UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
(RULE
14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934 (Amendment No. )
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Filed
by the Registrant x
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Filed
by a Party other than the Registrant ¨
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Check the
appropriate box:
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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x
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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CENTENE
CORPORATION
(Name
of Registrant as Specified In Its Charter)
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Payment
of Filing Fee (Check the appropriate
box):
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x
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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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Fee
paid previously with preliminary
materials.
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Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its
filing.
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(1)
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Amount
previously paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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Centene
Place
7711
Carondelet Avenue
St.
Louis, Missouri 63105
March 10,
2008
Dear
Fellow Stockholders:
Our 2008
Annual Meeting of Stockholders will be held at The Ritz-Carlton, 100 Carondelet
Avenue, St. Louis, Missouri, at 10:00 A.M., central daylight savings time, on
Tuesday, April 22, 2008. Annual meetings play an important role in
maintaining communications and understanding among our management, board of
directors and stockholders, and I hope that you will be able to join
us.
We are
pleased to take advantage of the new Securities and Exchange Commission rule
allowing companies to furnish proxy materials to their stockholders over the
Internet. We believe that this new e-proxy process will expedite stockholders’
receipt of proxy materials, lower the costs and reduce the environmental impact
of our annual meeting. On March 10, 2008, we mailed to our stockholders a Notice
containing instructions on how to access our 2008 Proxy Statement, Summary
Annual Report, and Annual Report on Form10-K and vote
on-line. Information concerning the matters to be considered and
voted upon at the Annual Meeting is set out in the Notice of 2008 Annual Meeting
of Stockholders and Proxy Statement. The Proxy Statement
contains instructions on how you can (i) receive a paper copy of the Proxy
Statement, Summary Annual Report and Annual Report on Form 10-K, if you only
received a Notice by mail, or (ii) elect to receive your Proxy Statement
and Annual Report over the Internet, if you received them by mail this
year.
If you
are a stockholder of record you may vote by internet, telephone, mail or at the
meeting. To vote by internet or telephone, please follow the instructions on
your proxy notice. To vote by mail, request a set of proxy materials as
instructed on the proxy notice received. You may attend the meeting and vote in
person even if you have previously voted.
If your
shares are held in the name of a bank, broker or other holder of record, you
will receive instructions from the holder of record that you must follow in
order for your shares to be voted.
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Sincerely,
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MICHAEL F. NEIDORFF
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Chairman,
President and Chief Executive
Officer
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THE
ABILITY TO HAVE YOUR VOTE COUNTED AT THE MEETING IS AN IMPORTANT
STOCKHOLDER
RIGHT, AND I HOPE YOU WILL CAST YOUR VOTE IN PERSON
OR
BY PROXY REGARDLESS OF THE NUMBER OF SHARES YOU HOLD.
CENTENE
CORPORATION
CENTENE
PLACE
7711
CARONDELET AVENUE
ST.
LOUIS, MISSOURI 63105
NOTICE
OF 2008 ANNUAL MEETING OF STOCKHOLDERS
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Time
and Date
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10:00
A.M., central daylight savings time, on Tuesday, April 22,
2008
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Place
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The
Ritz-Carlton
100
Carondelet Avenue
St.
Louis, Missouri 63105
Amphitheatre
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Items
of Business
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At
the meeting, we will ask you and our other stockholders to consider and
act upon the following matters:
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(1)
to elect three Class I directors to three-year terms;
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(2)
to ratify the appointment of KPMG LLP as our independent registered public
accounting firm for the fiscal year ending December 31,
2008;
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(3)
approve amendments to the 2003 Stock Incentive Plan to increase the number
of shares of common stock reserved for issuance under the plan by
1,000,000, from 5,900,000 to 6,900,000, and to effect certain other
changes;
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(4)
to transact any other business properly presented at the
meeting.
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Record
Date
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You
may vote if you were a stockholder of record at the close of business on
February 22, 2008.
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Proxy
Voting
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It
is important that your shares be represented and voted at the meeting.
Whether or not you plan to attend the meeting, please vote by internet,
telephone or mail. You may revoke your proxy at any time before its
exercise at the meeting. Please reference the proxy notice for additional
information.
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Stockholder
List
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A
list of stockholders entitled to vote will be available at the meeting. In
addition, you may contact our Secretary, Keith H. Williamson, at our
address as set forth in the notice appearing before this proxy statement,
to make arrangements to review a copy of the stockholder list at our
offices located at Centene Place, 7711 Carondelet Avenue, St. Louis,
Missouri, before the meeting, between the hours of 8:00 A.M. and 5:00
P.M., central daylight savings time, on any business day from
April 8, 2008, up to one hour prior to the time of the
meeting.
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Attending
the Annual Meeting
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If
you would like to attend the meeting, please bring evidence to the meeting
that you own common stock, such as a stock certificate, or, if your shares
are held by a broker, bank or other nominee, please bring a recent
brokerage statement or a letter from the nominee confirming your
beneficial ownership of such shares. You must also bring a form of
personal identification.
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By
order of the board of directors,
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Keith
H. Williamson
Secretary
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St.
Louis, Missouri
March 10,
2008
PROXY
STATEMENT
FOR
THE
CENTENE
CORPORATION
2008
ANNUAL MEETING OF STOCKHOLDERS
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INFORMATION
ABOUT THE MEETING
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DISCUSSION
OF PROPOSALS
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INFORMATION
ABOUT CONTINUING DIRECTORS AND EXECUTIVE OFFICERS
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INFORMATION
ABOUT CORPORATE GOVERNANCE
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INFORMATION
ABOUT EXECUTIVE COMPENSATION
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OTHER
MATTERS
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APPENDICES
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A-1
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We have
sent you notice of this proxy statement because our board of directors is
soliciting your proxy to vote at our 2008 Annual Meeting of Stockholders or any
adjournment or postponement of the meeting. The meeting will be held at 10:00
A.M., central daylight savings time, on Tuesday, April 22, 2008, at The
Ritz-Carlton, 100 Carondelet Avenue, St. Louis, Missouri.
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THIS PROXY STATEMENT
summarizes information about the proposals to be considered at the meeting
and other information you may find useful in determining how to
vote.
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THE PROXY CARD is the
means by which you actually authorize another person to vote your shares
in accordance with the
instructions.
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Our
directors, officers and employees may solicit proxies in person or by telephone,
mail, electronic mail or facsimile. We will pay the expenses of soliciting
proxies, although we will not pay additional compensation to these individuals
for soliciting proxies. We will request banks, brokers and other nominees
holding shares for a beneficial owner to forward copies of the proxy materials
to those beneficial owners and to request instructions for voting those shares.
We will reimburse these banks, brokers and other nominees for their related
reasonable expenses. Although no proxy solicitor has been engaged at this
time, we may determine it is necessary to employ an outside firm to assist
in the solicitation process. If so, we will pay the proxy solicitor reasonable
and customary fees.
We are
making this proxy statement, our 2007 Summary Annual Report to Stockholders and
our Annual Report on Form 10-K for the fiscal year ended December 31, 2007
available to stockholders for the first time on or about March 10,
2008.
Holders
of record of our common stock at the close of business on February 22, 2008 are
entitled to one vote per share on each matter properly brought before the
meeting. The proxy
notice states the number of shares you are entitled to vote.
A list of
stockholders entitled to vote will be available at the meeting. In addition, you
may contact our Secretary, Keith H. Williamson, at our address as set forth in
the notice appearing before this proxy statement, to make arrangements to review
a copy of the stockholder list at our offices located at Centene Place, 7711
Carondelet Avenue, St. Louis, Missouri, before the meeting, between the hours of
8:00 A.M. and 5:00 P.M., central daylight savings time, on any business day from
April 8, 2008, up to one hour prior to the time of the
meeting.
You may
vote your shares at the meeting in person or by proxy:
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TO VOTE IN PERSON, you
must attend the meeting, and then complete and submit the ballot provided
at the meeting. If your shares are held in the name of a bank, broker or
other nominee holder, you will receive instructions from the holder of
record explaining how your shares may be voted. Please note that, in such
an event, you must obtain a proxy, executed in your favor, from the holder
of record to be able to vote at the
meeting.
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TO VOTE BY PROXY, you
must follow the instructions on the proxy notice and then vote by means of
the internet, telephone or, if you received your proxy materials by mail,
mailing the proxy card in the enclosed postage-paid envelope. Your proxy
will be valid only if you vote before the meeting. By voting, you will
direct the designated persons to vote your shares at the meeting in the
manner you specify. If, after requesting paper materials, you complete the
proxy card with the exception of the voting instructions, then the
designated persons will vote your shares in accordance with the
instructions contained therein, and if no choice is specified, such
proxies will be voted in favor of the
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matters set forth in the
accompanying Notice of Annual Meeting. If any other business properly
comes before the meeting, the designated persons will have the discretion
to vote your shares as they deem
appropriate.
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Even if
you complete and return a proxy card, you may revoke it at any time before it is
exercised by taking one of the following actions:
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send
written notice to Keith H. Williamson, our Secretary, at our address as
set forth in the notice appearing before this proxy
statement;
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send
us another signed proxy with a later date;
or
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attend
the meeting, notify our Secretary that you are present, and then vote by
ballot.
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If you
would like to attend the Meeting, please bring evidence to the meeting that you
own common stock, such as a stock certificate, or, if your shares are held by a
broker, bank or other nominee, please bring a recent brokerage statement or a
letter from the nominee confirming your beneficial ownership of such shares. You
must also bring a form of personal identification.
At the
close of business on February 22, 2008, 43,400,856 shares of our common stock
were outstanding. Our by-laws require that a majority of the shares of our
common stock issued and outstanding on that date be represented, in person or by
proxy, at the meeting in order to constitute the quorum we need to transact
business. We will count abstentions and broker non-votes in determining whether
a quorum exists. A broker non-vote occurs when a nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee does
not have discretionary voting power for that particular item and has not
received instructions from the beneficial owner.
In the
election of directors, the three nominees receiving the greatest number of votes
cast “FOR” shall be elected as directors. Abstentions and broker non-votes will
have no effect on the voting outcome with respect to the election of
directors.
The
affirmative vote of the holders of a majority of the shares of common stock
present or represented by proxy and entitled to vote on the matter at the
meeting is necessary to ratify the selection of KPMG LLP as our independent
registered public accounting firm for the fiscal year ending December 31,
2008. Abstentions with respect to a matter are considered present and entitled
to vote and therefore will have the same effect as a vote against the proposal.
Broker non-votes with respect to a matter will not be considered as present and
entitled to vote with respect to the matter and thus will have no effect on the
vote. The affirmative vote of the holders of a majority of the shares
of common stock present or represented by proxy and entitled to vote on the
matter at the meeting is necessary to approve the amendments to the 2003 Stock
Incentive Plan. Abstentions with respect to a matter are considered present and
entitled to vote and therefore will have the same effect as a vote against the
proposal. Broker non-votes with respect to a matter will not be considered as
present and entitled to vote with respect to the matter and thus will have no
effect on the vote.
DISCUSSION
OF PROPOSALS
The first
proposal on the agenda for the meeting is the election of three nominees to
serve as Class I directors for three-year terms beginning at the meeting and
ending at our 2011 Annual Meeting of Stockholders.
Under our
by-laws, our board of directors has the authority to fix the number of
directors, provided that the board must have between five and eleven members.
The board of directors currently consists of nine members. Our by-laws provide
that the board is to be divided into three classes serving for staggered
three-year terms.
The board
has nominated Michael F. Neidorff, Richard A. Gephardt and John R. Roberts,
current Class I directors, for re-election to the board. Brief biographies of
the nominees, as of February 22, 2008, follow. You will find information about
their stock holdings on page 37.
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Class
I Directors
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Michael
F. Neidorff
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Mr.
Neidorff has served as our Chairman, President and Chief Executive Officer
since May 2004. From May 1996 to May 2004, Mr. Neidorff served as
President, Chief Executive Officer and as a member of our board of
directors. From 1995 to 1996, Mr. Neidorff served as a Regional Vice
President of Coventry Corporation, a publicly traded managed care
organization, and as the President and Chief Executive Officer of one of
its subsidiaries, Group Health Plan, Inc. From 1985 to 1995, Mr. Neidorff
served as the President and Chief Executive Officer of Physicians Health
Plan of Greater St. Louis, a subsidiary of United Healthcare Corp., a
publicly traded managed care organization now known as UnitedHealth Group
Incorporated. He also serves as director of Brown Shoe Company, Inc., a
footwear company with global operations. Mr. Neidorff is 65 years
old.
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Richard
A. Gephardt
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Mr.
Gephardt has been a director since December 2006. Mr. Gephardt is CEO and
President of Gephardt Group, LLC a multi-disciplined consulting firm
focused on helping clients gain access to new markets, expand competitive
advantages in existing markets, manage labor negotiations, develop
political strategies and promote policy initiatives. Mr.
Gephardt has served as a consultant to Goldman, Sachs & Co. since
January 2005, as Senior Advisor to DLA Piper since June 2005, and as
Senior Advisor to FTI since January 2007. Mr. Gephardt served
as a Member of the U.S. House of Representatives from 1977 to 2005. He
also serves as a director for Spirit Aerosystems, Inc., a supplier of
commercial airplane assemblies and components; US Steel Corporation, a
manufacturer of a wide variety of steel sheet, tubular and tin products,
coke, and taconite pellets; Embarq Corporation, a communication services
company; and Dana Corporation, an auto parts manufacturer and supplier.
Mr. Gephardt is 67 years old.
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John
R. Roberts
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Mr.
Roberts has been a director since March 2004. Mr. Roberts served as the
Executive Director of Civic Progress, Inc., a St. Louis civic
organization, from 2001 to December 2006. Mr. Roberts is a retired
Managing Partner, Mid-South Region, Arthur Andersen LLP. He also serves as
a director of Regions Financial Corporation, a provider of banking,
brokerage, mortgage and insurance products and services, and Energizer
Holdings, Inc., a manufacturer of household products. Mr. Roberts is 66
years old.
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We expect
that Messrs. Neidorff, Gephardt and Roberts will be able to serve if elected. If
any of them are not able to serve, proxies may be voted for a substitute nominee
or nominees.
The
board believes the election of these three nominees is in our best interest and
the best interest of our stockholders and recommends a vote “FOR” the election
of the three nominees.
KPMG LLP
audited our financial statements for the fiscal year ended December 31,
2007 and the audit committee has selected KPMG LLP to serve as our independent
registered public accounting firm for the current fiscal year, and we are asking
stockholders to ratify this appointment. Stockholder ratification of this
selection is not required by our by-laws or other applicable legal requirements.
Our board of directors is, however, submitting the selection of KPMG LLP to
stockholders for ratification as a matter of good corporate practice. In the
event that stockholders fail to ratify the selection, the audit committee will
consider whether or not to retain that firm. Even if the selection is ratified,
the audit committee, in its discretion, may direct the appointment of a
different independent registered public accounting firm at any time during the
year if the audit committee believes that a change would be in our and our
stockholders’ best interest.
The
affirmative vote of the holders of a majority of the shares present or
represented by proxy and entitled to vote at the meeting is being sought to
ratify the selection of KPMG LLP as our independent registered public accounting
firm for the current fiscal year.
The
board recommends that stockholders vote “FOR” the ratification of the selection
of KPMG LLP to serve as our independent registered public accounting firm for
the fiscal year ending December 31, 2008.
Overview
In March
2008, our board of directors adopted an amendment to our 2003 Stock Incentive
Plan, referred to below as the 2003 Plan, that would increase the number of
shares of common stock available for grant under the 2003 Plan by 1,000,000 from
5,900,000 to 6,900,000, subject to adjustment in the event of stock splits and
other similar events.
The
increase in reserved shares under the 2003 Plan approved by the board in March
2008, referred to below as the Plan Amendment, will be effective subject to the
approval of our stockholders. For a more complete description of the Plan
Amendment, please see “Summary of the 2003 Plan” below and the copy of the 2003
Plan included as Appendix A to this proxy statement.
Under our
2003 Plan, we currently are authorized to award up to an aggregate of 5,900,000
shares of common stock to our officers, directors, employees, advisors and
consultants. As of December 31, 2007, there were 289,029 shares of common
stock available for grant under the 2003 Plan and an aggregate of 300,210 shares
of common stock available for grant under our other existing stock incentive
plans. If the Plan Amendment is approved, we will have approximately 1,289,029
shares available under the 2003 Plan, which the board believes will be
sufficient for a reasonable period. The closing price of our common stock on
February 22, 2008 was $18.70.
In
addition, the 2003 Plan is being submitted to the stockholders at this time is
to allow for performance-based restricted stock awards and restricted stock
units that are paid thereunder to be deductible by us for federal income tax
purposes under Section 162(m) of the Code. Section 162(m) places a $1
million annual limit on the amount of compensation paid to each of our named
executive officers that may be deducted by us for federal income tax purposes,
generally, unless such compensation constitutes “qualified performance-based
compensation,” which is based on the achievement of pre-established performance
goals set by a committee of the Board pursuant to an incentive plan that has
been approved by the Company’s stockholders. Stockholder approval of
the 2003 Plan, including the material terms of the performance measures, will
constitute stockholder approval of the performance criteria for
performance-based restricted stock awards and restricted stock units in the 2003
Plan and will satisfy the stockholder approval requirements of Section 162(m)
for five years. Any performance goals upon which the vesting of a restricted
stock award or a restricted stock unit to a covered employee under
4
Section
162(m) of the Internal Revenue Code will be determined by the board of directors
and will be based on performance measures that consist of one or any combination
of two or more of the following:
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net
earnings or net income (before and after
taxes);
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earnings
per share;
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net
sales or revenue growth;
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net
operating profit;
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return
measures (including, but not limited to, return on assets, capital,
invested capital, equity, sales, or
revenue);
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cash
flow (including, but not limited to, operating cash flow, free cash flow,
cash flow return on equity, and cash flow return on
investment);
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earnings
before or after taxes, interest, depreciation, and/or
amortization;
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gross
or operating margins;
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productivity
ratios;
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share
price (including, but not limited to, growth measures and total
shareholder return);
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expense
targets;
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margins;
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operating
efficiency;
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market
share;
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customer
satisfaction;
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working
capital targets; and
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economic
value added or EVA® (net operating profit after tax minus the sum of
capital multiplied by the cost of
capital).
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The board
of directors may use these performance measure(s) to:
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measure
our performance, or the performance of any of our subsidiaries and/or
affiliates, as a whole or measure the performance of any of our business
units, or any of the business units of our subsidiaries and/or affiliates,
or any combination thereof, as the board of directors may deem
appropriate;
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compare
any of the foregoing performance measures to the performance of a group of
comparator companies, or a published or special index that the board of
directors deems appropriate; or
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compare
our share price (including, but not limited to, growth measures and total
shareholder return) to various stock market
indices.
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We use
the 2003 Plan to attract and retain talented employees in a highly competitive
employment market. Our management carefully considers all proposed grants under
the 2003 Plan, and our compensation committee or chairman and chief executive
officer, with authority delegated from our board of directors, approves all
awards.
Our board
of directors believes that our future success depends, in large part, upon our
ability to maintain a competitive position to:
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attract
new employees and executives with competitive compensation
packages;
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retain
our existing executives who are attractive candidates to other companies
in our industries;
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motivate
and recognize our high performing individuals;
and
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ensure
the availability of stock incentives for employees we hire as a result of
acquisitions.
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Accordingly, our board of directors
believes the Plan Amendment is in our best interest and the best interest of our
stockholders and recommends a vote “FOR” the Plan Amendment. In the event
the Plan Amendment is not approved at the meeting, the board will reconsider the
alternatives available to help attract, retain and motivate key individuals who
are currently our employees or who become employees as the result of any future
acquisitions.
