AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May 11,
2007
Registration
Statement No. 333-
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-4
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________________________
CENTENE
CORPORATION
(Exact
name of each registrant as specified in its respective charter)
|
Delaware
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6324
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42-1406317
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(Primary
standard industrial
classification
code number)
7711
Carondelet Avenue
St.
Louis, Missouri 63105
(314)
725-4477
|
(I.R.S.
employer
identification
number)
|
(Address,
including zip code, and telephone number, including area code, of principal
executive offices of each registrant)
_______________________________
|
Keith
H. Williamson
Centene
Corporation
7711
Carondelet Avenue
St.
Louis, Missouri 63105
(314)
725-4477
(Address,
including zip code, and telephone number, including area code, of
principal executive offices of each registrant)
|
|
Copies
to:
J.
Mark Klamer, Esq.
Bryan
Cave LLP
211
N.
Broadway
One
Metropolitan Square, Suite 3600
St.
Louis, Missouri 63102
Tel:
(314) 259-2000
Fax:
(314) 259-2020
|
Approximate
date of commencement of proposed sale to the public:
As soon
as practicable after this Registration Statement becomes effective.
If
the
only securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: o
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
CALCULATION
OF REGISTRATION FEE
|
Title
of each class of securities to be registered
|
Amount
to be registered
|
Proposed
Maximum Offering Price Per Unit(1)
|
Proposed
maximum aggregate offering price(1)
|
Amount
of registration fee
|
|
7¼
% Senior Notes due 2014
|
$175,000,000
|
100%
|
$175,000,000
|
$5,372.50
|
(1)
Estimated pursuant to Rule 457(f) solely for the purpose of calculating the
registration fee.
The
registrant hereby amends this Registration Statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The
information in this prospectus is not complete and may be changed. We may
not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to
sell
these securities and it is not soliciting an offer to buy these securities
in
any state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED May 11, 2007
Centene
Corporation
Offer
to Exchange
$175,000,000
7¼% Senior Notes due 2014
for
$175,000,000 7¼% Senior Notes due 2014
that
have been registered under the Securities Act of 1933
_______________________________
We
are
offering to exchange an aggregate principal amount of up to $175,000,000 of
our
new 7¼% Senior Notes due 2014, which we refer to as the exchange notes, for a
like amount of our outstanding 7¼% Senior Notes dues 2014, which we refer to as
the outstanding notes, in a transaction registered under the Securities Act
of
1933, as amended. The term “notes” refers to, collectively, the outstanding
notes and the exchange notes.
Terms
of
the exchange offer:
| · |
We
will exchange all outstanding notes that are validly tendered and
not
withdrawn prior to the expiration of the exchange
offer.
|
| · |
You
may withdraw tenders of outstanding notes at any time prior to the
expiration of the exchange offer.
|
| · |
We
believe that the exchange of outstanding notes for exchange notes
will not
be a taxable event for U.S. federal income tax
purposes.
|
| · |
The
form and terms of the exchange notes are identical in all material
respects to the form and terms of the outstanding notes, except that
(i)
the exchange notes are registered under the Securities Act, (ii)
the
transfer restrictions and registration rights applicable to the
outstanding notes do not apply to the exchange notes, and (iii) the
exchange notes will not contain provisions relating to liquidated
damages
relating to our registration
obligations.
|
The
exchange offer will expire at ,
New York City time, on
,
2007,
unless
we extend the offer. We will announce any extension by press release or other
permitted means no later than 9:00 a.m. on the business day after the expiration
of the exchange offer. You may withdraw any outstanding notes tendered until
the
expiration of the exchange offer.
The
exchange notes will not be listed on the New York Stock Exchange or any other
securities exchange.
For
a discussion of factors you should consider in determining whether to tender
your outstanding notes, see the information under “Risk Factors” beginning on
page 12 of this prospectus.
_______________________________
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities, or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
_______________________________
The
date of this prospectus is ,
2007.
We
have
not authorized anyone to give any information or to make any representations
concerning this exchange offer except that which is in this prospectus, or
which
is referred to under “Where You Can Find More Information.” If anyone gives or
makes any other information or representation, you should not rely on it. This
prospectus is not an offer to sell or a solicitation of an offer to buy
securities in any circumstances in which the offer or solicitation is unlawful.
You should not interpret the delivery of this prospectus, or any sale of
securities, as an indication that there has been no change in our affairs since
the date of this prospectus. You should also be aware that information in this
prospectus may change after this date.
This
prospectus incorporates by reference business and financial information about
us
that is not included in or delivered with this prospectus. This information
is
available without charge upon written or oral request directed to:
Centene
Corporation
7711
Carondelet Avenue
St.
Louis, Missouri 63105
(314)
725-4477
Attention:
J. Per Brodin
If
you
would like to request copies of these documents, please do so by , 2007 in
order to receive them before the expiration of the exchange offer.
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iii
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MARKET
AND INDUSTRY DATA
Throughout
this prospectus, we rely on and refer to information and statistics regarding
the healthcare industry. We obtained this information and these statistics
from
various third-party sources, discussions with state regulators and our own
internal estimates. We believe that these sources and estimates are reliable,
but we have not independently verified them and cannot guarantee their accuracy
or completeness.
This
prospectus and the documents incorporated in this prospectus contain
forward-looking statements. These forward-looking statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act
of
1995 and include estimates and assumptions related to economic, competitive
and
legislative developments. Forward-looking statements address our beliefs and
expectations of the outcome of future events that are forward looking in nature,
including, without limitation, the statements under “Prospectus Summary” and
“Risk Factors.” All statements other than statements of current or historical
fact contained in this prospectus are forward-looking statements. The words
“anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “plan,”
“may,” “projects,” “will,” and similar expressions, as they relate to us, are
intended to identify these forward-looking statements. These statements are
based on our current plans and not actual future activities, and our results
of
operations may be materially different from those set forth in the
forward-looking statements due to a number of factors. In particular, these
factors include, among other things:
| · |
our
ability to accurately predict and effectively manage health benefits
and
other operating expenses;
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| · |
competition;
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| · |
changes
in healthcare practices;
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| · |
changes
in federal or state laws or
regulations;
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| · |
inflation;
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| · |
provider
contract changes;
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| · |
new
technologies;
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| · |
reduction
in provider payments by governmental
payors;
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| · |
major
epidemics;
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| · |
disasters
and numerous other factors affecting the delivery and cost of
healthcare;
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| · |
the
expiration, cancellation or suspension of our Medicaid managed care
contracts by state governments;
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| · |
availability
of debt and equity financing, on terms that are favorable to us;
and
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| · |
general
economic and market conditions.
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You
should read and interpret any forward-looking statement together with the risk
factors contained in this prospectus under the caption “Risk
Factors.”
All
forward-looking statements included in this prospectus are based on information
available to us on the date of this prospectus. Except as required by law,
we
undertake no obligation to update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise. All
subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained throughout this prospectus.
The
following summary contains basic information about us and this offering.
It is
likely that this summary does not contain all of the information that is
important to you. You should read the entire prospectus, including the
risk
factors and the financial statements and related notes included elsewhere
herein, before making an investment decision. Unless otherwise indicated,
the
terms “Company,” “us,” “we” and “our” refers solely to Centene Corporation and
its subsidiaries.
Our
Company
We
are a
multi-line healthcare enterprise operating primarily in two segments: Medicaid
Managed Care and Specialty Services. Our Medicaid Managed Care segment
provides
Medicaid and Medicaid-related health plan coverage to individuals through
government subsidized programs, including Medicaid, the State Children’s Health
Insurance Program, or SCHIP, and Supplemental Security Income, or SSI.
Medicaid
currently accounts for 76% of our membership, while SCHIP and SSI account
for
19% and 5%, respectively. Our Specialty Services segment provides specialty
services, including behavioral health, disease management, long-term care
programs, managed vision, nurse triage, pharmacy benefits management and
treatment compliance, to state programs, healthcare organizations and other
commercial organizations, as well as to our own subsidiaries on market-based
terms. Our FirstGuard health plans exited the Kansas and Missouri markets
effective January 1 and February 1, 2007, respectively. We were established
in
1984, and our stock is publicly traded on the New York Stock Exchange under
the
ticker symbol “CNC.” As of March 6, 2007, we had a market capitalization of
approximately $1.04 billion. For the year ended December 31, 2006, our
revenues,
cash flow from operations and net loss were $2.3 billion, $195.0 million
and
$43.6 million, respectively. The net loss figure includes $94.5 million
in
pre-tax charges for intangible asset impairment and costs to exit Kansas
and
Missouri. For
the
quarter ended March 31, 2007, our revenues, cash flow from operations and
net
income were $670.8 million, $36.0 million and $38.2 million,
respectively.
We
receive a fixed monthly fee per member from states in which we operate
in return
for managing the benefits of our health plan members. Our revenues increase
to
the extent we can increase our membership or receive higher monthly premiums
per
member. Premium levels are established by the states with input from us.
The
premiums are required by Federal law to be actuarially sound. Our medical
costs
are determined by the healthcare services our members use. The keys to
our
profitability are to increase our membership, contract at appropriate rates
with
providers, and effectively control costs through medical management programs,
such as disease management, preventative care and appropriate emergency
room
use.
Our
Medicaid Managed Care membership totaled approximately 1.1
million
as of March
31,
2007,
an
increase of 26%
from
March 31, 2006. We
currently have six health plan subsidiaries offering healthcare services
in
Georgia, Indiana, New Jersey, Ohio, Texas and Wisconsin. Additionally,
effective in April 2007, we acquired a Medicaid Medical Home Network in
South
Carolina and we expect to participate in the state rollout of Medicaid
Managed
Care in South Carolina. Our
membership growth has come from expansion in both our existing markets
and new
markets. The following table sets forth information about each of our current
health plans as of December
31, 2006:
|
State
|
Local
Health Plan Name
|
First
Year of Operations Under Centene
|
Counties
Served at December 31, 2006
|
Market
Share(1)
|
Membership
at December 31, 2006
|
|||||
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Georgia
|
Peach
State Health Plan
|
2006
|
90
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30.6%
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308,800
|
|||||
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Indiana
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Managed
Health Services
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1995
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92
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33.4%
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183,100
|
|||||
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New
Jersey
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University
Health Plans
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2002
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20
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8.1%
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58,900
|
|||||
|
Ohio
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Buckeye
Community Health Plan
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2004
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27
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11.3%
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109,200
|
|||||
|
Texas
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Superior
Health Plan
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1999
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217
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21.0%
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298,500
|
|||||
|
Wisconsin
|
Managed
Health Services
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1984
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29
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32.9%
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164,800
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(1) Represents
Medicaid and SCHIP membership as of December 31, 2006 as a percentage
of total
eligible Medicaid and SCHIP members in each state. SSI programs are
excluded.
Our
health
plans facilitate access to healthcare services for members primarily through
our
contracts with providers. For each of our service areas, we establish a provider
network consisting of primary and specialty care physicians, hospitals and
ancillary providers. Our contracts with these physicians and providers are
usually for one to two-year periods and renew automatically for successive
one-year terms. As of December 31, 2006, our provider network included over
13,000 primary care physicians, such as family and general practitioners,
pediatricians, internal medicine physicians and obstetrician/gynecologists,
over
31,000 specialty care physicians, such as orthopedic surgeons, cardiologists
and
otolaryngologists, and over 600 hospitals. We also provide education and
outreach programs to inform and assist members in accessing quality, appropriate
healthcare services.
Our
Specialty Services segment is a key component of our healthcare enterprise.
These services diversify our products and revenue stream and help control
our
medical costs through improved disease management techniques. We provide
member-focused services through locally-based staff by assisting in accessing
care, coordinating referrals to related health and social services and
addressing member concerns and questions. The following table sets forth
information about each of our specialty services businesses:
|
Centene
Commenced
Operations
|
Description
|
||
 |
2005
|
Respiratory-focused
disease management
|
|
 |
2006
|
Long-term
care
|
|
 |
2006
|
Cardiac-focused
disease management
|
|
 |
2003
|
Behavioral
health plans
|
 |
1998
|
Nurse
phone line providing health education and triage advice
|
|
 |
2006
|
Managed
vision
|
|
 |
2003
|
Prescription
drug treatment compliance programs
|
|
 |
2006
|
Pharmacy
benefits management
|
Our
Industry
We
provide our services to organizations and individuals primarily through
Medicaid, SCHIP and SSI programs. The Congressional Budget Office, or CBO,
estimates the total Medicaid market was approximately $330 billion in 2005,
and
the federal Centers for Medicare and Medicaid Services, or CMS, estimate
the
market will grow to over $450 billion by 2010. According to the most recent
information provided by the Kaiser Commission on Medicaid and the Uninsured,
Medicaid spending increased by 2.8% in fiscal 2006 and states appropriated
an
increase of 5.0% for Medicaid in fiscal 2007 budgets.
Established
in 1965, Medicaid is the largest publicly funded program in the United States
and provides health insurance to low-income families and individuals with
disabilities. Authorized by Title XIX of the Social Security Act, Medicaid
is an
entitlement program funded jointly by the federal and state governments and
administered by the states. The majority of funding is provided at the federal
level. Each state establishes its own eligibility standards, benefit packages,
payment rates and program administration within federal standards. As a result,
there are 56 Medicaid programs—one for each U.S. state, each U.S. territory and
the District of Columbia. An increasing number of states have mandated that
their Medicaid recipients enroll in managed care plans as a means of delivering
quality healthcare and controlling costs. Currently, 37 of the 56 programs,
including each of the six states in which we operate health plans, have mandated
managed care for some or all of their Medicaid recipients. Eligibility is
based
on a combination of household income and assets, often determined by an income
level relative to the federal poverty level. Historically, children have
represented the largest eligibility group.
Established
in 1972 and authorized by Title XVI of the Social Security Act, SSI covers
low-income persons with chronic physical disabilities or behavioral health
impairments. SSI beneficiaries represent a growing portion of all Medicaid
recipients. In addition, SSI recipients typically utilize more services because
of their critical health issues.
The
Balanced Budget Act of 1997 created SCHIP to help states expand coverage
primarily to children whose families earn too much to qualify for Medicaid,
yet
not enough to afford private health insurance. Some states include the parents
of these children in their SCHIP programs. SCHIP is the single largest expansion
of health insurance coverage for children since the enactment of Medicaid.
Costs
related to the largest eligibility group, children, are primarily composed
of
pediatrics and family care. These costs tend to be more predictable than
other
healthcare issues which predominantly affect the adult population.
A
portion
of Medicaid beneficiaries are dual eligibles, low-income seniors and people
with
disabilities who are enrolled in both Medicaid and Medicare. According to
information provided by the Kaiser Commission on Medicaid and the Uninsured,
dual eligibles account for 14% of Medicaid enrollees. These dual eligibles
may
receive assistance from Medicaid for Medicaid benefits, such as nursing home
care, and/or assistance with Medicare premiums and cost sharing. Dual eligibles
also use more services due to their tendency to have more chronic health
issues.
Spending
for Medicaid, SSI and SCHIP has increased steadily since 1988, with a compound
annual growth rate, or CAGR, of 11% from 1988 through 2004, despite periods
of
recession.
Our
Competitive Strengths
We
believe a significant market opportunity exists for managed care organizations
with operations and programs focused on the distinct socio-economic, cultural
and healthcare needs of the Medicaid, SCHIP and SSI populations. We believe
our
approach and strategy enable us to be a growing participant in this market.
Our
multi-line managed care approach is based on the following key
attributes:
Strong
Historic Operating Performance.We
have
increased revenues as we have grown in existing markets, expanded into
new
markets and broadened our product menu. We entered the Wisconsin market
in 1984,
the Indiana market in 1995, the Texas market in 1999, the New Jersey market
in
2002, the Ohio market in 2004 and the Georgia market in 2006. We have also
increased membership by acquiring Medicaid businesses, contracts and other
related assets from competitors in existing markets, most recently in Ohio
in
2005 and 2006. We have increased our membership from 409,600 in 2002 to
1,103,300
as of
March
31,
2007. For the year ended December 31, 2006, we had revenue of $2.3 billion,
representing a 49% CAGR since the year ended December 31, 2002. We generated
cash flow from operations of $195.0 million and a net loss of $43.6 million
for
the year ended December 31, 2006. The figures above include Kansas and
Missouri,
which we exited in January and February 2007, respectively, and which accounted
for 138,900 members at December 31, 2006 and $317.0 million in revenue
for the
year ended December 31, 2006. For the quarter ended March 31, 2007, our
revenues, cash flow from operations and net income were $670.8 million,
$36.0
million and $38.2 million, respectively.
Medicaid
Expertise. Over
the
last 20 years, we have strived to develop a specialized Medicaid expertise
that
has helped us establish and maintain relationships with members, providers
and
state governments. We have implemented programs developed to achieve savings
for
state governments and improve medical outcomes for members by reducing
inappropriate emergency room use, inpatient days and high cost interventions,
as
well as by managing care of chronic illnesses. Our experience in working
with
state regulators helps us implement and deliver programs and services
efficiently and affords us opportunities to provide input regarding Medicaid
industry practices and policies in the states in which we operate. We work
with
state agencies on redefining benefits, eligibility requirements and provider
fee
schedules in order to maximize the number of uninsured individuals covered
through Medicaid, SCHIP and SSI and expand the types of benefits offered.
Our
approach is to accomplish this while maintaining adequate levels of provider
compensation and protecting our profitability.
Diversified
Business Lines. We
continue to broaden our service offerings to address areas that we believe
have
been traditionally underserved by Medicaid managed care organizations.
In
addition to our Medicaid and Medicaid-related managed care services, our
service
offerings include behavioral health plans, disease management, long-term
care
programs, managed vision, nurse triage, pharmacy benefits management and
treatment compliance. Through the utilization of a multi-business line
approach,
we are able to diversify our revenue and help control our medical
costs.
Localized
Approach with Centralized Support Infrastructure. We
take a
localized approach to managing our subsidiaries, including provider and member
services. This approach enables us to facilitate access by our members to
high
quality, culturally sensitive healthcare services. Our systems and procedures
have been designed to address community-specific challenges through outreach,
education, transportation and other member support activities. For example,
our
community outreach programs work with our members and their communities to
promote health and self-improvement through employment and education on how
best
to access care. We complement this localized approach with a centralized
infrastructure of support functions such as finance, information systems
and
claims processing, which allows us to minimize general and administrative
expenses and integrate and realize synergies from acquisitions. We believe
this
combined approach allows us to efficiently integrate new business opportunities
in both Medicaid and specialty services while maintaining local accountability
and improved access.
Specialized
and Scalable Systems and Technology. Through
our specialized information systems, we work to strengthen relationships
with
providers and states which help us grow our membership base. Our specialized
information systems allow us to support our core processing functions under
a
set of integrated databases which are designed to be both replicable and
scalable. Physicians can use claims, utilization and membership data to manage
their practices more efficiently, and they also benefit from our timely
payments. State agencies can use data from our information systems to
demonstrate that their Medicaid populations receive quality healthcare in
an
efficient manner. These systems also help identify needs for new healthcare
and
specialty programs. We have the ability to leverage our platform for one
state
configuration into new states or for health plan acquisitions. Our ability
to
access data and translate it into meaningful information is essential to
operating across a multi-state service area in a cost-effective
manner.
Experienced
Management Team.We
have a
management team who possess significant industry experience. Michael Neidorff,
our Chairman and CEO, has been with us since 1996 and has over 20 years of
experience in all aspects of managed care. Per Brodin, our Senior Vice President
and Chief Financial Officer, has extensive experience as a financial and
accounting officer both at Centene and other organizations. The other members
of
our senior management team are well-seasoned professionals with a broad range
of
capabilities including industry experience and functional expertise. This
team
has successfully managed the growth of our health plans and specialty
businesses, while maintaining operational discipline.
Our
Business Strategy
Our
objective is to become the leading multi-line healthcare enterprise focusing
on
Medicaid and Medicaid-related services. We intend to achieve this objective
by
implementing the following key components of our strategy:
Increase
Penetration of Existing State Markets. We
seek
to continue to increase our Medicaid membership in states in which we currently
operate through alliances with key providers, outreach efforts, development
and
implementation of community-specific products and acquisitions. In 2006,
we were
awarded two regions in connection with Ohio’s statewide restructuring of its
Medicaid managed care program, expanding the number of counties we serve
from
three to 27. We also were awarded a Medicaid Aged, Blind or Disabled, or
ABD,
contract in four regions in Ohio. In Texas, we expanded our operations to
the
Corpus Christi market in 2006 and began managing care for SSI recipients
in
February 2007. We may also increase membership by acquiring Medicaid businesses,
contracts and other related assets from our competitors in our existing markets
or by enlisting additional providers. For example, in 2005 and 2006, we acquired
certain Medicaid-related assets in Ohio.
Diversify
Business Lines. We
seek
to broaden our business lines into areas that complement our existing business
to enable us to grow and diversify our revenue. We are constantly evaluating
new
opportunities for expansion both domestically and abroad. For instance, in
October 2006, we commenced operations under our managed care program contracts
to provide long-term care services in Arizona, and in January 2006, we completed
the acquisition of US Script, a pharmacy benefits manager. We are also
considering other premium based or fee-for-service lines of business that
would
provide additional diversity. We employ a disciplined acquisition strategy
that
is based on defined criteria including internal rate of return, accretion
to
earnings per share, market leadership and compatibility with our information
systems. We engage our executives in the relevant operating units or functional
areas to ensure consistency between the diligence and integration
processes.
Address
Emerging State Needs. We
work
to assist the states in which we operate in addressing the operating challenges
they face. We seek to assist the states in balancing premium rates, benefit
levels, member eligibility, policies and practices and provider compensation.
For example, in 2005, we began performing under our contract with the State
of
Arizona to facilitate the delivery of mental health and substance abuse services
to behavioral health recipients in Arizona. By helping states structure an
appropriate level and range of Medicaid, SCHIP and specialty services, we
seek
to ensure that we are able to continue to provide those services on
terms that achieve targeted gross margins, provide an acceptable return and
grow
our business.
Develop
and
Acquire Additional State Markets where Enrollment is Mandated. We
continue to leverage our experience to identify and develop new markets
by
seeking both to acquire existing businesses and to build our own operations.
We
expect to focus expansion on states where Medicaid recipients are mandated
to
enroll in managed care organizations because we believe member enrollment
levels
are more predictable in these states. For example, effective June 1,
2006 we
began managing care for Medicaid and SCHIP members in Georgia.
Leverage
Established Infrastructure to Enhance Operating Efficiencies. We
intend
to continue to invest in infrastructure to further drive efficiencies in
operations and to add functionality to improve the service provided to
members
and other organizations at a low cost. Our centralized functions enable
us to
add members and markets quickly and economically. For example, during
2005, we
opened an additional claims processing facility to accommodate our planned
growth initiatives for this centralized function.
Maintain
Operational Discipline. We
monitor our cost trends, operating performance, regulatory relationships
and the
Medicaid political environment in our existing markets. We seek to operate
in
markets that allow us to meet our internal metrics including membership
growth,
plan size, market leadership and operating efficiency. We may divest
contracts
or health plans in markets where the state’s Medicaid environment, over a
long-term basis, does not allow us to meet our targeted performance levels.
We
use multiple techniques to monitor and reduce our medical costs, including
on-site hospital review by staff nurses and involvement of medical management
and finance personnel in significant cases. Our health economics unit
and health
plan controllers evaluate the financial impact of proposed changes in
provider
relationships. We also conduct monthly reviews of member demographics
for each
health plan.
Additional
Information
We
are
incorporated in Delaware and headquartered in St. Louis, Missouri. Our
executive
offices are located at 7711 Carondelet Avenue, St. Louis, Missouri 63105,
and
our telephone number is (314) 725-4477. Our website address is www.centene.com.
Information contained on our website does not constitute a part of this
prospectus.
THE
EXCHANGE OFFER
On
March
22, 2007, we issued $175,000,000 aggregate principal amount of 7¼% Senior Notes
due 2014, the outstanding notes to which the exchange offer applies,
to a group
of initial purchasers in reliance on exemptions from, or in transactions
not
subject to, the registration requirements of the Securities Act and applicable
securities laws. In connection with the sale of the outstanding notes
to the
initial purchasers, we entered into a registration rights agreement pursuant
to
which we agreed, among other things, to deliver this prospectus to you,
to
commence this exchange offer and to use our commercially reasonable efforts
to
complete the exchange offer within 180 days of the issuance of the outstanding
notes. The summary below describes the principal terms and conditions
of the
exchange offer. Some of the terms and conditions described below are
subject to
important limitations and exceptions. See “The Exchange Offer” for a more
detailed description of the terms and conditions of the exchange offer
and
“Description of the Exchange Notes” for a more detailed description of the terms
of the exchange notes.
|
The
Exchange Offer
|
We
are offering to exchange up to $175,000,000 aggregate principal
amount of
our new 7¼% Senior Notes due 2014, which have been registered under
the
Securities Act, in exchange for your outstanding notes. The
form and terms
of these exchange notes are identical in all material respects
to the
outstanding notes. The exchange notes, however, will not
contain transfer
restrictions and registration rights applicable to the outstanding
notes.
To
exchange your outstanding notes, you must properly tender
them, and we
must accept them. We will accept and exchange all outstanding
notes that
you validly tender and do not validly withdraw. We will issue
registered
exchange notes promptly after the expiration of the exchange
offer.
|
|
Resale
of Exchange Notes
|
Based
on interpretations by the staff of the SEC as detailed in
a series of
no-action letters issued to third parties, we believe that,
as long as you
are not a broker-dealer, the exchange notes offered in the
exchange offer
may be offered for resale, resold or otherwise transferred
by you without
compliance with the registration and prospectus delivery
requirements of
the Securities Act as long as:
· you
are acquiring the exchange notes in the ordinary course of
your
business;
· you
are not participating, do not intend to participate in and
have no
arrangement or understanding with any person to participate
in a
“distribution” of the exchange notes; and
· you
are not an “affiliate” of ours within the meaning of Rule 405 of the
Securities Act.
If
any of these conditions is not satisfied and you transfer
any exchange
notes issued to you in the exchange offer without delivering
a proper
prospectus or without qualifying for a registration exemption,
you may
incur liability under the Securities Act. Moreover, our belief
that
transfers of exchange notes would be permitted without registration
or
prospectus delivery under the conditions described above
is based on SEC
interpretations given to other, unrelated issuers in similar
exchange
offers. We cannot assure you that the SEC would make a similar
interpretation with respect to our exchange offer. We will
not be
responsible for or indemnify you against any liability you
may incur under
the Securities Act.
Any
broker-dealer that acquires exchange notes for its own account
in exchange
for outstanding notes must represent that the outstanding
notes to be
exchanged for the exchange notes were acquired by it as a
result of
market-making activities or other trading activities and
acknowledge that
it will deliver a prospectus meeting the requirements of
the Securities
Act in connection with any offer to resell, resale or other
retransfer of
the exchange notes. However, by so acknowledging and by delivering
a
prospectus, such participating broker-dealer will not be
deemed to admit
that it is an “underwriter” within the meaning of the Securities Act.
During the period ending 180 days after the consummation
of the exchange
offer, subject to extension in limited circumstances, a participating
broker-dealer may use this prospectus for an offer to sell,
a resale or
other retransfer of exchange notes received in exchange for
outstanding
notes which it acquired through market-making activities
or other trading
activities.
|
|
Expiration
Date
|
The
exchange offer will expire at , New
York City
time, on
,
2007, unless we extend the expiration date.
|
|
Accrued
Interest on the Exchange Notes and the Outstanding Notes
|
The
exchange notes will bear interest from the most recent date to which
interest has been paid on the outstanding notes. If your outstanding
notes
are accepted for exchange, then you will receive interest on the
exchange
notes and not on the outstanding notes. Any outstanding notes not
tendered
will remain outstanding and continue to accrue interest according
to their
terms.
|
|
Conditions
|
The
exchange offer is subject to customary conditions. We may assert
or waive
these conditions in our sole discretion. If we materially change
the terms
of the exchange offer, we will resolicit tenders of the outstanding
notes.
See “The Exchange Offer—Conditions to the Exchange Offer” for more
information regarding conditions to the exchange offer.
|
|
Procedures
for Tendering Outstanding Notes
|
Each
holder of outstanding notes that wishes to tender their outstanding
notes
must either:
· complete,
sign and date the accompanying letter of transmittal or a facsimile
copy
of the letter of transmittal, have the signatures on the letter of
transmittal guaranteed, if required, and deliver the letter of
transmittal, together with any other required documents (including
the
outstanding notes), to the exchange agent; or
· if
outstanding notes are tendered pursuant to book-entry procedures,
the
tendering holder must deliver a completed and duly executed letter
of
transmittal or arrange with Depository Trust Company, or DTC, to
cause an
agent’s message to be transmitted with the required information (including
a book-entry confirmation) to the exchange agent; or
· comply
with the procedures set forth below under “—Guaranteed Delivery
Procedures.”
Holders
of outstanding notes that tender outstanding notes in the exchange
offer
must represent that the following are true:
· the
holder is acquiring the exchange notes in the ordinary course of
its
business;
· the
holder is not participating in, does not intend to participate in,
and has
no arrangement or understanding with any person to participate in
a
“distribution” of the exchange notes; and
· the
holder is not an “affiliate” of us within the meaning of Rule 405 of the
Securities Act.
Do
not send letters of transmittal, certificates representing outstanding
notes or other documents to us or DTC. Send these documents only
to the
exchange agent at the appropriate address given in this prospectus
and in
the letter of transmittal. We could reject your tender of outstanding
notes if you tender them in a manner that does not comply with the
instructions provided in this prospectus and the accompanying letter
of
transmittal. See “Risk Factors—There are significant consequences if you
fail to exchange your outstanding notes” for further
information.
|
|
Special
Procedures for Tenders by Beneficial Owners of Outstanding
Notes
|
If:
· you
beneficially own outstanding notes;
· those
notes are registered in the name of a broker, dealer, commercial
bank,
trust company or other nominee; and
· you
wish to tender your outstanding notes in the exchange offer,
please
contact the registered holder as soon as possible and instruct it
to
tender on your behalf and comply with the instructions set forth
in this
prospectus and the letter of transmittal.
|
|
Guaranteed
Delivery Procedures
|
If
you hold outstanding notes in certificated form or if you own outstanding
notes in the form of a book-entry interest in a global note deposited
with
the trustee, as custodian for DTC, and you wish to tender those
outstanding notes but:
· your
outstanding notes are not immediately available;
· time
will not permit you to deliver the required documents to the exchange
agent by the expiration date; or
· you
cannot complete the procedure for book-entry transfer on
time,
you
may tender your outstanding notes pursuant to the procedures described
in
“The Exchange Offer—Procedures for Tendering Outstanding notes—Guaranteed
Delivery.”
|
|
Withdrawal
Rights
|
You
may withdraw your tender of outstanding notes under the exchange
offer at
any time before the exchange offer expires. Any withdrawal must be
in
accordance with the procedures described in “The Exchange Offer—Withdrawal
Rights.”
|
|
Effect
on Holders of Outstanding Notes
|
As
a result of making this exchange offer, and upon acceptance for exchange
of all validly tendered outstanding notes, we will have fulfilled
our
obligations under the registration rights agreement. Accordingly,
there
will be no liquidated or other damages payable under the registration
rights agreement if outstanding notes were eligible for exchange,
but not
exchanged, in the exchange offer.
If
you do not tender your outstanding notes or we reject your tender,
your
outstanding notes will remain outstanding and will be entitled to
the
benefits of the indenture governing the notes. Under such circumstances,
you would not be entitled to any further registration rights under
the
registration rights agreement, except under limited circumstances.
Existing transfer restrictions would continue to apply to the outstanding
notes.
Any
trading market for the outstanding notes could be adversely affected
if
some but not all of the outstanding notes are tendered and accepted
in the
exchange offer.
|
|
Material
U.S. Federal Income and Estate Tax Consequences
|
Your
exchange of outstanding notes for exchange notes should not be treated
as
a taxable event for U.S. federal income tax purposes. See “Material U.S.
Federal Income and Estate Tax
Consequences.”
|
|
Use
of Proceeds
|
We
will not receive any proceeds from the exchange offer or the issuance
of
the exchange notes. $150.0 million of the net proceeds from the issuance
of the outstanding notes were used to refinance our outstanding
indebtedness under our revolving credit agreement and the remaining
proceeds are available for general corporate purposes.
|
SUMMARY
OF TERMS OF EXCHANGE NOTES
The
form
and terms of the exchange notes will be identical in all material respects
to
the form and terms of the outstanding notes, except that the exchange notes:
•
will
have been registered under the Securities Act;
•
will
not bear restrictive legends restricting their transfer under the Securities
Act;
•
will
not be entitled to the registration rights that apply to the outstanding
notes;
and
•
will
not contain provisions relating to an increase in the interest rate borne
by the
outstanding notes under circumstances related to the timing of the exchange
offer.
The
exchange notes represent the same debt as the outstanding notes and are
governed
by the same indenture, which is governed by New York law. A brief description
of
the material terms of the exchange notes follows:
|
Issuer
|
Centene
Corporation
|
|
|
Notes
Offered
|
$175,000,000
aggregate principal amount of 7 ¼ % Senior Notes due 2014.
|
|
|
Maturity
Date
|
April
1, 2014.
|
|
|
Interest
Payment Dates
|
April
1 and October 1, beginning October 1, 2007.
|
|
|
Ranking
|
The
notes will be unsecured and rank equally with our senior debt and
senior
to our subordinated indebtedness. The notes will effectively rank
junior
to our subsidiaries’ liabilities. The notes will also be subordinated to
our secured indebtedness to the extent of the assets securing such
indebtedness. As of December 31, 2006, after giving pro forma effect
to
this offering and our use of the net proceeds,
· we
would have had outstanding $175.0 million of senior indebtedness;
and
· our
subsidiaries would have had outstanding $415.5 million of indebtedness
and
other liabilities, including trade payables and medical liabilities
(excluding intercompany liabilities).
|
|
|
Option
Redemption
|
Prior
to April 1, 2011, we may from time to time redeem all or a portion
of the
notes by paying a special “make-whole” premium specified in this
prospectus under “Description of the Exchange Notes — Optional
Redemption.” We may redeem some or all of the notes, at any time on or
after April 1, 2011 at the redemption prices described in this prospectus.
See “Description of the Exchange Notes — Optional
Redemption.”
|
|
|
Equity
Offering Optional Redemption
|
Before
April 1, 2010, we may redeem up to 35% of the original aggregate
principal
amount of the notes with the net proceeds from certain equity offerings,
at 107.250% of the principal amount of the notes, plus accrued and
unpaid
interest and additional interest, if any, to the redemption date,
if at
least 65% of the aggregate principal amount of the notes originally
issued
remains outstanding after such redemption.
|
|
|
Change
of Control
|
When
certain specified change of control events occur, each holder of
notes may
require us to repurchase all or a portion of its notes at a purchase
price
of 101% of the principal amount of such notes, plus accrued and unpaid
interest and additional interest, if any, to the date of purchase.
See
“Description of the Exchange Notes — Repurchase at the Option of Holders —
Change of Control.”
|
|
|
Mandatory
Offer to Repurchase Following Certain Asset Sales
|
If
we sell certain assets and do not reinvest the net proceeds or repay
senior debt in compliance with the indenture, we must offer to repurchase
the notes at 100% of their principal amount, plus accrued and unpaid
interest, with such proceeds. See “Description of the Exchange Notes —
Repurchase at the Option of Holders — Asset Sales.”
|
|
|
Certain
Covenants
|
The
indenture governing the notes will contain covenants that, among
other
things, will limit our ability and the ability of our restricted
subsidiaries to:
· incur
additional indebtedness and issue preferred stock,
· pay
dividends or make other distributions,
· make
other restricted payments and investments,
· sell
assets, including capital stock of restricted subsidiaries,
· create
certain liens,
· enter
into sale and leaseback transactions,
· incur
restrictions on the ability of restricted subsidiaries to pay dividends
or
make other payments,
· in
the case of our subsidiaries, guarantee indebtedness,
· engage
in transactions with affiliates,
· create
unrestricted subsidiaries, and
· merge
or consolidate with other entities.
These
covenants are subject to important exceptions and qualifications,
that are
described under the heading “Description of the Exchange Notes — Certain
Covenants” in this prospectus.
In
addition, following the first day the notes have an investment
grade
rating from both Standard & Poor’s Ratings Group, Inc. and Moody’s
Investors Service, Inc., subject to certain conditions, we and
our
restricted subsidiaries will not be subject to certain of these
covenants.
See “Description of Exchange Notes — Certain Covenants — Covenant
Termination.”
|
|
Absence
of an Established Public Market for the Exchange Notes
|
The
outstanding notes are presently eligible for trading through the
PORTAL®
Market of the Nasdaq Stock Market, Inc., but the exchange notes
will be
new securities for which there is currently no market. We do not
intend to
apply for a listing of the exchange notes on any securities exchange.
Accordingly, we cannot assure you that a liquid market for the
exchange
notes will develop or be maintained.
|
|
Risk
Factors
|
See
“Risk Factors” and the other information in this prospectus for a
discussion of factors you should carefully consider before deciding
to
participate in the exchange offer.
|
SUMMARY
FINANCIAL DATA
The
following summary consolidated financial data should be read in connection
with
our Annual Report on Form 10-K for the year ended December 31, 2006 and
our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, including
the related notes to financial statements and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” contained therein,
which are incorporated by reference elsewhere in this prospectus.
The
data for the years ended December 31, 2004, 2005 and 2006 and as
of December 31, 2004, 2005 and 2006 are derived from our audited consolidated
financial statements, which are incorporated by reference elsewhere in
this
prospectus. The selected consolidated financial data as of and for the
three
months ended March 31, 2006 and March 31, 2007 are derived from our unaudited
financial statements, which are incorporated by reference elsewhere in
this
prospectus. Historical results are not necessarily indicative of the results
to
be expected in the future.
|
|
Year
Ended December
31,
|
Three
Months Ended March 31,
|
||||||||||||||
|
2004
|
2005
|
2006
|
2006
|
2007
|
||||||||||||
|
(dollars
in thousands, except member data)
|
||||||||||||||||
|
(unaudited)
|
||||||||||||||||
|
Statement
of Operations Data:
|
||||||||||||||||
|
Revenues:
|
||||||||||||||||
|
Premium
(1)
|
$
|
991,673
|
$
|
1,491,899
|
$
|
2,199,439
|
$
|
435,562
|
$
|
649,243
|
||||||
|
Service
|
9,267
|
13,965
|
79,581
|
19,516
|
21,592
|
|||||||||||
|
Total
revenues
|
1,000,940
|
1,505,864
|
2,279,020
|
455,078
|
670,835
|
|||||||||||
|
Expenses:
|
||||||||||||||||
|
Medical
costs
|
800,476
|
1,226,909
|
1,819,811
|
361,672
|
535,406
|
|||||||||||
|
Cost
of services
|
8,065
|
5,851
|
60,735
|
15,588
|
15,630
|
|||||||||||
|
General
and administrative expenses (1)
|
127,863
|
193,913
|
346,284
|
65,222
|
106,866
|
|||||||||||
|
Gain
on sale of FirstGuard Missouri
|
—
|
—
|
—
|
—
|
(4,218
|
)
|
||||||||||
|
Impairment
loss
|
—
|
—
|
81,098
|
—
|
—
|
|||||||||||
|
Total
operating expenses
|
936,404
|
1,426,673
|
2,307,928
|
442,482
|
653,684
|
|||||||||||
|
Earnings
(loss) from operations
|
64,536
|
79,191
|
(28,908
|
)
|
12,596
|
17,151
|
||||||||||
|
Other
income (expense):
|
||||||||||||||||
|
Investment
and other income
|
6,431
|
10,655
|
17,892
|
3,540
|
4,501
|
|||||||||||
|
Interest
expense
|
(680
|
)
|
(3,990
|
)
|
(10,636
|
)
|
(1,998
|
)
|
(3,132
|
)
|
||||||
|
Earnings
(loss) before income taxes
|
70,287
|
85,856
|
(21,652
|
)
|
14,138
|
18,520
|
||||||||||
|
Income
tax (benefit) expense
|
25,975
|
30,224
|
21,977
|
5,372
|
(19,691
|
)
|
||||||||||
|
Net
earnings (loss)
|
$
|
44,312
|
$
|
55,632
|
$
|
(43,629
|
)
|
$
|
8,766
|
$
|
38,211
|
|||||
|
Balance
Sheet Data:
|
||||||||||||||||
|
Cash
and cash equivalents (2)
|
$
|
84,105
|
$
|
147,358
|
$
|
271,047
|
$
|
118,512
|
$
|
311,905
|
||||||
|
Investments
and restricted deposits (2)
|
233,257
|
202,916
|
237,603
|
221,249
|
250,883
|
|||||||||||
|
Total
assets
|
527,934
|
668,030
|
894,980
|
737,807
|
971,377
|
|||||||||||
|
Medical
claim liabilities
|
165,980
|
170,514
|
280,441
|
172,792
|
275,965
|
|||||||||||
|
Long-term
debt.
|
46,973
|
92,448
|
174,646
|
130,940
|
200,404
|
|||||||||||
|
Stockholders’
equity
|
271,312
|
352,048
|
326,423
|
364,249
|
369,464
|
|||||||||||
|
Other
Operating Data:
|
||||||||||||||||
|
Membership:
|
||||||||||||||||
|
Medicaid
|
484,700
|
573,100
|
887,300
|
574,300
|
839,600
|
|||||||||||
|
SCHIP
|
142,200
|
134,600
|
216,200
|
132,000
|
211,200
|
|||||||||||
|
SSI
|
10,400
|
14,900
|
19,800
|
15,800
|
52,500
|
|||||||||||
|
Subtotal
|
637,300
|
722,600
|
1,123,300
|
722,100
|
1,103,300
|
|||||||||||
|
Kansas
and Missouri Medicaid/SCHIP members
|
135,400
|
149,300
|
138,900
|
152,700
|
—
|
|||||||||||
|
Total
|
772,700
|
871,900
|
1,262,200
|
874,800
|
1,103,300
|
|||||||||||
|
Revenue
per Member (3)
|
$
|
142.97
|
$
|
146.14
|
$
|
165.83
|
$
|
157.17
|
$
|
185.90
|
||||||
|
Health
Benefits Ratio (4):
|
||||||||||||||||
|
Medicaid
and SCHIP
|
80.4
|
%
|
81.8
|
%
|
82.6
|
%
|
82.8
|
%
|
82.3
|
%
|
||||||
|
SSI
|
93.8
|
%
|
97.5
|
%
|
87.6
|
%
|
87.6
|
%
|
86.3
|
%
|
||||||
|
Specialty
Services
|
—
|
85.0
|
%
|
82.5
|
%
|
84.1
|
%
|
79.3
|
%
|
|||||||
|
G&A
Expense Ratio:
|
||||||||||||||||
|
Medicaid
Managed Care
|
10.7
|
%
|
10.5
|
%
|
12.6
|
%
|
11.9
|
%
|
13.0
|
%
|
||||||
|
Specialty
Services
|
52.3
|
%
|
35.4
|
%
|
16.9
|
%
|
22.3
|
%
|
15.8
|
%
|
||||||
|
Days
in Claims Payable (5)
|
66.5
|
45.4
|
46.4
|
43.0
|
46.4
|
|||||||||||
|
Year
Ended December
31,
|
|
Three
Months Ended March 31,
|
|
|||||||||||||
|
|
|
2004
|
|
2005
|
|
2006
|
|
2006
|
|
2007
|
||||||
|
(dollars
in thousands)
|
||||||||||||||||
|
(unaudited)
|
||||||||||||||||
|
Other
Financial Data:
|
||||||||||||||||
|
Net
cash provided by operating activities
|
$
|
99,405
|
$
|
74,048
|
$
|
195,032
|
$
|
9,343
|
$
|
35,980
|
||||||
|
Total
debt to total capitalization
|
35.3
|
%
|
||||||||||||||
___________
|
(1)
|
Premium
revenues and general and administrative expenses reflect the
enactments of
premium taxes in certain states. Premium taxes were $5,503, $9,802
and
$42,453 for the years ended December 31, 2004, 2005 and 2006,
respectively. Premium taxes were $4,305 and $18,216, respectively
for the
quarters ended March 31, 2006 and 2007. Premium revenues for
the
FirstGuard health plans, which we acquired on December 1, 2004
and exited
in 2007, were $20,247, $273,662 and $317,027 for the years ended
December
31, 2004, 2005 and 2006, respectively. Premium revenues for the
FirstGuard
health plans were $76,288 and $6,601, respectively for the quarters
ended
March 31, 2006 and 2007.
|
|
(2)
|
Unregulated
cash, cash equivalents and investments for the years ended December
31,
2004, 2005 and 2006 were $45,988, $27,680 and $28,852, respectively.
