph..................................... 25
Section 16(a) Beneficial Ownership Reporting Compliance..... 25
Householding................................................ 25
APPENDICES
A. 2003 Stock Incentive Plan............................... A-1
B. Short-Term Executive Compensation Plan.................. B-1
C. Audit Committee Charter................................. C-1
INFORMATION ABOUT THE MEETING
THIS PROXY STATEMENT
We have sent you this proxy statement and the enclosed proxy card because
our board of directors is soliciting your proxy to vote at our 2003 Annual
Meeting of Stockholders or any adjournment or postponement of the meeting. The
meeting will be held at 10 A.M., central daylight savings time, on Tuesday, May
6, 2003, at The Ritz-Carlton, 100 Carondelet Avenue, St. Louis, Missouri.
- THIS PROXY STATEMENT summarizes information about the proposals to be
considered at the meeting and other information you may find useful in
determining how to vote.
- THE PROXY CARD is the means by which you actually authorize another
person to vote your shares in accordance with the instructions.
Our directors, officers and employees may solicit proxies in person or by
telephone, mail, electronic mail, facsimile or telegram. We will pay the
expenses of soliciting proxies, although we will not pay additional compensation
to these individuals for soliciting proxies. We will request banks, brokers and
other nominees holding shares for a beneficial owner to forward copies of the
proxy materials to those beneficial owners and to request instructions for
voting those shares. We will reimburse these banks, brokers and other nominees
for their related reasonable expenses. We have not retained the services of any
proxy solicitation firm to assist us in soliciting proxies.
We are mailing this proxy statement and the enclosed proxy card to
stockholders for the first time on or about March 31, 2003. In this mailing, we
are including copies of our 2002 Annual Report to Stockholders.
WHO MAY VOTE
Holders of record of our common stock at the close of business on March 21,
2003 are entitled to one vote per share on each matter properly brought before
the meeting. The proxy card states the number of shares you are entitled to
vote.
A list of stockholders entitled to vote will be available at the meeting.
In addition, you may contact our Secretary, Karey L. Witty, at our address as
set forth in the notice appearing before this proxy statement, to make
arrangements to review a copy of the stockholder list at our offices located at
7711 Carondelet Avenue, Suite 800, St. Louis, Missouri, before the meeting,
between the hours of 8:30 A.M. and 5:30 P.M., central daylight savings time, on
any business day from April 25, 2003 up to the time of the meeting.
HOW TO VOTE
You may vote your shares at the meeting in person or by proxy:
- TO VOTE IN PERSON, you must attend the meeting, and then complete and
submit the ballot provided at the meeting.
- TO VOTE BY PROXY, you must mark, sign and date the enclosed proxy card
and then mail the proxy card in the enclosed postage-paid envelope. Your
proxy will be valid only if you complete and return the proxy card before
the meeting. By completing and returning the proxy card, you will direct
the designated persons to vote your shares at the meeting in the manner
you specify in the proxy card. If you complete the proxy card with the
exception of the voting instructions, then the designated persons will
vote your shares for the election of the nominated directors, the
adoption of the 2003 Stock Incentive Plan and the approval of the
Short-Term Executive Compensation Plan. If any other business properly
comes before the meeting, the designated persons will have the discretion
to vote your shares as they deem appropriate.
Even if you complete and return a proxy card, you may revoke it at any time
before it is exercised by taking one of the following actions:
- send written notice to Karey L. Witty, our Secretary, at our address as
set forth in the Notice appearing before this proxy statement;
- send us another signed proxy with a later date; or
- attend the meeting, notify our Secretary that you are present, and then
vote by ballot.
If your shares are held in the name of a bank, broker or other nominee
holder, you will receive instructions from the holder of record explaining how
your shares may be voted. Please note that, in such an event, you must obtain a
proxy, executed in your favor, from the holder of record to be able to vote at
the meeting.
QUORUM REQUIRED TO TRANSACT BUSINESS
At the close of business on March 21, 2003, 10,943,142 shares of our common
stock were outstanding. Our by-laws require that a majority of the shares of our
common stock outstanding on that date be represented, in person or by proxy, at
the meeting in order to constitute the quorum we need to transact business. We
will count abstentions and broker non-votes in determining whether a quorum
exists. A broker non-vote occurs when a nominee holding shares for a beneficial
owner does not vote on a particular proposal because the nominee does not have
discretionary voting power for that particular item and has not received
instructions from the beneficial owner.
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DISCUSSION OF PROPOSALS
PROPOSAL ONE: ELECTION OF CLASS II DIRECTORS
The first proposal on the agenda for the meeting is the election of three
people to serve as Class II directors for three-year terms beginning at the
meeting and ending at our 2006 Annual Meeting of Stockholders.
Under our by-laws, our board of directors has the authority to fix the
number of directors, provided that the board must have between five and eleven
members. The number of directors currently is fixed at six, but will increase to
seven as of the meeting. Our by-laws provide that the board is to be divided
into three classes serving for staggered three-year terms.
The board has nominated Edward L. Cahill and Robert K. Ditmore, the current
Class II directors, for re-election, and also has nominated David L. Steward for
initial election to the board. THE BOARD BELIEVES THE ELECTION OF THESE THREE
NOMINEES IS IN OUR BEST INTEREST AND THE BEST INTEREST OF OUR STOCKHOLDERS AND
RECOMMENDS A VOTE "FOR" THE ELECTION OF THE THREE NOMINEES. Brief biographies of
the nominees, as of March 21, 2003, follow. You will find information about
their stock holdings on page 23.
Edward L. Cahill.............. Mr. Cahill has been a director since September
1998. Mr. Cahill has been a Partner of HLM
Management Co., a private venture capital and
investment advisors firm located in Boston,
Massachusetts, since April 2000. From 1995 to
April 2000, he was a Partner of Cahill, Warnock
& Co., a venture capital firm he co-founded.
From 1981 to 1995, Mr. Cahill was employed by
Alex. Brown & Sons, an investment banking and
brokerage firm, where he headed the firm's
health care group. He is a director of
Occupational Health & Rehabilitation, Inc., a
Hingham, Massachusetts-based provider of
occupational health services for employers, and
a trustee of Johns Hopkins Medicine and Mercy
Health Systems. Mr. Cahill is 50 years old.
Robert K. Ditmore............. Mr. Ditmore has been a director since 1996. Mr.
Ditmore was the President and Chief Operating
Officer of United Healthcare Corp., a publicly
traded managed care organization now known as
UnitedHealth Group Incorporated, from 1985 to
1991, and a director of UnitedHealth Group
Incorporated from 1985 to 1995. Mr. Ditmore is
69 years old.
David L. Steward.............. Mr. Steward is the founder of World Wide
Technology, Inc. and has served as its Chairman
since its founding in 1990. In addition, Mr.
Steward has served as Chairman of Telcobuy.com,
an affiliate of World Wide Technology, Inc.,
since 1997. World Wide Technology, Inc. and
Telcobuy.com provide electronic procurement and
logistics services to companies in the
information technology and telecommunications
industries. Mr. Steward is 51 years old.
We expect that Messrs. Cahill, Ditmore and Steward will be able to serve if
elected. If any of them are not able to serve, proxies may be voted for a
substitute nominee or nominees.
The nominees receiving the greatest number of votes cast will be elected as
directors. We will not count abstentions when we tabulate votes cast for the
director election. Brokers have discretionary voting power with respect to
director elections.
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PROPOSAL TWO: ADOPTION OF 2003 STOCK INCENTIVE PLAN
On March 13, 2003, our board of directors adopted, subject to stockholder
approval, the 2003 Stock Incentive Plan, referred to below as the 2003 Plan. Up
to 1,250,000 shares of our common stock, subject to adjustment in the event of
stock splits and other similar events, may be issued pursuant to awards granted
under the 2003 Plan. As of March 21, 2003, a total of 265,385 shares of common
stock remained available for grant under our other existing stock option plans.
Our board believes that our future success depends, in large part, upon our
ability to maintain a competitive position in attracting, retaining and
motivating key employees. In addition, the board believes that, in order to help
us execute our strategy of expanding our operations through strategic
acquisitions, it is desirable to ensure that we have a pool of options
sufficient to allow us to grant options to employees and consultants of newly
acquired businesses. ACCORDINGLY, THE BOARD BELIEVES ADOPTION OF THE 2003 PLAN
IS IN OUR BEST INTERESTS AND THE BEST INTERESTS OF OUR STOCKHOLDERS AND
RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE 2003 PLAN. In the event the 2003
Plan is not adopted at the meeting, the board will reconsider the alternatives
available to help attract, retain and motivate key individuals who are currently
our employees or who become employees as the result of any future acquisitions.
The affirmative vote of a majority of the common stock entitled to vote at
the meeting is required for the adoption of the 2003 Plan. Broker non-votes will
not be counted as votes in favor of such matter. Accordingly, abstentions and
broker non-votes will have the same effect as a vote against the 2003 Plan.
DESCRIPTION OF THE 2003 PLAN
The following is a brief summary of the 2003 Plan, a copy of which is
attached as Appendix A to this proxy statement. The following summary is
qualified in its entirety by reference to the 2003 Plan.
Types of Awards
The 2003 Plan provides for the grant of (a) incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code of 1986, (b)
non-statutory stock options and (c) restricted stock awards, collectively
referred to herein as awards.
Options. Optionees receive the right to purchase a specified number of
shares of our common stock at a specified option price and subject to such other
terms and conditions as are specified in connection with the option grant. We
may grant options only at an exercise price that is equal to or greater than the
fair market value of our common stock on the date of grant. Under present law,
incentive stock options and options intended to qualify as performance-based
compensation under Section 162(m) of the Internal Revenue Code may not be
granted at an exercise price less than the fair market value of our common stock
on the date of grant or less than 110% of the fair market value in the case of
incentive stock options granted to optionees holding more than 10% of the voting
power of Centene. The 2003 Plan permits the following forms of payment of the
exercise price of options: (a) payment by cash, check or in connection with a
"cashless exercise" through a broker, (b) surrender of shares of our common
stock that have been held for at least six months, (c) delivery of a promissory
note, (d) any other lawful means, or (e) any combination of these forms of
payment.
Restricted Stock Awards. Restricted stock awards entitle recipients to
acquire shares of our common stock, subject to our right to repurchase all or
part of such shares from the recipient in the event that the conditions
specified in the applicable award are not satisfied before the end of the
applicable restriction period established for such award.
Eligibility to Receive Awards
Our employees, officers, directors, consultants and advisors are eligible
to be granted awards under the 2003 Plan. Under present law, however, incentive
stock options may only be granted to employees of Centene or any of our
subsidiaries. The maximum number of shares with respect to which awards may be
granted to any participant under the 2003 Plan may not exceed 500,000 shares in
any calendar year.
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Plan Benefits
As of March 21, 2003, approximately 633 persons were eligible to receive
awards under the 2003 Plan, including our 8 executive officers and 5
non-employee directors. The granting of awards under the 2003 Plan is
discretionary, and we cannot now determine the number or type of awards to be
granted in the future to any particular person or group.
On March 21, 2003, the last reported sale price of our common stock on the
Nasdaq National Market was $26.98 per share.
Administration
Our board of directors will administer the 2003 Plan. The board will have
the authority to adopt, amend and repeal the administrative rules, guidelines
and practices relating to the 2003 Plan and to interpret the provisions of the
2003 Plan. Pursuant to the terms of the 2003 Plan, the board may delegate
authority under the 2003 Plan to one or more committees or subcommittees of the
board.
Subject to any applicable limitations contained in the 2003 Plan, the board
or any committee to which the board delegates authority, as the case may be,
will select the recipients of awards and determine (a) the number of shares of
our common stock covered by options and the dates upon which such options become
exercisable, (b) the exercise price of options, (c) the duration of options and
(d) the number of shares of our common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of such awards, including
conditions for repurchase, issue price and repurchase price.
The board is required to make appropriate adjustments in connection with
the 2003 Plan and any outstanding awards to reflect stock splits, stock
dividends, recapitalizations, spin-offs and other similar changes in
capitalization.
If any award expires or is terminated, surrendered, canceled or forfeited,
the unused shares of our common stock covered by such award will again be
available for grant under the 2003 Plan, subject, however, in the case of
incentive stock options, to any limitations under the Internal Revenue Code.
Amendment or Termination
No award may be made under the 2003 Plan after March 13, 2013, but awards
previously granted may extend beyond that date. The board of directors may at
any time amend, suspend or terminate the 2003 Plan, except that no award
designated as subject to Section 162(m) of the Internal Revenue Code by the
board after the date of such amendment shall become exercisable, realizable or
vested (to the extent such amendment was required to grant such award) unless
and until such amendment shall have been approved by our stockholders.
If stockholders do not approve the adoption of the 2003 Plan, the 2003 Plan
will not go into effect, and we will not grant any awards under the 2003 Plan.
In such event, the board will consider whether to adopt alternative arrangements
based on its assessment of our needs.
U.S. Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to awards granted under the
2003 Plan and with respect to the sale of common stock acquired under the 2003
Plan. This summary is based on the federal tax laws in effect as of the date of
this proxy statement. Changes to these laws could alter the tax consequences
described below.