The
affirmative vote of a majority of the common stock entitled to vote and present
in person or represented by proxy at the meeting is required for the approval of
the Plan Amendment. Abstentions are considered present and entitled to vote and
therefore will have the same effect as a vote against the proposal. Broker
non-votes will not be considered as present and entitled to vote and thus will
have no effect on the vote.
Summary
of the 2003 Plan
The
following is a brief summary of the 2003 Plan. A copy of the 2003 Plan, as
proposed to be amended, is included as Appendix A to this proxy statement. The
following summary is qualified in its entirety by reference to the 2003
Plan.
Types
of Awards
The 2003
Plan provides for the grant of:
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incentive
stock options intended to qualify under Section 422 of the Internal
Revenue Code;
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non-statutory
stock options;
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restricted
stock awards; and
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restricted
stock units, collectively referred to herein as awards;
and
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stock
appreciation rights.
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Options. Optionees
receive the right to purchase a specified number of shares of our common stock
at a specified option price and are subject to such other terms and conditions
as are specified in connection with the option grant. We may grant options only
at an exercise price that is equal to or greater than the fair market value of
our common stock on the date of grant. Under present law, incentive stock
options and options intended to qualify as performance-based compensation under
Section 162(m) of the Internal Revenue Code may not be granted at an
exercise price less than the fair market value of our common stock on the date
of grant or less than 110% of the fair market value in the case of incentive
stock options granted to optionees holding more than 10% of the voting power of
Centene. The 2003 Plan permits the following forms of payment of the exercise
price of options:
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payment
by cash, check or in connection with a “cashless exercise” through a
broker;
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surrender
of shares of our common stock that have been held for at least six
months;
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any
other lawful means (other than promissory notes);
or
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any
combination of these forms of
payment.
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Restricted Stock
Awards. Restricted stock awards entitle recipients to acquire
shares of our common stock, subject to our right to repurchase all or part of
such shares from the recipient at the issue price or other stated formula or
price in the event that the conditions specified in the applicable award are not
satisfied before the end of the applicable restriction period established for
such award.
Restricted Stock
Units. Restricted stock unit awards entitle recipients to
acquire shares of our common stock in the future, and we promise to complete the
issuance of stock to the recipient promptly after the award vests. The right to
acquire the stock will be subject to terms and conditions established by the
board of directors and the shares received may be subject to restrictions or
repurchase.
Stock Appreciation
Rights. A stock appreciation right, or SAR, is an award
entitling the holder upon exercise to receive an amount in common stock
determined in whole or in part by reference to appreciation, from and after the
date of grant, in the fair market value of a share of common stock. SARs may be
based solely on appreciation in the fair market value of common stock or on a
comparison of such appreciation with some other measure of market growth such as
appreciation in a recognized market index. SARs may be issued in tandem with
options or as stand-alone rights. We may grant SARs only at an exercise price
that is equal to or greater than the fair market value of our common stock on
the date of grant.
Eligibility to Receive Awards
b
Our
employees, officers, directors, consultants and advisors are eligible to be
granted awards under the 2003 Plan. Under present law, however, incentive stock
options may only be granted to employees of Centene or any of our subsidiaries.
The maximum number of shares with respect to which awards may be granted to any
participant under the 2003 Plan may not exceed 1,500,000 in any calendar
year.
Plan
Benefits
As of
February 22, 2008, approximately 3,100 of our employees and directors were
eligible to receive awards under the 2003 Plan, including our nine executive
officers and eight non-employee directors.
The
granting of awards under the 2003 Plan is discretionary, and we cannot now
determine the number or type of awards to be granted in the future to any
particular person or group. Such awards will be granted at the discretion of our
board of directors or, in the event they have delegated this authority, their
delegatee.
Administration
Our board
of directors will administer the 2003 Plan. The board will have the authority to
grant awards and adopt, amend and repeal the administrative rules, guidelines
and practices relating to the 2003 Plan and to interpret the provisions of the
2003 Plan. Pursuant to the terms of the 2003 Plan, the board may delegate
authority under the 2003 Plan to one or more committees or subcommittees of the
board or one or more of our executive officers, provided that the board fixes
the terms of the awards and the maximum number of shares that any executive
officer may grant. Discretionary awards to independent directors may
only be recommended by a committee comprised solely of independent directors and
approved only by all independent directors of the board.
Subject
to any applicable limitations contained in the 2003 Plan, the board or any
committee to which the board delegates authority, as the case may be, will
select the recipients of awards and determine:
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the
number of shares of our common stock covered by options and the dates upon
which such options become
exercisable;
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the
exercise price of options;
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the
duration of options; and
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the
number of shares of our common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of such awards,
including conditions for repurchase, issue price and repurchase price,
subject to the restriction on re-pricing described
below.
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No award
made after July 19, 2005 to an employee may become exercisable in
increments greater than one-third of the total award in any period of twelve
consecutive months. The board is required to make appropriate adjustments in
connection with the 2003 Plan and any outstanding awards to reflect stock
splits, stock dividends, recapitalizations, spin-offs and other similar changes
in capitalization.
Unless
such action is approved by our stockholders:
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no
outstanding award granted under the 2003 Plan may be amended to provide
for an exercise price per share that is less than the then-existing
exercise price per share of such outstanding
award,
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the
board may not cancel any outstanding award (whether or not granted under
the 2003 Plan) and grant in substitution therefore new awards under the
2003 Plan covering the same or a different number of shares and having an
exercise price per share less than the then-existing exercise price per
share of the cancelled award, and
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no
outstanding award granted under the 2003 Plan may be repurchased by the
Company at a price greater than the current fair market value of the
outstanding award.
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If any
award expires or is terminated, surrendered, canceled or forfeited, the unused
shares of our common stock covered by such award will again be available for
grant under the 2003 Plan, subject, however, in the case of incentive stock
options, to any limitations under the Internal Revenue Code. Shares of common
stock covered by SARs are counted against the number of shares available for
future grant under the 2003 Plan and shares of common stock tendered to purchase
shares of common stock upon the exercise of any award or satisfy tax withholding
obligations are not added back to the number of shares available for future
grant under the 2003 Plan.
Transferability
Transfers
of awards under the 2003 Plan will be limited to transfers pursuant to qualified
domestic relations orders and gratuitous transfers for the benefit of immediate
family members, family trusts or family partnerships.
Amendment
or Termination
No award
may be made under the 2003 Plan after March 13, 2013, but awards previously
granted may extend beyond that date. The board of directors may at any time
amend, suspend or terminate the 2003 Plan, except that:
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all
material revisions (as defined by the applicable rules of the New York
Stock Exchange in effect as of July 22, 2005) to the 2003 Plan shall
be subject to stockholder approval,
and
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no
award designated as subject to Section 162(m) of the Internal Revenue
Code by the board after the date of such amendment shall become
exercisable, realizable or vested (to the extent such amendment was
required to grant such award) unless and until such amendment shall have
been approved by our stockholders.
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U.S.
Federal Income Tax Consequences
The
following is a summary of the United States federal income tax consequences that
generally will arise with respect to awards granted under the 2003 Plan and with
respect to the sale of common stock acquired under the 2003 Plan. This summary
is based on the federal tax laws in effect as of the date of this proxy
statement. Changes to these laws could alter the tax consequences described
below. This summary is not intended to be a complete discussion of all the
federal income tax consequences associated with the 2003 Plan. Accordingly, for
precise advice as to any specific transaction or set of circumstances,
participants should consult with their own tax and legal advisors. Participants
should also consult with their own tax and legal advisors regarding the
application of any state, local and foreign taxes and any federal gift, estate
and inheritance taxes.
Incentive Stock
Options. In general, a participant will not
recognize taxable income upon the grant or exercise of an incentive stock
option. Instead, a participant will recognize taxable income with respect to an
incentive stock option only upon the sale of common stock acquired through the
exercise of the option, referred to below as ISO Stock, provided the participant
has not ceased to be an employee for more than three months before the date of
the exercise. The exercise of an incentive stock option, however, may subject
the participant to the alternative minimum tax.
Generally,
the tax consequences of selling ISO Stock will vary depending on the date on
which it is sold. If the participant sells ISO Stock more than two years from
the date the option was granted and more than one
year from
the date the option was exercised, then the participant will recognize long-term
capital gain in an amount equal to the excess of the sale price of the ISO Stock
over the exercise price.
If the
participant sells ISO Stock before satisfying the above waiting periods, called
a disqualifying disposition, then all or a portion of the gain recognized by the
participant will be ordinary compensation income and the remaining gain, if any,
will be a capital gain. The amount of the ordinary gain will be the difference
between the lesser of the amount realized on disposition of the shares or the
fair market value of the shares on the date of exercise and the exercise price
of the stock. The amount of capital gain will be the amount not already realized
as ordinary gain that the participant realizes upon disposition of the shares
that exceeds the fair market value of those shares on the date the participant
exercised the option. This capital gain will be a long-term capital gain if the
participant has held the ISO Stock for more than one year before the date of
sale.
If a
participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss in an amount equal to the excess of the
exercise price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the participant has held the ISO Stock for more than
one year before the date of sale.
Non-Statutory Stock
Options. As in the case of an incentive stock
option, a participant will not recognize taxable income upon the grant of a
non-statutory stock option. Unlike the case of an incentive stock option,
however, a participant who exercises a non-statutory stock option generally will
recognize ordinary compensation income in an amount equal to the excess of the
fair market value of the common stock acquired through the exercise of the
option, referred to below as NSO Stock, on the exercise date over the exercise
price.
With
respect to any NSO Stock, a participant will have a tax basis equal to the
exercise price plus any income recognized upon the exercise of the option. Upon
selling NSO Stock, a participant generally will recognize capital gain or loss
in an amount equal to the difference between the sale price of the NSO Stock and
the participant’s tax basis in the NSO Stock. This capital gain or loss will be
a long-term gain or loss if the participant has held the NSO Stock for more than
one year before the date of the sale.
Early-Exercise
Alternative. The board of directors may permit a
participant to exercise the unvested portion of an option, subject to our right
to repurchase the unvested shares. In general, a participant who exercises the
unvested portion of an option and then makes a valid election under
Section 83(b) of the Internal Revenue Code within 30 days of the exercise
date should be taxed as if the underlying shares were vested shares with the
consequences described above under “Incentive Stock Options” or “Non-Statutory
Stock Options” (whichever is applicable), provided, however, that current law
relating to incentive stock options in this context is not entirely certain. A
participant who exercises the unvested portion of an option and does not make a
valid Section 83(b) election within 30 days of the exercise date generally
will be treated as having exercised the option to the extent that our repurchase
right lapses with respect to the underlying shares. Otherwise, the participant
will be taxed as described above under “Incentive Stock Options” or
“Non-Statutory Stock Options,” whichever is applicable.
Restricted Stock
Awards. A participant will not recognize taxable
income upon the grant of a restricted stock award unless the participant makes a
Section 83(b) election. If the participant makes a valid Section 83(b)
election within 30 days of the date of the grant, then the participant will
recognize ordinary compensation income, for the year in which the award is
granted, in an amount equal to the difference between the fair market value of
our common stock at the time the award is granted and the purchase price paid
for the common stock. If a valid Section 83(b) election is not made, then
the participant will recognize ordinary compensation income, at the time that
the forfeiture provisions or restrictions on transfer lapse, in an amount equal
to the difference between the fair market value of our common stock at the time
of such lapse and the original purchase price paid for the common stock. The
participant will have a tax basis in the common stock acquired equal to the sum
of the price paid and the amount of ordinary compensation income
recognized.
Upon the
disposition of the common stock acquired pursuant to a restricted stock award,
the participant will recognize a capital gain or loss equal to the difference
between the sale price of the common stock and the participant’s tax basis in
the common stock. This capital gain or loss will be a long-term capital gain or
9
loss if
the shares are held for more than one year from earlier of the date that the
participant made a Section 83(b) election or the forfeiture provisions and
restrictions on transfer lapsed.
Restricted Stock
Units. The tax consequences of restricted stock
units are substantially the same as the tax consequences of restricted stock,
except that no Section 83(b) election may be made with respect to
restricted stock units.
Stock Appreciation
Rights. A participant will not have income upon
the grant of a SAR. A participant will have compensation income upon the
exercise of a SAR equal to the appreciation in the value of the stock underlying
the SAR. When the stock distributed in settlement of the SAR is sold, the
participant will have capital gain or loss equal to the sales proceeds less the
value of the stock on the exercise date. Any capital gain or loss will be
long-term if the participant held the stock for more than one year and otherwise
will be short-term.
Tax
Consequences to Centene
The grant
of an award under the 2003 Plan generally will have no tax consequences to us.
Moreover, in general, neither the exercise of an incentive stock option nor the
sale of any common stock acquired under the 2003 Plan will have any tax
consequences to us. We, and our subsidiaries, generally will be entitled to a
business-expense deduction, however, with respect to any ordinary compensation
income recognized by a participant under the 2003 Plan, including in connection
with a restricted stock award, restricted stock unit or SAR or as a result of
the exercise of a non-statutory stock option or a disqualifying disposition. Any
such deduction will be subject to the limitations of Section 162(m) of the
Internal Revenue Code.
Our board
of directors is not aware of any matters that are expected to come before the
meeting other than those referred to in this proxy statement. If any other
matter should properly come before the meeting, the persons appointed as proxies
by the board of directors intend to vote the proxies in accordance with their
best judgment.
The
chairperson of the meeting may refuse to allow the transaction of any business
not presented beforehand, or to acknowledge the nomination of any person not
made, in compliance with the above procedures.
Under SEC
rules, a stockholder who intends to present a proposal, including nomination of
a director, at our 2009 Annual Meeting of Stockholders and who wishes the
proposal to be included in the proxy statement for that meeting must submit the
proposal in writing to Keith H. Williamson, our Secretary, at Centene Place,
7711 Carondelet Avenue, St. Louis, Missouri 63105, before November 10,
2008. SEC rules set standards for the types of stockholder proposals and the
information that must be provided by the stockholder making the
request.
A
stockholder may also submit a proposal to be considered at our 2009 Annual
Meeting of Stockholders pursuant to our by-laws, which provide that the proposal
must be received by our Secretary not less than sixty days nor more than ninety
days before that meeting. This notice must include the information required by
the provisions of our by-laws, a copy of which may be obtained by writing to our
Secretary at the address specified above. We have not yet set a date for our
2009 Annual Meeting of Stockholders. If the 2009 Annual Meeting of Stockholders
were to be held on April 22, 2009, the anniversary of the 2008 Annual
Meeting, the deadline for delivery of a stockholder proposal pursuant to our
by-laws would be February 21, 2009. If a proposal is submitted pursuant to
our by-laws by February 21, 2009 but after November 10, 2008, the
stockholder may not require that the proposal be included in the proxy statement
for the 2009 Annual Meeting of Stockholders. If the date of our 2009 Annual
Meeting of Stockholders is advanced or delayed by more than 30 days from
April 22, 2009, we shall inform our stockholders, in our earliest possible
quarterly report on Form 10-Q, of such change and the new dates for submitting
stockholder proposals.
INFORMATION
ABOUT CONTINUING DIRECTORS AND EXECUTIVE
OFFICERS
Our Class
II and Class III directors will continue in office following the meeting. The
terms of our Class II directors will expire upon our 2009 Annual Meeting of
Stockholders, and the terms of our Class III directors will expire upon our 2010
Annual Meeting of Stockholders. Brief biographies of these directors follow. You
will find information about their holdings of common stock on page
37.
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Class
II Directors
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Robert
K. Ditmore
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Mr.
Ditmore has been a director since 1996. Mr. Ditmore is a retired
President and Chief Operating Officer of United Healthcare Corp., a
publicly traded managed care organization now known as UnitedHealth Group
Incorporated, from 1985 to 1991, and a director of UnitedHealth Group
Incorporated from 1985 to 1995. Mr. Ditmore is 74 years
old.
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Frederick
H. Eppinger
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Mr.
Eppinger has been a director since April 2006. Mr. Eppinger has served as
a director and President and Chief Executive Officer of The Hanover
Insurance Group, Inc., a holding company for a group of insurers that
offers a wide range of property and casualty products, since 2003. From
2001 to 2003, Mr. Eppinger was Executive Vice President of Property and
Casualty Field and Service Operations for The Hartford Financial Services
Group, Inc. From 2000 to 2001, he was Executive Vice President for Channel
Point, Inc. From 1985 to 2000, he was in the financial institutions group
at McKinsey & Company, an international management consulting firm,
where he was admitted as a partner in 1992. Mr. Eppinger is 49 years
old.
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David
L. Steward
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Mr.
Steward has been a director since May 2003. Mr. Steward is the founder of
World Wide Technology, Inc. and has served as its Chairman since its
founding in 1990. In addition, Mr. Steward has served as Chairman of
Telcobuy.com, an affiliate of World Wide Technology, Inc., since 1997.
World Wide Technology, Inc. and Telcobuy.com provide electronic
procurement and logistics services to companies in the information
technology and telecommunications industries. He also serves as director
of First Banks, Inc., a registered bank holding company. Mr. Steward is
56 years old.
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Class
III Directors
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Steve
Bartlett
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Mr.
Bartlett has been a director since May 2004. Mr. Bartlett is President and
Chief Executive Officer of The Financial Services Roundtable in
Washington, D.C., a position he has held since 1999. Mr. Bartlett served
as the Mayor of Dallas, Texas from 1991 to 1995 and as a Member of the
U.S. House of Representatives from 1983 to 1991. Mr. Bartlett is 60 years
old.
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Pamela
A. Joseph
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Ms.
Joseph has been a director since September 2007. Ms Joseph has
served as Vice Chairman of U.S. Bancorp and Chairman and Chief Executive
Officer of NOVA Information Systems, Inc. since 2004. From 2000
to 2004, Ms. Joseph served as President and Chief Operating Officer for
NOVA Information Systems, Inc. She also serves as a director
for Paychex Inc., a payroll, human
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resource,
and employee benefit outsourcing solution for small to medium sized
businesses. Ms. Joseph is 49 years old.
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Tommy
G. Thompson
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Mr. Thompson has been a director
since April 2005. Mr. Thompson is a partner in the firm of Akin Gump
Strauss Hauer & Feld LLP in Washington, D.C.; is President of
Logistics Health, Inc., a provider of medical readiness and homeland
security solutions; and works for the consulting practice of Deloitte and
Touche USA LLP. From 2001 to January 2005, Mr. Thompson served as
secretary of U.S. Department of Health & Human Services. From 1987 to
2001, Mr. Thompson served as Governor of the State of Wisconsin. He also
serves as a director for C.R. Bard, Inc., a designer, manufacturer, and
distributor of medical, surgical, diagnostic, and patient care devices;
Pure Bioscience, a manufacturer and marketer of technology-based
bioscience products; and SpectraScience Inc., a designer
and manufacturer of medical devices. Mr. Thompson is 66 years
old.
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No
director, including any director standing for election, or any associate of a
director, is a party adverse to us or any of our subsidiaries in any material
proceeding or has any material interest adverse to us or any of our
subsidiaries. No director, including any director standing for election, is
related by blood, marriage or adoption to any other director or any executive
officer.
Our
executive officers are elected by our board of directors and hold office until
the first meeting of the board following an annual meeting of stockholders,
subject, in the case of Michael F. Neidorff, to the term of his employment
agreement with us. Brief biographies of our executive officers, as of February
22, 2008, follow. You will find information about their holdings of common stock
on page 37.
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Michael
F. Neidorff
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Mr.
Neidorff is our Chairman, President and Chief Executive Officer. You will
find background information about Mr. Neidorff on page
3.
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Mark.
W. Eggert
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Mr.