Unregulated cash, cash equivalents and investments for the quarters
ended
March 31, 2006 and 2007 were $25,813 and $71,843,
respectively.
|
|
(3)
|
Revenue
per member information is presented for the Medicaid Managed
Care
Segment.
|
|
(4)
|
The
health benefits ratio represents medical costs as a percentage
of premium
revenues. Our medical costs include payments to physicians, hospitals
and
other providers for healthcare and specialty services claims.
Medical
costs also include estimates of medical expenses incurred but
not yet
reported, or IBNR, and estimates of the cost to process unpaid
claims.
|
|
(5)
|
Days
in claims payable is a calculation of medical claims liabilities
at the
end of the period divided by average expense per calendar day
for the
applicable quarter of each period. Days in claims payable decreased
in
2005 due to the settlement of a lawsuit with Aurora Health Care,
Inc.,
information systems improvements to reduce our claims processing
cycle
time and the effect of our behavioral health contract in Arizona.
Acquisitions in the last quarter of 2004 contributed to an increase
in our
2004 days in claims payable.
|
You
should carefully consider the risk factors set forth below, as well as the
other
information contained in this prospectus, before participating in this exchange
offer. The risks described below are not the only risks facing us. Additional
risks and uncertainties not currently known to us or that we currently deem
to
be immaterial may also materially and adversely affect our business operations.
Any of the following risks could materially adversely affect our business,
financial condition or results of operations.
Risks
Relating to the Exchange Offer
There
are significant consequences if you fail to
exchange your outstanding notes.
We
did
not register the outstanding notes under the Securities Act or any state
securities laws, nor do we intend to do so after the exchange offer. As a
result, the outstanding notes may only be transferred in limited circumstances
under the securities laws. If you do not exchange your outstanding notes in
the
exchange offer, you will lose your right to have the outstanding notes
registered under the Securities Act, subject to certain limitations. If you
continue to hold outstanding notes after the exchange offer, you may be unable
to sell the outstanding notes. Outstanding notes that are not tendered or are
tendered but not accepted will, following the exchange offer, continue to be
subject to existing restrictions.
You
cannot be sure that an active trading market for the
exchange notes will develop.
While
the
outstanding notes are presently eligible for trading in the PORTAL® Market,
there is no existing market for the exchange notes. We do not intend to apply
for a listing of the exchange notes on any securities exchange. We do not know
if an active public market for the exchange notes will develop or, if developed,
will continue. If an active public market does not develop or is not maintained,
the market price and liquidity of the exchange notes may be adversely affected.
We cannot make any assurances regarding the liquidity of the market for the
exchange notes, the ability of holders to sell their exchange notes or the
price
at which holders may sell their exchange notes. In addition, the liquidity
and
the market price of the exchange notes may be adversely affected by changes
in
the overall market for securities similar to the exchange notes, by changes
in
our financial performance or prospects and by changes in conditions in our
industry.
You
must follow the appropriate procedures to tender your outstanding
notes or they will not be exchanged.
The
exchange notes will be issued in exchange for the outstanding notes only after
timely receipt by the exchange agent of the outstanding notes or a book-entry
confirmation related thereto, a properly completed and executed letter of
transmittal or an agent’s message and all other required documentation. If you
want to tender your outstanding notes in exchange for exchange notes, you should
allow sufficient time to ensure timely delivery. Neither we nor the exchange
agent are under any duty to give you notification of defects or irregularities
with respect to tenders of outstanding notes for exchange. Outstanding notes
that are not tendered or are tendered but not accepted will, following the
exchange offer, continue to be subject to the existing transfer restrictions.
In
addition, if you tender the outstanding notes in the exchange offer to
participate in a distribution of the exchange notes, you will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. For additional
information, please refer to the sections entitled “The Exchange Offer” and
“Plan of Distribution” later in this prospectus.
Risks
Related to Being a Regulated Entity
Reduction
in Medicaid, SCHIP and SSI funding could substantially reduce our
profitability.
Most
of
our revenues come from Medicaid, SCHIP and SSI premiums. The base premium rate
paid by each state differs, depending on a combination of factors such as
defined upper payment limits, a member’s health status, age, gender, county or
region, benefit mix and member eligibility categories. Future levels of
Medicaid, SCHIP and SSI funding and premium rates may be affected by continuing
government efforts to contain healthcare costs and may further be affected
by
state and federal budgetary constraints. Additionally, state and federal
entities may make changes to the design of their Medicaid programs resulting
in
the cancellation or modification of these programs.
For
example, in August 2006, the Centers for Medicare & Medicaid Services, or
CMS, published an interim final rule regarding the estimation and recovery
of
improper payments made under Medicaid and SCHIP. This rule requires a CMS
contractor to sample selected states each year to estimate improper payments
in
Medicaid and SCHIP and create national and state specific error rates. States
must provide information to measure improper payments in Medicaid managed care,
as well as in fee-for-service Medicaid. Each state will be selected for review
once every three years for each program. States are required to repay CMS the
federal share of any overpayments identified.
On
February 8, 2006, President Bush signed the Deficit Reduction Act of 2005 to
reduce the size of the federal deficit. The Act reduces federal spending by
nearly $40 billion over 5 years, including a $5 billion reduction in Medicaid.
The Act reduces spending by cutting Medicaid payments for prescription drugs
and
gives states new power to reduce or reconfigure benefits. This law may also
lead
to lower Medicaid reimbursements in some states. The Bush administration’s
budget proposal for fiscal year 2008 proposes cutting Medicaid funding by $1.9
billion in legislative changes and by $1.5 billion in administrative changes,
which would lead to $25.7 billion in funding reductions over five years when
compared to the fiscal year 2007 levels. Additionally, the Bush administration’s
2008 budget for SCHIP provides for yearly allotments at the fiscal year 2007
levels, plus an additional $5 billion over the five-year period, which some
believe will result in a funding shortfall. States also periodically consider
reducing or reallocating the amount of money they spend for Medicaid, SCHIP
and
SSI. In recent years, the majority of states have implemented measures to
restrict Medicaid, SCHIP and SSI costs and eligibility.
Changes
to Medicaid, SCHIP and SSI programs could reduce the number of persons enrolled
in or eligible for these programs, reduce the amount of reimbursement or payment
levels, or increase our administrative or healthcare costs under those programs.
We believe that reductions in Medicaid, SCHIP and SSI payments could
substantially reduce our profitability. Further, our contracts with the states
are subject to cancellation by the state after a short notice period in the
event of unavailability of state funds.
If
SCHIP is not reauthorized, our business could suffer.
The
authorization for SCHIP expires at the end of federal fiscal year 2007. We
cannot guarantee that federal funding of SCHIP will be reauthorized and if
it
is, what changes might be made to the program following reauthorization. If
SCHIP is not reauthorized by September 30, 2007, we anticipate that Congress
will pass legislation that will freeze federal funding at the current 2007
levels. Congress began the reauthorization process in early February, 2007.
At
this time, it is not clear whether the relevant congressional committees of
jurisdiction over this program will be able to reach agreement on an SCHIP
reauthorization package that could cost $50 billion in additional federal
spending.
Several states face a shortfall in federal SCHIP funding,
which
could have an impact on our business.
States
receive matching funds from the federal government to pay for their SCHIP
programs, which matching funds have a per state annual cap. It is predicted
that
two states in which we have SCHIP contracts, Georgia and New Jersey, will spend
all of their federal allocation for fiscal year 2007 prior to the end of the
year. In December 2006, Congress passed legislation that will redistribute
funds
that were not spent in prior years to the states that are facing these
shortfalls. The Congressional Research Service estimates that this legislation
will delay the shortfall to the first part of May 2007. We cannot predict
whether the U.S. Congress will appropriate additional funds or take other
legislative action to cover the shortfalls. Further, we cannot predict if states
will provide additional funding to cover the federal shortfall. Certain of
our
contracts are subject to renewal this year and we cannot guarantee that they
will be renewed and if renewed, whether the terms will be modified. If any
of
the contracts are not renewed or if any state delays paying us or fails to
pay
the full amount owed due to the shortfall, our business could
suffer.
If
our Medicaid and SCHIP contracts are terminated or are not renewed, our business
will suffer.
We
provide managed care programs and selected services to individuals receiving
benefits under federal assistance programs, including Medicaid, SCHIP and SSI.
We provide those healthcare services under contracts with regulatory entities
in
the areas in which we operate. Our contracts with various states are generally
intended to run for one or two years and may be extended for one or two
additional years if the state or its agent elects to do so. Our current
contracts are set to expire between June 30, 2007 and September 30, 2011. When
our contracts expire, they may be opened for bidding by competing healthcare
providers. There is no guarantee that our contracts will be renewed or extended.
For example, on August 25, 2006, we received notification from the Kansas Health
Policy Authority that FirstGuard Health Plan Kansas, Inc.’s contract with the
state would not be renewed or extended, and as a result, our contract ended
on
December 31, 2006. Further, our contracts with the states are subject to
cancellation by the state after a short notice period in the event of
unavailability of state funds. Our contracts could also be terminated if we
fail
to perform in accordance with the standards set by state regulatory agencies.
For example, the Indiana contract under which we operate can be terminated
by
the State without cause. If any of our contracts are terminated, not renewed,
or
renewed on less favorable terms, our business will suffer, and our operating
results may be materially affected.
Changes
in government regulations designed to protect the financial interests of
providers and members rather than our investors could force us to change how
we
operate and could harm our business.
Our
business is extensively regulated by the states in which we operate and by
the
federal government. The applicable laws and regulations are subject to frequent
change and generally are intended to benefit and protect the financial interests
of health plan providers and members rather than investors. The enactment of
new
laws and rules or changes to existing laws and rules or the interpretation
of
such laws and rules could, among other things:
| · |
force
us to restructure our relationships with providers within our
network;
|
| · |
require
us to implement additional or different programs and
systems;
|
| · |
mandate
minimum medical expense levels as a percentage of premium
revenues;
|
| · |
restrict
revenue and enrollment growth;
|
| · |
require
us to develop plans to guard against the financial insolvency of
our
providers;
|
| · |
increase
our healthcare and administrative
costs;
|
| · |
impose
additional capital and reserve requirements;
and
|
| · |
increase
or change our liability to members in the event of malpractice by
our
providers.
|
For
example, Congress has previously considered various forms of patient protection
legislation commonly known as the Patients’ Bill of Rights and such legislation
may be proposed again. We cannot predict the impact of any such legislation,
if
adopted, on our business.
Regulations
may decrease the profitability of our health plans.
Certain
states have enacted regulations which require us to maintain a minimum health
benefits ratio, or establish limits on our profitability. Other states require
us to meet certain performance and quality metrics in order to receive our
full
contractual revenue. In certain circumstances, our plans may be required to
pay
a rebate to the state in the event profits exceed established levels. These
regulatory requirements, changes in these requirements or the adoption of
similar requirements by our other regulators may limit our ability to increase
our overall profits as a percentage of revenues. Certain states, including
but
not limited to Georgia, Indiana, New Jersey and Texas have implemented
prompt-payment laws and are enforcing penalty provisions for failure to pay
claims in a timely manner. Failure to meet these requirements can result in
financial fines and penalties. In addition, states may attempt to reduce their
contract premium rates if regulators perceive our health benefits ratio as
too
low. Any of these regulatory actions could harm our operating results. Certain
states also impose marketing restrictions on us which may constrain our
membership growth and our ability to increase our revenues.
We
face periodic reviews, audits and investigations under our contracts with state
government agencies, and these audits could have adverse findings, which may
negatively impact our business.
We
contract with various state governmental agencies to provide managed healthcare
services. Pursuant to these contracts, we are subject to various reviews, audits
and investigations to verify our compliance with the contracts and applicable
laws and regulations. Any adverse review, audit or investigation could result
in:
| · |
refunding
of amounts we have been paid pursuant to our
contracts;
|
| · |
imposition
of fines, penalties and other sanctions on
us;
|
| · |
loss
of our right to participate in various
markets;
|
| · |
increased
difficulty in selling our products and services;
and
|
| · |
loss
of one or more of our licenses.
|
Failure
to comply with government regulations could subject us to civil and criminal
penalties.
Federal
and state governments have enacted fraud and abuse laws and other laws to
protect patients’ privacy and access to healthcare. In some states, we may be
subject to regulation by more than one governmental authority, which may impose
overlapping or inconsistent regulations. Violation of these and other laws
or
regulations governing our operations or the operations of our providers could
result in the imposition of civil or criminal penalties, the cancellation of
our
contracts to provide services, the suspension or revocation of our licenses
or
our exclusion from participating in the Medicaid, SCHIP and SSI programs. If
we
were to become subject to these penalties or exclusions as the result of our
actions or omissions or our inability to monitor the compliance of our
providers, it would negatively affect our ability to operate our
business.
The
Health Insurance Portability and Accountability Act of 1996, or HIPAA, broadened
the scope of fraud and abuse laws applicable to healthcare companies. HIPAA
created civil penalties for, among other things, billing for medically
unnecessary goods or services. HIPAA established new enforcement mechanisms
to
combat fraud and abuse, including civil and, in some instances, criminal
penalties for failure to comply with specific standards relating to the privacy,
security and electronic transmission of most individually identifiable health
information. It is possible that Congress may enact additional legislation
in
the future to increase penalties and to create a private right of action under
HIPAA, which could entitle patients to seek monetary damages for violations
of
the privacy rules.
We
may incur significant costs as a result of compliance with government
regulations, and our management will be required to devote time to
compliance.
Many
aspects of our business are affected by government laws and regulations. The
issuance of new regulations, or judicial or regulatory guidance regarding
existing regulations, could require changes to many of the procedures we
currently use to conduct our business, which may lead to additional costs that
we have not yet identified. We do not know whether, or the extent to which,
we
will be able to recover from the states our costs of complying with these new
regulations. The costs of any such future compliance efforts could have a
material adverse effect on our business. We have already expended significant
time, effort and financial resources to comply with the privacy and security
requirements of HIPAA. We cannot predict whether states will enact stricter
laws
governing the privacy and security of electronic health information. If any
new
requirements are enacted at the state or federal level, compliance would likely
require additional expenditures and management time.
In
addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented
by
the SEC and the New York Stock Exchange, or the NYSE, have imposed various
requirements on public companies, including requiring changes in corporate
governance practices. Our management and other personnel will continue to devote
time to these new compliance initiatives.
The
Sarbanes-Oxley Act requires, among other things, that we maintain effective
internal control over financial reporting. In particular, we must perform system
and process evaluation and testing of our internal controls over financial
reporting to allow management to report on the effectiveness of our internal
controls over our financial reporting as required by Section 404 of the
Sarbanes-Oxley Act. Our testing, or the subsequent testing by our independent
registered public accounting firm, may reveal deficiencies in our internal
controls over financial reporting that are deemed to be material weaknesses.
Our
compliance with Section 404 requires that we incur substantial accounting
expense and expend significant management efforts. Moreover, if we are not
able
to comply with the requirements of Section 404, or if we or our independent
registered public accounting firm identifies deficiencies in our internal
control over financial reporting that are deemed to be material weaknesses,
the
market price of our stock could decline and we could be subject to sanctions
or
investigations by the NYSE, SEC or other regulatory authorities, which would
require additional financial and management resources.
Changes
in healthcare law and benefits may reduce our
profitability.
Numerous
proposals relating to changes in healthcare law have been introduced, some
of
which have been passed by Congress and the states in which we operate or may
operate in the future. Changes in applicable laws and regulations are
continually being considered, and interpretations of existing laws and rules
may
also change from time to time. We are unable to predict what regulatory changes
may occur or what effect any particular change may have on our business. For
example, these changes could reduce the number of persons enrolled or eligible
to enroll in Medicaid, reduce the reimbursement or payment levels for medical
services or reduce benefits included in Medicaid coverage. We are also
unable
to
predict whether new laws or proposals will favor or hinder the growth of managed
healthcare in general. Legislation or regulations that require us to change
our
current manner of operation, benefits provided or our contract arrangements
may
seriously harm our operations and financial results.
If
a state fails to renew a required federal waiver for mandated Medicaid
enrollment into managed care or such application is denied, our membership
in
that state will likely decrease.
States
may administer Medicaid managed care programs pursuant to demonstration programs
or required waivers of federal Medicaid standards. Waivers and demonstration
programs are generally approved for two year periods and can be renewed on
an
ongoing basis if the state applies. We have no control over this renewal
process. If a state does not renew such a waiver or demonstration program or
the
Federal government denies a state’s application for renewal, membership in our
health plan in the state could decrease and our business could
suffer.
Changes
in federal funding mechanisms may reduce our
profitability.
The
Bush
administration previously proposed a major long-term change in the way Medicaid
and SCHIP are funded. The proposal, if adopted, would allow states to elect
to
receive, instead of federal matching funds, combined Medicaid-SCHIP “allotments”
for acute and long-term healthcare for low-income, uninsured persons.
Participating states would be given flexibility in designing their own health
insurance programs, subject to federally-mandated minimum coverage requirements.
It is uncertain whether this proposal will be enacted. Accordingly, it is
unknown whether or how many states might elect to participate or how their
participation may affect the net amount of funding available for Medicaid
and
SCHIP programs. If such a proposal is adopted and decreases the number of
persons enrolled in Medicaid or SCHIP in the states in which we operate or
reduces the volume of healthcare services provided, our growth, operations
and
financial performance could be adversely affected.
14
In
April
2004, the Bush administration adopted a policy that seeks to reduce states’ use
of intergovernmental transfers for the states’ share of Medicaid program
funding. By restricting the use of intergovernmental transfers, this policy,
if
continued, may restrict some states’ funding for Medicaid, which could adversely
affect our growth, operations and financial performance.
Recent
legislative changes in the Medicare program may also affect our business. For
example, the Medicare Prescription Drug, Improvement and Modernization Act
of
2003 revised cost-sharing requirements for some beneficiaries and requires
states to reimburse the federal Medicare program for costs of prescription
drug
coverage provided to beneficiaries who are enrolled simultaneously in both
the
Medicaid and Medicare programs. The Bush administration has also proposed to
further reduce total federal funding for the Medicaid program by $25.7 billion
over the next five years. These changes may reduce the availability of funding
for some states’ Medicaid programs, which could adversely affect our growth,
operations and financial performance. In addition, the new Medicare prescription
drug benefit is interrupting the distribution of prescription drugs to many
beneficiaries simultaneously enrolled in both Medicaid and Medicare, prompting
several states to pay for prescription drugs on an unbudgeted, emergency basis
without any assurance of receiving reimbursement from the federal Medicaid
program. These expenses may cause some states to divert funds originally
intended for other Medicaid services which could adversely affect our growth,
operations and financial performance.
If
state regulatory agencies require a statutory capital level higher than the
state regulations, we may be required to make additional capital
contributions.
Our
operations are conducted through our wholly owned subsidiaries, which include
health maintenance organizations, or HMOs, and managed care organizations,
or
MCOs. HMOs and MCOs are subject
to state regulations that, among other things, require the maintenance of
minimum levels of statutory capital, as defined by each state. Additionally,
state regulatory agencies may require, at their discretion, individual HMOs
to
maintain statutory capital levels higher than the state regulations. If this
were to occur to one of our subsidiaries, we may be required to make additional
capital contributions to the affected subsidiary. Any additional capital
contribution made to one of the affected subsidiaries could have a material
adverse effect on our liquidity and our ability to grow.
If
we are unable to participate in SCHIP programs, our growth rate may be
limited.
SCHIP
is
a federal initiative designed to provide coverage for low-income children not
otherwise covered by Medicaid or other insurance programs. The programs vary
significantly from state to state. Participation in SCHIP programs is an
important part of our growth strategy. If states do not allow us to participate
or if we fail to win bids to participate, our growth strategy may be materially
and adversely affected.
If
state regulators do not approve payments of dividends and distributions by
our
subsidiaries to us, we may not have sufficient funds to implement our business
strategy.
We
principally operate through our health plan subsidiaries. If funds normally
available to us become limited in the future, we may need to rely on dividends
and distributions from our subsidiaries to fund our operations. These
subsidiaries are subject to regulations that limit the amount of dividends
and
distributions that can be paid to us without prior approval of, or notification
to, state regulators. If these regulators were to deny our subsidiaries’ request
to pay dividends to us, the funds available to us would be limited, which could
harm our ability to implement our business strategy.
Risks
Related to Our Business
Ineffectiveness
of state-operated systems and subcontractors could adversely affect our
business.
Our
health plans rely on other state-operated systems or sub-contractors to qualify,
solicit, educate and assign eligible clients into the health plans. The
effectiveness of these state operations and sub-contractors can have a material
effect on a health plan’s enrollment in a particular month or over an extended
period. When a state implements new programs to determine eligibility, new
processes to assign or enroll eligible clients into health plans, or chooses
new
contractors, there is an increased potential for an unanticipated impact on
the
overall number of members assigned into the health plans.
Failure
to accurately predict our medical expenses could negatively affect our reported
results.
Our
medical expenses include estimates of medical expenses incurred but not yet
reported, or IBNR. We estimate our IBNR medical expenses monthly based on a
number of factors. Adjustments, if necessary, are made to medical expenses
in
the period during which the actual claim costs are ultimately determined or
when
criteria used to estimate IBNR change. We cannot be sure that our IBNR estimates
are adequate or that adjustments to those estimates will not harm our results
of
operations. For example, in the three months ended June 30, 2006 we adjusted
our
IBNR by $9.7 million for adverse medical cost development from the first quarter
of 2006. In addition, when we commence operations in a new state or region,
we
have limited information with which to estimate our medical claims liabilities.
For example, we commenced operations in the Atlanta and Central regions of
Georgia on June 1, 2006 and the Southwest region of Georgia on September 1,
2006
and have based our estimates on state provided historical actuarial data and
limited 2006 actual incurred and received data. From time to time in the past,
our actual results have varied from our estimates, particularly in times of
significant changes in the number
of
our members. Our failure to estimate IBNR accurately may also affect our ability
to take timely corrective actions, further harming our results.
Receipt
of inadequate or significantly delayed premiums would negatively affect our
revenues and profitability.
Our
premium revenues consist of fixed monthly payments per member and supplemental
payments for other services such as maternity deliveries. These premiums are
fixed by contract, and we are obligated during the contract periods to provide
healthcare services as established by the state governments. We use a large
portion of our revenues to pay the costs of healthcare services delivered to
our
members. If premiums do not increase when expenses related to medical services
rise, our earnings will be affected negatively. In addition, our actual medical
service costs may exceed our estimates, which would cause our health benefits
ratio, or our expenses related to medical services as a percentage of premium
revenue, to increase and our profits to decline. In addition, it is possible
for
a state to increase the rates payable to the hospitals without granting a
corresponding increase in premiums to us. If this were to occur in one or more
of the states in which we operate, our profitability would be harmed. In
addition, if there is a significant delay in our receipt of premiums to offset
previously incurred health benefits costs, our earnings could be negatively
impacted.
Failure
to effectively manage our medical costs or related administrative costs would
reduce our profitability.
Our
profitability depends, to a significant degree, on our ability to predict and
effectively manage expenses related to health benefits. We have less control
over the costs related to medical services than we do over our general and
administrative expenses. Because of the narrow margins of our health plan
business, relatively small changes in our health benefits ratio can create
significant changes in our financial results. Changes in healthcare regulations
and practices, the level of use of healthcare services, hospital costs,
pharmaceutical costs, major epidemics, new medical technologies and other
external factors, including general economic conditions such as inflation
levels, are beyond our control and could reduce our ability to predict and
effectively control the costs of providing health benefits. We may not be able
to manage costs effectively in the future. If our costs related to health
benefits increase, our profits could be reduced or we may not remain
profitable.
Difficulties
in executing our acquisition strategy could adversely affect our
business.
Historically,
the acquisition of Medicaid and specialty services businesses, contract rights
and related assets of other health plans both in our existing service areas
and
in new markets has accounted for a significant amount of our growth. Many
of the
other potential purchasers have greater financial resources than we have.
In
addition, many of the sellers are interested either in (a) selling, along
with
their Medicaid assets, other assets in which we do not have an interest or
(b)
selling their companies, including their liabilities, as opposed to the assets
of their ongoing businesses.
We
generally are required to obtain regulatory approval from one or more state
agencies when making acquisitions. In the case of an acquisition of a business
located in a state in which we do not currently operate, we would be required
to
obtain the necessary licenses to operate in that state. In addition, even if
we
already operate in a state in which we acquire a new business, we would be
required to obtain additional regulatory approval if the acquisition would
result in our operating in an area of the state in which we did not operate
previously, and we could be required to renegotiate provider contracts of the
acquired business. We cannot assure you that we would be able to comply with
these regulatory requirements for an acquisition in a timely manner, or at
all.
In deciding whether to approve a proposed acquisition,
state regulators may consider a number of factors outside our control, including
giving preference to competing offers made by locally owned entities or by
not-for-profit entities.
We
also may
be unable to obtain sufficient additional capital resources for future
acquisitions. If we are unable to effectively execute our acquisition strategy,
our future growth will suffer and our results of operations could be
harmed.
Execution
of our growth strategy may increase costs or liabilities, or create disruptions
in our business.
We
pursue
acquisitions of other companies or businesses from time to time. Although we
review the records of companies or businesses we plan to acquire, even an
in-depth review of records may not reveal existing or potential problems or
permit us to become familiar enough with a business to assess fully its
capabilities and deficiencies. As a result, we may assume unanticipated
liabilities or adverse operating conditions, or an acquisition may not perform
as well as expected. We face the risk that the returns on acquisitions will
not
support the expenditures or indebtedness incurred to acquire such businesses,
or
the capital expenditures needed to develop such businesses. We also face the
risk that we will not be able to integrate acquisitions into our existing
operations effectively without substantial expense, delay or other operational
or financial problems. Integration may be hindered by, among other things,
differing procedures, including internal controls, business practices and
technology systems. We may need to divert more management resources to
integration than we planned, which may adversely affect our ability to pursue
other profitable activities.
In
addition to the difficulties we may face in identifying and consummating
acquisitions, we will also be required to integrate and consolidate any acquired
business or assets with our existing operations. This may include the
integration of:
| · |
additional
personnel who are not familiar with our operations and corporate
culture;
|
| · |
provider
networks that may operate on different terms than our existing
networks;
|
| · |
existing
members, who may decide to switch to another healthcare plan;
and
|
| · |
disparate
administrative, accounting and finance, and information
systems.
|
Additionally,
our growth strategy includes start-up operations in new markets or new products
in existing markets. We may incur significant expenses prior to commencement
of
operations and the receipt of revenue. As a result, these start-up operations
may decrease our profitability. In the event we pursue any opportunity to
diversify our business internationally, we would become subject to additional
risks, including, but not limited to, political risk, an unfamiliar regulatory
regime, currency exchange risk and exchange controls, cultural and language
differences, foreign tax issues, and different labor laws and
practices.
Accordingly,
we may be unable to identify, consummate and integrate future acquisitions
or
start-up operations successfully or operate acquired or new businesses
profitably.
If
competing managed care programs are unwilling to purchase specialty services
from us, we may not be able to successfully implement our strategy of
diversifying our business lines.
We
are
seeking to diversify our business lines into areas that complement our Medicaid
business in order to grow our revenue stream and balance our dependence on
Medicaid risk reimbursement. In order to diversify our business, we must succeed
in selling the services of our specialty subsidiaries not only to our managed
care plans, but to programs operated by third-parties. Some of these third-party
programs may compete with us in some markets, and they therefore may be
unwilling to purchase specialty services from us. In any event, the offering
of
these services will require marketing activities that differ significantly
from
the manner in which we seek to increase revenues from our Medicaid programs.
Our
inability to market specialty services to other programs may impair our ability
to execute our business strategy.
Failure
to achieve timely profitability in any business would negatively affect our
results of operations.
Start-up
costs associated with a new business can be substantial. For example, in order
to obtain a certificate of authority in most jurisdictions, we must first
establish a provider network, have systems in place and demonstrate our ability
to obtain a state contract and process claims.
If
we were unsuccessful in obtaining the necessary license, winning the bid to
provide service or attracting members in numbers sufficient to cover our costs,
any new business of ours would fail. We also could be obligated by the state
to
continue to provide services for some period of time without sufficient revenue
to cover our ongoing costs or recover start-up costs. The expenses associated
with starting up a new business could have a significant impact on our results
of operations if we are unable to achieve profitable operations in a timely
fashion.
We
derive a majority of our premium revenues from operations in a small number
of
states, and our operating results would be materially affected by a decrease
in
premium revenues or profitability in any one of those
states.
Operations
in Georgia, Indiana, Kansas, Texas and Wisconsin have accounted for most of
our
premium revenues to date. For example, our Medicaid contract with Kansas, which
terminated December 31, 2006, together with our Medicaid contract with Missouri
accounted for $317.0 million in revenue for the year ended December 31, 2006.
If
we were unable to continue to operate in each of these other states or if our
current operations in any portion of one of those states were significantly
curtailed, our revenues could decrease materially. Our reliance on operations
in
a limited number of states could cause our revenue and profitability to change
suddenly and unexpectedly depending on legislative or other governmental or
regulatory actions and decisions, economic conditions and similar factors in
those states. Our inability to continue to operate in any of the states in
which
we operate would harm our business.
Competition
may limit our ability to increase penetration of the markets that we
serve.
We
compete for members principally on the basis of size and quality of provider
network, benefits provided and quality of service. We compete with numerous
types of competitors, including other health plans and traditional state
Medicaid programs that reimburse providers as care is provided. Subject to
limited exceptions by federally approved state applications, the federal
government requires that there be choices for Medicaid recipients among managed
care programs. Voluntary programs and mandated competition may limit our ability
to increase our market share.
Some
of
the health plans with which we compete have greater financial and other
resources and offer a broader scope of products than we do. In addition,
significant merger and acquisition activity has occurred in the managed care
industry, as well as in industries that act as suppliers to us, such as the
hospital, physician, pharmaceutical, medical device and health information
systems businesses. To the extent that competition intensifies in any market
that we serve, our ability to retain or increase members and providers, or
maintain or increase our revenue growth, pricing flexibility and control over
medical cost trends may be adversely affected.
In
addition, in order to increase our membership in the markets we currently serve,
we believe that we must continue to develop and implement community-specific
products, alliances with key providers and localized outreach and educational
programs. If we are unable to develop and implement these initiatives, or if
our
competitors are more successful than we are in doing so, we may not be able
to
further penetrate our existing markets.
If
we are unable to maintain relationships with our provider networks, our
profitability may be harmed.
Our
profitability depends, in large part, upon our ability to contract favorably
with hospitals, physicians and other healthcare providers. Our provider
arrangements with our primary care physicians, specialists and hospitals
generally may be cancelled by either party without cause upon 90 to 120 days
prior written notice. We cannot assure you that we will be able to continue
to
renew our existing contracts or enter into new contracts enabling us to service
our members profitably.
From
time
to time, providers assert or threaten to assert claims seeking to terminate
noncancelable agreements due to alleged actions or inactions by us. Even if
these allegations represent attempts to avoid or renegotiate contractual terms
that have become economically disadvantageous to the providers, it is possible
that in the future a provider may pursue such a claim successfully. In addition,
we are aware that other managed care organizations have been subject to class
action suits by physicians with respect to claim payment procedures, and we
may
be subject to similar claims. Regardless of whether any claims brought against
us are successful or have merit, they will still be time-consuming and costly
and could distract our management’s attention. As a result, we may incur
significant expenses and may be unable to operate our business effectively.
We
will
be required to establish acceptable provider networks prior to entering new
markets. We may be unable to enter into agreements with providers in new markets
on a timely basis or under favorable terms. If we are unable to retain our
current provider contracts or enter into new provider contracts timely or on
favorable terms, our profitability will be harmed.
We
may be unable to attract and retain key personnel.
We
are
highly dependent on our ability to attract and retain qualified personnel to
operate and expand our business. If we lose one or more members of our senior
management team, including our chief executive officer, Michael Neidorff, who
has been instrumental in developing our business strategy and forging our
business relationships, our business and operating results could be harmed.
Our
ability to replace any departed members of our senior management or other key
employees may be difficult and may take an extended period of time because
of
the limited number of individuals in the Medicaid managed care and specialty
services industry with the breadth of skills and experience required to operate
and successfully expand a business such as ours. Competition to hire from this
limited pool is intense, and we may be unable to hire, train, retain or motivate
these personnel.
Negative
publicity regarding the managed care industry may harm our business and
operating results.
The
managed care industry has received negative publicity. This publicity has led
to
increased legislation, regulation, review of industry practices and private
litigation in the commercial sector. These factors may adversely affect our
ability to market our services, require us to change our services, and increase
the regulatory burdens under which we operate. Any of these factors may increase
the costs of doing business and adversely affect our operating
results.
Claims relating to medical malpractice could cause us to
incur
significant expenses.
Our
providers and employees involved in medical care decisions may be subject to
medical malpractice claims. In addition, some states, including Texas, have
adopted legislation that permits managed care organizations to be held liable
for negligent treatment decisions or benefits coverage determinations. Claims
of
this nature, if successful, could result in substantial damage awards against
us
and our providers that could exceed the limits of any applicable insurance
coverage. Therefore, successful malpractice or tort claims asserted against
us,
our providers or our employees could adversely affect our financial condition
and profitability.
Even
if
any claims brought against us are unsuccessful or without merit, they would
still be time consuming and costly and could distract our management’s
attention. As a result, we may incur significant expenses and may be unable
to
operate our business effectively.
Loss
of providers due to increased insurance costs could adversely affect our
business.
Our
providers routinely purchase insurance to help protect themselves against
medical malpractice claims. In recent years, the costs of maintaining
commercially reasonable levels of such insurance have increased dramatically,
and these costs are expected to increase to even greater levels in the future.
As a result of the level of these costs, providers may decide to leave the
practice of medicine or to limit their practice to certain areas, which may
not
address the needs of Medicaid participants. We rely on retaining a sufficient
number of providers in order to maintain a certain level of service. If a
significant number of our providers exit our provider networks or the practice
of medicine generally, we may be unable to replace them in a timely manner,
if
at all, and our business could be adversely affected.
Growth
in the number of Medicaid-eligible persons during economic downturns could
cause
our operating results to suffer if state and federal budgets decrease or do
not
increase.
Less
favorable economic conditions may cause our membership to increase as more
people become eligible to receive Medicaid benefits. During such economic
downturns, however, state and federal budgets could decrease, causing states
to
attempt to cut healthcare programs, benefits and rates. We cannot predict the
impact of changes in the United States economic environment or other economic
or
political events, including acts of terrorism or related military action, on
federal or state funding of healthcare programs or on the size of the population
eligible for the programs we operate. If federal funding decreases or remains
unchanged while our membership increases, our results of operations will
suffer.
Growth
in the number of Medicaid-eligible persons may be countercyclical, which could
cause our operating results to suffer when general economic conditions are
improving.
Historically,
the number of persons eligible to receive Medicaid benefits has increased more
rapidly during periods of rising unemployment, corresponding to less favorable
general economic conditions. Conversely, this number may grow more slowly or
even decline if economic conditions improve. Therefore, improvements in general
economic conditions may cause our membership levels to decrease, thereby causing
our operating results to suffer, which could lead to decreases in our stock
price during periods in which stock prices in general are
increasing.
If
we are unable to integrate and manage our information systems effectively,
our
operations could be disrupted.
Our
operations depend significantly on effective information systems. The
information gathered and processed by our information systems assists us in,
among other things, monitoring utilization and other cost factors, processing
provider claims, and providing data to our regulators. Our providers also depend
upon our information systems for membership verifications, claims status and
other information.
Our
information systems and applications require continual maintenance, upgrading
and enhancement to meet our operational needs and regulatory requirements.
Moreover, our acquisition activity requires frequent transitions to or from,
and
the integration of, various information systems. We regularly upgrade and expand
our information systems’ capabilities. If we experience difficulties with the
transition to or from information systems or are unable to properly maintain
or
expand our information systems, we could suffer, among other things, from
operational disruptions, loss of existing members and difficulty in attracting
new members, regulatory problems and increases in administrative expenses.
In
addition, our ability to integrate and manage our information systems may be
impaired as the result of events outside our control, including acts of nature,
such as earthquakes or fires, or acts of terrorists.
We
rely on the accuracy of eligibility lists provided by state governments.
Inaccuracies in those lists would negatively affect our results of
operations.
Premium
payments to us are based upon eligibility lists produced by state governments.
From time to time, states require us to reimburse them for premiums paid to
us
based on an eligibility list that a state later discovers contains individuals
who are not in fact eligible for a government sponsored program or are eligible
for a different premium category or a different program. Alternatively, a state
could fail to pay us for members for whom we are entitled to payment. Our
results of operations would be adversely affected as a result of such
reimbursement to the state if we had made related payments to providers and
were
unable to recoup such payments from the providers.
We
may not be able to obtain or maintain adequate
insurance.
We
maintain liability insurance, subject to limits and deductibles, for claims
that
could result from providing or failing to provide managed care and related
services. These claims could be substantial. We believe that our present
insurance coverage and reserves are adequate to cover currently estimated
exposures. We cannot assure you that we will be able to obtain adequate
insurance coverage in the future at acceptable costs or that we will not incur
significant liabilities in excess of policy limits.
From
time to time, we may become involved in costly and time-consuming litigation
and
other regulatory proceedings, which require significant attention from our
management.
We
are a
defendant from time to time in lawsuits and regulatory actions relating to
our
business. Due to the inherent uncertainties of litigation and regulatory
proceedings, we cannot accurately predict the ultimate outcome of any such
proceedings. An unfavorable outcome could have a material adverse impact on
our
business and operating results. In addition, regardless of the outcome of any
litigation or regulatory proceedings, such proceedings are costly and require
significant attention from our management. For example, we have been named
in
two recently-filed securities class action lawsuits that are now consolidated.
In addition, we may in the future be the target of similar litigation. As with
other litigation, securities litigation could be costly and time consuming,
require significant attention from our management and could harm our business
and operating results.
To
service our indebtedness, we will require a significant amount of cash.
Our
ability to generate cash depends on many factors beyond our
control.
Our
ability to make payments on and to refinance our indebtedness, including
the
notes, and to fund planned capital expenditures will depend on our ability
and
the ability of our subsidiaries to generate cash in the future. This, to
a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our
control.
We
cannot
assure you that our business will generate sufficient cash flow from operations,
or that future borrowings will be available to us under our revolving credit
facility in an amount sufficient to enable us to pay our indebtedness, including
these notes, or to fund our other liquidity needs. We may need to refinance
all
or a portion of our indebtedness, including the notes, on or before maturity.
We
cannot assure you that we will be able to refinance any of our indebtedness,
including any current or future credit facility and the notes, on commercially
reasonable terms or at all.
The
restrictive covenants in our debt instruments may limit our operating
flexibility. Our failure to comply with these covenants could result in defaults
under our indenture and future debt instruments even though we may be able
to
meet our debt service obligations.
The
instruments governing our indebtedness, including the indenture governing the
notes and the revolving credit facility, impose significant operating and
financial restrictions on us. These restrictions significantly limit, among
other things, our ability to incur additional indebtedness, pay dividends,
repay
junior indebtedness, sell assets, make investments, engage in transactions
with
affiliates, create liens and engage in certain types of mergers or acquisitions.
Our future debt instruments may have similar or more restrictive covenants.
These restrictions could limit our ability to obtain future financings, make
capital expenditures, withstand a future downturn in our business or the economy
in general, or otherwise take advantage of business opportunities that may
arise. If we fail to comply with these restrictions, the note holders or lenders
under any debt instrument could declare a default under the terms of the
relevant indebtedness even though we are able to meet debt service obligations
and, because our indebtedness has cross-default and cross-acceleration
provisions, could cause all of our debt to become immediately due and
payable.
We
cannot
assure you that we would have sufficient funds available, or that we would
have
access to sufficient capital from other sources, to repay any accelerated debt.
Even if we could obtain additional financing, we cannot assure you that the
terms would be favorable to us. If we default on any future secured debt, the
secured creditors could foreclose on their liens. As a result, any event of
default could have a material adverse effect on our business and financial
condition, and could prevent us from paying amounts due under the
notes.