Incentive Stock Options
In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will recognize
taxable income with respect to an incentive stock option only upon the sale of
common stock acquired through the exercise of the option, referred to below as
ISO Stock. The exercise of an incentive stock option, however, may subject the
participant to the alternative minimum tax.
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Generally, the tax consequences of selling ISO Stock will vary depending on
the date on which it is sold. If the participant sells ISO Stock more than two
years from the date the option was granted and more than one year from the date
the option was exercised, then the participant will recognize long-term capital
gain in an amount equal to the excess of the sale price of the ISO Stock over
the exercise price.
If the participant sells ISO Stock before satisfying the above waiting
periods, called a disqualifying disposition, then all or a portion of the gain
recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
one year before the date of sale.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss in an amount equal to the excess of the
exercise price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the participant has held the ISO Stock for more than
one year before the date of sale.
Non-Statutory Stock Options
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a non-statutory stock option. Unlike
the case of an incentive stock option, however, a participant who exercises a
non-statutory stock option generally will recognize ordinary compensation income
in an amount equal to the excess of the fair market value of the common stock
acquired through the exercise of the option, referred to below as NSO Stock, on
the exercise date over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the difference between the sale price of the NSO
Stock and the participant's tax basis in the NSO Stock. This capital gain or
loss will be a long-term gain or loss if the participant has held the NSO Stock
for more than one year before the date of the sale.
Early-Exercise Alternative
The board of directors may permit a participant to exercise the unvested
portion of an option, subject to our right to repurchase the unvested shares. In
general, a participant who exercises the unvested portion of an option and then
makes a valid election under Section 83(b) of the Internal Revenue Code within
30 days of the exercise date should be taxed as if the underlying shares were
vested shares with the consequences described above under "Incentive Stock
Options" or "Non-Statutory Stock Options" (whichever is applicable), provided,
however, that current law relating to incentive stock options in this context is
not entirely certain. A participant who exercises the unvested portion of an
option and does not make a valid Section 83(b) election within 30 days of the
exercise date generally will be treated as having exercised the option to the
extent that our repurchase right lapses with respect to the underlying shares.
Otherwise, the participant will be taxed as described above under "Incentive
Stock Options" or "Non-Statutory Stock Options," whichever is applicable.
Restricted Stock Awards
A participant will not recognize taxable income upon the grant of a
restricted stock award unless the participant makes a Section 83(b) election. If
the participant makes a valid Section 83(b) election within 30 days of the date
of the grant, then the participant will recognize ordinary compensation income,
for the year in which the award is granted, in an amount equal to the difference
between the fair market value of our common stock at the time the award is
granted and the purchase price paid for the common stock. If a valid Section
83(b) election is not made, then the participant will recognize ordinary
compensation income, at the time that the forfeiture provisions or restrictions
on transfer lapse, in an amount equal to the difference between the fair market
value of our common stock at the time of such lapse and the original purchase
price paid for the common stock. The participant will have a tax basis in the
common stock acquired equal to the sum of the price paid and the amount of
ordinary compensation income recognized.
6
Upon the disposition of the common stock acquired pursuant to a restricted
stock award, the participant will recognize a capital gain or loss equal to the
difference between the sale price of the common stock and the participant's tax
basis in the common stock. This capital gain or loss will be a long-term capital
gain or loss if the shares are held for more than one year.
Tax Consequences to Centene
The grant of an award under the 2003 Plan generally will have no tax
consequences to us. Moreover, in general, neither the exercise of an incentive
stock option nor the sale of any common stock acquired under the 2003 Plan will
have any tax consequences to us. We, and our subsidiaries, generally will be
entitled to a business-expense deduction, however, with respect to any ordinary
compensation income recognized by a participant under the 2003 Plan, including
in connection with a restricted stock award or as a result of the exercise of a
non-statutory stock option or a disqualifying disposition. Any such deduction
will be subject to the limitations of Section 162(m) of the Internal Revenue
Code.
PROPOSAL THREE: APPROVAL OF SHORT-TERM EXECUTIVE COMPENSATION PLAN
Our board of directors adopted the Short-Term Executive Compensation Plan,
referred to below as the STEP, on March 13, 2003, subject to approval by the
stockholders. The terms of the STEP are summarized below, but the summary is
qualified in its entirety by reference to the full text of the STEP itself,
which is attached as Appendix B to this proxy statement.
Section 162(m) of the Internal Revenue Code, or the Code, limits our tax
deduction to $1 million per year per executive for certain compensation paid to
each of our chief executive officer and our four highest compensated executives
other than the chief executive officer. We sometimes refer to each of these five
employees as a "Specified Employee." In general, the regulations under Section
162(m) exclude from the $1 million limitation compensation that is, among other
things, calculated based on "objective" performance criteria and awarded under a
plan that has received stockholder approval. The board therefore recommends
stockholder approval of the STEP so that we may, if all other requirements of
the regulations are met, fully deduct certain annual bonus payments to the
Specified Employees, described below as "Special Bonuses," in compliance with
Section 162(m) of the Code.
The STEP provides us with an effective vehicle to focus and motivate the
annual performance of our key employees, offer those employees opportunities to
attain competitive levels of compensation and reward those employees who have
contributed to our profitability. If the stockholders do not approve the STEP,
no Special Bonuses will be paid under the STEP to Specified Employees. As a
result of Section 162(m) of the Code, however, such other compensation might not
be tax deductible.
The granting of future incentive awards under the STEP is discretionary,
and we cannot now determine the amount of awards to be granted in the future to
any particular person or group.
The purpose of the STEP is to motivate and reward executives by making a
significant portion of their annual bonuses directly dependent upon achieving
key strategic objectives. The STEP provides the opportunity for these employees
to earn substantial incentive cash compensation for attaining financial and
operational objectives that are critical to our ongoing growth and
profitability.
If approved by the stockholders, the STEP would be effective as of July 1,
2003. The STEP allows the Compensation Committee, or in certain situations its
delegate, to grant to certain employees of us or any of our subsidiaries annual
awards of two types: "Standard Bonuses" and "Special Bonuses." As of March 21,
2003, 12 individuals were eligible to participate in the STEP.
A Standard Bonus may be granted at the discretion of the Compensation
Committee or its delegate to any STEP participant. The amount of the Standard
Bonus will be based on any criteria the Compensation Committee or its delegate
wishes to consider, including the objective or subjective performance of the
employee, Centene or any subsidiary thereof. A Standard Bonus will be paid at
the time determined by the Compensation Committee.
7
As indicated above, the STEP has been designed and will be administered to
provide "performance-based" incentive compensation, within the meaning of
Section 162(m) of the Code. To that end, a Special Bonus may be granted at the
discretion of the Compensation Committee to any of our executive officers or to
any president of any of our subsidiaries or other business units. The eligible
group is expected to include the Specified Employees. The amount of any Special
Bonus will be based on objective performance goals established by the
Compensation Committee, based on one or more of the following performance
factors: (a) before or after tax net income; (b) earnings per share; (c) book
value per share; (d) stock price; (e) return on stockholders' equity; (f)
expense management; (g) return on investment; (h) improvements in capital
structure; (i) profitability of an identifiable business unit or product; (j)
profit margins; (k) budget comparisons; (l) total return to stockholders; (m)
revenue growth; and (n) our performance relative to a peer group of companies on
any of the measures above. The performance goals for STEP participants who have
primary responsibility for a subsidiary or a business unit may be measured on
business unit operating profit, business unit operating profit as a percent of
revenue, or measures related to business unit profitability above its cost of
capital, in place of some or all of the corporate performance measures. The
Compensation Committee may reduce, but not increase, the amount of any Special
Bonus. All terms and conditions of Special Bonuses, and the STEP provisions
referring thereto, are intended to be administered and interpreted in accordance
with Section 162(m) of the Code, to ensure that we can deduct the Special
Bonuses. The performance goals based on one or more of the foregoing performance
factors will be established by the Compensation Committee no more than 90 days
after the commencement of the period to which the performance goals relate (or,
if less, the number of days which is equal to 25% of the relevant performance
period).
The Compensation Committee has the authority to determine at its sole
discretion the applicable performance period relating to any Bonus. Any such
determination with respect to a Special Bonus, however, shall be subject to any
applicable restrictions imposed by Section 162(m) of the Code.
At the end of the applicable performance period, the Compensation Committee
must certify as to the attainment of the applicable performance goals prior to
payment of any Special Bonus. Bonuses will be paid as soon as practicable after
certification of attainment of performance goals, where required, by the
Compensation Committee, in cash. Payment may be deferred, in part or whole, on a
mandatory basis by the Compensation Committee or electively by participants with
Compensation Committee approval. The maximum amount of a Special Bonus under the
STEP that may be granted in any fiscal year to any one participant shall be 2.5%
of our consolidated earnings from operations before income taxes (as set forth
in our audited consolidated financial statements) in the fiscal year (or, with
respect to 2003, the portion thereof) for which the Special Bonus is to be paid.
The maximum amount need not be awarded.
The STEP may be amended or suspended in whole or in part at any time and
from time to time by the Compensation Committee, subject to the requirements of
Section 162(m) of the Code.
The affirmative vote of the holders of a majority of the shares of common
stock present in person or by proxy at the meeting is required for approval of
the STEP. In accordance with Section 162(m) of the Code, in determining whether
the proposal has received the requisite number of affirmative votes, abstentions
will be counted and will have the same effect as a vote against the proposal.
Broker nonvotes will have no impact on such matter since they are not considered
"shares present" for voting purposes.
Our board believes that our future success depends, in large part, upon our
ability to maintain a competitive position in attracting, retaining and
motivating key employees. ACCORDINGLY, THE BOARD BELIEVES ADOPTION OF THE STEP
IS IN OUR BEST INTERESTS AND THE BEST INTERESTS OF OUR STOCKHOLDERS AND
RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE STEP.
OTHER MATTERS
Our board of directors is not aware of any matters that are expected to
come before the meeting other than those referred to in this proxy statement. If
any other matter should properly come before the meeting, the persons named in
the accompanying proxy card intend to vote the proxies in accordance with their
best judgment.
8
The chairperson of the meeting may refuse to allow the transaction of any
business not presented beforehand, or to acknowledge the nomination of any
person not made, in compliance with the above procedures.
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS
Under SEC rules, a stockholder who intends to present a proposal, including
nomination of a director, at our 2004 Annual Meeting of Stockholders and who
wishes the proposal to be included in the proxy statement for that meeting must
submit the proposal in writing to Karey L. Witty, our Secretary, at 7711
Carondelet Avenue, St. Louis, Missouri 63105, before January 1, 2004. SEC rules
set standards for the types of stockholder proposals and the information that
must be provided by the stockholder making the request.
A stockholder may also submit a proposal to be considered at our 2004
Annual Meeting of Stockholders pursuant to our by-laws, which provide that the
proposal must be received by our Secretary not less than sixty days nor more
than ninety days before that meeting. This notice must include the information
required by the provisions of our by-laws, a copy of which may be obtained by
writing to our Secretary at the address specified above. We have not yet set a
date for our 2004 Annual Meeting of Stockholders. If the 2004 Annual Meeting of
Stockholders were to be held on May 6, 2004, the anniversary of the 2003 Annual
Meeting, the deadline for delivery of a stockholder proposal pursuant to our
by-laws would be March 8, 2004. If a proposal is submitted pursuant to our
by-laws by March 8, 2004 but after January 1, 2004, the stockholder may not
require that the proposal be included in the proxy statement for the 2004 Annual
Meeting of Stockholders.
9
INFORMATION ABOUT
CONTINUING DIRECTORS AND EXECUTIVE OFFICERS
BACKGROUND INFORMATION ABOUT DIRECTORS CONTINUING IN OFFICE
Our Class I and Class III directors will continue in office following the
meeting. The terms of our Class I directors will expire upon our 2005 Annual
Meeting of Stockholders, and the terms of our Class III directors will expire
upon our 2004 Annual Meeting of Stockholders. Brief biographies of these
directors, as of March 21, 2003, follow. You will find information about their
holdings of common stock on page 23.
CLASS I DIRECTORS
Samuel E. Bradt........................... Mr. Bradt has served as a director since 1993. He
served as our Secretary from 1993 to July 2000. Mr.
Bradt is President of Merganser Corporation, a business
advisory and venture capital firm he founded in 1980.
Mr. Bradt is 64 years old.
Michael F. Neidorff....................... Mr. Neidorff has served as a director and our President
and Chief Executive Officer since May 1996. From May
1996 to November 2001, he also served as our Treasurer.
From 1995 to 1996, Mr. Neidorff served as a Regional
Vice President of Coventry Corporation, a publicly
traded managed care organization, and as the President
and Chief Executive Officer of one of its subsidiar-
ies, Group Health Plan, Inc. From 1985 to 1995, Mr.
Neidorff served as the President and Chief Executive
Officer of Physicians Health Plan of Greater St. Louis,
a subsidiary of United Healthcare Corp., a publicly
traded managed care organization now known as
UnitedHealth Group Incorporated. Mr. Neidorff is 60
years old.