Eggert has served as our Executive Vice President, Health Plans since
November 2007. From January 1999 to November 2007, Mr. Eggert
served as the Associate Vice Chancellor and Deputy General Counsel at
Washington University, where he oversaw the legal affairs of the School of
Medicine. Mr. Eggert is 46 years old.
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Carol
E. Goldman
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Ms.
Goldman has served as our Executive Vice President and Chief
Administrative Officer since June 2007. From July 2002 to June
2007, she served as our Senior Vice President, Chief Administrative
Officer. From September 2001 to July 2002, Ms. Goldman served
as our Plan Director of Human Resources. From 1998 to August
2001, Ms. Goldman was Human Resources Manager at Mallinckrodt Inc., a
medical device and pharmaceutical company. Ms. Goldman is
50 years old.
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Cary
D. Hobbs
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Ms.
Hobbs has served as our Senior Vice President, Business Management
and Integration since September 2007. She served as our Senior
Vice President of Strategy and Business Implementation from January 2004
to September 2007. She served as our Vice President of Strategy
and Business Implementation from September
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2002
to January 2004 and as our Director of Business Implementation from 1997
to August 2002. Ms. Hobbs is 40 years
old.
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Jesse
N. Hunter
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Mr.
Hunter has served as our Senior Vice President, Corporate Development
since April 2007. He served as our Vice President, Corporate
Development from December 2006 to April 2007. From October 2004
to December 2006, he served as our Vice President, Mergers &
Acquisitions. From July 2003 until October 2004, he served as
the Director of Mergers & Acquisitions and from February 2002 until
July 2003, he served as the Manager of Mergers & Acquisitions. Mr.
Hunter is 32 years old.
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Edmund
E. Kroll
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Mr.
Kroll has served as our Senior Vice President, Finance and Investor
Relations since May 2007. From June 1997 to November 2006, Mr.
Kroll served as Managing Director at Cowen and Company LLC, where his
research coverage focused on the managed care industry, including
Centene. Mr. Kroll is 48 years old.
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William
N. Scheffel
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Mr.
Scheffel has served as our Executive Vice President, Specialty Business
Unit since June 2007. From May 2005 to June 2007, he served as our Senior
Vice President, Specialty Business Unit. From December 2003
until May 2005, he served as our Senior Vice President and
Controller. From July 2002 to October 2003, Mr. Scheffel was a
partner with Ernst & Young LLP. From 1975 to July 2002, Mr.
Scheffel was with Arthur Andersen LLP. Mr. Scheffel is 54 years
old.
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Eric
R. Slusser
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Mr.
Slusser has served as our Executive Vice President and Chief Financial
Officer since July 2007 and as our Treasurer since February
2008. Mr. Slusser served as Executive Vice President of
Finance, Chief Accounting Officer and Controller of Cardinal Health, Inc.
from May 2006 to July 2007 and as Senior Vice President, Chief Accounting
Officer and Controller of Cardinal Health, Inc. from May 2005 to May
2006. Mr. Slusser served as Senior Vice President-Chief
Accounting Officer and Controller for MCI, Inc. from November 2003 to May
2005, as Corporate Controller for AES (an electric power generation
and transmission company) from May 2003 to November 2003, and as Vice
President-Controller from January 1996 to May 2003 for Sprint
PCS. Mr. Slusser is 47 years old.
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Keith
H. Williamson
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Mr.
Williamson has served as our Senior Vice President and General Counsel
since November 2006 and as our Secretary since February 2007. From 1988
until November 2006, he served at Pitney Bowes Inc. in various legal and
executive roles, the last seven years as a Division President. Mr.
Williamson also serves as a director of PPL Corp., an energy and utility
holding company. Mr. Williamson is 55 years
old.
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No
executive officer, or any associate of an executive officer, is a party adverse
to us or any of our subsidiaries in any material proceeding or has any material
interest adverse to us or any of our subsidiaries. No executive officer is
related by blood, marriage or adoption to any director or any other executive
officer.
We
believe that good corporate governance is important to ensure that we are
managed for the long-term benefit of our stockholders. Our Corporate Ethics and
Compliance Program was first established in 1998 and provides methods by which
we further enhance operations, safeguard against fraud and abuse and help assure
that our values are reflected in everything we do. We have also reviewed and
believe we are in compliance with the provisions of the Sarbanes-Oxley Act of
2002, the rules of the SEC, and the listing standards of the New York Stock
Exchange.
Our board
of directors has responsibility for establishing broad corporate policies and
reviewing our overall performance rather than day-to-day operations. The board's
primary responsibility is to oversee the management of the company and, in so
doing, serve the best interests of the company and its stockholders. The board
selects, evaluates and provides for the succession of executive officers and,
subject to stockholder election, directors. It reviews and approves corporate
objectives and strategies, and evaluates significant policies and proposed major
commitments of corporate resources. Management keeps the directors informed of
our activities through regular written reports and presentations at board and
committee meetings.
Our board
held five regular meetings and four special meetings during 2007 and acted by
written consent six times. All of our directors attended 75% or more of the
meetings of the board and of any committees thereof on which they served. Our
corporate governance guidelines provide that directors are expected to attend
the 2008 Annual Meeting of Stockholders. Seven directors attended the 2007
Annual Meeting of Stockholders.
Our board
of directors has appointed Robert K. Ditmore “presiding director” to preside at
all executive sessions of “non-management” directors, as defined under the rules
of the New York Stock Exchange. Executive sessions of non-management directors
will be held at least twice a year.
Our board
of directors has established three standing committees – Audit, Compensation,
and Nominating and Governance – each of which operates under a charter that has
been approved by our board. Current copies of each committee’s charter are
posted on our website, www.centene.com, and are available in print to any
stockholder who requests a copy. Our board of directors has also
established a Government and Regulatory Affairs Committee, which is co-chaired
by Richard A. Gephardt and Tommy G. Thompson.
Our board
of directors has affirmatively determined that all directors except Michael F.
Neidorff, our Chairman, President and Chief Executive Officer, and, therefore, a
majority of our directors, as well as all of the members of each of the board’s
three standing committees, are independent as defined under the rules of the New
York Stock Exchange, including, in the case of all members of the Audit
Committee, the independence requirements contemplated by Rule 10A-3 under the
Exchange Act. In the course of the board's determination regarding the
independence of each non-employee director, it considered any transactions,
relationships and arrangements as required by the rules of the New York Stock
Exchange. In particular, with respect to each of the most recent three completed
fiscal years, the board evaluated for Tommy Thompson the amount of fees
paid to a law firm in which he serves as a partner and determined that they were
under 2% of the law firm's annual revenues. All directors, excluding
Michael F. Neidorff, have no direct or indirect material relationship with us
except for their role as a director or stockholder. The board also broadly
considers what it deems to be all relevant facts and circumstances in
determining the independence of its members.
Audit
Committee
The Audit
Committee’s responsibilities include:
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appointing,
retaining, evaluating, terminating, approving the compensation of, and
assessing the independence of our independent registered public accounting
firm;
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overseeing
the work of our independent auditor, including through the receipt and
consideration of certain reports from the independent registered public
accounting firm;
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reviewing
and discussing with management and the independent registered public
accounting firm our annual and quarterly financial statements and related
disclosures;
|
|
•
|
monitoring
our internal control over financial reporting, disclosure controls and
procedures and code of business conduct and
ethics;
|
|
•
|
overseeing
our internal audit function;
|
|
•
|
discussing
our risk management policies;
|
|
•
|
establishing
policies regarding hiring employees from our independent registered public
accounting firm and procedures for the receipt and retention of accounting
related complaints and concerns;
|
|
•
|
meeting
independently with our internal auditing staff, independent registered
public accounting firm and management;
and
|
|
•
|
preparing
the audit committee report required by SEC rules (which is included on
page 18 of this proxy statement).
|
The board
has determined that John R. Roberts is an “audit committee financial expert” as
defined in Item 407(d)(5) of Regulation S-K.
The
current members of the Audit Committee are Steve Bartlett, Frederick H. Eppinger
and John R. Roberts. The Chairman of the Audit Committee is John R. Roberts. The
Audit Committee held four regular meetings and two special meetings in
2007.
Compensation
Committee
The
compensation committee is currently comprised of four members of our board of
directors. The board has determined that each of the members of the compensation
committee is “independent,” as defined under the rules of the New York Stock
Exchange, or NYSE.
The
compensation committee oversees our activities in the area of compensation and
benefits (generally with regard to all employees and specifically with regard to
officers) and reviews and makes recommendations concerning compensation-related
matters to be submitted to the board and/or shareholders for approval. The
committee’s responsibilities include:
|
•
|
annually
reviewing and approving corporate goals and objectives relevant to our
chief executive officer’s
compensation;
|
|
•
|
making
recommendations to the full Board of Directors relevant to our chief
executive officer’s compensation;
|
|
•
|
reviewing
and approving, or making recommendations to the board with respect to, the
compensation of our other executive
officers;
|
|
•
|
overseeing
an evaluation of our senior
executives;
|
|
•
|
overseeing
and administering our equity incentive plans;
and
|
|
•
|
reviewing
and making recommendations to the board with respect to director
compensation.
|
Members
of management assist the committee in its responsibilities by providing
recommendations for the committee’s approval concerning the design of our
compensation program for our executive officers other than our chief executive
officer, including those executive officers listed in the Summary Compensation
Table for the 2007 fiscal year, who we refer to in this proxy statement as the
Named Executive Officers, as well as recommended award levels. The design of our
compensation program for our chief executive officer is recommended by the
committee and approved by the full Board of Directors without any participation
or approval of the Chairman, who is the chief executive officer. The committee
considered information and data
15
supplied
by management and by Hewitt Associates, Inc., or Hewitt, a compensation and
benefits consultant retained by management. In addition, since October 2006, the
committee has retained an independent compensation consultant, most recently
Pearl Meyer and Partners, or Pearl Meyer, that reports directly to the committee
to review and make recommendations on the chief executive officer’s
compensation. Pearl Meyer does not perform any duties for management
nor do they report to management.
In 2007,
the compensation committee utilized Hewitt to provide advice with respect to the
base salaries, bonuses and long-term incentives of our officers, including our
Named Executive Officers. The consultants analyzed the compensation levels of
the Named Executive Officers of a peer group of companies for the most recently
completed fiscal years and used proprietary valuation methodologies to value the
long-term incentive compensation levels of the officers of the companies in the
peer group. As discussed in the Compensation Discussion and Analysis (CD&A),
the compensation committee considered this information, along with a variety of
other factors, in reviewing our executive compensation in 2007.
The
committee delegates to management the authority to grant stock options and
restricted stock units under the 2003 Stock Incentive Plan. Our chief executive
officer is authorized to issue awards (other than to himself) of up to 12,000
shares to any one person during a calendar year, and is required to report any
such grants to the compensation committee as it may request from time to time.
The delegation of authority may be terminated by the compensation committee at
any time and for any reason.
The
current members of the Compensation Committee are Robert K. Ditmore, David L.
Steward, Tommy G. Thompson and Pamela A. Joseph. The Chairman of the
Compensation Committee is Robert K. Ditmore. The Compensation Committee met five
times during 2007.
Nominating
and Governance Committee
The
Nominating and Governance Committee’s responsibilities include:
|
•
|
identifying
individuals qualified to become members of the
board;
|
|
•
|
recommending
to the board the persons to be nominated for election as directors and to
each of the board’s committees;
|
|
•
|
reviewing
and making recommendations to the board with respect to management
succession planning;
|
|
•
|
reviewing
and recommending to the board corporate governance principles;
and
|
|
•
|
overseeing
an annual evaluation of the board’s
performance.
|
The
current members of the Nominating and Governance Committee are Robert K.
Ditmore, David L. Steward and Tommy G. Thompson. The Chairman of the Nominating
and Governance Committee is David L. Steward. The Nominating and Governance
Committee met once during 2007.
The
process followed by the Nominating and Governance Committee to identify and
evaluate director candidates includes requests to board members and others for
recommendations, meetings from time to time to evaluate biographical information
and background material relating to potential candidates and interviews of
selected candidates by members of the Nominating and Governance Committee and
the board.
In
considering whether to recommend any particular candidate for inclusion in the
board’s slate of recommended director nominees, the Nominating and Governance
Committee will apply the criteria set forth in our Corporate Governance
Guidelines. These criteria include the candidate’s integrity, business acumen,
knowledge of our business and industry, age, experience, diligence, conflicts of
interest and the ability to act in the interests of all stockholders. The
Nominating and Governance Committee does not assign specific weights to
particular criteria and no particular criterion is a prerequisite for each
prospective nominee. We believe that the backgrounds and qualifications of our
directors, considered as a group, should provide a composite mix of experience,
knowledge and abilities that will allow the board to fulfill its
responsibilities.
16
Pamela A.
Joseph was originally proposed to the Nominating and Governance Committee by
Heidrick & Struggles, an executive search firm, and the board of directors
elected her to serve on the board of directors in September
2007.
Stockholders
may recommend individuals to the Nominating and Governance Committee for
consideration as potential director candidates by submitting their names,
together with appropriate biographical information and background materials and
a statement as to whether the stockholder or group of stockholders making the
recommendation has beneficially owned more than 5% of our common stock for at
least one year as of the date such recommendation is made, to Nominating and
Governance Committee, c/o Corporate Secretary, Centene Corporation, Centene
Place, 7711 Carondelet Avenue, St. Louis, Missouri 63105. Assuming that
appropriate biographical and background material has been provided on a timely
basis in accordance with the procedures set forth in our by-laws, the Nominating
and Governance Committee will evaluate stockholder-recommended candidates by
following substantially the same process and applying substantially the same
criteria as it follows for candidates submitted by others.
Stockholders
also have the right under our bylaws to directly nominate director candidates,
without any action or recommendation on the part of the Nominating and
Governance Committee or the board, by following the procedures set forth under
“Submission of Future Stockholder Proposals” of this proxy
statement.
The board
will give appropriate attention to written communications that are submitted by
stockholders and other interested parties, and will respond if and as
appropriate. The chairman of the Nominating and Governance Committee, with the
assistance of our chief executive officer, is primarily responsible for
monitoring communications from stockholders and other interested parties and for
providing copies or summaries to the other directors as he or she considers
appropriate.
Under
procedures approved by a majority of the independent directors, communications
are forwarded to all directors if they relate to important substantive matters
and include suggestions or comments considered to be important for the directors
to know. In general, communications relating to corporate governance and
long-term corporate strategy are more likely to be forwarded than communications
relating to ordinary business affairs, personal grievances and matters as to
which we tend to receive repetitive or duplicative communications.
Stockholders
and interested parties who wish to send communications on any topic to the board
should address such communications to Board of Directors c/o Corporate
Secretary, Centene Corporation, Centene Place, 7711 Carondelet Avenue, St.
Louis, Missouri 63105. Any stockholder or interested party who wishes to
communicate directly with our presiding director, or with our non-employee
directors as a group, should also follow the foregoing method.
Our board
of directors has adopted Corporate Governance Guidelines addressing, among other
things, director qualifications and responsibilities, responsibilities of key
board committees, director compensation and management succession. A current
copy of the Corporate Governance Guidelines is posted on our website,
www.centene.com. In addition, copies of the Corporate Governance Guidelines are
available to all stockholders upon request.
Our board
of directors has adopted a Code of Business Conduct and Ethics which is
applicable to all employees of the Company, including the principal executive
officer and principal financial officer. While no code of conduct can replace
the thoughtful behavior of an ethical director, officer or employee, we feel the
Code of Business Conduct and Ethics will, among other things, focus our board
and management on areas of ethical risk, provide guidance in recognizing and
dealing with ethical issues, provide mechanisms to report
17
unethical
conduct and generally help foster a culture of honesty and accountability. Any
amendment or waiver of the Code of Business Conduct and Ethics may only be made
by the board or a committee of the board. A current copy of the Code of Business
Conduct and Ethics is posted on our website, www.centene.com. Any future
amendments or waivers of the Code of Business Conduct and Ethics will be
promptly disclosed on our website. In addition, copies of the Code of Business
Conduct and Ethics are available to all stockholders upon
request.
Our
policy concerning pre-approval of related party transactions is incorporated in
the provisions of our Code of Business Conduct and Ethics regarding conflicts of
interest. As part of our Code of Business Conduct and Ethics, our directors,
officers and employees are responsible for disclosing any transaction or
relationship that reasonably could be expected to give rise to a conflict of
interest to the Corporate Compliance Officer of the Company or the board of
directors in the case of an executive officer or director, who shall be
responsible for determining whether such transaction or relationship constitutes
a conflict of interest.
The
following table provides information as of December 31, 2007, about the
securities authorized for issuance under our equity compensation plans,
consisting of our 1996 Stock Plan, 1998 Stock Plan, 1999 Stock Plan, 2000 Stock
Plan, 2002 Employee Stock Purchase Plan and 2003 Stock Incentive
Plan.
Equity
Compensation Plan Information
|
|
(a)
|
|
(b)
|
|
(c)
|
||
|
Plan
Category
|
|
Number
of Securities
to
be Issued Upon
Exercise of Outstanding
Options,
Warrants
and
Rights
|
|
Weighted-Average
Exercise
Price of
Outstanding Options,
Warrants
and Rights
|
|
Number
of Securities
Remaining
Available
For
Future Issuance
Under
Equity
Compensation
Plans
(Excluding
Securities
Reflected in Column (a))
|
|
|
Equity
compensation plans approved by stockholders
|
|
5,913,390
|
|
$
|
19.60
|
|
1,339,092
|
|
Equity
compensation plans not approved by stockholders
|
|
—
|
|
—
|
|
—
|
|
|
|
5,913,390
|
|
|
1,339,092
|
|||
The
number of securities in column (a) includes 4,340,701 options with a
weighted-average remaining life of 7.0 years and 1,572,689 shares of restricted
stock and restricted stock units.
The
number of securities in column (c) includes 749,853 shares available for
future issuance under the 2002 Employee Stock Purchase Plan.
Management
is responsible for the preparation of Centene’s consolidated financial
statements and for establishing and maintaining an adequate system of disclosure
controls and procedures and internal control over financial reporting for that
purpose. KPMG LLP, as independent registered public accountants for Centene, is
responsible for performing an independent audit of our consolidated financial
statements and of the Company’s internal control over financial reporting and
issuing a report thereon, in accordance with standards established by the Public
Company Accounting Oversight Board, or PCAOB. The Audit Committee's
responsibility is to monitor and provide independent, objective oversight of
these processes. The Audit Committee has implemented procedures to ensure that
during the course of each fiscal year it devotes the attention it deems
necessary and appropriate to each of the matters assigned to it under its
charter.
The Audit
Committee met and held discussions with management and the independent
registered public accountants to review and discuss all financial statements
included in public filings during the fiscal year ended December 31, 2007
before their issuance and to discuss significant accounting issues and the
Company’s internal controls over financial reporting. Management represented to
the Audit Committee that the consolidated financial statements were prepared in
accordance with generally accepted accounting principles and that there were no
material weaknesses in its internal controls over financial reporting. The Audit
Committee has received from and discussed with the independent registered public
accountants matters required to be discussed under the PCAOB standards, SEC
rules, and Statement on Auditing Standards, or SAS, No. 61, as amended by
SAS No. 90 (Communication with Audit Committees) including, among other things,
the following:
|
•
|
methods
to account for significant unusual
transactions;
|
|
•
|
the
quality of the Centene’s accounting principles, including the effect of
significant accounting policies in controversial or emerging
areas;
|
|
•
|
the
process used by management in formulating particularly sensitive
accounting estimates, the reasonableness of significant judgments, and the
basis for the conclusions of KPMG LLP regarding the reasonableness of
those estimates;
|
|
•
|
disagreements
with management over the application of accounting principles, the basis
for management's accounting estimates and the disclosures in the financial
statements; and
|
|
•
|
material
weaknesses or significant internal control deficiencies, if
any.
|
KPMG LLP
also provided the Audit Committee with the written disclosures and the letter
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees). Independence Standards Board Standard
No. 1 requires auditors, among other things, annually to:
|
•
|
disclose
in writing all relationships that in the auditor’s professional opinion
may reasonably be thought to bear on
independence;
|
|
•
|
confirm
their perceived independence; and
|
|
•
|
engage
in a discussion of independence.
|
The Audit
Committee has discussed with KPMG LLP their independence with respect to
Centene, including a review of audit and non-audit fees and services and
concluded that KPMG LLP is independent.