Despite
current indebtedness levels, we may still be able to incur substantially more
debt, including secured debt.
We
and
our subsidiaries may be able to incur substantial additional indebtedness in
the
future, including secured indebtedness. The terms of the indenture governing
the
notes do not fully prohibit us or our subsidiaries from doing so. Our revolving
credit facility would permit borrowing up to $300 million after completion
of
this offering and the application of proceeds to repay amounts outstanding
thereunder. If new debt is added to our current debt levels, the related risks
we now face could intensify.
In
addition, a substantial amount of debt we incur in the future could be secured.
To the extent we were to secure debt we incur in the future under any credit
facility or other issuance of debt, your ability to receive payments under
the
notes will be effectively subordinated to the secured debt, which will have
a
prior claim on any assets securing the debt, to the extent of the value of
those
assets.
Because
we are a holding company and depend entirely on cash flow from our subsidiaries
to meet our obligations, your right to receive payment on the notes will be
effectively subordinated to our subsidiaries’
obligations.
The
notes
will be obligations exclusively of Centene. Our cash flow and our ability to
service our debt, including the notes, depends on the earnings of our
subsidiaries and on the distribution of earnings, loans or other payments to
us
by our subsidiaries.
Our
subsidiaries are separate and distinct legal entities with no obligations to
pay
any amounts due on the notes or to provide us with funds for our payment
obligations, whether by dividend, distribution, loan or other payments. In
addition, the ability of our subsidiaries to make any dividend, distribution,
loan or other payment to us is subject to statutory restrictions, regulatory
capital requirements and contractual restrictions, including under the revolving
credit facility. Payments to us by our subsidiaries will also be contingent
upon
our subsidiaries’ earnings and their business considerations.
Our
right
to receive any assets of our subsidiaries upon their bankruptcy, liquidation,
dissolution, reorganization or similar proceeding, and therefore your right
to
participate in those assets, will be effectively subordinated to the claims
of
those subsidiaries’ creditors, including trace creditors. In addition, even if
Centene were a creditor of one or more of our subsidiaries, our rights as a
creditor would be subordinated to any security interest in the assets of those
subsidiaries and any debt of our subsidiaries senior to that held by us. As
a
result, the notes will be effectively subordinated to all liabilities, including
trade payables, of our current or future subsidiaries. Because we depend on
the
cash flow of our subsidiaries to meet our own obligations, including with
respect to the notes, these types of restrictions could impair our ability
to
make scheduled interest payments on the notes and to pay the principal at
maturity. As of December 31, 2006, the notes would have been effectively
subordinated, on a pro forma basis as adjusted for the offering and the use
of
proceeds therefrom, to $415.5 million of liabilities outstanding of our
subsidiaries, including trade payables and medical claims liabilities (excluding
intercompany liabilities).
In
addition, our regulated subsidiaries have historically generated substantially
all of our revenues. If one or more of our regulated subsidiaries becomes
insolvent, the regulators may seize its assets to cover its obligations under
healthcare policies, which could result in our remaining assets generating
insufficient revenue to pay the notes in full or at all.
We
may not have the ability to raise the funds necessary to finance the change
of
control offer required by the indenture.
Upon
a
change of control, we will be required to offer to repurchase all outstanding
notes at 101% of the principal amount thereof plus accrued and unpaid interest
and additional interest, if any, to the date of repurchase. However, it is
possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of notes or that restrictions in our
revolving credit facility or any other future indebtedness will not allow such
repurchases. In addition, certain important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, would
not
constitute a “change of control” under the indenture. See “Description of the
Exchange Notes —Repurchase at Option of Holders.”
We
will
not receive any proceeds from the exchange offer. Because the exchange notes
have substantially identical terms as the outstanding notes, the issuance of
the
exchange notes will not result in any increase in our indebtedness. The exchange
offer is intended to satisfy our obligations under the registration rights
agreement. Gross proceeds from the offering of the outstanding notes were
approximately $169.8 million, after deducting the discounts and estimated
offering expenses. We used the proceeds from the sale of the outstanding notes
to refinance approximately $150.0 million of our existing indebtedness under
our
revolving credit facility and any additional proceeds are available for general
corporate purposes.
The
following table sets forth our consolidated cash and cash equivalents,
investments and restricted deposits, and capitalization as of March 31,
2007.
|
March
31, 2007
|
||||
|
(dollars
in thousands)
|
||||
| Unregulated cash and investments | $ | 71,843 | ||
| Regulated cash, investments and restricted deposits | 490,945 | |||
|
Total
cash, investments and restricted deposits
|
$
|
562,788
|
||
|
Revolving
credit facility
|
$
|
—
|
||
|
7¼%
Senior Notes due 2014
|
175,000
|
|||
|
Debt
secured by real estate
|
20,725
|
|||
|
Capital
leases
|
5,644
|
|||
|
Total
debt
|
201,369
|
|||
|
Stockholders’
equity
|
369,464
|
|||
|
Total
capitalization
|
$
|
570,833
|
||
The
following summary consolidated financial data should be read in connection
with
our Annual Report on Form 10-K for the year ended December 31, 2006 and our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, including
the related notes to financial statements and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” contained therein,
which are incorporated by reference elsewhere in this prospectus.
The
data
for and as of the end of each of the last five fiscal years are derived from
our
audited consolidated financial statements. Historical results are not
necessarily indicative of the results to be expected in the future.
|
Year
Ended December 31,
|
Three
Months Ended March 31,
|
|||||||||||||||||||||
|
2002
|
2003
|
2004
|
2005
|
2006
|
2006
|
2007
|
||||||||||||||||
|
(dollars
in thousands, except per share data)
|
||||||||||||||||||||||
|
(unaudited)
|
||||||||||||||||||||||
|
Statement
of Earnings Data:
|
||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||
|
Premium
(1)
|
$
|
461,030
|
$
|
759,763
|
$
|
991,673
|
$
|
1,491,899
|
$
|
2,199,439
|
$
|
435,562
|
$
|
649,243
|
||||||||
|
Service
|
457
|
9,967
|
9,267
|
13,965
|
79,581
|
19,516
|
21,592
|
|||||||||||||||
|
Total
Revenues
|
461,487
|
769,730
|
1,000,940
|
1,505,864
|
2,279,020
|
455,078
|
670,835
|
|||||||||||||||
|
Expenses:
|
||||||||||||||||||||||
|
Medical
costs
|
379,468
|
626,192
|
800,476
|
1,226,909
|
1,819,811
|
361,672
|
535,406
|
|||||||||||||||
|
Cost
of services
|
341
|
8,323
|
8,065
|
5,851
|
60,735
|
15,588
|
15,630
|
|||||||||||||||
|
General
and administrative expenses (1)
|
50,072
|
88,288
|
127,863
|
193,913
|
346,284
|
65,222
|
106,866
|
|||||||||||||||
|
Gain
on sale of FirstGuard Missouri
|
—
|
—
|
—
|
—
|
—
|
—
|
(4,218
|
)
|
||||||||||||||
|
Impairment
loss
|
—
|
—
|
—
|
—
|
81,098
|
—
|
—
|
|||||||||||||||
|
Total
operating expenses
|
429,881
|
722,803
|
936,404
|
1,426,673
|
2,307,928
|
442,482
|
653,684
|
|||||||||||||||
|
Earnings
(loss) from operations
|
31,606
|
46,927
|
64,536
|
79,191
|
(28,908
|
)
|
12,596
|
17,151
|
||||||||||||||
|
Other
income (expense):
|
||||||||||||||||||||||
|
Investment
and other income
|
9,575
|
5,160
|
6,431
|
10,655
|
17,892
|
3,540
|
4,501
|
|||||||||||||||
|
Interest
expense
|
(45
|
)
|
(194
|
)
|
(680
|
)
|
(3,990
|
)
|
(10,636
|
)
|
(1,998
|
)
|
(3,132
|
)
|
||||||||
|
Earnings
(loss) before income taxes
|
41,136
|
51,893
|
70,287
|
85,856
|
(21,652
|
)
|
14,138
|
18,520
|
||||||||||||||
|
Income
tax (benefit) expense
|
15,631
|
19,504
|
25,975
|
30,224
|
21,977
|
5,372
|
(19,691
|
)
|
||||||||||||||
|
Minority
interest
|
116
|
881
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
Net
earnings (loss)
|
$
|
25,621
|
$
|
33,270
|
$
|
44,312
|
$
|
55,632
|
$
|
(43,629
|
)
|
$
|
8,766
|
$
|
38,211
|
|||||||
|
Net
earnings (loss) per common share:
|
||||||||||||||||||||||
|
Basic
|
$
|
0.82
|
$
|
0.93
|
$
|
1.09
|
$
|
1.31
|
$
|
(1.01
|
)
|
$
|
0.20
|
$
|
0.88
|
|||||||
|
Diluted
|
$
|
0.73
|
$
|
0.87
|
$
|
1.02
|
$
|
1.24
|
$
|
(1.01
|
)
|
$
|
0.20
|
$
|
0.85
|
|||||||
|
Weighted
average number of common shares outstanding:
|
||||||||||||||||||||||
|
Basic
|
31,432,080
|
35,704,426
|
40,820,909
|
42,312,522
|
43,160,860
|
42,987,892
|
43,433,319
|
|||||||||||||||
|
Diluted
|
34,932,232
|
38,422,152
|
43,616,445
|
45,027,633
|
43,160,860
|
44,750,271
|
44,923,340
|
|||||||||||||||
|
Ratio
of earnings to fixed charges (2)
|
45.96
|
43.12
|
29.24
|
14.20
|
—
|
5.90
|
5.39
|
|||||||||||||||
|
December
31,
|
March
31,
|
|||||||||||||||||||||
|
2002
|
2003
|
2004
|
2005
|
2006
|
2006
|
2007
|
||||||||||||||||
|
(dollars
in thousands)
|
||||||||||||||||||||||
|
(unaudited)
|
||||||||||||||||||||||
|
Balance
Sheet Data
|
||||||||||||||||||||||
|
Cash
and cash equivalents (3)
|
$
|
59,656
|
$
|
64,346
|
$
|
84,105
|
$
|
147,358
|
$
|
271,047
|
$
|
118,512
|
$
|
311,905
|
||||||||
|
Investments
and restricted deposits (3)
|
104,999
|
220,335
|
233,257
|
202,916
|
237,603
|
221,249
|
250,883
|
|||||||||||||||
|
Total
assets
|
210,327
|
362,692
|
527,934
|
668,030
|
894,980
|
737,807
|
971,377
|
|||||||||||||||
|
Medical
claims liabilities
|
91,181
|
106,569
|
165,980
|
170,514
|
280,441
|
172,792
|
275,965
|
|||||||||||||||
|
Long-term
debt
|
—
|
7,616
|
46,973
|
92,448
|
174,646
|
130,940
|
200,404
|
|||||||||||||||
|
Total
stockholders’ equity
|
102,183
|
220,115
|
271,312
|
352,048
|
326,423
|
364,249
|
369,464
|
|||||||||||||||
__________
|
(1)
|
Premium
revenues and general and administrative expenses reflect the enactments
of
premium taxes in certain states. Premium taxes were $0, $1,425, $5,503,
$9,802 and $42,453 for the years ended December 31, 2002, 2003, 2004,
2005
and 2006, respectively. Premium taxes were $4,305 and $18,216,
respectively for the quarters ended March 31, 2006 and 2007. Premium
revenues for the FirstGuard health plans, which we acquired on December
1,
2004 and exited in 2007, were $20,247, $273,662 and $317,027 for
the years
ended December 31, 2004, 2005 and 2006, respectively. Premium revenues
for
the FirstGuard health plans were $76,288 and $6,601, respectively
for the
quarters ended March 31, 2006 and
2007.
|
(2) For
the
purpose of calculating the ratios of earning to fixed charges, earnings consist
of loss from continuing operations before income taxes and fixed charges. Fixed
charges consist of interest expense and the portion of rental expense
(approximately one-third) that management believes represents the interest
component of rent expense. For the year ended December 31, 2006, earnings were
insufficient to cover fixed charges by $21,652. The deficiency of earnings
to
fixed charges for this period includes the effect of $94,470 in pre-tax charges
for intangible asset impairment and costs to exit Kansas and
Missouri.
|
(3)
|
Unregulated
cash, cash equivalents and investments for the years ended December
31,
2002, 2003, 2004, 2005 and 2006 were $51,970, $126,675, $45,988,
$27,680
and $28,852, respectively. Unregulated cash, cash equivalents and
investments for the quarters ended March 31, 2006 and 2007 were $25,813
and $71,843, respectively.
|
Overview
We
are a
multi-line healthcare enterprise operating primarily in two segments: Medicaid
Managed Care and Specialty Services. Our Medicaid Managed Care segment provides
Medicaid and Medicaid-related health plan coverage to individuals through
government subsidized programs, including Medicaid, the State Children’s Health
Insurance Program, or SCHIP, and Supplemental Security Income, or SSI. Medicaid
currently accounts for 76% of our membership, while SCHIP and SSI account for
19% and 5%, respectively. Our Specialty Services segment provides specialty
services, including behavioral health, disease management, long-term care
programs, managed vision, nurse triage, pharmacy benefits management and
treatment compliance, to state programs, healthcare organizations and other
commercial organizations, as well as to our own subsidiaries on market-based
terms. Our FirstGuard health plans exited the Kansas and Missouri markets
effective January 1 and February 1, 2007, respectively. As of March 6, 2007
we
had a market capitalization of approximately $1.04 billion. For the year ended
December 31, 2006, our revenues, cash flow from operations, and net loss were
$2.3 billion, $195.0 million and $43.6 million, respectively. The net loss
figure includes $94.5 million in pre-tax charges for intangible asset impairment
and costs to exit Kansas and Missouri. For
the
quarter ended March 31, 2007, our revenues, cash flow from operations and net
income were $670.8 million, $36.0 million and $38.2 million,
respectively.
Our
Medicaid Managed Care membership totaled approximately 1.1 million as of March
31, 2007, an increase of 26%
from
March 31, 2006. We
currently have six health plan subsidiaries offering healthcare services in
Georgia, Indiana, New Jersey, Ohio, Texas and Wisconsin. Additionally,
effective in April 2007, we acquired a Medicaid Medical Home Network in South
Carolina and we expect to participate in the state rollout of Medicaid Managed
Care in South Carolina. We
provide member-focused services through locally based staff by assisting in
accessing care, coordinating referrals to related health and social services
and
addressing member concerns and questions. We also provide education and outreach
programs to inform and assist members in accessing quality, appropriate
healthcare services.
We
believe our local approach to managing our subsidiaries, including provider
and
member services, enables us to provide accessible, quality, culturally-sensitive
healthcare coverage to our communities. Our disease management, educational
and
other initiatives are designed to help members best utilize the healthcare
system to ensure they receive appropriate, medically necessary services and
effective management of routine, severe and chronic health problems, resulting
in better health outcomes. We combine our decentralized local approach for
care
with a centralized infrastructure of support functions such as finance,
information systems and claims processing.
Our
initial health plan commenced operations in Wisconsin in 1984. We were organized
in Wisconsin in 1993 as a holding company for our initial health plan and
reincorporated in Delaware in 2001. We are headquartered in St. Louis, Missouri
and our stock is publicly traded on the New York Stock Exchange under the ticker
symbol “CNC.”
Industry
We
provide our services to organizations and individuals primarily through
Medicaid, SCHIP and SSI programs. The Congressional Budget Office, or CBO,
estimated the total Medicaid market was approximately $330 billion in 2005,
and
the federal Centers for Medicare and Medicaid Services, or CMS, estimate the
market will grow to over $450 billion by 2010. According to the most recent
information provided by the Kaiser Commission on Medicaid and the Uninsured,
Medicaid spending increased by 2.8% in fiscal 2006 and states appropriated
an
increase of 5.0% for Medicaid in fiscal 2007 budgets.
Established
in 1965, Medicaid is the largest publicly funded program in the United States,
and provides health insurance to low-income families and individuals with
disabilities. Authorized by Title XIX of the Social Security Act, Medicaid
is an
entitlement program funded jointly by the federal and state governments and
administered by the states. The majority of funding is provided at the federal
level. Each state establishes its own eligibility standards, benefit packages,
payment rates and program administration within federal standards. As a result,
there are 56 Medicaid programs— one for each U.S. state, each U.S. territory and
the District of Columbia. An increasing number of states have mandated that
their Medicaid recipients enroll in managed care plans as a means of delivering
quality healthcare and controlling costs. Currently, 37 of the 56 programs,
including each of the six states in which we operate health plans, have mandated
managed care for some or all of their Medicaid recipients. Eligibility is based
on a combination of household income and assets, often determined by an income
level relative to the federal poverty level. Historically, children have
represented the largest eligibility group.
Established
in 1972, and authorized by Title XVI of the Social Security Act, SSI covers
low-income persons with chronic physical disabilities or behavioral health
impairments. SSI beneficiaries represent a growing portion of all Medicaid
recipients. In addition, SSI recipients typically utilize more services because
of their critical health issues.
The
Balanced Budget Act of 1997 created SCHIP to help states expand coverage
primarily to children whose families earned too much to qualify for Medicaid,
yet not enough to afford private health insurance. Some states include the
parents of these children in their SCHIP programs. SCHIP is the single largest
expansion of health insurance coverage for children since the enactment of
Medicaid. Costs related to the largest eligibility group, children, are
primarily composed of pediatrics and family care. These costs tend to be more
predictable than other healthcare issues which predominantly affect the adult
population.
A
portion
of Medicaid beneficiaries are dual eligibles, low-income seniors and people
with
disabilities who are enrolled in both Medicaid and Medicare. According to
information provided by the Kaiser Commission on Medicaid and the Uninsured,
dual eligibles account for 14% of Medicaid enrollees. These dual eligibles
may
receive assistance from Medicaid for Medicaid benefits, such as nursing home
care and/or assistance with Medicare premiums and cost sharing. Dual eligibles
also use more services due to their tendency to have more chronic health issues.
We serve dual eligibles through our SSI and long-term care
programs.
While
Medicaid programs have directed funds to many individuals who cannot afford
or
otherwise maintain health insurance coverage, they did not initially address
the
inefficient and costly manner in which the Medicaid population tends to access
healthcare. Medicaid recipients in non-managed care programs typically have
not
sought preventive care or routine treatment for chronic conditions, such as
asthma and diabetes. Rather, they have sought healthcare in hospital emergency
rooms, which tends to be more expensive. As a result, many states have found
that the costs of providing Medicaid benefits have increased while the medical
outcomes for the recipients remained unsatisfactory.
Since
the
early 1980s, increasing healthcare costs, combined with significant growth
in
the number of Medicaid recipients, have led many states to establish Medicaid
managed care initiatives. Continued pressure on states’ Medicaid budgets should
cause public policy to recognize the value of managed care as a means of
delivering quality healthcare and effectively controlling costs. A growing
number of states, including each of the six states in which we operate health
plans, have mandated that their Medicaid recipients enroll in managed care
plans. Other states are considering moving to a mandated
managed care approach. As a result, a significant market opportunity exists
for
managed care organizations with operations and programs focused on the distinct
socio-economic, cultural and healthcare needs of the Medicaid, SCHIP and SSI
populations. We believe our approach and strategy enable us to be a growing
participant in this market.
Our
Competitive Strengths
Our
multi-line managed care approach is based on the following key
attributes:
Strong
Historic Operating Performance. We
have
increased revenues as we have grown in existing markets, expanded into new
markets and broadened our product menu. We entered the Wisconsin market in
1984,
the Indiana market in 1995, the Texas market in 1999, the New Jersey market
in
2002, the Ohio market in 2004 and the Georgia market in 2006. We have also
increased membership by acquiring Medicaid businesses, contracts and other
related assets from competitors in existing markets, most recently in Ohio
in
2005 and 2006. Our
Medicaid Managed Care membership totaled approximately 1.1 million as of March
31, 2007, an increase of 26%
from
March 31, 2006. For
the
year ended December 31, 2006, we had revenue of $2.3 billion, representing
a 49%
CAGR since the year ended December 31, 2002. We generated cash flow from
operations of $195.0 million and a net loss of $43.6 million for the year ended
December 31, 2006. The figures above include Kansas and Missouri, which we
exited in January and February 2007, respectively, and which accounted for
138,900 members at December 31, 2006 and $317.0 million in revenue for the
year
ended December 31, 2006.
For the
quarter ended March 31, 2007, our revenues, cash flow from operations and net
income were $670.8 million, $36.0 million and $38.2 million,
respectively.
Medicaid
Expertise. Over
the
last 20 years, we have strived to develop a specialized Medicaid expertise
that
has helped us establish and maintain relationships with members, providers
and
state governments. We have implemented programs developed to achieve savings
for
state governments and improve medical outcomes for members by reducing
inappropriate emergency room use, inpatient days and high cost interventions,
as
well as by managing care of chronic illnesses. Our experience in working with
state regulators helps us implement and deliver programs and services
efficiently and affords us opportunities to provide input regarding Medicaid
industry practices and policies in the states in which we operate. We work
with
state agencies on redefining benefits, eligibility requirements and provider
fee
schedules in order to maximize the number of uninsured individuals covered
through Medicaid, SCHIP and SSI and expand these types of benefits offered.
Our
approach is to accomplish this while maintaining adequate levels of provider
compensation and protecting our profitability.
Diversified
Business Lines. We
continue to broaden our service offerings to address areas that we believe
have
been traditionally underserved by Medicaid managed care organizations. In
addition to our Medicaid and Medicaid-related managed care services, our service
offerings include behavioral health, disease management, long-term care
programs, managed vision, nurse triage, pharmacy benefits management and
treatment compliance. Through the utilization of a multi-business line approach,
we are able to diversify our revenue and help control our medical
costs.
Localized
Approach with Centralized Support Infrastructure. We
take a
localized approach to managing our subsidiaries, including provider and member
services. This approach enables us to facilitate access by our members to high
quality, culturally sensitive healthcare services. Our systems and procedures
have been designed to address these community-specific challenges through
outreach, education, transportation and other member support activities. For
example, our community outreach programs work with our members and their
communities to promote health and self-improvement through employment and
education on how best to access care. We complement this localized approach
with
a centralized infrastructure of support functions such as finance, information
systems and claims processing, which allows us to minimize general and
administrative expenses and to integrate and realize synergies from
acquisitions. We believe this combined approach allows us to efficiently
integrate new business opportunities in both Medicaid and specialty services
while maintaining our local accountability and improved access.
Specialized
and Scalable Systems and Technology. Through
our specialized information systems, we work to strengthen relationships with
providers and states which help us grow our membership base. Our specialized
information systems allow us to support our core processing functions under
a
set of integrated databases which are designed to be both replicable and
scalable. Physicians can use claims, utilization and membership data to manage
their practices more efficiently, and they also benefit from our timely
payments. State agencies can use data from our information systems to
demonstrate that their Medicaid populations receive quality healthcare in an
efficient manner. These systems also help identify needs for new healthcare
and
specialty programs. We have the ability to leverage our platform for one state
configuration into new states or for health plan acquisitions. Our ability
to
access data and translate it into meaningful information is essential to
operating across a multi-state service area in a cost-effective
manner.
Experienced
Management Team. We
have a
management team who possess significant industry experience. Michael Neidorff,
our Chairman and CEO, has been with us since 1996 and has over 20 years of
experience in all aspects of managed care. Per Brodin, our Senior Vice President
and Chief Financial Officer, has extensive experience as a financial and
accounting officer both at Centene and other organizations. The other members
of
our senior management team are well-seasoned professionals with a broad range
of
capabilities including industry experience and functional expertise. This team
has successfully managed the growth of our health plans and specialty
businesses, while maintaining operational discipline.
Our
Business Strategy
Our
objective is to become the leading multi-line healthcare enterprise focusing
on
Medicaid and Medicaid-related services. We intend to achieve this objective
by
implementing the following key components of our strategy:
Increase
Penetration of Existing State Markets. We
seek
to continue to increase our Medicaid membership in states in which we currently
operate through alliances with key providers, outreach efforts, development
and
implementation of community-specific products and acquisitions. In 2006, we
were
awarded two regions in connection with Ohio’s statewide restructuring of its
Medicaid managed care program, expanding the number of counties we serve from
three to 27. We also were awarded a Medicaid Aged, Blind or Disabled, or ABD,
contract in four regions in Ohio. In Texas, we expanded our operations to the
Corpus Christi market in 2006 and began managing care for SSI recipients in
February 2007. We may also increase membership by acquiring Medicaid businesses,
contracts and other related assets from our competitors in our existing markets
or by enlisting additional providers. For example, in 2005 and 2006, we acquired
certain Medicaid-related assets in Ohio.
Diversify
Business Lines. We
seek
to broaden our business lines into areas that complement our existing business
to enable us to grow and diversify our revenue. We are constantly evaluating
new
opportunities for expansion both domestically and abroad. For instance, in
October 2006, we commenced operations under our managed care program contracts
to provide long-term care services in Arizona, and in January 2006, we completed
the acquisition of US Script, a pharmacy benefits manager. We are also
considering other premium based or fee-for-service lines of business that would
provide additional diversity. We employ a disciplined acquisition strategy
that
is based on defined criteria including internal rate of return, accretion to
earnings per share, market leadership and compatibility with our information
systems. We engage our executives in the relevant operational units or
functional areas to ensure consistency between the diligence and integration
process.
Address
Emerging State Needs. We
work
to assist the states in which we operate in addressing the operating challenges
they face. We seek to assist the states in balancing premium rates, benefit
levels, member eligibility, policies and practices, and provider compensation.
For example, in 2005 we began performing under our contracts with the State
of
Arizona to facilitate the delivery of mental health and substance abuse services
to behavioral health recipients in Arizona. Effective January 1, 2005, we were
awarded a behavioral health contract to serve SCHIP members in Kansas. By
helping states structure an appropriate level and range of Medicaid, SCHIP
and
specialty services, we seek to ensure that we are able to continue to provide
those services on terms that achieve targeted gross margins, provide an
acceptable return and grow our business.
Develop
and Acquire Additional State Markets where Enrollment is Mandated.
We
continue to leverage our experience to identify and develop new markets by
seeking both to acquire existing business and to build our own operations.
We
expect to focus expansion on states where Medicaid recipients are mandated
to
enroll in managed care organizations because we believe member enrollment levels
are more predictable in these states. For example, effective June 1, 2006,
we
began managing care for Medicaid and SCHIP members in Georgia.
Leverage
Established Infrastructure to Enhance Operating Efficiencies. We
intend
to continue to invest in infrastructure to further drive efficiencies in
operations and to add functionality to improve the service provided to members
and other organizations at a low cost. Our centralized functions enable us
to
add members and markets quickly and economically. For example, during 2005,
we
opened an additional claims processing facility to accommodate our planned
growth initiatives for this centralized function.
Maintain
Operational Discipline. We
monitor our cost trends, operating performance, regulatory relationships and
the
Medicaid political environment in our existing markets. We seek to operate
in
markets that allow us to meet our internal metrics including membership growth,
plan size, market leadership and operating efficiency. We may divest contracts
or health plans in markets where the state’s Medicaid environment, over a
long-term basis, does not allow us to meet our targeted performance levels.
We
use multiple techniques to monitor and reduce our medical costs, including
on-site hospital review by staff nurses and involvement of medical management
and finance personnel in significant cases. Our health economics unit and health
plan controllers evaluate the financial impact of proposed changes in provider
relationships. We also conduct monthly reviews of member demographics for each
health plan.
Medicaid
Managed Care
Health
Plans
We
have
regulated subsidiaries offering healthcare services in each state we serve.
The
table below provides summary data for the state markets we currently
serve:
|
State
|
Local
Health Plan Name
|
First
Year of Operations Under Centene
|
Counties
Served at December 31, 2006
|
Market
Share(1)
|
Membership
at December 31, 2006
|
|||||
|
Georgia
|
Peach
State Health Plan
|
2006
|
90
|
30.6%
|
308,800
|
|||||
|
Indiana
|
Managed
Health Services
|
1995
|
92
|
33.4%
|
183,100
|
|||||
|
New
Jersey
|
University
Health Plans
|
2002
|
20
|
8.1%
|
58,900
|
|||||
|
Ohio
|
Buckeye
Community Health Plan
|
2004
|
27
|
11.3%
|
109,200
|
|||||
|
Texas
|
Superior
Health Plan
|
1999
|
217
|
21.0%
|
298,500
|
|||||
|
Wisconsin
|
Managed
Health Services
|
1984
|
29
|
32.9%
|
164,800
|
|
(1)
|
Represents
Medicaid and SCHIP membership as of December 31, 2006 as a percentage
of
total eligible Medicaid and SCHIP members in each state. SSI programs
are
excluded.
|
All
of
our revenue is derived from operations within the United States and its
territories. Our managed care subsidiaries in Georgia, Indiana, Kansas, Texas
and Wisconsin had revenues from their respective state governments that each
exceeded 10% of our consolidated total revenues in 2006. Other financial
information about our segments is found in Note 18 of our Notes to Consolidated
Financial Statements and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our Form 10-K for the fiscal year ended
December 31, 2006, which is incorporated herein by reference.
Benefits
to States
Our
ability to establish and maintain a leadership position in the markets we serve
results primarily from our demonstrated success in providing quality care while
reducing and managing costs, and from our specialized programs in working with
state governments. Among the benefits we are able to provide to the states
with
which we contract are:
| · |
Significant
cost savings compared to state paid reimbursement for services.
We
bring bottom-line management experience to our health plans. On the
administrative and management side, we bring experience including
quality
of care improvement methods, utilization management procedures, an
efficient claims payment system, and provider performance reporting,
as
well as managers and staff experienced in using these key elements
to
improve the quality of and access to
care.
|
| · |
Data-driven
approaches to balance cost and verify eligibility. Our
Medicaid health plans have conducted enrollment processing and activities
for state programs since 1984. We ensure effective enrollment procedures
that move members into the plan, then educate them and ensure that
they
receive needed services as quickly as possible. Our IT department
has
created mapping/translation programs for loading membership and linking
membership eligibility status to all of Centene’s
subsystems.
|
| · |
Establishment
of realistic and meaningful expectations for quality deliverables.
We
have collaborated with state agencies in redefining benefits, eligibility
requirements and provider fee schedules with the goal of maximizing
the
number of uninsured individuals covered through Medicaid and SSI
programs.
|
| · |
Managed
care expertise in government subsidized programs. Our
expertise in Medicaid has helped us establish and maintain strong
relationships with our constituent communities of members, providers
and
state governments. We provide access to services through local providers
and staff that focus on the cultural norms of their individual
communities. To that end, systems and procedures have been designed
to
address community-specific challenges through outreach, education,
transportation and other member support
activities.
|
| · |
Improved
medical outcomes. We
have implemented programs developed to achieve savings for state
governments and improve medical outcomes for members by reducing
inappropriate emergency room use, inpatient days and high cost
interventions, as well as by managing care of chronic
illness.
|
| · |
Timely
payment of provider claims. We
are committed to ensuring that our information systems and claims
payment
systems meet or exceed state requirements. We continuously endeavor
to
update our systems and processes to improve the timeliness of our
provider
payments.
|
| · |
Cost
saving outreach and specialty programs. Our
health plans have adopted a physician-driven approach where network
providers are actively engaged in developing and implementing healthcare
delivery policies and strategies. This approach is designed to eliminate
unnecessary costs, improve services to members and simplify the
administrative burdens placed on providers. The combination of a
decentralized local approach to health plan operations and a centralized
approach to administrative functions such as finance, information
systems
and claims processing allows us to quickly and economically integrate
new
business opportunities in both the Medicaid Managed Care and Specialty
Services segments.
|
| · |
Responsible
collection and dissemination of utilization data. We
gather utilization data from multiple sources, allowing for an integrated
view of our members’ utilization of services. These sources include
medical and behavioral health claims and encounter data, pharmacy
data,
vision and dental vendor claims and authorization data from Care
Enhanced
Case Management Systems, or CCMS, the authorization and case management
system utilized by us to coordinate care.
|
| · |
Timely
and accurate reporting. Our
information systems have robust reporting capabilities which have
been
instrumental in identifying the need for new and/or improved healthcare
and specialty programs. For state agencies, our reporting capability
is
instrumental in demonstrating an auditable
program.
|
Member
Programs and Services
We
recognize the importance of member-focused delivery of quality managed care
services. Our locally based staff assist members in accessing care, coordinating
referrals to related health and social services and addressing member concerns
and questions. While covered healthcare benefits vary from state to state,
our
health plans generally provide the following services:
| · |
primary
and specialty physician care
|
| · |
inpatient
and outpatient hospital care
|
| · |
emergency
and urgent care
|
| · |
prenatal
care
|
| · |
laboratory
and x-ray services
|
| · |
home
health and durable medical
equipment
|
| · |
behavioral
health and substance abuse services
|
| · |
24-hour
nurse advice line
|
| · |
transportation
assistance
|
| · |
vision
care
|
| · |
dental
care
|
| · |
immunizations
|
| · |
prescriptions
and limited over-the-counter drugs
|
|
We
also provide the following education and outreach programs to inform
and
assist members in accessing quality, appropriate healthcare services
in an
efficient manner:
|
| · |
CONNECTIONS
is
a community face-to-face outreach and education program designed
to create
a link between the member and the provider and help identify potential
challenges or risk elements to a member’s health, such as nutritional
challenges and health education shortcomings. CONNECTIONS representatives
also contact new members by phone or mail to discuss managed care,
the
Medicaid program and our services. Our CONNECTIONS representatives
make
home visits, conduct educational programs and represent our health
plans
at community events such as health
fairs.
|
| · |
Start
Smart For Your Baby is
a prenatal and infant health program designed to increase the percentage
of pregnant women receiving early prenatal care, reduce the incidence
of
low birth weight babies, identify high risk pregnancies, increase
participation in the federal Women, Infant and Children program,
and
increase well-child visits. The program includes risk assessments,
education through face-to-face meetings and materials, behavior
modification plans, assistance in selecting a provider for the infant
and
scheduling newborn follow-up
visits.
|
| · |
EPSDT
Case Management is
a preventive care program designed to educate our members on the
benefits
of Early and Periodic Screening, Diagnosis and Treatment, or EPSDT,
services. We have a systematic program of communicating, tracking,
outreach, reporting and follow-through that promotes state EPSDT
programs.
|
| · |
Disease
Management Programs are
designed to help members understand their disease and treatment plan
and
improve their health outcomes in a cost effective manner. These programs
address medical conditions that are common within the Medicaid population
such as asthma, diabetes and prenatal care. Our Specialty Services
segment
manages many of our disease management programs. Our SSI program
uses a
proprietary assessment tool that effectively identifies barriers
to care,
unmet functional needs, available social supports and the existence
of
behavioral health conditions that impede a member’s ability to maintain a
proper health status. Care coordinators develop individual care plans
with
the member and healthcare providers ensuring the full integration
of
behavioral, social and acute care services. These care plans, while
specific to an SSI member, incorporate “Condition Specific” practices in
collaboration with physician partners and community
resources.
|
Providers
For
each
of our service areas, we establish a provider network consisting of primary
and
specialty care physicians, hospitals and ancillary providers. As of December
31,
2006, the health plans we currently serve contracted with the following number
of physicians and hospitals:
|
Primary
Care Physicians
|
Specialty
Care Physicians
|
Hospitals
|
||||||||
| Georgia | 2,379 | 7,112 | 128 | |||||||
|
Indiana
|
738
|
1,422
|
42
|
|||||||
|
New
Jersey
|
1,732
|
5,283
|
73
|
|||||||
|
Ohio
|
1,026
|
2,387
|
35
|
|||||||
|
Texas
|
5,646
|
10,487
|
335
|
|||||||
|
Wisconsin
|
2,118
|
4,793
|
65
|
|||||||
Our
network of primary care physicians is a critical component in care delivery,
management of costs and the attraction and retention of new members. Primary
care physicians include family and general practitioners, pediatricians,
internal medicine physicians and obstetricians and gynecologists. Specialty
care
physicians provide medical care to members generally upon referral by the
primary care physicians. Specialty care physicians include orthopedic surgeons,
cardiologists and otolaryngologists. We also provide education and outreach
programs to inform and assist members in accessing quality, appropriate
healthcare services.
Our
health plans facilitate access to healthcare services for our members primarily
through contracts with our providers. Our contracts with primary and specialty
care physicians and hospitals usually are for one to two-year periods and renew
automatically for successive one-year terms, but generally are subject to
termination by either party upon 90 to 120 days prior written notice. In the
absence of a contract, we typically pay providers at state Medicaid
reimbursement levels. We pay physicians under a fee-for-service or capitation
arrangement.
| · |
Under
our fee-for-service contracts with physicians, particularly specialty
care
physicians, we pay a negotiated fee for covered services. This model
is
characterized as having no financial risk for the physician. In addition,
this model requires management oversight because our total cost may
increase as the units of services increase or as more expensive services
are replaced for less expensive services. We have prior authorization
procedures in place that are intended to make sure that certain high
cost
diagnostic and other services are medically
appropriate.
|
| · |
Under
our capitated contracts, primary care physicians are paid a monthly
fee
for each of our members assigned to his or her practice and are at
risk
for all costs related to primary and specialty physician and emergency
room services. In return for this payment, these physicians provide
all
primary care and preventive services, including primary care office
visits
and EPSDT services. If these physicians also provide non-capitated
services to their assigned members, they may receive payment under
fee-for-service arrangements at Medicaid
rates.
|
We
work
with physicians to help them operate efficiently by providing financial and
utilization information, physician and patient educational programs and disease
and medical management programs. Our programs are also designed to help the
physicians coordinate care outside of their offices. In addition, we are
governed by state prompt payment policies.
We
believe our collaborative approach with physicians gives us a competitive
advantage in entering new markets. Our physicians serve on local committees
that
assist us in implementing preventive care programs, managing costs and improving
the overall quality of care delivered to our members. This approach is designed
to eliminate unnecessary costs, improve services to our members and simplify
the
administrative burdens on our providers. It has enabled us to strengthen our
provider networks through improved physician recruitment and retention that,
in
turn, have helped to increase our membership base. The following are among
the
services we provide to support physicians:
| · |
Customized
Utilization Reports provide
certain of our contracted physicians with information that enables
them to
run their practices more efficiently and focuses them on specific
patient
needs. For example, quarterly detail reports update physicians on
their
status within their risk pools. Equivalency reports provide physicians
with financial comparisons of capitated versus fee-for-service
arrangements.
|
| · |
Case
Management Support helps
the physician coordinate specialty care and ancillary services for
patients with complex conditions and direct members to appropriate
community resources to address both their health and socio-economic
needs.
|
| · |
Web-based
Claims and Eligibility Resources have
been implemented in selected markets to provide physicians with on-line
access to perform claims and eligibility
inquiries.
|
| · |
Our
contracted physicians also benefit from several of the services offered
to
our members, including the CONNECTIONS, EPSDT case management and
disease
management programs. For example, the CONNECTIONS staff facilitates
doctor/patient relationships by connecting members with physicians,
the
EPSDT programs encourage routine checkups for children with their
physicians and the disease management programs assist physicians
in
managing their patients with chronic
disease.
|
Where
appropriate, our health plans contract with our specialty services organizations
to provide services and programs such as behavioral health, disease management,
managed vision, nurse triage, pharmacy benefit management, and treatment
compliance. When necessary, we also contract with third-party providers on
a
negotiated fee arrangement for physical therapy, home healthcare, vision care,
diagnostic laboratory tests, x-ray examinations, ambulance services and durable
medical equipment. Additionally, we contract with dental vendors in markets
where routine dental care is a covered benefit.
Quality
Management
Our
medical management programs focus on improving quality of care in areas that
have the greatest impact on our members. We employ strategies, including disease
management and complex case management, that are adjusted for implementation
in
our individual markets by a system of physician committees chaired by local
physician leaders. This process promotes physician participation and support,
both critical factors in the success of any clinical quality improvement
program.
We
have
implemented specialized information systems to support our medical quality
management activities. Information is drawn from our data warehouse, clinical
databases and our membership and claims processing system, to identify
opportunities to improve care and to track the outcomes of the interventions
implemented to achieve those improvements. Some examples of these intervention
programs include:
| · |
a
prenatal case management program aimed at helping women with high-risk
pregnancies deliver full-term, healthy
infants;
|
| · |
a
program to reduce the number of inappropriate emergency room visits;
and
|
| · |
a
disease management program to improve the ability of those with asthma
and
their families to control their disease and thereby reduce the need
for
emergency room visits and
hospitalizations.
|
We
provide reporting on a regular basis using our data warehouse. State and Health
Employer Data and Information Set, or HEDIS, reporting constitutes the core
of
the information base that drives our clinical quality performance efforts.
This
reporting is monitored by Plan Quality Improvement Committees and our corporate
medical management team.
In
an
effort to ensure the quality of our provider networks, we undertake to verify
the credentials and background of our providers using standards that are
supported by the National Committee for Quality Assurance.
Information
Technology
The
ability to access data and translate it into meaningful information is essential
to operating across a multi-state service area in a cost-effective manner.
Our
centralized information systems which are located in St. Louis, Missouri,
support our core processing functions under a set of integrated databases and
are designed to be both replicable and scalable to accommodate organic growth
and growth from acquisitions. We believe we have the ability to leverage the
platform we have developed for our existing states for configuration into new
states or health plan acquisitions.
Our
integrated approach helps to assure that consistent sources of claim and member
information are provided across all of our health plans. Our membership and
claims processing system is capable of expanding to support additional members
in an efficient manner as needed. We have a disaster recovery and business
resumption plan developed and implemented in conjunction with a third party.
This plan allows us complete access to the business resumption centers and
hot-site facilities provided by the plan.
Specialty
Services
Our
Specialty Services segment is a key component of our healthcare enterprise
and
complements our core Medicaid Managed Care business. The specialty services
diversify our revenue stream, provide higher quality health outcomes to our
membership and others, and assist in controlling costs. Our specialty services
are provided primarily through the following interrelated
businesses:
| · |
Behavioral
Health. Cenpatico
Behavioral Health manages behavioral healthcare for members via a
contracted network of providers. Cenpatico works with providers to
determine the best course of treatment for a given diagnosis and
helps
ensure members and their providers are aware of the full array of
services
available. Our networks feature a range of services so that patients
can
be treated at an appropriate level of care. We also run school-based
programs in Arizona that focus on students with special needs. We
acquired
Cenpatico in 2003.
|
| · |
Disease
Management. Our
disease management providers, AirLogix and Cardium Health, specialize
in
chronic respiratory disease management and cardiac disease management.