CLASS III DIRECTORS
Claire W. Johnson......................... Mr. Johnson has been a director and our Chairman since
1993. Mr. Johnson served as our acting President and
Chief Executive Officer from 1995 to April 1996. He
served as the Chief Executive Officer of Group Health
Cooperative of Eau Claire, Wisconsin, a health
maintenance organization, from 1972 to 1994. Mr.
Johnson is 60 years old.
Richard P. Wiederhold..................... Mr. Wiederhold has been a director since 1993. He has
served, since 1992, as President of Managed Health
Services, Inc., d/b/a the Elizabeth A. Brinn
Foundation, a charitable foundation. From 1973 to 1985,
he held several positions, including Corporate
Treasurer, with the Allen-Bradley Company (now Rockwell
Automation), a manufacturer of industrial motor
controls and electronic and magnetic components. Mr.
Wiederhold is 60 years old.
No director is related by blood, marriage or adoption to any other director
or any executive officer.
10
BACKGROUND INFORMATION ABOUT EXECUTIVE OFFICERS
Our executive officers are elected by our board of directors and hold
office until the first meeting of the board following an annual meeting of
stockholders. Brief biographies of our executive officers, as of March 21, 2003,
follow. You will find information about their holdings of common stock on page
23.
Michael F. Neidorff....................... President and Chief Executive Officer. You will find
background information about Mr. Neidorff on page 10.
Joseph P. Drozda, Jr., M.D. .............. Dr. Drozda has served as our Senior Vice President,
Medical Affairs since November 2000. He served as our
part-time Medical Director from January 2000 through
October 2000. From June 1999 to October 2000, Dr.
Drozda was self-employed as a consultant to managed
care organizations, physician groups, hospital networks
and employer groups on a variety of managed care
delivery and financing issues. From 1996 to April 1999,
Dr. Drozda served as the Vice President of Medical
Management of SSM Health Care, a health services
network. From 1994 to 1996, Dr. Drozda was the Vice
President and Chief Medical Officer of PHP, Inc., a
health maintenance organization based in North
Carolina. From 1987 until 1994, Dr. Drozda served as
Medical Director of Physicians Health Plan of Greater
St. Louis, a health plan that he co-founded. Dr. Drozda
is 57 years old.
Carol E. Goldman.......................... Ms. Goldman has served as Senior Vice President, Chief
Administration Officer since July 2002. From September
2001 to June 2002, Ms. Goldman served as our Plan
Director of Human Resources. From July 1998 to August
2001, Ms. Goldman was Human Resources Manager at
Mallinckrodt Inc., a medical device and pharmaceutical
company. From June 1996 to June 1998, Ms. Goldman
served as Compensation Analyst for Mallinckrodt. Ms.
Goldman is 45 years old.
Catherine Halverson....................... Ms. Halverson has served as our Senior Vice President,
Business Development since September 2001. From March
2001 to September 2001, she was self-employed as a
consultant to a pharmaceutical benefit management
company and Medicaid managed care plans. From 1993 to
March 2001, Ms. Halverson was the Vice President and
Director of Medicaid Programs of UnitedHealth Group
Incorporated. Ms. Halverson is 54 years old.
Daniel R. Paquin.......................... Mr. Paquin has served as our Senior Vice President,
Health Plan Business Group since January 2003. From
January 2002 to December 2002, Mr. Paquin served as
Regional President, Midwest/Medicaid for UnitedHealth
Group. From February 1999 to January 2002, Mr. Paquin
served as Senior Vice President, Operations at
AmeriChoice Health Services, a managed care
organization. From April 1997 to February 1999, Mr.
Paquin was the Regional Vice President, Northeast
Region of Comprehensive Care Corporation, a managed
care organization. Mr. Paquin is 39 years old.
Brian G. Spanel........................... Mr. Spanel has served as our Senior Vice President and
Chief Information Officer since December 1996. From
1988 to 1996, Mr. Spanel served as President of GBS
Consultants, a healthcare consulting and help desk
software developer. From 1987 to 1988, Mr. Spanel was
Director of Information Services for CompuCare, a
managed care organization. From 1984 to 1987, Mr.
Spanel was Director of Information Services for Peak
Health Care, a managed care organization. Mr. Spanel is
47 years old.
11
John D. Tadich............................ Mr. Tadich has served as our Senior Vice President, Specialty
Companies since November 2002. From September 1997 to October 2002,
Mr. Tadich was a private investor and consultant in the healthcare
industry. From January 1992 to September 1997, Mr. Tadich served as
President of United Behavioral Health, a specialty company within
UnitedHealth Group. Mr. Tadich is 51 years old.
Karey L. Witty, C.P.A..................... Mr. Witty has served as our Senior Vice President and Chief Financial
Officer since August 2000, our Secretary since February 2000 and our
Treasurer since November 2001. From March 1999 to August 2000, Mr.
Witty served as our Vice President of Health Plan Accounting. From
1996 to March 1999, Mr. Witty was Controller of Heritage Health
Systems, Inc., a healthcare company in Nashville, Tennessee. From
1994 to 1996, Mr. Witty served as Director of Accounting for
HealthWise of America, Inc., a publicly traded managed care
organization. Mr. Witty is 38 years old.
No executive officer, or any associate of an executive officer, is a party
adverse to us or any of our subsidiaries in any material proceeding or has any
material interest adverse to us or any of our subsidiaries. No executive officer
is related by blood, marriage or adoption to any director or any other executive
officer.
12
INFORMATION ABOUT CORPORATE GOVERNANCE
GENERAL
We believe that good corporate governance is important to ensure that we
are managed for the long-term benefit of our stockholders. Our Corporate Ethics
and Compliance Programs were first established in 1998 and provide methods by
which we further enhance operations, safeguard against fraud and abuse, improve
access to quality care, and help assure that our values are reflected in
everything we do. During the past year, we have been reviewing our corporate
governance policies and practices and comparing them to those suggested by
various authorities in corporate governance and the practices of other public
companies. We have also been reviewing the provisions of the Sarbanes-Oxley Act
of 2002, the new and proposed rules of the SEC, and the proposed new listing
standards of the Nasdaq National Market. A majority of our directors are
"independent" for purposes of the Nasdaq National Market listing standards.
BOARD AND COMMITTEE MEETINGS
Our board of directors has responsibility for establishing broad corporate
policies and reviewing our overall performance rather than day-to-day
operations. The board's primary responsibility is to oversee the management of
the company and, in so doing, serve the best interests of the company and its
stockholders. The board selects, evaluates and provides for the succession of
executive officers and, subject to stockholder election, directors. It reviews
and approves corporate objectives and strategies, and evaluates significant
policies and proposed major commitments of corporate resources. Management keeps
the directors informed of our activities through regular written reports and
presentations at board and committee meetings.
Our board met 14 times during 2002 and acted by written consent 2 times.
The board has established an Audit Committee, a Compensation Committee and a
Nominating Committee. All of our directors attended 75% or more of the meetings
of the board and of any committees thereof on which they served.
AUDIT COMMITTEE
The Audit Committee assists our board of directors in fulfilling its
financial oversight responsibilities by reviewing all audit processes and fees,
the financial information that will be provided to the stockholders, and our
systems of internal financial controls. The Audit Committee shares with the
board the authority and responsibility to select, evaluate and, where
appropriate, replace our independent public accountants. The Audit Committee
held 12 regular meetings in 2002.
The Audit Committee consists of Samuel E. Bradt, Claire W. Johnson and
Richard P. Wiederhold. Mr. Johnson and Mr. Wiederhold are "independent"
directors for purposes of the Nasdaq National Market listing standards. Because
Mr. Bradt served as our Secretary from 1993 until July 2000, he is not
considered to be an independent director under the Nasdaq definition. As
permitted under the Nasdaq requirements, the board has determined that it is in
our best interests and the best interests of our stockholders that Mr. Bradt
continue to serve as a member of the Audit Committee. The board carefully
considered Mr. Bradt's prior service as Secretary, as well as his financial
sophistication and the understanding of our operations and audit and financial
reporting functions he gained through his 10 years as a member of the board and
7 years as a member of our Audit Committee. The board believes these qualities
make Mr. Bradt an important and valuable member of the Audit Committee. The
board has concluded that Mr. Bradt's prior position as Secretary will not impair
his ability to fulfill his responsibilities as a member of the Audit Committee.
COMPENSATION COMMITTEE
The Compensation Committee reviews, and makes recommendations to our board
of directors regarding, the compensation and benefits of our executive officers
and key managers. The Compensation Committee also administers the issuance of
stock options and other awards under our stock plans and establishes and reviews
policies relating to the compensation and benefits of employees and consultants.
The Compensation Committee consists of Edward L. Cahill and Robert K. Ditmore.
The Compensation Committee met 2 times in 2002 and acted by written consent 4
times.
13
NOMINATING COMMITTEE
The Nominating Committee is responsible for identifying, soliciting and
interviewing candidates for membership on the board of directors. The Nominating
Committee will consider for nomination to the board candidates suggested by the
stockholders, provided that such recommendations are delivered to us, with an
appropriate biographical summary, no later than the deadline for submission of
stockholder proposals. See "Submission of Future Stockholder Proposals." The
current members of the Nominating Committee are Robert K. Ditmore, Claire W.
Johnson and Michael F. Neidorff.
COMPENSATION OF DIRECTORS
For the period from January 1, 2002 through June 30, 2002, directors who
were not our employees received a quarterly fee of $1,000 and a fee of $2,000
for each meeting of the board attended in person and $250 for each meeting
attended by means of conference telephone call. In addition, each non-employee
member of the Audit Committee and the Compensation Committee received $500 for
each meeting attended in person and $250 for each meeting attended by means of
conference telephone call.
Commencing July 1, 2002, non-employee directors receive a quarterly fee of
$2,500 and a fee of $2,500 for each regularly scheduled meeting of the board
attended in person and $1,000 for each regularly scheduled meeting attended by
means of conference telephone call. In addition, each non-employee member of the
Audit Committee and the Compensation Committee receives $2,000 for each
regularly scheduled meeting attended in person and $500 for each regularly
scheduled meeting attended by means of conference telephone call.
Commencing April 1, 2003, non-employee directors will receive a quarterly
fee of $5,000 and a fee of $2,500 for each regularly scheduled meeting of the
board attended in person and $1,000 for each regularly scheduled meeting
attended by means of conference telephone call. In addition, the Chairmen of the
Audit Committee and the Compensation Committee each will receive a quarterly fee
of $500, and each non-employee member of the Audit Committee and the
Compensation Committee (including the Chairmen) will receive $3,000 for each
regularly scheduled meeting attended in person and $500 for each regularly
scheduled meeting attended by means of conference telephone call.
Directors are reimbursed for all reasonable expenses incurred in connection
with their service. Directors who are also our employees receive no additional
compensation for serving on our board of directors.
In addition, the board has in the past granted and may in the future grant
stock options and other equity awards to both employee and non-employee
directors under our stock plans. In July 2002, the Compensation Committee
granted our non-employee directors stock options to purchase an aggregate of
37,500 shares of our common stock.
14
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of March 21, 2003 about the
securities authorized for issuance under our equity compensation plans,
consisting of our 1994 Stock Plan, 1996 Stock Plan, 1998 Stock Plan, 1999 Stock
Plan, 2000 Stock Plan and 2002 Employee Stock Purchase Plan.
EQUITY COMPENSATION PLAN INFORMATION
(c)
NUMBER OF SECURITIES
REMAINING AVAILABLE
(a) FOR FUTURE ISSUANCE
NUMBER OF SECURITIES (b) UNDER EQUITY
TO BE ISSUED UPON WEIGHTED-AVERAGE COMPENSATION PLANS,
EXERCISE OF EXERCISE PRICE OF EXCLUDING SECURITIES
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, REFLECTED IN COLUMN
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS (a)
--------------------------------- --------- ------ -------
Equity compensation plans
approved by stockholders....... 1,449,540 $10.65 562,150
Equity compensation plans not
approved by stockholders....... -- -- --
--------- -------
Totals........................... 1,449,540 $10.65 562,150
========= =======
AUDIT COMMITTEE REPORT
The board of directors adopted a new written charter for the Audit
Committee in March 2003. The Audit Committee reviewed the charter and determined
that the charter meets the standards set forth in the applicable regulations of
Nasdaq and the SEC. The charter is attached as Appendix C to this proxy
statement.
Management is responsible for internal controls, the financial reporting
process and compliance with laws and regulations. PricewaterhouseCoopers LLP, as
independent auditors for Centene, is responsible for performing an independent
audit of our consolidated financial statements in accordance with generally
accepted auditing standards and issuing a report thereon. The Audit Committee's
responsibility is to monitor and oversee these processes. The Audit Committee
has implemented procedures to ensure that during the course of each fiscal year
it devotes the attention it deems necessary and appropriate to each of the
matters assigned to it under its charter. The Audit Committee's duties and
responsibilities do not include conducting audits or accounting reviews.