Based on
its discussions with management and KPMG LLP and its review of the
representations and information provided by management and KPMG LLP, the Audit
Committee recommended to Centene’s Board of Directors that the audited
consolidated financial statements be included in Centene’s Annual Report on Form
10-K for the year ended December 31, 2007.
By the
Audit Committee of the Board of Directors of Centene Corporation.
|
|
AUDIT
COMMITTEE
|
|
|
Steve
Bartlett
|
|
|
Frederick
H. Eppinger
|
|
|
John
R. Roberts, Chair
|
Our board
of directors, upon the recommendation of the Audit Committee, has selected KPMG
LLP to serve as our independent registered public accounting firm for the year
ending December 31, 2008. See “Discussion of proposals – Proposal Two:
Ratification of Appointment of Independent Registered Public Accounting Firm.”
KPMG LLP has served as our independent registered public accounting firm since
June 8,
19
2005. We
expect that representatives of KPMG LLP will be present at our Annual Meeting of
Stockholders to answer appropriate questions. They will have the opportunity to
make a statement if they desire to do so.
The
following table discloses the aggregate fees billed in 2007 and 2006, by KPMG
LLP, our independent registered public accounting firm ($ in
thousands):
|
KPMG
|
||||||||
|
2007
|
2006
|
|||||||
|
Audit
Fees
|
$ | 1,308 | $ | 1,250 | ||||
|
Audit-Related
Fees
|
65 | — | ||||||
|
Tax
Fees
|
— | — | ||||||
|
All
Other Fees
|
— | — | ||||||
Audit
related fees in 2007 consist primarily of fees for operational control
reviews.
The Audit
Committee has adopted policies and procedures relating to the approval of all
audit and non-audit services that are to be performed by our independent
registered public accounting firm. This policy generally provides that we will
not engage our independent registered public accounting firm to render audit or
non-audit services unless the service is specifically approved in advance by the
Audit Committee or the engagement is entered into pursuant to one of the
pre-approval procedures described below.
From time
to time, the Audit Committee may pre-approve specified types of services that
are expected to be provided to us by our independent registered public
accounting firm during the next 12 months. Any such pre-approval is detailed as
to the particular service or type of services to be provided and is also
generally subject to a maximum dollar amount.
The Audit
Committee has also delegated to the chairman of the Audit Committee the
authority to approve any audit or non-audit services to be provided to us by our
independent registered public accounting firm. Any approval of services by the
chairman of the Audit Committee pursuant to this delegated authority is reported
on at the next meeting of the Audit Committee. All audit-related fees and tax
fees for 2007 and 2006 were pre-approved by the Audit Committee, and no fees
were provided under the de minimis exception to the audit committee pre-approval
requirements.
None.
The
compensation committee has reviewed and discussed the “Compensation Discussion
and Analysis” with the Company’s management. Based on such review and
discussions, the compensation committee recommended to the board of directors
that the “Compensation Discussion and Analysis” be included in this proxy
statement.
|
|
COMPENSATION COMMITTEE
|
|
|
Robert
K. Ditmore, Chair
|
|
|
Pamela
A. Joseph
|
|
|
David
L. Steward
|
|
|
Tommy
G. Thompson
|
This
Compensation Discussion and Analysis discusses our compensation policies and
arrangements that are applicable to our Named Executive Officers.
Overview
of the Compensation Program
The
compensation committee administers the executive compensation program. The key
compensation goals are to hire, motivate, reward and retain executives who
create long-term investor value. The philosophy of the compensation committee as
it relates to executive compensation is that our chief executive officer and
other executive officers should be compensated at competitive levels sufficient
to attract, motivate and retain talented executives who are capable of leading
us in achieving our business objectives in an industry facing increasing
regulation, competition and change, while aligning the compensation of senior
management with the long-term interests of stockholders. Centene must leverage
its compensation and benefit programs to attract the best talent in order to
compete and achieve aggressive operating objectives. In light of this, Centene
must view private equity firms as significant competition for talent and that
Centene is a source for them to recruit this talent if the appropriate
compensation programs are not in place. The establishment of aggressive
expectations and Centene’s ability to deliver consistent operating performance
and demonstrated growth in earnings per share has a proven impact on the value
of Centene’s share price and therefore shareholder value; attracting the right
management team and establishing the proper rewards alignment to company
performance is paramount to the interests of both Centene and its
shareholders.
In order
to achieve these objectives, the compensation committee establishes target,
market-based total compensation (e.g., base salary, annual bonus target and
long-term incentives) for similarly sized companies based on revenues. For total
compensation, the committee’s competitive objective is for our total
compensation to:
|
•
|
fall
between the 50th percentile to 75th percentile of similarly-sized
organizations based on revenues of $3 billion;
and
|
|
•
|
approximate
the 50th percentile of larger organizations in the health insurance
industry based on revenues.
|
For each
component of total compensation, the committee’s competitive objectives are for
our:
|
•
|
base
salary to approximate the 75th percentile of similarly-sized
organizations;
|
|
•
|
annual
bonus target to approximate the 50th percentile of similarly-sized
organizations; and
|
|
•
|
long-term
incentives to approximate the 50th percentile of similarly-sized
organizations.
|
Both
objectives generally result in approximately the same market based total
compensation.
The
market data was supplied and analyzed by Hewitt and is based upon survey data
from nine different sources for businesses which the committee feels
are relatively similar in complexity and size (based on 2006 revenues
and market capitalization) to us and are representative of the types of major
companies with which we have historically competed for executive talent. The
Committee validated additional data sources from Pearl Meyer in determining the
compensation for the CEO. Pearl Meyer was retained independently by the
Compensation Committee to provide recommendations for the CEO’s
compensation. The market for executive talent includes companies both
within and outside our industry or sector; therefore, the market data we utilize
includes, in the aggregate, hundreds of companies both within and outside our
industry. The committee considers general market data for similarly sized
companies, as well as industry specific data. The compensation committee
believes that including this broader range of companies is likely to provide a
more representative depiction of the competitive market for talent. For
comparison purposes, our annual revenues are slightly below the median revenues
of the larger sized health care companies included in our market data. Because
of the large variance in size among these companies, regression analysis is used
to adjust the compensation data for differences in revenues and this adjusted
value is used as the basis for comparison between us and the companies in our
market data. In circumstances where an employee was responsible for
21
managing
a certain aspect of our business, the market data was adjusted using regression
analysis to estimate the size of the operations being managed by the employee
(e.g., a plan president).
All
elements of compensation are valued and reviewed in evaluating the relative
competitiveness of our compensation practices against both the market data and
the committee’s competitive objectives. In addition, the committee annually
reviews a tally sheet for each Named Executive Officer, which includes the
current value of all outstanding equity-based awards, deferrals, benefits and
perquisites, as well as potential payments under change in control
agreements. The Committee uses the tally sheets to analyze each Named
Executive Officer’s base salary, annual incentive target and long-term incentive
opportunity in relation to the market and each component of compensation as a
percentage of total compensation.
The
compensation committee has always viewed compensation as a total package that
includes base salary, performance-based bonus compensation, long-term equity
compensation, deferrals, benefits and perquisites. Because we do not provide a
defined benefit pension plan or retiree health care (except for the chief
executive officer as provided for in his employment agreement), the committee
feels that it is important that executives are compensated at levels that may
exceed their counterparts in industries that provide these types of
benefits.
Base
Salaries
In
determining appropriate annual base salaries, in addition to reviewing market
data from Hewitt, the compensation committee considered:
|
•
|
the
chief executive officer’s recommendations as to compensation for all other
executive officers;
|
|
•
|
the
scope of responsibility, experience, time in position and individual
performance of each officer, including the chief executive
officer;
|
|
•
|
the
effectiveness of each executive’s leadership performance and potential to
enhance long-term stockholder value;
and
|
|
•
|
internal
equity.
|
In
certain circumstances such as an external candidate or an executive with high
potential, base salary may be positioned above the competitive objectives, with
the appropriate supporting rationale. The compensation committee’s analysis is a
subjective process that utilizes no specific weighting or formula of the
aforementioned factors in determining executives’ base salaries.
Adjustments
to base salaries are determined based on merit and market. This requires a
detailed evaluation of individual performance, competitive market levels and
rates of increase, executive experience, internal equity, as well as our overall
salary budget. In 2007, Hewitt compared our base salaries to the market data
and, on average; our base salaries for 2007 were approximately equal to the 75th
percentile of the market data. In 2008, the Chairman, President and
Chief Executive Officer’s annual base salary remained at $1,000,000. Other Named
Executive Officers received base salary increases for 2008 in light of the
aforementioned factors. Since annual incentives (as discussed below)
are based on a percentage of base salary, base salary increases also have the
effect of increasing the size of annual incentive opportunity.
Annual
Incentives
The
compensation committee considers annual incentive compensation to be a
motivational method for encouraging and rewarding outstanding individual
performance that contributes to our overall performance. Awards under the bonus
plan are recommended to the board of directors by the compensation committee
based primarily upon:
|
•
|
meeting
the company’s earnings per share
objective;
|
|
•
|
our
overall performance, including our performance versus our business
plan;
|
|
•
|
the
performance of the individual officer including the effectiveness of each
executive’s leadership performance and potential to enhance long-term
stockholder value;
|
|
•
|
targeted
bonus amounts which are based upon market data;
and
|
|
•
|
the
recommendation of the chief executive
officer.
|
Annual
incentive compensation is designed to motivate executives to achieve higher
levels of success through formula driven targets. Executives are rewarded for
meeting annual operating plan objectives for a 12 month period that create
shareholder value. Specifically, the primary corporate financial measurements
for determining bonus eligibility are earnings per share, revenue growth targets
and pre-tax operating margins. Secondly, each business unit has annual operating
plan objectives for a 15 month period consisting of a calendar year plus the
1st
quarter of the following year, which determine bonus eligibility. Business unit
bonuses are based on meeting pre-established operating plan expectations.
Finally, individual performance is evaluated to determine the amount above or
below the targeted range that should be awarded based on individual
contributions. The committee has previously exercised its discretion to pay
bonuses above and below the targeted range.
Target
percentages are positioned, on their own, to be competitive with the 50th
percentile of the market data. However, when applied to our base salaries they
create a total cash opportunity that is consistent with our competitive
objectives. Additional amounts are possible in the committee’s discretion, based
upon the executive’s achievement of above-target performance, which may allow an
executive to actually earn cash compensation near the high end of the range of
our competitive objectives.
The
compensation committee reviewed the chief executive officer’s performance during
2007 and recommended to the board of directors that an annual bonus of
$1,000,000 be awarded to Mr. Neidorff for the year. In making this
recommendation, the compensation committee analyzed certain non-GAAP financial
measures as the committee believed that these figures were critical in analyzing
the ongoing nature of the Company’s operations and measuring the Company’s
performance more consistently from year to year. Using these adjusted
measures, the company met its earnings per share goal and its pre-tax income
increased approximately 33% over 2006. In addition, the Company’s
revenue reached $2.9 billion, an increase of 28% from 2006. Finally,
the company once again reported strong operating cash flow. Mr.
Neidorff’s target of 125% of his annual base, as defined in his employment
agreement, was not entirely paid out as the committee considered the bonus pool
available and award sizes for other officers and employees. Other
Named Executive Officers also received an annual bonus based on each
individual’s performance and the performance of the company. The
committee, in the past, has withheld annual incentive bonuses when certain
financial measures are not met, most recently in 2006.
For 2008,
we will continue to use similar objective performance measures stated above and
also evaluate individual performance for our annual incentive program. The
compensation committee believes that it has set the performance measures targets
to provide the appropriate level of motivation for participants based on market
and industry expectations.
Based on
the amounts of total compensation listed in the Summary Compensation Table,
annual bonus compensation represented from 12% - 39% of total compensation for
the Named Executive Officers in fiscal year 2007. The committee feels that these
amounts are reflective of the program’s objective to reward individual
performance that contributes to our overall performance in light of meeting the
targeted earnings per share amount.
Long-Term
Incentives
Our
long-term incentive compensation is designed to attract and retain key
executives, build an integrated management team, reward for innovation and
risk-taking, balance short-term thinking and share long-term successes while
aligning executive and shareholder interests.
Long-term
incentives are positioned at the lower end of the range of our competitive
objective, for two reasons:
|
•
|
This
keeps our total compensation opportunity in line with our competitive
objectives (that is, not every component of pay can be positioned at the
high end of the range, or else total compensation opportunity will exceed
the high end of the range).
|
|
•
|
Our
staffing model and business plan should provide, over a longer time
horizon, opportunities for greater than average wealth accumulation as
performance warrants.
|
Long-term
incentives are provided both through equity (stock options & restricted
stock units, or RSUs) and cash ensuring that the maximum number of shares of
common stock granted in any calendar year (excluding shares granted in
connection with an acquisition) does not exceed a level associated with
competitive practice.
Stock
options are designed to attract executive talent in a competitive environment
while motivating and building an integrated management team that can balance
short-term thinking with our long-term objectives. Options are normally granted
at the annual December compensation committee meeting, but may also be awarded
at other compensation committee meetings following a promotion, for
extraordinary performance, or at time of hire for eligible
executives.
RSUs are
used to motivate and retain key tenured executives as part of their long-term
incentive compensation while recognizing exceptional performance and rewarding
successful innovation and risk-taking through spot awards. RSUs are normally
granted at the annual December compensation committee meeting, but may be
granted throughout the year. RSU’s may occasionally be used at time of hire to
attract an experienced executive.
In order
to align the interests of our Named Executive Officers and stockholders, RSU’s
granted in December of 2007 to our Named Executive Officers require the company
to meet certain revenue growth and pre-tax income targets in
2008. These targets must be met in order for the individual to have
the opportunity to be entitled to vest in these performance shares over a future
vesting period. Including the year of performance, Mr. Neidorff’s
RSU’s vest over a three year period while the other Named Executive Officers
vest over a four year period. The board of directors determined the
award sizes for each Named Executive Officer by analyzing the competitive
objectives listed above, reviewing a tally sheet for each Named Executive
Officer and evaluating the individual’s 2007 performance.
Under the
2007 Long-Term Incentive Plan, executives will be rewarded for achieving
long-term (3 year) financial objectives of cumulative revenue growth and pre-tax
operating margin. This plan will be used for approximately 50% of total
long-term incentive awards. Cash awards are paid annually after completion of
each 3 year performance cycle and announced annually prior to the beginning of
each 3 year performance cycle. As discussed below, the committee adopted this
type of long-term cash plan, to among other things, complement our
current 2003 Stock Incentive Plan and assist in managing annual dilution and
supplementing the number of shares available under the company’s 2003 Stock
Incentive Plan.
The use
of options and the long-term cash plan satisfies the requirements for qualified
performance-based compensation under Section 162(m) of the Internal Revenue
Code. The use of RSUs helps to reduce annual share usage under the 2003 Stock
Incentive Plan, as compared with stock options. The use of
performance based RSUs in 2008 does not currently satisfy Section 162(m) of the
Internal Revenue Code however, with shareholder approval, it is the intent of
the company that future grants of performance based RSUs will comply with this
section.
Based on
the amounts of total compensation listed in the Summary Compensation Table,
long-term variable compensation represented from 20% to 72% of total
compensation for the Named Executive Officers in fiscal year 2007, which is
consistent with general market practice as well as the committee’s overall
compensation objectives. As noted above, we traditionally grant awards which are
based upon the committee’s recommendation at the December board meeting and do
not “time” the granting of long-term incentives
24
awards
with respect to the release of material non-public information and have not
timed such grants for the purpose of affecting the value of executive
compensation.
Stock
Ownership Guidelines
In 2005,
we established stock ownership guidelines for our Named Executive Officers,
other officers and board of directors. We feel that ownership of our stock helps
align the interests of our executives and shareholders, and encourages
executives to act in a manner that is expected to increase shareholder value.
The stock ownership guidelines for our Named Executive Officers are as
follows:
|
Named
Executive Officer
|
|
Minimum Ownership Requirement
as a Percentage
of Base Salary
|
|
Chairman,
President and Chief Executive Officer
|
|
5X
|
|
Executive
Vice President
|
|
2.5X
|
|
Senior
Vice President
|
|
2X
|
For the
current executive officers, the number of shares that should be owned by the
executive is determined based on the current base salary and share price as of
the implementation date of these guidelines, which was February 2005. For
executives hired or promoted to these positions or a higher position, the number
of shares to be held would be determined at the time of their promotion. In all
cases, an executive would have five years to attain the level of stock ownership
suggested under these guidelines.
The
compensation committee will annually review the stock ownership levels of the
executive officers. Future stock awards will take into consideration the
executive’s level of attainment of the suggested stock ownership
amount.
Officers
who fail to achieve these ownership levels will not be eligible to receive any
stock-based awards until they achieve their required ownership level. Shares
owned directly by the officer (including those held as a joint tenant or as
tenant in common), restricted stock or RSUs, shares owned in a self-directed
IRA, and certain shares owned or held for the benefit of a spouse or minor
children are counted toward the guidelines. Options and unvested RSUs are not
counted toward meeting the ownership guidelines. As of the close of the last
fiscal year and the date of this report, all officers subject to the guidelines
are in compliance with them or still have time to attain compliance in
accordance with the guidelines. We prohibit employees from hedging their stock
ownership.
Our stock
ownership guidelines for members of our board of directors require them to own
10,000 shares of common stock, and the director has three years to obtain this
level of ownership. As of the close of the last fiscal year and the
date of this report, all directors are in compliance with them or still have
time to attain compliance in accordance with the guidelines. We
prohibit directors from hedging their stock ownership.
Other
Benefits
We
provide our Named Executive Officers with a defined contribution retirement
program. This defined contribution retirement program is the same program that
is provided generally to our employees. We also provide our Named Executive
Officers with a non-qualified defined contribution plan to make up for matching
contributions that are limited by compensation limits imposed on qualified
retirement plans under the Internal Revenue Code. We do not provide our Named
Executive Officers with a defined benefit retirement program. We also do not
provide retiree medical coverage to our Named Executive Officers, with the
exception to Mr. Neidorff, as specified in his employment
agreement.
With
respect to most other benefits, the benefits provided to Named Executive
Officers and other executive officers are comparable to those provided to the
majority of salaried and hourly Company employees. In order to ensure that their
tax returns are prepared timely and avoid any appearance of impropriety, we
require all Named Executive Officers to have their tax returns prepared or
reviewed by an independent certified public accounting firm. Due to this
requirement, costs related to these services are paid by us. In addition, each
Named Executive Officer has the option to use a financial advisor for fees that
in total do not exceed $11,000 annually for both tax preparation and financial
advisement.
The board
of directors, or the board, believes that additional security is required for
the position of chairman and chief executive officer. Pursuant to a policy
implemented by our board, Mr. Neidorff is required to use company provided
aircraft for all air travel and we provide home security services to
Mr. Neidorff. Mr. Neidorff’s personal use of company aircraft and home
security services are fully taxable to him and are not grossed up to cover his
personal income tax liability.