Through their specialization in respiratory management, AirLogix
uses
self-care therapies, in-home interaction and informatics processes
to
deliver highly effective clinical results, enhanced patient-provider
satisfaction and greater cost reductions in respiratory management.
We
acquired AirLogix in July 2005. Through a people centered,
multi-disciplinary and integrated approach, Cardium Health uses primary
health coaches, customized care plans, and disease-specific education
to
assist patients in achieving their health goals and deliver enhanced
patient-provider satisfaction and greater cost reductions in chronic
disease management. We acquired Cardium Health in May
2006.
|
| · |
Long-term
Care. Bridgeway
Health Solutions provides long-term care services to the elderly
and
people with disabilities on SSI that meet income and resources
requirements who are at risk of being or are institutionalized. Bridgeway
has members in the Maricopa, Yuma and La Paz counties of Arizona.
Bridgeway attempts to distinguish itself from other Medicaid and
Medicare
health plans through ongoing participation with community groups
to
address situations that might be barriers to quality care and independent
living. Bridgeway commenced operations in October
2006.
|
| · |
Managed
Vision. OptiCare
manages vision benefits for members via a contracted network of providers.
OptiCare works with providers to provide a variety of vision plan
designs
and helps ensure members and their providers are aware of the full
array
of products and services available. Our networks feature a range
of
products and services so that patients can be treated at an appropriate
level of care. We acquired the managed vision business of OptiCare
Health
Systems, Inc. in July 2006.
|
| · |
Nurse
Triage. NurseWise
provides a toll-free nurse triage line 24 hours per day, 7 days per
week,
52 weeks per year. Our members call one number and reach customer
service
representatives and bilingual nursing staff who provide health education,
triage advice and offer continuous access to health plan functions.
Additionally, our representatives verify eligibility, confirm primary
care
provider assignments and provide benefit and network referral coordination
for members and providers after business hours. Our staff can arrange
for
urgent pharmacy refills,
transportation and qualified behavioral health professionals for
crisis
stabilization assessments. Call volume is based on membership levels
and
seasonal variation. NurseWise commenced operations in
1998.
|
| · |
Pharmacy
Benefits Management. US
Script is a pharmacy benefits manager that administers pharmacy benefits
and processes pharmacy claims via its proprietary claims processing
software. US Script has developed and administers a contracted national
network of retail pharmacies. We acquired US Script in January
2006.
|
| · |
Treatment
Compliance. ScriptAssist
is a treatment compliance program that uses psychological-based tools
to
predict which patients are likely to be non-compliant regarding taking
their medications, and then to motivate those at-risk patients to
adhere
to their doctors’ advice. ScriptAssist
uses registered nurses to educate patients about the reasons for
the
medications they were prescribed, to provide accurate information
about
side effects and risks of such medications, and to keep the doctors
informed of the patients’ progress between visits. We acquired
ScriptAssist
in 2003.
|
Corporate
Compliance
Our
Corporate Ethics and Compliance Program was first established in 1998 and
provides methods by which we further enhance operations, safeguard against
fraud
and abuse, improve access to quality care and helps assure that our values
are
reflected in everything we do.
The
two
primary standards by which corporate compliance programs in the healthcare
industry are measured are the 1991 Federal Organizational Sentencing Guidelines
and the “Compliance Program Guidance” series issued by the Office of the
Inspector General, or OIG, of the Department of Health and Human Services.
Our
program contains each of the seven elements suggested by the Sentencing
Guidelines and the OIG guidance. These key components are:
| · |
written
standards of conduct;
|
| · |
designation
of a corporate compliance officer and compliance
committee;
|
| · |
effective
training and education;
|
| · |
effective
lines for reporting and
communication;
|
| · |
enforcement
of standards through disciplinary guidelines and
actions;
|
| · |
internal
monitoring and auditing; and
|
| · |
prompt
response to detected offenses and development of corrective action
plans.
|
Our
internal Corporate Compliance website, accessible by all employees, contains
our
Business Ethics and Conduct Policy, our Mission, Values and Philosophies and
Compliance Programs, a company-wide policy and procedure database and our
toll-free hotline to allow employees or other persons to report suspected
incidents of fraud, abuse or other violations. The audit committee and the
board
of directors review a full compliance report, including an incident log, on
a
quarterly basis.
Competition
We
continue to face varying and increasing levels of competition as we expand
in
our existing service areas or enter new markets as federal regulations require
at least two competitors in each service area. Healthcare reform proposals
may
cause a number of commercial managed care organizations to decide to enter
or
exit the Medicaid market.
In
our
business, our principal competitors for state contracts, members and providers
consist of the following types of organizations:
| · |
Medicaid
Managed Care Organizations focus
solely on providing healthcare services to Medicaid recipients. Many
of
these operate in one city or state and are owned by providers, primarily
hospitals.
|
| · |
National
and Regional Commercial Managed Care Organizations have
Medicaid members in addition to members in private commercial plans.
Some
of these organizations offer a range of specialty services including
pharmacy benefits management, behavioral health management, disease
management, and nurse triage call support
centers.
|
| · |
Primary
Care Case Management Programs are
programs established by the states through contracts with primary
care
providers. Under these programs, physicians provide primary care
services
to Medicaid recipients, as well as limited medical management oversight.
|
We
compete with other managed care organizations and specialty companies for state
contracts. In order to grant a contract, state governments consider many
factors. These factors include quality of care, financial requirements, an
ability to deliver services and establish provider networks and infrastructure.
In addition, our specialty companies also compete with other providers, such
as
disease management companies and pharmacy benefits managers for non-governmental
contracts.
We
also
compete to enroll new members and retain existing members. People who wish
to
enroll in a managed healthcare plan or to change healthcare plans typically
choose a plan based on the quality of care and services offered, ease of access
to services, a specific provider being part of the network and the availability
of supplemental benefits. In certain markets, where recipients select a
physician instead of a health plan, we are able to grow our membership by adding
new physicians to our provider base.
We
also
compete with other managed care organizations to enter into contracts with
physicians, physician groups and other providers. We believe the factors that
providers consider in deciding whether to contract with us include existing
and
potential member volume, reimbursement rates, medical management programs,
speed
of reimbursement and administrative service capabilities. See “Risk Factors —
Competition may limit our ability to increase penetration of the markets that
we
serve.”
Regulation
Our
healthcare and specialty operations are regulated at both state and federal
levels. Government regulation of the provision of healthcare products and
services is a changing area of law that varies from jurisdiction to
jurisdiction. Regulatory agencies generally have discretion to issue regulations
and interpret and enforce laws and rules. Changes in applicable laws and rules
also may occur periodically.
Our
regulated subsidiaries are licensed to operate as health maintenance
organizations and/or insurance companies in their respective states. In each
of
the jurisdictions in which we operate, we are regulated by the relevant health,
insurance and/or human services departments that oversee the activities of
managed care organizations providing or arranging to provide services to
Medicaid enrollees.
The
process for obtaining authorization to operate as a managed care organization
is
complex and requires demonstration to the regulators of the adequacy of the
health plan’s organizational structure, financial resources, utilization review,
quality assurance programs, complaint procedures, provider network adequacy
and
procedures for covering emergency medical conditions. Under both state managed
care organization statutes and state insurance laws, our health plan
subsidiaries must comply with minimum statutory capital requirements and other
financial requirements, such as deposit and reserve requirements. Insurance
regulations may also require prior state approval of acquisitions of other
managed care organizations’ businesses and the payment of dividends, as well as
notice for loans or the transfer of funds. Our subsidiaries are also subject
to
periodic reporting requirements. In addition, each health plan must meet
criteria to secure the approval of state regulatory authorities before
implementing operational changes, including the development of new product
offerings and, in some states, the expansion of service areas.
States
have adopted a number of regulations that may affect our business and results
of
operations. These regulations in certain states include:
| · |
premium
and maintenance taxes;
|
| · |
stringent
prompt-pay laws;
|
| · |
requirements
of National Provider Identifier numbers on claim
submittals;
|
| · |
disclosure
requirements regarding provider fee schedules and coding procedures;
and
|
| · |
programs
to monitor and supervise the activities and financial solvency of
provider
groups.
|
State
Contracts
In
order
to be a Medicaid Managed Care organization in each of the states in which we
operate, we must operate under a contract with the state’s Medicaid agency.
States generally use either a formal proposal process, reviewing a number of
bidders, or award individual contracts to qualified applicants that apply for
entry to the program. We receive monthly payments based on specified capitation
rates determined on an actuarial basis. These rates differ by membership
category and by state depending on the specific benefits and policies adopted
by
each state.
Our
contracts with the states and regulatory provisions applicable to us generally
set forth the requirements for operating in the Medicaid sector, including
provisions relating to:
| · |
eligibility,
enrollment and disenrollment
processes;
|
| · |
covered
services;
|
| · |
eligible
providers;
|
| · |
subcontractors;
|
| · |
record-keeping
and record retention;
|
| · |
periodic
financial and informational
reporting;
|
| · |
quality
assurance;
|
| · |
health
education and wellness and prevention
programs;
|
| · |
timeliness
of claims payment;
|
| · |
financial
standards;
|
| · |
safeguarding
of member information;
|
| · |
fraud
and abuse detection and reporting;
|
| · |
grievance
procedures; and
|
| · |
organization
and administrative systems.
|
A
health
plan’s compliance with these requirements is subject to monitoring by state
regulators and by CMS. A health plan is also subject to periodic comprehensive
quality assurance evaluations by a third-party reviewing organization and
generally by the insurance department of the jurisdiction that licenses the
health plan. A health plan must also submit reports to various regulatory
agencies, including quarterly and annual statutory financial statements and
utilization reports.
The
table
below sets forth the term of our state contracts and provides details regarding
related renewal or extension and termination provisions as of December 31,
2006.
|
State
Contract
|
Expiration
Date
|
Renewal
or Extension by the
State
|
Termination
by the State
|
|
Arizona
— Behavioral Health
|
June
30, 2008
|
May
be extended for up to two additional years.
|
May
be terminated for convenience or an event of default.
|
|
Arizona
— Long-term Care
|
September
30, 2009
|
May
be extended for up to two additional years.
|
May
be terminated for convenience or an event of default.
|
|
Georgia
|
June
30, 2007
|
Renewable
for five additional one-year terms.
|
May
be terminated for an event of default or significant changes in
circumstances.
|
|
Indiana
|
December
31, 2010
|
May
be extended for up to two additional years.
|
May
be terminated for convenience or an event of default.
|
|
Kansas
—Behavioral Health
|
June
30, 2008
|
May
be extended with four one-year renewal options.
|
May
be terminated for cause, or without cause for lack of
funding.
|
|
Missouri
|
June
30, 2007
|
Contract
rights sold effective February 1, 2007.
|
|
|
New
Jersey
|
June
30, 2007
|
Renewable
annually for successive
12-month
periods.
|
May
be terminated for convenience or an event of default.
|
|
Ohio
|
June
30, 2007
|
Renewable
annually for successive
12-month
periods.
|
May
be terminated for an event of default.
|
|
Ohio
— ABD
|
June
30, 2007
|
Renewable
annually for successive
12-month
periods.
|
May
be terminated for an event of default.
|
|
Texas
|
August
31, 2008
|
May
be extended for up to six additional years.
|
May
be terminated for convenience, an event of default or lack of federal
funding.
|
|
Texas
—Exclusive Provider Organization
|
August
31, 2007
|
May
be extended for up to three additional years.
|
May
be terminated upon any event of default or in the event of lack of
state
or federal funding.
|
|
Wisconsin
|
December
31, 2007
|
Renewable
through the states’ periodic recertification process.
|
May
be terminated if a change in state or federal laws, rules or regulations
materially affects either party’s right or responsibilities or for an
event of default or lack of funding
|
|
Wisconsin
— Network Health Plan Subcontract
|
December
31, 2011
|
Renews
automatically for successive five-year terms.
|
May
be terminated upon two-years notice prior to the end of the then
current
term or if a change in state or federal laws, rules or regulations
materially affects either party’s rights or responsibilities under the
contract, or if Network Health Plan’s contract with the State is
terminated.
|
|
Wisconsin
SSI
|
December
31, 2007
|
Renewable
through the states’ periodic recertification process.
|
May
be terminated for convenience, if a change in state or federal laws,
rules
or regulations materially affects either party’s rights or
responsibilities, or an event of default or lack of funding.
|
HIPAA. In
1996,
Congress enacted the Health Insurance Portability and Accountability Act of
1996, or HIPAA. The Act is designed to improve the portability and continuity
of
health insurance coverage and simplify the administration of health insurance
claims. Among the main requirements of HIPAA are standards for the processing
of
health insurance claims and related transactions.
The
regulation’s requirements apply to transactions conducted using “electronic
media.” Since “electronic media” is defined broadly to include “transmissions
that are physically moved from one location to another using magnetic tape,
disk
or compact disk media,” many communications are considered to be electronically
transmitted. Under the HIPAA regulations, health plans are required to have
the
capacity to accept and send all covered transactions in a standardized
electronic format. Penalties can be imposed for failure to comply with these
requirements.
HIPAA
regulations also protect the privacy of medical records and other personal
health information maintained and used by healthcare providers, health plans
and
healthcare clearinghouses. We have implemented processes, policies and
procedures to comply with the HIPAA privacy regulations, including education
and
training for employees. In addition, the corporate privacy officer and health
plan privacy officials serve as resources to employees to address any questions
or concerns they may have. Among numerous other requirements, the privacy
regulations:
| · |
limit
certain uses and disclosures of private health information, and require
patient authorizations for such uses and disclosures of private health
information;
|
| · |
guarantee
patients rights to access their medical records and to know who else
has
accessed them;
|
| · |
limit
most disclosure of health information to the minimum needed for the
intended purpose;
|
| · |
establish
procedures to ensure the protection of private health
information;
|
| · |
authorize
access to records by researchers and others;
and
|
| · |
impose
criminal and civil sanctions for improper uses or disclosures of
health
information.
|
The
preemption provisions of HIPAA provide that the federal standards will not
preempt state laws that are more stringent than the related federal
requirements. In addition, the Secretary of HHS may grant exceptions allowing
state laws to prevail if one or more of a number of conditions are met,
including but not limited to the following:
| · |
the
state law is necessary to prevent fraud and abuse related to the
provision
of and payment for healthcare;
|
| · |
the
state law is necessary to ensure appropriate state regulation of
insurance
and health plans;
|
| · |
the
state law is necessary for state reporting on healthcare delivery
or
costs; or
|
| · |
the
state law addresses controlled
substances.
|
In
2003,
HHS published final regulations relating to the security of electronic
individually identifiable health information. Compliance was required by April
2005. These rules require healthcare providers, health plans and healthcare
clearinghouses to implement administrative, physical and technical safeguards
to
ensure the privacy and confidentiality of such information when it is
electronically stored, maintained or transmitted through such devices as user
authentication mechanisms and system activity audits. In addition, numerous
states have adopted personal data security laws that provide for, among other
things, private rights of action for breaches of data security and mandatory
notification to persons whose identifiable information is obtained without
authorization.
Patients’
Rights Legislation
The
United States Senate and House of Representatives passed different versions
of
patients’ rights legislation in June and August 2001, respectively. Both
versions included provisions that specifically apply protections to participants
in federal healthcare programs, including Medicaid beneficiaries. Although
no
such federal legislation has been enacted, patients’ rights legislation is
frequently proposed in Congress. If enacted, this type of legislation could
expand our potential exposure to lawsuits and increase our regulatory compliance
costs. Depending on the final form of any patients’ rights legislation, such
legislation could, among other things, expose us to liability for economic
and
punitive damages for making determinations that deny benefits or delay
beneficiaries’ receipt of benefits as a result of our medical necessity or other
coverage determinations. We cannot predict when or whether patients’ rights
legislation will be enacted into law or, if enacted, what final form such
legislation might take.
Other
Fraud and Abuse Laws
Investigating
and prosecuting healthcare fraud and abuse became a top priority for law
enforcement entities in the last decade. The focus of these efforts has been
directed at participants in public government healthcare programs such as
Medicaid. The laws and regulations relating to Medicaid fraud and abuse and
the
contractual requirements applicable to health plans participating in these
programs are complex and changing and may require substantial
resources.
Properties
Our
corporate office headquarters building is located in St. Louis, Missouri. The
real estate we own surrounding this building is adequate to accommodate office
expansion needs to support future company growth. Effective December 30, 2005,
we executed an agreement with the City of Clayton, Missouri, a suburb of St.
Louis, for the redevelopment of certain properties surrounding our corporate
offices. Our primary purpose for the agreement is to accommodate office
expansion needs for future company growth. The total scope of the project
includes building two new office towers and street-level retail space. We plan
to occupy a portion of those towers. The total expected cost of the project
is
approximately $210 million. It is not our intent to serve as developer of the
project or finance the project construction costs. We operate claims processing
facilities in Missouri and Montana. We lease space in the states where our
health plans and specialty companies operate. We are required by various
insurance and regulatory authorities to have offices in the service areas where
we provide benefits. We believe our current facilities are adequate to meet
our
operational needs for the foreseeable future.
Legal
Proceedings
Two
class
action lawsuits were filed against us and certain of our officers and directors
in the United States District Court for the Eastern District of Missouri, one
in
July 2006, or the July Class Action Lawsuit, and one in August 2006, or the
August Class Action Lawsuit. The July Class Action Lawsuit and the August Class
Action Lawsuit were consolidated on November 2, 2006 and an amended consolidated
complaint was filed in the United States District Court for the Eastern District
of Missouri on January 17, 2007, which we refer to as the Consolidated Class
Action Lawsuit. The Consolidated Class Action Lawsuit alleges, on behalf of
purchasers of our common stock from April 25, 2006 through July 17, 2006, that
we and certain of our officers and directors violated federal securities laws
by
issuing a series of materially false statements prior to the announcement of
our
fiscal 2006 second quarter results. According to the Consolidated Class Action
Lawsuit, these allegedly materially false statements had the effect of
artificially inflating the price of our common stock, which subsequently dropped
after the issuance of a press release announcing our preliminary fiscal 2006
second quarter earnings and revised guidance. We believe the case is without
merit and have filed a motion to dismiss the Consolidated Class Action
Lawsuit.
Additionally,
in August 2006, a separate derivative action was filed on behalf of Centene
Corporation against us and certain of our officers and directors in the United
States District Court for the Eastern District of Missouri. Plaintiff purports
to bring suit derivatively on behalf of the Company against the Company’s
directors for breach of fiduciary duties, gross mismanagement and waste of
corporate assets by reason of the directors’ alleged failure to correct the
misstatements alleged in the Consolidated
Class Action Lawsuits discussed above. The derivative complaint largely repeats
the allegations in the Consolidated Class Action Lawsuits. Based on discussions
that have been held with plaintiff ’s counsel, it is our understanding that
plaintiff does not intend to pursue this action until the Consolidated Class
Action Lawsuits proceed past the dismissal stage. Although this matter is in
its
early stages and no precise prediction of its outcome can be made, we believe
the case is without merit and plan to vigorously defend against this
lawsuit.
In
addition, we routinely are subjected to legal proceedings in the normal course
of business. While the ultimate resolution of such matters is uncertain, we
do
not expect the results of any of these matters discussed above individually,
or
in the aggregate, to have a material effect on our financial position or results
of operations.
Employees
As
of
December 31, 2006, we had approximately 2,600 employees. Our employees are
not
represented by a union. We believe our relationships with our employees are
good.
We
have a
revolving credit agreement with several lending institutions, for which LaSalle
Bank National Association serves as administrative agent and co-lead arranger,
Wachovia Capital Markets, LLC serves as co-lead arranger, and Wachovia Bank,
National Association serves as syndication agent. Our obligations under the
credit agreement are unsecured and are not guaranteed by any of our
subsidiaries. The total amount available under the credit agreement is $300.0
million, including a sub-facility for letters of credit in an aggregate amount
of up to $75.0 million. Borrowings under the credit agreement bear interest
based upon LIBOR rates, the Federal Funds Rate or the Prime Rate. There is
a
commitment fee on the unused portion of the agreement that ranges from 0.15%
to
0.275% depending on the total debt to EBITDA ratio. The credit agreement
contains non-financial and financial covenants, including requirements of
minimum fixed charge coverage ratios, maximum debt to EBITDA ratios and minimum
net worth. The credit agreement will expire in September 2011. As of March
31,
2007, we had no borrowings outstanding under the credit agreement and $24.5
million in letters of credit outstanding, leaving availability of $275.5
million. As of March 31, 2007, we were in compliance with all
covenants.
In
May
2006, one of our subsidiaries executed a three-year $25.0 million Revolving
Loan
Agreement which is non-recourse to Centene. Borrowings under the agreement
bear
interest based upon LIBOR rates plus 1.50%. Subject to the terms and conditions
of the agreement, the proceeds of the Revolving Loan may only be used for the
acquisition of certain properties contiguous to our corporate headquarters
as
part of our redevelopment agreement with the city of Clayton, Missouri. As
of
March 31, 2007, our subsidiary had $8.4 million in borrowings outstanding,
which
bore interest at 6.8%. This subsidiary also had mortgage loans of $12.3 million
outstanding, which are non-recourse to Centene, but are secured by our current
headquarters building and one of the additional properties which would be part
of the redevelopment. These mortgage loans mature on January 1, 2010 and bear
interest at 7.5%.
Purpose
of the Exchange Offer
Simultaneously
with the sale of the outstanding notes, we entered into a registration rights
agreement with the initial purchasers of the outstanding notes — Banc of America
Securities LLC, Wachovia Capital Markets, LLC, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, ABN AMRO Incorporated, Allen & Company LLC, and
Goldman, Sachs & Co. Under the registration rights agreement, we agreed,
among other things, to:
| · |
file
a registration statement relating to a registered exchange offer
for the
outstanding notes with the SEC no later than 90 days after the date
of the
issuance of the outstanding notes;
|
| · |
use
our commercially reasonable efforts to cause the SEC to declare the
registration statement effective under the Securities Act no later
than
180 days after the date of the issuance of the outstanding notes;
and
|
| · |
commence
and use our commercially reasonable efforts to consummate the exchange
offer no later than the 45th business day after the registration
statement
was declared effective by the SEC.
|
We
are
conducting the exchange offer to satisfy our obligations under the registration
rights agreement. If
we
fail to meet certain specified deadlines under the registration rights
agreement, we will be obligated to pay liquidated damages to the holders of
the
outstanding notes. A copy of the registration rights agreement has been filed
with the SEC
as
Exhibit 10.1 to our Current Report on Form 8-K dated March 23, 2007,
and is
incorporated by reference as an exhibit to the registration statement of which
this prospectus is a part.
The
form
and terms of the exchange notes are the same as the form and terms of the
outstanding notes, except that the exchange notes:
| · |
will
be registered under the Securities Act;
|
| · |
will
not bear restrictive legends restricting their transfer under the
Securities Act;
|
| · |
will
not be entitled to the registration rights that apply to the outstanding
notes; and
|
| · |
will
not contain provisions relating to liquidated damages in connection
with
the outstanding notes under circumstances related to the timing of
the
exchange offer.
|
The
exchange offer is not extended to original note holders in any jurisdiction
where the exchange offer does not comply with the securities or blue sky laws
of
that jurisdiction.
Terms
of the Exchange Offer
We
are
offering to exchange up to $175,000,000 aggregate principal amount of exchange
notes for a like aggregate principal amount of outstanding notes. The
outstanding notes must be tendered properly in accordance with the conditions
set forth in this prospectus and the accompanying letter of transmittal on
or
prior to the expiration date and not withdrawn as permitted below. In exchange
for outstanding notes properly tendered and accepted, we will issue a like
total
principal amount of up to $175,000,000 in exchange notes. This prospectus,
together with the letter of transmittal, is first being sent on or
about 2007, to all holders
of outstanding notes known to us. Our obligation to accept outstanding notes
for
exchange in the exchange offer is subject to the conditions described below
under the heading “—Conditions to the Exchange Offer.” The exchange offer is not
conditioned upon holders tendering a minimum principal amount of outstanding
notes. As of the date of this prospectus, $175,000,000 aggregate principal
amount of outstanding notes are outstanding.
Outstanding
notes tendered in the exchange offer must be in denominations of the principal
amount of $1,000 and any integral multiple of $1,000 in excess
thereof.
Holders
of the outstanding notes do not have any appraisal or dissenters’ rights in
connection with the exchange offer. If you do not tender your outstanding notes
or if you tender outstanding notes that we do not accept, your outstanding
notes
will remain outstanding. Any outstanding notes will be entitled to the benefits
of the indenture but will not be entitled to any further registration rights
under the registration rights agreement, except under limited circumstances.
Existing transfer restrictions would continue to apply to such outstanding
notes. See “Risk Factors—There are significant consequences if you fail to
exchange your outstanding notes” for more information regarding outstanding
notes outstanding after the exchange offer.
After
the
expiration date, we will return to the holder any tendered outstanding notes
that we did not accept for exchange.
None
of us, our board of directors or our management recommends that you tender
or
not tender outstanding notes in the exchange offer or has authorized anyone
to
make any recommendation. You must decide whether to tender in the exchange
offer
and, if you decide to tender, the aggregate amount of outstanding notes to
tender.
The
expiration date is , New York City
time, on ,2007,
or
such later date and time to which we extend the exchange offer.
We
have
the right, in accordance with applicable law, at any time:
| · |
to
delay the acceptance of the outstanding
notes;
|
| · |
to
terminate the exchange offer and not accept any outstanding notes
for
exchange if we determine that any of the conditions to the exchange
offer
have not occurred or have not been
satisfied;
|
| · |
to
extend the expiration date of the exchange offer and retain all
outstanding notes tendered in the exchange offer other than those
notes
properly withdrawn; and
|
| · |
to
waive any condition or amend the terms of the exchange offer in any
manner.
|
If
we
materially amend the exchange offer, we will as promptly as practicable
distribute a prospectus supplement to the holders of the outstanding notes
disclosing the change and extend the exchange offer.
If
we
exercise any of the rights listed above, we will as promptly as practicable
give
oral or written notice of the action to the exchange agent and will make a
public announcement of such action. In the case of an extension, an announcement
will be made no later than 9:00 a.m., New York City time on the next business
day after the previously scheduled expiration date.
Acceptance
of Outstanding notes for Exchange and Issuance of Outstanding notes
As
promptly as practicable after the expiration date, we will accept all
outstanding notes validly tendered and not withdrawn, and we will issue exchange
notes registered under the Securities Act to the exchange agent. The exchange
agent might not deliver the exchange notes to all tendering holders at the
same
time. The timing of delivery depends upon when the exchange agent receives
and
processes the required documents.
We
will
be deemed to have exchanged outstanding notes validly tendered and not withdrawn
when we give oral or written notice to the exchange agent of our acceptance
of
the tendered outstanding notes, with written confirmation of any oral notice
to
be given promptly thereafter. The exchange agent is our agent for receiving
tenders of outstanding notes, letters of transmittal and related
documents.
In
tendering outstanding notes, you must warrant in the letter of transmittal
or in
an agent’s message (described below) that:
| · |
you
have full power and authority to tender, exchange, sell, assign and
transfer outstanding notes;
|
| · |
we
will acquire good, marketable and unencumbered title to the tendered
outstanding notes, free and clear of all liens, restrictions, charges
and
other encumbrances; and
|
| · |
the
outstanding notes tendered for exchange are not subject to any adverse
claims or proxies.
|
You
also
must warrant and agree that you will, upon request, execute and deliver any
additional documents requested by us or the exchange agent to complete the
exchange, sale, assignment and transfer of the outstanding notes.
Procedures
for Tendering Outstanding notes
Valid
Tender
When
the
holder of outstanding notes tenders, and we, accept outstanding notes for
exchange, a binding agreement between us, on the one hand, and the tendering
holder, on the other hand, is created, subject to the terms and conditions
set
forth in this prospectus and the accompanying letter of transmittal. Except
as
set forth below, a holder of outstanding notes who wishes to tender outstanding
notes for exchange must, on or prior to the expiration date:
| · |
transmit
a properly completed and duly executed letter of transmittal, including
all other documents required by such letter of transmittal (including
outstanding notes), to the exchange agent, The Bank of New York Trust
Company, N.A., at the address set forth below under the heading “—Exchange
Agent;”
|
| · |
if
outstanding notes are tendered pursuant to the book-entry procedures
set
forth below, the tendering holder must deliver a completed and duly
executed letter of transmittal or arrange with the Depository Trust
Company, or DTC, to cause an agent’s message to be transmitted with the
required information (including a book-entry confirmation), to the
exchange agent at the address set forth below under the heading “—Exchange
Agent,” or
|
| · |
comply
with the provisions set forth below under “—Guaranteed
Delivery.”
|
In
addition, on or prior to the expiration date:
| · |
the
exchange agent must receive the certificates for the outstanding
notes and
the letter of transmittal;
|
| · |
the
exchange agent must receive a timely confirmation of the book-entry
transfer of the outstanding notes being tendered into the exchange
agent’s
account at DTC, along with the letter of transmittal or an agent’s
message; or
|
| · |
the
holder must comply with the guaranteed delivery procedures described
below.
|
The
letter of transmittal or agent’s message may be delivered by mail, facsimile,
hand delivery or overnight carrier, to the exchange agent.
The
term
“agent’s message” means a message transmitted to the exchange agent by DTC which
states that DTC has received an express acknowledgment that the tendering holder
agrees to be bound by the letter of transmittal and that we may enforce the
letter of transmittal against such holder.
If
you
beneficially own outstanding notes and those notes are registered in the name
of
a broker, dealer, commercial bank, trust company or other nominee or custodian
and you wish to tender your outstanding notes in the exchange offer, you should
contact the registered holder as soon as possible and instruct it to tender
the
outstanding notes on your behalf and comply with the instructions set forth
in
this prospectus and the letter of transmittal.
If
you
tender fewer than all of your outstanding notes, you should fill in the amount
of notes tendered in the appropriate box on the letter of transmittal. If you
do
not indicate the amount tendered in the appropriate box, we will assume you
are
tendering all outstanding notes that you hold.
The
method of delivery of the certificates for the outstanding notes, the letter
of
transmittal and all other required documents is at the election and sole risk
of
the holders. If delivery is by mail, we recommend registered mail with return
receipt requested, properly insured, or overnight delivery service. In all
cases, you should allow sufficient time to assure timely delivery. No letters
of
transmittal or outstanding notes should be sent directly to us.
Delivery
is complete when the exchange agent actually
receives the items to be delivered. Delivery of documents to DTC in accordance
with DTC’s procedures does not constitute delivery to the exchange
agent.
Signature
Guarantees
Signatures
on a letter of transmittal or a notice of withdrawal, as the case may be, must
be guaranteed unless the outstanding notes surrendered for exchange are
tendered:
| · |
by
a registered holder of outstanding notes who has not completed the
box
entitled “Special Issuance Instructions” or “Special Delivery
Instructions” on the letter of transmittal; or
|
| · |
for
the account of an eligible
institution.
|
An
“eligible institution” is a firm or other entity which is identified as an
“Eligible Guarantor Institution” in Rule 17Ad-15 under the Exchange Act,
including:
| · |
a
bank;
|
| · |
a
broker, dealer, municipal securities broker or dealer or government
securities broker or dealer;
|
| · |
a
credit union;
|
| · |
a
national securities exchange, registered securities association or
clearing agency; or
|
| · |
a
savings association.
|
If
signatures on a letter of transmittal or notice of withdrawal are required
to be
guaranteed, the guarantor must be an eligible institution.
If
outstanding notes are registered in the name of a person other than the signer
of the letter of transmittal, the outstanding notes surrendered for exchange
must be endorsed or accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by us in our sole
discretion, duly executed by the registered holder with the holder’s signature
guaranteed by an eligible institution.
Book-Entry
Transfers
For
tenders by book-entry transfer of outstanding notes cleared through DTC, the
exchange agent will make a request to establish an account at DTC for purposes
of the exchange offer. Any financial institution that is a DTC participant
may
make book-entry delivery of outstanding notes by causing DTC to transfer the
outstanding notes into the exchange agent’s account at DTC in accordance with
DTC’s procedures for transfer. The exchange agent and DTC have confirmed that
any financial institution that is a participant in DTC may use the Automated
Tender Offer Program, or ATOP, procedures to tender outstanding notes.
Accordingly, any participant in DTC may make book-entry delivery of outstanding
notes by causing DTC to transfer those outstanding notes into the exchange
agent’s account in accordance with its ATOP procedures for
transfer.
Notwithstanding
the ability of holders of outstanding notes to effect delivery of outstanding
notes through book-entry transfer at DTC, either:
| · |
the
letter of transmittal or a facsimile thereof, or an agent’s message in
lieu of the letter of transmittal, with any required signature guarantees
and any other required documents must be transmitted to and received
by
the exchange agent prior to the expiration date at the address given
below
under “—Exchange Agent;” or
|
| · |
the
guaranteed delivery procedures described below must be complied
with.
|
Guaranteed
Delivery
If
a
holder wants to tender outstanding notes in the exchange offer and (1) the
certificates for the outstanding notes are not immediately available or all
required documents are unlikely to reach the exchange agent on or prior to
the
expiration date, or (2) a book-entry transfer cannot be completed on a timely
basis, the outstanding notes may be tendered if the holder complies with the
following guaranteed delivery procedures:
| · |
the
tender is made by or through an eligible
institution;
|
| · |
the
eligible institution delivers a properly completed and duly executed
notice of guaranteed delivery, substantially in the form provided,
to the
exchange agent on or prior to the expiration
date:
|
| ─ |
setting
forth the name and address of the holder of the outstanding notes
being
tendered and the amount of the outstanding notes being tendered;
|
| ─ |
stating
that the tender is being made; and
|
| ─ |
guaranteeing
that, within three (3) New York Stock Exchange trading days after
the date
of execution of the notice of guaranteed delivery, the certificates
for
all physically tendered outstanding notes, in proper form for transfer,
or
a book-entry confirmation, as the case may be, together with a properly
completed and duly executed letter of transmittal, or an agent’s message,
with any required signature guarantees and any other documents required
by
the letter of transmittal, will be deposited by the eligible institution
with the exchange agent; and
|
| · |
the
exchange agent receives the certificates for the outstanding notes,
or a
confirmation of book-entry transfer, and a properly completed and
duly
executed letter of transmittal, or an agent’s message in lieu thereof,
with any required signature guarantees and any other documents required
by
the letter of transmittal within three (3) New York Stock Exchange
trading
days after the notice of guaranteed delivery is executed for all
such
tendered outstanding notes.
|
You
may
deliver the notice of guaranteed delivery by hand, facsimile, mail or overnight
delivery to the exchange agent and you must include a guarantee by an eligible
institution in the form described above in such notice.
Our
acceptance of properly tendered outstanding notes is a binding agreement between
the tendering holder and us upon the terms and subject to the conditions of
the
exchange offer.
Determination
of Validity
We,
in
our sole discretion, will resolve all questions regarding the form of documents,
validity, eligibility, including time of receipt, and acceptance for exchange
of
any tendered outstanding notes. Our determination of these questions as well
as
our interpretation of the terms and conditions of the exchange offer, including
the letter of transmittal, will be final and binding on all parties. A tender
of
outstanding notes is invalid until all defects and irregularities have been
cured or waived. Holders must cure any defects and irregularities in connection
with tenders of outstanding notes for exchange within such reasonable period
of
time as we will determine, unless we waive the defects or irregularities.
Neither us, any of our affiliates or assigns, the exchange agent nor any other
person is under any obligation to give notice of any defects or irregularities
in tenders nor will they be liable for failing to give any such
notice.
We
reserve the absolute right, in our sole and absolute discretion:
| · |
to
reject any tenders determined to be in improper form or
unlawful;
|
| · |
to
waive any of the conditions of the exchange offer;
and
|
| · |
to
waive any condition or irregularity in the tender of outstanding
notes by
any holder, whether or not we waive similar conditions or irregularities
in the case of other holders.
|
If
any
letter of transmittal, endorsement, bond power, power of attorney, or any other
document required by the letter of transmittal is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, that person must
indicate such capacity when signing. In addition, unless waived by us, the
person must submit proper evidence satisfactory to us, in our sole discretion,
of his or her authority to so act.
Resales
of Exchange Notes
Based
on
interpretive letters issued by the SEC staff to third parties in transactions
similar to the exchange offer, we believe that a holder of exchange notes,
other
than a broker-dealer, may offer exchange notes for resale, resell and otherwise
transfer the exchange notes without delivering a prospectus to prospective
purchasers, if the holder acquired the exchange notes in the ordinary course
of
business, has no intention of engaging in a “distribution” (as defined under the
Securities Act) of the exchange notes and is not an “affiliate” (as defined
under the Securities Act) of Centene. We will not seek our own interpretive
letter. As a result, we cannot assure you that the staff will take the same
position on this exchange offer as it did in interpretive letters to other
parties in similar transactions.
By
tendering outstanding notes, the holder, other than participating
broker-dealers, as defined below, of those outstanding notes will represent
to
us that, among other things:
| · |
the
exchange notes acquired in the exchange offer are being obtained
in the
ordinary course of business of the person receiving the exchange
notes,
whether or not that person is the
holder;
|
| · |
neither
the holder nor any other person receiving the exchange notes is engaged
in, intends to engage in or has an arrangement or understanding with
any
person to participate in a “distribution” (as defined under the Securities
Act) of the exchange notes; and
|
| · |
neither
the holder nor any other person receiving the exchange notes is an
“affiliate” (as defined under the Securities Act) of
Centene.
|
If
any
holder or any such other person is an “affiliate” of Centene or is engaged in,
intends to engage in or has an arrangement or understanding with any person
to
participate in a “distribution” of the exchange notes, such holder or other
person:
| · |
may
not rely on the applicable interpretations of the staff of the SEC
referred to above; and
|
| · |
must
comply with the registration and prospectus delivery requirements
of the
Securities Act in connection with any resale
transaction.
|
Each
broker-dealer that receives exchange notes for its own account in exchange
for
outstanding notes must represent that the outstanding notes to be exchanged
for
the exchange notes were acquired by it as a result of market-making activities
or other trading activities and acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any offer
to
resell, resale or other retransfer of the exchange notes pursuant to the
exchange offer. Any such broker-dealer is referred to as a participating
broker-dealer. However, by so acknowledging and by delivering a prospectus,
the
participating broker-dealer will not be deemed to admit that it is an
“underwriter” (as defined under the Securities Act). If a broker-dealer acquired
outstanding notes as a result of market-making or other trading activities,
it
may use this prospectus, as amended or supplemented, in connection with offers
to resell, resales or retransfers of exchange notes received in exchange for
the
outstanding notes pursuant to the exchange offer. We have agreed that, during
the period ending 180 days after the consummation of the exchange offer, subject
to extension in limited circumstances, we will use all commercially reasonable
efforts to keep the exchange offer registration statement effective and make
this prospectus available to any broker-dealer for use in connection with any
such resale. See “Plan of Distribution” for a discussion of the exchange and
resale obligations of broker-dealers in connection with the exchange
offer.
Withdrawal
Rights
You
can
withdraw tenders of outstanding notes at any time prior to ,
New
York City time, on the expiration date.
For
a
withdrawal to be effective, you must deliver a written notice of withdrawal
to
the exchange agent. The notice of withdrawal must:
| · |
specify
the name of the person tendering the outstanding notes to be
withdrawn;
|
| · |
identify
the outstanding notes to be withdrawn, including the total principal
amount of outstanding notes to be
withdrawn;
|
| · |
where
certificates for outstanding notes are transmitted, list the name
of the
registered holder of the outstanding notes if different from the
person
withdrawing the outstanding notes;
|
| · |
contain
a statement that the holder is withdrawing his election to have the
outstanding notes exchanged;
|
| · |
be
signed by the holder in the same manner as the original signature
on the
letter of transmittal by which the outstanding notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer to have the trustee with respect to the outstanding
notes register the transfer of the outstanding notes in the name
of the
person withdrawing the tender.
|
If
you
delivered or otherwise identified pursuant to the guaranteed delivery procedures
outstanding notes to the exchange agent, you must submit the serial numbers
of
the outstanding notes to be withdrawn and the signature on the notice of
withdrawal must be guaranteed by an eligible institution, except in the case
of
outstanding notes tendered for the account of an eligible institution. If you
tendered outstanding notes as a book-entry transfer, the notice of withdrawal
must specify the name and number of the account at DTC to be credited with
the
withdrawn outstanding notes and you must deliver the notice of withdrawal to
the
exchange agent. You may not rescind withdrawals of tender; however, outstanding
notes properly withdrawn may again be tendered at any time on or prior to the
expiration date.
We
will
determine all questions regarding the form of withdrawal, validity, eligibility,
including time of receipt, and acceptance of withdrawal notices. Our
determination of these questions as well as our interpretation of the terms
and
conditions of the exchange offer (including the letter of transmittal) will
be
final and binding on all parties. Neither us, any of our affiliates or assigns,
the exchange agent nor any other person is under any obligation to give notice
of any irregularities in any notice of withdrawal, nor will they be liable
for
failing to give any such notice.
In
the
case of outstanding notes tendered by book-entry transfer through DTC, the
outstanding notes withdrawn or not exchanged will be credited to an account
maintained with DTC. Withdrawn outstanding notes will be returned to the holder
after withdrawal. The outstanding notes will be returned or credited to the
account maintained with DTC as soon as practicable after withdrawal, rejection
of tender or termination of the exchange offer. Any outstanding notes which
have
been tendered for exchange but which are not exchanged for any reason will
be
returned to the holder thereof without cost to the holder.
Properly
withdrawn outstanding notes may again be tendered by following one of the
procedures described under “—Procedures for Tendering Outstanding notes” above
at any time prior to ,
New
York City
time, on the expiration date.
Conditions
to the Exchange Offer
Notwithstanding
any other provision of the exchange offer, we are not required to accept for
exchange, or to issue exchange notes in exchange for, any outstanding notes,
and
we may terminate or amend the exchange offer, if at any time prior to , New York
City time, on the expiration date, we determine that the exchange offer violates
applicable law or SEC policy.