Therefore, the Audit Committee has relied on management's representation that
the financial statements have been prepared with integrity and objectivity and
in conformity with accounting principles generally accepted in the United States
and on the representations of PricewaterhouseCoopers included in its report on
the consolidated financial statements. The Audit Committee's oversight does not
provide it with an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or policies, or
appropriate internal controls and procedures designed to assure compliance with
accounting standards and applicable laws and regulations.
In this context, the Audit Committee has met and held discussions with
management and PricewaterhouseCoopers to review and discuss all financial
statements before their issuance and to discuss significant accounting issues.
Management represented to the Audit Committee that the consolidated financial
statements were prepared in accordance with generally accepted accounting
principles, and the Audit Committee has reviewed and discussed the consolidated
financial statements with management and PricewaterhouseCoopers. The Audit
Committee discussed with PricewaterhouseCoopers matters required to be discussed
by Statement on Auditing Standards No. 61 (Communication with Audit Committees).
SAS No. 61 requires PricewaterhouseCoopers to discuss with the Audit Committee,
among other things, the following:
- methods to account for significant unusual transactions;
- the effect of significant accounting policies in controversial or
emerging areas for which there is a lack of authoritative guidance or
consensus;
15
- the process used by management in formulating particularly sensitive
accounting estimates and the basis for the conclusions of
PricewaterhouseCoopers regarding the reasonableness of those estimates;
and
- disagreements with management over the application of accounting
principles, the basis for management's accounting estimates and the
disclosures in the financial statements.
The Audit Committee has received the written disclosures and the letter
from PricewaterhouseCoopers required by Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committees), has considered the
compatibility of nonaudit services with the independence of
PricewaterhouseCoopers, and has discussed such independence with
PricewaterhouseCoopers.
Based on the review and discussions referred to above, the Audit Committee
recommended to the board that the audited consolidated financial statements be
included in the Annual Report on Form 10-K for the year ended December 31, 2002
filed with the SEC.
AUDIT COMMITTEE
Samuel E. Bradt
Claire W. Johnson
Richard P. Wiederhold
INDEPENDENT AUDITORS
Our board of directors, upon the recommendation of the Audit Committee,
selected PricewaterhouseCoopers LLP to serve as our independent auditors for the
year ending December 31, 2003. PricewaterhouseCoopers has served as our
independent auditors since June 18, 2002. We expect that representatives of
PricewaterhouseCoopers will be present at the meeting to answer appropriate
questions. They will have the opportunity to make a statement if they desire to
do so.
On June 18, 2002, our board of directors, upon the recommendation of the
Audit Committee, dismissed Arthur Andersen LLP as our independent public
accountants and engaged PricewaterhouseCoopers to serve as our independent
public accountants for the fiscal year 2002, effective June 18, 2002.
The reports of Arthur Andersen on our consolidated financial statements for
the fiscal years ended December 31, 2001 and 2000 did not contain an adverse
opinion or disclaimer of opinion, nor were those reports qualified or modified
as to uncertainty, audit scope or accounting principles.
During the year ended December 31, 2001 and the period ending on June 18,
2002, there were no disagreements with Arthur Andersen on any matter of
accounting principle or practice, financial statement disclosure, or auditing
scope or procedure which, if not resolved to Arthur Andersen's satisfaction,
would have caused them to make reference to the subject matter in conjunction
with their report on our consolidated financial statements for such years; and
there were no reportable events as defined in Item 304(a)(1)(v) of Regulation
S-K.
During the year ended December 31, 2001 and through June 18, 2002 neither
we, nor anyone acting on our behalf, consulted PricewaterhouseCoopers with
respect to the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on our consolidated financial statements, or any other matters or
reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
16
INDEPENDENT AUDITOR FEES AND OTHER MATTERS
AUDIT FEES
PricewaterhouseCoopers LLP billed us an aggregate of $211,700 in fees for
professional services rendered in connection with the audit of our consolidated
financial statements for the year ended, and as of, December 31, 2002 and the
reviews of the consolidated financial statements included in each of our
quarterly reports on Form 10-Q for the fiscal quarters ended June 30, 2002 and
September 30, 2002.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
PricewaterhouseCoopers LLP did not bill us for any professional services
rendered to us and our affiliates for the year ended December 31, 2002 in
connection with financial information systems design or implementation, the
operation of our information system, or the management of our local area
network.
ALL OTHER FEES
PricewaterhouseCoopers LLP billed us an aggregate of $82,400 in fees for
other services rendered to us and our affiliates for the year ended December 31,
2002.
LEASED EMPLOYEES
In connection with its engagement to audit our consolidated financial
statements for the year ended December 31, 2002, PricewaterhouseCoopers LLP has
informed us that no work was performed by persons other than its full-time,
permanent employees.
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
EMPLOYMENT AGREEMENTS
We entered into employment agreements with Carol E. Goldman in July 2002,
Daniel R. Paquin in November 2002 and John D. Tadich in October 2002. For a more
detailed discussion of these employment agreements, including severance
provisions, see "Information About Executive Officers--Employment Agreements."
SCRIPTASSIST ACQUISITION
On March 1, 2003, we acquired the operating assets of ScriptAssistLLC, a
medication compliance company, for an aggregate payment of $500,000 in cash.
John D. Tadich, our Senior Vice President, Specialty Companies, held membership
interests representing approximately 1.5% of the equity of ScriptAssist and was
an officer of ScriptAssist before he joined us in October 2002. Mr. Tadich is
entitled to receive up to $5,000 in cash with respect to his membership
interests in ScriptAssist and received from ScriptAssist, contemporaneously with
the acquisition, an additional $75,000 in cash in payment for services rendered
to ScriptAssist prior to October 2002, when Mr. Tadich joined us. The purchase
price of the acquired assets was based our arm's-length negotiations with the
management and principal stockholders of ScriptAssist. Michael F. Neidorff, our
President and Chief Executive Officer, Karey L. Witty, our Senior Vice
President, Chief Financial Officer and Treasurer, and Alan Sunshine, a
consultant to us, acted on our behalf in connection with these negotiations. Mr.
Tadich did not participate in the negotiations.
17
INFORMATION ABOUT EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
COMPENSATION EARNED
The following table summarizes the compensation earned during 2002, 2001
and 2000 by Michael F. Neidorff, our chief executive officer, and Joseph P.
Drozda, Jr., Catherine Halverson, Brian G. Spanel and Karey L. Witty, our four
other most highly compensated executive officers who were serving as executive
officers on December 31, 2002. We refer to these five individuals as our named
executive officers.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
--------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)
--------------------------- ---- --------- -------- --------------- ------------
Michael F. Neidorff.................. 2002 $350,000 $905,000 $ 9,542 50,000
President and Chief Executive 2001 315,000 275,000 5,331 --
Officer 2000 300,000 160,000 5,481 40,000
Joseph P. Drozda, Jr. ............... 2002 $225,000 $100,000 $ 8,509 10,000
Senior Vice President, Medical 2001 190,000 75,000 5,400 --
Affairs 2000 97,981 35,000 1,201 35,000
Catherine Halverson.................. 2002 $175,000 $ 50,000 $52,920 --
Senior Vice President, Business 2001 43,750 52,500 1,010 30,000
Development 2000 -- -- -- --
Brian G. Spanel...................... 2002 $195,000 $100,000 $ 7,975 5,000
Senior Vice President and Chief 2001 175,000 75,000 5,250 --
Information Officer 2000 148,249 43,000 4,447 5,000
Karey L. Witty....................... 2002 $200,000 $150,000 $ 5,486 10,000
Senior Vice President, Chief 2001 175,000 125,000 5,129 --
Financial Officer, Treasurer 2000 149,615 75,000 4,408 20,000
and Secretary
The amounts reflected as "Other Annual Compensation" represent payments
under our 401(k) and matching deferred compensation plans, except that the Ms.
Halverson's amount for 2002 also includes payments made for relocation expenses.
We hired Daniel R. Paquin as our Senior Vice President, Health Plan
Business Group in November 2002 and John D. Tadich as our Senior Vice President,
Specialty Companies in October 2002. Mr. Paquin currently earns an annual salary
of $260,000, and Mr. Tadich currently earns an annual salary of $275,000.
OPTION GRANTS
The following table summarizes our grants of options to purchase shares of
our common stock to the named executive officers during 2002.
STOCK OPTIONS GRANTED DURING 2002
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTION EMPLOYEES IN EXERCISE OR EXPIRATION ---------------------------
NAME GRANTED(#) FISCAL YEAR BASE PRICE($) DATE 5% 10%
---- ---------- ------------ ------------- ---------- ----------- -------------
Michael F. Neidorff..... 50,000 10.2% $22.71 7/24/12 $714,110 $1,809,695
Joseph P. Drozda,
Jr. .................. 10,000 2.0% $22.71 7/24/12 $142,822 $ 361,939
Catherine Halverson..... -- --% $ -- -- $ -- $ --
Brian G. Spanel......... 5,000 1.0% $22.71 7/24/12 $ 71,411 $ 180,969
Karey L. Witty.......... 10,000 2.0% $22.71 7/24/12 $142,822 $ 361,939
18
Each option included in the preceding table has an exercise price per share
equal to the fair market value per share of our common stock on the date of
grant.
The potential realizable values reflected in the preceding table represent
hypothetical gains that could be achieved for the options if exercised at the
end of their option terms. These gains are based on assumed rates of stock price
appreciation of 5% and 10% compounded annually from the date an option was
granted to their expiration date. The grants shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise of the option or the sale of the underlying shares.
The actual gains, if any, on the exercises of stock options will depend on the
future performance of the common stock, the option holder's continued employment
through the option period, and the date on which the options are exercised.
OPTION EXERCISES AND HOLDINGS
The following tables sets forth information regarding the number and value
of exercised and unexercised options held by each of the named executive
officers as of December 31, 2002.
TOTAL OPTION EXERCISES DURING 2002 AND YEAR-END VALUES
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR END(#) FISCAL YEAR END($)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------ -------------- ------------ --------------
Michael F. Neidorff..... 60,000 $1,440,562 200,700 94,000 $6,226,111 $1,970,040
Joseph P. Drozda,
Jr. .................. 14,000 $ 372,680 -- 31,000 $ -- $ 786,260
Catherine Halverson..... -- -- 7,500 22,500 $ 177,413 $ 532,238
Brian G. Spanel......... 20,000 $ 624,140 25,000 20,000 $ 769,750 $ 538,260
Karey L. Witty.......... 5,000 $ 122,500 39,000 46,000 $1,241,370 $1,260,080
Amounts described in the preceding table under the heading "Value of
Unexercised In-The-Money Options at Year End" are determined by multiplying the
number of shares underlying an option by the difference between $33.59, the last
reported per share sale price of our common stock on December 31, 2002, and the
per share option exercise price.
Stock options that are otherwise unvested may be exercised for shares that
are subject to vesting and a repurchase option at the exercise price. Except for
37,500 shares subject to an option granted to certain of our directors in 2002,
all shares subject to options vest ratably over five years. The options granted
to certain of our directors in 2002 will vest on the date of our 2004 Annual
Meeting of Stockholders. Fifty percent of the shares underlying options granted
under our 1994 Stock Plan, 1996 Stock Plan and 1998 Stock Plan vest
automatically upon a change of control. Shares underlying options granted under
our 1999 Stock Plan and 2000 Stock Plan vest automatically in full upon a change
in control.
EMPLOYMENT AGREEMENTS
Joseph P. Drozda, Jr. serves as our Senior Vice President, Medical Affairs
pursuant to an employment agreement dated October 30, 2000. Under this
agreement, we currently pay Dr. Drozda an annual salary of $275,000, which may
be adjusted by our President. Dr. Drozda may also receive an annual bonus at the
discretion of our Compensation Committee. Dr. Drozda has agreed not to disclose
confidential information about our business, and not to compete with us during
the term of his employment and for nine months thereafter. Dr. Drozda's
employment may be terminated by us for cause or permanent disability. If Dr.
Drozda is terminated without cause, he will be entitled to receive one year's
salary continuation and we will be obligated to pay premiums for the health and
dental coverage to which he would be entitled under the Consolidated Omnibus
Budget Reconciliation Act of 1985, or COBRA, for 12 months. If, after a change
in control, Dr. Drozda's position is eliminated, his salary is reduced or he is
asked and refuses to relocate outside
19
of the St. Louis metropolitan area, he will, at his option, upon termination, be
entitled to the above benefits, but his one year salary will be paid either in a
lump sum or as salary continuance, at his option.
Carol E. Goldman serves as our Senior Vice President, Chief Administration
Officer pursuant to an employment agreement dated July 1, 2002. Under this
agreement, we currently pay Ms. Goldman an annual salary of $150,000, which may
be adjusted by our President. Ms. Goldman may also receive an annual bonus at
the discretion of our President. Ms. Goldman has agreed not to disclose
confidential information about our business. Ms. Goldman has also agreed not to
compete with us during the term of her employment and for six months thereafter.