Employment
Contracts, Termination of Employment Arrangements, and Change in Control
Arrangements
CEO
Employment Agreement
Michael
F. Neidorff serves as Chairman of our board of directors and our President and
Chief Executive Officer pursuant to an employment agreement dated
November 8, 2004. The term of the employment agreement extends until
November 8, 2014. Under this agreement, we currently pay Mr. Neidorff
an annual salary of $1,000,000, which is subject to an annual review by our
board of directors. Mr. Neidorff is eligible for an annual target bonus of
125% of base salary and a maximum annual bonus equal to not less than 200% of
base salary. The agreement also awarded Mr. Neidorff 1,000,000 restricted
stock units as of November 8, 2004. Of these restricted stock units, 60%
vest in 2009 and the remaining 40% vest ratably beginning in 2010 and ending in
2014. Mr. Neidorff has agreed not to compete with us or solicit any of our
employees during the term of his employment and for 12 months thereafter.
Mr. Neidorff’s employment may be terminated by us for cause or permanent
disability or by Mr. Neidorff for good reason. If Mr. Neidorff is
terminated by us without cause or if he terminates for good reason, he is
entitled to receive salary continuation for a period of 36 months or the
remaining term of the agreement, whichever is shorter (but not less than six
months), lifetime health and dental coverage to which he would be entitled under
the Consolidated Omnibus Budget Reconciliation Act of 1985, or COBRA, lifetime
life insurance coverage, lifetime medical insurance for him and his eligible
dependents, full acceleration of any unexercised stock options or other equity
awards held by him, and acceleration of a portion of unvested restricted stock
units awarded pursuant to the agreement based on certain stipulations. Upon a
change in control during the term of this agreement, any unvested restricted
stock units and any unexercised stock options or other equity awards held by
Mr. Neidorff will vest in full.
Severance
and Change in Control Agreements
Carol E.
Goldman, Jesse N. Hunter, William N. Scheffel and Eric R. Slusser serve as
executive officers pursuant to executive severance and change in control
agreements (the agreements). Under these agreements, 2008 annual salaries are
$400,000, $350,000, $575,000, and $525,000 to Ms. Goldman and Messrs. Hunter,
Scheffel and Slusser, respectively.
The
agreements generally provide that, if within 24 months following a change in
control (as defined), the executive’s employment is terminated by us other than
for cause (as defined in the agreements) or by the executive for good reason (as
defined), the executive will receive a cash payment equal to the sum of
(1) an amount equal to 24 months of salary, (b) the average of the
executive’s last two annual bonuses multiplied by two, and (c) a prorated
annual bonus for the year in which the termination occurs. The executive also
will receive 18 months of medical coverage and the executive’s existing equity
awards will vest in full.
The
agreements also generally provide that, if an executive’s employment is
terminated by us other than for cause or by the executive for good reason in the
absence of a change in control, the executive will receive 12 months of salary
continuation, a prorated annual bonus for the year in which the termination
occurs, 12 months of medical coverage and 12 months of continued vesting of the
executive’s existing equity awards.
In the
agreements, the executives agree to non-competition and non-solicitation
provisions that extend through the first anniversary of termination of
employment, regardless of the reason for termination.
The board
has determined that it is in our best interests and our shareholders to assure
that we will have the continued dedication of the executive, notwithstanding the
possibility, threat, or occurrence of a change in control. The board believes it
is imperative to diminish the inevitable distraction of the executive by virtue
of the personal uncertainties and risks created by a pending or threatened
change in control, to encourage the executive’s full attention and dedication to
us, and to provide the executive with compensation and benefits
26
arrangements
upon a change in control which (i) will satisfy the executive’s
compensation and benefits expectations and (ii) are competitive with those
of other major corporations.
Deductibility
of Executive Compensation
Section 162(m)
of the Internal Revenue Code generally disallows a tax deduction to a publicly
traded company for compensation in excess of $1 million paid to our chief
executive officer and its four other most highly compensated executive officers.
Some types of compensation, including qualified performance-based compensation,
will not be subject to the deduction limit if specified requirements are met. In
general, we structure and administer our stock incentive plans in a manner
intended to comply with the performance-based exception to Section 162(m).
Additionally, we intend that our Short-Term Executive Compensation Plan complies
with the performance-based exception to Section 162(m). Nevertheless, there
can be no assurance that compensation attributable to awards granted under our
stock option plans or our Short-Term Executive Compensation Plan will be treated
as qualified performance-based compensation under Section 162(m). In
addition, the compensation committee reserves the right to use its judgment to
authorize compensation payments that may be subject to the limit when the
compensation committee believes such payments are appropriate and in the best
interests of us and our stockholders, after taking into consideration changing
business conditions and the performance of its employees.
The
following table summarizes the compensation of our Named Executive Officers for
the fiscal years ended December 31, 2007 and 2006. Additional description
of each component of compensation for our Named Executive Officers is included
elsewhere in this Proxy Statement under the caption, “Compensation Discussion
and Analysis.”
|
Name &
Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($) 1
|
Option
Awards
($) 2
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change
in
Pension
Value
and
Non-qualified
Deferred
Compen-
sation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||||||
|
Michael F. Neidorff
|
2007
|
$ | 1,000,000 | $ | 1,000,000 | $ | 3,977,009 | 5 | $ | 2,296,518 | $ | — | $ | — | $ | 477,224 | 6 | $ | 8,750,751 | |||||||||||||||
|
Chairman,
President and Chief Executive Officer
|
2006
|
950,000 | — | 3,931,941 | 5 | 2,767,140 | — | — | 397,228 | 8,046,309 | ||||||||||||||||||||||||
|
Eric
R. Slusser3
|
2007
|
228,365 | 275,000 | 59,427 | 86,297 | — | — | 63,986 | 7 | 713,075 | ||||||||||||||||||||||||
|
Executive
Vice President and Chief Financial Officer
|
||||||||||||||||||||||||||||||||||
|
Carol E. Goldman
|
2007
|
375,000 | 170,000 | 84,044 | 285,068 | — | — | 25,603 | 8 | 939,715 | ||||||||||||||||||||||||
|
Executive
Vice President and Chief Administrative Officer
|
2006
|
325,000 | 32,058 | 23,546 | 285,078 | — | — | 18,719 | 684,401 | |||||||||||||||||||||||||
|
Jesse
N. Hunter
|
2007
|
266,538 | 180,000 | 159,856 | 84,835 | — | — | 8,156 | 699,385 | |||||||||||||||||||||||||
|
Senior
Vice President, Corporate Development
|
||||||||||||||||||||||||||||||||||
|
William N. Scheffel
|
2007
|
510,000 | 350,000 | 107,571 | 467,477 | — | — | 26,362 | 9 | 1,461,410 | ||||||||||||||||||||||||
|
Executive
Vice President, Specialty Business Unit
|
2006
|
425,000 | 11,947 | 29,458 | 436,650 | — | — | 22,498 | 925,553 | |||||||||||||||||||||||||
|
J.
Per Brodin
|
2007
|
350,000 | 113,039 | 68,958 | 61,441 | — | — | 8,079 | 601,517 | |||||||||||||||||||||||||
|
Senior Vice President and
Chief Accounting Officer4
|
2006
|
276,923 | — | 39,595 | 38,834 | — | — | 8,006 | 363,358 | |||||||||||||||||||||||||
_______________________
|
1
|
The
amounts reported as Stock Awards reflect the dollar amount recognized
for financial statement reporting purposes for the fiscal year ended
December 31, 2007 and 2006 in accordance with Statement of
Financial Accounting Standards No. 123 (revised 2004), or SFAS 123R,
of stock awards granted under the 2003 Stock Incentive Plan and
thus may include amounts from awards granted in and prior to the presented
year. Pursuant to SEC rules, the amounts shown exclude the impact of
estimated forfeitures related to service-based vesting conditions.
Assumptions used in the calculation of these amounts are included in
footnote 14 to the Company’s audited financial statements for the
fiscal year ended December 31, 2007, included in the Company’s Annual
Report on Form 10-K filed with
|
|
|
the
Securities and Exchange Commission on February 25,
2008. There can be no assurance that the grant date fair value of
Stock Awards will ever be realized.
|
|
2
|
The
amounts reported as Option Awards reflect the dollar amount
recognized for financial statement reporting purposes for the fiscal year
ended December 31, 2007 and 2006 in accordance with SFAS 123R
of option awards granted under our stock plans and thus include
amounts from awards granted in and prior to the presentation year.
Pursuant to SEC rules, the amounts shown exclude the impact of estimated
forfeitures related to service-based vesting conditions. Assumptions used
in the calculation of this amount for fiscal years ended December 31,
2005, 2006 and 2007 are included in footnote 14 to the Company’s
audited financial statements for the fiscal year ended December 31,
2007, included in the Company’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 25, 2008.
Assumptions used in the calculation of this amount for fiscal years ended
December 31, 2003 and 2004, are included in footnote 14 to the
Company’s audited financial statements for the fiscal year ended
December 31, 2004, included in the Company’s Annual Report on Form
10-K filed with the Securities and Exchange Commission
on February 24, 2005. There can be no assurance that
the grant date fair value of Option Awards will ever be
realized.
|
|
3
|
Mr.
Slusser joined Centene on July 9, 2007.
|
|
4
|
From
January 2007 through June 2007, Mr. Brodin served as Senior Vice President
and Chief Financial Officer. Mr. Brodin terminated his
employment with the Company effective February 9,
2008.
|
|
5
|
The
amount reported as stock awards for Mr. Neidorff represents the
expense recorded in 2006 and 2007, respectively, for the restricted stock
awards granted to Mr. Neidorff in 2004 and 2007. The full grant date
fair value of the 2004 award was previously disclosed in the Summary
Compensation Table in 2004.
|
|
6
|
All
other compensation includes $182,132 of personal use of company provided
aircraft. Pursuant to the policy established by our board, our Chairman,
President and Chief Executive Officer is required to use company provided
aircraft for all travel, a taxable benefit to Mr. Neidorff pursuant
to the applicable Internal Revenue Service regulations. For flights on
corporate aircraft, aggregate incremental cost is calculated based on a
cost-per-flight-hour charge developed by a nationally recognized and
independent service. This flight-hour charge reflects the direct operating
costs of the aircraft, including fuel, additives and lubricants, airport
fees and assessments, as well as aircraft landing and parking, customs and
permit fees, in-flight supplies and food, and flight planning and weather
services. In addition, the flight-hour charge provides for periodic engine
and auxiliary power unit overhauling, outside labor and maintenance parts
for the airframe, engine and avionics, crew travel expenses and other
miscellaneous costs. The other amounts included in other compensation for
Mr. Neidorff include $132,768 in life insurance benefits, $114,043 for
security services, $30,531 of nonqualified deferred compensation match,
tax preparation fees and 401K
match.
|
|
7
|
All
other compensation includes relocation reimbursement of
$59,837.
|
|
8
|
All
other compensation includes tax preparation fees as well as life insurance
benefits.
|
|
9
|
All
other compensation includes nonqualified deferred compensation match of
$19,612.
|
The
following table provides information on 2007 grants of stock options and
restricted stock units under the 2003 Stock Incentive Plan, as well as 2007
cash-based grants under the 2007 Long-Term Incentive Plan to each of our Named
Executive Officers. The portion of these stock awards that was expensed on our
statement of operations in 2007 is shown in the Summary Compensation Table. The
vesting provisions of the equity awards are included in the footnotes to the
Outstanding Equity Awards at Fiscal Year-End Table.
|
Estimated
Future Payouts Under Non-Equity
Incentive Plan Awards1
|
All Other
Stock
Awards:
Number
of
Shares
of
Stock or
Units (#)
2
|
All
Other
Option
Awards:
Number
of
Securities
Underlying
Options
(#)
2
|
Exercise
or
Base
Price
of
Option
Awards
($/Sh)
|
Closing
Market Price on Date of Grant
($/Sh)
|
|||||||||||||||||||||
|
Name
|
Grant
Date
|
Threshold ($) |
Target
($)
|
Maximum
($)
|
Grant
Date
Fair Value ($) 3
|
||||||||||||||||||||
|
Michael
F. Neidorff
|
12/12/2007
|
$
|
—
|
$
|
—
|
$
|
—
|
100,000
|
—
|
$
|
—
|
$
|
—
|
$
|
2,479,000
|
||||||||||
|
12/12/2007
|
600,000
|
1,500,000
|
2,250,000
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||
|
Eric
R. Slusser
|
7/9/2007
|
—
|
—
|
—
|
—
|
75,000
|
21.97
|
22.12
|
899,798
|
||||||||||||||||
|
7/9/2007
|
—
|
—
|
—
|
25,000
|
—
|
—
|
—
|
549,250
|
|||||||||||||||||
|
12/12/2007
|
—
|
—
|
—
|
20,000
|
—
|
—
|
—
|
495,800
|
|||||||||||||||||
|
12/12/2007
|
190,000
|
475,000
|
712,500
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||
|
Carol
E. Goldman
|
12/12/2007
|
—
|
—
|
—
|
10,000
|
—
|
—
|
—
|
247,900
|
||||||||||||||||
|
12/12/2007
|
90,000
|
225,000
|
337,500
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||
|
Jesse
N. Hunter
|
12/12/2007
|
—
|
—
|
—
|
10,000
|
—
|
—
|
—
|
247,900
|
||||||||||||||||
|
12/12/2007
|
72,000
|
180,000
|
270,000
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||
|
William
N. Scheffel
|
12/12/2007
|
—
|
—
|
—
|
20,000
|
—
|
—
|
—
|
495,800
|
||||||||||||||||
|
12/12/2007
|
204,000
|
510,000
|
765,000
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||
|
J.
Per Brodin4
|
12/12/2007
|
—
|
—
|
—
|
—
|
5,000
|
24.79
|
25.23
|
60,581
|
||||||||||||||||
|
12/12/2007
|
84,000
|
210,000
|
315,000
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||
________________
|
1
|
Grants
under the 2007 Long-term Incentive Plan were made by the Board of
Directors in December 2007, and established at
target. Performance conditions, as well as thresholds and
maximums related to the grant were approved by the Board of Directors in
February 2008.
|
|
2
|
All
2007 stock and option grants were made under the 2003 Stock Incentive
Plan.
|
|
3
|
The
exercise price for Option Awards is equal to the closing price of Centene
stock the day immediately preceding the grant date. The Grant Date Fair
Value is determined in accordance with SFAS 123R. Assumptions used in the
calculation of this amount are included in footnote 14 to the
Company’s audited financial statements for the fiscal year ended
December 31, 2007, included in the Company’s Annual Report on Form
10-K filed with the Securities and Exchange Commission
on February 25, 2008. There can be no assurance that the
Grant Date Fair Value of Stock and Option Awards will ever be
realized.
|
|
4
|
Mr.
Brodin terminated his employment with the Company effective February 9,
2008. As a result of the termination, the awards listed above
have been forfeited.
|
The
following table shows the number of shares covered by exercisable and
unexercisable options and unvested RSUs held by our Named Executive Officers on
December 31, 2007:
|
Name
|
Option
Awards
|
Stock
Awards
|
|||||||||||||
|
Number of Securities
Underlying
Unexercised
Options
(#
Exercisable)
|
Number
of
Securities
Underlying
Unexercised
Options
(# Unexercisable)
|
Option
Exercise
Price
1
($)
|
|
Option
Expiration
Date
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
|
Market
Value
of
Shares or
Units
of Stock
That
Have
Not
Vested ($)
|
|||||||||
|
Michael
F. Neidorff
|
20,009
|
—
|
$
|
7.57
|
|
7/24/2012
|
1,000,000
|
6
|
$
|
27,440,000
|
|||||
|
194,036
|
60,000
|
3
|
13.58
|
|
8/26/2013
|
100,000
|
7
|
2,744,000
|
|||||||
|
200,000
|
—
|
13.98
|
|
12/16/2013
|
—
|
—
|
|||||||||
|
180,000
|
—
|
17.85
|
|
7/27/2014
|
—
|
—
|
|||||||||
|
133,333
|
66,667
|
4
|
25.40
|
|
12/13/2015
|
—
|
—
|
||||||||
|
33,334
|
66,666
|
5
|
25.21
|
|
12/ 12/2016
|
—
|
—
|
||||||||
|
Eric
R. Slusser
|
—
|
75,000
|
8
|
21.97
|
7/9/2017
|
25,000
|
9
|
686,000
|
|||||||
|
—
|
—
|
—
|
—
|
20,000
|
10
|
548,800
|
|||||||||
|
Carol
E. Goldman
|
7,500
|
—
|
6.91
|
|
11/2/2011
|
12,000
|
17
|
329,280
|
|||||||
|
15,000
|
—
|
7.57
|
|
7/24/2012
|
10,000
|
10
|
274,400
|
||||||||
|
16,000
|
4,000
|
11
|
13.58
|
|
8/26/2013
|
—
|
—
|
||||||||
|
4,415
|
4,000
|
12
|
13.98
|
|
12/16/2013
|
—
|
—
|
||||||||
|
3,000
|
6,000
|
13
|
16.65
|
|
5/4/2014
|
—
|
—
|
||||||||
|
24,000
|
16,000
|
14
|
26.07
|
|
12/8/2014
|
—
|
—
|
||||||||
|
4,000
|
6,000
|
15
|
25.40
|
|
12/13/2015
|
—
|
—
|
||||||||
|
1,000
|
4,000
|
16
|
25.21
|
|
12/12/2016
|
—
|
—
|
||||||||
|
Jesse
N. Hunter
|
6,000
|
—
|
6.29
|
2/21/2012
|
16,000
|
18
|
439,040
|
||||||||
|
12,000
|
3,000
|
11
|
13.58
|
8/26/2013
|
10,000
|
10
|
274,400
|
||||||||
|
3,200
|
4,800
|
15
|
25.40
|
12/13/2015
|
—
|
—
|
|||||||||
|
2,400
|
9,600
|
16
|
25.21
|
12/12/2016
|
—
|
—
|
|||||||||
|
William
N. Scheffel
|
26,486
|
10,000
|
19
|
15.35
|
|
12/1/2013
|
15,000
|
21
|
411,600
|
||||||
|
18,000
|
12,000
|
13
|
16.65
|
|
5/4/2014
|
20,000
|
10
|
548,800
|
|||||||
|
30,000
|
20,000
|
14
|
26.07
|
|
12/8/2014
|
—
|
—
|
||||||||
|
10,000
|
15,000
|
20
|
32.06
|
|
7/26/2015
|
—
|
—
|
||||||||
|
4,000
|
6,000
|
15
|
25.40
|
|
12/13/2015
|
—
|
—
|
||||||||
|
2,000
|
8,000
|
16
|
25.21
|
|
12/12/2016
|
—
|
—
|
||||||||
|
J.