The
foregoing conditions are for our sole benefit, and we may assert them regardless
of the circumstances giving rise to any such condition, or we may waive the
conditions, completely or partially, whenever or as many times as we choose,
in
our reasonable discretion. The foregoing rights are not deemed waived because
we
fail to exercise them, but continue in effect, and we may still assert them
whenever or as many times as we choose. If we determine that a waiver of
conditions materially changes the exchange offer, the prospectus will be amended
or supplemented, and the exchange offer extended, if appropriate, as described
under “—Terms of the Exchange Offer.”
In
addition, at a time when any stop order is threatened or in effect with respect
to the registration statement of which this prospectus constitutes a part or
with respect to the qualification of the indenture under the Trust Indenture
Act
of 1939, as amended (the “Trust Indenture Act”), we will not accept for exchange
any outstanding notes tendered, and no exchange notes will be issued in exchange
for any such outstanding notes.
If
we
terminate or suspend the exchange offer based on a determination that the
exchange offer violates applicable law or SEC policy, the registration rights
agreement requires that we, as soon as practicable after such determination,
use
our commercially reasonable efforts to cause a shelf registration statement
covering the resale of the outstanding notes to be filed and declared effective
by the SEC.
Exchange
Agent
We
appointed The Bank of New York Trust Company, N.A., as exchange agent for the
exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for notices of guaranteed delivery to the exchange
agent at the address and phone number as follows:
|
By
Registered or Certified Mail, Hand Delivery or Overnight
Delivery:
Bank
of New York
Corporate
Trust Operations
Reorganization
Unit
101
Barclay Street - 7 East
New
York, NY 10286
Attention:
David A. Mauer
Telephone:
(212) 815-3687
|
Facsimile
Transmissions:
(212)-298-1915
|
If
you deliver letters of transmittal and any other required documents to an
address or facsimile number other than those listed above, your tender is
invalid.
Fees
and Expenses
The
registration rights agreement provides that we will bear all expenses in
connection with the performance of our obligations relating to the registration
of the exchange notes and the conduct of the exchange offer. These expenses
include registration and filing fees, accounting and legal fees and printing
costs, among others. We will pay the exchange agent reasonable and customary
fees for its services and reasonable out-of-pocket expenses. We will also
reimburse brokerage houses and other custodians, nominees and fiduciaries for
customary mailing and handling expenses incurred by them in forwarding this
prospectus and related documents to their clients that are holders of
outstanding notes and for handling or tendering for such clients.
We
have
not retained any dealer-manager in connection with the exchange offer and will
not pay any fee or commission to any broker, dealer, nominee or other person,
other than the exchange agent, for soliciting tenders of outstanding notes
pursuant to the exchange offer.
Transfer
Taxes
Holders
who tender their outstanding notes for exchange will not be obligated to pay
any
transfer taxes in connection with the exchange. If, however, exchange notes
issued in the exchange offer are to be delivered to, or are to be issued in
the
name of, any person other than the holder of the outstanding notes tendered,
or
if a transfer tax is imposed for any reason other than the exchange of
outstanding notes in connection with the exchange offer, then the holder must
pay any such transfer taxes, whether imposed on the registered holder or on
any
other person. If satisfactory evidence of payment of, or exemption from, such
taxes is not submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to the tendering holder.
Consequences
of Failure to Exchange Outstanding notes
Holders
who desire to tender their outstanding notes in exchange for exchange notes
should allow sufficient time to ensure timely delivery. Neither the exchange
agent nor Centene is under any duty to give notification of defects or
irregularities with respect to the tenders of notes for exchange.
Outstanding
notes that are not tendered or are tendered but not accepted will, following
the
consummation of the exchange offer, continue to be subject to the provisions
in
the indenture regarding the transfer and exchange of the outstanding notes
and
the existing restrictions on transfer set forth in the legend on the outstanding
notes and in the confidential offering memorandum dated March 15, 2007
relating to the outstanding notes. Except in limited circumstances with
respect to specific types of holders of outstanding notes, we will have no
further obligation to provide for the registration under the Securities Act
of
such outstanding notes. In general, outstanding notes, unless registered under
the Securities Act, may not be offered or sold except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. We do not currently anticipate that we will take any
action to register the outstanding notes under the Securities Act or under
any
state securities laws.
Upon
completion of the exchange offer, holders of the outstanding notes will not
be
entitled to any further registration rights under the registration rights
agreement, except under limited circumstances. Holders of the exchange notes
and
any outstanding notes which remain outstanding after consummation of the
exchange offer will vote together as a single class for purposes of determining
whether holders of the requisite percentage of the class have taken certain
actions or exercised certain rights under the indenture.
Consequences
of Exchanging Outstanding notes
Under
existing interpretations of the Securities Act by the SEC’s staff contained in
several no-action letters to third parties, we believe that the exchange notes
may be offered for resale, resold or otherwise transferred by holders after
the
exchange offer other than by any holder who is one of our “affiliates” (as
defined in Rule 405 under the Securities Act). Such notes may be offered for
resale, resold or otherwise transferred without compliance with the registration
and prospectus delivery provisions of the Securities Act, if:
| · |
such
exchange notes are acquired in the ordinary course of such holder’s
business; and
|
| · |
such
holder, other than broker-dealers, has no arrangement or understanding
with any person to participate in the distribution of the exchange
notes.
|
However,
the SEC has not considered the exchange offer in the context of a no-action
letter and we cannot guarantee that the staff of the SEC would make a similar
determination with respect to the exchange offer as in such other circumstances.
Each holder, other than a broker-dealer, must furnish a written representation,
at our request, that:
| · |
it
is not an affiliate of Centene;
|
| · |
it
is not engaged in, and does not intend to engage in, a distribution
of the
exchange notes and has no arrangement or understanding to participate
in a
distribution of exchange notes; and
|
| · |
it
is acquiring the exchange notes in the ordinary course of its
business.
|
Each
broker-dealer that receives exchange notes for its own account in exchange
for
outstanding notes must acknowledge that such outstanding notes were acquired
by
such broker-dealer as a result of market-making or other trading activities
and
that it will deliver a prospectus in connection with any resale of such exchange
notes. See “Plan of Distribution” for a discussion of the exchange and resale
obligations of broker-dealers in connection with the exchange
offer.
You
can
find the definitions of certain terms used in this description under the
subheading “Certain Definitions.” In this description, references to “Centene,”
“us” and “our” refer only to Centene Corporation and not to any of its
subsidiaries.
Except
as
otherwise indicated below, the following summary applies to both the outstanding
notes issued March 22, 2007 pursuant to the indenture dated as of March 22,
2007
among Centene, as issuer, and The Bank of New York Trust Company, N.A., as
trustee, and to the exchange notes to be issued in connection with the exchange
offer. Centene will also issue the exchange notes under the indenture. The
term
notes means the exchange notes and the outstanding notes, in each case
outstanding at any given time and issued under the indenture. The terms of
the
notes include those stated in the indenture and those made part of the indenture
by reference to the Trust Indenture Act of 1939. The terms of the exchange
notes
are the same as the terms of the outstanding notes, except that (i) the exchange
notes will be registered under the Securities Act, (ii) the exchange notes
will
not bear restrictive legends restricting their transfer under the Securities
Act, (iii) holders of the exchange notes are not entitled to certain rights
under the registration rights agreement and (iv) the exchange notes will not
contain provisions relating to liquidated damages in connection with the
outstanding notes under circumstances related to the timing of the exchange
offer.
The
following description is a summary of the material provisions of the indenture.
It does not restate the indenture in its entirety. We urge you to read the
indenture because it, and not this description, defines your rights as holders
of the notes. Copies of the indenture are available upon request to Centene
at
the address indicated under “Where You Can Find More Information” elsewhere in
this prospectus. Certain defined terms used in this description but not defined
below under “— Certain Definitions” have the meanings assigned to them in the
indenture.
The
registered holder of a note will be treated as the owner of it for all purposes.
Only registered holders will have rights under the indenture.
Brief
Description of the Notes
The
Notes
The
notes:
| · |
will
be senior unsecured obligations of
Centene;
|
| · |
will
be equal in right of payment to all existing and future senior
Indebtedness of Centene, including Centene’s obligations under the Credit
Agreement;
|
| · |
will
be effectively subordinate in right of payment to any existing or
future
secured Indebtedness of Centene to the extent of the value of the
assets
securing such Indebtedness; and
|
| · |
will
be senior in right of payment to any future subordinated Indebtedness
of
Centene.
|
None
of
Centene’s subsidiaries will guarantee the notes. As a result, the notes will be
structurally subordinated to all Indebtedness and other liabilities (including
Trade Payables and lease obligations) of Centene’s subsidiaries. Any right of
Centene to receive assets of any of its subsidiaries upon the subsidiary’s
liquidation or reorganization (and the consequent right of the holders of the
notes to participate in those assets) will be effectively subordinated to the
claims of that subsidiary’s creditors, except to the extent that Centene is
itself recognized as a creditor of the subsidiary, in which case the claims
of
Centene would still be subordinate in right of payment to any security in the
assets of the subsidiary and any indebtedness of the subsidiary senior to that
held by Centene.
All
of
Centene’s operations are conducted through its subsidiaries. Therefore,
Centene’s ability to service its Indebtedness, including these notes, is
dependent upon the earnings of its subsidiaries and their ability to distribute
those earnings as dividends, loans or other payments to Centene. Certain of
Centene’s subsidiaries are restricted by statute, regulatory capital
requirements and certain contractual obligations in their ability to make
distributions to Centene. As a result, we may not be able to cause the
subsidiaries to distribute sufficient funds to enable us to meet our obligations
under the notes. See “Risk Factors —Risks Related to the Notes — Because we are
a holding company and depend entirely on cash flow from our subsidiaries to
meet
our obligations, your right to receive payment on the notes will be effectively
subordinated to our subsidiaries’ obligations.”
As
of
December 31, 2006, as adjusted to give effect to the offering of the
outstanding notes and the use of proceeds therefrom, Centene had approximately
$175.0 million of Senior Debt and Centene’s subsidiaries had approximately
$415.5 million of liabilities, including Trade Payables and medical liabilities
(excluding intercompany liabilities). As of the date of the indenture, all
of
our direct and indirect subsidiaries will be “Restricted Subsidiaries.” However,
under the circumstances described below under the subheading “— Certain
Covenants — Designation of Restricted and Unrestricted Subsidiaries,” we will be
permitted to designate certain of our subsidiaries as “Unrestricted
Subsidiaries.” Our Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants in the indenture.
Principal,
Maturity and Interest
The
indenture provides for the issuance by Centene of an unlimited principal amount
of notes, of which $175.0 million of outstanding notes were previously issued
and of which up to $175.0 million of exchange notes will be issued in this
exchange offer and exchanged for the outstanding notes. The Company may issue
additional notes from time to time after this exchange offer under the indenture
without the consent of the holders. Subject to compliance with the covenant
described under the caption “— Certain Covenants — Incurrence of Indebtedness
and Issuance of Preferred Stock” below, Centene may issue additional notes under
the indenture from time to time after this offering. The initial notes and
any
additional notes subsequently issued under the indenture will be treated as
a
single class for all purposes under the indenture, including, without
limitation, waivers, amendments, redemptions, and offers to purchase. Centene
will issue notes in denominations of $1,000 and integral multiples of $1,000.
The notes will mature on April 1, 2014.
Interest
on the notes will accrue at the rate of 7¼ % per annum and will be payable
semi-annually in arrears on April 1 and October 1, commencing on October 1,
2007. Centene will make each interest payment to the holders of record on the
immediately preceding March 15 and September 15. Interest on the notes will
accrue from the date of original issuance or, if interest has already been
paid,
from the date it was most recently paid. Interest will be computed on the basis
of a 360-day year comprised of twelve 30-day months.
Methods
of Receiving Payments on the Notes
If
a
holder owning more than $10.0 million principal amount of the notes has given
wire transfer instructions to Centene, Centene will pay all principal, interest
and premium and Additional Interest, if any, on that holder’s notes in
accordance with those instructions. All other payments on notes will be made
at
the office or agency of the paying agent and registrar within the City and
State
of New York unless Centene elects to make interest payments by check mailed
to
the holders at their address set forth in the register of holders.
Paying
Agent and Registrar for the Notes
The
trustee will initially act as paying agent and registrar. Centene may change
the
paying agent or registrar without prior notice to the holders of the notes,
and
Centene or any of its Subsidiaries may act as paying agent or
registrar.
Transfer
and Exchange
A
holder
may transfer or exchange notes in accordance with the provisions of the
indenture. The registrar and the trustee may require a holder to furnish
appropriate endorsements and transfer documents in connection with a transfer
of
notes. Holders will be required to pay all taxes due on transfer. Centene is
not
required to transfer or exchange any note selected for redemption. Also, Centene
is not required to transfer or exchange any note for a period of 15 days before
a selection of notes to be redeemed.
Optional
Redemption
At
any
time prior to April 1, 2011, the Company may redeem all or any portion of the
notes, at once or over time, after giving the required notice under the
indenture at a redemption price equal to the greater of:
| (a) |
100%
of the principal amount of the notes to be redeemed,
and
|
| (b) |
the
sum of the present values of (1) the redemption price of the notes
at
April 1, 2011 (as set forth below) and (2) the remaining scheduled
payments of interest from the redemption date through April 1, 2011,
but
excluding accrued and unpaid interest through the redemption date,
discounted to the redemption date (assuming a 360 day year consisting
of
twelve 30 day months), at the Treasury Rate plus 50 basis
points,
|
plus,
in
either case, accrued and unpaid interest, including Additional Interest, if
any,
to but excluding the redemption date (subject to the right of holders of record
on the relevant record date to receive interest due on the relevant interest
payment date).
At
any
time before April 1, 2010, Centene may on one or more occasions redeem up to
35%
of the aggregate principal amount of notes (including additional notes) issued
under the indenture at a redemption price of 107.250% of the principal amount
thereof, plus accrued and unpaid interest and Additional Interest, if any,
to
the redemption date, with the net cash proceeds of any Equity Offering of common
stock of Centene; provided,
however,
that:
| (1) |
at
least 65% of the original aggregate principal amount of notes issued
under
the indenture remains outstanding immediately after the occurrence
of such
redemption (excluding notes held by Centene and its Subsidiaries);
and
|
| (2) |
the
redemption occurs within 90 days of the date of the closing of such
Equity
Offering.
|
Except
pursuant to the preceding paragraphs, the notes will not be redeemable at
Centene’s option prior to April 1, 2011.
On
or
after April 1, 2011, Centene may redeem all or a part of the notes upon not
less
than 30 nor more than 60 days’ notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Additional Interest, if any, on the notes redeemed, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on April 1 of the years indicated below:
|
Year
|
Percentage
|
|
2011
|
103.625%
|
|
2012
|
101.813%
|
|
2013
and thereafter
|
100.000%
|
Selection
and Notice
If
less
than all of the notes are to be redeemed at any time, the trustee will select
notes for redemption as follows:
| (1) |
if
the notes are listed on any national securities exchange, in compliance
with the requirements of the principal national securities exchange
on
which the notes are listed; or
|
| (2) |
if
the notes are not listed on any national securities exchange, on
a pro
rata basis, by lot or by such method as the trustee deems fair and
appropriate.
|
No
notes
of $1,000 or less can be redeemed in part. Notices of redemption will be mailed
by first class mail at least 30 but not more than 60 days before the redemption
date to each holder of notes to be redeemed at its registered address, except
that redemption notices may be mailed more than 60 days prior to a redemption
date if the notice is issued in connection with a defeasance of the notes or
a
satisfaction and discharge of the indenture. Notices of redemption may not
be
conditional.
If
any
note is to be redeemed in part only, the notice of redemption that relates
to
that note will state the portion of the principal amount of that note that
is to
be redeemed. A new note in principal amount equal to the unredeemed portion
of
the original note will be issued in the name of the holder of notes upon
cancellation of the original note. Notes called for redemption become due on
the
date fixed for redemption. On and after the redemption date, interest ceases
to
accrue on notes or portions of them called for redemption.
Mandatory
Redemption
Centene
is not required to make mandatory redemption or sinking fund payments with
respect to the notes.
Repurchase
at the Option of Holders
Change
of Control
Upon
the
occurrence of a Change of Control, each holder of notes will have the right
to
require Centene to repurchase all or any part (equal to $1,000 or an integral
multiple of $1,000) of that holder’s notes pursuant to the offer described below
(the “Change of Control Offer”) on the terms set forth in the indenture. In the
Change of Control Offer, Centene will offer a payment in cash (the “Change of
Control Payment”) equal to 101% of the aggregate principal amount of notes
repurchased plus accrued and unpaid interest and Additional Interest, if any,
on
the notes repurchased, to the date of purchase.
Within
10
days following any Change of Control, Centene will mail a notice to each holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase notes on the Change of Control payment date specified
in the notice, which date will be no earlier than 30 days and no later than
60
days from the date of such Change of Control, pursuant to the procedures
required by the indenture and described in such notice. Centene will comply
with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent those laws and regulations are
applicable in connection with the repurchase of the notes pursuant to a Change
of Control Offer. To the extent that the provisions of any securities laws
or
regulations conflict with
the
change of control provisions of the indenture, Centene will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the change of control provisions of the indenture
by virtue of such compliance.
On
the
Change of Control payment date, Centene will, to the extent lawful:
| (1) |
accept
for payment all notes or portions of notes properly tendered and
not
withdrawn pursuant to the Change of Control
Offer;
|
| (2) |
deposit
with the paying agent an amount equal to the Change of Control Payment
in
respect of all notes or portions of notes properly tendered and not
withdrawn; and
|
| (3) |
deliver
or cause to be delivered to the trustee the notes properly accepted
together with an officers’ certificate stating the aggregate principal
amount of notes or portions of notes being purchased by
Centene.
|
The
paying agent will promptly mail to each holder of notes properly tendered the
Change of Control Payment for such notes, and the trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new note equal in principal amount to the unpurchased portion of the notes
surrendered, if any; provided
that
each
new note will be in a principal amount of $1,000 or an integral multiple of
$1,000.
Centene
will publicly announce the results of the Change of Control Offer on or as
soon
as practicable after the Change of Control payment date.
The
Credit Agreement provides that certain change of control events with respect
to
Centene would constitute a default thereunder. Any future credit agreements
or
other agreements to which Centene becomes a party may contain similar
restrictions and provisions. The occurrence of a Change of Control may result
in
a default under other Indebtedness of Centene and its Subsidiaries, giving
the
lenders thereunder the right to require Centene to repay obligations outstanding
thereunder. Centene’s ability to repurchase notes following a Change of Control
also may be limited by Centene’s then existing resources.
The
provisions described above that require Centene to make a Change of Control
Offer following a Change of Control will be applicable whether or not any other
provisions of the indenture are applicable to the Change of Control event.
Except as described above with respect to a Change of Control, the indenture
does not contain provisions that permit the holders of the notes to require
that
Centene repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
Centene
will not be required to make a Change of Control Offer upon a Change of Control
if a third party makes the Change of Control Offer in the manner, at the times
and otherwise in compliance with the requirements set forth in the indenture
applicable to a Change of Control Offer made by Centene and purchases all notes
properly tendered and not withdrawn under the Change of Control
Offer.
The
definition of Change of Control includes a phrase relating to the direct or
indirect sale, lease, transfer, conveyance or other disposition of “all or
substantially all” of the properties or assets of Centene and its Subsidiaries
taken as a whole. Although there is a limited body of case law interpreting
the
phrase “substantially all,” there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a Holder of notes
to
require Centene to repurchase its notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of Centene and
its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset
Sales
Centene
will not, and will not permit any of its Restricted Subsidiaries to, consummate
an Asset Sale unless:
| (1) |
Centene
(or the Restricted Subsidiary, as the case may be) receives consideration
at the time of the Asset Sale at least equal to the Fair Market Value
of
the assets sold, leased, transferred, conveyed or otherwise disposed
of or
Equity Interests of any Restricted Subsidiary of Centene issued,
sold,
transferred, conveyed or otherwise disposed
of;
|
| (2) |
at
least 75% of the consideration received in the Asset Sale by Centene
or
such Restricted Subsidiary is in the form of cash or Cash Equivalents.
For
purposes of this clause (2), each of the following will be deemed
to be
cash:
|
| (a) |
any
liabilities, as shown on Centene’s or such Restricted Subsidiary’s most
recent balance sheet, of Centene or any of its Restricted Subsidiaries
(other than contingent liabilities and liabilities that are by their
terms
subordinated to the notes) that are assumed by the transferee of
any such
assets pursuant to a customary novation agreement that releases Centene
or
such Restricted Subsidiary from further liability;
and
|
| (b) |
any
securities, notes or other obligations received by Centene or any
such
Restricted Subsidiary from such transferee that are converted by
Centene
or such Restricted Subsidiary into cash within 90 days, to the extent
of
the cash received in that conversion;
and
|
| (3) |
Centene
delivers an officers’ certificate to the trustee certifying that such
Asset Sale complies with the foregoing clauses (1) and
(2).
|
Within
365 days after the receipt of any Net Proceeds from an Asset Sale, Centene
or
such Restricted Subsidiary may apply those Net Proceeds (or any portion thereof)
at its option:
| (1) |
to
permanently repay Senior Debt of Centene (other than Indebtedness
owed to
Centene or any Affiliate of Centene) and, if the Senior Debt repaid
is
revolving credit Indebtedness, to correspondingly reduce commitments
with
respect thereto;
|
| (2) |
to
acquire all or substantially all of the assets of, or all of the
Voting
Stock of, another Person engaged in a Permitted Business;
or
|
| (3) |
to
acquire other long-term assets or property that are used in a Permitted
Business;
|
provided
that
a
binding commitment to apply Net Proceeds as set forth in clauses (1), (2) and
(3) above shall be treated as a permitted application of the Net Proceeds from
the date of such commitment so long as Centene or such Restricted Subsidiary
enters into such commitment with the good faith expectation that such Net
Proceeds will be applied to satisfy such commitment within 180 days of such
commitment (an “Acceptable Commitment”) and, in the event any Acceptable
Commitment is later cancelled or terminated for any reason before the Net
Proceeds are applied in connection therewith, then Centene or such Restricted
Subsidiary shall be permitted to apply the Net Proceeds in any manner set forth
in clauses (1), (2) and (3) above before the expiration of such 180-day period
and, in the event Centene or such Restricted Subsidiary fails to do so, then
such Net Proceeds shall constitute Excess Proceeds (as defined
below).
Pending
the final application of any Net Proceeds, Centene may temporarily reduce
revolving credit borrowings or otherwise invest the Net Proceeds in any manner
that is not prohibited by the indenture. Any Net Proceeds from Asset Sales
that
are not applied or invested as provided in the preceding paragraph will
constitute “Excess Proceeds.” When the aggregate amount of Excess Proceeds
exceeds $10.0 million, Centene will make an Asset Sale Offer to all
holders of notes to purchase the maximum principal amount of notes and, if
Centene is required to do so under the terms of any other Indebtedness that
is
pari
passu with
the
notes, such other Indebtedness on a pro rata basis with the notes, that may
be
purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer
will be equal to 100% of principal amount plus accrued and unpaid interest
and
Additional Interest, if any, to the date of purchase, and will be payable
in
cash. If any Excess Proceeds remain after consummation of the purchase of
all
properly tendered and not withdrawn notes pursuant to an Asset Sale Offer,
Centene may use such remaining Excess Proceeds for any purpose not otherwise
prohibited by the indenture. If the aggregate principal amount of notes and
other pari passu
Indebtedness
tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds,
the
trustee will select the notes and such other pari
passu Indebtedness
to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer,
the amount of Excess Proceeds will be reset at zero.
Centene
will comply with the requirements of Rule 14e-1 under the Exchange Act and
any
other securities laws and regulations thereunder to the extent those laws and
regulations are applicable in connection with each repurchase of notes pursuant
to an Asset Sale Offer. To the extent that the provisions of any securities
laws
or regulations conflict with the Asset Sale provisions of the indenture, Centene
will comply with the applicable securities laws and regulations and will not
be
deemed to have breached its obligations under the Asset Sale provisions of
the
indenture by virtue of such compliance.
Certain
Covenants
Covenant
Termination
Following
the first day:
| (a) |
the
notes have an Investment Grade Rating from both of Standard & Poor’s
Ratings Group, Inc. and Moody’s Investors Service, Inc.;
and
|
| (b) |
no
Default has occurred and is continuing under the
indenture;
|
Centene
and its Restricted Subsidiaries shall cease to be subject to the provisions
of
the indenture summarized under the subheadings below:
| · |
“Restricted
Payments,”
|
| · |
“Incurrence
of Indebtedness and Issuance of Preferred
Stock,”
|
| · |
“Dividend
and Other Payment Restrictions Affecting Restricted
Subsidiaries,”
|
| · |
“Business
Activities,”
|
| · |
“Limitation
on Issuances of Guarantees of
Indebtedness,”
|
| · |
“Transactions
with Affiliates” and
|
| · |
“Asset
Sales,” described above
|
(collectively,
the “Terminated Covenants”). No Default, Event of Default or breach of any kind
shall be deemed to exist under the indenture or the notes with respect to the
Terminated Covenants based on, and none of the Company or any of its
Subsidiaries shall bear any liability for, any actions taken or events occurring
after the notes attain an Investment Grade Rating, regardless of whether such
actions or event would have been permitted if the applicable Terminated
Covenants remained in effect. The Terminated Covenants will not be reinstated
even if Centene subsequently does not satisfy the requirements set forth in
clauses (a) and (b) above. After the Terminated Covenants have been terminated,
Centene and its Restricted Subsidiaries shall remain subject to the provisions
of the indenture described above under the caption “Repurchase at the Option of
the Holders — Change of Control” and described under the following
subheadings:
| · |
“Liens,”
|
| · |
Merger,
Consolidation or Sale of Assets” (other than the financial test set forth
in clause (4) of that covenant),
|
| · |
“Limitations
on Sale/Leaseback Transactions,”
|
| · |
“Payments
for Consent” and
|
| · |
“Reports.”
|
Restricted
Payments
Centene
will not, and will not permit any of its Restricted Subsidiaries to, directly
or
indirectly:
| (1) |
declare
or pay any dividend or make any other payment or distribution (A)
on
account of Centene’s or any of its Restricted Subsidiaries’ Equity
Interests (including, without limitation, any payment in connection
with
any merger or consolidation involving Centene or any of its Restricted
Subsidiaries) or (B) to the direct or indirect holders of Centene’s or any
Restricted Subsidiaries’ Equity Interests in their capacity as such (other
than dividends, payments or distributions (i) payable in Equity Interests
(other than Disqualified Stock) of Centene or (ii) to Centene or
a wholly
owned Restricted Subsidiary or to all holders of Capital Stock of
such
Restricted Subsidiary on a pro rata
basis);
|
| (2) |
purchase,
redeem or otherwise acquire or retire for value (including, without
limitation, in connection with any merger or consolidation involving
Centene) any Equity Interests of Centene or any of its Restricted
Subsidiaries (other than from such Equity Interests owned by Centene
or
any of its Restricted
Subsidiaries);
|
| (3) |
make
any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Subordinated Obligations,
except
a payment of interest or principal at the Stated Maturity thereof;
or
|
| (4) |
make
any Restricted Investment (all such payments and other actions set
forth
in these clauses (1) through (4) above being collectively referred
to as
“Restricted Payments”), unless, at the time of and after giving effect to
such Restricted Payment:
|
| (a) |
no
Default or Event of Default has occurred and is continuing or would
occur
as a consequence thereof; and
|
| (b) |
Centene
would, at the time of such Restricted Payment and after giving pro
forma
effect thereto as if such Restricted Payment had been made at the
beginning of the most recently ended four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant
to
the Fixed Charge Coverage Ratio test set forth in the first paragraph
of
the covenant described below under the caption “— Incurrence of
Indebtedness and Issuance of Preferred Stock;”
and
|
| (c) |
such
Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by Centene and the Restricted Subsidiaries
after
the date of the indenture (excluding Restricted Payments permitted
by
clauses (2), (3), (5) and (6) of the next succeeding paragraph),
is less
than the sum, without duplication,
of:
|
| (d) |
50%
of the Consolidated Net Income of Centene for the period (taken as
one
accounting period) from the beginning of the first full fiscal quarter
during which the Issue Date falls to the end of Centene’s most recently
ended fiscal quarter for which internal financial statements are
available
at the time of such Restricted Payment (or, if such Consolidated
Net
Income for such period is a deficit, less 100% of such deficit),
plus
|
| (I) |
100%
of the aggregate net cash proceeds (or the Fair Market Value of property
other than cash) received by Centene since the Issue Date as a
contribution to its common equity capital or from the issue or sale
of
Equity Interests of Centene (other than Disqualified Stock) or from
the
issue or sale of convertible or exchangeable Disqualified Stock or
convertible or exchangeable debt securities of Centene, in either
case,
that have been converted into or exchanged for such Equity Interests
of
Centene (other than Equity Interests or Disqualified Stock or debt
securities sold to a Subsidiary of Centene), plus
|
| (II) |
to
the extent that any Restricted Investment that was made after the
date of
the indenture is sold for cash or otherwise liquidated or repaid
for cash,
the lesser of (i) the cash proceeds with respect to such Restricted
Investment (less the cost of disposition, if any) and (ii) the initial
amount of such Restricted Investment, plus
|
| (III) |
in
case, after the date hereof, any Unrestricted Subsidiary has been
redesignated as a Restricted Subsidiary under the terms of the indenture
or has been merged, consolidated or amalgamated with or into, or
transfers
or conveys assets to, or is liquidated into Centene or a Restricted
Subsidiary, an amount equal to the lesser of (1) the net book value
at the
date of the redesignation, combination or transfer of the aggregate
Investments made by Centene and the Restricted Subsidiaries in the
Unrestricted Subsidiary (or of the assets transferred or conveyed,
as
applicable), and (2) the Fair Market Value of the Investments owned
by
Centene and the Restricted Subsidiaries in such Unrestricted Subsidiary
at
the time of the redesignation, combination or transfer (or of the
assets
transferred or conveyed, as
applicable).
|
So
long
as no Default or Event of Default has occurred and is continuing or would be
caused thereby, the preceding provisions will not prohibit:
| (1) |
the
payment of any dividend within 60 days after the date of declaration
of
the dividend, if at the date of declaration the dividend payment
would
have complied with the provisions of the
indenture;
|
| (2) |
the
redemption, repurchase, retirement, repayment, defeasance or other
acquisition of any Subordinated Obligations of Centene or of any
Equity
Interests of Centene in exchange for, or out of the net cash proceeds
of
the substantially concurrent sale (other than to a Restricted Subsidiary
of Centene) of, Equity Interests of Centene (other than Disqualified
Stock); provided,
however, that
the amount of any such net cash proceeds that are utilized for any
such
redemption, repurchase, retirement, repayment, defeasance or other
acquisition will be excluded from clause (c)(II) of the preceding
paragraph;
|
| (3) |
the
redemption, repurchase, repayment, retirement, defeasance or other
acquisition of any Subordinated Obligations of Centene with the net
cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
provided,
however,
that the amount of any such net cash proceeds that are utilized for
any
such redemption, repurchase, repayment, retirement, defeasance or
other
acquisition will be excluded from clause (c)(II) of the preceding
paragraph;
|
| (4) |
the
redemption, repurchase or other acquisition or retirement for value
of any
Equity Interests of Centene or any Restricted Subsidiary of Centene
(a)
held by any member of Centene’s (or any of its Restricted Subsidiaries’)
management pursuant to any management equity subscription plan or
agreement, stock option or stock purchase plan or agreement or employee
benefit plan as may be adopted by Centene from time to time or pursuant
to
any agreement with any director or officer in existence on the date
of the
indenture or (b) from an employee of Centene upon the termination
of such
employee’s employment with Centene; provided,
however, that
the aggregate price paid for all such repurchased, redeemed, acquired
or
retired Equity Interests in reliance on this clause (4) may not exceed
$3.0 million in any twelve-month
period;
|
| (5) |
repurchases,
acquisitions or retirements of Capital Stock of Centene deemed to
occur
upon the exercise or vesting of stock options or restricted stock
or
similar rights under employee benefit plans of Centene or its Subsidiaries
if such Capital Stock represents all or a portion of the exercise
price
thereof or withholding tax thereon;
|
| (6) |
redemptions
of Capital Stock consisting of common stock of Centene so long as
(1) the
aggregate purchase price for such Capital Stock redeemed after the
issue
date shall not exceed $65,000,000, (2) all such redemptions are
consummated on or before April 1, 2011 and (3) in the case of any
such
redemption which would cause the aggregate purchase price of all
redemptions during such calendar quarter to exceed $25,000,000, on
the
date of such redemption, Centene delivers to the trustee a notice
of such
redemption which states that the aggregate amount of all redemptions
during such calendar quarter will exceed $25,000,000, along with
a
calculation demonstrating that the Total Debt to Consolidated Cash
Flow
Ratio is no more than 2.0 to 1.0, both as of the date thereof (based
on a
computation period of the twelve calendar month period most recently
ended) and on a pro forma basis after giving effect to such redemption;
and
|
| (7) |
other
Restricted Payments in an aggregate amount since the issue date not
to
exceed $25.0 million.
|
The
amount of all Restricted Payments (other than cash) will be the Fair Market
Value on the date of the Restricted Payment of the assets, property or
securities proposed to be transferred or issued by Centene or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment (other than those set forth
in
clauses (1) through (7) of the preceding paragraph), Centene will deliver to
the
trustee an officers’ certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required
by
this “Restricted Payments” covenant were computed, together with a copy of any
fairness opinion or appraisal required by the indenture. If Centene or a
Restricted Subsidiary makes a Restricted Payment which at the time of the making
of such Restricted Payment would in the good faith determination of Centene
be
permitted under the provisions of the indenture, such Restricted Payment shall
be deemed to have been made in compliance with the indenture notwithstanding
any
subsequent adjustments made in good faith to Centene financial statements
affecting Consolidated Net Income of Centene for any period.
Incurrence
of Indebtedness and Issuance of Preferred Stock
Centene
will not, and will not permit any of its Restricted Subsidiaries to, directly
or
indirectly, create, incur, issue, assume, Guarantee or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to (collectively,
“incur”) any Indebtedness (including Acquired Debt), and Centene will not issue
any Disqualified Stock and will not permit any of its Restricted Subsidiaries
to
issue any shares of preferred stock (including Disqualified Stock) other than
to
Centene; provided,
however,
that
Centene may incur Indebtedness (including Acquired Debt) or issue Disqualified
Stock and
any
Guarantor may incur Indebtedness (including Acquired Debt), if
the Fixed Charge Coverage Ratio for Centene’s most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2.00 to 1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred or
the
preferred stock or Disqualified Stock had been issued, as the case may be,
at
the beginning of such four-quarter period.
So
long
as no Default shall have occurred or be continuing or would be caused thereby,
the first paragraph of this covenant will not prohibit the incurrence of any
of
the following items of Indebtedness (collectively, “Permitted
Debt”):
(1) the
incurrence by Centene of additional Indebtedness and letters of credit under
one
or more Credit Facilities; provided
that
the
aggregate principal amount of all Indebtedness and letters of credit of Centene
and the Restricted Subsidiaries incurred pursuant to this clause (1) (with
letters of credit being deemed to have a principal amount equal to the maximum
potential liability of Centene and its Restricted Subsidiaries thereunder)
does
not exceed the greater of (x) $300.0 million and (y) 15% of Consolidated Total
Assets;
(2) the
incurrence by Centene and any of the Restricted Subsidiaries of the Existing
Indebtedness after giving effect to the use of proceeds of the
notes;
(3) the
incurrence by Centene and any of its Restricted Subsidiaries of Indebtedness
represented by the initial notes (and the related exchange notes to be issued
pursuant to the Registration Rights Agreement and in exchange for any additional
notes);
(4) the
incurrence by Centene or any of its Restricted Subsidiaries of Indebtedness
represented by Capital Lease Obligations, mortgage financings or purchase money
obligations, in each case incurred for the purpose of financing all or any
part
of the purchase price or cost of construction or improvement of property, plant
or equipment used in the business of Centene or such Restricted Subsidiary,
in
an aggregate principal amount, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any Indebtedness incurred pursuant
to
this clause (4), not to exceed $30.0 million at any time
outstanding;
(5) the
incurrence by Centene or any of its Restricted Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used
to extend, defease, renew, refund, refinance or replace Indebtedness (other
than
intercompany Indebtedness) that was incurred under the first paragraph of this
covenant or clauses (2), (3), (4), or this clause (5) of this
paragraph;
(6) the
incurrence by Centene or any of its Restricted Subsidiaries of intercompany
Indebtedness between or among Centene and any of its Restricted Subsidiaries;
provided,
however,
that
(i) any subsequent issuance or transfer of Equity Interests that results in
any
such Indebtedness being held by a Person other than Centene or a Restricted
Subsidiary and (ii) any subsequent sale or other transfer of any such
Indebtedness to a Person that is not either Centene or a Restricted Subsidiary
shall be deemed, in each case, to constitute an incurrence of such Indebtedness
by Centene or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (6);
(7) the
incurrence of Indebtedness of Centene or any of its Restricted Subsidiaries
consisting of guarantees, indemnities, holdbacks or obligations in respect
of
purchase price adjustments in connection with the acquisition or disposition
of
assets, including without limitation, shares of Capital Stock of Restricted
Subsidiaries or contingent payment obligations incurred in connection with
the
acquisition of assets which are contingent on the performance of
(8) the
assets acquired, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such assets or shares of Capital Stock of such
Restricted Subsidiary for the purpose of financing such
acquisition;
(9) the
incurrence of Indebtedness of Centene or any of its Restricted Subsidiaries
represented by letters of credit for the account of Centene or any of its
Restricted Subsidiaries or (b) other obligations to reimburse third parties
pursuant to any surety bond, performance bond or other similar arrangements,
which letters of credit or other obligations, as the case may be, are intended
to provide security for provider claims, workers’ compensation claims, payment
obligations in connection with sales tax and insurance or other similar
requirements in the ordinary course of business;
(10) the
incurrence by Centene or any of its Restricted Subsidiaries of Hedging
Obligations; provided
that
such
Hedging Obligations are related to business transactions of Centene or its
Restricted Subsidiaries entered into in the ordinary course of business and
are
entered into for bona fide hedging purposes (and not financing or speculative
purposes) of Centene or its Restricted Subsidiaries (as determined in good
faith
by the Board of Directors or senior management of Centene);
(11) the
Guarantee by Centene or any of the Restricted Subsidiaries of Indebtedness
of
Centene or a Restricted Subsidiary that was permitted to be incurred by another
provision of this covenant; provided
that if
the Indebtedness being guaranteed is incurred by Centene and is subordinated
to
the notes, then the Guarantee of such Indebtedness by any of its Restricted
Subsidiaries shall be subordinated to the same extent as the Indebtedness
guaranteed;
(12) Indebtedness
incurred by a Foreign Restricted Subsidiary which, when aggregated with the
principal amount of all other Indebtedness incurred pursuant to this clause
(11)
and then outstanding, does not exceed the greater of (x) $25.0 million or (y)
15% of Centene’s Consolidated Total Foreign Assets; provided
that
at
the time of the incurrence of any such Indebtedness, Centene’s Fixed Charge
Coverage Ratio for the most recent four full fiscal quarters for which financial
statements are available immediately preceding the incurrence of such
Indebtedness taken as one period is at least equal to or greater than 2.0 to
1.0; and
(13) the
incurrence by Centene or any of its Restricted Subsidiaries of additional
Indebtedness in an aggregate principal amount (or accreted value, as applicable)
at any time outstanding, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any Indebtedness incurred pursuant
to
this clause (12), not to exceed $30.0 million.
For
purposes of determining compliance with this covenant, in the event that an
item
of Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (1) through (12) above or is entitled to
be
incurred pursuant to the first paragraph of this covenant, in each case, as
of
the date of incurrence thereof, Centene shall, in its sole discretion, classify
(or later reclassify in whole or in part, in its sole discretion) such item
of
Indebtedness in any manner that complies with this covenant and such
Indebtedness will be treated as having been incurred pursuant to such clauses
or
the first paragraph hereof, as the case may be, designated by Centene.
Indebtedness under Credit Facilities outstanding on the date on which the notes
are first issued and authenticated under the indenture will at all times be
deemed to have been incurred on such date in reliance of the exception provided
by clause (1) of the
definition
of Permitted Debt. Accrual of interest or dividends,
the accretion of accreted value or liquidation preference and the payment
of
interest or dividends in the form of additional Indebtedness or Disqualified
Stock will not be deemed to be an incurrence of Indebtedness or an issuance
of
Disqualified Stock for purposes of this covenant.
Centene
will not, and will not permit any of its Restricted Subsidiaries to, directly
or
indirectly, incur any Indebtedness which by its terms (or by the terms of any
agreement governing such Indebtedness) is subordinated to any other Indebtedness
of Centene or such Restricted Subsidiary, as the case may be, unless made
expressly subordinate to the notes to the same extent and in the same manner
as
such Indebtedness is subordinated pursuant to subordination provisions that
are
most favorable to the holders of any other Indebtedness of Centene or such
Restricted Subsidiary, as the case may be.
Liens
Centene
will not, and will not permit any of its Restricted Subsidiaries to, directly
or
indirectly, create, incur or assume any consensual Liens of any kind against
or
upon any of their respective properties or assets, or any proceeds, income
or
profit therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens, to secure any Indebtedness of Centene unless prior
to,
or contemporaneously therewith, the notes are equally and ratably secured by
a
Lien on such property, assets, proceeds, income or profit; provided, however,
that
if
such Indebtedness is expressly subordinated to the notes, the Lien securing
such
Indebtedness will be subordinated and junior to the Lien securing the notes
with
the same relative priority as such Indebtedness has with respect to the
notes.