Ms. Goldman's employment may be terminated by us for cause or permanent
disability. If we terminate Ms. Goldman without cause, she will be entitled to
receive 26 weeks salary continuation and COBRA coverage for six months. If,
within 24 months after a change in control, Ms. Goldman is involuntarily
terminated or voluntarily resigns due to a reduction in her compensation, a
material adverse change in her position with us or the nature or scope of her
duties or a request that she relocate outside of the St. Louis metropolitan
area, she will be entitled to receive 36 weeks salary, either in a lump sum or
as salary continuance, at her option, COBRA coverage for 9 months and the use of
an outplacement service.
Daniel R. Paquin serves as our Senior Vice President, Health Plans Business
Group pursuant to an employment agreement dated November 19, 2002. Under this
agreement, we currently pay Mr. Paquin an annual salary of $260,000, which may
be adjusted by our President. Mr. Paquin may also receive an annual bonus at the
discretion of our Compensation Committee. Mr. Paquin has agreed not to disclose
confidential information about our business. Mr. Paquin has also agreed not to
compete with us during the term of his employment and for nine months
thereafter. Mr. Paquin's employment may be terminated by us for cause or
permanent disability. If we terminate Mr. Paquin without cause, he will be
entitled to receive 39 weeks salary continuation and COBRA coverage for nine
months. If, within 24 months after a change in control, Mr. Paquin is
involuntarily terminated or voluntarily resigns due to a reduction in his
compensation, a material adverse change in his position with us or the nature or
scope of his duties or a request that he relocate outside of the St. Louis
metropolitan area, he will be entitled to receive 39 weeks salary, either in a
lump sum or as salary continuance, at his option, COBRA coverage for 18 months
and the use of an outplacement service.
Brian G. Spanel serves as our Senior Vice President and Chief Information
Officer pursuant to an employment agreement dated August 6, 2001. This agreement
has an initial term of one year and renews automatically on an annual basis
unless we provide 30 days' prior written notice of non-renewal. Under this
agreement, we currently pay Mr. Spanel an annual salary of $225,000, which may
be adjusted by our President. Mr. Spanel may also receive an annual bonus at the
discretion of our Compensation Committee. Mr. Spanel has agreed not to disclose
confidential information about our business. Mr. Spanel has also agreed not to
compete with us during the term of his employment and for nine months
thereafter. Mr. Spanel's employment may be terminated by us for cause or
permanent disability. If we terminate Mr. Spanel without cause, he will be
entitled to receive 39 weeks salary continuation and COBRA coverage for nine
months. If, within 24 months after a change in control, Mr. Spanel is
involuntarily terminated or voluntarily resigns due to a reduction in his
compensation, a material adverse change in his position with us or the nature or
scope of his duties or a request that he relocate outside of the St. Louis
metropolitan area, he will be entitled to receive one year's salary, either in a
lump sum or as salary continuance, at his option, COBRA coverage for 18 months
and the use of an outplacement service.
John D. Tadich serves as our Senior Vice President, Specialty Companies
pursuant to an employment agreement dated October 31, 2002. Under this
agreement, we currently pay Mr. Tadich an annual salary of $275,000, which may
be adjusted by our President. Mr. Tadich may also receive an annual bonus at the
discretion of our Compensation Committee. Mr. Tadich has agreed not to disclose
confidential information about our business. Mr. Tadich has also agreed not to
compete with us during the term of his employment and for 12 months thereafter.
Mr. Tadich's employment may be terminated by us for cause or permanent
disability. If we terminate Mr. Tadich without cause, he will be entitled to
receive 52 weeks salary continuation and COBRA coverage for 12 months. If,
within 24 months after a change in control, Mr. Tadich is involuntarily
terminated or voluntarily resigns due to a reduction in his compensation, a
material adverse change in his position with us or the nature or scope of his
duties or a request that he relocate outside of the
20
St. Louis metropolitan area, he will be entitled to receive one year's salary,
either in a lump sum or as salary continuance, at his option, COBRA coverage for
18 months and the use of an outplacement service.
Karey L. Witty serves as our Senior Vice President and Chief Financial
Officer pursuant to an employment agreement dated as of January 1, 2001. This
agreement had an initial term of one year and renews automatically unless we
provide 30 days' prior written notice of non-renewal. Under this agreement, we
currently pay Mr. Witty an annual salary of $220,000, which may be adjusted by
the President. Mr. Witty may also receive an annual bonus at the discretion of
our Compensation Committee. Mr. Witty has agreed not to disclose confidential
information about our business or, during the term of his employment and for a
period of six months thereafter, not to compete with us. Mr. Witty's employment
may be terminated by us for cause or permanent disability. If we terminate Mr.
Witty without cause, Mr. Witty will be entitled to receive one year's salary
continuation and COBRA coverage for 12 months. If, after a change in control,
Mr. Witty is involuntarily terminated or voluntarily resigns due to a reduction
in his compensation, a material adverse change in his position with us or the
nature or scope of his duties or a request that he relocate outside of the St.
Louis metropolitan area, he will be entitled to receive one year's salary,
either in a lump sum or as salary continuance, at his option, COBRA coverage for
18 months and the use of an outplacement service.
COMPENSATION COMMITTEE REPORT
The Compensation Committee consists entirely of directors who are not
officers or employees of Centene or of any of its affiliates. The Compensation
Committee establishes the salaries and other compensation for executive
officers, including Centene's Chief Executive Officer and the other named
executive officers. The Compensation Committee also administers the stock option
and stock purchase plans.
In 2002, the Compensation Committee engaged the services of the Hay Group,
an employment compensation consulting firm, to provide advice with respect to
the base salaries and bonuses of Centene's executive officers. The consultants
analyzed the compensation levels of executive officers of a peer group of
companies for the most recently completed fiscal years, and used proprietary
valuation methodologies to value the long-term incentive compensation levels of
the officers of the companies in the peer group. The consultants then provided
and discussed the statistical information with the Compensation Committee. The
Compensation Committee considered this information to be of significant value in
reviewing executive compensation for Centene in 2002 and, in particular,
establishing bonuses payable for 2002, in order to advance Compensation
Committee's philosophy of compensating Centene's executive officers at
competitive levels.
PHILOSOPHY
The Compensation Committee, composed of two independent directors,
administers the executive compensation program. The philosophy of the
Compensation Committee as it relates to executive compensation is that the chief
executive officer and other executive officers should be compensated at
competitive levels sufficient to attract, motivate and retain talented
executives who are capable of leading Centene in achieving its business
objectives in an industry facing increasing regulation, competition and change,
while aligning the compensation of senior management with the long-term
interests of stockholders.
SALARY
Annual compensation for senior management consists of base salary and, when
appropriate, bonus compensation. The minimum base salaries of each named
executive officer, other than the chief executive officer, is established by his
or her employment agreement described under "Employment Agreements" above.
Subject to these minimums, salary levels of executives are reviewed and normally
adjusted annually, and any bonuses are normally awarded annually. In determining
appropriate salaries, the Compensation Committee considers: (1) the chief
executive officer's recommendations as to compensation for all other executive
officers; (2) the scope of responsibility, experience, time in position and
individual performance of each officer, including the chief executive officer;
and (3) compensation levels at institutions of comparable size and complexity.
The Compensation Committee's analysis is a subjective process that utilizes no
specific weighting or formula of the aforementioned factors in determining
executives' base salaries. In 2002, the
21
Compensation Committee also reviewed and considered the base salaries of
Centene's executive officers in light of the base salaries paid to companies in
Centene's peer group, using information provided by the consultants engaged by
the Compensation Committee.
BONUSES
The Compensation Committee considers bonus compensation to be a
motivational method for encouraging and rewarding outstanding individual
performance, as well as the overall performance of Centene. Awards under the
bonus plan are recommended to the board of directors by the Compensation
Committee based primarily upon: (1) the overall performance of Centene,
including Centene's performance versus its business plan; (2) the performance of
the individual officer; and (3) the recommendation of the chief executive
officer. In 2002, the Compensation Committee also reviewed and considered
bonuses paid to companies in the Centene's peer group, using information
provided by the consultants engaged by the Compensation Committee. The purpose
of the bonus plan is to provide a special incentive to each executive to
maximize his or her individual performance and the overall performance of
Centene. For most senior officers, bonus-to-salary ratios are sufficiently high
to provide meaningful incentives to accomplish these objectives. Bonuses are not
based upon formulas or other objective criteria. In 2002, the Compensation
Committee approved bonuses to executive officers totaling $1,400,000.
OPTION GRANTS
The Compensation Committee also considers stock option grants to be an
important motivational method for encouraging outstanding performance,
especially for senior officers. The Compensation Committee believes that stock
options provide management with a direct interest in the value of the common
stock of Centene, thus aligning the interests of management with those of
stockholders. In 2002, the Compensation Committee granted a total of 75,000
options to purchase Centene common stock to the named executive officers. In
addition, each named executive officer holds options to purchase common stock of
Centene.
SECTION 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a publicly traded company for compensation in excess of $1 million
paid to the company's chief executive officer and its four other most highly
compensated executive officers. Some types of compensation, including qualified
performance-based compensation, will not be subject to the deduction limit if
specified requirements are met. In general, Centene structures and administers
its stock option plans in a manner intended to comply with the performance-based
exception to Section 162(m). Additionally, Centene intends that its Short-Term
Executive Compensation Plan, after stockholder approval, will comply with the
performance-based exception to Section 162(m). Nevertheless, there can be no
assurance that compensation attributable to awards granted under Centene's stock
option plans or its Short-Term Executive Compensation Plan will be treated as
qualified performance-based compensation under Section 162(m). In addition, the
Compensation Committee reserves the right to use its judgment to authorize
compensation payments that may be subject to the limit when the Compensation
Committee believes such payments are appropriate and in the best interests of
Centene and its stockholders, after taking into consideration changing business
conditions and the performance of its employees.
COMPENSATION COMMITTEE
Edward L. Cahill
Robert K. Ditmore
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a director or member of the
compensation committee, or other committee serving an equivalent function, of
any other entity that has one or more of its executive officers serving as a
member of our board of directors or Compensation Committee. None of the current
members of our Compensation Committee has ever been an officer or employee of
Centene or any of our subsidiaries.
22
OTHER MATTERS
INFORMATION ABOUT STOCK OWNERSHIP
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 21, 2003 for:
- each person, entity or group of affiliated persons or entities known by
us to beneficially own more than 5% of our outstanding common stock;
- each of our named executive officers and directors (two of whom are
nominated for re-election); and
- all of our executive officers and directors as a group.
SHARES TOTAL
OUTSTANDING ACQUIRABLE BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES WITHIN 60 DAYS OWNERSHIP OWNERSHIP
------------------------------------ ----------- -------------- ---------- ---------
Palisade Capital Management, L.L.C.
Axe-Houghton Associates, Inc. ................ 944,925 -- 944,925 8.6%
One Bridge Plaza, Suite 695
Fort Lee, New Jersey 07024
Fidelity Management and Research Company
FMR Corp. .................................... 870,700 -- 870,700 8.0
82 Devonshire Street
Boston, Massachusetts 02109
Capital Research and Management Company
SMALLCAP World Fund, Inc...................... 735,000 -- 735,000 6.7
333 South Hope Street
Los Angeles, California 90071
J.P. Morgan Chase & Co. ...................... 648,470 -- 648,470 5.9
270 Park Avenue
New York, New York 10017
Janus Capital Management LLC.................. 548,875 -- 548,875 5.0
100 Fillmore Street
Denver, Colorado 80206
Michael F. Neidorff........................... 106,840 200,700 307,540 2.8
Claire W. Johnson............................. 259,723 -- 259,723 2.4
Richard P. Wiederhold......................... 108,916 24,000 132,916 1.2
Robert K. Ditmore............................. 63,500 26,000 89,500 *
Samuel E. Bradt............................... 40,625 24,000 64,625 *
Brian G. Spanel............................... 25,110 27,000 52,110 *
Karey L. Witty................................ -- 46,000 46,000 *
Edward L. Cahill.............................. -- 14,000 14,000 *
Joseph P. Drozda, Jr. ........................ 12,500 -- 12,500 *
Catherine Halverson........................... -- 7,500 7,500 *
David L. Steward.............................. -- -- -- --
All directors and executive officers as a
group (13 persons).......................... 617,214 372,200 989,414 8.7
---------------
* Represents less than 1% of outstanding shares of common stock.
As of March 21, 2003, there were 10,943,142 shares of our common stock
outstanding. Beneficial ownership is determined in accordance with the rules of
the SEC. To calculate a stockholder's percentage of beneficial ownership, we
include in the numerator and denominator those shares underlying options
beneficially owned by that stockholder that are vested or that will vest within
60 days of March 21, 2003.
23
Options held by other stockholders, however, are disregarded in this
calculation. Therefore, the denominator used in calculating beneficial ownership
among our stockholders may differ. Unless otherwise indicated, the persons or
entities identified in this table have sole voting and investment power with
respect to all shares shown as beneficially owned by them, except to the extent
authority is shared by spouses under applicable community property laws. The
address of our officers and directors is in care of Centene Corporation, 7711
Carondelet Avenue, Suite 800, St. Louis, Missouri 63105.