Per Brodin2
|
3,000
|
4,500
|
23.85
|
|
11/28/2015
|
10,000
|
274,400
|
||||||||
|
2,000
|
8,000
|
28.26
|
|
4/24/2016
|
—
|
—
|
|||||||||
|
1,000
|
4,000
|
25.21
|
|
12/12/2016
|
—
|
—
|
|||||||||
|
—
|
5,000
|
24.79
|
|
12/12/2017
|
|||||||||||
__________________
|
1
|
The
option price for each grant is equal to the previous day’s closing market
price.
|
|
2
|
Pursuant
to the terms of the Plan, Mr. Brodin has 30 days from February 9, 2008 to
exercise any vested option awards. Any unvested options or
restricted stock units outstanding as of December 31, 2007 have been
forfeited.
|
|
3
|
The
options vest on August 26,
2008
|
|
4
|
The
options vest on December 13, 2008.
|
|
5
|
The
options vest in two equal annual installments on the anniversary of the
grant date beginning on December 12, 2008.
|
|
6
|
600,000
shares vest on November 8, 2009 and 80,000 shares vest each on November 8,
2010, 2011, 2012, 2013 and 2014.
|
|
7
|
The
shares vest in three equal annual installments on the anniversary of the
grant date beginning on December 12, 2008, subject to performance
conditions.
|
|
8
|
The
options vest in five equal annual installments on the anniversary of the
grant date beginning on July 9, 2008.
|
|
9
|
The
shares vest in five equal annual installments on the anniversary of the
grant date beginning on July 9, 2008.
|
|
10
|
The
shares vest in four equal annual installments on the anniversary of the
grant date beginning on December 12, 2008, subject to performance
conditions.
|
|
11
|
The
options vest on August 26, 2008.
|
|
12
|
The
options vest on December 16, 2008.
|
|
13
|
The
options vest in two equal annual installments on the anniversary of the
grant date beginning on May 4, 2008.
|
|
14
|
The
options vest in two equal annual installments on the anniversary of the
grant date beginning on December 8, 2008.
|
|
15
|
The
options vest in three equal annual installments on the anniversary of the
grant date beginning on December 13, 2008.
|
|
16
|
The
options vest in four equal annual installments on the anniversary of the
grant date beginning on December 12, 2008.
|
|
17
|
2,400
shares vest in three equal annual installments on the anniversary of the
grant date beginning on December 13, 2008; 9,600 shares vest in four equal
annual installments on the anniversary of the grant date beginning on
December 12, 2008.
|
|
18
|
10,500
shares vest in three equal annual installments on the anniversary of the
grant date beginning on February 7, 2008; 1,500 shares vest in three equal
annual installments on the anniversary of the grant date beginning on
December 13, 2008; 4,000 shares vest in four equal annual installments on
the anniversary of the grant date beginning on December 12,
2008.
|
|
19
|
The
options vest on December 1, 2008.
|
|
20
|
The
options vest in three equal annual installments on the anniversary of the
grant date beginning on July 26, 2008.
|
|
21
|
3,000
shares vest in three equal annual installments on the anniversary of the
grant date beginning on December 13, 2008; 12,000 shares vest in four
equal annual installments on the anniversary of the grant date beginning
on December 12, 2008.
|
The
following table shows the number of shares of Centene stock acquired by our
Named Executive Officers in 2007 upon exercise of options or vesting of
RSUs:
|
Name
|
Option
Awards
|
Stock
Awards
|
|||||||||
|
Number of Shares
Acquired on Exercise (#)
|
Value Realized on
Exercise
($)2
|
Number of Shares
Acquired on Vesting (#)
|
Value Realized on
Vesting
($)4
|
||||||||
|
Michael
F. Neidorff
|
30,000
|
3
|
$
|
442,800
|
—
|
$
|
—
|
||||
|
Eric
R. Slusser
|
—
|
—
|
—
|
—
|
|||||||
|
Carol
E. Goldman
|
29,063
|
4
|
353,138
|
3,200
|
3
|
79,680
|
|||||
|
Jesse
N. Hunter
|
—
|
—
|
5,000
|
3
|
124,555
|
||||||
|
William
N. Scheffel
|
5,000
|
3
|
30,100
|
4,000
|
3
|
99,600
|
|||||
|
J.
Per Brodin
|
—
|
—
|
2,500
|
3
|
60,355
|
||||||
|
1
|
All
options exercised and stock awards vested are reflected in basic shares
outstanding.
|
|
2
|
Amounts
presented are on a pre-tax basis.
|
|
3
|
These
options or stock units were exercised or vested and the resulting shares
held, resulting in a deferral in the value realized.
|
|
4
|
10,000
of these options were exercised and the resulting shares held, resulting
in a deferral in the value
realized.
|
Under the
Company’s Deferred Compensation Plan, the Named Executive Officers may
contribute any designated percentage of salary and / or bonus into the plan
which serves as an excess savings plan when tax limitations are reached under
our tax qualified 401(k) plan. The following table shows the change in the
Nonqualified Deferred Compensation balances for our Named Executive Officers for
the fiscal year ended December 31, 2007:
|
Name
|
|
Executive
Contributions in
Last
FY ($) 1
|
|
Registrant
Contributions in
Last
FY ($) 2
|
|
Aggregate
Earnings in Last
FY
($) 3
|
|
Aggregate
Withdrawals/
Distributions ($)
|
Aggregate Balance
at
Last FYE ($) 4
|
|||||||
|
Michael
F. Neidorff
|
|
$
|
60,000
|
|
$
|
30,531
|
|
$
|
57,500
|
|
$
|
(100,642
|
)
|
$
|
560,520
|
|
|
Eric
R. Slusser
|
|
7,673
|
|
3,837
|
|
180
|
|
—
|
11,690
|
|||||||
|
Carol
E. Goldman
|
|
11,136
|
|
7,317
|
|
10,274
|
|
—
|
84,506
|
|||||||
|
Jesse
N. Hunter
|
—
|
|
—
|
|
—
|
|
—
|
—
|
||||||||
|
William
N. Scheffel
|
|
30,207
|
|
19,612
|
|
15,698
|
|
—
|
151,276
|
|||||||
|
J.
Per Brodin
|
|
—
|
|
1,329
|
|
19
|
|
—
|
1,348
|
|||||||
__________________
|
1
|
Executive
contributions are included in the Salary column in the Summary
Compensation Table.
|
|
2
|
Registrant
contributions are included in the Other Compensation column in the Summary
Compensation Table.
|
|
3
|
The
company does not pay above market interest or preferential dividends on
investments in the Deferred Compensation
Plan.
|
|
4
|
The
Aggregate Balance at Last Fiscal Year-End column includes money the
company owes these individuals for salaries and incentive compensation
they earned in prior years but did not receive because they elected to
defer receipt of it and save it for
retirement.
|
The
following table summarizes the compensation of our non-employee directors for
the fiscal year ended December 31, 2007:
|
Name
|
Fees Earned or Paid in
Cash
($)
|
Stock Awards ($) 1
|
Option Awards ($) 2
|
Total
($)
|
||||||||||||
|
Steve
Bartlett
|
$ | — | $ | 175,038 | $ | — | $ | 175,038 | ||||||||
|
Robert
K. Ditmore
|
— | 180,038 | — | 180,038 | ||||||||||||
|
Frederick
H. Eppinger
|
— | 175,038 | 47,923 | 222,961 | ||||||||||||
|
Richard
A. Gephardt
|
78,750 | 115,367 | 45,398 | 239,515 | ||||||||||||
|
Pamela
A. Joseph
|
— | 59,688 | 10,310 | 69,998 | ||||||||||||
|
John
R. Roberts
|
— | 185,038 | — | 185,038 | ||||||||||||
|
David
L. Steward
|
— | 180,038 | — | 180,038 | ||||||||||||
|
Tommy
G. Thompson
|
— | 178,788 | 49,076 | 227,864 | ||||||||||||
________________
|
1
|
The
amounts reported as Stock Awards reflect the dollar amount recognized
for financial statement reporting purposes for the fiscal year ended
December 31, 2007, in accordance with Statement of Financial
Accounting Standards No. 123 (revised 2004), or SFAS 123R, of stock
awards granted under the 2003 Stock Incentive Plan and Non-Employee
Directors Deferred Stock Compensation Plan, and thus may include amounts
from awards granted in and prior to 2007. Pursuant to SEC rules, the
amounts shown exclude the impact of estimated forfeitures related to
service-based vesting conditions. Assumptions used in the calculation of
these amounts are included in footnote 14 to the Company’s audited
financial statements for the fiscal year ended December 31, 2007,
included in the Company’s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 25,
2008. There can be no assurance that the grant date fair value of
Stock Awards will ever be realized. Further detail of the stock
awards included herein is discussed
below.
|
|
2
|
The
amounts reported as Option Awards reflect the dollar amount
recognized for financial statement reporting purposes for the fiscal year
ended December 31, 2007, in accordance with SFAS 123R
of option awards granted under our stock plans and thus include
amounts from awards granted in and prior to 2007. Pursuant to SEC rules,
the amounts shown exclude the impact of estimated forfeitures related to
service-based vesting conditions. Assumptions used in the calculation of
this amount for fiscal years ended December 31, 2005, 2006 and 2007
are included in footnote 14 to the Company’s audited financial
statements for the fiscal year ended December 31, 2007, included in
the Company’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission on February 25,
|
|
|
2008.
There can be no assurance that the grant date fair value of Option
Awards will ever be realized. Further discussion of the option awards
included herein is discussed below.
|
Non-employee
directors currently receive a quarterly retainer fee of $25,000, provided that
the director elects 100% payment pursuant to the Company’s Non-Employee
Directors Deferred Stock Compensation Plan. Directors not making this election
receive a quarterly retainer fee of $18,750. In addition, the
chairman of the Audit Committee receives a quarterly retainer fee of $2,500 and
the chairman of the Compensation Committee, the Nominating and Governance
Committee, and Government and Regulatory Affairs Committee each receives a
quarterly fee of $1,250. All cash fees are eligible for deferral under the
Non-Employee Directors Deferred Stock Compensation Plan. Expense recognized in
conjunction with the deferred stock election is included in the “Stock Awards”
column in the Director Compensation Table above.
Effective
April 22, 2008, the quarterly retainer fee of $25,000 will be increased to
$31,250, provided that the non-employee director elects 100% payment pursuant to
the Non-Employee Directors Deferred Stock Compensation Plan. The quarterly
retainer fee for directors not making this election will increase to
$25,000. The chairman of the Audit Committee will receive a quarterly
retainer fee of $7,500 and the chairman of the Compensation Committee, the
Nominating and Governance Committee, and Government and Regulatory Affairs
Committee will each receive a quarterly fee of $3,750.
Each new
non-employee director, as of the date on which such director is first elected to
the board, is granted an option under our 2003 Stock Incentive Plan to purchase
10,000 shares of our common stock vesting in three equal annual installments
commencing on the first anniversary of the grant date. During the year ended
December 31, 2007, Ms. Joseph was granted 10,000 options with a grant date
fair market value of $114,700. Additionally, each non-employee director receives
a grant, as of the date of each annual meeting of stockholders, or when first
elected to the board, of restricted shares of our common stock having
a deemed value of $75,000 (or equivalent equity-based incentives payable in
common stock). During the year ended December 31, 2007, each of the eight
non-employee directors were granted restricted shares with a grant date fair
market value of $75,000. Effective April 22, 2008, the grant made to each board
member as of the date of each annual meeting of stockholders will be increased
to a deemed value of $100,000.
The
following table shows the number of shares covered by exercisable and
unexercisable options and unvested RSUs held by our board of directors on
December 31, 2007:
|
Option
Awards
|
Stock
Awards
|
||||||||
|
Name
|
|
Number
of Securities Underlying Unexercised Options (# Exercisable)
|
|
Number
of Securities Underlying Unexercised Options
(#
Unexercisable)
|
|
Number
of Shares or Units of Stock That Have Not Vested (#)
|
|||
|
Steve
Bartlett
|
|
|
—
|
|
|
—
|
|
|
3,127
|
|
Robert
K. Ditmore
|
|
|
32,500
|
|
|
—
|
|
|
3,127
|
|
Frederick
H. Eppinger
|
|
3,334
|
|
6,666
|
|
3,127
|
|||
|
Richard
A. Gephardt
|
|
3,334
|
|
6,666
|
|
3,127
|
|||
|
Pamela
A. Joseph
|
—
|
10,000
|
3,554
|
||||||
|
John
R. Roberts
|
|
10,000
|
|
—
|
|
3,127
|
|||
|
David
L. Steward
|
|
25,000
|
|
—
|
|
3,127
|
|||
|
Tommy
G. Thompson
|
|
10,000
|
|
—
|
|
3,127
|
|||
Directors
are reimbursed for all reasonable expenses incurred in connection with their
service. Directors who are also our employees receive no additional compensation
for serving on our board of directors.
In
addition, the board has in the past granted, and may in the future grant, stock
options and other equity awards to both employee and non-employee directors
under our stock plans.
The
section below describes the payments that may be made to our Named Executive
Officers upon termination or a change in control. Generally, pursuant to our
executive agreements, a change in control is deemed to occur:
|
•
|
If
any individual, entity or group (other than a group which includes the
executive) acquires 40% or more of the voting power of our outstanding
securities;
|
|
•
|
If
a majority of the incumbent board of directors are replaced. For these
purposes, the incumbent board of directors means the directors who were
serving as of the effective date of the applicable executive agreement and
any individual who becomes a director subsequent to such date whose
election or nomination for election was approved by a majority of such
directors, other than in connection with a proxy
contest; or
|
|
•
|
Upon
the consummation of a merger or consolidation of the Company with another
person, other than a merger or consolidation where the individuals and
entities who were beneficial owners, respectively, of our outstanding
voting securities immediately prior to such merger or consolidation own
50% or more of the then-outstanding shares of the combined voting power of
the then-outstanding voting securities of the corporation resulting from
such merger or consolidation.
|
The
amounts presented below assume the termination or change in control occurred as
of December 31, 2007. The applicable agreements are discussed in the
Compensation Discussion and Analysis under the heading- “Employment Contracts,
Termination of Employment Arrangements, and Change in Control Arrangements”
included on page 26 of this Proxy Statement.
Michael
F. Neidorff
|
Executive Benefits
and
Payments
Upon Terminations
|
Voluntary
Termination
|
Involuntary
Not for Cause
or
Voluntary
with
Good
Reason
Termination
|
For
Cause
Termination
|
Death
|
Disability
|
Change
in
Control
|
||||||||||||||||||
|
Severance
|
$ | — | $ | 6,750,000 | $ | — | $ | — | $ | — | $ | 6,750,000 | ||||||||||||
|
Pro
rata Bonus Payment
|
— | 1,250,000 | — | 1,250,000 | 1,250,000 | 1,250,000 | ||||||||||||||||||
|
Unvested
Stock Option Spread
|
— | 1,116,266 | — | 1,116,266 | 1,116,266 | 1,116,266 | ||||||||||||||||||
|
Unvested
Restricted Stock
|
— | 13,720,000 | — | 27,440,000 | 27,440,000 | 27,440,000 | ||||||||||||||||||
|
Long-term
Incentive Plan Payment
|
— | 4,169,000 | — | 4,169,000 | 4,169,000 | 4,169,000 | ||||||||||||||||||
|
Welfare
Benefits Values
|
1,604,000 | 1,604,000 | — | 118,547 | 1,604,000 | 1,604,000 | ||||||||||||||||||
|
Excise
Tax & Gross-Up
|
— | — | — | — | — | 11,660,813 | ||||||||||||||||||
Eric
R. Slusser
|
Executive
Benefits and
Payments
Upon Terminations
|
Voluntary
Termination
|
Involuntary
Not for Cause
Termination
|
For
Cause
Termination
|
Death
or
Disability
|
Change in
Control
|
|||||||||||||||
|
Severance
|
$ | — | $ | 475,000 | $ | — | $ | — | $ | 1,662,500 | ||||||||||
|
Pro
rata Bonus Payment
|
— | 356,250 | — | — | 356,250 | |||||||||||||||
|
Unvested
Stock Option Spread
|
— | 82,050 | — | — | 410,250 | |||||||||||||||
|
Unvested
Restricted Stock
|
— | 137,200 | — | — | 686,000 | |||||||||||||||
|
Long-term
Incentive Plan Payment
|
— | 137,200 | — | — | 1,023,800 | |||||||||||||||
|
Welfare
Benefits Values
|
— | 5,247 | — | — | 100,431 | |||||||||||||||
|
Outplacement
|
— | 10,000 | — | — | 10,000 | |||||||||||||||
|
Excise
Tax & Gross-Up
|
— | — | — | — | 1,401,522 | |||||||||||||||
Carol
E. Goldman
|
Executive
Benefits and
Payments
Upon Terminations
|
Voluntary
Termination
|
Involuntary
Not for Cause
Termination
|
For
Cause
Termination
|
Death
or
Disability
|
Change in
Control
|
|||||||||||||||
|
Severance
|
$ | — | $ | 375,000 | $ | — | $ | — | $ | 810,000 | ||||||||||
|
Pro
rata Bonus Payment
|
— | 187,500 | — | — | 187,500 | |||||||||||||||
|
Unvested
Stock Option Spread
|
— | 158,920 | — | — | 217,100 | |||||||||||||||
|
Unvested
Restricted Stock
|
— | 87,808 | — | — | 329,280 | |||||||||||||||
|
Long-term
Incentive Plan Payment
|
— | 68,600 | — | — | 469,400 | |||||||||||||||
|
Welfare
Benefits Values
|
— | 700 | — | — | 100,316 | |||||||||||||||
|
Outplacement
|
— | 10,000 | — | — | 10,000 | |||||||||||||||
|
Excise
Tax & Gross-Up
|
— | — | — | — | 648,832 | |||||||||||||||
Jesse
N. Hunter
|
Executive Benefits
and
Payments
Upon Terminations
|
Voluntary
Termination
|
Involuntary
Not for Cause
Termination
|
For
Cause
Termination
|
Death
or
Disability
|
Change in
Control
|
|||||||||||||||
|
Severance
|
$ | — | $ | 300,000 | $ | — | $ | — | $ | 660,000 | ||||||||||
|
Pro
rata Bonus Payment
|
— | 120,000 | — | — | 120,000 | |||||||||||||||
|
Unvested
Stock Option Spread
|
— | 50,196 | — | — | 72,780 | |||||||||||||||
|
Unvested
Restricted Stock
|
— | 137,200 | — | — | 439,040 | |||||||||||||||
|
Long-term
Incentive Plan Payment
|
— | 68,600 | — | — | 382,400 | |||||||||||||||
|
Welfare
Benefits Values
|
— | 12,144 | — | — | 66,906 | |||||||||||||||
|
Outplacement
|
— | 10,000 | — | — | 10,000 | |||||||||||||||
|
Excise
Tax & Gross-Up
|
— | — | — | — | 613,965 | |||||||||||||||
William
N. Scheffel
|
Executive Benefits
and
Payments
Upon Terminations
|
Voluntary
Termination
|
Involuntary
Not for Cause
Termination
|
For
Cause
Termination
|
Death
or
Disability
|
Change in
Control
|
|||||||||||||||
|
Severance
|
$ | — | $ | 510,000 | $ | — | $ | — | $ | 1,120,000 | ||||||||||
|
Pro
rata Bonus Payment
|
— | 382,500 | — | — | 382,500 | |||||||||||||||
|
Unvested
Stock Option Spread
|
— | 207,880 | — | — | 307,860 | |||||||||||||||
|
Unvested
Restricted Stock
|
— | 109,760 | — | — | 411,600 | |||||||||||||||
|
Long-term
Incentive Plan Payment
|
— | 137,200 | — | — | 973,800 | |||||||||||||||
|
Welfare
Benefits Values
|
— | 12,403 | — | — | 154,430 | |||||||||||||||
|
Outplacement
|
— | 10,000 | — | — | 10,000 | |||||||||||||||
|
Excise
Tax & Gross-Up
|
— | — | — | — | 1,151,275 | |||||||||||||||
J.