Dividend
and Other Payment Restrictions Affecting Restricted
Subsidiaries
Centene
will not, and will not permit any of its Restricted Subsidiaries to, directly
or
indirectly, create or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any of its Restricted Subsidiaries
to:
| (a) |
pay
dividends or make any other distributions on its Capital Stock to
Centene
or any of its Restricted Subsidiaries, or with respect to any other
interest or participation in, or measured by, its profits, or pay
any
indebtedness owed to Centene or any of its Restricted
Subsidiaries;
|
| (b) |
make
loans or advances to Centene or any of its Restricted Subsidiaries;
or
|
| (c) |
transfer
any of its properties or assets to Centene or any of its Restricted
Subsidiaries.
|
However,
the preceding restrictions will not apply to encumbrances or restrictions
existing under or by reason of:
(1) agreements
governing Existing Indebtedness and Credit Facilities (including the Credit
Agreement) as in effect on the date of the indenture and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of those agreements; provided
that the
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are no more restrictive, taken as a
whole, with respect to such dividend and other payment restrictions than those
contained in those agreements on the date of the indenture;
(2) the
indenture and the notes;
(3) applicable
law or any applicable rule, regulation or order of, or arrangement with, any
regulatory body or agency;
(4) any
instrument governing Indebtedness or Capital Stock of a Person acquired by
Centene or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such indebtedness or Capital Stock was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties
or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired; provided
that,
in
the case of Indebtedness, such Indebtedness was permitted by the terms of the
indenture to be incurred;
(5) restrictions
on cash or other deposits or net worth imposed by customers or governmental
regulatory bodies or required by insurance, surety or bonding companies, in
each
case pursuant to contracts entered into in the ordinary course of business
of
Centene and its Restricted Subsidiaries;
(6) customary
non-assignment provisions in leases and other contracts entered into in the
ordinary course of business and consistent with industry practices;
(7) purchase
money obligations for property acquired in the ordinary course of business
that
impose restrictions on that property of the nature described in clause (c)
of
the first paragraph of this covenant;
(8) any
agreement for the sale or other disposition of a Restricted Subsidiary or the
assets of a Restricted Subsidiary that restricts distributions by that
Restricted Subsidiary pending its sale or other disposition or the sale or
other
disposition of its assets;
(9) Permitted
Refinancing Indebtedness; provided,
however, that
the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are not materially more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being
refinanced;
(10) Liens
securing Indebtedness otherwise permitted to be incurred under the provisions
of
the covenant described above under the caption “— Liens” that limit the right of
the debtor to dispose of the assets subject to such Liens; and
(11) provisions
with respect to the disposition or distribution of assets or property in joint
venture agreements, asset sale agreements, stock sale agreements and other
similar agreements entered into in the ordinary course of business.
Merger,
Consolidation or Sale of Assets
Centene
may not, directly or indirectly: (1) consolidate or merge with or into another
Person (whether or not Centene is the surviving corporation) or (2) sell,
assign, transfer, convey, lease or otherwise dispose of all or substantially
all
of the properties or assets of Centene in one or more related transactions,
to
another Person; unless:
| (1) |
either:
|
| (a) |
Centene
is the surviving corporation; or
|
| (b) |
the
Person formed by or surviving any such consolidation or merger (if
other
than Centene) or to which such sale, assignment, transfer, conveyance
or
other disposition has been made is a corporation organized or existing
under the laws of the United States, any state of the United States
or the
District of Columbia;
|
| (2) |
the
Person formed by or surviving any such consolidation or merger (if
other
than Centene) or the Person to which such sale, assignment, transfer,
conveyance or other disposition has been made assumes all the obligations
of Centene or such Restricted Subsidiary, as the case may be, under
the
notes and the indenture pursuant to agreements reasonably satisfactory
to
the trustee;
|
| (3) |
immediately
after such transaction no Default or Event of Default exists;
and
|
| (4) |
except
with respect to a consolidation or merger of Centene with or into
a
Restricted Subsidiary, Centene or the Person formed by or surviving
any
such consolidation or merger (if other than Centene), or to which
such
sale, assignment, transfer, conveyance or
other
|
| (5) |
disposition
has been made will, on the date of such transaction after giving
pro forma
effect thereto and any related financing transactions as if the same
had
occurred at the beginning of the applicable four-quarter period,
be
permitted to incur at least $1.00 of additional Indebtedness pursuant
to
the Fixed Charge Coverage Ratio test set forth in the first paragraph
of
the covenant described under the caption “— Incurrence of Indebtedness and
Issuance of Preferred Stock” above.
|
For
purposes of this covenant, the sale, assignment, transfer, lease, conveyance
or
other disposition of all or substantially all of the properties or assets of
one
or more Subsidiaries of Centene, which properties or assets, if held by Centene
instead of such Subsidiaries, would constitute all or substantially all of
the
properties or assets of Centene on a consolidated basis, shall be deemed to
be
the transfer of all or substantially all of the properties or assets of
Centene.
Designation
of Restricted and Unrestricted Subsidiaries
The
Board
of Directors of Centene may designate any of its Restricted Subsidiary to be
an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
Fair Market Value of all outstanding Investments owned by Centene and its
Restricted Subsidiaries in the Subsidiary properly designated will be deemed
to
be an Investment made as of the time of the designation and will reduce the
amount available for Restricted Payments under the first paragraph of the
covenant described above under the caption “— Certain Covenants —Restricted
Payments” or Permitted Investments, as determined by Centene. That designation
will only be permitted if the Investment would be permitted at that time and
if
the Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a
Default.
Transactions
with Affiliates
Centene
will not, and will not permit any of its Restricted Subsidiaries to, make any
payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter
into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or Guarantee with, or for the benefit of, any Affiliate (each, an
“Affiliate Transaction”), unless:
| (1) |
the
Affiliate Transaction is on terms that are no less favorable to Centene
or
the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by Centene or such Restricted
Subsidiary with an unrelated Person;
and
|
| (2) |
Centene
delivers to the trustee:
|
| (a) |
with
respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0
million,
a resolution of the Board of Directors set forth in an officers’
certificate certifying that such Affiliate Transaction complies with
this
covenant and that such Affiliate Transaction has been approved by
a
majority of the disinterested members of the Board of Directors;
and
|
| (b) |
with
respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0
million,
an opinion as to the fairness to Centene or such Restricted Subsidiary
from a financial point of view issued by an accounting, appraisal
or
investment banking firm of national standing not affiliated with
Centene.
|
| (c) |
The
following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior
paragraph:
|
| (1) |
transactions
solely between or among Centene and/or any of its Restricted Subsidiaries
or solely among its Restricted
Subsidiaries;
|
| (2) |
sales
of Equity Interests (other than Disqualified Stock) to Affiliates
of
Centene;
|
| (3) |
reasonable
and customary directors’ fees, indemnification and similar arrangements,
consulting fees, employee salaries, bonuses or employment agreements,
compensation or employee benefit arrangements and incentive arrangements
with any officer, director or employee of Centene or a Restricted
Subsidiary entered into in the ordinary course of
business;
|
| (4) |
any
payments or other transactions pursuant to the Tax Sharing
Agreement;
|
50
| (5) |
any
transactions (other than any Permitted Investment) made in compliance
with
the covenant described above under the caption “— Restricted
Payments;”
|
| (6) |
loans
and advances to non-executive officers and employees of Centene or
any of
its Restricted Subsidiaries in the ordinary course of business in
accordance with the past practices of Centene or any of its Restricted
Subsidiaries; and
|
| (7) |
any
agreement as in effect as of the date of the indenture or any amendment
thereto so long as any such amendment is not more disadvantageous
to the
holders in any material respect than the original agreement as in
effect
on the date of the indenture.
|
Limitation
on Sale/Leaseback Transactions
Centene
will not, and will not permit any of its Restricted Subsidiaries to enter into
any Sale/Leaseback Transaction (other than any such transaction entered into
in
connection with the Centene Plaza Divestiture), unless:
| (1) |
Centene
or such Restricted Subsidiary, as the case may be, receives consideration
at the time of such Sale/Leaseback Transaction at least equal to
the Fair
Market Value of the property subject to such
transaction;
|
| (2) |
Centene
or such Restricted Subsidiary could have incurred Indebtedness in
an
amount equal to the Attributable Debt in respect of such Sale/Leaseback
Transaction pursuant to the covenant described under “— Incurrence of
Indebtedness and Issuance of Preferred
Stock;”
|
| (3) |
Centene
or such Restricted Subsidiary would be permitted to create a Lien
on the
property subject to such Sale/Leaseback Transaction without securing
the
notes by the covenant described under “— Liens;”
and
|
| (4) |
the
Sale/Leaseback Transaction is treated as an Asset Sale and all of
the
conditions of the indenture described under “— Repurchase at the Option of
Holders— Asset Sales” (including the provisions concerning the application
of Net Proceeds) are satisfied with respect to such Sale/Leaseback
Transaction, treating all of the consideration received in such
Sale/Leaseback Transaction as Net Proceeds for purposes of such
covenant.
|
Limitation
on Issuances of Guarantees of Indebtedness
Centene
will not permit any of its Restricted Subsidiaries, directly or indirectly,
to
guarantee or pledge any assets to secure the payment of any other Indebtedness
of Centene unless such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture providing for the guarantee of the
payment of the notes by such Restricted Subsidiary. The Subsidiary Guarantee
will be (1) senior to such Restricted Subsidiary’s Guarantee of or pledge to
secure such other Indebtedness if such other Indebtedness is subordinated to
the
notes; or (2) pari passu with such Restricted Subsidiary’s Guarantee of or
pledge to secure such other Indebtedness if such other Indebtedness is not
subordinated to the notes.
The
Subsidiary Guarantee of a Guarantor will be automatically and unconditionally
released:
| (1) |
in
connection with any sale or other disposition of all or substantially
all
of the assets of that Guarantor (including by way of merger or
consolidation) to a Person that is not (either before or after giving
effect to such transaction) Centene or a subsidiary of Centene, if
the
sale or other disposition does not violate the “Asset Sale” provisions of
the indenture;
|
| (2) |
in
connection with any sale or other disposition of all of the Capital
Stock
of that Guarantor to a Person that is not (either before or after
giving
effect to such transaction) Centene or a subsidiary of Centene, if
the
sale or other disposition does not violate the “Asset Sale” provisions of
the indenture;
|
| (3) |
if
Centene designates any of its Restricted Subsidiaries that is a Guarantor
to be an Unrestricted Subsidiary in accordance with the applicable
provisions of the indenture;
|
| (4) |
upon
legal defeasance, covenant defeasance or satisfaction and discharge
of the
notes as provided below under the captions “— Legal Defeasance and
Covenant Defeasance” and “— Satisfaction and Discharge;”
or
|
| (5) |
if
such Guarantor is released from the underlying Guarantee of Indebtedness
giving rise to the execution of a Subsidiary
Guarantee.
|
The
form
of Subsidiary Guarantee and the related form of supplemental indenture will
be
attached as exhibits to the indenture. Notwithstanding the foregoing, if Centene
guarantees Indebtedness incurred by any of the Restricted Subsidiaries, such
Guarantee by Centene will not require any of its Restricted Subsidiaries to
provide a Subsidiary Guarantee for the notes.
Business
Activities
Centene
will not, and will not permit any Subsidiary to, engage in any business other
than Permitted Businesses.
Payments
for Consent
Centene
will not, and will not permit any of its Restricted Subsidiaries to, directly
or
indirectly, pay or cause to be paid any consideration to or for the benefit
of
any holder of notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the indenture or the notes unless such
consideration is offered to be paid and is paid to all holders of the notes
that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Reports
Whether
or not required by the Commission, so long as any notes are outstanding, Centene
will furnish to the holders of notes, within the time periods specified in
the
Commission’s rules and regulations:
51
| (1) |
all
quarterly and annual financial information that would be required
to be
contained in a filing with the Commission on Forms 10-Q and 10-K
if
Centene were required to file such forms, including a “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
and, with respect to the annual information only, a report on the
annual
financial statements by Centene’s certified independent accountants;
and
|
| (2) |
all
current reports that would be required to be filed with the Commission
on
Form 8-K if Centene were required to file such
reports.
|
If
Centene has designated any of its Subsidiaries as Unrestricted Subsidiaries,
then the quarterly and annual financial information required by the preceding
paragraph will include a reasonably detailed presentation, either on the face
of
the financial statements or in the footnotes thereto and in Management’s
Discussion and Analysis of Financial Condition and Results of Operations, of
the
financial condition and results of operations of Centene and its Restricted
Subsidiaries separate from the financial condition and results of operations
of
the Unrestricted Subsidiaries of Centene.
In
addition, following the consummation of the exchange offer contemplated by
the
registration rights agreement, whether or not required by the Commission,
Centene will file a copy of all of the information and reports referred to
in
clauses (1) and (2) above with the Commission for public availability within
the
time periods specified in the Commission’s rules and regulations (unless the
Commission will not accept such a filing) and make such information available
to
securities analysts and prospective investors upon request. In addition, Centene
has agreed that, for so long as any notes remain outstanding, they will furnish
to the holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
Each
report required to be delivered pursuant to the indenture shall be deemed to
have been delivered on the date on which Centene posts such document on its
website at www.centene.com, or when such document is posted on the Commission’s
website at www.sec.gov; provided
that
the
Company shall deliver paper copies of all such documents to the Trustee or
any
Holder that requests the Company to deliver such paper copies until a request
to
cease delivering paper copies is given by the Trustee or such
Holder.
Events
of Default and Remedies
Each
of
the following is an Event of Default:
| (1) |
default
for 30 days in the payment when due of interest on, or Additional
Interest
with respect to, the notes;
|
| (2) |
default
in payment when due of the principal of or premium, if any, on the
notes;
|
| (3) |
failure
by Centene or any of its Restricted Subsidiaries to comply with the
provisions described under the caption “— Merger, Consolidation or Sale of
Assets;”
|
| (4) |
failure
by Centene or any of its Restricted Subsidiaries for 30 days after
notice
to comply with the provisions described under the captions “— Certain
Covenants —Restricted Payments,” “Certain Covenants — Incurrence of
Indebtedness and Issuance of Preferred Stock,” “Repurchase at the Option
of Holders —Asset Sales” or “Repurchase at the Option of Holders— Change
of Control;”
|
| (5) |
failure
by Centene for 120 days after notice to comply with the provisions
described under the caption
“Reports;”
|
| (6) |
failure
by Centene or any of its Restricted Subsidiaries for 60 days after
notice
to comply with any of its other agreements in the indenture or the
notes;
|
| (7) |
default
under any mortgage, indenture or instrument under which there may
be
issued or by which there may be secured or evidenced any Indebtedness
for
money borrowed by Centene or any of its Restricted Subsidiaries (or
the
payment of which is guaranteed by Centene or any of its Restricted
Subsidiaries whether such Indebtedness or Guarantee now exists, or
is
created after the date of the indenture, if that
default:
|
| (a) |
is
caused by a failure to pay principal of, or interest or premium,
if any,
on such Indebtedness prior to the expiration of the grace period
provided
in such Indebtedness on the date of such default (a “Payment Default”);
or
|
| (b) |
results
in the acceleration of such Indebtedness prior to its express maturity,
|
and,
in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been
a
Payment Default or the maturity of which has been so accelerated, aggregates
$15.0 million or more;
| (8) |
failure
by Centene or any of its Restricted Subsidiaries to pay final
non-appealable judgments entered by a court or courts of competent
jurisdiction aggregating in excess of $15.0 million, which judgments
are
not paid, discharged or stayed for a period of 60 days;
and
|
| (9) |
certain
events of bankruptcy or insolvency described in the indenture with
respect
to Centene or any Significant Subsidiary or any group of Subsidiaries
that, taken together, would constitute a Significant
Subsidiary.
|
In
the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to Centene, any Subsidiary that would constitute a
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding notes will become due
and
payable immediately without further action or notice. If any other Event of
Default occurs and is continuing, the trustee or the holders of at least 25%
in
principal amount of the then outstanding notes may declare all the notes to
be
due and payable immediately.
Holders
of the notes may not enforce the indenture or the notes except as provided
in
the indenture. Subject to certain limitations, holders of a majority in
principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from holders of the
notes notice of any continuing Default or Event of Default if it determines
that
withholding notice is in their interest, except a Default or Event of Default
relating to the payment of principal or interest or Additional
Interest.
The
holders of at least a majority in aggregate principal amount of the notes
then
outstanding by notice to the trustee may on behalf of the holders of all
of the
notes waive any existing Default or Event of Default and its consequences
under
the indenture except a continuing Default or Event of Default in the payment
of
interest or Additional Interest on, or the principal of, the notes.
Centene
is required to deliver to the trustee annually a statement regarding compliance
with the indenture. Upon becoming aware of any Default or Event of Default,
Centene is required to deliver to the trustee a statement specifying such
Default or Event of Default.
No
Personal Liability of Directors, Officers, Employees and
Stockholders
No
director, officer, employee, incorporator or stockholder of Centene, as such,
will have any liability for any obligations of Centene under the notes, the
indenture, or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
Legal
Defeasance and Covenant Defeasance
Centene
may, at its option and at any time, elect to have all of its obligations
discharged with respect to the outstanding notes (“Legal Defeasance”) except
for:
| (1) |
the
rights of holders of outstanding notes to receive payments in respect
of
the principal of, or interest or premium and Additional Interest,
if any,
on such notes when such payments are due from the trust referred
to
below;
|
| (2) |
Centene’s
obligations with respect to the notes concerning issuing temporary
notes,
registration of notes, mutilated, destroyed, lost or stolen notes
and the
maintenance of an office or agency for payment and money for security
payments held in trust;
|
| (3) |
the
rights, powers, trusts, duties and immunities of the trustee, and
Centene’s obligations in connection therewith;
and
|
| (4) |
the
Legal Defeasance provisions of the
indenture.
|
In
addition, Centene may, at its option and at any time, elect to have its
obligations released with respect to certain covenants that are described in
the
indenture (“Covenant Defeasance”) and thereafter any omission to comply with
those covenants will not constitute a Default or Event of Default with respect
to the notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under “— Events of Default and Remedies” will no longer
constitute an Event of Default with respect to the notes.
In
order
to exercise either Legal Defeasance or Covenant Defeasance:
| (1) |
Centene
must irrevocably deposit with the trustee, in trust, for the benefit
of
the holders of the notes, cash in U.S. dollars, non-callable Government
Securities, or a combination of cash in U.S. dollars and non-callable
Government Securities, in amounts as will be sufficient, in the opinion
of
a nationally recognized firm of independent public accountants, to
pay the
principal of, or interest and premium and Additional Interest, if
any, on
the outstanding notes on the stated maturity or on the applicable
redemption date, as the case may be, and Centene must specify whether
the
notes are being defeased to maturity or to a particular redemption
date;
|
| (2) |
in
the case of Legal Defeasance, Centene has delivered to the trustee
an
opinion of counsel reasonably acceptable to the trustee confirming
that
(a) Centene has received from, or there has been published by, the
Internal Revenue Service a ruling or (b) since the date of the indenture,
there has been a change in the applicable federal income tax law,
in
either case to the effect that, and based thereon such opinion of
counsel
will confirm that, the holders of the outstanding notes will not
recognize
income, gain or loss for federal income tax purposes as a result
of such
Legal Defeasance and will be subject to federal income tax on the
same
amounts, in the same manner and at the same times as would have been
the
case if such Legal Defeasance had not
occurred;
|
| (3) |
in
the case of Covenant Defeasance, Centene has delivered to the trustee
an
opinion of counsel reasonably acceptable to the trustee confirming
that
the holders of the outstanding notes will not recognize income, gain
or
loss for federal income tax purposes as a result
of
|
| (4) |
such
Covenant Defeasance and will be subject to federal income tax on
the same
amounts, in the same manner and at the same times as would have been
the
case if such Covenant Defeasance had not
occurred;
|
| (5) |
no
Default or Event of Default has occurred and is continuing on the
date of
such deposit (other than a Default or Event of Default resulting
from the
borrowing of funds to be applied to such deposit and the grant of
any Lien
securing such borrowing);
|
| (6) |
such
Legal Defeasance or Covenant Defeasance will not result in a breach
or
violation of, or constitute a default under any material agreement
or
instrument (other than the indenture) to which Centene or any of
its
Subsidiaries is a party or by which Centene or any of its Subsidiaries
is
bound;
|
| (7) |
Centene
must deliver to the trustee an officers’ certificate stating that the
deposit was not made by Centene with the intent of preferring the
holders
of notes over the other creditors of Centene with the intent of defeating,
hindering, delaying or defrauding creditors of Centene or others;
and
|
| (8) |
Centene
must deliver to the trustee an officers’ certificate and an opinion of
counsel, each stating that all conditions precedent relating to the
Legal
Defeasance or the Covenant Defeasance have been complied
with.
|
Amendment,
Supplement and Waiver
Except
as
provided in the next two succeeding paragraphs, the indenture or the notes
may
be amended or supplemented with the consent of the holders of at least a
majority in principal amount of the notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, notes), and any existing default or compliance with
any
provision of the indenture or the notes may be waived with the consent of the
holders of a majority in principal amount of the then outstanding notes
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, notes).
Without
the consent of each holder affected, an amendment or waiver may not (with
respect to any notes held by a non-consenting holder):
| (1) |
reduce
the principal amount of notes whose holders must consent to an amendment,
supplement or waiver;
|
| (2) |
reduce
the principal of or change the fixed maturity of any note or alter
the
provisions with respect to the redemption or repurchase of the notes
relating to the covenant (and applicable definitions) described under
the
caption “— Repurchase at the Option of Holders —Change of Control”
above;
|
| (3) |
reduce
the rate of or change the time for payment of interest on any
note;
|
| (4) |
waive
a Default or Event of Default in the payment of principal of, or
interest
or premium, or Additional Interest, if any, on the notes (except
a
rescission of acceleration of the notes by the holders of at least
a
majority in aggregate principal amount of the notes and a waiver
of the
payment default that resulted from such
acceleration);
|
| (5) |
make
any note payable in money other than that stated in the
notes;
|
| (6) |
make
any change in the provisions (including applicable definitions) of
the
indenture relating to waivers of past Defaults or the rights of holders
of
notes to receive payments of principal of, or interest or premium
or
Additional Interest, if any, on the
notes;
|
| (7) |
waive
a redemption or repurchase payment with respect to any note (including
a
payment required by the provisions described under the caption “—
Repurchase at the Option of Holders”
above);
|
| (8) |
make
any change in the ranking of the notes in a manner adverse to the
holders
of the notes; or
|
| (9) |
make
any change in the preceding amendment and waiver
provisions.
|
Notwithstanding
the preceding, without the consent of any holder of notes, Centene and the
trustee may amend or supplement the indenture or the notes:
| (1) |
to
cure any ambiguity, defect or
inconsistency;
|
| (2) |
to
provide for uncertificated notes in addition to or in place of
certificated notes;
|
| (3) |
to
provide for the assumption of Centene’s obligations to holders of notes in
the case of a merger or consolidation or sale of all or substantially
all
of Centene’s assets;
|
| (4) |
to
make any change that would provide any additional rights or benefits
to
the holders of notes or that does not adversely affect the legal
rights
under the indenture of any such
holder;
|
| (5) |
to
provide for or confirm the issuance of additional notes otherwise
permitted to be incurred by the indenture; or
|
| (6) |
to
comply with requirements of the Commission in order to effect or
maintain
the qualification of the indenture under the Trust Indenture
Act.
|
Satisfaction
and Discharge
The
indenture will be discharged and will cease to be of further effect as to all
notes issued thereunder, when:
| (1) |
either:
|
| (a) |
all
notes that have been authenticated, except lost, stolen or destroyed
notes
that have been replaced or paid and notes for whose payment money
has been
deposited in trust and thereafter repaid to Centene, have been delivered
to the trustee for cancellation; or
|
| (b) |
all
notes that have not been delivered to the trustee for cancellation
have
become due and payable by reason of the mailing of a notice of redemption
or otherwise or will become due and payable within one year, and
Centene
has irrevocably deposited or caused to be deposited with the trustee
as
trust funds in trust solely for the benefit of the holders, cash
in U.S.
dollars, non-callable U.S. Government Securities, or a combination
of cash
in U.S. dollars and non-callable U.S. Government Securities, in such
amounts as will be sufficient without consideration of any reinvestment
of
interest, to pay and discharge the entire indebtedness on the notes
not
delivered to the trustee for cancellation for principal, premium
and
Additional Interest, if any, and accrued interest to the date of
maturity
or redemption;
|
| (2) |
no
Default or Event of Default has occurred and is continuing on the
date of
the deposit or will occur as a result of the deposit and the deposit
will
not result in a breach or violation of, or constitute a default under,
any
other instrument to which Centene is a party or by which Centene
is
bound;
|
| (3) |
Centene
has paid or caused to be paid all sums payable by it under the
indenture;
and
|
| (4) |
Centene
has delivered irrevocable instructions to the trustee under the
indenture
to apply the deposited money toward the payment of the notes
at maturity
or the redemption date, as the case may
be.
|
In
addition, Centene must deliver an officers’ certificate and an opinion of
counsel to the trustee stating that all conditions precedent to satisfaction
and
discharge have been satisfied.
Concerning
the Trustee
If
the
trustee becomes a creditor of Centene, the indenture limits its right to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise. The trustee will be
permitted to engage in other transactions; however,
if it
acquires any conflicting interest, it must (i) eliminate such conflict within
90
days, (ii) apply to the Commission for permission to continue or (iii) resign.
The holders of a majority in principal amount of the then outstanding notes
will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the trustee, subject to certain
exceptions. The indenture provides that in case an Event of Default occurs
and
is continuing, the trustee will be required, in the exercise of its power,
to
use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the trustee will be under no obligation to exercise
any of its rights or powers under the indenture at the request of any holder
of
notes, unless such holder has offered to the trustee security and indemnity
satisfactory to it against any loss, liability or expense.
Book
Entry, Delivery, and Form
Except
as
set forth below, exchange notes will be issued in registered, global form in
minimum denominations of $1,000 and integral multiples of $1,000 in excess
thereof. Exchange notes will be issued at the closing of this exchange offer
only upon surrender of outstanding notes.
The
exchange notes initially will be represented by one or more notes in registered,
global form, which we refer to as global notes. On the date of the closing
of
the exchange offer, the global note will be deposited upon issuance with the
Trustee as custodian for The Depositary Trust Company, or DTC, in New York,
New
York, and registered in the name of DTC or its nominee, in each case for credit
to an account of a direct or indirect participant in DTC as described
below.
Except
as
set forth below, the global notes may be transferred, in whole and not in part,
only to another nominee of DTC or to a successor of DTC or its nominee.
Beneficial interests in the global notes may be exchanged for notes in
certificated form. See “— Exchange of Global Notes for Certificated
Notes.”
Ownership
of interests in the global note, or book-entry interests, will be limited to
persons that have accounts with DTC, or persons that hold interests through
such
participants. Except under the limited circumstances described below, beneficial
owners of book-entry interests will not be entitled to physical delivery of
exchange notes in definitive form.
Book-entry
interests will be shown on, and transfers thereof will be effected only through,
records maintained in book-entry form by DTC or DTC’s nominees and participants.
In addition, while the exchange notes are in global form, holders of book-entry
interests will not be considered the owners or “holders” of exchange notes for
any purpose. So long as the exchange notes are held in global form, DTC or
its
nominees will be considered the sole holders of the global note for all purposes
under the indenture. In addition, participants must rely on the procedures
of
DTC and indirect participants must rely on the procedures of DTC and the
participants through which they own book-entry interests to transfer their
interests or to exercise any rights of holders under the indenture. Transfers
of
beneficial interests in the global note will be subject to the applicable rules
and procedures of DTC and its participants or indirect participants, which
may
change from time to time.
Depositary
Procedures
The
following description of the operations and procedures of DTC, Euroclear and
Clearstream are provided solely as a matter of convenience. These operations
and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them. Centene takes no responsibility for these
operations and procedures and urges investors to contact the system or their
participants directly to discuss these matters.
DTC
has
advised Centene that DTC is a limited-purpose trust company created to hold
securities for its participants and to facilitate the clearance and settlement
of transactions in those securities between these participants through
electronic book-entry changes in accounts of its participants. The participants
include securities brokers and dealers (including the initial purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to DTC’s system is also available to indirect participants, which include
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either directly
or indirectly. Persons who are not participants may beneficially own securities
held by or on behalf of DTC only through the participants or the indirect
participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of
the
participants and indirect participants.
DTC
has
also advised Centene that, pursuant to procedures established by
it:
| (1) |
upon
deposit of the global notes, DTC will credit the accounts of participants
designated by the initial purchasers with portions of the principal
amount
of the global notes; and
|
| (2) |
ownership
of these interests in the global notes will be shown on, and the
transfer
of ownership thereof will be effected only through, records maintained
by
DTC (with respect to the participants) or by the participants and
the
indirect participants (with respect to other owners of beneficial
interest
in the global notes).
|
Investors
in the global notes who are participants in DTC’s system may hold their
interests in the global notes directly through DTC. Investors in the global
notes who are not participants may hold their interests therein indirectly
through organizations (including Euroclear and Clearstream) that are
participants in such system. All interests in a global note, including those
held through Euroclear or Clearstream, may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or Clearstream
may
also be subject to the procedures and requirements of such systems. The laws
of
some states require that certain Persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer
beneficial interests in a global note to such Persons will be limited to that
extent. Because DTC can act only on behalf of participants, which in turn act
on
behalf of indirect participants, the ability of a Person having beneficial
interests in a global note to pledge such interests to persons that do not
participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing
such
interests.
Except
as described below, owners of interests in the global notes will not have notes
registered in their names, will not receive physical delivery of notes in
certificated form and will not be considered the registered owners or “holders”
thereof under the indenture for any purpose.
Payments
in respect of the principal of, and interest and premium and special interest,
if any, on a global note registered in the name of DTC or its nominee will
be
payable to DTC in its capacity as the registered holder under the indenture.
Under the terms of the indenture, Centene and the trustee will treat the Persons
in whose names the notes, including the global notes, are registered as the
owners for the purpose of receiving payments and for all other purposes.
Consequently, none of Centene, the trustee or any agent of Centene or the
trustee has or will have any responsibility or liability for:
| (1) |
any
aspect of DTC’s records or any participant’s or indirect participant’s
records relating to or payments made on account of beneficial ownership
interests in the global notes or for maintaining, supervising or
reviewing
any of DTC’s records or any participant’s or indirect participant’s
records relating to the beneficial ownership interests in the global
notes; or
|
| (2) |
any
other matter relating to the actions and practices of DTC or any
of its
participants or indirect
participants.
|
DTC
has
advised Centene that its current practice, upon receipt of any payment in
respect of securities such as the notes (including principal and interest),
is
to credit the accounts of the relevant participants with the payment on the
payment date in accordance with instructions provided to DTC. Each relevant
participant is credited with an amount proportionate to its beneficial ownership
of an interest in the principal amount of the relevant security as shown on
the
records of DTC. Payments by the participants and the indirect participants
to
the beneficial owners of notes will be governed by standing instructions and
customary practices and will be the responsibility of the participants or the
indirect participants and will not be the responsibility of DTC, the trustee
or
Centene. Neither Centene nor the trustee will be liable for any delay by DTC
or
any of its participants in identifying the beneficial owners of the notes,
and
Centene and the trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee for all purposes.
Transfers
between participants in DTC will be effected in accordance with DTC’s
procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Clearstream will be effected in accordance with
their respective rules and operating procedures.
Cross-market
transfers between the participants in DTC, on the one hand, and Euroclear and
Clearstream participants, on the other hand, will be effected through DTC in
accordance with DTC’s rules on behalf of each of Euroclear or Clearstream, as
the case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or Clearstream
as the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf
by
delivering or receiving interests in the relevant global note in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Clearstream
participants may not deliver instructions directly to the depositaries for
Euroclear or Clearstream.
DTC
has
advised Centene that it will take any action permitted to be taken by a holder
of notes only at the direction of one or more participants to whose account
DTC
has credited the interests in the global notes and only in respect of such
portion of the aggregate principal amount of the notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the notes, DTC reserves the right to exchange
the
global notes for legended notes in certificated form, and to distribute such
notes to its participants.
Although
DTC, Euroclear and Clearstream have agreed to the foregoing procedures to
facilitate transfers of interests in the global notes among participants in
DTC,
Euroclear and Clearstream, they are under no obligation to perform or to
continue to perform such procedures, and may discontinue such procedures at
any
time. None of Centene or the trustee or any of their respective agents will
have
any responsibility for the performance by DTC, Euroclear or Clearstream or
their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
Exchange
of Global Notes for Certificated Notes
A
global
note is exchangeable for definitive notes in registered certificated form,
which
we refer to as “certificated notes,” if:
| (1) |
DTC
notifies Centene that it (a) is unwilling or unable to continue as
depositary for the global notes or (b) has ceased to be a clearing
agency
registered under the Exchange Act and, in either case, Centene fails
to
appoint a successor depositary within 120 days after the date of
such
notice;
|
| (2) |
Centene,
at its option, notifies the trustee in writing that it elects to
cause the
issuance of the certificated notes;
or
|
| (3) |
there
shall have occurred and be continuing a Default or Event of Default
with
respect to the notes.
|
In
addition, beneficial interests in a global note may be exchanged for
certificated notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, certificated
notes
delivered in exchange for any global note or beneficial interests in global
notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures) and will bear any applicable restrictive legend unless that legend
is not required by applicable law.
Exchange
of Certificated Notes for Global Notes
Certificated
notes may not be exchanged for beneficial interests in any global note unless
the transferor first delivers to the trustee a written certificate, in the
form
provided in the indenture, to the effect that such transfer will comply with
the
appropriate transfer restrictions applicable to such Notes.
Same
Day Settlement and Payment
Centene
will make payments in respect of the notes represented by the global notes
(including principal, premium, if any, interest and Additional Interest, if
any)
by wire transfer of immediately available funds to the accounts specified by
the
global note holder. Centene will make all payments of principal, interest and
premium and Additional Interest, if any, with respect to certificated notes
by
wire transfer of immediately available funds to the accounts specified by the
holders of certificated notes or, if no such account is specified, by mailing
a
check to each such holder’s registered address. The notes represented by the
global notes are expected to be eligible to trade in DTC’s Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
notes will, therefore, be required by DTC to be settled in immediately available
funds. Centene expects that secondary trading in any certificated notes will
also be settled in immediately available funds.
Certain
Definitions
Set
forth
below are certain defined terms used in the indenture. Reference is made to
the
indenture for a full disclosure of all such terms, as well as any other
capitalized terms used herein for which no definition is provided.
“Acquired
Debt” means,
with respect to any specified Person:
| (1) |
Indebtedness
of any other Person existing at the time such other Person is merged
with
or into or became a Subsidiary of such specified Person, whether
or not
such Indebtedness is incurred in connection with, or in contemplation
of,
such other Person merging with or into, or becoming a Subsidiary
of, such
specified Person; and
|
| (2) |
Indebtedness
secured by a Lien encumbering any asset acquired by such specified
Person.
|
“Additional
Interest”
means
the additional interest, if any, to be paid on the notes in the event the
Company fails to satisfy certain conditions set forth in the registration rights
agreement.
“Affiliate”
of
any
specified Person means any other Person directly or indirectly controlling
or
controlled by or under direct or indirect common control with such specified
Person. For purposes of this definition, “control,” as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct
or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided
that
beneficial ownership of 10% or more of the Voting Stock of a Person will be
deemed to be control. For purposes of this definition, the terms “controlling,”
“controlled by” and “under common control with” have correlative
meanings.
“Asset
Sale” means
the
sale, lease, transfer, conveyance or other disposition of any assets or rights,
other than sales, leases, transfers, conveyances or other dispositions of
inventory in the ordinary course of business consistent with past practices;
provided
that
the
sale, conveyance or other disposition of all or substantially all of the assets
of Centene and its Restricted Subsidiaries taken as a whole will be governed
by
the provisions of the indenture described above under the caption “— Repurchase
at the Option of Holders— Change of Control” and/or the provisions described
above under the caption “— Certain Covenants — Merger, Consolidation or Sale of
Assets” and not by the provisions described under the caption “— Repurchase at
the Option of Holders — Asset Sales.”
Notwithstanding
the preceding, the following items will not be deemed to be Asset
Sales:
(1) any
single transaction or series of related transactions that involves assets having
a Fair Market Value of less than $2.5 million;
(2) a
sale,
lease, transfer, conveyance or other disposition of assets between or among
Centene and its Restricted Subsidiaries;
(3) an
issuance of Equity Interests by a Restricted Subsidiary to Centene or to another
Restricted Subsidiary;
(4) a
sale,
lease, transfer, conveyance or other disposition effected in compliance with
the
provisions described under the caption “— Merger, Consolidation or Sale of
Assets;”
(5) a
Restricted Payment or Permitted Investment that is permitted by the covenant
described above under the caption “— Certain Covenants — Restricted
Payments;”
(6) the
Centene Plaza Divestiture;
(7) the
disposition of certain assets of FirstGuard Health Plan, Inc.;
(8) the
disposition of the outstanding common stock of FirstGuard, Inc.;
(9) the
disposition of Equity Interests in Permitted Joint Ventures; provided that
Centene maintains ownership of at least 35% of the outstanding Equity Interests
in the applicable Permitted Joint Venture and control (as such term is defined
in Section 405 under the Securities Act of 1933, as amended) over the operations
of the applicable Permitted Joint Venture; and
(10) a
transfer or property or assets that are obsolete, damaged or worn out equipment
and that are no longer useful in the conduct of Centene or its Subsidiaries’
business and that is disposed of in the ordinary course of
business.
“Attributable
Debt” in
respect of a Sale/Leaseback Transaction means, at the time of determination,
the
present value of the obligation of the lessee for net rental payments during
the
remaining term of the lease included in such Sale/Leaseback Transaction
including any period for which such lease has been extended or may, at the
option of the lessor, be extended. Such present value shall be calculated using
a discount rate equal to the rate of interest implicit in such transaction,
determined in accordance with GAAP.
“Beneficial
Owner” has
the
meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that in calculating the beneficial ownership of any particular
“person” (as that term is used in Section 13(d)(3) of the Exchange Act), such
“person” will be deemed to have beneficial ownership of all securities that such
“person” has the right to acquire by conversion or exercise of other securities,
whether such right is currently exercisable or is exercisable only upon the
occurrence of a subsequent condition. The terms “Beneficially Owns” and
“Beneficially Owned” have a corresponding meaning.
“Board
of Directors” means:
| (1) |
with
respect to a corporation, the board of directors of the
corporation;
|
| (2) |
with
respect to a partnership, the Board of Directors of the general partner
of
the partnership; and
|
| (3) |
with
respect to any other Person, the board or committee of such Person
serving
a similar function.
|
“Capital
Lease Obligation” means,
at
the time any determination is to be made, the amount of the liability in respect
of a capital lease that would at that time be required to be capitalized on
a
balance sheet in accordance with GAAP.
“Capital
Stock” means:
| (1) |
in
the case of a corporation, corporate
stock;
|
| (2) |
in
the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
|
| (3) |
in
the case of a partnership or limited liability company, partnership
or
membership interests (whether general or limited);
and
|
| (4) |
any
other interest or participation that confers on a Person the right
to
receive a share of the profits and losses of, or distributions of
assets
of, the issuing Person.
|
“Cash
Equivalents” means:
| (1) |
United
States dollars;
|
| (2) |
securities
issued or directly and fully guaranteed or insured by the United
States
government or any agency or instrumentality of the United States
government (provided
that
the full faith and credit of the United States is pledged in support
of
those securities) having maturities of not more than six months from
the
date of acquisition;
|
| (3) |
certificates
of deposit and eurodollar time deposits with maturities of six months
or
less from the date of acquisition, bankers’ acceptances with maturities
not exceeding six months and overnight bank deposits, in each case,
with
any lender party to the Credit Agreement or
with
|
| (4) |
any
domestic commercial bank having capital and surplus in excess of
$500.0
million and a Thomson Bank Watch Rating of “B” or
better;
|
| (5) |
repurchase
obligations with a term of not more than seven days for underlying
securities of the types described in clauses (2) and (3) above entered
into with any financial institution meeting the qualifications specified
in clause (3) above;
|
| (6) |
commercial
paper rated at least A-1 by Standard & Poor’s Rating Services or at
least P-1 by Moody’s Investors Service, Inc., and in each case maturing
within six months after the date of acquisition;
and
|
| (7) |
money
market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of
this
definition.
|
“Centene
Plaza Divestiture” means
the
sale, transfer or contribution by Centene or one of its Restricted Subsidiaries
of its right, title and interest in and to the real property and improvements
known as Centene Plaza on fair and reasonable terms and on an arm’s length basis
to a joint venture created to hold such real property (of which at least 50%
of
the Capital Stock of which are owned directly or indirectly by Centene and
the
remaining Capital Stock of which is owned directly or indirectly by Centene’s
development partners with respect to the Centene Plaza Project).
“Centene
Plaza Project” means
the
development and construction of the office building complex project in Clayton,
Missouri known as Centene Plaza.
“Change
of Control” means
the
occurrence of any of the following:
| (1) |
the
direct or indirect sale, transfer, conveyance or other disposition
(other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the properties or assets
of
Centene and its Restricted Subsidiaries, taken as a whole, to any
“person”
(as that term is used in Section 13(d)(3) of the Exchange
Act);
|
| (2) |
the
adoption of a plan relating to the liquidation or dissolution of
Centene;
|
| (3) |
the
consummation of any transaction (including, without limitation, any
merger
or consolidation) the result of which is that any “person” (as defined
above) becomes the Beneficial Owner, directly or indirectly, of more
than
20% of the Voting Stock of Centene, measured by voting power rather
than
number of shares;
|
| (4) |
the
first day on which a majority of the members of the Board of Directors
of
Centene are not Continuing Directors;
or
|
| (5) |
Centene
consolidates with, or merges with or into, any Person, or any Person
consolidates with, or merges with or into, Centene, in any such event
pursuant to a transaction in which any of the outstanding Voting
Stock of
Centene or such other Person is converted into or exchanged for cash,
securities or other property, other than any such transaction where
the
Voting Stock of Centene outstanding immediately prior to such transaction
is converted into or exchanged for Voting Stock (other than Disqualified
Stock) of the surviving or transferee Person constituting a majority
of
the outstanding shares of such Voting Stock of such surviving or
transferee Person (immediately after giving effect to such
issuance).
|
“Commission”
means
the
Securities and Exchange Commission.
“Consolidated
Cash Flow” means,
with respect to any specified Person for any period, the Consolidated Net Income
of such Person for such period plus:
provision
for taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, to the extent that such provision for taxes was
deducted in computing such Consolidated Net Income; plus
| (1) |
consolidated
interest expense of such Person and its Restricted Subsidiaries for
such
period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original
issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with
respect
to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers’ acceptance financings,
and net of the effect of all payments made or received pursuant to
Hedging
Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income; plus
|
| (2) |
depreciation,
amortization (including amortization of goodwill and other intangibles
but
excluding amortization of prepaid cash expenses that were paid in
a prior
period) and other non-cash expenses (excluding any such non-cash
expense
to the extent that it represents an accrual of or reserve for expenses
to
be paid in cash in any future period) of such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing
such
Consolidated Net Income; plus
|
| (3) |
any
impairment charge or asset write-off pursuant to Financial Accounting
Statement No. 144 and No. 142 or any successor pronouncement; minus
|
| (4) |
non-cash
items increasing such Consolidated Net Income for such period, other
than
the accrual of revenue in the ordinary course of
business,
|
in
each
case, on a consolidated basis and determined in accordance with
GAAP.