Information with respect to the outstanding shares beneficially held by
Palisade Capital Management, L.L.C. and Axe-Houghton Associates, Inc. is based
on a Schedule 13G filed with the SEC on February 13, 2003 by such firms. Shares
included in the table with respect to these firms consist of 734,000 shares held
by Palisade Management L.L.C. and 210,925 shares held by Axe-Houghton
Associates, Inc.
Information with respect to the outstanding shares beneficially held by
Fidelity Management and Research Company and FMR Corp. is based on a Schedule
13G filed with the SEC on February 13, 2003 by such firms. Shares included in
the table with respect to these firms consist of 482,300 shares held by Fidelity
Management and Research Company and 388,400 shares held by FMR Corp.
Information with respect to the outstanding shares beneficially held by
Capital Research and Management Company and SMALLCAP World Fund, Inc. is based
on a Schedule 13G filed with the SEC on February 13, 2003 by such firms. Shares
included in the table with respect to these firms consist of 735,000 shares
beneficially owned by Capital Research Management Fund, of which 690,000 shares
are beneficially owned by SMALLCAP World Fund, Inc.
Information with respect to the outstanding shares beneficially held by
J.P. Morgan Chase & Co. is based on a Schedule 13G filed with the SEC on
February 10, 2003 by such firm.
Information with respect to the outstanding shares beneficially held by
Janus Capital Management LLC is based on a Schedule 13G filed with the SEC on
February 14, 2003 by such firm.
Shares beneficially owned by Mr. Ditmore consist of 50,000 outstanding
shares owned of record by D.L. Associates and 13,500 outstanding shares owned of
record by the Ditmore Family LLC. Mr. Ditmore is a managing general partner of
D.L. Associates and shares voting and investment power with respect to those
securities.
24
STOCK PERFORMANCE GRAPH
Our common stock has been listed for trading on the Nasdaq National Market
under the symbol "CNTE" since December 13, 2001. The following graph compares
the cumulative total stockholder return on our common stock for the period from
December 13, 2001 to December 31, 2002 with the cumulative total return of the
Nasdaq Stock Market -- Index and a selected industry peer group over the same
period. The graph assumes an investment of $100 on December 13, 2001 in our
common stock (at the last reported sale price on such date), the Nasdaq Stock
Market -- U.S. Index and the selected peer group and assumes the reinvestment of
any dividends. The industry peer group of companies we selected consists of
AMERIGROUP Corporation, Coventry Health Care, Inc., First Health Group Corp. and
Oxford Health Plans, Inc.
(PERFORMANCE GRAPH)
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Directors, executive officers and beneficial owners of more than ten
percent of our common stock are required by Section 16(a) of the Securities
Exchange Act to file reports with the SEC detailing their beneficial ownership
of our common stock and reporting changes in such beneficial ownership. We are
required to disclose any late filings of such reports. To our knowledge, based
solely on review of copies of reports furnished to us and written
representations that no other reports were required, all Section 16(a) filing
requirements during 2002 were complied with on a timely basis, with the
exception of Forms 3 for John D. Tadich and Daniel R. Paquin, which were
required to be filed in October 2002 and November 2002, respectively, but were
not filed until January 2003.
HOUSEHOLDING
Some banks, brokers and other nominee record holders may be participating
in the practice of "householding" proxy statements and annual reports. This
means that only one copy of this proxy statement or
25
our 2002 Annual Report to Stockholders may have been sent to multiple
stockholders in your household. We will promptly deliver a separate copy of
either document to you if you call, write or e-mail us at:
Centene Corporation
7711 Carondelet Avenue, Suite 800
St. Louis, Missouri 63105
Attn: Karey L. Witty, Secretary
(314) 725-4477
kwitty@centene.com
If you want to receive separate copies of our proxy statements and annual
reports to stockholders in the future, or if you are receiving multiple copies
and would like to receive only one copy for your household, you should contact
your bank, broker or other nominee record holder, or you may contact us at the
above address, phone number or e-mail address.
26
APPENDIX A
2003 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 2003 Stock Incentive Plan (the "Plan") of Centene
Corporation, a Delaware corporation (the "Company"), is to advance the interests
of the Company's stockholders by enhancing the Company's ability to attract,
retain and motivate persons who make (or are expected to make) important
contributions to the Company by providing such persons with equity ownership
opportunities and performance-based incentives and thereby better aligning the
interests of such persons with those of the Company's stockholders. Except where
the context otherwise requires, the term "Company" shall include any of the
Company's present or future parent or subsidiary corporations as defined in
Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code") and any other business venture
(including joint venture or limited liability company) in which the Company has
a controlling interest, as determined by the Board of Directors of the Company
(the "Board").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options or restricted stock awards (each, an
"Award") under the Plan. Each person who has been granted an Award under the
Plan shall be deemed a "Participant."
3. Administration and Delegation
(a) Administration by Board of Directors. The Plan will be administered by
the Board. The Board shall have authority to grant Awards and to adopt, amend
and repeal such administrative rules, guidelines and practices relating to the
Plan as it shall deem advisable. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem expedient to carry the Plan into effect and it
shall be the sole and final judge of such expediency. All decisions by the Board
shall be made in the Board's sole discretion and shall be final and binding on
all persons having or claiming any interest in the Plan or in any Award. No
director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the Plan made in
good faith.
(b) Appointment of Committees. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). All references in the
Plan to the "Board" shall mean the Board or a Committee of the Board or the
executive officers referred to in Section 3(c) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officers.
(c) Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to grant Awards to employees or officers of the Company or any
of its present or future subsidiary corporations and to exercise such other
powers under the Plan as the Board may determine, provided that the Board shall
fix the terms of the Awards to be granted by such executive officers (including
the exercise price of such Awards, which may include a formula by which the
exercise price will be determined) and the maximum number of shares subject to
Awards that the executive officers may grant; provided further, however, that no
executive officer shall be authorized to grant Awards to any "executive officer"
of the Company, as defined by Rule 3b-7 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or to any "officer" of the Company (as
defined by Rule 16a-1 under the Exchange Act).
4. Stock Available for Awards
(a) Number of Shares. Subject to adjustment under Section 7, Awards may be
made under the Plan for up to 1,250,000 shares of common stock, $.001 par value
per share, of the Company ("Common Stock").
A-1
If any Award expires or is terminated, surrendered or canceled without having
been fully exercised or is forfeited in whole or in part (including as the
result of shares of Common Stock subject to such Award being repurchased by the
Company at the original issuance price pursuant to a contractual repurchase
right) or results in any Common Stock not being issued, the unused Common Stock
covered by such Award shall again be available for the grant of Awards under the
Plan, subject, however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitations under the Code. Shares issued under the Plan may
consist in whole or in part of authorized but unissued shares or treasury
shares.
(b) Per-Participant Limit. Subject to adjustment under Section 7, the
maximum number of shares of Common Stock with respect to which Awards may be
granted to any Participant under the Plan shall be 500,000 per calendar year.
The per Participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code ("Section 162(m)").
5. Stock Options
(a) General. The Board may grant options to purchase Common Stock (each,
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option that is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option."
(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of Centene Corporation, any of
Centene Corporation's present or future parent or subsidiary corporations as
defined in Sections 424(e) or (f) of the Code, and any other entities the
employees of which are eligible to receive Incentive Stock Options under the
Code, and shall be subject to and shall be construed consistently with the
requirements of Section 422 of the Code. The Company shall have no liability to
a Participant, or any other party, if an Option (or any part thereof) that is
intended to be an Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement,
provided, however, that the exercise price shall be not less than 100% of the
fair market value of the Common Stock, as determined by the Board, at the time
the Option is granted.
(d) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement, provided, however, that no Option will be granted
for a term in excess of 10 years.
(e) Exercise of Option. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise provide
in an option agreement, by (i) delivery of an irrevocable and unconditional
undertaking by a creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price and any required tax withholding
or (ii) delivery by the Participant to the Company of a copy of irrevocable
and unconditional instructions to a creditworthy broker to deliver promptly
to the Company cash or a check sufficient to pay the exercise price and any
required tax withholding;
A-2
(3) when the Common Stock is registered under the Exchange Act, by
delivery of shares of Common Stock owned by the Participant valued at their
fair market value as determined by (or in a manner approved by) the Board
in good faith ("Fair Market Value"), provided (i) such method of payment is
then permitted under applicable law and (ii) such Common Stock, if acquired
directly from the Company was owned by the Participant at least six months
prior to such delivery;
(4) to the extent permitted under applicable law and permitted by the
Board, in its sole discretion, by (i) delivery of a promissory note of the
Participant to the Company on terms determined by the Board or (ii) payment
of such other lawful consideration as the Board may determine, provided in
either such case that at least an amount equal to the par value of the
Common Stock being purchased shall be paid in cash; or
(5) by any combination of the above permitted forms of payment.
(g) Substitute Options. In connection with a merger or consolidation of an
entity with the Company or the acquisition by the Company of property or stock
of an entity, the Board may grant Options in substitution for any options or
other stock or stock-based awards granted by such entity or an affiliate
thereof. Substitute Options may be granted on such terms as the Board deems
appropriate in the circumstances, notwithstanding any limitations on Options
contained in the other sections of this Section 5 or in Section 2.
6. Restricted Stock
(a) Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any.
(c) Stock Certificates. Any stock certificates issued in respect of a
Restricted Stock Award shall be registered in the name of the Participant and,
unless otherwise determined by the Board, deposited by the Participant, together
with a stock power endorsed in blank, with the Company (or its designee). At the
expiration of the applicable restriction periods, the Company (or such designee)
shall deliver the certificates no longer subject to such restrictions to the
Participant or if the Participant has died, to the beneficiary designated, in a
manner determined by the Board, by a Participant to receive amounts due or
exercise rights of the Participant in the event of the Participant's death (the
"Designated Beneficiary"). In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's estate.
7. Adjustments for Changes in Common Stock and Certain Other Events
(a) Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under the Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, and (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award shall be appropriately adjusted by the Company (or
substituted Awards may be made, if applicable) to the extent the Board shall
determine, in good faith, that such an adjustment (or substitution) is necessary
and appropriate. If this Section 7(a) applies and Section 7(c) also applies to
any event, Section 7(c) shall be applicable to such event, and this Section 7(a)
shall not be applicable.
(b) Liquidation or Dissolution. In the event of a proposed liquidation or
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such
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liquidation or dissolution and (ii) terminate effective upon such liquidation or
dissolution, except to the extent exercised before such effective date. The
Board may specify the effect of a liquidation or dissolution on any Restricted
Stock Award granted under the Plan at the time of the grant.
(c) Reorganization Events.
(1) Definition. A "Reorganization Event" shall mean: (a) any merger
or consolidation of the Company with or into another entity as a result of
which all of the Common Stock of the Company is converted into or exchanged
for the right to receive cash, securities or other property or (b) any
exchange of all of the Common Stock of the Company for cash, securities or
other property pursuant to a share exchange transaction.
(2) Consequences of a Reorganization Event on Options. Upon the
occurrence of a Reorganization Event, or the execution by the Company of
any agreement with respect to a Reorganization Event, the Board shall
provide that all outstanding Options shall be assumed, or equivalent
options shall be substituted, by the acquiring or succeeding corporation
(or an affiliate thereof). For purposes hereof, an Option shall be
considered to be assumed if, following consummation of the Reorganization
Event, the Option confers the right to purchase, for each share of Common
Stock subject to the Option immediately prior to the consummation of the
Reorganization Event, the consideration (whether cash, securities or other
property) received as a result of the Reorganization Event by holders of
Common Stock for each share of Common Stock held immediately prior to the
consummation of the Reorganization Event (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of
a majority of the outstanding shares of Common Stock); provided, however,
that if the consideration received as a result of the Reorganization Event
is not solely common stock of the acquiring or succeeding corporation (or
an affiliate thereof), the Company may, with the consent of the acquiring
or succeeding corporation, provide for the consideration to be received
upon the exercise of Options to consist solely of common stock of the
acquiring or succeeding corporation (or an affiliate thereof) equivalent in
fair market value to the per share consideration received by holders of
outstanding shares of Common Stock as a result of the Reorganization Event.
Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume, or
substitute for, such Options, then the Board shall, upon written notice to
the Participants, provide that all then unexercised Options will become
exercisable in full as of a specified time prior to the Reorganization
Event and will terminate immediately prior to the consummation of such
Reorganization Event, except to the extent exercised by the Participants
before the consummation of such Reorganization Event; provided, however,
that in the event of a Reorganization Event under the terms of which
holders of Common Stock will receive upon consummation thereof a cash
payment for each share of Common Stock surrendered pursuant to such
Reorganization Event (the "Acquisition Price"), then the Board may instead
provide that all outstanding Options shall terminate upon consummation of
such Reorganization Event and that each Participant shall receive, in
exchange therefor, a cash payment equal to the amount (if any) by which (A)
the Acquisition Price multiplied by the number of shares of Common Stock
subject to such outstanding Options (whether or not then exercisable),
exceeds (B) the aggregate exercise price of such Options. To the extent all
or any portion of an Option becomes exercisable solely as a result of the
first sentence of this paragraph, upon exercise of such Option the
Participant shall receive shares subject to a right of repurchase by the
Company or its successor at the Option exercise price. Such repurchase
right (1) shall lapse at the same rate as the Option would have become
exercisable under its terms and (2) shall not apply to any shares subject
to the Option that were exercisable under its terms without regard to the
first sentence of this paragraph.