Per Brodin
|
Executive Benefits
and
Payments
Upon Terminations
|
Voluntary
Termination
|
Involuntary
Not for Cause
Termination
|
For
Cause
Termination
|
Death
or
Disability
|
Change in
Control
|
|||||||||||||||
|
Severance
|
$ | — | $ | 350,000 | $ | — | $ | — | $ | 700,000 | ||||||||||
|
Pro
rata Bonus Payment
|
— | 122,500 | — | — | 122,500 | |||||||||||||||
|
Unvested
Stock Option Spread
|
— | 10,265 | — | — | 38,325 | |||||||||||||||
|
Unvested
Restricted Stock
|
— | 68,600 | — | — | 274,400 | |||||||||||||||
|
Long-term
Incentive Plan Payment
|
— | — | — | — | 180,000 | |||||||||||||||
|
Welfare
Benefits Values
|
— | 12,403 | — | — | 106,669 | |||||||||||||||
|
Outplacement
|
— | 10,000 | — | — | 10,000 | |||||||||||||||
|
Excise
Tax & Gross-Up
|
— | — | — | — | 466,977 | |||||||||||||||
During
fiscal year 2007, none of our executive officers served as a director or member
of the Compensation Committee, or other committee serving an equivalent
function, of any other entity that has one or more of its executive officers
serving as a member of our board of directors or Compensation Committee. None of
the current members of our Compensation Committee has ever been an officer or
employee of Centene or any of our subsidiaries.
The
following table sets forth information regarding ownership of our common stock
as of February 22, 2008 for:
|
•
|
each
person, entity or group of affiliated persons or entities known by us to
beneficially own more than 5% of our outstanding common
stock;
|
|
•
|
each
of our Named Executive Officers, directors (three of whom are nominated
for re-election); and
|
|
•
|
all
of our executive officers and directors as a
group.
|
|
Beneficial
Ownership
|
||||||||||||
|
Name
and Address of Beneficial Owner
|
Outstanding
Shares
|
Shares
Acquirable
Within 60 Days
|
Total
Beneficial
Ownership
|
Percent
Ownership
|
Shares
Not
Acquirable
Within 60 Days1
|
|||||||
|
T.
Rowe Price Associates, Inc.
|
4,245,700
|
—
|
4,245,700
|
9.8
|
—
|
|||||||
|
100
East Pratt Street
Baltimore,
Maryland 21202
|
||||||||||||
|
Deutsche
Bank AG
|
3,113,972
|
—
|
3,113,972
|
7.2
|
—
|
|||||||
|
Taunusanlage
12 D-60325
Frankfurt
AM Main GE I8
|
||||||||||||
|
Renaissance
Technologies
|
2,268,500
|
—
|
2,268,500
|
5.2
|
—
|
|||||||
|
800
Third Avenue, 33th Floor
New
York, New York 10022
|
||||||||||||
|
Prudential
Financial, Inc.
|
2,174,643
|
—
|
2,174,643
|
5.0
|
—
|
|||||||
|
751
Board Street
Newark,
New Jersey 07102
|
||||||||||||
|
Michael
F. Neidorff
|
295,636
|
750,913
|
1,046,549
|
2.4
|
1,313,965
|
|||||||
|
Robert
K. Ditmore
|
335,036
|
2
|
44,723
|
379,759
|
3
|
*
|
3,127
|
|||||
|
William
N. Scheffel
|
21,905
|
90,486
|
112,391
|
*
|
106,000
|
|||||||
|
Carol
E. Goldman
|
12,061
|
74,915
|
86,976
|
*
|
62,221
|
|||||||
|
David
L. Steward
|
9,246
|
4
|
37,223
|
46,469
|
3
|
*
|
3,127
|
|||||
|
John
R. Roberts
|
15,246
|
22,789
|
38,035
|
3
|
*
|
3,127
|
||||||
|
Jesse
N. Hunter
|
9,401
|
23,600
|
33,001
|
*
|
39,900
|
|||||||
|
Steve
Bartlett
|
18,046
|
11,618
|
29,664
|
3
|
*
|
3,127
|
||||||
|
Tommy
G. Thompson
|
6,746
|
19,990
|
26,736
|
3
|
*
|
3,127
|
||||||
|
Frederick
H. Eppinger
|
2,665
|
10,996
|
13,661
|
3
|
*
|
9,793
|
||||||
|
J.
Per Brodin
|
3,337
|
6,000
|
9,337
|
*
|
—
|
|||||||
|
Richard
A. Gephardt
|
2,975
|
3,334
|
6,309
|
*
|
9,793
|
|||||||
|
Pamela
A. Joseph
|
—
|
907
|
907
|
3
|
*
|
13,554
|
||||||
|
Eric
R. Slusser
|
—
|
—
|
—
|
*
|
120,206
|
|||||||
|
All
directors and executive officers as a group (18 persons)
|
741,300
|
1,177,293
|
1,918,593
|
4.3
|
1,928,266
|
|||||||
_____________
|
*
|
Represents
less than 1% of outstanding shares of common
stock.
|
|
1
|
The
share numbers in the column labeled “Shares Not Acquirable Within 60 Days”
reflect the number of shares underlying options and restricted stock units
which are unvested and will not vest within 60 days of February 22, 2008.
The share numbers also include the number of phantom shares acquired
through the Company’s deferred compensation plan. Those shares are not
considered to be beneficially owned under the rules of the
SEC.
|
|
2
|
Mr. Ditmore’s
outstanding shares include 80,050 shares owned by family members, family
partnerships or trusts. Mr. Ditmore disclaims beneficial ownership
except to the extent of his pecuniary interest therein.
|
|
3
|
Shares
beneficially owned by Messrs. Bartlett, Ditmore, Eppinger, Roberts,
Steward, Thompson and Ms. Joseph include 11,618, 12,223, 7,662, 12,789,
12,223, 9,990 and 907, respectively, restricted stock units acquired
through the Non-Employee Directors Deferred Stock Compensation
Plan.
|
|
4
|
Mr.
Roberts’ outstanding shares include 10,246 shares owned by a revocable
trust. Mr. Roberts disclaims beneficial ownership except to the
extent of his pecuniary interest
therein.
|
As of
February 22, 2008, there were 43,400,856 shares of our common stock outstanding.
Beneficial ownership is determined in accordance with the rules of the SEC. To
calculate a stockholder’s percentage of beneficial ownership, we include in the
numerator and denominator those shares underlying options beneficially owned by
that stockholder that are vested or that will vest within 60 days of February
22, 2008. Options held by other stockholders, however, are disregarded in the
calculation of beneficial ownership. Therefore, the denominator used in
calculating beneficial ownership among our stockholders may differ.
Unless
otherwise indicated, the persons or entities identified in this table have sole
voting and investment power with respect to all shares shown as beneficially
owned by them, except to the extent authority is shared by spouses under
applicable community property laws. The address of our officers and directors is
in care of Centene Corporation, Centene Place, 7711 Carondelet Avenue, St.
Louis, Missouri 63105.
No
director, executive officer, affiliate or owner of record, or beneficial owner
of more than five percent of any class of our voting securities, or any
associate of such individuals or entities, is a party adverse to us or any of
our subsidiaries in any material proceeding or has any material interest adverse
to us or any of our subsidiaries.
Of
Mr. Neidorff’s 1,313,965 shares not acquirable within 60 days, 1,000,000
were granted in the form of restricted stock units, payable in shares of common
stock, pursuant to the executive employment agreement with Mr. Neidorff
dated November 8, 2004. The shares vest between 2009 and 2014. Subject to
such vesting, the restricted stock units and all of the related shares of common
stock shall be distributed to Mr. Neidorff on the later of
(a) January 15 of the first calendar year following termination of
Mr. Neidorff’s employment and (b) the date that is six months after
Mr. Neidorff’s “separation of service” as defined in the Internal Revenue
Code.
All other
shares not acquirable within 60 days represent options to purchase shares of
common stock or restricted stock units and vest in accordance with our standard
vesting provisions or phantom shares in our deferred compensation program which
will be settled in cash or other non-company securities.
Information
with respect to the outstanding shares beneficially owned by T. Rowe Price
Associates, Inc. (Price Associates) is based on Schedule 13G filed with the SEC
on February 13, 2008 by such firm. Price Associates beneficially owns
4,245,700 shares, of which it holds sole voting power over 871,800 shares and
sole dispositive power over 4,245,700 shares. The securities are
owned by various individual and institutional investors which Price Associates
serves as investment advisor with power to direct investments and/or sole power
to vote the securities. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial
owner of such securities; however, Price Associates expressly disclaims that it
is, in fact, the beneficial owner of such securities.
Information
with respect to the outstanding shares beneficially owned by Deutsche Bank AG is
based on Schedule 13G filed with the SEC on February 8, 2008 by such
firm. Deutsche Bank AG reports that Deutsche Bank AG, London Branch,
a subsidiary of Deutsche Bank AG, beneficially owns 3,065,372 shares (all of
which it holds sole voting and dispositive power) and Deutsche Bank Trust
Company Americas, a subsidiary of Deutsche Bank AG, beneficially owns 48,600
shares (all of which it holds sole voting and dispositive power).
Information
with respect to the outstanding shares beneficially owned by Renaissance
Technologies LLC is based on Schedule 13G filed with the SEC on
February 13, 2008 by such firm. Renaissance Technologies LLC
reports that James H. Simons beneficially owns the 2,268,500 shares, of which it
holds sole voting power over 2,262,100 shares and sole dispositive power over
2,268,500 shares.
Information
with respect to the outstanding shares beneficially owned by Prudential
Financial, Inc. is based on Schedule 13G/A filed with the SEC on
February 6, 2008 by such firm. Prudential Financial, Inc. beneficially owns
2,174,643 shares. Of the shares Prudential Financial, Inc. owns, it has sole
voting power over 321,948 shares; shared voting power over 1,835,395 shares;
sole dispositive power over 321,948 shares; and shared dispositive power over
1,852,695 shares.
Directors,
executive officers and beneficial owners of more than ten percent of our common
stock are required by Section 16(a) of the Securities Exchange Act to file
reports with the SEC detailing their beneficial ownership of our common stock
and other equity securities and reporting changes in such beneficial ownership.
We are required to disclose any late filings of such reports. To our knowledge,
based solely on our review of copies of reports furnished to us and written
representations by the persons required to file these reports that no other
reports were required, all Section 16(a) filing requirements during 2007
were complied with on a timely basis.
Some
banks, brokers and other nominee record holders may be participating in the
practice of “householding”. This means that only one copy of either the proxy
notice or this proxy statement, our 2007 Summary Annual Report to Stockholders
and Annual Report on Form 10-K may have been sent to multiple stockholders
sharing an address unless the stockholders provide contrary instructions. We
will promptly deliver a separate copy of these documents to you if you call,
write or e-mail us at:
Centene
Corporation
Centene
Place
7711
Carondelet Avenue
St.
Louis, Missouri 63105
Attn:
Keith H. Williamson, Secretary
(314)
725-4477
kwilliamson@centene.com
If you
want to receive separate copies of our proxy statements and annual reports to
stockholders in the future, or if you are receiving multiple copies and would
like to receive only one copy for your household, you should contact your bank,
broker or other nominee record holder, or you may contact us at the above
address, phone number or e-mail address.
CENTENE
CORPORATION
Amended
and Restated
2003
Stock Incentive Plan
1. Purpose
The
purpose of this Amended and Restated 2003 Stock Incentive Plan (the “Plan”) of
Centene Corporation, a Delaware corporation (the “Company”), is to advance the
interests of the Company’s stockholders by enhancing the Company’s ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company’s stockholders.
Except where the context otherwise requires, the term “Company” shall include
any of the Company’s present or future parent or subsidiary corporations as
defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder (the “Code”) and any other
business venture (including joint venture or limited liability company) in which
the Company has a controlling interest, as determined by the Board of Directors
of the Company (the “Board”).
2. Eligibility
All of
the Company’s employees, officers, directors, consultants and advisors are
eligible to be granted options, restricted stock, restricted stock units and
stock appreciation rights (each, an “Award”) under the Plan. Each person who has
been granted an Award under the Plan shall be deemed a
“Participant.”
3. Administration
and Delegation
|
(a)
|
Administration by Board of
Directors. The Plan will be administered by the Board. The Board
shall have authority to grant Awards and to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan as it
shall deem advisable, provided that awards to
a director may only be recommended by a committee comprised solely of
independent directors and approved only by all independent directors of
the board. The Board may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award in the manner and to
the extent it shall deem expedient to carry the Plan into effect and it
shall be the sole and final judge of such expediency. All decisions by the
Board shall be made in the Board’s sole discretion and shall be final and
binding on all persons having or claiming any interest in the Plan or in
any Award. No director or person acting pursuant to the authority
delegated by the Board shall be liable for any action or determination
relating to or under the Plan made in good
faith.
|
|
(b)
|
Appointment of
Committees. To the extent permitted by applicable law, the Board
may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a “Committee”). All references
in the Plan to the “Board” shall mean the Board or a Committee of the
Board or the executive officers referred to in Section 3(c) to the extent
that the Board’s powers or authority under the Plan have been delegated to
such Committee or executive
officers.
|
|
(c)
|
Delegation to Executive
Officers. To the extent permitted by applicable law, the Board may
delegate to one or more executive officers of the Company the power to
grant Awards to employees or officers of the Company or any of its present
or future subsidiary corporations and to exercise such other powers under
the Plan as the Board may determine, provided that the Board
shall fix the terms of the Awards to be granted by such executive officers
(including the exercise price of such Awards, which may include a formula
by which the exercise price will be determined) and the maximum number of
shares subject to Awards that the executive officers may grant; provided further,
however, that no executive officer shall be authorized to grant
Awards to any “executive officer” of the Company, as
|
|
|
defined by Rule 3b-7 under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), or to
any “officer” of the Company (as defined by Rule 16a-1 under the Exchange
Act).
|
4. Stock
Available for Awards
|
(a)
|
Number of Shares.
Subject to adjustment under Section 7, Awards may be made under the Plan
for up to 6,900,000 shares of common stock, $.001 par value per share, of
the Company (“Common Stock”). For purposes of counting the number of
shares available for the grant of Awards under the
Plan,
|
|
|
(1)
|
shares
of Common Stock covered by independent SARs (as hereinafter defined) shall
be counted against the number of shares available for the grant of Awards
under the Plan; provided that independent SARs that may be settled in cash
only shall not be so counted;
|
|
|
(2)
|
if
any Award (A) expires or is terminated, surrendered or canceled without
having been fully exercised or is forfeited in whole or in part (including
as the result of shares of Common Stock subject to such Award being
repurchased by the Company at the original issuance price pursuant to a
contractual repurchase right) or (B) results in any Common Stock not being
issued (including as a result of an independent SAR that was settleable
either in cash or in stock actually being settled in cash), the unused
Common Stock covered by such Award shall again be available for the grant
of Awards under the Plan; provided, however, in the case of Incentive
Stock Options (as hereinafter defined), the foregoing shall be subject to
any limitations under the Code; and
|
|
|
(3)
|
shares
of Common Stock tendered to the Company by a Participant to (A) purchase
shares of Common Stock upon the exercise of an Award or (B) satisfy tax
withholding obligations (including shares retained from the Award creating
the tax obligation) shall not be added back to the number of shares
available for the future grant of Awards under the Plan. Shares issued
under the Plan may consist in whole or in part of authorized but unissued
shares or treasury shares.
|
|
(b)
|
Sub-limits. Subject to
adjustment under Section 8, the following sub-limits on the number of
shares subject to Awards shall
apply:
|
|
|
(1)
|
Per-Participant Limit.
The maximum number of shares of Common Stock with respect to which Awards
may be granted to any Participant under the Plan shall be 1,500,000 per
calendar year. For purposes of the foregoing limit, the combination of an
Option in tandem with a SAR shall be treated as a single Award. The
per-Participant limit described in this Section 4(b)(1) shall be construed
and applied consistently with Section 162(m) of the Code or any successor
provision thereto (“Section
162(m)”).
|
5. Stock
Options
|
(a)
|
General. The Board may
grant options to purchase Common Stock (each, an “Option”) and determine
the number of shares of Common Stock to be covered by each Option, the
exercise price of each Option and the conditions and limitations
applicable to the exercise of each Option, including conditions relating
to applicable federal or state securities laws, as it considers necessary
or advisable. An Option that is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a “Nonstatutory Stock
Option.”
|
|
(b)
|
Incentive Stock
Options. An Option that the Board intends to be an “incentive stock
option” as defined in Section 422 of the Code (an “Incentive Stock
Option”) shall only be granted to employees of Centene Corporation, any of
Centene Corporation’s present or future parent or subsidiary corporations
as defined in Sections 424(e) or (f) of the Code, and any other entities
the employees of which are eligible to receive Incentive Stock Options
under the Code, and shall be subject to and shall be construed
consistently with the requirements of Section 422 of the Code. The Company
shall have no liability to a Participant, or any other party, if an Option
(or any part thereof) that is intended to be an Incentive Stock Option is
not an Incentive Stock Option.
|
|
(c)
|
Exercise Price. The
Board shall establish the exercise price at the time each Option is
granted and specify it in the applicable option agreement, provided, however, that
the exercise price shall be not less than 100% of the fair market value of
the Common Stock, as determined by the Board, at the time the Option is
granted.
|
|
(d)
|
Duration of Options.
Each Option shall be exercisable at such times and subject to such terms
and conditions as the Board may specify in the applicable option
agreement, provided,
however, that no Option will be granted for a term in excess of 10
years.
|
|
(e)
|
Exercise of Option.
Options may be exercised by delivery to the Company of a written notice of
exercise signed by the proper person or by any other form of notice
(including electronic notice) approved by the Board together with payment
in full as specified in Section 5(f) for the number of shares for which
the Option is exercised.
|
|
(f)
|
Payment Upon Exercise.
Common Stock purchased upon the exercise of an Option granted under the
Plan shall be paid for as follows:
|
|
|
(1)
|
in
cash or by check, payable to the order of the
Company;
|
|
|
(2)
|
except
as the Board may, in its sole discretion, otherwise provide in an option
agreement, by (i) delivery of an irrevocable and unconditional undertaking
by a creditworthy broker to deliver promptly to the Company sufficient
funds to pay the exercise price and any required tax withholding or (ii)
delivery by the Participant to the Company of a copy of irrevocable and
unconditional instructions to a creditworthy broker to deliver promptly to
the Company cash or a check sufficient to pay the exercise price and any
required tax withholding;
|
|
|
(3)
|
when
the Common Stock is registered under the Exchange Act, by delivery of
shares of Common Stock owned by the Participant valued at their fair
market value as determined by (or in a manner approved by) the Board in
good faith (“Fair Market Value”), provided (i) such method of payment is
then permitted under applicable law and (ii) such Common Stock, if
acquired directly from the Company was owned by the Participant at least
six months prior to such delivery;
|
|
|
(4)
|
such
other lawful consideration as the Board may determine in its sole
discretion, provided that (i) at least an amount equal to the par value of
the Common Stock being purchased shall be paid in cash and (ii) no such
consideration shall consist in whole or in part of a promissory note or
other evidence of indebtedness; or
|
|
|
(5)
|
by
any combination of the above permitted forms of
payment.
|
|
(g)
|
Substitute Options. In
connection with a merger or consolidation of an entity with the Company or
the acquisition by the Company of property or stock of an entity, the
Board may grant Options in substitution for any options or other stock or
stock-based Awards granted by such entity or an affiliate thereof.
Substitute Options may be granted on such terms as the Board deems
appropriate in the circumstances, notwithstanding any limitations on
Options contained in the other sections of this Section 5 or in Section
2.
|
6. Restricted
Stock; Restricted Stock Units
|
(a)
|
Grants. The Board may
grant Awards entitling recipients to acquire shares of Common Stock
(“Restricted Stock”), subject to the right of the Company to repurchase
all or part of such shares at their issue price or other stated or formula
price (or to require forfeiture of such shares if issued at no cost) from
the recipient in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award.