Notwithstanding
the preceding, the provision for taxes based on the income or profits of, and
the depreciation, amortization, impairment and other non-cash charges of, a
Restricted Subsidiary of Centene shall be added to Consolidated Net Income
to
compute Consolidated Cash Flow of Centene only to the extent that a
corresponding amount would be permitted at the date of determination to be
dividended to Centene by such Restricted Subsidiary without prior approval
(that
has not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
“Consolidated
Net Income” means,
with respect to any Person for any period, the consolidated Net Income of such
Person and its Restricted Subsidiaries determined in accordance with GAAP;
provided, however,
that
there will not be included in such Consolidated Net Income:
| (1) |
any
Net Income (loss) of any Person if such Person is not a Restricted
Subsidiary except that:
|
| (a) |
subject
to the limitations contained in clauses (3) and (4) below, Centene’s
equity in the Net Income of any such Person for such period will
be
included in such Consolidated Net Income up to the aggregate amount
of
cash actually distributed by such Person during such period to Centene
or
a Restricted Subsidiary as a dividend or other distribution (subject,
in
the case of a dividend or other distribution to a Restricted Subsidiary,
to the limitations contained in clause (2) below);
and
|
| (b) |
Centene’s
equity in a net loss of any such Person (other than an Unrestricted
Subsidiary) for such period will be included in determining such
Consolidated Net Income to the extent such loss has been funded with
cash
from Centene or a Restricted
Subsidiary;
|
| (c) |
any
Net Income (but not loss) of any Restricted Subsidiary of Centene
if such
Subsidiary is subject to restrictions, directly or indirectly, on
the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to Centene, except
that:
|
| (a) |
subject
to the limitations contained in clauses (3) and (4) below, Centene’s
equity in the Net Income of any such Restricted Subsidiary for such
period
will be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Restricted Subsidiary
during
such period to Centene or another Restricted Subsidiary as a dividend
(subject, in the case of a dividend to another Restricted Subsidiary,
to
the limitations contained in this clause);
and
|
| (b) |
Centene’s
equity in a net loss of any such Restricted Subsidiary for such period
will be included in determining such Consolidated Net
Income;
|
| (2) |
Net
Income or loss of any Person for any period prior to the acquisition
of
such Person by Centene or a Restricted Subsidiary, or the Net Income
or
loss of any Person who succeeds to the obligations of Centene under
the
indenture for any period prior to such succession;
and
|
| (3) |
the
cumulative effect of a change in accounting
principles.
|
“Consolidated
Total Assets” means,
as
of the date of any determination thereof, total assets of the Company and its
Subsidiaries calculated in accordance with GAAP on a consolidated basis as
of
such date.
“Consolidated
Total Foreign Assets” means,
as
of the date of any determination thereof, total assets of Centene’s Foreign
Restricted Subsidiaries calculated in accordance with GAAP on a consolidated
basis as of such date.
“Continuing
Directors” means,
as
of any date of determination, any member of the Board of Directors of Centene
who:
| (1) |
was
a member of such Board of Directors on the date of the indenture;
or
|
| (2) |
was
nominated for election or elected to such Board of Directors with
the
approval of a majority of the Continuing Directors who were members
of
such Board at the time of such nomination or
election.
|
“Credit
Agreement” means
the
Credit Agreement, dated as of September 14, 2004, among Centene Corporation,
as
the Company, the various financial institutions named therein, as lenders,
and
LaSalle Bank National Association, as Administrative Agent and Arranger, as
amended by that certain Amendment No. 1 thereto dated as of July 18, 2005,
as
amended by that certain Amendment No. 2 thereto dated as of September 9, 2005,
as amended by that certain Amendment No. 3 thereto dated as of November 7,
2005,
as amended by that certain Amendment No. 4 thereto dated as of April 7, 2006
and
as amended by that certain Amendment No. 5 thereto dated as of September 22,
2006, including any related notes, Guarantees, collateral documents, instruments
and agreements executed in connection therewith, and in each case as amended,
restated, modified, renewed, refunded, replaced or refinanced (in whole or
in
part) from time to time, whether or not with the same lenders or
agent.
“Credit
Facilities” means,
one or more debt facilities or agreements (including, without limitation, the
Credit Agreement) or commercial paper facilities, in each case with banks or
other institutional lenders or investors providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables
to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced (including any
agreement to extend the maturity
thereof
and adding additional borrowers or guarantors) in whole or
in part from time to time under the same or any other agent, lender or group
of
lenders and including increasing the amount of available borrowings thereunder;
provided
that
such
increase is permitted by the “— Incurrence of Indebtedness and Issuance of
Preferred Stock” covenant above.
“Default”
means
any
event that is, or with the passage of time or the giving of notice or both
would
be, an Event of Default.
“Disqualified
Stock” means
any
Capital Stock that, by its terms (or by the terms of any security into which
it
is convertible, or for which it is exchangeable, in each case at the option
of
the holder of the Capital Stock), or upon the happening of any event, matures
or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
or redeemable at the option of the holder of the Capital Stock, in whole or
in
part, on or prior to the date that is 91 days after the date on which the notes
mature. Notwithstanding the preceding sentence, any Capital Stock that would
constitute Disqualified Stock solely because the holders of the Capital Stock
have the right to require Centene to repurchase such Capital Stock upon the
occurrence of a change of control or an asset sale will not constitute
Disqualified Stock if the terms of such Capital Stock provide that Centene
may
not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described above
under the caption “— Certain Covenants — Restricted Payments.”
“Equity
Interests” means
Capital Stock and all warrants, options or other rights to acquire Capital
Stock
(but excluding any debt security that is convertible into, or exchangeable
for,
Capital Stock).
“Equity
Offering” means
any
private or public sale of common stock of Centene.
“Existing
Indebtedness” means
Indebtedness existing on the date of the indenture (other than Indebtedness
under the indenture governing the notes and the Credit Agreement).
“Fair
Market Value” means,
with respect to any Asset Sale or Restricted Payment or other item, the price
that would be negotiated in an arms’-length transaction for cash between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction, as such price is determined in good
faith by an officer of Centene if such value is $2.5 million or greater;
provided,
however, if
the
value of such Asset Sale or Restricted Payment or other item is $5.0 million
or
greater, such determination shall be made in good faith by the Board of
Directors of Centene; and provided
further if
the
value of such Asset Sale or Restricted Payment or other item is $15.0 million
or
greater, such determination shall be made by an accounting, appraisal or
investment banking firm of national standing that is not an Affiliate of
Centene.
“Fixed
Charge Coverage Ratio” means
with respect to any specified Person for any period, the ratio of the
Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such
period to the Fixed Charges of such Person and its Restricted Subsidiaries
for
such period. In the event that the specified Person or any of its Restricted
Subsidiaries incurs, assumes, guarantees, repays, repurchases or redeems any
Indebtedness (other than ordinary working capital borrowings) or issues,
repurchases or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated and on
or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the “Calculation Date”), then the Fixed Charge
Coverage Ratio will be calculated giving pro forma effect to such incurrence,
assumption, guarantee, repayment, repurchase or redemption of Indebtedness,
or
such issuance, repurchase or redemption of preferred stock, and the use of
the
proceeds therefrom as if the same had occurred at the beginning of the
applicable four-quarter reference period.
In
addition, for purposes of calculating the Fixed Charge Coverage
Ratio:
| (1) |
acquisitions
that have been made by the specified Person or any of its Restricted
Subsidiaries, including through mergers or consolidations and including
any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to
the
Calculation Date will be given pro forma effect (calculated in accordance
with Regulation S-X) as if they had occurred on the first day of
the
four-quarter reference period;
|
| (2) |
the
Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed
of prior to the Calculation Date, will be excluded;
and
|
| (3) |
the
Fixed Charges attributable to discontinued operations, as determined
in
accordance with GAAP, and operations or businesses disposed of prior
to
the Calculation Date, will be excluded, but only to the extent that
the
obligations giving rise to such Fixed Charges will not be obligations
of
the specified Person or any of its Restricted Subsidiaries following
the
Calculation Date.
|
“Fixed
Charges” means,
with respect to any specified Person for any period, the sum, without
duplication,
of:
| (1) |
the
consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including,
without
limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with
respect
to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers’ acceptance financings,
and net of the effect of all payments made or received pursuant to
Hedging
Obligations; plus
|
| (2) |
the
consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
|
| (3) |
any
interest expense on Indebtedness of another Person that is guaranteed
by
such Person or one of its Restricted Subsidiaries or secured by a
Lien on
assets of such Person or one of its Restricted Subsidiaries, whether
or
not such Guarantee or Lien is called upon; plus
|
| (4) |
the
product of (a) all dividends, whether paid or accrued and whether
or not
in cash, on any series of preferred stock of such Person or any of
its
Restricted Subsidiaries, other than dividends on Equity Interests
payable
solely in Equity Interests of Centene (other than Disqualified Stock)
or
to Centene or a Restricted Subsidiary of Centene, times (b) a fraction,
the numerator of which is one and the denominator of which is one
minus
the then current combined federal, state and local statutory tax
rate of
such Person, expressed as a decimal, in each case, on a consolidated
basis
and in accordance with GAAP.
|
“Foreign
Restricted Subsidiary” means
any
Restricted Subsidiary that is not formed under the laws of the United States
of
America or any State thereof.
“GAAP”
means
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute
of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity
as
have been approved by a significant segment of the accounting profession, which
are in effect on the date of the indenture.
“Guarantee”
means
a
guarantee other than by endorsement of negotiable instruments for collection
in
the ordinary course of business, direct or indirect, in any manner including,
without
limitation,
by way of a pledge of assets or through letters of credit or reimbursement
agreements in respect thereof, of all or any part of any
Indebtedness.
“Guarantor”
means
any
Subsidiary that executes a Subsidiary Guarantee in accordance with the
provisions of the indenture and its respective successors and
assigns.
“Hedging
Obligations” means,
with respect to Centene or any of its Restricted Subsidiaries, the obligations
of such Person under interest rate swap agreements, interest rate cap agreements
and interest rate collar agreements and other agreements or arrangements
designed to protect such Person against fluctuations in interest rates with
respect to any floating rate Indebtedness that is permitted to be incurred
under
the indenture.
“Indebtedness”
means,
with respect to any specified Person, any indebtedness of such Person, whether
or not contingent:
| (1) |
in
respect of borrowed money;
|
| (2) |
evidenced
by bonds, notes, debentures or similar instruments or letters of
credit
(or reimbursement agreements in respect
thereof);
|
| (3) |
in
respect of banker’s acceptances;
|
| (4) |
representing
Capital Lease Obligations;
|
| (5) |
representing
the balance deferred and unpaid of the purchase price of any property,
except any such balance that constitutes an accrued expense or Trade
Payable;
|
| (6) |
representing
any Hedging Obligations; or
|
| (7) |
Disqualified
Stock of such Person or a Restricted Subsidiary in an amount equal
to the
greater of the maximum mandatory redemption or repurchase price (not
including, in either case, any redemption or repurchase premium)
or the
liquidation preference thereof,
|
if
and to
the extent any of the preceding items (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of the specified
Person prepared in accordance with GAAP. In addition, the term “Indebtedness”
includes all Indebtedness of others secured by a Lien on any asset of the
specified Person (whether or not such Indebtedness is assumed by the specified
Person) and, to the extent not otherwise included, the Guarantee by the
specified Person of any indebtedness of any other Person. For the avoidance
of
doubt, to the extent any Indebtedness incurred in connection with the Centene
Plaza Project appears as a liability on the balance sheet of Centene or one
of
its Restricted Subsidiaries and is non-recourse to Centene and its Restricted
Subsidiaries, such Indebtedness will not constitute “Indebtedness” for all
purposes under the indenture.
The
amount of any Indebtedness outstanding as of any date will be:
| (a) |
the
accreted value of the Indebtedness, in the case of any Indebtedness
issued
with original issue discount; and
|
| (b) |
the
principal amount of the Indebtedness, together with any interest
on the
Indebtedness that is more than 30 days past due, in the case of any
other
Indebtedness.
|
“Initial
Purchasers” means
Banc of America Securities LLC, Wachovia Capital Markets, LLC, Merrill, Lynch,
Pierce, Fenner & Smith Incorporated, ABN AMRO Incorporated, Allen &
Company LLC and Goldman, Sachs & Co.
“Investment
Grade Rating” means
a
rating equal to or higher than Baa3 (or the equivalent) by Moody’s Investors
Service, Inc. and BBB- (or the equivalent) by Standard & Poor’s Ratings
Group, Inc., in each case, with a stable or better outlook.
“Investments”
means,
with respect to any Person, all direct or indirect investments by such Person
in
other Persons (including Affiliates) in the forms of loans (including Guarantees
or other obligations), advances or capital contributions (excluding commission,
travel and similar advances, fees and compensation paid to officers, directors
and employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If Centene
or
any Subsidiary of Centene sells or otherwise disposes of any Equity Interests
of
any direct or indirect Subsidiary of Centene such that, after giving effect
to
any such sale or disposition, such Person is no longer a Subsidiary of Centene,
Centene will be deemed to have made an Investment on the date of any such sale
or disposition equal to the Fair Market Value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption “— Certain
Covenants — Restricted Payments.” The acquisition by Centene or any Subsidiary
of Centene of a Person that holds an Investment in a third Person will be deemed
to be an Investment by Centene or such Subsidiary in such third Person in an
amount equal to the Fair Market Value of the Investment held by the acquired
Person in such third Person in an amount determined as provided in the final
paragraph of the covenant described above under the caption “— Certain Covenants
— Restricted Payments.”
“Lien”
means,
with respect to any asset, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset, whether or not filed,
recorded or otherwise perfected under applicable law, including any conditional
sale or other title retention agreement, any lease in the nature thereof, any
option or other agreement to sell or give a security interest in and any filing
of or agreement to give any financing statement under the Uniform Commercial
Code (or equivalent statutes) of any jurisdiction.
“Net
Income” means,
with respect to any specified Person, the net income (loss) of such Person,
determined in accordance with GAAP and before any reduction in respect of
preferred stock dividends, excluding, however:
| (1) |
any
gain (but not loss), together with any related provision for taxes
on such
gain (but not loss), realized in connection with: (a) any Asset Sale;
or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness
of such
Person or any of its Restricted Subsidiaries;
and
|
| (2) |
any
extraordinary gain (but not loss), together with any related provision
for
taxes on such extraordinary gain (but not
loss).
|
“Net
Proceeds” means
the
aggregate cash or Cash Equivalents received by Centene or any of its Restricted
Subsidiaries in respect of any Asset Sale (including, without limitation, any
cash received upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of the direct costs relating to such Asset
Sale, including, without limitation, legal, accounting and investment banking
fees, and sales commissions, and any relocation expenses incurred as a result
of
the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each
case, after taking into account any available tax credits or deductions and
any
tax sharing arrangements, and amounts required to be applied to the repayment
of
Indebtedness secured by a Lien on the asset or assets that were the subject
of
such Asset Sale, and any reserve established in accordance with GAAP against
liabilities associated with such Asset Sale or any amount placed in escrow
for
adjustment in respect of the purchase price of such Asset Sale, until such
time
as such reserve is reversed or such escrow arrangement is terminated, in which
case Net Proceeds shall be increased by the amount of the reserve so reversed
or
the amount returned to Centene or its Restricted Subsidiaries from such escrow
agreement, as the case may be.
“Non-recourse
Debt” means
Indebtedness:
as
to
which neither Centene nor any of its Restricted Subsidiaries (a) provides credit
support of any kind (including any undertaking, agreement or instrument that
would constitute Indebtedness), (b) is directly or indirectly liable as a
guarantor or otherwise, or (c) constitutes the lender;
| (1) |
no
default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time of both any holder
of
any other Indebtedness (other than the notes) of Centene or any of
its
Restricted Subsidiaries to declare a default on such other Indebtedness
or
cause the payment thereof to be accelerated or payable prior to its
stated
maturity; and
|
| (2) |
as
to which the lenders have been notified in writing that they will
not have
any recourse to the stock or assets of Centene or any of its Restricted
Subsidiaries.
|
“Obligations”
means
any
principal, interest, penalties, fees, indemnifications, reimbursements, damages
and other liabilities payable under the documentation governing any
Indebtedness.
“Permitted
Business” means
the
lines of business conducted by Centene and its Restricted Subsidiaries on the
date hereof and any other healthcare business related, ancillary or
complementary (including any reasonable extension, development or expansion)
to
any such business.
“Permitted
Investments” means:
| (1) |
any
Investment in Centene or a Restricted
Subsidiary;
|
| (2) |
any
Investment in Cash Equivalents;
|
| (3) |
any
Investment by Centene or any of its Restricted Subsidiaries in a
Person,
if as a result of such Investment:
|
| (a) |
such
Person becomes a Restricted Subsidiary;
or
|
| (b) |
such
Person is merged, consolidated or amalgamated with or into, or
transfers
or conveys substantially all of its assets to, or is liquidated
into,
Centene or a
Subsidiary;
|
| (4) |
any
Investment made as a result of the receipt of non-cash consideration
from
an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption “— Repurchase at the Option of
Holders —Asset Sales;”
|
| (5) |
any
acquisition of assets solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of
Centene;
|
| (6) |
any
Investments received in compromise of obligations of trade creditors,
healthcare providers or customers that were incurred in the ordinary
course of business, including pursuant to any plan of reorganization
or
similar arrangement upon the bankruptcy or insolvency of any trade
creditor, healthcare provider or
customer;
|
| (7) |
Hedging
Obligations;
|
| (8) |
Investments
the payment for which is Capital Stock (other than Disqualified Stock)
of
Centene;
|
| (9) |
Investments
in prepaid expenses, negotiable instruments held for collection,
utility
and workers compensation, performance and similar deposits made in
the
ordinary course of business;
|
| (10) |
loans
and advances to non-executive officers and employees of Centene or
any of
its Restricted Subsidiaries in the ordinary course of business in
accordance with the past
|
| (11) |
practices
of Centene or any of its Restricted Subsidiaries in an aggregate
amount
for all such loans and advances not to exceed $3.0 million at any
time
outstanding;
|
| (12) |
Investments
existing on the date of the
indenture;
|
| (13) |
Permitted
Market Investments;
|
| (14) |
Investments
in the equity interests of the joint venture created in connection
with
the Centene Plaza Divestiture;
|
| (15) |
Investments
in Permitted Joint Ventures in an amount not to exceed at any one
time
outstanding 5% of Centene’s Consolidated Total Assets;
and
|
| (16) |
other
Investments in any Person having an aggregate fair market value (measured
on the date each such investment was made and without giving effect
to
subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (15) that are at the time
outstanding, not to exceed the greater of (x) $35.0 million or (y)
4% of
Centene’s Consolidated Total
Assets.
|
“Permitted
Joint Venture” means
any
joint venture that Centene or any of its Restricted Subsidiaries is a party
to
that is engaged in a Permitted Business.
“Permitted
Liens” means:
| (1) |
Liens
in favor of Centene or its Restricted
Subsidiaries;
|
| (2) |
Liens
on any property or assets of a Person existing at the time such
Person is
merged with or into or consolidated with Centene or any Restricted
Subsidiary of Centene; provided
that
such Liens were in existence prior to such merger or consolidation
and not
incurred in contemplation thereof and do not extend to any property
or
assets other than those of the Person merged into and consolidated
with
Centene or the Restricted
Subsidiary;
|
|
(3)
|
Liens
for taxes or other governmental charges not at the time delinquent
or
thereafter payable without penalty or being contested in good faith
by
appropriate proceedings and, in each case, for which it maintains
adequate
reserves;
|
| (4) |
Liens
on any property or assets existing at the time of the acquisition
thereof
by Centene or any Restricted Subsidiary of Centene; provided
that
such Liens were in existence prior to the contemplation of such
acquisition and do not extend to any property or assets of Centene
or the
Restricted Subsidiary;
|
| (5) |
Liens
to secure the performance of statutory obligations, surety or appeal
bonds, government contracts, performance bonds or other obligations
of a
like nature incurred in the ordinary course of business (such as
(i) Liens
of landlords, carriers, warehousemen, mechanics and materialmen and
other
similar Liens imposed by law and (ii) Liens in the form of deposits
or
pledges incurred in connection with worker’s compensation, unemployment
compensation and other types of social security (excluding Liens
arising
under Employee Retirement Income Security Act of
1974));
|
| (6) |
Liens
existing on the date of the
indenture;
|
| (7) |
Liens
arising from Uniform Commercial Code financing statement filings
regarding
operating leases entered into by Centene and its Restricted Subsidiaries
in the ordinary course of business;
|
| (8) |
Liens
securing Permitted Refinancing Indebtedness incurred to refinance
Indebtedness that was previously so secured as permitted by the indenture;
provided
that
any such Lien
|
| (9) |
is
limited to all or part of the same property or assets (plus improvements,
accessions, proceeds or dividends or distributions in respect thereof)
that secured (or, under the written arrangements under which the
original
Lien arose, could secure) the Indebtedness being refinanced or is
in
respect of property that is the security for a Permitted Lien
hereunder;
|
| (10) |
Liens
securing Hedging Obligations of Centene or any of its Restricted
Subsidiaries, which transactions or obligations are incurred in the
ordinary course of business for bona fide hedging purposes (and not
financing or speculative purposes) of Centene or its Restricted
Subsidiaries (as determined in good faith by the Board of Directors
or
senior management of Centene);
|
| (11) |
Liens
to secure Indebtedness (including Capital Lease Obligations) permitted
by
clause (4) under the second paragraph under “—Certain Covenants—Incurrence
of Indebtedness and Issuance of Preferred Stock;” provided
that
any such Lien (i) covers only the assets acquired, constructed or
improved
with such Indebtedness and (ii) is created within 180 days of such
acquisition, construction or
improvement;
|
| (12) |
Liens
to secure Indebtedness of Foreign Restricted Subsidiaries permitted
by
clause (11) under the second paragraph under “— Certain Covenants —
Incurrence of Indebtedness and Issuance of Preferred Stock;” provided
that
any such Lien covers only the assets of such Foreign Restricted
Subsidiaries;
|
| (13) |
other
Liens incurred in the ordinary course of business of Centene and
its
Restricted Subsidiaries with respect to Indebtedness in an aggregate
principal amount, together with all Indebtedness incurred to refund,
refinance or replace such Indebtedness (or refinancings, refundings
or
replacements thereof), that does not exceed 15% of Centene’s Consolidated
Total Assets at any one time outstanding;
and
|
| (14) |
Liens
required by any regulation, or order of or arrangement or agreement
with
any regulatory body or agency, so long as such Liens do not secure
Indebtedness.
|
“Permitted
Market Investments” means
any
security that (i) (a) is of a type traded or quoted on any exchange or
recognized financial market, (b) can be readily liquidated or disposed of on
such exchanges or markets and (c) other than in the case of an equity security,
has no lower than an “investment grade” rating from any nationally recognized
rating agency or (ii) satisfies Centene’s investment guidelines as approved by
the Board of Directors; provided
that
the
aggregate amount of Permitted Market Investments consisting of common stock
shall not exceed 10% at any time.
“Permitted
Refinancing Indebtedness” means
any
Indebtedness of Centene or any of its Restricted Subsidiaries issued in exchange
for, or the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund other Indebtedness of Centene or any of its Restricted
Subsidiaries (other than intercompany Indebtedness); provided,
however, that:
| (1) |
the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount (or
accreted
value, if applicable) of the Indebtedness extended, refinanced, renewed,
replaced, defeased or refunded (plus all accrued interest on the
Indebtedness and the amount of all expenses and premiums incurred
in
connection therewith);
|
| (2) |
such
Permitted Refinancing Indebtedness has a final maturity date the
same as
or later than the final maturity date of, and has a Weighted Average
Life
to Maturity equal to or greater than the Weighted Average Life to
Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
|
| (3) |
if
Subordinated Obligations are being extended, refinanced, renewed,
replaced, defeased or refunded, such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of,
and is
subordinated in right of payment to, the notes on terms at least
as
favorable to the holders of notes as those contained in the documentation
governing the Subordinated Obligations being extended, refinanced,
renewed, replaced, defeased or refunded;
and
|
| (4) |
such
Indebtedness is incurred either by Centene or by the Subsidiary who
is the
obligor on the Indebtedness being extended, refinanced, renewed,
replaced,
defeased or refunded.
|
“Person”
means
any
individual, corporation, partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, limited liability company or
government or other entity.
“Ratings
Agency” means
Standard & Poor’s Ratings Group, Inc. and Moody’s Investors Service, Inc. or
if Standard & Poor’s Ratings Group, Inc. or Moody’s Investors Service, Inc.
or both shall not make a rating on the notes publicly available, a nationally
recognized statistical rating agency or agencies, as the case may be, selected
by Centene (as certified by a resolution of the Board of Directors) which shall
be substituted for Standard and Poor’s Ratings Group, Inc. or Moody’s Investors
Service, Inc. or both, as the case may be.
“Restricted
Investment” means
an
Investment other than a Permitted Investment.
“Restricted
Subsidiary” of
a
Person means any Subsidiary of the referent Person that is not an Unrestricted
Subsidiary.
“Sale/Leaseback
Transaction” means
an
arrangement relating to property now owned or hereafter acquired whereby Centene
or a Restricted Subsidiary thereof transfers such property to a Person and
Centene or a Restricted Subsidiary leases it from such Person.
“Significant
Subsidiary” means
any
Subsidiary that would be a “significant subsidiary” as defined in Article 1,
Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as
such
regulation is in effect on the date of the indenture.
“Senior
Debt” means:
| (1) |
all
Indebtedness of Centene outstanding under Credit Facilities and all
Hedging Obligations with respect
thereto;
|
| (2) |
any
other Indebtedness of Centene permitted to be incurred under the
terms of
the indenture, unless the instrument under which such Indebtedness
is
incurred expressly provides that it is on a parity with or subordinated
in
right of payment to the notes; and all Obligations with respect to
the
items listed in the preceding clauses (1) and (2). Notwithstanding
anything to the contrary in the preceding, Senior Debt will not
include:
|
| (a) |
any
liability for federal, state, local or other taxes owed or owing
by
Centene;
|
| (b) |
any
Indebtedness of Centene to any of its Subsidiaries or other
Affiliates;
|
| (c) |
any
Trade Payables; or
|
| (d) |
the
portion of any Indebtedness that is incurred in violation of the
indenture.
|
“Stated
Maturity” means,
with respect to any installment of interest or principal on any series of
Indebtedness, the date on which the payment of interest or principal was
scheduled to be paid in the original documentation governing such Indebtedness,
and will not include any contingent obligations to repay, redeem or repurchase
any such interest or principal prior to the date originally scheduled for the
payment thereof.
“Subordinated
Obligations” means
any
Indebtedness of Centene (whether outstanding on the date hereof or thereafter
incurred) that is subordinate or junior in right of payment to the notes
pursuant to a written agreement to that effect.
“Subsidiary”
means,
with respect to any specified Person:
| (1) |
any
corporation, association or other business entity of which more than
50%
of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election
of
directors, managers or trustees of the corporation, association or
other
business entity is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries
of
that Person (or a combination thereof);
and
|
| (2) |
any
partnership (a) the sole general partner or the managing general
partner
of which is such Person or a Subsidiary of such Person or (b) the
only
general partners of which are that Person or one or more Subsidiaries
of
that Person (or any combination
thereof).
|
“Subsidiary
Guarantee” means
a
Guarantee by each Guarantor of Centene’s obligations under the indenture and on
the notes, executed pursuant to the provisions of the indenture.
“Tax
Sharing Agreement” means
the
tax sharing agreement, dated December 31, 2002, by and among Centene Corporation
and each of its Subsidiaries party thereto.
“Total
Debt” means
all
Indebtedness of Centene and its Subsidiaries, determined on a consolidated
basis.
“Total
Debt to Consolidated Cash Flow Ratio” means
as
of the date of determination the ratio of Total Debt as of such date to
Consolidated Cash Flow for the twelve-months ending on such day.
“Trade
Payables” means,
with respect to any Person, any accounts payable or any other indebtedness
or
monetary obligation to trade creditors, physicians, hospitals, health
maintenance organizations or other healthcare providers created, assumed or
guaranteed by such Person or any of its Subsidiaries arising in the ordinary
course of business in connection with the acquisition of goods and
services.
“Treasury
Rate” means,
at
the time of computation, the yield to maturity of United States Treasury
Securities with a constant maturity (as compiled and published in the most
recent Federal Reserve Statistical Release H.15(519) which has become publicly
available at least two business days prior to the redemption date or, if such
Statistical Release is no longer published, any publicly available source of
similar market data) most nearly equal to the period from the redemption date
to
April 1, 2011; provided,
however,
that if
the period from the redemption date to April 1, 2011 is not equal to the
constant maturity of a United States Treasury Security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury Securities for which such yields are
given, except that if the period from the redemption date to April 1, 2011
is
less than one year, the weekly average yield on actually traded United States
Treasury Securities adjusted to a constant maturity of one year shall be
used.
“Unrestricted
Subsidiary” means
any
Subsidiary of Centene (or any successor to any of them) that is designated
by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary:
| (1) |
has
no Indebtedness other than Non-Recourse
Debt;
|
| (2) |
is
not party to any agreement, contract, arrangement or understanding
with
Centene or any Restricted Subsidiary of Centene unless the terms
of any
such agreement, contract,
|
| (3) |
arrangement
or understanding are no less favorable to Centene or such Restricted
Subsidiary than those that might be obtained at the time from Persons
who
are not Affiliates of Centene;
|
| (4) |
is
a Person with respect to which neither Centene nor any of its Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe
for
additional Equity Interests or (b) to maintain or preserve such Person’s
financial condition or to cause such Person to achieve any specified
levels of operating results;
|
| (5) |
has
not guaranteed or otherwise directly or indirectly provided credit
support
for any Indebtedness of Centene or any of its Restricted Subsidiaries;
and
|
| (6) |
has
at least one director on its Board of Directors that is not a director
or
executive officer of Centene or any of its Restricted Subsidiaries
and has
at least one executive officer that is not a director or executive
officer
of Centene or any of its Restricted
Subsidiaries.
|
Any
designation of a Subsidiary of Centene as an Unrestricted Subsidiary will be
evidenced to the trustee by filing with the trustee a certified copy of the
Board Resolution giving effect to such designation and an officers’ certificate
certifying that such designation complied with the preceding conditions and
was
permitted by the covenant described above under the caption “— Certain Covenants
—Restricted Payments.” If, at any time, any Unrestricted Subsidiary would fail
to meet the preceding requirements as an Unrestricted Subsidiary, it will
thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture
and any Indebtedness of such Subsidiary will be deemed to be incurred by a
Restricted Subsidiary of Centene as of such date and, if such Indebtedness
is
not permitted to be incurred as of such date under the covenant described under
the caption “— Certain Covenants — Incurrence of Indebtedness and Issuance of
Preferred Stock,” Centene will be in default of such covenant. The Board of
Directors of Centene may at any time designate any Unrestricted Subsidiary
to be
a Restricted Subsidiary; provided
that
such
designation will be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of Centene of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation will only be permitted if (1) such Indebtedness
is permitted under the covenant described under the caption “— Certain Covenants
—Incurrence of Indebtedness and Issuance of Preferred Stock,” calculated on a
pro forma basis as if such designation had occurred at the beginning of the
four-quarter reference period; and (2) no Default or Event of Default would
be
in existence following such designation.
“Voting
Stock” of
any
Person as of any date means the Capital Stock of such Person that is at the
time
entitled to vote in the election of the Board of Directors of such
Person.
“Weighted
Average Life to Maturity” means,
when applied to any Indebtedness at any date, the number of years obtained
by
dividing:
| (1) |
the
sum of the products obtained by multiplying (a) the amount of each
then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
of
the Indebtedness, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of
such
payment; by
|
| (2) |
the
then outstanding principal amount of such
Indebtedness.
|
The
following is a general discussion of material U.S. federal income and, in the
case of non-U.S. holders (as defined below), estate tax consequences to a holder
relevant to the exchange of original notes for exchange notes in the exchange
offer and the ownership and disposition of the exchange notes as of the date
hereof. This discussion is limited to holders of exchange notes as capital
assets (generally assets held for investment purposes) and to holders who
acquired original notes in their original issuance for cash at the initial
offering price.
This
discussion does not address all of the U.S. federal income tax consequences
that
may be relevant to a holder in light of such holder’s particular circumstances.
This discussion also does not address the U.S. federal income tax consequences
to holders subject to special treatment under U.S. federal income tax laws,
such
as tax-exempt organizations, holders subject to the U.S. federal alternative
minimum tax, dealers or traders in securities or currencies, financial
institutions, insurance companies, regulated investment companies, real estate
investment trusts, certain former citizens or residents of the United States,
controlled foreign corporations, passive foreign investment companies,
partnerships, S corporations or other pass-through entities, persons whose
functional currency is not the U.S. dollar and persons that hold the exchange
notes in connection with a straddle, hedging, conversion or other risk-reduction
transaction. This discussion does not address the tax consequences arising
under
any state, local or foreign law.
The
U.S.
federal income tax consequences set forth below are based upon the Internal
Revenue Code of 1986, as amended, or the Code, Treasury regulations promulgated
thereunder, court decisions, and rulings and pronouncements of the Internal
Revenue Service, or the IRS, all as in effect on the date hereof and all of
which are subject to change, possibly on a retroactive basis. We have not sought
any ruling from the IRS with respect to statements made and conclusions reached
in this discussion, and there can be no assurance that the IRS will agree with
such statements and conclusions.
As
used
herein, the term “U.S. holder” means a beneficial owner of an exchange note that
is for U.S. federal income tax purposes:
| · |
an
individual who is a citizen or resident of the United
States;
|
| · |
a
corporation, or other entity taxable as a corporation for U.S. federal
income tax purposes, created or organized in or under the laws of
the
United States or of any state therein or the District of
Columbia;
|
| · |
an
estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
|
| · |
a
trust, if a court within the United States is able to exercise primary
jurisdiction over its administration and one or more U.S. persons
have
authority to control all of its substantial decisions, or if the
trust has
a valid election in effect under applicable Treasury regulations
to be
treated as a U.S. person.
|
As
used
herein, the term “non-U.S. holder” means a beneficial owner of an exchange note
(other than a partnership) that is not a U.S. holder.
If
a
partnership (including any entity treated as a partnership for U.S. federal
income tax purposes) is a beneficial owner of an exchange note, the tax
treatment of a partner in the partnership generally will depend upon the status
of the partner and the activities of the partnership. Accordingly, partnerships
that hold our exchange notes and partners in such partnerships should consult
their tax advisors.
You
should consult your own tax advisors regarding application of U.S. federal
tax
laws, as well as the tax laws of any state local or foreign jurisdiction, to
the
exchange offer (and to owning and disposing of the exchange notes) in light
of
your particular circumstances.
The
Exchange Offer
The
exchange of your original notes for exchange notes pursuant to the exchange
offer should not be treated as a taxable exchange for U.S. federal income tax
purposes. As a result, (1) you should not recognize gain or loss from exchanging
your original notes; (2) your holding period for the exchange notes should
include your holding period for the original notes; and (3) your adjusted tax
basis in the exchange notes should be the same as your adjusted tax basis in
the
original notes immediately before the exchange.
U.S.
Holders
Payments
of Interest
You
will
be required to recognize as ordinary income any interest received or accrued
on
the exchange notes, in accordance with your regular method of tax
accounting.
In
certain circumstances, we may be obligated to pay amounts in excess of stated
interest or principal on the exchange notes. For example, a premium may be
payable on change of control redemptions. See “Description of the Exchange
Notes—Repurchase at Option of Holders.” According to Treasury regulations, the
possibility that any such payments in excess of stated interest or principal
will be made will not affect the amount of interest income you recognized if
there is only a remote chance as of the date the notes were issued that such
payments will be made. We believe the likelihood that we will be obligated
to
make any such payments is remote. Therefore, we do not intend to treat the
potential payment of a premium pursuant to the change of control provisions
as
part of the yield to maturity of any notes. Our determination that these
contingencies are remote is binding on you unless you disclose your contrary
position in the manner required by applicable Treasury regulations. Our
determination is not binding on the IRS, and if the IRS successfully challenged
this determination, you could be required to treat any gain recognized on the
sale or disposition of an exchange note as ordinary income and the timing and
amount of income inclusions could be different from the consequences discussed
herein.
We
have
the option to repurchase the exchange notes under certain circumstances at
a
premium to the issue price. See “Description of the Exchange Notes—Optional
Redemption.” Under special rules governing this type of unconditional option,
because the exercise of the option would increase the yield on the exchange
notes, we will be deemed not to exercise the option, and the possibility of
this
redemption premium will not affect the amount of income recognized by you in
advance of receipt of any such redemption premium.
Sale,
Redemption, Exchange or Other Taxable Disposition of
Notes
Generally,
you will recognize capital gain or loss on the sale, redemption, exchange or
other taxable disposition of an exchange note. Your gain or loss will equal
the
difference between the proceeds you receive (other than proceeds attributable
to
accrued interest) and your adjusted tax basis in the exchange note. The proceeds
you receive will include the amount of any cash and the fair market value of
any
other property received for the exchange note. The portion of any proceeds
that
is attributable to accrued interest will not be taken into account in computing
your capital gain or loss. Instead, that portion will be recognized as ordinary
interest income to the extent that you have not previously included the accrued
interest in income. In general, your tax basis in a note is its cost decreased
by any principal payments you received with respect to such note. The gain
or
loss you recognized on a disposition of an exchange note will be long-term
capital gain or loss if you have held the note for more than one year. Under
current U.S. federal income tax law, net long-term capital gains of
non-corporate U.S. holders (including individuals) are eligible for taxation
at
preferential rates. The deductibility of capital losses is subject to
limitation.
Information
Reporting and Backup Withholding
Generally,
you will be subject to information reporting on payments of interest on the
exchange notes and the proceeds from a sale or other disposition of the exchange
notes. Unless you are an exempt recipient such as a corporation, a backup
withholding tax (currently at a rate of 28%) may apply to such payments if
you:
(i) fail to furnish a taxpayer identification number, or TIN, within a
reasonable time after a request therefore; (ii) furnish an incorrect TIN; (iii)
are notified by the IRS that you have failed to report interest or dividends
properly; or (iv) failed, under certain circumstances, to provide a certified
statement, signed under penalty of perjury, that the TIN provided is correct
and
that you are not subject to backup withholding.
Backup
withholding is not an additional tax. Any amount withheld from a payment under
these rules will be allowed as a credit against your U.S. federal income tax
liability and may entitle you to a refund, provided that the required
information is furnished timely to the IRS.
Non-U.S.
Holders
Payments
of Interest
Interest
paid on a note will qualify for the “portfolio interest exemption” and will not
be subject to U.S. federal income tax or withholding tax, provided that such
interest income is not effectively connected with your conduct of a U.S. trade
or business and provided that you:
| · |
do
not actually or by attribution own 10% or more of the combined voting
power of all classes of our stock entitled to
vote;
|
| · |
are
not a controlled foreign corporation for U.S. federal income tax
purposes
that is related to us actually or by attribution through stock
ownership;
|
| · |
are
not a bank that acquired the exchange notes in consideration for
an
extension of credit made pursuant to a loan agreement entered into
in the
ordinary course of business; and
|
| · |
either
(a) provide a Form W-8BEN (or a suitable substitute form) signed
under
penalties of perjury that includes your name and address, and certifies
to
your non-United States status in compliance with applicable law and
regulations, or (b) a securities clearing organization, bank or other
financial institution that holds customers’ securities in the ordinary
course of its trade or business provides a statement to us or our
agent
under penalties of perjury in which it certifies that it has received
such
a Form W-8 (or a suitable substitute form) from you or qualifying
intermediary and furnishes us or our agent with a copy. The Treasury
regulations provide special certification rules for notes held by
a
foreign partnership and other
intermediaries.
|
If
you
cannot satisfy the requirements described above, payments of interest made
to
you will be subject to the 30% U.S. federal withholding tax unless you provide
us with a properly executed IRS Form W-8BEN claiming an exemption from (or
a
reduction of) withholding under the benefit of a treaty.
If
you
are engaged in a trade or business in the United States and interest on an
exchange note is effectively connected with the conduct of that trade or
business, you generally will not be subject to withholding if you comply with
applicable IRS certification requirements by delivering a properly executed
IRS
Form W-8ECI, and you generally will be subject to U.S. federal income tax on
a
net income basis at regular graduated rates in the same manner as if you were
a
U.S. holder described above. If you are eligible for the benefits of an income
tax treaty between the United States and your country of residence, any interest
income that is effectively connected with a U.S. trade or business will be
subject to U.S. federal income tax in the manner specified by the treaty and
generally will only be subject to tax if such income is attributable to a
permanent establishment (or fixed base in the case of an individual) maintained
by you in the United States and you claim the benefit of the treaty by properly
submitting an IRS Form W-8BEN. If you are a corporation, effectively connected
income also may be subject to the branch profits tax, which generally is imposed
on a foreign corporation on the deemed repatriation from the United States
of
effectively connected earnings and profits at a rate equal to 30% (or such
lower
rate as may be prescribed by an applicable tax treaty).
Sale,
Redemption, Exchange or Other Taxable Disposition of
Notes
You
generally will not be subject to the 30% U.S. federal withholding tax on any
gain you realize on the sale, redemption, exchange or other disposition of
an
exchange note.
Any
gain
you realize on the disposition of an exchange note generally will not be subject
to U.S. federal income tax unless:
| · |
the
gain is effectively connected with your conduct of a trade or business
in
the United States and, if required by an applicable income tax treaty,
is
attributable to a United States permanent establishment;
or
|
| · |
you
are present in the United States for 183 days or more in the taxable
year
of that disposition, and certain other conditions are
met.
|
Information
Reporting and Backup Withholding
Generally,
we must report annually to the IRS and to you the amount of interest paid to
you
and the amount of tax, if any, withheld with respect to those payments. These
information reporting requirements apply even if withholding is not required.