(3) Consequences of a Reorganization Event on Restricted Stock
Awards. Upon the occurrence of a Reorganization Event, the repurchase and
other rights of the Company under each outstanding Restricted Stock Award
shall inure to the benefit of the Company's successor and shall apply to
the cash, securities or other property that the Common Stock was converted
into or exchanged for pursuant to such Reorganization Event in the same
manner and to the same extent as they applied to the Common Stock subject
to such Restricted Stock Award.
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8. General Provisions Applicable to Awards
(a) Transferability of Awards. Except as the Board may otherwise determine
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award shall be evidenced in such form (written,
electronic or otherwise) as the Board shall determine. Each Award may contain
terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each Award
may be made alone or in addition or in relation to any other Award. The terms of
each Award need not be identical, and the Board need not treat Participants
uniformly.
(d) Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may satisfy such tax obligations in whole or in part by delivery of
shares of Common Stock, including shares retained from the Award creating the
tax obligation, valued at their Fair Market Value; provided, however, that the
total tax withholding where stock is being used to satisfy such tax obligations
cannot exceed the Company's minimum statutory withholding obligations (based on
minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes, that are applicable to such supplemental taxable
income). The Company may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to a Participant.
(f) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) Conditions on Delivery of Stock. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) Acceleration. The Board may at any time provide that any Award shall
become immediately exercisable in full or in part, free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
9. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
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time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award granted to a
Participant that is intended to comply with Section 162(m) shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders to the extent
stockholder approval is required by Section 162(m) in the manner required under
Section 162(m), including the vote required under Section 162(m). No Awards
shall be granted under the Plan after the completion of ten years from the
earlier of (i) the date on which the Plan was adopted by the Board or (ii) the
date the Plan was approved by the Company's stockholders, but Awards previously
granted may extend beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, provided that to the extent required by
Section 162(m), no Award granted to a Participant that is intended to comply
with Section 162(m) after the date of such amendment shall become exercisable,
realizable or vested, as applicable to such Award, unless and until such
amendment shall have been approved by the Company's stockholders if required by
Section 162(m), including the vote required under Section 162(m).
(e) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
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APPENDIX B
SHORT-TERM EXECUTIVE COMPENSATION PLAN
1. Purpose
The purpose of this Short-Term Executive Compensation Plan (the "Plan") of
Centene Corporation, a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
retain and motivate persons who make (or are expected to make) important
contributions to the Company and any of its subsidiaries or other related
business units or entities (the "Affiliates"), including those who contribute
significantly to the strategic and long-term performance objectives and growth
of the Company and the Affiliates, by providing such persons with incentives in
the form of periodic bonus awards and thereby better aligning the interests of
such persons with those of the Company's stockholders.
2. Administration
(a) In General. The Plan shall be administered by the Compensation
Committee of the Board of Directors, as such Compensation Committee is from time
to time constituted. Such Compensation Committee may delegate its duties and
powers in whole or in part to (i) any subcommittee thereof consisting solely of
at least two "outside directors," as defined under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), or (ii) any other
individual or individuals, to the extent consistent with Section 162(m) of the
Code. All references in the Plan to the "Committee" shall mean the Compensation
Committee of the Board of Directors or any subcommittee, individual or
individuals to which or whom it delegates duties and powers pursuant to the
immediately preceding sentence.
(b) Powers and Authority. The Committee has all the powers vested in it by
the terms of the Plan set forth herein, such powers to include the exclusive
authority to:
(i) select the employees to be granted cash bonus awards ("Bonuses")
under the Plan;
(ii) determine the size and terms of the Bonus to be made to each
individual selected (subject to the limitation imposed on Special Bonuses,
as defined below);
(iii) modify the terms of any Bonus that has been granted (except with
respect to any modification that would increase the amount of compensation
payable to a Covered Employee, as such term is defined in Section 162(m) of
the Code);
(iv) determine the time when Bonuses will be granted and paid;
(v) establish performance objectives with respect to Bonuses; and
(vi) certify that such performance objectives were attained.
The Committee is authorized to interpret the Plan, to establish, amend and
rescind any rules and regulations relating to the Plan, and to make any other
determinations that it deems necessary or desirable for the administration of
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan in the manner and to the extent the
Committee deems necessary or desirable to carry it into effect. Any decision of
the Committee in the interpretation and administration of the Plan, as described
herein, shall lie within its sole and absolute discretion and shall be final,
conclusive and binding on all parties concerned. No member of the Committee and
no officer of the Company shall be liable for anything done or omitted to be
done by him or her, by any other member of the Committee or by any officer of
the Company in connection with the performance of duties under the Plan, except
for his or her own willful misconduct or as expressly provided by statute.
3. Participation
The Committee shall have exclusive power (except as may be delegated as
permitted herein) to select the employees of the Company and the Affiliates who
may participate in the Plan and be granted Bonuses
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under the Plan ("Participants"), provided, however, that Special Bonuses may
only be granted to a Participant who is an "executive officer" of the Company
within the meaning of Rule 3b-7 under the Securities Exchange Act of 1934, as
amended, or the President of an Affiliate (a "Covered Participant").
4. Bonuses Under the Plan
(a) In General. The Committee shall determine the amount of a Bonus to be
granted to each Participant in accordance with subsections (b) and (c) below. In
addition, the following provisions shall apply with respect to a Bonus under
either subsection (b) or (c) below:
(i) The Committee shall have the authority to determine in its sole
discretion the applicable performance period relating to any Bonus,
provided, however, that any such determination with respect to a Special
Bonus shall be subject to any applicable restrictions imposed by Section
162(m) of the Code.
(ii) The Company and the Affiliates shall have the right to deduct
from any payment made under the Plan any federal, state, local or foreign
income or other taxes required by law to be withheld with respect to such
payment.
(iii) The Company is the sponsor and legal obligor under the Plan and
shall make all payments hereunder, other than any payments to be made by
any of the Affiliates, which shall be made by such Affiliate, as
appropriate. Nothing herein is intended to restrict the Company from
charging an Affiliate that employs a Participant for all or a portion of
the payments made by the Company hereunder. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any amounts under the Plan,
and rights to the payment hereunder shall be no greater than the rights of
the Company's unsecured, subordinated creditors and shall be subordinated
to the claims of the customers and clients of the Company. All expenses
involved in administering the Plan shall be borne by the Company.
(b) Standard Bonuses. The Committee may in its discretion grant to a
Participant a Bonus (a "Standard Bonus") in the amount, and payable at the time,
determined by the Committee in its discretion. The amount of a Participant's
Standard Bonus may be based upon any criteria the Committee wishes to consider,
including the objective or subjective performance of the Participant, the
Company or any Affiliate.
(c) Special Bonuses.
(i) The Committee may in its discretion award a Bonus to a Covered
Participant (a "Special Bonus") for the taxable year of the Company in
which such Bonus would be deductible, under the terms and conditions of
this subsection (c). Subject to clause (iii) of this Section 4(c), the
amount of a Covered Participant's Special Bonus shall be an amount
determinable from written performance goals approved by the Committee while
the outcome is substantially uncertain and no more than 90 days after the
commencement of the period to which the performance goal relates or, if
less, the number of days which is equal to 25 percent of the relevant
performance period. The maximum amount of any Special Bonus that may be
granted to any Covered Participant in any given fiscal year shall be 2.5%
of the consolidated earnings from operations before income taxes of the
Company and its subsidiaries (as set forth in the audited consolidated
financial statements of the Company) in the fiscal year (or, with respect
to 2003, the portion thereof) for which the Special Bonus is to be paid.
(ii) The amount of any Special Bonus will be based on objective
performance goals established by the Committee using one or more
performance factors. The performance criteria for Special Bonuses made
under the Plan will be based upon one or more of the following criteria:
(A) before or after tax net income;
(B) earnings per share;
(C) book value per share;
(D) stock price;
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(E) return on stockholders' equity;
(F) expense management;
(G) return on investment;
(H) improvements in capital structure;
(I) profitability of an identifiable business unit or product;
(J) before or after tax profit margins;
(K) budget comparisons;
(L) total return to stockholders;
(M) revenue growth; and
(N) the relative performance of the Company against a peer group of
companies on any of the measures above.
A Covered Participant who has primary responsibility for a business unit of
the Company may be measured on business unit operating profit, business
unit operating profit as a percent of revenue and/or measures related to
business unit profitability above its cost of capital, in place of some or
all of the corporate performance measures.
(iii) The Committee shall determine whether the performance goals have
been met with respect to any Covered Participant and, if they have, so
certify and ascertain the amount of the applicable Special Bonus. No
Special Bonuses shall be paid until such certification is made by the
Committee.
(iv) The provisions of this Section 4(c) shall be administered and
interpreted in accordance with Section 162(m) of the Code to ensure the
deductibility by the Company or the Affiliates of the payment of Special
Bonuses.
5. Designation of Beneficiary by Participant
The Committee shall create a procedure whereby a Participant may file, on a
form to be provided by the Committee, a written election designating one or more
beneficiaries with respect to the amount, if any, payable in the event of the
Participant's death. The Participant may amend such beneficiary designation in
writing at any time prior to the Participant's death, without the consent of any
previously designated beneficiary. Such designation or amended designation, as
the case may be, shall not be effective unless and until received by the duly
authorized representatives of the Committee or its delegate prior to the
Participant's death. In the absence of any such designation, the amount payable,
if any, shall be delivered to the legal representative of such Participant's
estate.
6. Miscellaneous Provisions
(a) No employee or other person shall have any claim or right to be paid a
Bonus under the Plan. Determinations made by the Committee under the Plan need
not be uniform and may be made selectively among eligible individuals under the
Plan, whether or not such eligible individuals are similarly situated. Neither
the Plan nor any action taken hereunder shall be construed as giving any
employee or other person any right to continue to be employed by or perform
services for the Company or any Affiliate, and the right to terminate the
employment of or performance of services by any Participant at any time and for
any reason is specifically reserved to the Company and the Affiliates.
(b) Except as may be approved by the Committee, a Participant's rights and
interest under the Plan may not be assigned or transferred, hypothecated or
encumbered in whole or in part either directly or by operation by law or
otherwise (except in the event of a Participant's death) including execution,
levy, garnishment, attachment, pledge, bankruptcy or in any other manner;
provided, however, that, subject to applicable law, any
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amounts payable to any Participant hereunder are subject to reduction to satisfy
any liabilities owed to the Company or any of the Affiliates by the Participant.
(c) The headings of the sections and subsections of the Plan are included
only for convenience and shall not affect the meaning or interpretation of the
Plan The word "herein" and other words of similar import refer to the Plan as a
whole and not to any particular part of the Plan. The word "including" as used
herein shall not be construed so as to exclude any other thing not referred to
or described.
(d) The validity, construction, interpretation, administration and effect
of the Plan and rights relating to the Plan and to Bonuses granted under the
Plan, shall be governed by the substantive laws, but not the choice of law
rules, of the State of Missouri.
(e) The Plan shall be effective as of July 1, 2003, subject to the
affirmative vote of the holders of a majority of all shares of common stock of
the Company present in person or by proxy at the 2003 Annual Meeting of
Stockholders of the Company.
7. Plan Amendment or Suspension
The Plan may be amended or suspended in whole or in part at any time and
from time to time by the Committee.
8. Plan Termination
The Plan shall terminate upon the adoption of a resolution of the Committee
terminating the Plan.
9. Actions and Decision Regarding the Business or Operations of the Company and
the Affiliates
Notwithstanding anything in the Plan to the contrary, none the Company, the
Affiliates or the respective officers, directors, employees or agents of the
Company or any of the Affiliates shall have any liability to any Participant (or
his or her beneficiaries or heirs) under the Plan or otherwise on account of any
action taken, or not taken, in good faith by any of the foregoing persons with
respect to the business or operations of the Company or any Affiliates.
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APPENDIX C
AUDIT COMMITTEE CHARTER
A. PURPOSE
The purpose of the Audit Committee is to assist the oversight by the Board
of Directors of:
- the integrity of the Company's financial statements;
- the independent auditor's qualifications and independence; and
- the performance of the Company's independent auditors.
B. STRUCTURE AND MEMBERSHIP
1. Number. The Audit Committee shall consist of at least three members of
the Board of Directors.
2. Independence. Except as otherwise permitted by the applicable rules of
The Nasdaq Stock Market and Section 301 of the Sarbanes-Oxley Act of 2002 (and
the applicable rules thereunder), each member of the Audit Committee shall be
"independent" as defined by such rules and Act.
3. Financial Literacy. Each member of the Audit Committee shall be able to
read and understand fundamental financial statements, including the Company's
balance sheet, income statement, and cash flow statement, at the time of his or
her appointment to the Audit Committee. All members of the Audit Committee shall
participate in continuing education programs as set forth in the rules developed
by the Nasdaq Listing and Hearings Review Council.