Instead of granting Awards for Restricted Stock, the Board may grant
Awards entitling the recipient to receive shares of Common Stock to be
delivered in the future (“Restricted Stock Units”) subject to such terms
and conditions on the delivery of the shares of Common Stock as the Board
shall determine (each Award for Restricted Stock or Restricted Stock
Units, a “Restricted Stock Award”). The Board may also permit an exchange
of unvested shares of Common Stock that
|
|
|
have already been delivered to
a Participant for an instrument evidencing the right to future delivery of
Common Stock at such time or times, and on such conditions, as the Board
shall specify.
|
|
(b)
|
Terms and
Conditions.
|
|
|
(1)
|
The
Board shall determine the terms and conditions of any such Restricted
Stock Award, including the conditions for repurchase (or forfeiture) and
the issue price, if any.
|
|
|
(2)
|
If
the Board determines to grant any Restricted Stock Awards designed to
satisfy the requirements of Section 162(m)(4)(C) of the Code with respect
to remuneration payable to a covered employee as defined in Section
162(m)(3) of the Code (“Covered Employee”) solely on account of one or
more performance goals (“Performance Goals”) to be achieved during a
performance period (“Performance Period”), the following requirements
shall apply:
|
|
|
(A)
|
A
Committee consisting of two or more outside
directors:
|
|
|
(i)
|
who
are not current employees of the Company or any subsidiary or affiliate of
the Company,
|
|
|
(ii)
|
who
are not former employees of the Company or any subsidiary or affiliate of
the Company who receive compensation for prior services (other than
benefits under a tax-qualified retirement plan) from the Company or any
subsidiary or affiliate of the Company during the taxable
year,
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(iii)
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who
have not been officers of the Company or a subsidiary or affiliate of the
Company, and
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(iv)
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who
do not receive direct or indirect compensation from the Company or any
subsidiary or affiliate of the Company in any capacity other than as a
director,
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shall
determine and administer the grants provided for under this Section
6(b)(2).
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(B)
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(i)
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The
Performance Goals upon which the payment or vesting of an Award to a
Covered Employee pursuant to this Section 6(b)(2) shall be limited to the
following performance measures (“Performance
Measures”):
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(a)
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net
earnings or net income (before or after
taxes),
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(b)
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earnings
per share,
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(c)
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net
sales or revenue growth,
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(d)
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net
operating profit,
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(e)
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return
measures (including, but not limited to, return on assets, capital,
invested capital, equity, sales, or
revenue),
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(f)
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cash
flow (including, but not limited to, operating cash flow, free cash flow,
cash flow return on equity, and cash flow return on
investment),
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(g)
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earnings
before or after taxes, interest, depreciation, and/or
amortization,
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(h)
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gross
or operating margins,
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(i)
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productivity
ratios,
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(j)
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share
price (including, but not limited to, growth measures and total
shareholder return),
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(k)
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expense
targets,
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(l)
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margins,
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(m)
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operating
efficiency,
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(n)
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market
share,
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(o)
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customer
satisfaction,
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(p)
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working
capital targets, and
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(q)
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economic
value added or EVA® (net operating profit after tax minus the sum of
capital multiplied by the cost of
capital).
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(ii)
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As
the Committee may deem appropriate:
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(a)
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any
of the foregoing Performance Measure(s) may be used to measure the
performance of the Company, a subsidiary, and/or affiliate of the Company
as a whole or any business unit of the Company, subsidiary, and/or
affiliate or any combination thereof during the Performance
Period;
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(b)
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any
of the foregoing Performance Measures may be used to compare the
performance of the Company, a subsidiary and/or affiliate of the Company
as a whole or any business unit of the Company, subsidiary and/or
affiliate to the performance of a group of comparator companies, or
published or special index that the Committee, in its sole discretion,
deems appropriate;
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(c)
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the
Committee may select Performance Measure (j) above as compared to various
stock market indices; and
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(d)
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the
Committee shall have authority to provide for accelerated vesting of any
Award based on the achievement of
Performance Goals pursuant to the foregoing Performance
Measures.
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(iii)
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The
Committee may provide in any such Award that any evaluation of performance
may include or exclude any of the following events that occurs during a
Performance Period:
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(a)
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asset
write-downs,
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(b)
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litigation
or claim judgments or settlements,
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(c)
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the
effect of changes in tax laws, accounting principles, or other laws or
provisions affecting reported
results,
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(d)
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any
reorganization and restructuring
programs,
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(e)
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extraordinary
nonrecurring items as described in Accounting Principles Board Opinion No.
30 and/or in management’s discussion and analysis of financial condition
and results of operations appearing in the Company’s annual report to
shareholders for the applicable
year,
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(f)
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acquisitions
or divestitures, and
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(g)
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foreign
exchange gains and losses.
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Such
inclusions or exclusions shall be prescribed in a form that meets the
requirements of Code Section 162(m) for deductibility.
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(C)
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The
Performance Period for any Award pursuant to this Section 6(b)(2) shall
not be less than one taxable year of the
Company.
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(D)
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The
maximum number of shares the Committee may grant to a Covered Employee
during a taxable year of the Company pursuant to this Section 6(b)(2)
shall be 1,000,000 shares.
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(E)
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The
Performance Goals for any Award pursuant to this Section 6(b)(2) shall be
memorialized in writing and furnished to affected Covered Employees not
later than 90 days after the beginning of the Performance Period to which
they apply.
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(F)
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The
Committee shall certify in writing the accomplishment of the Performance
Goals related to an Award before the Award can become
unconditional.
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(G)
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Awards
that are intended to qualify as Performance-Based Compensation may not be
adjusted upward. The Committee shall retain the discretion to adjust such
Awards downward, either on a formula or discretionary basis or any
combination, as the Committee
determines.
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(H)
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In
the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing Performance Measures without
obtaining shareholder approval of such changes, the Committee shall have
sole discretion to make such changes without obtaining shareholder
approval, provided the exercise of such discretion does not violate Code
Section 409A. In addition, in the event that the Committee determines that
it is advisable to grant Awards that shall not qualify as
Performance-Based Compensation, the Committee may make such grants without
satisfying the requirements of Code Section 162(m) and base vesting on
Performance Measures other than those set forth in this Section
6(b)(2).
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(I)
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This
Section 6(b)(2) is designed to comply with the requirements of Section
162(m)(4)(C) of the Code and regulations issued thereunder and all
provisions of this Section 6(b)(2) shall be applied consistent
therewith.
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(c)
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Stock Certificates. Any
stock certificates issued in respect of a Restricted Stock Award, if
applicable, shall be registered in the name of the Participant and, unless
otherwise determined by the Board, deposited by the Participant, together
with a stock power endorsed in blank, with the Company (or its designee).
At the expiration of the applicable restriction periods, the Company (or
such designee) shall deliver the certificates no longer subject to such
restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a
Participant to receive amounts due or exercise rights of the Participant
in the event of the Participant’s death (the “Designated Beneficiary”). In
the absence of an effective designation by a Participant, Designated
Beneficiary shall mean the Participant’s
estate.
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7. Stock
Appreciation Rights
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(a)
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General. A Stock
Appreciation Right (“SAR”) is an Award entitling the holder, upon
exercise, to receive an amount in Common Stock determined by reference to
appreciation, from and after the date of grant, in the fair market value
of a share of Common Stock. The date as of which such appreciation or
other measure is determined shall be the exercise
date.
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(b)
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Grants. SARs may be
granted in tandem with, or independently of, Options granted under the
Plan. The Board shall establish the exercise price at the time each SAR is
granted and specify it in the applicable SAR agreement, provided, however,
that the exercise price shall be not less than 100% of the fair market
value of the Common Stock, as determined by the Board, at the time the SAR
is granted.
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(1)
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Tandem Awards. When
SARs are expressly granted in tandem with Options, (i) the SAR will be
exercisable only at such time or times, and to the extent, that the
related Option is exercisable (except to the extent designated by the
Board in connection with a Reorganization Event) and will be exercisable
in accordance with the procedure required for exercise of the related
Option; (ii) the SAR will terminate and no longer be exercisable upon the
termination or exercise of the related Option, except to the extent
designated by the Board in connection with a Reorganization Event and
except that a SAR granted with respect to less than the full number of
shares covered by an Option will not be reduced until the number of shares
as to which the related Option has been exercised or has terminated
exceeds the number of shares not covered by the SAR; (iii) the Option will
terminate and no longer be exercisable upon the exercise of the related
SAR; and (iv) the SAR will be transferable only with the related
Option.
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(2)
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Independent SARs. A SAR
not expressly granted in tandem with an Option will become exercisable at
such time or times, and on such conditions, as the Board may specify in
the SAR Award.
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(c)
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Exercise. SARs may be
exercised by delivery to the Company of a written notice of exercise
signed by the proper person or by any other form of notice (including
electronic notice) approved by the Board, together with any other
documents required by the Board.
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8. Adjustments
for Changes in Common Stock and Certain Other Events
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(a)
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Changes in
Capitalization. In the event of any stock split, reverse stock
split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock
other than a normal cash dividend, (i) the number and class of securities
available under the Plan, (ii) the per-Participant limit set forth in
Section 4(b), (iii) the number and class of securities and exercise price
per share subject to each outstanding Option, and (iv) the repurchase
price per share subject to each outstanding Restricted Stock Award shall
be appropriately adjusted by the Company (or substituted Awards may be
made, if applicable) to the extent the Board shall determine, in good
faith, that such an adjustment (or substitution) is necessary and
appropriate. If this Section 8(a) applies and Section 8(c) also applies to
any event, Section 8(c) shall be applicable to such event, and this
Section 8(a) shall not be
applicable.
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(b)
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Liquidation or
Dissolution. In the event of a proposed liquidation or dissolution
of the Company, the Board shall upon written notice to the Participants
provide that all then unexercised Options will (i) become exercisable in
full as of a specified time at least 10 business days prior to the
effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent
exercised before such effective date. The Board may specify the effect of
a liquidation or dissolution on any Restricted Stock Award granted under
the Plan at the time of the grant.
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(c)
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Reorganization
Events.
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(1)
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Definition. A
“Reorganization Event” shall mean: (a) any merger or consolidation of the
Company with or into another entity as a result of which all of the Common
Stock of the Company is converted into or exchanged for the right to
receive cash, securities or other property or (b) any exchange of all of
the Common Stock of the Company for cash, securities or other property
pursuant to a share exchange
transaction.
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(2)
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Consequences of a
Reorganization Event on Options. Upon the occurrence of a
Reorganization Event, or the execution by the Company of any agreement
with respect to a Reorganization Event, the Board shall provide that all
outstanding Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof). For purposes hereof, an Option shall be considered to be assumed
if, following consummation of the Reorganization Event, the Option confers
the right to purchase, for each share of Common Stock subject to the
Option immediately prior to the consummation of the Reorganization Event,
the consideration (whether cash, securities or other property) received as
a result of the Reorganization Event by holders of Common Stock for each
share of Common Stock held immediately prior to the consummation of the
Reorganization Event (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares of Common Stock); provided, however, that if the
consideration received as a result of the Reorganization Event is not
solely common stock of the acquiring or succeeding corporation (or an
affiliate thereof), the Company may, with the consent of the acquiring or
succeeding corporation, provide for the consideration to be received upon
the exercise of Options to consist solely of common stock of the acquiring
or succeeding corporation (or an affiliate thereof) equivalent in fair
market value to the per share consideration received by holders of
outstanding shares of Common Stock as a result of the Reorganization
Event.
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Notwithstanding
the foregoing, if the acquiring or succeeding corporation (or an affiliate
thereof) does not agree to assume, or substitute for, such Options, then the
Board shall, upon written notice to the Participants, provide that all then
unexercised Options will become exercisable in full as of a specified time prior
to the Reorganization Event and will terminate immediately prior to the
consummation of such Reorganization Event, except to the extent exercised by the
Participants before the consummation of such Reorganization Event; provided, however, that in
the event of a Reorganization Event under the terms of which holders of Common
Stock will receive upon consummation thereof a cash payment for each share of
Common Stock surrendered pursuant to such Reorganization Event (the “Acquisition
Price”), then the Board may instead provide that all outstanding Options shall
terminate upon consummation of such Reorganization Event and that each
Participant shall receive, in exchange therefore, a cash payment equal to the
amount (if any) by which (A) the Acquisition Price multiplied by the number of
shares of Common Stock subject to such outstanding Options (whether or not then
exercisable), exceeds (B) the aggregate exercise price of such Options. To the
extent all or any portion of an Option becomes exercisable solely as a result of
the first sentence of this paragraph, upon exercise of such Option the
Participant shall receive shares subject to a right of repurchase by the Company
or its successor at the Option exercise price. Such repurchase right (1) shall
lapse at the same rate as the Option would have become exercisable under its
terms and (2) shall not apply to any shares subject to the Option that were
exercisable under its terms without regard to the first sentence of this
paragraph.
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(3)
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Consequences
of a Reorganization Event on Restricted Stock Awards. Upon the occurrence
of a Reorganization Event, the repurchase and other rights of the Company
under each outstanding Restricted Stock Award shall inure to the benefit
of the Company’s successor and shall apply to the cash, securities or
other property that the Common Stock was converted into or exchanged for
pursuant to such Reorganization Event in the same manner and to the same
extent as they applied to the Common Stock subject to such Restricted
Stock Award.
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9. General
Provisions Applicable to Awards
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(a)
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Transferability of
Awards. Awards shall not be sold, assigned, transferred, pledged or
otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent
and distribution or, other than in the case of an Incentive Stock Option,
pursuant to a qualified domestic relations order, and, during the life of
the Participant, shall be exercisable only by the Participant; provided that the Board
may permit or provide in an Award for the gratuitous transfer of the Award
by the Participant to or for the benefit of any immediate family member,
family trust or family partnership established solely for the benefit of
the Participant and/or an immediate family member thereof if, with respect
to such proposed transferee, the Company would be eligible to use a
registration statement on Form S-8 for the registration of the sale of the
Common Stock subject to such Award under the Securities Act of 1933, as
amended and provided
further that the Company shall not be required to recognize any
such transfer until such time as the Participant and such permitted
transferee shall, as a condition to such transfer, deliver to the Company
a written instrument in form and substance satisfactory to the Company
confirming that such transferee shall be bound by all of the terms and
conditions of the Award. References to a Participant, to the extent
relevant in the context, shall include references to authorized
transferees.
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(b)
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Documentation. Each
Award shall be evidenced in such form (written, electronic or otherwise)
as the Board shall determine. Each Award may contain terms and conditions
in addition to those set forth in the
Plan.
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(c)
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Board Discretion.
Except as otherwise provided by the Plan, each Award may be made alone or
in addition or in relation to any other Award. The terms of each Award
need not be identical, and the Board need not treat Participants
uniformly.
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(d)
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Termination of Status.
The Board shall determine the effect on an Award of the disability, death,
retirement, authorized leave of absence or other change in the employment
or other status of a Participant and the extent to which, and the period
during which, the Participant, the Participant’s legal representative,
conservator, guardian or Designated Beneficiary may exercise rights under
the Award.
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(e)
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Withholding. Each
Participant shall pay to the Company, or make provision satisfactory to
the Board for payment of, any taxes required by law to be withheld in
connection with Awards to such Participant no later than the date of the
event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the
Exchange Act, Participants may satisfy such tax obligations in whole or in
part by delivery of shares of Common Stock, including shares retained from
the Award creating the tax obligation, valued at their Fair Market Value;
provided,
however, that the total tax withholding where stock is being used
to satisfy such tax obligations cannot exceed the Company’s minimum
statutory withholding obligations (based on minimum statutory withholding
rates for federal and state tax purposes, including payroll taxes, that
are applicable to such supplemental taxable income). The Company may, to
the extent permitted by law, deduct any such tax obligations from any
payment of any kind otherwise due to a
Participant.
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(f)
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Amendment of Award. The
Board may amend, modify or terminate any outstanding Award, including but
not limited to, substituting therefore another Award of the same or a
different type, changing the date of exercise or realization, and
converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant’s consent to such action shall be required unless the Board
determines that the action, taking into account any related action, would
not materially and adversely affect the Participant, and would not cause
adverse tax consequences to the Participant under Section 409A of the
Code.
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(g)
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Conditions on Delivery of
Stock. The Company will not be obligated to deliver any shares of
Common Stock pursuant to the Plan or to remove restrictions from shares
previously delivered under the Plan until (i) all conditions of the Award
have been met or removed to the satisfaction of the Company, (ii) in the
opinion of the Company’s counsel, all other legal matters in connection
with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange
or stock market rules and regulations, and (iii) the Participant has
executed and delivered to the Company such representations or agreements
as the Company may consider appropriate to satisfy the requirements of any
applicable laws, rules or
regulations.
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(h)
|
Vesting of Awards. No
Award granted under the Plan after July 19, 2005 to any employee of the
Company may vest or become exercisable in increments greater than
one-third of the total Award in any period of twelve consecutive months
following the date of grant.
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(i)
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Repricing of Awards.
Unless such action is approved by the Company’s stockholders and does not
cause an Award to become subject to Section 409A of the Code: (1) no
outstanding Award granted under the Plan may be amended to provide for an
exercise price per share that is less than the then-existing exercise
price per share of such outstanding Award (other than adjustments pursuant
to Section 8), (2) the Board may not cancel any outstanding Award (whether
or not granted under the Plan) and grant in substitution therefore new
Awards under the Plan covering the same or a different number of shares of
Common Stock and having an exercise price per share less than the
then-existing exercise price per share of the cancelled Award, and (3) the
Board may not repurchase any outstanding Award granted under the Plan at a
price greater than the current fair market value of the existing
award.
|
10. Miscellaneous
|
(a)
|
No Right To Employment or
Other Status. No person shall have any claim or right to be granted
an Award, and the grant of an Award shall not be construed as giving a
Participant the right to continued employment or any other relationship
with the Company. The Company expressly reserves the right
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at any time to dismiss or
otherwise terminate its relationship with a Participant free from any
liability or claim under the Plan, except as expressly provided in the
applicable
Award.
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|
(b)
|
No Rights As
Stockholder. Subject to the provisions of the applicable Award, no
Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of
the Common Stock by means of a stock dividend and the exercise price of
and the number of shares subject to such Option are adjusted as of the
date of the distribution of the dividend (rather than as of the record
date for such dividend), then an optionee who exercises an Option between
the record date and the distribution date for such stock dividend shall be
entitled to receive, on the distribution date, the stock dividend with
respect to the shares of Common Stock acquired upon such Option exercise,
notwithstanding the fact that such shares were not outstanding as of the
close of business on the record date for such stock
dividend.
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(c)
|
Effective Date and Term of
Plan. The Plan shall become effective on the date on which it is
adopted by the Board, but no Award granted to a Participant that is
intended to comply with Section 162(m) shall become exercisable, vested or
realizable, as applicable to such Award, unless and until the Plan has
been approved by the Company’s stockholders to the extent stockholder
approval is required by Section 162(m) in the manner required under
Section 162(m), including the vote required under Section 162(m). No
Awards shall be granted under the Plan after the completion of ten years
from the earlier of (i) the date on which the Plan was adopted by the
Board or (ii) the date the Plan was approved by the Company’s
stockholders, but Awards previously granted may extend beyond that
date.
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(d)
|
Amendment of Plan. The
Board may amend, suspend or terminate the Plan or any portion thereof at
any time, provided that (i) any
“material revision” to the Plan (as defined in the New York Stock Exchange
Listed Company Manual, as in effect as of July 22, 2005) must be approved
by the Company’s stockholders prior to such revision becoming effective
and (ii) to the extent required by Section 162(m), no Award granted to a
Participant that is intended to comply with Section 162(m) after the date
of such amendment shall become exercisable, realizable or vested, as
applicable to such Award, unless and until such amendment shall have been
approved by the Company’s stockholders if required by Section 162(m),
including the vote required under Section
162(m).
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(e)
|
Governing Law. The
provisions of the Plan and all Awards made hereunder shall be governed by
and interpreted in accordance with the laws of the State of Delaware,
without regard to any applicable conflicts of
law.
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A -
10