Pursuant to tax treaties or other agreements, the IRS may make such information
available to tax authorities in your country of residence. The payment of
proceeds from the sale or other disposition of the exchange notes by a broker
is
generally not subject to information reporting if:
| · |
the
beneficial owner of the notes certifies the owner’s non-U.S. status under
penalties of perjury by providing a properly executed IRS Form W-8BEN
or
otherwise establishes an exemption;
or
|
| · |
the
sale or other disposition of the notes is effected outside the United
States by a foreign office, unless the broker
is:
|
| · |
a
U.S. person;
|
| · |
a
foreign person that derives 50% or more of its gross income for certain
periods from activities that are effectively connected with the conduct
of
a trade or business in the United
States;
|
| · |
a
controlled foreign corporation for U.S. federal income tax purposes;
or
|
| · |
a
foreign partnership more than 50% of the capital or profits of which
is
owned by one or more U.S. persons or which engages in a U.S. trade
or
business.
|
Backup
withholding (currently at a rate of 28%) is required only on payments that
are
subject to the information reporting requirements, discussed above, and only
if
other requirements are satisfied. Even if the payment of proceeds from the
sale
or other disposition of notes is subject to the information reporting
requirements, the payment of proceeds from a sale or other disposition outside
the United States will not be subject to backup withholding unless the payor
has
actual knowledge that the payee is a U.S. person. Backup withholding does not
apply when any other provision of the Code requires withholding. For example,
if
interest is subject to the withholding tax described above under “Payments of
Interest,” backup withholding will not also be imposed. Thus, backup withholding
may be required on payments subject to information reporting, but not otherwise
subject to withholding.
Backup
withholding is not an additional tax. Any amount withheld from a payment under
these rules will be allowed as a credit against your U.S. federal income tax
liability and may entitle you to a refund, provided that the required
information is furnished timely to the IRS.
U.S.
Estate Tax
Exchange
notes held, or treated as held, by an individual who is not a citizen or
resident of the United States, as specifically defined for U.S. federal estate
tax purposes, at the time of death will not be included in the decedent’s gross
estate for U.S. federal estate tax purposes, provided that, at the time of
death, (1) the non-U.S. holder does not own, actually or by attribution, 10%
or
more of the total combined voting power of all classes of our stock entitled
to
vote, and (2) payments with respect to such notes would not have been
effectively connected with the conduct of a trade or business within the United
States by such holder. In addition, the U.S. estate tax may not apply with
respect to such note under the terms of an applicable estate tax
treaty.
THE
U.S.
FEDERAL INCOME AND ESTATE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON YOUR PARTICULAR
SITUATION. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO YOU OF YOUR OWNERSHIP AND DISPOSITION OF THE EXCHANGE NOTES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
The
distribution of this prospectus and the offer and sale of the exchange notes
may
be restricted by law in certain jurisdictions. Persons who come into possession
of this prospectus or any of the exchange notes must inform themselves about
and
observe any such restrictions. You must comply with all applicable laws and
regulations in force in any jurisdiction in which you purchase, offer or sell
the exchange notes or possess or distribute this prospectus and, in connection
with any purchase, offer or sale by you of the exchange notes, must obtain
any
consent, approval or permission required under the laws and regulations in
force
in any jurisdiction to which you are subject or in which you make such purchase,
offer or sale.
In
reliance on interpretations of the staff of the SEC set forth in no-action
letters issued to third parties in similar transactions, we believe that the
exchange notes issued in the exchange offer in exchange for the outstanding
notes may be offered for resale, resold and otherwise transferred by holders
without compliance with the registration and prospectus delivery provisions
of
the Securities Act, provided that the exchange notes are acquired in the
ordinary course of such holders’ business and the holders are not engaged in and
do not intend to engage in and have no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of exchange notes. This position does not apply to any holder that
is:
| · |
an
“affiliate” of Centene within the meaning of Rule 405 under the Securities
Act; or
|
| · |
a
broker-dealer.
|
All
broker-dealers receiving exchange notes in the exchange offer are subject to
a
prospectus delivery requirement with respect to resales of the exchange notes.
Each broker-dealer receiving exchange notes for its own account in the exchange
offer must represent that the outstanding notes to be exchanged for the exchange
notes were acquired by it as a result of market-making activities or other
trading activities and acknowledge that it will deliver a prospectus meeting
the
requirements of the Securities Act in connection with any offer to resell,
resale or other retransfer of the exchange notes pursuant to the exchange offer.
However, by so acknowledging and by delivering a prospectus, the participating
broker-dealer will not be deemed to admit that it is an “underwriter” within the
meaning of the Securities Act. We have agreed that, for a period ending upon
the
earlier of (i) 180 days after the date of this prospectus or (ii) the date
broker-dealers are no longer required to deliver a prospectus in connection
with
resales, subject to extension under limited circumstances, we will use all
commercially reasonable efforts to keep the exchange offer registration
statement effective and make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with such resales. To
date,
the SEC has taken the position that broker-dealers may use a prospectus such
as
this one to fulfill their prospectus delivery requirements with respect to
resales of exchange notes received in an exchange such as the exchange pursuant
to the exchange offer, if the outstanding notes for which the exchange notes
were received in the exchange were acquired for their own accounts as a result
of market-making or other trading activities.
We
will
not receive any proceeds from any sale of the exchange notes by broker-dealers.
Broker-dealers acquiring exchange notes for their own accounts may sell the
notes in one or more transactions in the over-the-counter market, in negotiated
transactions, through writing options on the exchange notes or a combination
of
such methods of resale, at market prices prevailing at the time of resale,
at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of such exchange
notes.
Any
broker-dealer that held outstanding notes acquired for its own account as a
result of market-making activities or other trading activities, that received
exchange notes in the exchange offer, and that participates in a distribution
of
exchange notes may be deemed to be an “underwriter” within the meaning of the
Securities Act and must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of the exchange notes. Any profit
on these resales of exchange notes and any commissions or concessions received
by a broker-dealer in connection with these resales may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not admit that it is an “underwriter” within
the meaning of the Securities Act.
We
have
agreed to pay all expenses incidental to our participation in the exchange
offer, including the reasonable fees and expenses of one counsel for the holders
of outstanding notes and the initial purchasers, other than commissions or
concessions of any broker-dealers and will indemnify holders of the outstanding
notes, including any broker-dealers, against specified types of liabilities,
including liabilities under the Securities Act. We note, however, that in the
opinion of the SEC, indemnification against liabilities under federal securities
laws is against public policy and may be unenforceable.
Bryan
Cave LLP will pass upon the validity of the exchange notes offered
hereby.
The
consolidated financial statements of Centene Corporation and subsidiaries as
of
December 31, 2006 and 2005, and for the years then ended and management’s
assessment of the effectiveness of internal control over financial reporting
as
of December 31, 2006 incorporated by reference herein, have been audited by
KPMG
LLP, independent registered public accounting firm, as stated in their reports
incorporated by reference herein. The audit report on the December 31, 2006,
consolidated financial statements refers to the adoption by the Company of
Statement of Financial Accounting Standards No. 123(revised 2004), “Share-Based
Payments.”
The
consolidated financial statements of Centene Corporation and subsidiaries for
year ended December 31, 2004 incorporated by reference herein, have been audited
by PricewaterhouseCoopers LLP, independent registered public accounting firm,
as
stated in their report incorporated by reference herein.
We
file
annual, quarterly and current reports, proxy statements and other information
with the Securities and Exchange Commission. Our Commission filings are also
available over the Internet at the Commission’s web site at http://www.sec.gov.
You may also read and copy any document we file at the Commission’s public
reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please
call the Commission at 1-800-SEC-0330 to obtain information on the operation
of
the public reference room. Our common stock is listed and traded on the New
York
Stock Exchange, or the NYSE. You may also inspect the information we file with
the Commission at the NYSE’s offices at 20 Broad Street, New York, New York
10005. Our internet address is http://www.centene.com.
However, unless otherwise specifically set forth herein, the information on
our
internet site is not a part of this prospectus.
The
Commission allows us to “incorporate by reference” the information that we file
with the Commission. This means that we can disclose important business and
financial information to you by referring you to information and documents
that
we have filed with the Commission. Any information that we refer to in this
manner is considered part of this prospectus supplement and the accompanying
prospectus.
The
following documents which we have filed with the SEC under the Exchange Act
are
incorporated by reference in this prospectus to the extent they have been filed
with the SEC:
| · |
our
Annual Report on Form 10-K for the fiscal year ended December 31,
2006;
|
| · |
our
Quarterly Report on Form 10-Q for the quarterly period ended March
31,
2007;
|
| · |
our
Definitive Proxy Statement on Schedule 14A filed with the SEC on
March 12,
2007; and
|
| · |
our
Current Reports on Form 8-K filed with the SEC on January 8, 2007,
March
8, 2007 (other than the information disclosed under Item 7.01), March
16,
2007, March 23, 2007, April 12, 2007, and April 26,
2007.
|
Any
information that we file with the Commission after the date of this prospectus
will automatically update and supersede the corresponding information contained
in this prospectus or in documents filed earlier with the
Commission.
We
are
also incorporating by reference any future filings that we make with the
Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934 after the date of this prospectus and prior to the termination
of
the offering. In no event, however, will any of the information that we disclose
under Items 2.02 and 7.01 of any Current Report on Form 8-K or otherwise that
we
may from time to time furnish with the Commission be incorporated by reference
into, or otherwise included in, this prospectus. Each document referred to
above
is available over the Internet on the Commission’s website at http://www.sec.gov
and on our website at http://www.centene.com. You may also request a free copy
of any documents referred to above, including exhibits specifically incorporated
by reference in those documents, by contacting us at the following address
and
telephone number:
Centene
Corporation
7711
Carondelet Avenue
St.
Louis, Missouri 63105
(314)
725-4477
Attention:
J. Per Brodin
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
20. Indemnification of Directors and Officers.
Indemnification
of Directors and Officers of the Issuer
Section
102 of the Delaware General Corporation Law, as amended, or the DGCL, allows
a
corporation to eliminate or limit the personal liability of a director of a
corporation to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except where the director breached
his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved
a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section
145 of the DGCL provides, among other things, that we may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (other than an action by us
or
in our right) by reason of the fact that the person is or was one of our
directors, officers, agents or employees or is or was serving at our request
as
a director, officer, agent, or employee of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys’
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding.
The
power to indemnify applies (a) if such person is successful on the merits or
otherwise in defense of any action, suit or proceeding, or (b) if such person
acted in good faith and in a manner which the person reasonably believed to
be
in our best interest, or not opposed to our best interest, and with respect
to
any criminal action or proceeding, had no reasonable cause to believe such
conduct was unlawful. The power to indemnify applies to actions brought by
us or
in our right as well but only to the extent of defense expenses (including
attorneys’ fees but excluding amounts paid in settlement) actually and
reasonably incurred and not to any satisfaction of judgment or settlement of
the
claim itself, and with the further limitation that in such actions no
indemnification shall be made in the event of any adjudication of negligence
or
misconduct in the performance of his duties to us, unless the court believes
that in light of all the circumstances indemnification should apply.
Section
174 of the DGCL provides, among other things, that a director, who willfully
or
negligently approves of an unlawful payment of dividends or an unlawful stock
purchase or redemption, may be held liable for such actions. A director who
was
either absent when the unlawful actions were approved or dissented at the time,
may avoid liability by causing his or her dissent to such actions to be entered
in the books containing the minutes of the meetings of the board of directors
at
the time such action occurred or immediately after such absent director receives
notice of the unlawful acts.
As
permitted under Delaware law, our certificate of incorporation includes a
provision that eliminates the personal liability of our directors for monetary
damages for breach of fiduciary duty as a director, except for liability for:
| · |
any
breach of the director’s duty of loyalty to us or our
stockholders;
|
| · |
acts
or omissions not in good faith or that involve intentional misconduct
or a
knowing violation of law;
|
| · |
unlawful
payments of dividends or unlawful stock re-purchases or redemptions;
or
|
| · |
any
transaction from which the director derived an improper personal
benefit.
|
Our
by-laws further provide that:
| · |
we
must indemnify our directors and officers to the fullest extent permitted
by Delaware law;
|
| · |
we
may indemnify our other employees and agents to the same extent that
we
indemnified our officers and directors, unless otherwise determined
by our
board of directors; and
|
| · |
we
must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law.
|
The
indemnification provisions contained in our certificate of incorporation and
by-laws are not exclusive of any other rights to which a person may be entitled
by law, agreement, vote of stockholders or disinterested directors or otherwise.
In addition, we maintain general liability insurance on behalf of our directors
and executive officers insuring them against any liability asserted against
them
based on acts or omissions in their capacities as directors or officers or
arising out of such status.
Item 21. Exhibits.
|
|
|
|
|
|
INCORPORATED
BY REFERENCE
|
|||||
|
EXHIBIT
NUMBER
|
|
DESCRIPTION
|
|
FILED
WITH THIS FORM S-4
|
|
FORM
|
|
FILING
DATE WITH SEC
|
|
EXHIBIT
NUMBER
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Certificate
of Incorporation of Centene Corporation
|
|
|
|
S-1
|
|
October
9, 2001
|
|
3.2
|
|
3.1a
|
|
Certificate
of Amendment to Certificate of Incorporation of Centene Corporation,
dated
November 8, 2001
|
|
|
|
S-1/A
|
|
November 13, 2001
|
|
3.2a
|
|
3.1b
|
|
Certificate
of Amendment to Certificate of Incorporation of Centene Corporation
as
filed with the Secretary of State of the State of Delaware
|
|
|
|
10-Q
|
|
July
26, 2004
|
|
3.1b
|
|
3.2
|
|
By-laws
of Centene Corporation
|
|
|
|
S-1
|
|
October
9, 2001
|
|
3.4
|
|
4.1
|
|
Amended
and Restated Shareholders' Agreement, dated September 23,
1998
|
|
|
|
S-1
|
|
October
9, 2001
|
|
4.2
|
|
4.2
|
|
Rights
Agreement between Centene Corporation and Mellon Investor Services
LLC, as
Rights Agent, dated August 30, 2002
|
|
|
|
8-K
|
|
August
30, 2002
|
|
4.1
|
|
4.2a
|
|
Amendment
#1 to Rights Agreement between Centene Corporation and Mellon Investor
Services LLC, as Rights Agent, dated August 30, 2002
|
|
|
|
8-K
|
|
April
26, 2007
|
|
4.1
|
|
4.3
|
|
Indenture
for the 7 ¼% Senior Notes due 2014 dated March 22, 2007 among Centene
Corporation and The Bank of New York Trust Company, N.A., as
trustee.
|
|
X
|
|
|
|
|
|
|
|
5.1
|
|
Opinion
of Bryan Cave LLP
|
|
X
|
|
|
|
|
|
|
|
10.1
|
|
Contract
for Medicaid/ Badger Care HMO Services between Managed Health Services
Insurance Corp. and Wisconsin Department of Health and Family
Services.
|
|
|
|
10-K
|
|
February
24, 2006
|
|
10.1
|
|
10.1a
|
|
First
Amendment to the contract for Medicaid/ Badger Care HMO Services
between
Managed Health Services Insurance Corp. and Wisconsin Department
of Health
and Family Services.
|
|
|
|
10-Q
|
|
October
24, 2006
|
|
10.2
|
|
10.1b
|
|
Second
Amendment to the contract for Medicaid/ Badger Care HMO Services
between
Managed Health Services Insurance Corp. and Wisconsin Department
of Health
and Family Services.
|
|
|
|
10-K
|
|
February
23, 2007
|
|
10.1b
|
|
10.2
|
|
Contract
between the Office of the Medicaid Policy and Planning, the Office
of the
Children's Health Insurance Program and Coordinated Care Corporation
Indiana, Inc.
|
|
|
|
10-K
|
|
February
23, 2007
|
|
10.2
|
|
10.3
|
|
Contract
Between the Georgia Department of Community Health and Peach State
Contract for provision of Services to Georgia Health
Families
|
|
|
|
8-K
|
|
July
22, 2005
|
|
10.1
|
|
10.3a
|
|
Amendment
#1 to the Contract No. 0653 Between Georgia Department of Community
Health
and Peach State
|
|
|
|
10-Q
|
|
October
25, 2005
|
|
10.9
|
|
10.3b
|
|
Notice
of Renewal for fiscal year 2007 between Peach State Health Plan,
Inc. and
Georgia Department of Community Health.
|
|
|
|
10-Q
|
|
October
24, 2006
|
|
10.3
|
|
10.4
|
|
Contract
between the Texas Health and Human Services Commission and Superior
HealthPlan, Inc.
|
|
|
|
10-K
|
|
February
24, 2006
|
|
10.5
|
|
10.4a
|
|
Amendment
to Contract between the Texas Health and Human Services Commission
and
Superior HealthPlan, Inc.
|
|
|
|
10-K
|
|
February
23, 2007
|
|
10.4a
|
|
10.5
|
|
1996
Stock Plan of Centene Corporation, shares which are registered
on Form S-8
- File Number 333-83190
|
|
|
|
S-1
|
|
October
9, 2001
|
|
10.9
|
|
10.6
|
|
1998
Stock Plan of Centene Corporation, shares which are registered
on Form S-8
- File number 333-83190
|
|
|
|
S-1
|
|
October
9, 2001
|
|
10.1
|
|
10.7
|
|
1999
Stock Plan of Centene Corporation, shares which are registered
on Form S-8
- File Number 333-83190
|
|
|
|
S-1
|
|
October
9, 2001
|
|
10.11
|
|
10.8
|
|
2000
Stock Plan of Centene Corporation, shares which are registered
on Form S-8
- File Number 333-83190
|
|
|
|
S-1
|
|
October
9, 2001
|
|
10.12
|
|
10.9
|
|
2002
Employee Stock Purchase Plan of Centene Corporation, shares which
are
registered on Form S-8 - File Number 333-90976
|
|
|
|
10-Q
|
|
April
29, 2002
|
|
10.5
|
|
10.9a
|
|
First
Amendment to the 2002 Employee Stock Purchase Plan
|
|
|
|
10-K
|
|
February
24, 2005
|
|
10.9a
|
|
10.9b
|
|
Second
Amendment to the 2002 Employee Stock Purchase Plan
|
|
|
|
10-K
|
|
February
24, 2006
|
|
10.10b
|
|
10.1
|
|
2003
Stock Incentive Plan, as amended
|
|
|
|
8-K
|
|
April
26, 2007
|
|
10.1
|
|
10.11
|
|
Centene
Corporation Non-Employee Directors Deferred Stock Compensation
Plan
|
|
|
|
10-Q
|
|
October
25, 2004
|
|
10.1
|
|
10.11a
|
|
First
Amendment to the Non-Employee Directors Deferred Stock Compensation
Plan
|
|
|
|
10-K
|
|
February
24, 2006
|
|
10.12a
|
|
10.12
|
|
Executive
Employment Agreement between Centene Corporation and Michael F.
Neidorff,
dated November 8, 2004
|
|
|
|
8-K
|
|
November
9, 2004
|
|
10.1
|
|
10.13
|
|
Form
of Executive Severance and Change in Control Agreement
|
|
|
|
8-K
|
|
May
23, 2005
|
|
10.1
|
|
10.14
|
|
Form
of Restricted Stock Unit Agreement
|
|
|
|
8-K
|
|
April
28, 2006
|
|
10.1
|
|
10.15
|
|
Form
of Non-statutory Stock Option Agreement (Non-Employees)
|
|
|
|
8-K
|
|
July
28, 2005
|
|
10.3
|
|
10.16
|
|
Form
of Non-statutory Stock Option Agreement (Employees)
|
|
|
|
8-K
|
|
July
28, 2005
|
|
10.4
|
|
10.17
|
|
Form
of Incentive Stock Option Agreement
|
|
|
|
8-K
|
|
July
28, 2005
|
|
10.5
|
|
10.18
|
|
Form
of Stock Appreciation Right Agreement
|
|
|
|
8-K
|
|
July
28, 2005
|
|
10.6
|
|
10.19
|
|
Form
of Restricted Stock Agreement
|
|
|
|
10-Q
|
|
October
25, 2005
|
|
10.8
|
|
10.2
|
|
Credit
Agreement dated as of September 14, 2004 among Centene Corporation,
the
various financial institutions party hereto and LaSalle Bank National
Association
|
|
|
|
10-Q
|
|
October
25, 2004
|
|
10.2
|
|
10.20a
|
|
Amendment
No. 2 to Credit Agreement dated as of September 14, 2004 among
Centene
Corporation, the various financial institutions party hereto and
LaSalle
Bank National Association
|
|
|
|
10-Q
|
|
October
25, 2005
|
|
10.11
|
|
10.20b
|
|
Amendment
No. 3 to Credit Agreement dated as of September 14, 2004 among
Centene
Corporation, the various financial institutions party hereto and
LaSalle
Bank National Association
|
|
|
|
10-K
|
|
February
24, 2006
|
|
10.22b
|
|
10.20c
|
|
Amendment
No. 4 to Credit Agreement dated as of September 14, 2004 among
Centene
Corporation, the various financial institutions party hereto and
LaSalle
Bank National Association
|
|
|
|
10-Q
|
|
July
25, 2006
|
|
10.2
|
|
10.20d
|
|
Amendment
No. 5 to Credit Agreement dated as of September 14, 2004 among
Centene
Corporation, the various financial institutions party hereto and
LaSalle
Bank National Association
|
|
|
|
10-Q
|
|
October
24, 2006
|
|
10.1
|
|
10.21
|
|
Redevelopment
Agreement for the Forsyth / Hanley Redevelopment Area between the
City of
Clayton, Missouri and Centene Plaza Redevelopment Corporation dated
December 30, 2005
|
|
|
|
8-K
|
|
December
30, 2005
|
|
10.1
|
|
10.22
|
|
Summary
of Board of Director Compensation
|
|
|
|
10-K
|
|
February
24, 2006
|
|
10.24
|
|
10.23
|
|
Summary
of Compensatory Arrangements with Executive Officers
|
|
|
|
10-K
|
|
February
23, 2007
|
|
10.23
|
|
10.24
|
|
Lease
Agreement between MHS Consulting Corporation and AVN Air, LLC,
dated
December 24, 2003
|
|
|
|
10-K
|
|
February
25, 2004
|
|
10.31
|
|
10.25
|
|
Registration
Rights Agreement for the 7 ¼% Senior Notes due 2014 dated as of March 22,
2007, among the Company and Banc of America Securities LLC, Wachovia
Capital Markets, LLC, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, ABN AMRO Incorporated, Allen & Company LLC and Goldman,
Sachs & Co., as initial purchasers
|
|
|
|
8-K
|
|
March
23, 2007
|
|
10.1
|
|
10.26
|
|
Centene
Corporation Employee Deferred Compensation Plan
|
|
|
|
10-Q
|
|
April
24, 2007
|
|
10.4
|
|
10.27
|
|
Centene
Corporation 2007 Long-Term Incentive Plan
|
|
|
|
8-K
|
|
April
26, 2007
|
|
10.2
|
|
12.1
|
|
Computation
of ratio of earnings to fixed charges
|
|
|
|
10-Q
|
|
April
24, 2007
|
|
12.1
|
|
21
|
|
List
of subsidiaries
|
|
X
|
|
|
|
|
|
|
|
23
|
|
Consent
of Independent Registered Public Accounting Firm - KPMG LLP
|
|
X
|
|
|
|
|
|
|
|
23a
|
|
Consent
of Independent Registered Public Accounting Firm - PricewaterhouseCoopers
LLP
|
|
X
|
|
|
|
|
|
|
|
23b
|
|
Consent
of Bryan Cave LLP (included in Exhibit 5.1)
|
|
X
|
|
|
|
|
|
|
|
25.1
|
|
Form
T-1, Statement of Eligibility under the Trust Indenture Act of
1939, as
amended, of Bank of New York Trust Company, N.A., as Trustee under
the
Senior Notes Indenture
|
|
X
|
|
|
|
|
|
|
|
99.1
|
|
Form
of Letter of Transmittal
|
|
X
|
|
|
|
|
|
|
|
99.2
|
|
Form
of Notice of Guaranteed Delivery
|
|
X
|
|
|
|
|
|
|
|
99.3
|
|
Form
of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other
Nominees
|
|
X
|
|
|
|
|
|
|
|
99.4
|
|
Form
of Letter to Clients
|
|
X
|
|
|
|
|
|
|
Item
22. Undertakings.
The
following undertakings are made by each of the undersigned
registrants:
| (a) |
The
undersigned registrant hereby
undertakes:
|
| (1) |
To
file, during any period in which offers or sales are being made,
a
post-effective amendment to this registration
statement:
|
| (i) |
To
include any prospectus required by Section 10(a)(3) of the Securities
Act
of 1933;
|
| (ii) |
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent
a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease
in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering
price set forth in the “Calculation of Registration Fee” table in the
effective registration statement;
|
| (iii) |
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement.
|
| (2) |
That,
for the purpose of determining any liability under the Securities
Act of
1933, each such post-effective amendment shall be deemed to be a
new
registration statement relating to the securities offered therein,
and the
offering of such securities at that time shall be deemed to be the
initial
bona fide offering thereof.
|
| (3) |
To
remove from registration by means of a post-effective amendment any
of the
securities being registered which remain unsold at the termination
of the
offering.
|
| (4) |
If
the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial
statements required by Item 8.A. of Form 20-F at the start of any
delayed
offering or throughout a continuous offering. Financial statements
and
information otherwise required by Section 10(a)(3) of the Act need
not be
furnished, provided, that the registrant includes in the prospectus,
by
means of a post-effective amendment, financial statements required
pursuant to this paragraph (a)(4) and other information necessary
to
ensure that all other information in the prospectus is at least as
current
as the date of those financial
statements.
|
| (5) |
That,
for the purpose of determining liability under the Securities Act
of 1933
to any purchaser:
|
| (i) |
Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall
be
deemed to be part of the registration statement as of the date the
filed
prospectus was deemed part of and included in the registration statement;
and
|
| (ii) |
Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or
(b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii),
or (x)
for the purpose of providing the information required by section
10(a) of
the Securities Act of 1933 shall be deemed to be part of and included
in
the registration statement as of the earlier of the date such form
of
prospectus is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of the
issuer
and any person that is at that date an underwriter, such date shall
be
deemed to be a new effective date of the registration statement relating
to the securities in the registration statement to which that prospectus
relates, and the offering of such securities at that time shall be
deemed
to be the initial bona fide offering thereof. Provided, however,
that no
statement made in a registration statement or prospectus that is
part of
the registration statement or made in a document incorporated or
deemed
incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser
with a
time of contract of sale prior to such effective date, supersede
or modify
any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such effective
date.
|
| (6) |
The
undersigned registrant undertakes that in a primary offering of securities
of the undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities
to the
purchaser, if the securities are offered or sold to such purchaser
by
means of any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer
or sell
such securities to such purchaser:
|
| (i) |
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
|
| (ii) |
Any
free writing prospectus relating to the offering prepared by or on
behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
| (iii) |
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant
or its
securities provided by or on behalf of the undersigned registrant;
and
|
| (iv) |
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
| (b) |
The
undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the
registrant’s annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each
filing of
an employee benefit plan’s annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference
in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
|
| (c) |
Insofar
as indemnification for liabilities arising under the Securities
Act of
1933 may be permitted to directors, officers and controlling
persons of
the registrants pursuant to the foregoing provisions, or otherwise,
the
registrants have been advised that in the opinion of the Securities
and
Exchange Commission such indemnification is against public policy
as
expressed in the Act and is, therefore, unenforceable. In the
event that a
claim for indemnification against such liabilities (other than
the payment
by the registrants of expenses incurred or paid by a director,
officer or
controlling person of the registrants in the successful defense
of any
action, suit or proceeding) is asserted by such director, officer
or
controlling person in connection with the securities being registered,
the
registrants will, unless in the opinion of its counsel the matter
has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against
public policy as expressed in the Act and will be governed by
the final
adjudication of such issue.
|
| (d) |
The
undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant
to Item 4, 10(b), 11, or 13 of this Form, within one business day
of
receipt of such request, and to send the incorporated documents by
first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of
the
registration statement through the date of responding to the
request.
|
| (e) |
The
undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction,
and the
company being acquired involved therein, that was not the subject
of and
included in the registration statement when it became
effective.
|
SIGNATURES
Pursuant
to the requirements of the Securities Act, the undersigned registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of St. Louis, State of
Missouri, on May 11, 2007.
| CENTENE CORPORATION | ||
| |
|
|
| By: | /s/ MICHAEL F. NEIDORFF | |
|
Name: Michael F. Neidorff
|
||
| Title: Chairman, President and Chief Executive Officer | ||
POWER
OF ATTORNEY
Each
person whose signature appears below hereby constitutes and appoints Michael
F.
Neidorff and J. Per Brodin and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution, to sign any
amendments (including post-effective amendments) and supplements to this
registration statement (and any additional registration statement related
thereto permitted by Rule 462(b) promulgated under the Securities Act of 1933),
and to file such amendments and any related documents with the Securities and
Exchange Commission, and ratifies and confirms the actions that any such
attorney-in-fact and agents, or their substitutes, may lawfully do or cause
to
be done under this power of attorney.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed below by the following persons in the capacities and on the
dates indicated:
|
Signatures
|
Title
|
Date
|
||
|
|
|
|
||
|
|
|
|
||
|
/s/
MICHAEL
F. NEIDORFF
|
Chairman,
President and Chief Executive Officer (Principal Executive
Officer)
|
May
11, 2007
|
||
|
Michael
F. Neidorff
|
||||
|
/s/
J. PER
BRODIN
|
Senior
Vice President, Chief Financial Officer and Treasurer (Principal
Financial
Officer)
|
May
11, 2007
|
||
|
J.
Per Brodin
|
||||
|
/s/
STEVE
BARTLETT
|
Director
|
May
11, 2007
|
||
|
Steve
Bartlett
|
||||
|
/s/
ROBERT
K. DITMORE
|
Director
|
May
11, 2007
|
||
|
Robert
K. Ditmore
|
||||
|
/s/
FRED
H. EPPINGER
|
Director
|
May
11, 2007
|
||
|
Fred
H. Eppinger
|
||||
|
/s/
RICHARD
A. GEPHARDT
|
Director
|
May
11, 2007
|
||
|
Richard
A. Gephardt
|
||||
|
/s/
JOHN
R. ROBERTS
|
Director
|
May
11, 2007
|
||
|
John
R. Roberts
|
||||
|
/s/
DAVID
L. STEWARD
|
Director
|
May
11, 2007
|
||
|
David
L. Steward
|
||||
|
/s/
TOMMY
G. THOMPSON
|
Director
|
May
11, 2007
|
||
|
Tommy
G. Thompson
|
INDEX
TO EXHIBITS
|
|
|
|
|
|
INCORPORATED
BY REFERENCE
|
|||||
|
EXHIBIT
NUMBER
|
|
DESCRIPTION
|
|
FILED
WITH THIS FORM S-4
|
|
FORM
|
|
FILING
DATE WITH SEC
|
|
EXHIBIT
NUMBER
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Certificate
of Incorporation of Centene Corporation
|
|
|
|
S-1
|
|
October
9, 2001
|
|
3.2
|
|
3.1a
|
|
Certificate
of Amendment to Certificate of Incorporation of Centene Corporation,
dated
November 8, 2001
|
|
|
|
S-1/A
|
|
November 13, 2001
|
|
3.2a
|
|
3.1b
|
|
Certificate
of Amendment to Certificate of Incorporation of Centene Corporation
as
filed with the Secretary of State of the State of Delaware
|
|
|
|
10-Q
|
|
July
26, 2004
|
|
3.1b
|
|
3.2
|
|
By-laws
of Centene Corporation
|
|
|
|
S-1
|
|
October
9, 2001
|
|
3.4
|
|
4.1
|
|
Amended
and Restated Shareholders' Agreement, dated September 23,
1998
|
|
|
|
S-1
|
|
October
9, 2001
|
|
4.2
|
|
4.2
|
|
Rights
Agreement between Centene Corporation and Mellon Investor Services
LLC, as
Rights Agent, dated August 30, 2002
|
|
|
|
8-K
|
|
August
30, 2002
|
|
4.1
|
|
4.2a
|
|
Amendment
#1 to Rights Agreement between Centene Corporation and Mellon
Investor
Services LLC, as Rights Agent, dated August 30, 2002
|
|
|
|
8-K
|
|
April
26, 2007
|
|
4.1
|
|
4.3
|
|
Indenture
for the 7 ¼% Senior Notes due 2014 dated March 22, 2007 among Centene
Corporation and The Bank of New York Trust Company, N.A., as
trustee.
|
|
X
|
|
|
|
|
|
|
|
5.1
|
|
Opinion
of Bryan Cave LLP
|
|
X
|
|
|
|
|
|
|
|
10.1
|
|
Contract
for Medicaid/ Badger Care HMO Services between Managed Health
Services
Insurance Corp. and Wisconsin Department of Health and Family
Services.
|
|
|
|
10-K
|
|
February
24, 2006
|
|
10.1
|
|
10.1a
|
|
First
Amendment to the contract for Medicaid/ Badger Care HMO
Services between
Managed Health Services Insurance Corp. and Wisconsin Department
of Health
and Family Services.
|
|
|
|
10-Q
|
|
October
24, 2006
|
|
10.2
|
|
10.1b
|
|
Second
Amendment to the contract for Medicaid/ Badger Care HMO Services
between
Managed Health Services Insurance Corp. and Wisconsin Department
of Health
and Family Services.
|
|
|
|
10-K
|
|
February
23, 2007
|
|
10.1b
|
|
10.2
|
|
Contract
between the Office of the Medicaid Policy and Planning, the
Office of the
Children's Health Insurance Program and Coordinated Care Corporation
Indiana, Inc.
|
|
|
|
10-K
|
|
February
23, 2007
|
|
10.2
|
|
10.3
|
|
Contract
Between the Georgia Department of Community Health and Peach
State
Contract for provision of Services to Georgia Health Families
|
|
|
|
8-K
|
|
July
22, 2005
|
|
10.1
|
|
10.3a
|
|
Amendment
#1 to the Contract No. 0653 Between Georgia Department of Community
Health
and Peach State
|
|
|
|
10-Q
|
|
October
25, 2005
|
|
10.9
|
|
10.3b
|
|
Notice
of Renewal for fiscal year 2007 between Peach State Health
Plan, Inc. and
Georgia Department of Community Health.
|
|
|
|
10-Q
|
|
October
24, 2006
|
|
10.3
|
|
10.4
|
|
Contract
between the Texas Health and Human Services Commission and
Superior
HealthPlan, Inc.
|
|
|
|
10-K
|
|
February
24, 2006
|
|
10.5
|
|
10.4a
|
|
Amendment
to Contract between the Texas Health and Human Services Commission
and
Superior HealthPlan, Inc.
|
|
|
|
10-K
|
|
February
23, 2007
|
|
10.4a
|
|
10.5
|
|
1996
Stock Plan of Centene Corporation, shares which are registered
on Form S-8
- File Number 333-83190
|
|
|
|
S-1
|
|
October
9, 2001
|
|
10.9
|
|
10.6
|
|
1998
Stock Plan of Centene Corporation, shares which are registered
on Form S-8
- File number 333-83190
|
|
|
|
S-1
|
|
October
9, 2001
|
|
10.1
|
|
10.7
|
|
1999
Stock Plan of Centene Corporation, shares which are registered
on Form S-8
- File Number 333-83190
|
|
|
|
S-1
|
|
October
9, 2001
|
|
10.11
|
|
10.8
|
|
2000
Stock Plan of Centene Corporation, shares which are registered
on Form S-8
- File Number 333-83190
|
|
|
|
S-1
|
|
October
9, 2001
|
|
10.12
|
|
10.9
|
|
2002
Employee Stock Purchase Plan of Centene Corporation, shares
which are
registered on Form S-8 - File Number 333-90976
|
|
|
|
10-Q
|
|
April
29, 2002
|
|
10.5
|
|
10.9a
|
|
First
Amendment to the 2002 Employee Stock Purchase Plan
|
|
|
|
10-K
|
|
February
24, 2005
|
|
10.9a
|
|
10.9b
|
|
Second
Amendment to the 2002 Employee Stock Purchase Plan
|
|
|
|
10-K
|
|
February
24, 2006
|
|
10.10b
|
|
10.1
|
|
2003
Stock Incentive Plan, as amended
|
|
|
|
8-K
|
|
April
26, 2007
|
|
10.1
|
|
10.11
|
|
Centene
Corporation Non-Employee Directors Deferred Stock Compensation
Plan
|
|
|
|
10-Q
|
|
October
25, 2004
|
|
10.1
|
|
10.11a
|
|
First
Amendment to the Non-Employee Directors Deferred Stock Compensation
Plan
|
|
|
|
10-K
|
|
February
24, 2006
|
|
10.12a
|
|
10.12
|
|
Executive
Employment Agreement between Centene Corporation and Michael
F. Neidorff,
dated November 8, 2004
|
|
|
|
8-K
|
|
November
9, 2004
|
|
10.1
|
|
10.13
|
|
Form
of Executive Severance and Change in Control Agreement
|
|
|
|
8-K
|
|
May
23, 2005
|
|
10.1
|
|
10.14
|
|
Form
of Restricted Stock Unit Agreement
|
|
|
|
8-K
|
|
April
28, 2006
|
|
10.1
|
|
10.15
|
|
Form
of Non-statutory Stock Option Agreement (Non-Employees)
|
|
|
|
8-K
|
|
July
28, 2005
|
|
10.3
|
|
10.16
|
|
Form
of Non-statutory Stock Option Agreement (Employees)
|
|
|
|
8-K
|
|
July
28, 2005
|
|
10.4
|
|
10.17
|
|
Form
of Incentive Stock Option Agreement
|
|
|
|
8-K
|
|
July
28, 2005
|
|
10.5
|
|
10.18
|
|
Form
of Stock Appreciation Right Agreement
|
|
|
|
8-K
|
|
July
28, 2005
|
|
10.6
|
|
10.19
|
|
Form
of Restricted Stock Agreement
|
|
|
|
10-Q
|
|
October
25, 2005
|
|
10.8
|
|
10.2
|
|
Credit
Agreement dated as of September 14, 2004 among Centene Corporation,
the
various financial institutions party hereto and LaSalle Bank
National
Association
|
|
|
|
10-Q
|
|
October
25, 2004
|
|
10.2
|
|
10.20a
|
|
Amendment
No. 2 to Credit Agreement dated as of September 14, 2004 among
Centene
Corporation, the various financial institutions party hereto
and LaSalle
Bank National Association
|
|
|
|
10-Q
|
|
October
25, 2005
|
|
10.11
|
|
10.20b
|
|
Amendment
No. 3 to Credit Agreement dated as of September 14, 2004 among
Centene
Corporation, the various financial institutions party hereto
and LaSalle
Bank National Association
|
|
|
|
10-K
|
|
February
24, 2006
|
|
10.22b
|
|
10.20c
|
|
Amendment
No. 4 to Credit Agreement dated as of September 14, 2004 among
Centene
Corporation, the various financial institutions party hereto
and LaSalle
Bank National Association
|
|
|
|
10-Q
|
|
July
25, 2006
|
|
10.2
|
|
10.20d
|
|
Amendment
No. 5 to Credit Agreement dated as of September 14, 2004 among
Centene
Corporation, the various financial institutions party hereto
and LaSalle
Bank National Association
|
|
|
|
10-Q
|
|
October
24, 2006
|
|
10.1
|
|
10.21
|
|
Redevelopment
Agreement for the Forsyth / Hanley Redevelopment Area between
the City of
Clayton, Missouri and Centene Plaza Redevelopment Corporation
dated
December 30, 2005
|
|
|
|
8-K
|
|
December
30, 2005
|
|
10.1
|
|
10.22
|
|
Summary
of Board of Director Compensation
|
|
|
|
10-K
|
|
February
24, 2006
|
|
10.24
|
|
10.23
|
|
Summary
of Compensatory Arrangements with Executive Officers
|
|
|
|
10-K
|
|
February
23, 2007
|
|
10.23
|
|
10.24
|
|
Lease
Agreement between MHS Consulting Corporation and AVN Air, LLC,
dated
December 24, 2003
|
|
|
|
10-K
|
|
February
25, 2004
|
|
10.31
|
|
10.25
|
|
Registration
Rights Agreement for the 7 ¼% Senior Notes due 2014 dated as of March 22,
2007, among the Company and Banc of America Securities LLC,
Wachovia
Capital Markets, LLC, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, ABN AMRO Incorporated, Allen & Company LLC and Goldman,
Sachs & Co., as initial purchasers
|
|
|
|
8-K
|
|
March
23, 2007
|
|
10.1
|
|
10.26
|
|
Centene
Corporation Employee Deferred Compensation Plan
|
|
|
|
10-Q
|
|
April
24, 2007
|
|
10.4
|
|
10.27
|
|
Centene
Corporation 2007 Long-Term Incentive Plan
|
|
|
|
8-K
|
|
April
26, 2007
|
|
10.2
|
|
12.1
|
|
Computation
of ratio of earnings to fixed charges
|
|
|
|
10-Q
|
|
April
24, 2007
|
|
12.1
|
|
21
|
|
List
of subsidiaries
|
|
X
|
|
|
|
|
|
|
|
23
|
|
Consent
of Independent Registered Public Accounting Firm - KPMG LLP
|
|
X
|
|
|
|
|
|
|
|
23a
|
|
Consent
of Independent Registered Public Accounting Firm - PricewaterhouseCoopers
LLP
|
|
X
|
|
|
|
|
|
|
|
23b
|
|
Consent
of Bryan Cave LLP (included in Exhibit 5.1)
|
|
X
|
|
|
|
|
|
|
|
25.1
|
|
Form
T-1, Statement of Eligibility under the Trust Indenture Act
of 1939, as
amended, of Bank of New York Trust Company, N.A., as Trustee
under the
Senior Notes Indenture
|
|
X
|
|
|
|
|
|
|
|
99.1
|
|
Form
of Letter of Transmittal
|
|
X
|
|
|
|
|
|
|
|
99.2
|
|
Form
of Notice of Guaranteed Delivery
|
|
X
|
|
|
|
|
|
|
|
99.3
|
|
Form
of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other
Nominees
|
|
X
|
|
|
|
|
|
|
|
99.4
|
|
Form
of Letter to Clients
|
|
X
|
|
|
|
|
|
|