4. Chair. Unless the Board of Directors elects a Chair of the Audit
Committee, the Audit Committee shall elect a Chair by majority vote.
5. Compensation. The compensation of Audit Committee members shall be as
determined by the Board of Directors. No member of the Audit Committee may
receive any consulting, advisory or other compensation from the Company other
than fees paid in his or her capacity as a member of the Board of Directors or a
committee of the Board.
6. Selection and Removal. Members of the Audit Committee shall be
appointed by the Board of Directors. The Board of Directors may remove members
of the Audit Committee from such committee, with or without cause.
C. AUTHORITY AND RESPONSIBILITIES
GENERAL
The Audit Committee shall discharge its responsibilities, and shall assess
the information provided by the Company's management and the independent
auditor, in accordance with its business judgment. Management is responsible for
the preparation, presentation, and integrity of the Company's financial
statements and for the appropriateness of the accounting principles and
reporting policies that are used by the Company. The independent auditors are
responsible for auditing the Company's financial statements and for reviewing
the Company's unaudited interim financial statements. The authority and
responsibilities set forth in this Charter do not reflect or create any duty or
obligation of the Audit Committee to plan or conduct any audit, to determine or
certify that the Company's financial statements are complete, accurate, fairly
presented, or in accordance with generally accepted accounting principles or
applicable law, or to guarantee the independent auditor's report.
OVERSIGHT OF INDEPENDENT AUDITORS
1. Selection. The Audit Committee shall be solely and directly responsible
for appointing, evaluating and, when necessary, terminating the independent
auditor. The Audit Committee may, in its discretion, seek stockholder
ratification of the independent auditor it appoints.
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2. Independence. The Audit Committee shall take, or recommend that the
full Board of Directors take, appropriate action to oversee the independence of
the independent auditor. In connection with this responsibility, the Audit
Committee shall obtain and review a formal written statement from the
independent auditor describing all relationships between the independent auditor
and the Company, including the disclosures required by Independence Standards
Board Standard No. 1. The Audit Committee shall actively engage in dialogue with
the independent auditor concerning any disclosed relationships or services that
might impact the objectivity and independence of the auditor.
3. Compensation. The Audit Committee shall have sole and direct
responsibility for setting the compensation of the independent auditor. The
Audit Committee is empowered, without further action by the Board of Directors,
to cause the Company to pay the compensation of the independent auditor
established by the Audit Committee.
4. Preapproval of Services. The Audit Committee shall preapprove all audit
services, which may entail providing comfort letters in connection with
securities underwritings, and non-audit services (other than de minimus
non-audit services as defined by the Sarbanes-Oxley Act of 2002 and the
applicable rules thereunder) to be provided to the Company by the independent
auditor. The Audit Committee shall cause the Company to disclose in its SEC
periodic reports the approval by the Audit Committee of any non-audit services
to be performed by the independent auditor.
5. Oversight. The independent auditor shall report directly to the Audit
Committee and the Audit Committee shall have sole and direct responsibility for
overseeing the independent auditor, including resolution of disagreements
between Company management and the independent auditor regarding financial
reporting. In connection with its oversight role, the Audit Committee shall,
from time to time as appropriate obtain and review the reports required to be
made by the independent auditor pursuant to paragraph (k) of Section 10A of the
Securities Exchange Act of 1934 regarding:
- critical accounting policies and practices;
- alternative treatments of financial information within generally accepted
accounting principles that have been discussed with Company management,
ramifications of the use of such alternative disclosures and treatments,
and the treatment preferred by the independent auditor; and
- other material written communications between the independent auditor and
Company management.
REVIEW OF AUDITED FINANCIAL STATEMENTS
6. Discussion of Audited Financial Statements. The Audit Committee shall
review and discuss with the Company's management and independent auditor the
Company's audited financial statements, including the matters about which
Statement on Auditing Standards No. 61 (Codification of Statements on Auditing
Standards, AU sec.380) requires discussion.
7. Recommendation to Board Regarding Financial Statements. The Audit
Committee shall consider whether it will recommend to the Board of Directors
that the Company's audited financial statements be included in the Company's
Annual Report on Form 10-K.
8. Audit Committee Report. The Audit Committee shall prepare for inclusion
where necessary in a proxy or information statement of the Company relating to
an annual meeting of security holders at which directors are to be elected (or
special meeting or written consents in lieu of such meeting), the report
described in Item 306 of Regulation S-K.
REVIEW OF OTHER FINANCIAL DISCLOSURES
9. Independent Auditor Review of Interim Financial Statements. The Audit
Committee shall direct the independent auditor to use its best efforts to
perform all reviews of interim financial information prior to disclosure by the
Company of such information and to discuss promptly with the Audit Committee and
the Chief Financial Officer any matters identified in connection with the
auditor's review of interim financial information which are required to be
discussed by Statement on Auditing Standards Nos. 61, 71 and 90. The
C-2
Audit Committee shall direct management to advise the Audit Committee in the
event that the Company proposes to disclose interim financial information prior
to completion of the independent auditor's review of interim financial
information.
10. Earnings Releases and Other Financial Information. The Audit Committee
shall review and discuss generally the types of information to be disclosed in
the Company's earnings press releases (including any use of non-GAAP financial
measures), as well as in financial information and earnings guidance provided to
analysts, rating agencies and others.
- The Audit Committee's responsibility to discuss earnings releases as well
as financial information and earnings guidance may be discharged
generally (i.e., discussion of the types of information to be disclosed
and the type of presentation to be made). The Audit Committee need not
discuss in advance each earnings release or each instance in which the
Company may provide earnings guidance. The Audit Committee (or at least
its Chair) shall, however, endeavor to review earnings releases prior to
issuance.
- The Audit Committee shall discuss the results of SAS 71 reviews performed
by the independent auditor.
11. Quarterly Financial Statements. The Audit Committee shall discuss with
the Company's management and independent auditor the Company's quarterly
financial statements, including the Company's disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CONTROLS AND PROCEDURES
12. Oversight. The Audit Committee shall coordinate the Board of
Director's oversight of the Company's internal accounting controls, the
Company's disclosure controls and procedures and the Company's code of conduct.
The Audit Committee shall receive and review the reports of the CEO and CFO
required by Section 302 of the Sarbanes-Oxley Act of 2002 (and the applicable
rules thereunder) and Rule 13a-14 of the Exchange Act. The Audit Committee shall
review the reports on internal accounting controls contemplated by Sections 103
and 404 of the Sarbanes-Oxley Act.
13. Procedures for Complaints. The Audit Committee shall establish
procedures for (a) the receipt, retention and treatment of complaints received
by the Company regarding accounting, internal accounting controls or auditing
matters and (b) the confidential, anonymous submission by employees of the
Company of concerns regarding questionable accounting or auditing matters.
14. Related-Party Transactions. The Audit Committee shall review all
related party transactions on an ongoing basis and all such transactions must be
approved by the Audit Committee. For purposes of this paragraph, the term
"related party transactions" shall refer to transactions required to be
disclosed pursuant to Item 404 of Regulation S-K promulgated by the Securities
and Exchange Commission.
15. Additional Powers. The Audit Committee shall have such other duties as
may be delegated from time to time by the Board of Directors.
D. PROCEDURES AND ADMINISTRATION
1. Meetings. The Audit Committee shall meet as often as it deems necessary
in order to perform its responsibilities. At least quarterly, the Audit
Committee shall meet separately with (a) the independent auditor and (b) Company
management. The Audit Committee shall keep such records of its meetings as it
shall deem appropriate.
2. Subcommittees. The Audit Committee may form and delegate authority to
one or more subcommittees (including a subcommittee consisting of a single
member) as it deems appropriate from time to time under the circumstances. Any
decision of a subcommittee to preapprove audit or non-audit services shall be
presented to the full Audit Committee at its next scheduled meeting.
3. Reports to Board. The Audit Committee shall report regularly to the
Board of Directors.
C-3
4. Charter. At least annually, the Audit Committee shall review and
reassess the adequacy of this Charter and recommend any proposed changes to the
Board for approval.
5. Independent Advisors. The Audit Committee shall have the authority to
engage and determine funding for such independent legal, accounting and other
advisors as it deems necessary or appropriate to carry out its responsibilities.
Such independent advisors may be the regular advisors to the Company. The Audit
Committee is empowered, without further action by the Board of Directors, to
cause the Company to pay the compensation of such advisors as established by the
Audit Committee.
6. Investigations. The Audit Committee shall have the authority to conduct
or authorize investigations into any matters within the scope of its
responsibilities as it shall deem appropriate, including the authority to
request any officer, employee or advisor of the Company to meet with the Audit
Committee or any advisors engaged by the Audit Committee.
C-4
CENTENE CORPORATION
PROXY
ANNUAL MEETING OF STOCKHOLDERS, May 6, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Michael F. Neidorff, Karey L. Witty, and each of
them, with full power of substitution, Proxies of the undersigned to vote all
shares of Common Stock of Centene Corporation, standing in the name of the
undersigned or with respect to which the undersigned is entitled to vote, at the
Annual Meeting of Stockholders of Centene Corporation, to be held at the
Ritz-Carlton, 100 Carondelet Ave., St. Louis, Missouri 63105, on Tuesday, May 6,
2003, at 10:00 a.m., central daylight savings time and at any adjournments
thereof.
If both than one of the above named Proxies shall be present in person or by
substitution at such meeting or at any adjournment thereof, then both of said
Proxies so present and voting, either in person or by substitution, shall
exercise all of the powers hereby given. The undersigned hereby revokes any
proxy heretofore given to vote at such meeting.
(CONTINUED AND TO BE SIGNED AND DATED ON THE REVERSE SIDE.)
ADDRESS CHANGE/COMMENTS (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
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YOU CAN NOW ACCESS YOUR CENTENE CORPORATION ACCOUNT ONLINE.
Access your Centene Corporation shareholder account online via Investor
ServiceDirect(R) (ISD).
Mellon Investor Services LLC, agent for Centene Corporation, now makes it easy
and convenient to get current information on your shareholder account. After a
simple, and secure process of establishing a Personal Identification Number
(PIN), you are ready to log in and access your account to:
- View account status - View payment history for dividends
- View certificate history - Make address changes
- View book-entry information - Obtain a duplicate 1099 tax form
- Establish/change your PIN
VISIT US ON THE WEB AT HTTP://WWW.MELLONINVESTOR.COM
AND FOLLOW THE INSTRUCTIONS SHOWN ON THIS PAGE.
STEP 1: FIRST TIME USERS -- ESTABLISH A PIN STEP 2: LOG IN FOR ACCOUNT ACCESS STEP 3: ACCOUNT STATUS SCREEN
You must first establish a Personal Identification You are now ready to log in. To access You are now ready to access your
Number (PIN) online by following the directions your account please enter your: account information. Click on the
provided in the upper right portion of the web appropriate button to view or
screen as follows. You will also need your Social - SSN or Investor ID initiate transactions.
Security Number (SSN) or Investor ID available to
establish a PIN. - PIN
THE CONFIDENTIALITY OF YOUR PERSONAL INFORMATION - Then click on the SUBMIT button - Certificate History
IS PROTECTED USING SECURE SOCKET LAYER (SSL)
TECHNOLOGY. If you have more than one account, - Book-Entry Information
you will now be asked to select the
- SSN or Investor ID appropriate account. - Issue Certificate
- PIN - Payment History
- Then click on the ESTABLISH PIN button - Address Change
Please be sure to remember your PIN, or - Duplicate 1099
maintain it in a secure place for future reference.
FOR TECHNICAL ASSISTANCE CALL 1-877-978-7778 BETWEEN
9AM-7PM MONDAY-FRIDAY EASTERN TIME
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL PROPOSALS.
Please / /
Mark Here
for Address
Change or
Comments
SEE REVERSE SIDE
1. ELECTION OF CLASS II DIRECTORS FOR
the nominees WITHHOLD
listed (except as AUTHORITY
Nominees -- marked to the to vote for all
01 Edward L. Cahill contrary) nominees
02 Robert K. Ditmore
03 David L. Steward / / / /
(To withhold authority to vote for one or two individual nominees, write the
name(s) of the nominee(s) on the line provided below.)
__________________________________________________________________________
The Board of Directors recommends a vote FOR all director nominees.
FOR AGAINST ABSTAIN
2. PROPOSAL TO ADOPT 2003 STOCK INCENTIVE
PLAN. / / / / / /
The Board of Directors recommends a vote
FOR proposal 2.
FOR AGAINST ABSTAIN
3. PROPOSAL TO APPROVE THE
SHORT-TERM EXECUTIVE COMPENSATION PLAN. / / / / / /
The Board of Directors recommends a vote
FOR proposal 3.
4. OTHER BUSINESS:
In their discretion the Proxies are authorized to vote upon such other
matters as may properly come before the meeting.
CONFIDENTIAL VOTE REQUESTED: / /
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED POSTAGE-PAID
ENVELOPE.
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
Signature______________________Signature________________________Date_______
Please sign exactly as name appears above and to the left. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
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